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We do not give out, but sell money

Aleksey Chekunkov, General Director of the Far East Development and Baikal Region Development Fund, told East Russia about the first projects that will finance the FRDF and the specifics of the work of the state investor

We do not give out, but sell money

- Alexey Olegovich, a year ago you headed the Fund for the Development of the Far East and the Baikal Region. What have you managed to do during this time, and did the recent Eastern Economic Forum help you in any way? You were one of the most prominent and popular speakers on it ...

- For the VEF Foundation it has become a kind of final exam from school - an entrance exam to the university. That is, a kind of border. Deputy Prime Minister, Plenipotentiary Representative of the President of the Russian Federation in the Far Eastern Federal District, Yuri Petrovich Trutnev, publicly gave the foundation the task to fix an intermediate stage of work. During the year, the fund's team worked intensively on projects, we carried them through internal “gateways” - the Board of Directors, due diligence. In July, Prime Minister Dmitry Anatolyevich Medvedev signed a decree defining new rules for investing the fund's resources, removing a lot of excessive restrictions, and establishing the need to consider all projects by the government. This decision allowed us to reach a fundamentally different level of competence and responsibility. The fund received a unique leverage to ensure the quality of projects and their support, and just a month after the investment rules were changed, the first three projects were considered by a government subcommittee. In parallel, ten more projects were approved by the investment committee of the Board of Directors. The main result of the work done is that a portfolio of projects has been formed and publicly recorded. The WEF undoubtedly accelerated the process of making some key decisions, and also strengthened the Far East agenda in the government and in business circles.

- Please tell us more about the agreements that you managed to sign at the forum?

- We signed the first three investment agreements on projects, which were approved by the government subcommittee and the Board of Directors, a few days before the opening of the VEF. These are detailed documents that indicate the amounts and terms of transactions, basic conditions, principles of investment protection, etc. The total cost of the first three projects is 23 billion rubles, the volume of the fund's investments is 4,8 billion rubles. In addition, directly at the forum, we signed a number of agreements defining the basic conditions for the fund's participation in projects initiated by the Eastern Mining Company, Vladivostok Sea Fishing Port, Tigers Realm Coal, GK Energia, TX Sumotori. Agreements were reached on the implementation of joint projects with the regions. In particular, a co-investment agreement was signed with the Sakhalin Oblast. Its essence is that on Sakhalin, for each ruble of the fund's investments, the region will invest a ruble of regional funds. The fund provides funds to project initiators at 10,5%, and the Sakhalin authorities - at 0%. Such a co-investment mechanism will reduce the average cost of capital by half - to 5% per annum in rubles. Today we are already participating in the project to create a modern infrastructure for the management of solid municipal waste in Sakhalin, initiated by the Eco-System company, and we are also conducting a comprehensive examination of the project to create a transport infrastructure for the development of the Solntsevsky coal deposit.

- Do you rely more on Russian or foreign investors?

- We welcome any investors. Thanks to the fact that the development agenda of the Russian Far East was raised to a qualitatively new level even before the Eastern Economic Forum, our closest neighbors - Korea, China and Japan - have become more active. A very interesting competitive dynamic has emerged between these countries. But Chinese banks or institutional investors won't start writing billions of dollars in checks for us just because they have trillions — they won't automatically. Asian investors are very demanding. Including, from the point of view of the rules for preparing projects, investment rules. They work absolutely according to international standards. The distinction between Eastern and Western investors has long since disappeared. These are not some specific, state-owned investors. These are already organizations that are full-fledged, full-fledged, and somewhere advanced players in the global investment market. You cannot come to them with something very promising, but unfinished. Entrepreneurs are the main consumers of capital accumulated in the world in the form of savings and financial assets. This capital is estimated at more than $ 50 trillion, of which about $ 30 trillion is concentrated in Asia. Translated from English, credit is the trust that the manager of capital gives to consumers. They, in turn, must be able to intelligently dispose of capital so that a new economic asset appears, and the money returns with a profit. In our country, credit is often translated as debt, and these are fundamentally different things. And, unfortunately, there are not so many qualified consumers of capital in our country - entrepreneurs. Therefore, the agenda that we will try to develop on the part of the fund is related, among other things, to the development of entrepreneurship. By entrepreneurs, we mean people who can fulfill the role of engines, locomotives of projects. The class of such entrepreneurs in our country is just beginning to form. And it is in the Far East, by the way, that there is a favorable environment for this.

- Why?

