Our Reorganization Aims to Make VEB Work within Coherent Legal Framework
Some days ago Vnesheconombank of the USSR (VEB) jointly with the United Nations Economic Commission for Europe held a workshop on attracting private investment to fund state projects. VEB Chairman Vladimir Dmitriev told Kommersant's analyst Elena Kiseleva about possible specific ways of cooperation between business and the state.
Lately, VEB has been positioning itself as an advocate of partnership between the state and private business. This is, for instance, was stated in the Bank's reorganization concept and several days ago VEB held a workshop on this issue. What's the cause of it?
The United Nations Economic Commission for Europe that initiated this workshop offered us and other companies to be responsible for putting the concept of partnership between the state and business into effect. By the way, the Commission advises the Government on this issue. The said partnership is in place in many countries and it is particularly successful when interests of the state and business coincide.
Western countries' experience demonstrates that there might be various ways of cooperation between business and the state: ranging from contracts for performing works under state orders to concessions. Concessions have become one of the most commonly used forms of partnership in the world between the state and business. It is a concession integrating elements of contract, leasing, franchising and investment agreements that makes it possible to take into account the widest range of state and business interests. The concessioner's freedom of action is stipulated in concession agreements and it can't be changed for the worse within a whole period of concession, and concession periods usually amount to dozens of years.
Concession is a new phenomenon in Russia. But basically VEB, even today, can be viewed as a ready tool for carrying out major infrastructural projects in Russia. And they are well aware of it in the west. The fact is that VEB acts as an agent for the government and a major financial and landing institution. Such a combination allows us to become a key element in the Russian new system of cooperation between business and government. The state invests money in the infrastructure, and then business becomes involved in carrying out projects sharing responsibility with government, and thus additional resources are made available to develop this or that region.
Do you think that private business can trust the state after YUKOS's case when it was accused of taking advantage of tax credits to evade taxes?
I wouldn't like to comment on YUKOS's affair. I am sure that everybody has learned an important lesson from this case. To my mind, establishing special economic zones would allow government and business to operate on clear-cut coherent, fair, open legal and economic terms. The zones would make it impossible for anybody to come and say: Guys, you've done something wrong, for example, you've minimized taxes in Kalmykia but factually you've worked in Kaliningrad. That is why I believe that the idea of establishing special economic zones is quite reasonable, it is implemented in many countries, and it can be put in practice in our country too. Then I had a look at zones that are being established and at participants on the part of private business: well-established companies, strict selection and absolute clear intentions. They are not short-lived companies, these are serious companies, serious investors, and I have no doubts about their honesty and solvency.
Do you think that business will feel comfortable in cooperating with the state?
So far we've got only one law on concessions. In fact, there must be a lot of regulatory documents that would define clearly the role, tasks and responsibilities of both government and private investors in carrying out infrastructural projects. What are the reasons for failed road construction projects in Hungary or Mexico? It happened because government and business failed to work in a pretty transparent and coherent legal framework. There were problems associated with responsibilities of those who participated in the process. It's worth noting that for partnership between the state and business to be successful we need to establish an effective legal framework. This framework is needed to prevent anybody from infringing on any obligations and to be sure that he would be equally or to some extent responsible for implementing a specific project.
There is one more important thing here, an Agency for Special Economic Zones has been established in Russia (we have signed an agreement on cooperation with it recently). The Agency is tasked with harmonizing relationship between business and government, that is, selection of economic, industrial, production and technically innovative zones. I think that we'll also be able to create recreational zones in the foreseeable future. In fact, all these elements are nothing but partnership between the state and business.
Is the state going to finance infrastructural projects through VEB?
It's not quite true. Maybe through us, maybe through an investment fund. For instance, Prime Minister Mikhail Fradkov has been to Krasnoyarsk lately and promised provided that certain conditions are met to allocate money from the investment fund for the construction of Boguchany hydroelectric power station. The Boguchany hydroelectric power station means electricity, water and an opportunity to build a pulp- and- paper integrated mill and an aluminum mill, there is no doubt here that the interests of the state and business are identical. VEB is to participate in this project too. Not long ago, we signed an agreement with the Krasnoyarsk Territory Administration on financing a number of projects under the Lower Angara Area Development Program. We believe that VEB in the capacity of a state bank should be responsible for implementing the state strategy on infrastructural projects. But we are doing this on a commercial basis. In other words, the matter doesn't involve altruism or just allocation of budgetary funds. By the way, if the state works through the investment fund, it means that the Russian Development Bank (RDB) would be involved in carrying out this project.
Does it have anything to do with VEB's idea to acquire a stake in RDB, which is included in the Bank's reorganization concept?
