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. Last Updated: 07/27/2016

EBRD Pledges $1Bln In 1999

The European Bank for Reconstruction and Development will commit $1 billion to new projects in Russia in 1999 if Russia takes crucial steps to improve its investment climate, EBRD President Horst Koehler said Monday.

"We have committed ourselves with $3 billion since 1994, and even after the unfortunate events of August this year, the decision-making board of the EBRD has committed itself to a further $150 million in new projects this year," Koehler told Prime Minister Yevgeny Primakov and a host of foreign investors gathered at the quarterly meeting of the Foreign Investment Advisory Council.

"We hope we can be able to decide in the next year for a further amount of up to $1 billion of new commitments," he added. "This will depend on decisive action from the government."

The EBRD is the biggest foreign investor in the real Russian economy. Its investments into Russian food processing plants, steel mills, automotive factories and banks since 1994 represent almost one-third of the $10 billion in direct foreign investment Russia has received since 1991.

The bank's $1 billion offer is especially important today as confidence in the Russian economy hovers at an all time low. Foreign investors Monday said they were encouraged by parliament's recent cooperation in passing key economic laws, but were waiting for a host of additional reforms in taxation, customs regulations, accounting standards and banking.

While Primakov insisted that foreign companies investing in the real sector have not fled Russia along with investors in stocks and bonds, First Deputy Prime Minister Yury Maslyukov at the meeting acknowledged that direct foreign investment will dip this year below the $4 billion invested last year.

"The year hasn't ended yet, but I think it will be a little worse than last year," Maslyukov said. "Nonetheless, the tempo achieved in the fourth quarter gives us the confidence that next year will be significantly better."

Economics Minister Andrei Shapovalyants said investment should rebound to $4 billion-$5 billion next year.

Koehler said the EBRD is keeping a close eye on Russia's reform of the banking sector, into which the EBRD has invested directly and through which it has channeled funds to other sectors of the economy.

"Our concern is that some insolvent banks are too long operating without getting really some substantive control from the Central Bank, or even being liquidated," Koehler said. The EBRD last month was forced to write off its 1.65 percent stake in Inkombank, a large, insolvent bank that faces a bankruptcy hearing Jan 28, and a larger stake in Tokobank.

The EBRD and Primakov have agreed to establish a joint working group to help shape banking reform over the next three to five years, Koehler said, promising capital and banking experts to spur bank restructuring.

Primakov promised investors there would be no nationalization of private property, except in "certain privatization auctions, the legality of which must be reviewed." He also vowed Russia would not accept the mass printing of money, although it has already printed billions of new rubles since Aug 17.

"Attraction of foreign investment to us is a priority task," Primakov said. "We will certainly listen to your questions and complaints."

The Kremlin, he said, is planning to found a government-owned insurance company that would protect foreign investments in Russia against threats, including political risk.

The Prime Minister thanked Duma Chairman Gennady Seleznyov for supporting the passage of amendments to the Law on Production Sharing Agreements last week, saying it showed a new spirit of cooperation between the government and parliament.

A ream of additional legislation must pass through parliament before foreigners can rely on PSAs, which guarantee stable investment conditions. But foreign investors nonetheless mentioned passage of the amendments as a sign of hope for the overall investment climate.

"We are very encouraged by the PSA Amendments Law that was passed last week and we are hopeful that the additional PSA legislation that needs to be passed gets through the Duma quickly," said Florence Fee, president of Mobil Russia Ventures.

Howard Chase, director of external affairs for British Petroleum in Moscow, said he noted at the meeting "much more of a common agenda between the Minister of Natural Resources and the energy investing companies." British Petroleum, which owns a 10 percent stake in Russian oil company Sidanko, is particularly eager that the tax burden be moved away from production quantity and toward profit.

John Cogan, chairman and president of investment firm The Pioneer Group in Boston, said Monday's discussions were much more positive than the previous council meeting in October.

"The Prime Minister seems to be very much focused on what has to be done, and it looks as if he is very focused on the fact that he needs both the government and the Duma to work together," Cogan said.

He said he was encouraged by the government's proposals on lowering certain taxes, but was still waiting to see progress in corporate governance legislation, bankruptcy law and banking sector reform.