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How to Attract Private Investment into Developing the Infrastructure of Russia’s Far East?

September 06, 22:29 UTC+3
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Key conclusions

Use of public private partnership mechanisms proves efficient

“Amendments to the constitutional legislation have been passed, and as of now it is possible to implement public private partnership in utilities, and it is in the utilities sector where we evidence a boom of projects implemented within the public private partnership,” said Pavel Seleznev, Chairman, ANO "National Center for PPP".

“The public private partnership mechanisms are more applicable at the executive stage, at the operating stage,” said Yury Chayka, First Deputy Chair of the Government of Khabarovsk Territory.

“As of today more than 350 public private partnership projects are being implemented in the Far East Federal District. The district takes the fourth spot after the Central Federal District, the Privolzhsky Federal District and the Northwestern Federal District. We have 30 projects, though very few of them are capital intensive, they are mainly small concessions in the utilities sector,” Pavel Seleznev said.

Development of legislative measures in public private partnership area will attract private investment in infrastructure expansion

“A law on strategic planning has been adopted in Russia. The development of public private partnership and the demand for the need to invest via this mechanism will mainly depend of how the strategic planning system will come unfolded,” said Vyacheslav Sinyugin, Acting General Director, Federal Centre for Project Funding.

“60-70% of the infrastructure in a loose sense meaning bridges, roads, railroads, ports, housing and communal services, and communication – all need to be upgraded, invested in and renovated. This is a task that should be resolved across the country,” said Igor Snegurov, General Director, VIS Construction Group (VIS CG).

Challenges

Lack of single program for infrastructure development in Russia

“There is no equal program for infrastructure development coordinated to the development of regional programs in Russia,” said Alexey Chichkanov, Executive Vice President, Gazprombank.

The sporadical nature creates a tremendous uncertainly and tentativeness for investors on the one hand, and for institutes providing support that need a clearer understanding, on the other hand,” said Pyotr Zolotarev, Deputy Chairman, Bank for Development and Foreign Economic Affairs (Vnesheconombank).

Issue of return on investment

“The social sector is very peculiar, the rate of return is very challenging there, and sometimes it simply does not exist,” Pavel Seleznev said.

“All risks mainly fall on financing institutions that do not manage the project and bear even higher risks than the initiators of the project. Our pledge security base is very weak,” Pyotr Zolotarev said.

“There are no mechanisms to return money to private investors at the federal level,” Yury Chayka said.

Lack of mechanism to attract long-term funds to infrastructure development

“There is quite a big amount of funds in the country that stays idle for a long time. Those are pension funds and the funds on bank account balances. Out of 5 trillion rubles worth of pension funds, 80 bln rubles have been allocated in infrastructure, that is less than around 5% of the existing funds. But we cannot allocate them as the existing legislation do not induce investments in infrastructure,” Igor Snegurov said.

Solutions

Development of national program for infrastructure development

“In order to correctly distribute particularly state resources in the form of state support, subsidies, tax support, financial, non-monetary types of support, it is necessary to wisely operate trade, material, energy, human balances, transport flows and so on. The creation of a constantly updating monitoring of those needs,” Pyotr Zolotarev said.

“It is necessary to have a document tying not only the construction of a transport network, for example, but tying ports, border crossings, other crossings. The document is a must - it has to contain a mechanism providing ways for the implementation of the strategy. And that’s the point where it will be clear in which way we are moving – towards public private partnership or common trivial state procurements,” Yury Chayka said.

Creation of environment and mechanisms for investment inflow into infrastructure

“It is necessary to establish mechanisms or background for maximizing private capital attracted to the infrastructure. And in this respect, I would most of all note the need to create some kind of a center of excellence or an institutional organization that would attract private capital to infrastructure,” said Konstantin Limitovskiy, Deputy Chairman of the Management Board, Eurasian Development Bank (EDB). 

“Apart from this plan conditions and instruments for an inflow of investment to the infrastructure should be created. We should say that both state planning for infrastructure needs and market mechanisms allowing to attract investment funds should be combined in a flexible way,” Igor Snegurov said.

Adoption of syndication law

A syndication law is being developed, it has already passed the first reading. We hope that it will pass both the first and the second reading and we will get an instrument allowing us to tackle the issue of project financing and crediting already at the legislative base, not conceptually,” Pyotr Zolotarev said.

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