Quality Infrastructure Projects: How Are Investor Attitudes Changing?
The government and the private sector are successfully cooperating in infrastructure development
The issue of infrastructure for Russia, in particular for the Ministry of Economic Development, is one of the most important themes. We understand that investment in the infrastructure of the Russian Federation makes up 5% of GDP. Over the past five years, from 2015 to 2020, this [figure is RUB] 28 trillion. If we clear this [RUB] 28 trillion of government money and state corporations, we get around [RUB] 7 trillion. Every 10 roubles is [public-private partnership, municipal-private partnership], and concessions. We understand that this is also a driver and the key driver, including investments [...] for our country. In this regard, we are actively developing this market. Now this market is [RUB] 1 trillion, and private investment makes up [RUB] 700 billion — Ilya Torosov, Deputy Minister of Economic Development of the Russian Federation.
The government is developing projects that are unappealing commercially
It’s a question of quality, which we are talking about today. And here our role is probably not to work with the projects that essentially have been perfectly worked out in detail both financially and managerially and also in terms of design documentation and are basically [appealing] for the commercial investment market. Our job, probably, is to work with projects that cannot [be appealing] due to various circumstances, due to a lack of expertise, and due to the inability to drag this project along in terms of its financial component. [We need to] take these projects to a certain quality level and then, probably, transfer them to the commercial market. And this is likely the task of the development bank — Denis Ilyin, Deputy Chairman of the Management Board, Eurasian Development Bank.
Investors sometimes have a hard time choosing an appealing infrastructure project
Regardless of the fact that we have crisis events in the global economy due to the pandemic, we see that many countries are now actively developing infrastructure, actively investing in infrastructure, and launching all kinds of programmes that stimulate the development of public infrastructure. We see that recently there has been a trend (and it’s gaining steam) [...] towards a ‘green economy’, towards sustainable development, and towards smart investments. The main thing now is not just to attract financing for a particular infrastructure project and get a return. New standards and quality standards are now emerging. Standards that improve people’s quality of life. We are seeing new criteria, environmental criteria, and social criteria. At present, we are actually standing on the threshold of how to develop a methodology that is understandable for everyone in order to attract high-quality investments to high-quality infrastructure — Pavel Seleznev, General Director, Public-Private Partnership Development Center.
Companies that are members of our association sometimes express concerns about projects in which they would like to invest. Today, almost all major institutional investors and all members of our association expect and seek to get projects that comply with ESG standards and the Paris Climate Agreement. This means that everyone wants to invest in sustainable, high-quality infrastructure projects that preserve the natural environment, take into account the interests of all stakeholders, and also fulfil their proper social role. These are the main drivers that are guiding institutional infrastructure investors. On the whole, these are expected things. They strive for long-term compliance with commitments and the readiness [of projects] to generate a profit regardless of GDP fluctuations. And it’s understandable why this is the case. This is natural in the times of the COVID crisis — Francois Bergere, Executive Director, Long Term Infrastructure Investors Association (LTIIA).
The government needs to create a proper legislative framework to increase the investment appeal of investment projects
As you know, we are working to change the law. I’m pleased to say that finally all the debate on, shall we say, the territory of the government is over. We have agreed on everything and have already submitted to the Main Legal Department of the Russian President amendments to the law, which actually allows us to organize normal work. We have been waiting for this for four years [...] Now what are the main points of the amendments? It’s an incentive for private initiative. Now it’s possible to reimburse the costs of preparing documents. It’s a financial model, valuation, and [design and estimate documentation] if the initiator of the tender [...] did not win as a result of the tender. Moreover, this money will be reimbursed at the expense of the future winner. We think we haven’t discussed this with anyone yet. About 2–3% of the project cost is to limit these payments so that there is no abuse. We understand that it was necessary to clearly define the concepts of the capital grant, the concessionaire’s fee, the minimum guaranteed income, and special circumstances — Ilya Torosov, Deputy Minister of Economic Development of the Russian Federation.
The international community has developed universal methods to assess infrastructure projects
Now the market doesn’t have so much of a problem with liquidity (and not only in the Russian Federation, this is a global trend), but rather a problem with the quality and quantity of projects [investments in infrastructure]. In order for everyone in the world to understand quality as the same thing, the G20 approved the principles of quality infrastructure in 2019. Countries are now incorporating these principles into national systems. For its part, VEB.RF has begun developing the same certification and quality assessment system. During the year of the pandemic, we didn’t waste any time and developed such a methodology based on the best world practices [...] The methodology has already been launched, and we have been testing it for the last eight months. A number of projects have already passed this assessment — Svetlana Yachevskaya, Deputy Chairman, Member of the Board, VEB.RF.