Vnesheconombank
From Taighde
The State Corporation Bank for Development and Foreign Economic Affairs (known as Vnesheconombank or VEB) was established by the Russian Federation to be a key instrument of the government's investment policy, with its activities to be focused on overcoming infrastructure growth restrictions, upgrading and promoting non-raw materials economic sector, high-technology industries, encouraging innovations and exports of high-technology products, carrying out projects in special economic zones, environment protection projects, and supporting small and medium-sized businesses.
The VEB was formed in 2006-2007 through a reorganization of preexisting government investment entities, the Vnesheconombank of the USSR, the Russian Bank for Development, and Roseximbank; its authorized capital is derived from pooling the federally-owned assets of these predecessors, as well as unnamed assets transferred by the Russian government.
Supervisory Board
Chairman: Vladimir Putin, Chairman of the Russian Government
Members:
- Viktor Zubkov, First Deputy Chairman of the Russian Government
- Sergey Ivanov, Deputy Chairman of the Russian Government
- Dmitry Kozak, Deputy Chairman of the Russian Government
- Alexei Kudrin, Deputy Chairman of the Russian Government, Finance Minister
- Elvira Nabiullina, Economic Development Minister
- Igor Levitin, Transport Minister
- Viktor Khristenko, Russian Industry and Trade Minister
- VEB Chairman Vladimir Dmitriev, ex-officio member
Roles
Manager of Government Debt
Vnesheconombank maintains an account database of government foreign debt in order to provide ongoing monitoring and evaluation; it also reconciles, settles, and restructures debt obligations of the Russian Federation, and acts as a sub-agent for exchanging Soviet-era commercial (FTO) debt. It's responsibilities are described as follows:
Monitoring:
- official debt on credits extended or insured by authorized organizations of Paris Club member states
- unofficial debt to private commercial banks incorporated in the London Club of Creditors
- commercial (FTO) debts to foreign banks and companies on documentary letters, collections, bills, drafts, short-term and mid-term commercial credits, contracts with payment deferral, and other commercial liabilities
- official debt under intergovernment agreements
- use of alternative debt repayment schemes, such as the delivery of Russian-made goods, including high-tech industrial products, and conducting conversion-exchange transactions
Attracting, servicing and repaying credits against guarantees of the Russian Federation government by:
- preparing and making agreements with foreign creditors on attracting credits to fund centralized imports
- registering credits attracted against the Russian Government guarantee and conducting payment and other banking transactions associated with the use and repayment of these credits
- conducting economic examination of projects expected to be financed at the expense of credits attracted against government guarantees
- exercising control over the use of foreign credits attracted against guarantees of the Russian Government
- registering amounts of debts, to the federal budget, owned by Russian importers of products purchased at the expense of attracted foreign credits
Recovering debts on credits from Russian borrowers through:
- customers’ Debt Liabilities and Loan Agreements
- guarantees granted by first-class Russian commercial banks against customers’ liabilities
- opening blocked funded accounts so that customers can make payments on Debt Liabilities and Loan Agreements
- share pledge agreements
- direct payment guarantees granted by Russian Federation constituent entities in favour of the Russian Finance Ministry (in the form of surety agreements)
- enforcement of overdue debts judicially
- set-off of counter claims
- enforcement through bankruptcy aimed at attracting potential investors or making amicable agreements with debtor companies
Acting as an agent for managing government domestic currency-denominated debt by:
- reconciling balances in customers’ blocked accounts and exchanging them for bonds
- getting companies and organizations to make payments to the Russian Finance Ministry and VEB
- registering, safekeeping, and releasing bonds to its customers
- conducting expert’s examination of bonds and their transactions in the secondary bond market
- consulting with non-Russian customers on Soviet-era domestic currency-denominated debt
- reconciling accounts and signing liquidating balances over transactions conducted by Vnesheconombank’s former organizations in the territory of CIS countries and the Baltic States
- assisting CIS and Baltic States in reconciling and transferring appropriate amounts of domestic currency-denominated debt
Manager of Government Financial Assets
VEB handles registered liabilities of foreign borrowers (including foreign states, banks, and commercial companies) who were extended credit by the Russian Federation or the former Soviet Union. Most of these liabilities are associated with the export of Russian goods and services abroad.
