The Russian Government has approved a new version of the Memorandum on Financial Policies of Vnesheconombank. The previous Memorandum was given approval almost 11 years ago (in 2007) and needed to be adapted for new goals and challenges.
Russian Prime Minister Dmitry Medvedev said: “The new version of the financial memorandum reflects today’s realities and the current challenges faced by Vnesheconombank as a development institution. … This will allow the Bank to concentrate its efforts on the most important projects that are now vital for the country: innovation, a digital economy, a whole range of projects that are of major social significance, projects related to small and medium-sized businesses, undoubtedly what needs to be done to support exports and a whole variety of other areas. I believe that this will help the Bank to focus more on achieving its principal objectives, and Vnesheconombank’s principal objectives are those related to the goals of the country’s development.”
“The new Memorandum will enable Vnesheconombank to change into an efficient development institution,” Vnesheconombank’s Chairman Igor Shuvalov said. “The development bank becomes a key partner of the government to achieve the priorities set out in the May presidential decree. The principles contained in the Memorandum create the conditions for the Bank’s long-term stability and for its effectiveness in developing the economy and social sphere, strengthening the country’s technological potential and improving the quality of life.”
The new version of the Memorandum updates the operating principles, goals and instruments of Vnesheconombank’s activities. Additionally, the new Memorandum will allow the Project Financing Factory to implement its first projects this year.
The Memorandum specifies the investee industries that correspond to the 12 areas of development outlined in the May presidential decree. In accordance with the Development Strategy, the Bank will continue to focus its activities on the development of high-technology industry, infrastructure and innovative technology and on support for exports.
Vnesheconombank’s operating principles include setting strategic goals consistent with the government’s priorities.
Another principle is that the Bank does not compete with commercial banks. Vnesheconombank gives preference to projects that do not prevent the participation of other Russian financial institutions. The development bank also gives preference to partnership-based projects, which means equitable risk sharing among all participants.
Applying the principle of transparency implies that best practices in corporate governance are used to ensure that transparent information about the Bank’s activities is publicly available.
International practices of development institutions show that profitability is not their principal goal. A break-even result is, however, an important principle that underlies any decision on Vnesheconombank’s involvement in a project. In exceptional circumstances, as resolved by the Supervisory Board, Vnesheconombank can participate in a project with a risk of a short-term negative result. In this case, any decision should be linked to identifying the sources of reimbursement, including possible measures of government support.
The Memorandum states that Vnesheconombank’s functions will have financial backing from the domestic and foreign markets and from support measures, including government assistance.
Vnesheconombank has more expanded manoeuvres for project involvement through mechanisms such as project financing and mezzanine financing.
The project selection criteria were softened. The minimum project value was decreased from 2 billion roubles to 1 billion roubles. The minimum project payback period was reduced from five years to one year.
Vnesheconombank’s Deputy Chairman and Member of the Management Board Alexey Ivanchenko believes: “The decreased minimum project value will allow us to increase the number of potential projects and expand the Bank’s presence in the regions. It is there that many projects need less investment but have strategic significance for their development. The search for such projects is a target of Vnesheconombank’s new model for regional operations and our team of regional managers.”
Alexey Ivanchenko said: “Vnesheconombank is currently active in creating a single platform for projects within Vnesheconombank Group. There will be a common project pipeline and product range of Vnesheconombank, Russian Export Center, VEB Innovations, the Federal Center for Project Finance and VEB Engineering. The principles of transparency and partnership underlie our efforts in this area. In the future, the platform can be used by other partner development institutions, such as DOM.RF, RSMB Corporation and the Industry Development Fund. This will generate synergy for the entire economy by combining the potential of public development institutions.”