LARGE SCALE INVESTMENTS IN RUSSIA'S INFRASTRUCTURE AND NATURAL RESOURCES SECTOR

Thomas Schumann
2008 unpublished
In Russia there exists a considerable demand for large scale investment in infrastructure utilities and production of natural resources. It is a common understanding that these requirements can only be met with the help of foreign direct investment (FDI). Without the delivery of capital and know-how Russia would miss chances for growth of the whole economy and could loose export revenues. This article concentrates especially on the conditions that are prerequisites for attracting large scale
more » ... that are nowadays increasingly realized by setting up project finance structures. Общеизвестно, что потребности России в крупномасштабных инвестициях в развитие инфраструктуры и добычу полезных ископаемых могут быть покрыты только с помощью прямых иностранных инвестиций. Без использования иностранных капиталов и ноу-хау Россия может упустить шанс развития всей экономики в целом и потерять доходы от экс-порта. Рассматриваются условия, являющиеся предпосылками для привлечения крупно-масштабных прямых иностранных инвестиций, которые в настоящее время все чаще реали-зуются через структуры проектного финансирования. All around the world large scale investment units like power plants, roads or oil production units are increasingly set up as project finance structures.  Investors found a separate legal entity that than becomes responsible for all concerns of the intended project. The bulk of investment capital comes from bank syndicates that offer long term finance secured only by the expected cash flow of the project-without recourse to the sponsoring investor. Creating such stand alone project companies seems to yield economic benefits especially with large projects that create considerable cash flows. The separation and the intense contracting with all stakeholders of the project like banks, suppliers and uptakers guards against negative impacts on the sponsoring company in the case of financial problems of the pursued project and sets a strict basket for the behaviour of the project managers. From the latter point of view, project financing should also be an appropriate model for transition countries in which corporate governance structures are still evolving.  This article addresses the situation in Russia where a substantial amount of in- See Esty (2004).  See e.g. International Herald Tribune (2006). vestment in large scale infrastructure projects and natural resources is required to sustain the high economic growth rates. It is expected that the country will not be able to cope with this situation without inviting foreign capital and expertise. Thus, there seems to be a huge potential to apply project financing structures with foreign participation. However, Russia's project finance record remains small in comparison to other European transition countries, where the method is increasingly applied as basis for public private partnerships (PPP) agreements for the provision of public infrastructure. The article addresses the situation in Russia and highlights the potential of foreign-led project finance structures for speeding up the country's technical renewal. Basic elements of project financing. Separation of the project and non-recourse finance are the two main pillars of «text book» project finance. In practice, a special purpose vehicle (SPV) is founded to become the central organizational unit for all affairs of a project. Up to ca. 80 % of the whole financing comes from a small number of banks that form a lending syndicate. The remaining 20 % are formed by an
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