VEB's specific responsibilities in this area include:
- registering foreign borrowers’ debts
- preparing statements on the status and movement of government financial assets
- taking regular inventory of assets and reconciling payments with foreign debtors
- calculating the use, repayment, and exchange of government credits to foreign borrowers
- carrying out projects that involve the expense and extension of government credits and the drafting and documenting of international payments
- cooperating with Russia’s Finance Ministry in settling debtor countries’ liabilities to the Russian Federation, both on bilateral and multilateral bases within the Paris Club
- participating in approving interstate credit documentation
- drafting interbank documentation, estimates and expert opinions on would-be debt liability settlement schemes
- arranging and conducting banking transactions to help Russian companies and organizations to dispose of funds in clearing and closed currencies received from India, Vietnam, Mongolia, Bangladesh, and a number of other countries in order to repay their debts to the Russian Federation.
Manager of State Pension Funds
As part of a pension reform plan undertaken by Russia, Vnesheconombank was appointed as a State Trust Management Company; in this role, it is responsible for trust management of the funded portion of citizens’ pensions, and is accountable to the Pension Fund of the Russian Federation, the Federal Service for Financial Markets, and the Bank of Russia.
Vnesheconombank is authorized to invest pension savings funds only in government securities and mortgage papers guaranteed by the state. It can also invest in funds held by crediting institutions. With low-default risk, the VEB tries to ensure that the yield on the pension savings funds is not below the inflation rate.
The VEB has proposed changing current pension investment legislation, which it says will reduce investment risks and ensure sustainable yield that would be at par with the inflation rate, as well as improve diversification of investment portfolios and safeguard against problems in the financial markets. These proposals include:
- Explanding the list of eligible investment tools available to the State Trust Management Company to include any Russian bonds guaranteed by the state, or those issued against the Pension Fund’s guarantees, as well as bonds of companies controlled by the state and participating in implementing national infrastructure projects
- Granting trust management companies the right to use term and derivative financial instruments to insure investments
- Eliminating or raising the limit set on the maximum volume of cash funds in trust management companies’ portfolios
According to the VEB, in 2005 it delivered a yield of 12.07% on its pension savings funds, exceeding the inflation rate of 10.9%.
Investments
Strategy
According to its website, VEB "is engaged in investment business in order to encourage investment activity, diversify and make the Russian economy more competitive." It seeks to do this through:
- credits
- guarantees and sureties
- participation in authorized capitals
- leasing transactions
- insurance of export credits
- financial and guarantee support for exports
It selects its investment projects based on the following criteria:
- conformity with VEB's investment principles
- project payoff period of more than 5 years
- project total cost is more than 2 billion rubles
- VEB’s minimum participation share is 1 billion rubles
Investment Areas
VEB characterizes its investment activities as falling into the following areas:
- implementation of energy, transportation, housing, public utilities, and tourism infrastructure
- implementation of investment projects aimed at fostering innovation
- participation in projects designed to improve natural resources utilization and protect the environment
- assistance to small- and medium-sized enterprises by extending loans to credit-distributing institutions and legal entities via the Russian Bank for Development
- projects that serve to diversify national exports of industrial production and services
INFRASTRUCTURE PROJECTS
Ministry of Transportation partnership
Per a December 2005 agreement signed with the Ministry of Transportation, Vnesheconombank serves as a strategic partner to find and prepare investment projects in transportation infrastructure through a public-private partnership. Some of these projects have included the construction of the Moscow-St. Petersburg high-speed motorway and the modernization of Moscow's M1 ring highway.
Deutsche Bank AG
In April 2006, VEB signed an agreement with Deutsche Bank AG to pursue joint infrastructure projects within the public-private sphere.
