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. Last Updated: 07/27/2016

EBRD Is St. Pete's Only Friend

ST. PETERSBURG -- When a visiting World Bank official announced at the end of January that no more loans would be forthcoming to the city of St. Petersburg, it was the third consecutive, and some thought fatal, blow to the city's international financial reputation.

Just 10 days earlier, the chief architect of the city government's remarkable financial renaissance - then-Finance Chairman Igor Artyemev - had abruptly resigned, charging Governor Vladimir Yakovlev with everything but actual theft.

And two days after Artyemev's corruption allegations, the city canceled a 60 percent privatization tender for its largest hotel, the Moskva, while separately a local court annulled the results of an earlier tender for another major hotel, the Astoria.

It seemed to many as if the combination of events would tarnish for good what investment firm Goldman Sachs had proclaimed "Russia's most creditworthy city."

But while many investors continue to be dismayed by the goings-on at City Hall, there is one international lending institution that refuses to give up: the European Bank for Reconstruction and Development.

"The EBRD may not be the city's best friend right now," said one foreign institution's banking analyst last week, "it may be its only friend."

The analyst, who asked not to be identified, said the EBRD may be the only international lender left that still trusts City Hall.

But whether it is trust or the financial necessity of remaining committed to contractual obligations, the bank has been unwavering in its support.

"The EBRD continues to consider St. Petersburg a reliable partner, demonstrating all the merits of a trustworthy borrower," Robert Sasson, head of the EBRD's St. Petersburg office, said in an interview Monday.

As far as the EBRD is concerned, it has proved its commitment by making the city "virtually the only Russian borrower to have received finance from the EBRD" since the federal treasury bills were frozen in August.

That statement is part of an advertisement that ran in Kommersant Daily earlier this month. The ad, commissioned by the city, ran next to a larger ad with a lengthy statement by the governor himself on the fiscal health of St. Petersburg.

The "finance" refers to part of a $100 million loan to restructure debts that the EBRD and the city signed just before the August crash. The deal marked the first time a Russian city got an EBRD loan without guarantees from the Kremlin. St. Petersburg has received $45 million of the loan.

And if the EBRD has stiffened its commitment, the city, too, seems to be intent on honoring its obligations.

"[Keeping our] partnership with the EBRD is a strategic goal for the city administration," said Valentin Makarov, deputy chairman of the city's external relations committee. "Generally, our cooperation with the EBRD is friendly and has a positive influence on the city economy. By advising the administration, the EBRD has influenced our budget policy and made it more transparent and more in line with Western standards.

"The EBRD works on three levels: It works with the administration itself, it works with municipal enterprises, and it works with private companies ... which together make the EBRD a good barometer of the West's estimation of the city economy," he said.

But it was under Artyemev's tenure as finance chairman that the West's estimations of the city's fiscal health blossomed: Two consecutive deficit-free budgets were drafted and a treasury system was implemented to lower the city's reliance on banks. And after having cleaned up the city's finances, Artyemev, with the help of the EBRD, went on an extensive roadshow in Europe, Asia and the United States last year that culminated in a $300 million, five-year Eurobond for St. Petersburg - it's first ever.

Although the EBRD is one of the largest investors in St. Petersburg - having approved $381 million for 16 projects with operational costs of $1.2 billion - it is not the actual money but the expertise and advice the EBRD has given that has mattered most, Artyemev said.

Anna Shcherbakova contributed to this report.