The European Bank for Reconstruction and Development
The European Bank for Reconstruction and Development was established in 1991 when communism was crumbling in central and eastern Europe and ex-soviet countries needed support to nurture a new private sector in a democratic environment. Today the EBRD uses the tools of investment to help build market economies and democracies in 28 countries from central Europe to central Asia.
The EBRD is the largest single investor in the region and mobilises significant foreign direct investment beyond its own financing. It is owned by 60 countries and two intergovernmental institutions. But despite its public sector shareholders, it invests mainly in private enterprises, usually together with commercial partners.
It provides project financing for banks, industries and businesses, both new ventures and investments in existing companies. It also works with publicly owned companies, to support privatisation, restructuring state-owned firms and improvement of municipal services. The Bank uses its close relationship with governments in the region to promote policies that will bolster the business environment.
Îñíîâíîé çàäà÷åé ÅÁÐÐ ÿâëÿåòñÿ ôèíàíñèðîâàíèå ïðîåêòîâ, ñïîñîáñòâóþùèõ ðàçâèòèþ ýêîíîìèêè, îäíàêî, íåñìîòðÿ íà ýòî, Áàíê îñóùåñòâëÿåò ñâîþ äåÿòåëüíîñòü, ðóêîâîäñòâóÿñü ïðèíöèïîì ñàìîîêóïàåìîñòè. Îáëàäàÿ âûñøèì êðåäèòíûì ðåéòèíãîì (ÀÀÀ), Áàíê ìîæåò ïðèâëåêàòü ñðåäñòâà íà ìåæäóíàðîäíûõ ðûíêàõ êàïèòàëîâ ïî ñàìûì âûãîäíûì ñòàâêàì.
The mandate of the EBRD stipulates that it must only work in countries that are committed to democratic principles. Respect for the environment is part of the strong corporate governance attached to all EBRD investments.
Every EBRD investment must help move a country closer to a full market economy: the transition impact, take risk that supports private investors and does not crowd them out and apply sound banking principles.
Through its investments, the EBRD promotes:
- Structural and sectoral reforms
- Competition, privatisation and entrepreneurship
- Stronger financial institutions and legal systems
- Infrastructure development needed to support the private sector
- Adoption of strong corporate governance, including environmental sensitivity
Functioning as a catalyst of change, the EBRD promotes co-financing and foreign direct investment, mobilises domestic capital and provides technical assistance.
The powers of the EBRD are vested in the Board of Governors to which each member appoints a governor, generally the minister of finance. The Board of Governors delegates most powers to the Board of Directors, which is responsible for the EBRD's strategic direction. The President is elected by the Board of Governors and is the legal representative of the EBRD. Under the guidance of the Board of Directors, the President manages the work of the Bank.
The Russian Federation
The Russian Federation is committed to and applying the principles of multiparty democracy, pluralism and market economics in accordance with the conditions specified in Article 1 of the Agreement establishing the Bank. However, a more consistent application of these principles would facilitate Russia’s global integration and its ability to absorb future shocks.
Russia’s evolution from its Soviet past and from the chaotic early days of democracy has been swift. Judged against the standards of the Soviet Union, Russia today stands as a strikingly different country where basic political, civic and economic freedoms are both guaranteed by the Constitution and, on balance, enjoyed in practice by its citizens. Judged against the standards of the 1990s, when the country went through a series of political and economic crises and the state at times appeared on the verge of collapse, Russia today has achieved a noteworthy level of political and economic stability that has reassured markets and the public alike. These are welcome developments. However, judged against the standards of a developed market-oriented democracy, Russia today would benefit from further strengthening of democratic and market-supporting institutions, enhancing accountability, more even-handed application of the rule of law and firmer protections of human and civic rights. Moreover, developments over the past two years have seen the continuation of a trend in which the implementation of these basic elements of a democratic polity has wavered, raising concern in the international community. Further progress in the area of democratic governance would help to unlock Russia’s obvious economic potential.
Economic environment. From an economic perspective, despite recent slow reforms and a trend of economic recentralisation, there are many positive elements in today’s Russia:
- The stability of the country
- The robustness of economic growth in the last eight years
- The high level of the gold and foreign currency reserves and the accumulation of the windfall tax revenues from oil and gas into a stabilization fund
- The sound management of foreign debt
- The recent further liberalisation of capital account transactions
- The reduction of the number of people living under the official poverty line
- The expansion of a nascent middle class that fuels domestic consumption and retail industry development
- The rising level of foreign investment, undeterred so far by assertive moves to return certain strategic assets to state control beyond the oil and gas sector
Challenges. There remain however fundamental challenges in Russia’s modernisation and transition process, including:
- The demographic crisis which hangs over the future of Russia, in particular the depopulation of Siberia and the Far East, and the brain drain that affects certain sectors of the economy
- The further integration of Russia in the world economy
- The improvement of the business climate
- The low level of investment compared with the huge investment needs to upgrade infrastructure and strengthen the competitiveness of the corporate sector
- The need to diversify further the economy away from oil and gas
- The reform of the state (administration, judiciary, law enforcement agencies)
- The underdevelopment of micro, small and medium sized businesses
- The need to make local companies more transparent and to improve their business and governance standards with a view to improving their access to finance and capital markets
- The lack of progress in the improvement of security of property rights
- The fight against corruption
- The widespread waste of energy in most sectors of the economy
Strategic directions. In the face of these challenges, the Bank’s strategic directions need to reflect the Russian Government’s priorities and the Bank’s own analysis of transition challenges, as well as the evolving needs for the Bank’s support and finance in accordance with the additionality, transition impact and sound banking principles, with a strong emphasis on integrity in all Bank’s operations: Economic diversification, competitiveness, entrepreneurship, environment, energy efficiency, stronger regional presence and policy dialogue at federal, regional and local level will be central to the strategy.
