Russian economy minister German Gref yesterday detailed president Vladimir Putin’s plans for his government to join forces with private business to renovate Russia’s infrastructure.
Gref, symbolically flanked by aluminium billionaire Oleg Deripaska, said that infrastructure investment is now at the centre of the government’s attention, and pointed to the Lower Angara regional development as an example of the potential of public-private partnerships.
The Russian Investment Fund, capitalized from the state’s oil windfall, will put $1.3 billion into infrastructure in the remote Siberian region. Rusal, the world’s largest aluminium company, of which Deripaska is chairman, is linking up with UES, Russia’s national power company, to spend $2.3 billion building a hydro power plant and a 600,000 tonnes per year aluminium smelter.
Another project Gref referred to is the renovation of tourist infrastructure in southern Russia, around Sochi, which is bidding to host the Winter Olympics in 2014, on which the government projects spending of 200 billion roubles.
Basic Element, Deripaska’s holding company, bought the run-down state-owned airport at Sochi for $206 million in November last year. “We sold that airport for very good money, and now Oleg Vladimirovich is grappling with the problem of building the most modern airport in the world,” Gref told the EBRD’s Business Forum.
Deripaska said: “Russia needs infrastructure above all. Five or six years ago business had access to as many power lines and railroads, and as much gas and energy, as it needed. Now if you want to do anything, you have to build the infrastructure.
“Rusal plans to double its capacity over the next 13 years. The main problem to be addressed is finding power supplies.”
Yulia Zvorykina, Director of the infrastructure investment department at the ministry of transport, explained to Emerging Markets: “We are projecting investment needs of 1 trillion roubles a year, but the ministry of finance is debating providing us with 400 million roubles between 2010 and 2015,” with private investment clearly necessary to fill the gap.
Vladimir Dmitriev, president of state-owned Vnesheconombank, detailed government plans to merge it with the Russian Development Bank to create a new state project finance institution.
Dmitriev said projections for the new bank’s loan portfolio are 190 billion roubles by the end of this year, rising to 770 billion roubles in 2010.
The state’s relationship with Russia’s oligarchs has also been transformed, in just four years. Some have been jailed or exiled; others such as Deripaska and Vladimir Potanin, who also participated in the Business Forum yesterday, are cooperating closely with the Kremlin’s plans for the economy.
Analysts have greeted the government’s investment plans, while sounding warning notes about the state apparatus’s ability to spend money wisely.
Roland Nash, head of research at Renaissance Capital investment bank, told : “I’m very surprised and encouraged by the plans the government has come up with.
“I assumed that much of the oil windfall would go missing, and it still might. But systems have been set up to spend the money, and that is an extremely good sign.”
Nash believes that the investment plan set out by the government is “an attempt to lock in many of the economic gains made under Putin”. He added that the three-year draft budget sent to parliament by finance minister Aleksei Kudrin, and the reform of electricity and gas prices, set the scene for the next phase of Russia’s development.
“Kudrin’s great achievement has been low inflation at a time of high oil prices. But on the other hand, Russia’s infrastructure is falling to bits.
The subsidy that Russia received as a legacy from the late USSR is running out. Either the infrastructure issues are addressed or the economy shuts down. The investment plans have come not a moment too soon.”