International Webinar ‘Sustainable Infrastructure: Price-Quality Balance’ Held by VEB.RF
On 8 September 2021, VEB.RF held the international webinar “Sustainable Infrastructure: Looking for the Balance between Quality and Costs”. The event is in continuation of VEB.RF’s leading the Working group on Sustainable and Quality Infrastructure of the D20 Long-Term Investors Club (D20-LTIC).
The webinar started with the opening remarks by VEB.RF Deputy Chairperson Svetlana Yachevskaya, who stressed the importance of quality infrastructure investment and development institutions’ potential contribution towards this goal. She said: “Identifying and structuring infrastructure projects that are attractive to development banks seem to be the most important precondition for increasing infrastructure investment in developing and developed countries. This is where development institutions can make a difference by helping to prepare high-quality projects, reducing risks, creating the favourable conditions for investment, promoting co-investment mechanisms or providing guarantees.” In response to global challenges of sustainable development, the webinar focused on the following topics: the role of financial development institutions in promoting quality infrastructure investment, and sustainable and quality infrastructure in emerging markets and developing economies.
The first session brought together the European Investment Bank (EIB), the New Development Bank (NDB), Spanish Instituto de Crédito Oficial (ICO), the B20 Finance and Infrastructure Task Force, HSBC Asset Management, and Global Infrastructure Basel (GIB) Foundation. The session was moderated by Christophe Dossarps, CEO, Sustainable Infrastructure Foundation (SIF).
The primary focus of the session was on how to involve development institutions in quality infrastructure investment, modernise existing infrastructure facilities, combat greenwashing and harmonise existing methodologies. In addition, the participants noted the importance of co-financing mechanisms and the development of new financial instruments for quality infrastructure investment and national development programmes.
The second session featured speakers from PT Sarana Multi Infrastruktur (PT SMI), the Long-Term Infrastructure Investors Association (LTIIA), AECOM Europe, and the Global Infrastructure Hub (GI Hub). The session was moderated by Maksim Merkulov, Head of PPP International Practices and Mechanisms, VEB.RF.
The session discussed a wide range of issues related to the particularities and implementation of infrastructural projects in developing countries. Specifically, the speakers noted that project preparation, promotion costs and risks in those countries are higher than in developed economies. However, it would be wrong to differentiate between practices of implementing infrastructural projects on the basis of a country’s level of economic development. As for measures to stimulate private investment, it is advisable to work on the standardisation of financial instruments and documents.
In his concluding remarks, VEB.RF Senior Banker Sergei Storchak emphasised the importance of discussions to find the best possible solutions. He noted that the issue of mobilising long-term investment had first been raised by Russia as early as its G20 presidency in 2013. This issue has since consistently evolved into promoting quality infrastructure investment and making infrastructure attractive to private investors. Efforts to find the best possible solutions are additionally supported by discussions, including the D20-LTIC agenda. According to Sergei Storchak, proposals discussed during the webinar are closely connected with the policy recommendations on infrastructure investment that will be presented by the D20 members to the G20 governments.
The Long-Term Investors Club (LTIC) was created by European major institutional investors in April 2009 to cope with the aftermath of the 2008 financial crisis. VEB.RF joined the Club at its first conference in 2009.
The D20 (Development 20) was initiated by VEB.RF in 2013 under the Russian presidency in the G20 Group with the aim of bringing together the G20 development banks. The D20 is an informal group with a development, promotional or public mandate.
The D20 and the Long-Term Investors Club merged in 2019.
The D20-LTIC comprises 20 members, including major development institutions and banks. In line with the Italian G20 presidency in 2021, D20-LTIC events are hosted by Cassa Depositi e Prestiti (CDP).
VEB.RF published its interim condensed consolidated financial statements under IFRS as at June 30, 2021.
“In H1 2021, the VEB.RF Group made a net profit of RUB 30.8 bn under IFRS. This result was driven predominantly by the growth in net interest and fee and commission income, along with a partial reversal of allowance. Supported by the Russian Government, VEB.RF is actively increasing investment in the Russian economy: the loan portfolio grew by RUB 125 bn (or by above 10%) in H1 2021. Nationally significant projects and projects aimed at improving the quality of life for people were financed inter alia by debt capital market borrowing: amounts due to banks increased by RUB154 bn (or 26%), the volume of debt securities issued grew by more than RUB 100 bn (or 12%). Notably, the growth in borrowings was accompanied by a decrease in interest expense.
