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Expert comments on finance mechanism for Arctic projects

October 24, 2017, 11:24 UTC+3 ARKHANGELSK

The infrastructure mortgage could become a mechanism to finance projects

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ARKHANGELSK, October 24. /TASS/. The infrastructure mortgage could become for investors a mechanism to finance infrastructure projects on the Russian Arctic zone, an expert of the Russian Presidential Academy of National Economy and Public Administration Alexander Vorotnikov told TASS.

"The infrastructure mortgage could be used in financing of the backbone zones' projects in the Russian Arctic," he said. "This mechanism is close to concession: that is - here is a structure, interested in development of a territory, and it faces development of infrastructures. It enters an agreement with the regional authorities, takes a loan, there could be state guarantees, and using this money it builds the infrastructures and later on exploits them, and those who use the infrastructures are paying money to it. A concession does not have state guarantees."

According to the expert, currently, there are certain limits as for options in financing major infrastructure projects. This can be explained by freezing of new infrastructural projects at expense of the National Welfare Fund, the Central Bank's weak implementation of the project financing program and as the European Bank for Reconstruction and Development (EBRD) had stopped financing projects in Russia.

"In the economy, the mortgage means secured landing, where the right to use the secured asset remains with the borrower," the expert continued. "And thus, in case of an infrastructure mortgage project a private investor would be able to credit a project to build a road or a bridge, or any other infrastructure project, and to receive guaranteed annual revenue."

The payback of private investments in the projects would be in regular payments, which will come from main beneficiaries of the infrastructure facilities. Thus, an infrastructure facility actually is bought with money, borrowed from private investors, and the facility's user is settling gradually this loan. Implementation of the infrastructure mortgage instrument would require changes to the law on concessions, the expert added.

"The mechanism may be used for the projects like the Northern Latitudinal Route, or the Murmansk port," he said. "Formerly, we used to consider a concession, but now we speak about changing the model: in the case of a concession, a private investor does not have guarantees, while those are complicated projects. With state guarantees, the approach changes."

How to implement the mechanism

A "factory of project financing" is now organized on the basis of Vnesheconombank, the expert continued. "It would have three objectives: choice of the projects and their preparation, structuring projects and monitoring them," he said. "The purpose is to attract the widest possible circle of investors - both bans and pension funds. (…) For example, it may be an option to issue bonds for each project - the bonds will go to the market and private investors will be buying them to finance the project.".

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