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. Last Updated: 07/27/2016

NEWS ANALYSIS: Lobbyists Favor New Agro Bank

Having lost SBS-Agro to the Agency for Restructuring Credit Organizations, agricultural lobby groups have set their sights on a planned new Rosselkhozbank - to be built on the ashes of SBS-Agro - that would carry on the former bank's role in disbursing public funds to agricultural enterprises.

Despite the massive scandals surrounding the embezzlement of previous targeted credit programs, regional leaders and agrarian State Duma deputies look all but certain to get their way. The only factor that might defeat them would seem to be the massive confusion surrounding the proposed bank.

A government decree ordering the creation of an agricultural sector bank - to be known as Rosselkhozbank or Selkhozbank - was signed March 15, Prime-Tass reported. ARKO was ordered to finance the bank's founding capital and then hand over 49 percent of the bank to several regional administrations free of charge, according to government officials.

State intervention continues despite the fact that agricultural sector companies posted profits of 30 billion rubles ($1.1 billion) last year, according to the Agricultural Ministry.

Despite such profits - and the continuing scandals surrounding the misappropriation of state credits to agriculture - there is no sign of the funding drying up. Just last week, the Finance Ministry allocated 1.167 billion rubles (about $40 million) to the agrarian industry, Rosbusinessconsulting reported.

Indeed, at least some of the support for the proposed Rosselkhozbank probably comes from those who feasted on ill-gotten gains from previous agrarian credit programs.

"SBS-Agro was a huge feeding trough for all major lobby groups, including the Agrarian fraction in the State Duma," said a source close to ARKO. "Now they want to set up a new bank to siphon off state funds."

Moscow Tax Police said Thursday that SBS-Agro is under investigation for allegedly pocketing 300 million rubles ($10.5 million) that the Agriculture Ministry had earmarked for disbursement by the bank to the agricultural complex.

ARKO itself is unlikely to run more than one department in the new bank, even though the government might order it to plow 375 million rubles ($14 million) of equity investment into Rosselkhozbank. ARKO is still seeking to recover some 2 billion rubles of soft loans issued by SBS-Agro, which was placed under ARKO's auspices last year.

Meanwhile, ARKO knows nothing of the decree on Rosselkhozbank, and the Agriculture Ministry itself is continuing work on setting up a completely separate agricultural bank.

As for ARKO, it is moving ahead with plans for an agricultural bank, but its structure may not be to the liking of agrarian lobbyists. "ARKO is organizi ng an agricultural bank," says Alexander Voznesensky, spokesman for ARKO. "It should be a wholesale bank with no regional network."

Voznesensky said the major task of the new bank would be to take care of debts inherited from SBS-Agro, which issued soft loans to agricultural enterprises - loans that have been uncollectible despite being backed by guarantees from regional administrations.

Meanwhile, it is not even clear whether ARKO's new bank will boast the "Ros" prefix, standing for Rossiisky, or whether it will take care of all agricultural projects, ARKO officials said.

Deputy Prime Minister Valentina Matviyenko is the only government official authorized to give permission for the use of the words Rossia, Rossiisky, denoting all-Russia organizations, but so far she reportedly had not made any decision regarding the proposed Rosselkhozbank. And while ARKO is awaiting further government decrees, the Agriculture Ministry is pushing another project to create a separate entity to be called the Agrarian Development Bank.

That bank is intended to channel foreign money into agricultural leasing projects on behalf of the Center of International Investments, recently set up by the Agricultural Ministry.

Agriculture Minister Alexei Gordeyev said recently that talks were under way with representatives from Austria's Rabobank, Deutsche Bank and Credit Agricole on possible participation in the leasing projects.

Gordeyev emphasized that the new bank would have nothing to do with Rosselkhozbank, Rosbusinessconsulting reported recently.

In a sign that the infighting is heating up, various government officials have aired different ideas about the future of any agricultural bank.

"Any project should be supported if its aim is to increase investment activity in agriculture," said Vyacheslav Savushkin, deputy head of the agricultural department at the Economics Ministry. Savushkin said issues regarding insurance for loans issued by Western institutions remain unresolved.

The battle between the Agricultural Ministry project and the Rosselkhozbank plan is shaping up into a classic lobbyists' fight, he said.

Officials at the White House said only one bank would be set up and only Rosselkhozbank could be organized. The bank would become operational by the summer, said the officials, who spoke on condition of anonymity.

Not waiting to see whether Rosselkhozbank would ever make it off the drawing board, public servants have already rushed to grab jobs on the bank's advisory board. A government decree, signed last month, gave seats on the board to Agricultural Minister Gordeyev, Deputy Finance Minister Andrei Petrov, Deputy Economics Minister Ivan Starikov and two other top officials from the agricultural and finance ministries.

Rosselkhozbank will be headed by Yury Trushin, who previously headed Agrobank and SBS-Agro.

"He oversaw the collapse of two banks, and now comes his third attempt," said an official at the White House, who declined to be identified.