Pavel Seleznev, Dean of the Faculty of International Economic Relations at the Financial University under the Government of the Russian Federation and Doctor of Political Sciences, on the prospects of PPP in Russia.
Russia`s history demonstrates that external attempts to impede the country`s development – through prohibitions, limitations, or exorbitant duties – ultimately harm the very parties imposing the sanctions. A clear illustration of this is the growth in industrial production, which rose by 4.6% last year, and by 8.5% in the manufacturing sector. Alongside this progress, it is absolutely essential to prevent any decrease in entrepreneurial and investment activity.
A significant recent development in this context was the meeting of the Bank of Russia`s Board of Directors, which resulted in a reduction of the key interest rate. The specific rate value (20% is still quite high for real sector borrowers) is less important than the shift in policy trend it represents.
Developing mechanisms to attract private investment into critical national economic projects is also of paramount importance. Several notable decisions have been made in this area. For example, the Bank of Russia announced its readiness to ease the burden on banks when financing Public-Private Partnership (PPP) projects. The main condition is that the public partner in such projects is the state or an entity with a credit rating of `A` or higher.
Banks have reacted positively to this proposal, and the business community also supports it, as these changes are expected to boost the volume of PPP projects. This abbreviation stands for new hospitals, educational facilities, roads, bridges, airports, and housing and communal services in cities and regions. Crucially, PPP makes it possible to build these facilities today without placing excessive strain on budgets, whose current funds are primarily allocated to social spending.
Further support for regions and cities comes in the form of mandatory expert review by VEB.RF for PPP initiatives exceeding 3 billion rubles. This requirement was established by a decision prepared by the Ministry of Economic Development of the Russian Federation. For 26 regions, this review stage will be optional, allowing local authorities to «verify» projects while avoiding unnecessary financial pressure. However, for subsidized regions and territories, a positive VEB expert review for large PPP projects will be mandatory. Importantly, the criteria and evaluation methods are formulated with extreme clarity and comprehensiveness. Beyond economic projections and risk allocation between private and public parties, an independent expert will assess the future project`s demand and its social impact, meaning its influence on the lives of ordinary residents in cities and regions.
Conducting detailed expert review early in a project`s lifecycle significantly enhances its likelihood of successful implementation. Another benefit for the sector is increased transparency. This additional reliability marker for PPP initiatives will guide both regions, municipalities, and potential investors. Incidentally, the pool of investors could expand considerably if the key rate decreases. This includes banks beyond the top 20 by assets (including major regional institutions) and other institutional investors, such as insurance companies.
Expanding the possibilities and application areas for PPP (including, for example, tourism) accelerates projects that form the bedrock of growth. These projects are not only crucial for the future of the economy but also for the present – from large-scale infrastructure to improving public spaces. They generate orders for local contractors, create jobs, and contribute taxes to local and regional budgets. And a focus on meeting the actual needs of the population is the best assurance that projects will be in demand and therefore successful.
