Projects for Regional Development and Modernisation of Single-Industry Towns

According to the list approved by the Russian Government, Russia currently has 319 single-industry towns, including 94 that face the most challenging social and economic circumstances and are included into Category 1 that requires government support in 2015–2017. Efforts in this area are coordinated by the Working Group on Modernisation of Single-Industry Towns operating under the auspices of the Governmental Commission for Economic Development led by Irina Makiyeva, Deputy Chairman of Vnesheconombank.

In 2014, the working group prepared proposals for the draft Federal Law ‘On Accelerated Social and Economic Development Territories’ (ADT) regarding the expansion of special legal entrepreneurship treatment to organisations that implement investment projects in single-industry towns facing the most challenging social and economic situation. The Federal Law capturing these proposals was enacted on 30 March 2015. This will help build the prerequisites for economic growth in crisis-facing single-industry towns, primarily by making them more attractive for investors.

The creation of the Foundation for Development of Single-Industry Towns by Vnesheconombank in 2014 became an important step toward stabilising the social and economic situation in Category 1 single-industry towns. The Foundation will act as a project office for implementing investment projects that aim to diversify the economy and add new jobs in crisis-facing single-industry towns.

The federal budget provides for RUB 29.1 bn of subsidies to be allocated to the Foundation until 2018. The Foundation is planned to support 50 single-industry towns over that period. As at the end of 2014, a RUB 3 bn subsidy was already transferred to the Foundation’s account, while Vnesheconombank made a property injection for RUB 16.4 mn.

Foundation for Development of Single-Industry Towns: Priorities and Outlooks

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Developing single-industry towns is among our investment priorities. The Bank’s portfolio includes 37 projects aimed at financial recovery and modernisation of backbone businesses of these towns and their economic diversification. As at the end of 2014, 29 of these projects with a total value of RUB 595.07 bn and the Bank’s commitment of RUB 351.18 bn were already fully financed, at the stage of financing or approved by the Bank’s governing bodies. Another 8 projects with a total value of RUB 46.32 bn and the Bank’s potential commitment of RUB 32.25 bn are at the review stage.

Sectoral Breakdown of Vnesheconombank's Projects in Single-Industry Towns as at the End of 2014 (% of the Bank's Total Commitment)

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The Far East and Baikal region is among the top priorities of Vnesheconombank Group's investment policy. Our commitment to this macro-region is driven by its specific geographic location in the immediate proximity to burgeoning Asian economies, its immense reserves of mineral resources, and huge upside opportunities in agriculture, fishery and tourism.

In order to foster efficient relations with government authorities of the Far Eastern Federal District, Vnesheconombank signed cooperation agreements with most constituent entities of the Russian Federation that make up the macro-region, including the Republic of Sakha (Yakutia), Khabarovsk and Primorye Territories, and the Amur and Sakhalin Regions. Vnesheconombank Group is currently also putting in place a joint action plan with the Administration of the Primorye Territory for integrated territorial development of the region in 2013–2018.

The Far East and Baikal Region Development Fund founded in 2011 is responsible for accelerated development of this macro-region. The Fund’s operations focus on structuring and carrying out investment projects that offer considerable social and economic potential for the macro-region’s economic growth and on creating new opportunities to attract investments to the Far East.

Involvement in the building of Accelerated Development Territories (ADT) is another opportunity for the Fund. Under the Federal Law adopted in 2014, ADT may so far be set up only in the Far East. Implementation of the task given by Russian President Vladimir Putin to design a mechanism to increase the capitalisation of the Fund with extra tax income from new projects implemented in the Far Eastern Federal District will give a further impetus to the Fund’s growth.

Performance of the Far East and Baikal Region Development Fund in 2014

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Project: Creation of Wood-Processing Facility in the Solnechny District of the Khabarovsk Territory

Project initiator / borrower: OOO Aziya Les

Total project value: RUB 8.2 bn

Vnesheconombank’s commitment: RUB 6.7 bn

Project goal: creation of a new knowledge-intensive timber-sawing and wood-processing facility in the Far East.

The project will help unlock the economic potential of the Far East that accounts for one fourth of the country’s reserves of commercial timber. The Order of the Russian Ministry of Industry and Commerce dated 18 January 2012 includes the project into the list of priority projects for investment in wood management.

The project is the second stage in a long-term development programme of the Business Marketing Group that aims to set up a vertically integrated wood-processing facility in the Khabarovsk Territory that will provide 1.15 mn cubic metres of round timber and 750 thousand cubic metres of processed wood every year.

The timber-logging and sawn-timber processing capacities of the new facility will be 650 thousand cubic metres and 450 thousand cubic metres respectively. The project will also offer finished products:

• sawnlog (110 thousand cubic metres per year);
• dry timber (132 thousand cubic metres per year);
• dressed timber (30 thousand cubic metres per year);
• moulded timber (30 thousand cubic metres per year);
• shavings (108 thousand tonnes per year);
• fuel pellets (70 thousand tonnes per year);
• round timber (90 thousand cubic metres per year).