We want our own money and the money of private investors and the state to work in one and the same direction so that interests of the state and private investors coincide. If a new major development bank - Vnesheconombank of the Russian Federation is established on VEB's basis, it would make it possible to ensure such a coincidence of interests and synergy, which was set forth in VEB's reorganization concept. By the way, I wouldn't say that the idea of partnership between the state and business is the key to our Bank's reorganization concept. The matter involves establishing a holding on Vnesheconombank's basis to incorporate specialized state banks.
The underlying idea of the concept is that there is no major development institution in our country. There are several state banks, which are fragmentized and undercapitalized, and this prevents us from carrying out major projects. And this doesn't involve infrastructure alone but exports promotion, import substitution and partnership between the state and business. So if we are to establish such an institution, it should be established on the basis of an existing financial institution, which is large enough by Russian and western standards.
So far VEB has stated its intention to be incorporated in Roseximbank and RDB holding. Could the holding be expanded through incorporating other state banks?
At present, we believe that, at the initial stage, the two banks are highly instrumental in establishing a national development bank. If required, such a bank could be expanded. But it's too early to talk about it. We think that we will be able to capitalize Roseximbank (at present VEB holds 94,6% of Roseximbank's shares. - Kommersant) and RDB without attracting budgetary funds but through buying out additional issues of their shares alone.
Do you consider transferring a portion of RDB's government stake, 100% of which is owned by the Russian Property Management Ministry?
We decided to take a more comprehensible path in order not to scare off our partners and opponents. I do not rule out such an option when the state transfers its stake to RDB as its asset contribution to a new financial institution's authorized capital. But it is up to the state to address this issue. We decided against reinventing the wheel and studied the experience of such countries as Germany, China, South Korea and Kazakhstan. They all have similar institutions. In Germany it is a holding, in other countries they have development banks but they all were established in accordance with special laws. They are not to be controlled by national regulators but nevertheless they meet existing standards and are guided in their business by standards adopted within "Basle- 2".
In Germany, for instance, in 1948 they established such an institution as KFW. It incorporates a specialized export credit bank, which deals with small- and medium-sized business; it is also involved in mortgage lending and so on and so forth. So it's a bank for banks. It raises funds on domestic and foreign financial markets, and then acts on the basis of assessing its own risks and those of borrowers. By the way, all the bank's borrowing programs are secured against government guarantees, but the guaranties are not reflected in the budget, here we have off-the-balance budget expenditures. In doing so the bank meets all Basle-2 standards, thus excluding any conflicts with regulators.
We offered a similar concept of reorganizing VEB to the government and now it is being considered in all key ministries and departments. And we think that our idea is viewed favourably. There is no doubt that the idea of establishing such a holding or a state corporation is indeed revolutionary. And we can't count on a major breakthrough in the near future. Furthermore, our opponents say that the state has already a considerable influence on the banking sector. And now, their opinion, another monster with capital worth $2.5 billion is being established on VEB's basis and it would compete not only with private commercial banks but also with such state banks as Sberbank or VTO. It's not a secret that at present many people do not have a clear idea about VEB, which is engaged in managing debts, foreign economic transactions ad operations with its corporate customers. Our reorganization aims to make VEB work within a coherent legal framework.
Would you like to continue performing all these functions?
Today we see no obstacles that can prevent us from performing these functions. Traditionally, we are both a debt management agency and a development institution as for decades we have been engaged in providing support for exports and carrying out major projects including infrastractural ones. This is the way things are. And this was the way we cultivated our relations with MinFin and the government. But we are not going to become involved in retail banking. By the way, KFW, whose example we'd like to follow is not entitled to hold customers' deposits altogether. This sort of business is limited to institutions with banking licenses.
What's going to happen to the brand "Vnesheconombank of the USSR"?
Our concept provides for retaining Vnesheconombank of the USSR due to the fact that it continues to participate in a number of intergovernmental agreements. And as long as these agreements are not assigned to another new institution, we believe that it is possible to retain Vnesheconombank of the USSR nominally, and after establishing Vnesheconombank of the Russian Federation we'll task it with managing centralized balance. We have evaluated this scope of work and involved a number of Russian and foreign consultants to perform this work. In principle, we can manage to do it, and it is quite possible that within a year all these agreements could be redrafted and resigned.
Do you think VEB of the USSR will be liquidated or sold?
It will be abolished. In our opinion, there is no need to retain the brand "The Bank for Foreign Economic Affairs of the USSR". Perhaps, it is the only institution whose name dates back to the former Soviet Union, and carries four well-known letters in its abbreviation. It smacks of some sort of anachronism.
And what is going to happen to VEB of the USSR's stakes in a number of companies, for example, in AvtoVAZ or NOVATEK? Are they going to be transferred to a new state corporation's balance or sold?
