Russia Top Recipient of EBRD Funds

The European Bank for Reconstruction and Development has put 25 percent of its investment and loan portfolio in Russia, and this share is expected to grow, a senior EBRD official said Wednesday.


Guy de Selliers, the EBRD's deputy vice president and acting director of its Russian department, said the bank had approved investments and loans for Russia worth some $1.24 billion in 41 projects since it began operations in Moscow in 1991, making Russia the bank's biggest client.


"Russia is a very important client for us," de Selliers said at a news conference on the bank's activities Wednesday. "We anticipate the proportion (of investment and loans) will increase because we see more large projects here than anywhere else. We feel the progress in terms of transformation is rapid."


Russia is also the largest recipient of the EBRD's technical cooperation grants, which are used for the preparation of projects prior to an investment or loan decision, receiving $92 million.


De Selliers said the EBRD would target funding in 1995 at manufacturing, transport and the energy sector -- including power generation, nuclear safety and oil and gas, with an emphasis on improving Russia's decaying pipeline system.


"We need to concentrate investment in areas where it can have a real impact," de Selliers said. "In particular we will provide support to Russian companies wanting to expand production. We believe the development of capital markets is a most important and necessary part of developing a market economy."


One way the EBRD is seeking to help the emergence of a capital market is through sponsoring investment funds. The bank has invested $20 million in the Barings group's $160 million First NIS Regional Fund, plus a further $16.6 million in the $65 million Framlington Russian Investment Fund.


The EBRD is also establishing a network of 11 regional venture funds with capital of $30 million each, aimed at investing in medium-sized privatized enterprises. Such operations have already begun in Smolensk and the Urals, with funds in St. Petersburg and the Far East due to start up early next year and others in the pipeline.


To provide financing for some of Russia's estimated 3 million small businesses, the EBRD has also put up half the capital for a $300 million small-business fund, giving credits of as little as $100.


Ultimately, the EBRD plans to pass on much of its financing responsibilities to Russia's fledgling banking sector.


To that end, the bank has cooperated with the World Bank in the Financial Institutions Development Program, which aims to develop a core of 30 to 40 Russian commercial banks that it hopes will then play a key role in lending to the private sector.


The EBRD in August extended a $100 million loan to Russia to facilitate the program, and followed it up in September by buying a 14 percent stake in Tokobank worth $35 million, with a view to accelerating the Russian bank's development as a role model. The EBRD says it is looking to make further equity investments in Russian banks.


The bank is increasingly seeking to work directly with Russian companies, de Selliers said, pointing to the example of the Primorsky shipping company, which received a 37 million ecu ($45 million) loan from the EBRD in October.


"We see a number of Russian companies with good management and want to work with them," de Selliers said. "We are likely to concentrate on companies with a product or service that can be sold abroad. But this doesn't exclude financing -- and this is new -- Russian companies that produce products that are solely for the Russian market."