The World Bank
The Russian Federation joined the World Bank (IBRD and IDA) in 1992. The Bank has provided financing for 70 projects in different sectors totaling slightly over US$10.5 billion in IBRD loans. About 95 percent of the total portfolio has already been disbursed.
The current IBRD portfolio consists of 11 projects with a total current commitment of US$656 million (as of September 2013). All of the Bank’s financing to Russia is currently provided in the form of investment project financing. Reimbursable Advisory Services (RAS) show steady demand, with continued interest from the regions and growing demand from the federal government.
Portfolio quality is relatively high. Except for the Housing and Communal Services Project, Financial Education and Financial Literacy Project, and Registration Projects, which hold moderately unsatisfactory ratings, all other projects are rated at the moderately satisfactory or satisfactory level. The Judicial Reform Support Project went through intensive restructuring and has been upgraded to moderately satisfactory. FY13 closed with a disbursement ratio of 15.3 percent, which was still below ECA’s average of 21.3 percent. The average project age is 5.3 years, attributable to the fact that the majority of the projects are designed as five-year investment operations.
The Russia program is distinguished by several cooperation and innovation initiatives. These include IFC-Bank subnational lending, RAS, and a joint strategy that capitalizes on IFC’s and MIGA’s work in the private sector. The WBG is in constant search of innovative engagement opportunities and instruments, such as direct lending to regions with a sovereign guarantee and a mechanism to fund analytical work and technical assistance to poorer regions.
Analytical and Advisory Services (AAA) remain an important part of IBRD’s engagement in Russia. In close cooperation with the Government, AAA products are helping to modernize public finance and administration and improve social service delivery and the investment climate. The Bank expanded its technical assistance to areas of early childhood development (ECD) and social development, such as technical assistance on indigenous people and social accountability. In FY13, the report, “Professional Education and Skills” was presented along with two Russian economic reports, the traditional flagship product, providing advice and recommendations to address structural constraints to sustainable growth. A report on social mobility and one on environmental performance are being prepared for release in FY14.
In October 2012, the World Bank and IFC presented “Doing Business 2013: Smarter Regulations for Small and Medium-Size Enterprises.” The report found that Russia has made obtaining a construction permit simpler by eliminating requirements for several preconstruction approvals. Russia also eased the administrative burden of paying taxes for companies by simplifying procedures for complying with the value added tax and by promoting the use of tax accounting software and electronic services. This was part of a broader e-government initiative. Starting a business became faster in Russia, thanks to improved coordination between the federal agencies involved in the business start-up process. The report also found that since 2005, Russia has implemented a total of 17 institutional or regulatory reforms that improve the business regulatory environment for domestic firms.
Demand has grown rapidly for the RAS. Demand covers a wide range of activities that are well aligned with Russia’s development challenges, from human development to social assistance, PPPs, and capacity-building for ODA. Since 2007, the WBG has provided government-endorsed RAS to about 40 of Russia’s subnational governments, including 24 active projects.
In Russia, as in other high-level-income countries, one of the areas of demand for RAS is support for large-scale projects. One of the examples is the St. Petersburg Pulkovo Airport expansion, which was awarded the title of “Global PPP Deal of the Year” by Infrastructure Investors in 2011. As international experience and analytical components are often the critical success factors in the human development and social assistance sectors, demand from clients has led to widespread use of RAS in these sectors as well. During the past two years, RAS are also in demand for improving the investment climate and building the capacity for ODA management.
International Finance Corporation
Russia became an IFC member in 1993. Since then, IFC’s investments in Russia have totaled US$11.1 billion, including US$3.4 billion in syndicated loans across 294 projects. IFC’s current committed investment portfolio in Russia is US$1.8 billion, which makes it IFC’s fifth-largest country exposure. There are currently no NPLs out of 113 projects with 79 clients. In FY13, IFC invested US$1.024 billion in Russia, including US$200 million in mobilization. IFC also delivered a number of landmark capital market transactions, including participation as anchor investor in Brunswick Rail’s debut US$600 million Eurobond, and the issue of the first inflation-linked ruble bond, raising 13 billion Russian rubles (US$410 million), of which 10 billion were purchased by Vnesheconombank.
In line with the WBG CPS, IFC promotes sustainable private sector development through its advisory and investment operations. IFC’s investments support key sectors, including financial services, infrastructure, manufacturing, retail, agribusiness, health care, telecommunications, and information technology. Across all sectors, IFC prioritizes investment in Russia’s less-developed regions and in projects that contribute to greater economic diversification and modernization. Active advisory programs focus on (i) developing the market for investment in sustainable resource use to mitigate climate change and increase economic competitiveness, (ii) building risk management capacity in the financial sector, and (iii) implementing best corporate governance practices at company and regulatory levels. IFC seeks to introduce new models and innovative approaches to address pressing development challenges and open new markets (e.g., PPPs and resource efficiency, described below). IFC works closely with WBG partners, the Russian government, and other international financial institutions (IFIs) to maximize the impact and reach of these programs, which are often replicated in other markets, making Russia an important platform for innovation within IFC.
The development of PPPs in partnership with IBRD is one example of IFC’s strategic engagement in Russia. The success of Pulkovo Airport, Russia’s first large-scale PPP, should have an important demonstration effect in the market, leading to additional public-private investment in infrastructure. Going forward, IFC is seeking to develop projects in frontier regions with a strong resource-efficiency component, for example, municipal solid waste and district heating, or with social impact, such as health and education, as well as opportunities in transport infrastructure. IFC has shared its new study “Municipal Solid Waste Management: Opportunities for Russia” with the Deputy Prime Minister for Industry and Energy. The report recommends that Russia adopt a national waste management and recycling system to manage growing volumes of waste and the current limited landfill capacity, using private sector involvement, including PPPs, to introduce best practices and technologies into the Russian market.
Building on a WBG energy-efficiency study and passage of a new Energy Efficiency Law (2009), IFC has developed strong working partnerships with government agencies, the private sector, and other stakeholders to create a favorable environment for investment in resource efficiency. IFC’s initiatives include a Global Environment Facility (GEF)-funded project to develop renewable energy at the national level and in pilot regions through policy dialogue, analysis, and the support of project developers. IFC also supports the commercialization of sustainable energy finance (including residential energy efficiency) through private banks, and provides direct advice and financing to businesses seeking to boost competitiveness through greater resource efficiency. In March 2013, IFC’s Sustainable Energy Finance Program signed a project services agreement with Vnesheconombank to help launch new energy-efficiency financing products targeting industry.
Multilateral Investment Guarantee Agency
MIGA’s gross exposure in Russia is close to US$534 million (with a net exposure, after reinsurance, of slightly more than US$286 million) in 11 active projects as of August 31, 2013 – MIGA’s fifth-largest net exposure.
In dollar terms, MIGA’s exposure is still concentrated in Russia’s financial sector, having mainly supported the investments of global financial institutions in their banking, mortgage, and leasing subsidiaries in Russia.
As these financial sector transactions are rolling off MIGA’s books (currently about 60 percent of MIGA’s net exposure in Russia resides in the financial sector, forecasted to decline to about 40 percent by the end of FY13), the Russian portfolio is starting to look more diversified. This is especially the case since all new transactions signed since the 2008–09 crisis have been in the nonfinancial sectors – manufacturing, telecom, and agribusiness – with the latter project establishing MIGA’s first presence in Russia’s rural “black earth” regions of Penza and Tambov (400–600 miles southeast of Moscow).