OJSC Balternergo
In July 2006, Vnesheconombank signed an agreement with OJSC Balternergo to finance the laying of high-voltage cable along the bottom of the Gulf of Finland. Under the agreement, VEB is to provide consulting services on all economic and financial aspects of the project, as well as represent OJSC Balternergo’s interests in the course of negotiations with foreign financial institutions involved with the project. The project will benefit Russia by increasing the export of Russia’s electric power and improve its reliability.
Development of the Lower Angara Region
Vnesheconombank signed an agreement with the Krasnoyarsk Region Development Corporation to raise funds in the amount of USD 800 million to 1 billion (they estimate a final project cost of 41.4 million rubles and a payback period of 14 years) in order to construct a pulp-and-paper mill in the Boguchan area of the Krasnoyarsk region and also to provide for the infrastructure facilities the mill will necessitate via the Russian Federation Investment Fund. The construction of the mill is part of a more extensive program of developing the Nizhneye Priangarie Area.
This project involves implementing a number of infrastructure projects with the use of the Russian Federation Investment Fund’s money in the amount of more than RUB 34 billion. According to the VEB, the benefits of this project will be to create new jobs and raise the region's employment rate, utilize environmentally-friendly technologies, and more efficiently manage timber resources.
Water Facilities in the Southwest Rostov Region
VEB has agreed to invest in a project to improve water facilities in the southwest Rostov region. The project aims to eliminate the shortage of and improve the quality of drinking water in the city of Rostov-on-Don and other towns, provide the water supply and training capabilities for the building of new housing for over 700,000 residents, create new jobs, and lay the groundwork for promoting and improving the region's tourism and recreation appeal. The investment is estimated to result in over RUB 13 million additional federal tax revenue and RUB 12.5 million regional revenue. The projects total costs are estimated to be RUB 22.14 billion, including RUB 5.13 billion of the Russian Federation Investment Fund's money, and the implementation period is estimated to be five years.
Western Speed Diameter
VEB is investing in the construction of a high-speed toll highway called the Western Speed Diameter, which will connect the city of St. Petersburg with 13 federal and territorial roads leading to points in Finland, Estonia, Ukraine, Belarus and Russia’s neighboring regions. The highway will have eight lanes, a total length of 46.6 km, and a speed limit of 120 km/hr. The highway will include bridge technology of the first of its kind in Russia. Projected costs are RUB 82.86 billion.
Sheremetjevo-3 Air Terminal
VEB entered into an agreement with OJSC Terminal to finance the building of the Sheremetjevo-3 Air Terminal Complex by opening up a credit line worth USD 211 million for a period of 13 years. The new terminal is expected to reduce connection times and increase passenger capacity through the Sheremetjevo airport.
Expansion of Kharabrovo Airport
VEB is financing the reconstruction and expansion of the passenger terminal at the Khrabrovo Airport in the city of Kaliningrad. The project, in partnership with OJSC KD, has a credit line of USD 34 million over 7.5 years.
FOSTERING INNOVATION
Russia's economic and investment policy is focused on reducing the share of the raw-materials sector and bolstering high-tech industries through increasing the share of high value-added exports on the global markets. Special economic zones have been established to implement this policy, and consequently VEB signed an agreement in October 2005 with the Federal Agency for Managing Special Economic Zones by which the VEB committed to raising funds, financing, and guaranteeing projects in these special economic zones using its own funds and cooperating with foreign partners.
DIVERSIFYING INDUSTRIAL EXPORTS
According to Vnesheconombank, in recent years it has made at least 80 agreements to finance major industrial export projects, in the amount of more than USD 1 billion.
Vnesheconombank and Roseximbank have reportedly signed agreements with leading financial and insurance institutions in twelve foreign countries, including five of the G8 countries. The agreements aim to provide credit and guarantee support for Russian companies’ export and investment projects carried out together with foreign companies.
Vnesheconombank identifies its main partners as ECGD (Great Britain), KfW Bank (Germany), the Association of French Banks – AFB-Export, US Eximbank, SACE (Italy), and CESCE (Spain).