- Here the friction coefficient in the economy is objectively lower, there are few companies, everyone knows each other and is always in sight. At the same time, the state is showing great attention to the region. Due to this, everything that medium and large business is traditionally afraid of is surmountable in new projects in the Far East. Projects in TOPs will not have the notorious corruption problems. Tax preferences are introduced, visa restrictions are removed. But the main thing is that Far Eastern entrepreneurs are within easy reach of the gigantic market of the APR countries.

- Do the processes that are currently taking place in the Chinese economy affect the financial markets? And is it possible at all to make long-term plans for 10 20 years ahead amid dramatic changes in resource prices and difficulties in forecasting market conditions?

- They say that paranoid people survive in the modern economy. We are all a little less paranoid about the resource curse, the idea that resource prices are cyclical. The rapid growth of China and Asia dulled the acuteness of resource cycles due to the fact that for the first time in history, such a huge number of people changed their consumption so radically, switched from bicycles to mopeds, then to cars, bought refrigerators and TVs. The surge in consumption led to an increase in oil prices, which rose 15 times in ten years. However, this dynamic cannot continue indefinitely. First, a decrease in consumption growth rates inevitably leads to a slowdown in economic growth. Second, the supply of resources is growing. The shale revolution is already a reality, especially in gas production. One cannot discount the fact that Iran will strengthen its position on the hydrocarbon market in the near future. And the production cost there is much lower than ours - it is enough to compare the climate in the desert and in the Far North. Third, the energy efficiency of the global economy is growing. In some countries, renewable sources - sun, wind, water - already account for a significant share of generation. In my opinion, under the new conditions the importance of state policy is growing, and there is no longer any need to rely on the notorious "hand of the market" - this is returning to the question of how to make long-term plans under the new conditions. Let me explain using the example of railways. We have the largest country in the world. I am sure that the railway in our country simply cannot be a commercial enterprise. It should be seen rather as a public good. In order for our natural resources, which are closer to the Yenisei than to the Pacific Ocean or the western borders, to be developed and supplied to foreign markets, tariffs must be subsidized. And now the tariff is such that a couple of thousand kilometers kill the logistics of any project. The population that lives in Siberia and the Far East is often economically irrelevant. This situation needs to be changed. Entrepreneurs should be able to get an ultra-transparent railway tariff, and not “on an exceptional basis” or in the form of a discount, but on a general, normal basis, practically online. This is a very difficult economic and mathematical problem, but it can be solved. Then serious investments can come to the territories connected by the railway, where there is cheap energy, natural resources, educated population.

- Projects supported by your foundation are under special control of the government and relevant ministries. Do you feel the influence of "high politics" in the distribution of funds?

- It is important to understand: we do not distribute money, we sell it. The money that the fund allocates has a price. The fund's return on investment is defined as the average OFZ rate over the past 36 months with a coefficient of 1.2, and today is about 10,5% per annum. Any project involves the participation of two parties - us as the "seller" of funds and the initiator of the project - as their "buyer". The conditions that we set are quite strict, the requirements for guarantees and financial security are also. For the opposite side, starting a project together with us is a responsible decision. And although the fund's money is somewhat cheaper than bank loans, it is not "free" at all, it is not so easy to take it. That is why the list submitted to the government for consideration included projects with the maximum degree of readiness of the second party to enter the deal “here and now”. They have been in work for a long time, funds have already been invested in them - sometimes quite a lot. And the discussion itself went on in detail and in detail, during many hours of discussions on the platform of the Ministry for the Development of the Russian Far East, the Ministry of Finance and others. A positive decision was made only when we were able to prove that the money was reliable and returnable.

- But after all, not all projects at the start were successful - it is enough to recall the very bridge over the Amur ...

- In political terms, this project can be considered a priority. That is why we finally managed to reach those conditions that were not originally in the project - which is why, in fact, it did not really move. One of the main sticking points was the funding structure. We convinced our partners in the project - the Russian Direct Investment Fund (RDIF) - to provide one hundred percent shareholder investment coverage, to refuse to attract debt financing. Now, whatever the market situation, in any case, we will not owe the bank anything, and we do not risk losing the object. Maybe our money will return slower than expected, but the bridge will work, the economy will receive tangible benefits, the logistics burden will decrease ... I would not like to repeat the mistake of the same Mechel, which is now suffering losses not because it has poorly calculated the prospects. but because the economy can sometimes remain depressed for a little longer than you have money. And you lose the asset because you owe the bank. If there is no such debt, you will just start making a profit a little later.

- How are the shares of the Fund and RDIF distributed in this project? How and when do you plan to get out of it?

