State Development Corporation VEB.RF has closed a deal to acquire a 77.63% shareholding in PFC CSKA Moscow as part of debt conversion into the club’s equity. The deal paid off all of PFC CSKA’s debts to the state corporation, making VEB.RF the principal owner of the club.
The club’s shareholder meeting elected a new board of directors of PFC CSKA. VEB.RF is represented by four directors: Maxim Oreshkin, a member of VEB.RF’s Supervisory Board and an assistant to the Russian president; Igor Krasnov, VEB.RF’s Senior Vice-President, Legal; Alexander Chebotaryov, VEB.RF’s Vice-President, Chairman’s Administrative Office; and Alexander Plutnik, Chairman of VEB.RF’s Urban Economy Committee and CEO of New Urban Projects. The representatives of PFC CSKA on the new board of directors are the club’s President Yevgeni Giner and General Director Roman Babayev as well as Mail.ru Group CEO Boris Dobrodeev.
“Basically, the transfer of 77.63% shares in PFC CSKA to VEB.RF settled the issue of the club’s debt, which tied them down and didn’t let them invest in development. So, this helped out the club in a difficult economic situation. I must stress that the deal will involve no sweeping changes in PFC CSKA’s football management or strategy. Mr Giner will keep running the club, stick to his plans for team development and set himself the same ambitious goals as before but with a very strong and reliable partner. I hope that with support from millions of CSKA fans, we’ll make it to the top,” VEB.RF Chairman Igor Shuvalov said.
“I’s like to thank VEB.RF’s management for their constructive position and support for the club in such a difficult economic situation. The format we chose will enable PFC CSKA to restructure its financial obligations and concentrate on sporting results. We’ll continue work on building a team that will be able to achieve our ambitious goals. I’m sure that with such loyal supporters and such a powerful and reliable partner, the club will regain leadership in Russian football in the near future,” PFC CSKA President Yevgeni Giner said.
Alexey Miroshnichenko is the vice-chairman of VEB.RF, the Russian National Development Corporation established by the state to support finance for projects that contribute to the public good. Here he reflects on how COVID-19 is reshaping global priorities, and sets out how new policies are channelling investment towards sustainability in Russia.
At the end of March, I was looking forward to the Berlin Energy Transition Dialogue, where I was due to present the first-ever Russian Green Finance Standard – a new financial policy that has the potential to transform the Russian economy into a more sustainable one. Unfortunately, it didn’t happen: the coronavirus pandemic made travel impossible, and the event was cancelled.
It is ironic, however, that the travel restrictions have done more for the environment than any climate conference so far. Satellite images show substantial drops in pollution levels over cities and countries under lockdown - a stark reminder that in many cases the interests of nature and the economy are in opposition: when we suffer the planet thrives. But as we sit in quarantine or spend weeks self-isolating, there is no better time to think about how to change this sad equation.
The new green finance standard being developed by VEB.RF serves this exact purpose. Russia has never been known for its environmental preservation efforts – even beyond extensive negative stereotyping abroad. Yet the facts paint a more favorable picture. Russia has 54 million hectares of protected natural areas, an area roughly the size of Spain or Thailand. Since 1990, its carbon footprint has decreased almost by 30 percent. The country signed the Paris Climate Accord in 2019 and has resolved to uphold it, gradually decreasing emissions and improving its policies.
But all this does not mean that there are no problems.
A January 2020 report by the Russian Accounting Chamber says 38.6% of Russia’s population breathes polluted air, while 88% of the water used in agriculture and manufacturing did not meet decontamination standards. A January Levada-Center poll suggests such failings do not sit well with Russians, who place environmental issues at the top of the list of problems that humanity faces in the 21st century.
The government reacted to such concerns by adopting the “Ecology” national project two years ago. Running from 2018 to 2024, its goals include the liquidation of all 191 known illegal garbage dumps and reprocessing 60%of solid communal waste – an ambitious target, considering that only 3% currently undergoes such treatment. Big urban centers are being targeted for a 20% decrease in air pollution, while the logging industry will be made sustainable by replacing 100% of all trees culled, while the ecosystems of Lake Baikal and the Volga will be restored. And these are only some of the projects under the “Ecology” umbrella. After all, Russian forests, lakes and rivers are among the world’s biggest – so their importance extends far beyond national borders.