Vnesheconombank Group pays particular attention to the development of the North Caucasian Federal District due to its strategically important location and huge potential in such sectors as the agricultural, manufacturing and hydro power industries. The region also boasts a unique combination of balneology resources, including mineral drinking water sources, thermal waters and therapeutic muds, which is a strong tourism driver.

We have in place cooperation agreements with all regions of the North Caucasian Federal District with an aim to establish strategic partnership relations with public authorities of this macro-region.

North Caucasus Development Corporation (NCDC) set up in 2010 is a key entity of Vnesheconombank Group that aims to promote investment opportunities in the North Caucasian Federal District. Under NCDC’s Strategy for 2011–2015, the Corporation’s mission is to set up a successful investment business so as to encourage economic growth in North Caucasian regions. The Corporation focuses on supporting the implementation of the government programme for development of the North Caucasian Federal District, attracting investors to the region and creating new jobs.

Project: North-Caucasian Mountain Club

Project initiator / implementer: NCDC

Total project value: RUB 210 mn

NCDC’s commitment: RUB 210 mn

Number of new jobs: 31 within the project and 200 in related sectors

Annual tax proceeds: RUB 4.6 mn

Project goal: set up a framework for round-the-year adventure and environmental tourism in the North Caucasus.

The project provides for regular individual, group and corporate tours of unique natural territories of the North Caucasus. Customised itineraries that give a fresh perspective on well-known attractions of the region will appeal both to outside visitors and local residents of the North Caucasus.

Tourists take particular interest in the high-mountain hotel / tourism facility that offers all the necessary infrastructure to climb the Elbrus. The facility is a part of LeapRus, an advanced comfortable and environmental high-mountain hut.

As part of the project, we have created the PosetiKavkaz (Visit the Caucasus) Fund to promote active leisure in the North Caucasus, and a website where visitors can book and pay for tours, hotels and tickets.

The long-term legacy of the Sochi Olympics is multifaceted. The organisers had a very clear vision of the Olympic project. Now you have sports facilities of world level that can be used by both elite and other athletes. Before the Olympics, many Russian athletes had to go outside the country to train, for Russia lost all of its winter sports centres when the Soviet Union dissolved. Now, Russia is again able to host winter sports competitions.

The Winter Olympics in Sochi has proved to be one of the largest scale and sophisticated projects implemented in Russia over the last 20 years. Tremendous sports and touristic facilities were built on a tight schedule, almost from scratch, while the region’s transport and energy infrastructure was also upgraded. This allowed not only a successful holding of the Olympics, but also left the region with advanced infrastructure that makes the Greater Sochi a major recreation hub of international level.

In many respects, these impressive results were made possible only due to the involvement by Vnesheconombank that financed major Olympic construction projects. These include the now world-famous Roza Khutor ski resort, Mountain Carousel sports and tourist complex, Ice Cube curling centre, modern hotels, airport and cargo port of Sochi, and energy infrastructure facilities.

A year after the Olympics, Vnesheconombank sees its mission in ensuring the necessary conditions to recover the money invested by the Bank in the preparations for the Games. Given the troubled economic situation, the Bank decided to extend maturities for the principal and interest under loan agreements for the construction of Olympic facilities. Loan restructuring will be negotiated with each borrower on a case-by-case basis.

Seeking to speed up investment payback, we are directly involved in the process of identifying the ways for Olympic facilities to be efficiently used after the Games. These efforts are fully supported by the Russian Government, regional authorities and other investors, including by an ad hoc interdepartmental commission led by Dmitry Kozak, Deputy Prime Minister of the Russian Federation.

Roza Khutor ski resort is an example of successful post-Olympics utilisation of Olympic facilities. In 2014, over 1 mn people attended the resort. Additional chairlifts and new skiing routes were built in the resort. Roza Khutor is also planning to host the Alpine Junior World Ski Championships in 2016.

During the post-Olympic year, the Greater Sochi already hosted the Channel One Cup hockey tournament, games of the Continental Hockey League, Formula-1 World Championship, Russian Figure Skating Championship, a Fed Cup tennis games, the World Chess Championship and other sports events. Coming down the pipeline are the final stage of the Bobsleigh and Skeleton World Cup and a Luge World Cup stage to be held in 2015, as well as 2017 Bobsleigh and Skeleton World Championships, and 2018 FIFA World Cup.

Importantly, the Olympic project increased the prestige of sports and healthy lifestyle among Russians. This was witnessed by the interest they took in the Winter Olympics (according to the Russian Public Opinion Research Centre (WCIOM), 80% of the country’s residents followed the Games) and the rapid growth of mass sports in Russia. The sports and tourism infrastructure built for the Olympics and designed to offer all-year-round healthy lifestyle activities will add to these positive trends.

According to a survey run by WCIOM in January 2015, a year after the Sochi Olympics Russians still have positive recollections about the Games. Two thirds of the respondents (64%) refer to the Sochi Olympics as the most prestigious event of world scale. For 46% they were a special event that made them proud for their country. Every second respondent (54%) noted that such large-scale competitions gave an impetus to the development of fitness and sports. Three thirds of Russians (75%) support holding similar large-scale sports events in Russia.