Aircraft sale to Cuba
In 2006 VEB provided key funds to its struggling airline industry that enabled the sale of two Ilyushin Il-96-300 aircraft to Cuba. The planes were worth an estimated $110 million. To finance the deal, Cuba reportedly paid 15% of the total sum up front, with the rest coming from a 10-year loan from Russian banks.
VEB is also one of several Russian banks financing the supply of Tupolev Tu-204-100 aircraft to Cuba.
Sukhoi Superjet 100
VEB is an investor in the Sukhoi Superjst 100, a passenger aircraft, and is responsible for raising the funds to finance and sell the aircraft both domestically and internationally.
Malev Hungarian Airlines
VEB financed the purchase of Malev Hungarian Airlines by a leading Russian aviation company, and served as a consultant on Malev’s further development. The total financing amount provided by Vnesheconombank was 102 million euros.
CJSC Atomstroyexport
On June 01, 2006, Vnesheconombank signed a cooperation agreement with CJSC Atomstroyexport to implement the use of atomic energy. Under this agreement Vnesheconombank is responsible for making arrangements to finance the construction and modernization of nuclear power stations in Russia and abroad. CJSC Atomstroyexport would build nuclear power stations in China, India, Iran, Bulgaria, Belarus, and the Czech Republic. The benefit to Russia would come from boosting the export potential of nuclear engineering technologies, and would ensure a sustained high level of production and research in Russian facilities.
Annual Reports
VEB makes available its annual reports on its website: http://www.veb.ru/en/about/annual/.
Contact Information
Vnesheconombank
Akademika Sakharova Prospekt 9
Moscow, GSP-6
107996, Russian Federation
Telephone: +7 (495) 604-66-90
Fax: +7 (499) 975-21-43
Questions: info@veb.ru
Representative Offices
VEB also has a number of "Representative Offices" in other countries. They are:
London:
101 St.Martin’s Lane, London WC2N 4 AZ, UK
Denis Ivanov
Telephone: +(44) 207-395-58-41
Fax: + (44) 207-240-13-45
e-mail: vebuk@veb.ru
New Delhi:
Plot EP-15, Dr. Jose P. Rizal Marg, Chanakyapuri, New Delhi-110021
Alexander Slepnev
Telephone: (9111) 2412-1282
Fax: (9111)2412-1577
e-mail: vebindia@veb.ru
Milan:
Piazzale Principessa Clotilde, 8-20121, Milano, Italy
Victor Borisenko
Telephone: +(39 02) 653-625
Fax: +(39 02) 655-1-697
e-mail: vebitaly@veb.ru
Beijing:
20A, CITIC Building, 19,Jianguomenwai dajie, Beijing 100004,China
Petr Selivanov
Maxim Bogdan
Telephone: +86 (10) 659-28-905
Fax: +86 (10) 659-28-904
e-mail: vebchina@veb.ru
New York:
400 Madison ave.,Suite 7B, New York, NY10017, USA
Alexander Danilov
Yuri Makushin
Telephone: +1 (212) 421-86-60
Fax: +1 (212) 421-86-77
e-mail: vebusa@veb.ru
Johannesburg:
P.O. Box 413742, Caighall, 2024, 2-nd fl., Chelsea Place, 138 West str., Sandton, Johannesburg, RSA
Evgeny Buryakov
Telephone: +27 (11) 783-34-25
Fax: +27 (11) 784-46-88
e-mail: vebsar@veb.ru
Saint Petersburg:
Shpalernaya 60, Saint Petersburg, 191015, Russia
Alexey Govorunov
Sergey Ivanov
Denis Bogdanov
Telephone: +7 (812) 331-51-01
Fax: +7 (812) 331-51-02
e-mail: vebspb@veb.ru
Frankfurt:
Taunusanlage 1, 60329, Frankfurt, Germany
Aleksander Romanov
Tel.: +49 (69) 272 2197-00
Fax.: +49 (69) 272 2197-29
e-mail: vebgermany@veb.ru