“38.6% of Russia’s population breathes polluted air, while 88% of the water used in agriculture and manufacturing did not meet decontamination standards.”
But the program comes at a cost - over 4 trillion Rubles, or roughly 50 billion Euros. And while the government will support it with 800 billion Rubles, the remaining sum will have to be found on the private market, both domestic and foreign.
Here’s where Russia’s national standard of green finance comes in. Intended for presentation later this year, it will outline ways of facilitating private investments into environmental projects of national importance.
The market for green bond and other debt instruments is almost non-existent in Russia at present. While the Moscow stock exchange opened a sustainable finance section in November 2019, so far only 5 issues of green bonds with a total value of approximately 80 million Euro are registered there.
Given the current absence of a green finance culture in Russia, market and government stimulus will be need to create momentum behind sustainable bonds. After placing bonds with a total value of 500 million Euro on the EU market in 2019, the Russian Railroad monopoly RZHD created an example of what this market stimulus might look like – they successfully reduced their borrowing costs and the issue was oversubscribed. For now, investors cannot hope for such premiums from the Russian market. But that is about to change.
VEB.RF chief Igor Shuvalov says the national standard will outline measures to make such bonds attractive for companies and investors. Planned are coupon subsidies, tax breaks, verification process subsidies and other measures to draw investment. The figures are still being worked through, but the stimulus will be sizeable enough to attract a wide range of companies.
In addition, companies will be able to issue green bonds through VEB.RF’s special project finance SPV that will allow firms to obtain government guarantees if the project is deemed critically important to achieving the targets of the “Ecology” program. As a national development institution, we intend to include the terms of the standard in our lending process and supplement state incentives with our own; for example, by reducing the loan rates for sustainable projects.
The standard will be based on international CBI and ICMA criteria to be compatible with the demands of the EU and British stock exchanges and investors. It will exclude new coal projects (although coal plants account for less than 16 percent of all electric generation in Russia) and will include a maximum threshold of carbon emission for projects in different spheres such as waste management, energy production, construction, manufacturing, transport, water management, forestry, landscape and biodiversity conservation and adaptation to climate change.
VEB.RF will be positioned as the verifying agency, managing the standard itself and updating it through an expert council composed of state officials, environment experts and businesspeople with a credible environmental portfolio. The competence center will authorize independent private rating agencies (second level verifiers) to issue certificates of approval of green status to the bonds and projects of the market players. These private agencies will also be obliged to track the implementation of the project and ensure that money from bond sales are truly spent on the stated objectives.
Easing the garbage crisis is the first practical benefit of the project. The growth of solid communal waste in the 2010s resulted in the near-collapse of the Russian garbage disposal infrastructure – designed and built decades before today’s consumer culture. Illegal dumpsites started to mushroom across Central Russia, leading to mass protests. The picture has improved somewhat with a VEB.RF investment of $1.7 billion into the construction of four huge waste-to-energy plants using Hitachi Zosen Inova technology in the Moscow region. When they go online at the end of 2022 they will be capable of processing 2.8 million tons of garbage a year – that’s 35% of all waste in the Moscow region.
“As we contemplate the clearing waters and more breathable air, we realise that there must be better ways to deal with pollution than an epidemic of world proportions.”
This, unfortunately, is not enough. Creation of a national system of waste reprocessing is a monumental task, and waste-to-energy plants must be supplemented with recycling facilities to avoid loss of valuable resources. We hope that with the help of the national standard, Russian private and public companies will be able to attract money to finance such projects.
Though ambitious for Russia, we recognize that our efforts are only a small part of global efforts to curb pollution and greenhouse gas emission. Yet achieving the targets of the Paris Agreement is possible only through the concerted effort of all nations.
As we contemplate the clearing waters and more breathable air in countries most severely affected by the pandemic we all know that there are better - and more lasting - ways to clear the skies and the rivers than an epidemic of world proportions. Let us hope that once this emergency has passed, it will leave all of us determined to increase our efforts in achieving a sustainable balance between humankind and nature.
Alexey Miroshnichenko, VEB.RF