A comfortable level of liquidity and the capital adequacy ratio of 18.6% allow us to maintain high pace of investments in projects and to ensure the inflow of private investments. The recently approved VEB.RF’s new Memorandum on financial policies opens up additional opportunities to implement together with development institutions, partners and investors our major joint agenda,” VEB.RF Chief Financial Officer Andrey Moskovskikh said.
VEB.RF Group’s key financials for H1 2021 are as follows:
In the first half of 2021, the VEB.RF Group made a profit of RUB 30.8 bn against a loss of RUB 47.6 bn as compared to the same period last year.
The positive financial result was driven by:
- net operating income of RUB 62.4 bn;
- reversal of allowance for expected credit losses of RUB 23.5 bn. In the same period of 2020, the allowance for ECL was established in the amount of RUB 23.8 bn;
- decrease in non-interest expense to RUB 56.1 bn from RUB 77.0 bn for H1 2020.
Operating income (net of allowance) grew by RUB 7.0 bn for H1 2021 as compared to H1 2020, mainly due to the following factors:
- Net interest income grew to RUB 9.3 bn as compared to RUB 3.6 bn for the same period last year, as a result of the decrease in interest expense by RUB 10.7 bn, inter alia due to reduced cost of funding. At the same time interest income slightly decreased.
- Net fee and commission income also went up from RUB 5.1 bn for H1 2020 to RUB 20.5 bn for H1 2021 due to the amortisation of loss on initial recognition of guarantees issued as part of the state anti-crisis programme.
- Non-interested income for H1 2021 amounted to RUB 11.7 bn compared to RUB 33.7 bn for the same period last year. In the reporting period ended June 30, 2021 the loss was recorded on initial recognition of guarantees issued in H1 2021 on preferential terms as part of the new state COVID-19 rescue scheme.
In the first half of 2021 the Group’s assets went up by 6.5% (+ RUB 221.2 bn) against the beginning of the year and as at June 30, 2021 reached RUB 3 627.3 bn. Alongside with the increase in the loan and leasing portfolios, assets dynamics is due to the rise in cash and cash equivalents, as well as in investments in associates and jointly controlled entities.
Continuing its growth in the second quarter of 2021 the loan portfolio (net of provision for impairment) reached RUB 1 294.3 bn, showing an increase of 10.7% (+ RUB 125.2 bn) against the beginning of the year. The leasing portfolio went up by 7.2% (+ RUB 12.7bn) and as at June 30, 2021 was RUB 188.5 bn. In total, the loan and leasing portfolios account for 40.9% of the Group’s total assets.
The amount of loans granted by VEB.RF in H1 2021 totalled RUB 190.3 bn, doubling the amount of loans extended in the same period last year. Investment priority sectors traditionally include industry, infrastructure and urban economy, as well as export support.
In the six-month period of 2021 allowance for expected credit loss was reversed in the amount of RUB 23.5 bn. Of which the allowance for financial guarantees was reversed in the amount of RUB 12.2 bn, largely due to the decrease in guarantees issued under the state support programme for business during the pandemics; the loan loss provision was reversed for RUB 6.3 bn.
The Group’s liabilities increased by 6.1% (+ RUB 167.0 bn) and as at June 30, 2021 reached RUB 2 884.1 bn. This increase was driven by the rise in amounts due to banks by 25.9% (+ RUB 154.2 bn) and in debt securities issued by 13.3% (+ RUB 101.9 bn). The decrease in amounts due to customers and amounts due to the Russian Government and the Bank of Russia partially offset the said increase.
The rise in liabilities is driven by the necessity to build up market funding of VEB’s activity for increased financing of primary projects of the national economy.
The Group’s equity in the first half of 2021 went up by RUB 54.2 bn (+7.9%) to RUB 743.2 bn as at June 30, 2021. The equity growth was driven by the profit in H1 2021, increase in gains from investment financial assets at fair value through other comprehensive income and receipt of an asset contribution from the federal budget for the increase of authorized capital of a subsidiary.
VEB.RF’s capital adequacy ratio was 18.6% as at June 30, 2021 (17.0% as at December 31, 2020).
After the reporting date, a new Memorandum on Financial Policies of State Development Corporation VEB.RF was approved. The Memorandum defines VEB.RF’s role in the implementation of the Russian Government’s socio-economic initiatives, as well as formalizes VEB.RF’s role as a driver for socially responsible business in Russia. The Memorandum also envisages extended tools and investment priorities of VEB.RF, including the development of Social Impact Bonds (SIB) and promotion of raising private investments for such projects.