- There are three scenarios for exiting this project. Basic - to endlessly own your stake in it, which is 25% (the remaining 75% are held by Russian-Chinese funds managed by RDIF), and receive dividends. The second is to sell the stake over time to a strategic buyer. The third is to securitize, that is, to issue some long-term infrastructure bonds, take the proceeds from their issuance, and give the proceeds from the operation of the bridge to investors. This option is only possible in many years, when the logistics are stable and the cash flow for crossing the bridge is guaranteed.

- How do you plan to develop a project to create a transport infrastructure for the development of gold mining in the Kamchatka Territory?

- The initiator of the project, the Gold of Kamchatka company, does not work in the region locally, but develops a large cluster of deposits on the peninsula, each of which is not very large. The total amount of reserves is about 500 tons of gold, but each individual deposit "weighs" about 30-50 tons. Separately, they are "at the limit of unattractiveness" for the gold mining industry, and together they are already of interest. The development of such a cluster of deposits is profitable only if the logistics are well established and the price of gold is high enough. Now prices have fallen, and you can only get to the deposits by helicopter. If we connect them with new roads to the infrastructure of the peninsula, then the cost of producing each ounce can be reduced by almost half. So far, the initiator has invested 10 billion rubles in the project, built a gold recovery plant, another 12 billion is required for the further development of the project. And this is the very case when a development institution should participate in the project. The gold market will not always be as depressed as it is now. Gold is an eternal value, especially against the background of the constant "war of currencies" and the abuse of paper money by the governments of different states. Up to 50% of Russian gold reserves are concentrated in the Far East, so the extraction of this metal must be actively pursued - not only in Kamchatka, but also in Magadan, Chukotka, and the Khabarovsk Territory.

- The third project, which was discussed during the WEF, is the antipode of gold mining. This is the disposal of solid household waste. Do you intend to participate only in the pilot version on Sakhalin or in the next ones too? The company is already working in different regions, after Sakhalin it announced its intentions to build waste processing plants in the Khabarovsk Territory and Yakutia.

- The project to create an infrastructure for the management of solid waste in Sakhalin is interesting because it combines three important factors for us as a development institution. The first is that the project will legally be clothed in the form of a concession. It is a priority for us, and we are making great efforts to ensure that there are as many concession projects as possible. This takes the burden off budget systems and provides investors with predictable business. A concession is a strong legal framework for the implementation of any heavy infrastructure projects, especially given the changes in legislation passed in 2015. The second aspect is the cardinal changes that have taken place in the sectoral legislation. The amendments made to the federal law "On production and consumption waste" placed the responsibility for waste disposal and storage on regional authorities, and not on municipalities, as before. And now this is the area of ​​responsibility of the governors. In addition, from January 1, 2017, it will become impossible to store unsorted waste. This means that by this time in each region a solid waste management system and the corresponding infrastructure should be created - landfills, factories. The governors are directly interested in such projects, similar to the Sakhalin one. And the third factor is the presence in the project of a "locomotive" represented by the Eco-System company, which has been working in the industry for six years. She has respected shareholders, a strong financial partner - Sberbank, professional management. As an investor, we are not afraid to give them a "credit of trust", the funds are reliably protected. In the future, this experience can already be replicated and improved. At the same time, we can act not only as an investor, but also as an intellectual partner who is able to formulate the terms of a concession agreement, build a constructive dialogue with the regional authorities, and guarantee the transparency of all procedures.

- Are there any other promising projects based on concession forms in the "short list" of your fund?

- Yes, we signed a trilateral agreement with the administration of the Chukotka Autonomous Okrug and Tigers Realm Coal on the construction 37-kilometer highways from the port to the coal deposit. The total cost of the project is 8 billion rubles, of which 1,5 billion we plan to invest in the road. Deposits of other minerals are located along it. I think the return will be quite high - not only for a specific subsoil user, but also for other investors.

- And the possible risk?

- It is important that the Chukotka Autonomous Okrug will act as a partner in this project, with which we will formulate the terms of the concession agreement. Legal risks are primarily associated with the risk of solvency. Concession, in essence, is the sale of an infrastructure facility in installments to the region. And at some point the region will have to pay for the object. And first - to conclude investment agreements with enterprises, investors. Which, in turn, must firmly promise the regional authorities that they will fulfill their part of the obligations, will reach a certain volume of production, ensuring the use of the infrastructure facility. The concession participation of the regional authorities is of particular importance: they act as a guarantor. In those regions where the concession model is not used, we plan to use the mechanism of budget guarantees. By increasing the availability of financing, we, at the same time, strive to guarantee the return on investments, to ensure their maximum protection, using a wide range of appropriate instruments, including guarantees and sureties.
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