Experts warn on Russia road funding
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Experts warn on Russia road funding

Insufficient laws and weak institutions are the biggest impediments to mobilizing capital to ease Russia’s infrastructure woes, experts said yesterday.

Jack Barbanel, president of US-based Moorgate Capital Management, which is active in Russia, said that working out efficient ways to use the financial system to bring funds from mature markets into the Russian regions is critical for solving the country’s infrastructure bottleneck. “This is a priority for us in the private sector and is becoming a priority for the Kremlin,” he said.

This view was shared by the EBRD’s chief economist, Erik Berglof, who observed the “change of mood towards trying to use some of Russia’s foreign exchange reserves in this sector.”

This strategy is being undertaken at both federal and regional levels, as underlined by Boris Pavlov, deputy prime minister of Tatarstan and the republic’s minister of economy and industry, who told a seminar yesterday that the republic’s high oil and gas revenues are being channeled into social programmes.

However, Berglof sounded a note of caution on the “very complex” requirements of long-term project financing, and the administrative capacity constraints at both federal and local levels.

“We need to learn the lessons of failures from earlier public-private partnerships, when the public sector absorbed most of the risks, and the private sector took most of the revenues,” he told Emerging Markets. “These failures often came from insufficient work to make policymakers and the public understand the time-span needed for results.”

Moreover, Berglof warned that procurement transparency and regulation would need to be stepped up. “The basic framework for regulating the sector is right, but implementing it is a different story. There are also widespread variations across regions and municipalities.”

Nevertheless, Berglof considers on balance that Russia has laid the groundwork for continued economic diversification, and the EBRD’s 2007 Transition Report unveiled on Wednesday will show non-oil growth, especially in retail and finance, outstripping the hydrocarbons sector.

“The initial push of liquidity from oil was important, but I believe we now have self-sustaining growth outside the hydrocarbons sector,” Berglof concluded.

Vladimir Shvetsov, Tatarstan’s minister of transportation and roads, told a seminar ahead of the EBRD annual meeting: “We cannot solve our infrastructure problems within the limits of our budget, so we need public-private partnerships.”

Among the PPP projects on the table, Shvetsov identified a number of toll roads designed to make Tatarstan more attractive from a transit and logistics perspective, and a new cargo port, which will replace one currently sited inside Kazan city limits, thereby freeing up expensive land for redevelopment.

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