The Bank is intent on increasing its annual business volume after a period of relative stability. Russia’s share of the Bank’s annual business volume is under the CRR3 projected to rise to EUR 1.6 billion in 2010, i.e. 41% of the Bank’s annual commitments.
The sector allocation of the annual business volume is intended to shift towards transport, municipalities, power utilities, and the corporate sector, with an energy efficiency focus cutting across all sectors.
The Bank will aim at increasing indicatively the share of equity in the annual business volume in Russia to 20% from the current 12%.
There will be an increased effort to develop larger direct projects with strong demonstration effects, in particular equity transactions, whilst MSME support will remain a strong priority addressed on a wholesale basis and on a framework basis.
Operational priorities. As per these strategic directions, the Bank’s operational priorities will be: Infrastructure investment in the transport, municipal/environmental sectors using concession mechanisms and public private partnership structures, as well as attracting government and sub-sovereign co-financing and private sector finance in order to construct or rehabilitate airports, ports, roads, bridges, multi-modal logistic centres; improve rail infrastructure and rolling stock; and develop waste processing, district heating, public transport, water treatment and housing.
With the beginning of the third stage of power sector reforms, a range of equity and debt investment opportunities will be actively pursued in the power sector targeting significant improvement in power generation capacity, as well as infrastructure modernization and energy efficiency. Further liberalization of the energy market and diversification of shareholder ownership of power companies through capital increases will be key. It is expected that the Bank’s portfolio of commitments to the power sector will reach between EUR 1.5 and 2 billion by the end of 2008.
The corporate sector is projected to be of growing importance - with emphasis to be placed on expanding equity investments in local manufacturing companies needing to increase their capital base in order to develop a modernisation and expansion plan aimed at fostering competitiveness (and improve their environmental and energy efficiency as part of this plan). The Bank will be available to support market-based restructuring of industrial companies associated with demonstrable improvements in corporate governance. Other priority areas include investments to lift constraints on the development of oil and gas production and transport as well as continued risk sharing with foreign strategic investors. Smaller companies, which contribute greatly to promote economic diversification, will be given an equal priority as larger companies and will be addressed through private equity funds, framework lending schemes and MSME programmes with financial intermediaries with a regional network, including both finance and appropriate technical assistance. The MSME sector will be further strengthened through the Turnaround Management (TAM) and Business Advisory (BAS) programmes. The Bank will be pursuing actively the development of its activities in the regions of Russia and, in accordance with the high priority expressed by the Russian authorities, will examine opportunities to develop financing to high technology companies.
There is still a range of opportunities open to the Bank for supporting the development of the financial sector and financial intermediation in Russia. There is also a need for consolidation of the banking sector which the Bank will address by supporting mergers and acquisitions. The Bank’s partners will include strong regional banks and large banks with a national presence or those banks looking to build a national presence through acquisitions. The EBRD will also be looking at expanding the range of financial instruments available in Russia by assisting banks and non-bank financial institutions in the areas of leasing, insurance and mortgage lending.
The Bank will seek to improve energy efficiency wherever possible through its projects and policy dialogue. The power sector, industries whether large or small and medium-sized and district heating will be the main focus. It will also seek to promote emission trading as a way of enhancing the viability and returns of emission reduction projects.
Across all sectors, the Bank will pursue actively project origination in the regions of Russia, including through the planned opening of two resident offices in the Volga Federal District and in the Southern Federal District and the possible future opening of another resident office in Western Siberia, the locations of which will be based on a business case. The Bank will be open, accessible and flexible to support investment opportunities in all regions of Russia, including in the Moscow region, in the Central Federal district, and in the St Petersburg region given their economic importance. In accordance with the priorities expressed by the Russian authorities, the Bank is prepared to make an increased effort to cluster projects across various sectors in the Kazan, Krasnodar, Krasnoyarsk and Perm regions, in the Far East Federal District and in any other region where transition can be furthered. The Bank will further analyse the investment climate in the regions of Russia.
Wider range of instruments to be used. The Bank will use a wider range of instruments to achieve its objectives, such as: Increased utilisation of the equity instrument in all sectors, in particular in the power sector, the industrial sector and the banking sector, including selective Bank’s participation in Initial Public Offerings.
Design and financing of Public Private Partnerships in conjunction with government and sub-sovereign entities, supported by an expansion of the Bank’s rouble funding in the Russian bond market Increased project co-financing with Russian banks, in particular in the area of rouble-denominated loans.
Business breakdown of Bank's activities. Over the strategy period, the expected indicative business breakdown of the Bank’s activities would see core infrastructure sectors - transport, municipal - rising together to about 20-25 per cent of annual commitments. The power sector share is expected to account for another 15-20 per cent of annual commitments. The share of natural resources projects (oil, gas, mining) is expected to be 5-10 per cent. Direct business with the corporate sector (general and specialised industries) is expected to account for 30-35 per cent whilst MSME support (private equity, working capital and medium term finance to MSMEs) is expected to account for another 10 to 15 per cent of commitments. The proportion of projects in the banking and non-banking sectors (including trade facilitation) is expected to be within a 10 to 15 percent range.
Strengthened management. In order to implement this strategy, management of the Russian operations has been strengthened with the appointment of a Business Group Director for Russia based both in Moscow and in London and exercising direct leadership within the Bank’s matrix structure upon three Directors based in Moscow, covering between them the whole array of the Bank’s activities: infrastructure/energy, corporate and financial. Moreover, the number of professional staff will be doubled over the next 12 months from the current 40 to about 80, consistent with the annual budget approved by the Board of Directors, whilst staff expertise will be strengthened.