VEB.RF Chief Managing Director for SME and Procurement Marina Romanova presented to the participants in the BRICS workshop on smart cities GeoVeb, a geoanalytical system to support the urban economy and create a comfortable urban environment.
The workshop on smart cities was held during India’s presidency of BRICS and was attended by representatives of relevant ministries responsible for housing and construction policies, experts and heads of non-profit organisations.
Urban amendments will affect all areas, with a primary focus placed on developing an innovative decision-making approach. In changing global environment, indices and indicators become powerful tools for all participants in social and economic relations. Scientific management of urban processes can be conducted by public authorities and state corporations subject to the availability of reliable data obtained from the analysis of socio-economic development indicators.
Marina Romanova presented to the workshop participants certain functions of the GeoVeb online platform. The system includes more than 200 socio-economic development indicators, more than 100 spatial data indicators, 17 urban development areas, statistical data and demographic development indicators. Additionally, the analysis contains comprehensive qualitative and quantitative assessments of available social infrastructure, and marketing research data on real consumption of goods and services (700 goods categories and 100 services categories).
This large information aggregator allows the users to select and evaluate the efficiency of urban investment solutions including areas such as healthcare, education, waste treatment, improvement of public spaces, public transport, housing, small businesses, tourism etc.
The GeoVEB system helps to analyse the current state of Russia’s 100 major cities, evaluate their investment potential in priority areas, assess the contribution of a specific investment project to implementing national projects and achieving the national development goals, and evaluate the impact of an investment project on the quality of urban environment.
“Using the GeoVEB system in building up the urban project portfolio will help to form effective partnership between the VEB.RF Group and regional and local government authorities. Due to the measurement mechanisms embedded in the system we have a powerful tool to evaluate the quality of managerial decision-making, which means we are able to influence the ongoing developments,” Marina Romanova emphasised.
The project for constructing a railway to the Kaluga Special Economic Zone implemented under a concession agreement between Russian Railways and Kaluga Region is one of the first projects to be IRIIS certified.
The IRIIS system developed by VEB.RF in collaboration with the National PPP Development Center and АЕСОМ is based on the methodology for assessing infrastructure project in terms of their economic efficiency, environmental safety and social impacts.
Upon certification, the project team will receive independent assessment for the quality of investment in accordance with leading governance standards and best practices.
Russian Railways and Kaluga Region agreed in 2019 to construct a railway to a new industrial cluster in Liudinovo, the Kaluga SEZ. This is a first regional concession in modern Russia.
The railway will enable the residents of the Kaluga SEZ to carry 1.6 million tonnes of cargo per year. Its opening is scheduled for September 2021.
The first social beneficiaries participating in the assisted living programme for people with disabilities are moving into specially equipped apartments under the pilot project launched in Yakutia. The project initiated by Yakut authorities is aimed at introducing new social services in the region that are alternative to specialised in-patient facilities.
The programme is part of the SIB agenda initiated in Russia by VEB.RF. SIBs are clearly structured and provide for a strict distribution of responsibilities. Initially, the government engages private investors to finance specific social impact projects. If the investor (SIB project operator) achieves the specified outcomes either on its own or by engaging a contractor, it is reimbursed for its expenses out of the federal budget.
Currently, more than 1100 people with mental health disabilities are living in special care institutions in Yakutia. The project is designed to replace in-patient treatment with home care, so that people with disabilities could habituate themselves to living at home or in conditions close to living in family, and unlock their labour potential. The project involves 37 people, with 12 of them being patients of neuropsychiatric establishments that will be moved to apartments and get home care by professional social carers.
The project contractor, a Saint Petersburg–based association of disabled children’s parents GAOORDI, which has been successfully implementing such adaptation programmes for several years, is tasked to help introduce the adaptation technology in Yakutia by 31 March 2024. VEB.RF is the project operator. VEB.RF gives professional advice to the parties at all stages of the project implementation, monitors the project progress and engages an independent valuator to confirm the project outcomes.
VEB.RF’s and GAOORDI’s representatives met with parents of the programme participants and provided them with detailed information on the project goals and potential opportunities for people with mental health disabilities affordable upon the project completion. Concurrently, GAOORDI and the Yakut Ministry of Labour developed a pool of specialists for assisted living including psychologists and social workers trained at Saint Petersburg’s special care institutions.
The project provides for phased accommodation of the programme participants, thus enabling people with disabilities to undergo a mild adaptation. The epidemiological situation in Yakutia is also taken into account. The accommodation process will be completed by 31 August 2021. The first four tenants will move in the assisted living apartments as early as 2 August.