Most of these projects are infrastructural ones or aimed at building competitive production facilities. That is why VEB's participation in the capital of AvtoVAZ and NOVATEK , or in the Sheremetjevo-3 construction project is, in my opinion, quite justified. At least, these investments are not of speculative nature and so far we are not going to part with them. In the future these stakes will be assigned to Vnesheconombank of the Russian Federation. I would like to remind you that lately we have agreed with the Krasnoyarsk Territory Administration upon our participation in developing the Lower Angara Area and now we are in talks with Chinese banks on financing jointly a number of projects on the Krasnoyarsk Territory. Besides, we are planning to purchase a stake in the aircraft company Volga-Dnepr - relevant talks with shareholders are underway now.
It's not a secret that VEB's own reorganization concept gives rise to intense debate in governmental structures. Specifically, VEB's proposal to use pension funds to carry out infrastructural projects. In what way do you respond to your opponents?
Above all, this proposal was not made in context of our own reorganization, but in the context of opening up better opportunities for investing funds of "undecideds". Moreover, some experts who are studying our concept recommend that we should establish a trust management company as a separate entity within the holding. That is why we do not raise a question of using pension funds to carry put insfrastructural projects in the context of reorganizing VEB. We bring up this issue for the only reason: the amount of funds under our management is about 170 billion rubles. These funds are huge, but we lack financial instruments for them to be invested. The fact is under our investment declaration we are entitled to invest these funds only in government ruble or currency denominated securities. Nevertheless, we are making efforts to be allowed to use other financial instruments, for example, securities tied to infrastructural projects against the government's guarantees.
It means that the state intends to protect these funds?
There are plans to issue debt instruments in which pension funds could be invested, thus ensuring investments in "long" capital-intensive projects, under specific projects and against government guarantees. This idea is not new; in many countries pension funds are used to carry out long infrastructural projects. Would-be pensioners would feel a positive impact of trust management companies' performance not until the year 2022. We've got a lot of time and funds; moreover, pension funds are increasing very rapidly. To my mind, it's high time to explore new ways of investing them in the real sector of our economy.
By the way, investment in companies' shares and bonds, or in federal loans also benefits our economy. As opposed to the idea of using the stabilization fund inside Russia (this is bound to increase inflation rate because the money was not generated by the domestic economy but is a result of high oil prices). Pension funds are generated by our economy and that is why we can use them fearlessly to carry put various projects and above all infrastructural ones that require huge investment.
But infrastructural projects are not always capable of generating high profits, which would-be pensioners have the right to count on…
I can't agree with you here. Drawing on other countries' experience including western countries where banks are operating with such short margins, which are difficult even to imagine, given our 12-15% lending rates. The fact is that infrastructural projects there often generate profit margins of 15% per annum. For a project to pay back it should be thoroughly and properly estimated. In order to do this, we need experts and companies that are interested in promoting interests of the state and private business. And this again demonstrates that VEB can be instrumental both in carrying out infrastructural projects and in putting the idea of partnership between the state and private business into effect, bearing in mind that it is a state management company. This means that the state has a reliable instrument to carry out such projects and exercise control over them.
Vnesheconombank signed several agreements with Russian airlines at the International Aerospace Salon yesterday.
As Russian aces started to paint the sky above Zhukovsky with their planes' multicolored jets, on the ground to the accompaniment of turbines' hum, Vnesheconombank Chairman Vladimir DMITRIEV and Krasnoyarsk Airlines General Director Boris ABRAMOVICH put their signatures to an agreement on cooperation.
This event demonstrated once again that VEB continues to stick to its well-established strategy on developing partner's relations, that is, promotes non-raw materials exports. And Vnesheconombank tended to support Russia's aircraft industry long ago - even in the days of the Soviet Union it cooperated closely with domestic aircraft companies.
- Besides, we are implementing the program of developing aviation infrastructure in the regions, - said Vnesheconombank Chairman Vladimir Dmitriev.
For example, under the agreement signed with KrasAir, the Bank would finance not only the upgrading and expansion of the airline's fleet of aircraft but also the development of the Krasnoyarsk airport and upgrading it to a multimodular freight transport hub in line with European standards. The Bank would help the airline to expand its cooperation with other airlines not only in Russia but also abroad and would also help it to solve organizational issues associated with financing projects through attracting funds on the international financial market.
- We consider it an honor to have Vnesheconombank as our financial partner, - said Boris Abramovich after the signing ceremony. And it is very important that the agreement provides for carrying out realistic, worthwhile projects, which offer all us excellent prospects.
And there is one more good piece of news: it is quite safe to suggest that yesterday the Ruslan transport airliner was born anew. Under the agreement, which, by the way, was signed on board the transport airliner by Vnesheconombank Chairman Vladimir Dmitriev and Volga-Dnieper Company President Alexey Isaikin, the batch production of the Ruslan An-124-100 aircraft is to be resumed in Ulyanovsk.
Boris Abramovich (KrasAir) and Vladimir Dmitriev (Vnesheconombank): "We will cooperate!"