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Russia: St Petersburg To Work With Bank In Major Financing Effort

  • Brian Whitmore



St. Petersburg, 17 June 1997 (RFE/RL) -- The agreement which St. Petersburg's Governor Vladimir Yakovlev has signed with the big Inkombank is designed to help the city attract up to $ 1 billion in loans over the next five years.

The project, whose stated goal is to develop St. Petersburg's ailing infrastructure, is being billed by the governor as part of a "new vision" for investment and is geared toward preparing for the city' 300th anniversary celebrations in 2003.

Yakovlev and Vladimir Vinogradov, the president of Inkombank, signed the memorandum on June 7. Long on grand rhetoric and short on specifics, the memorandum states that: "St Petersburg must be a positive example of Russia's exit from its protracted problems and adhere to its role as the locomotive of Russian reform. The strategic development of the city must be consistent with the perspective of the whole state."

The four-point memorandum calls for the creation of a five-year strategic plan for the city; the training of specialists to administer city development projects; financial research into development projects and the participation of Inkombank in the administration of these projects.

Such administration, according to the memorandum, includes scientific and technical consultation, the non-budgetary financing of city programs, supporting the city budget and the actual financing of infrastructure projects by Inkombank.

In remarks reported by the pro-City Hall newspaper Sankt-Peterburgskiye Vedomosti, Vinogradov said that this year Inkombank will invest "tens of millions of dollars" in the city and over five years "the sum could be as high as $ 1 billion." According to Vinogradov, the funds will come from Inkombank's own revenues as well as from outside investors that they will recruit.

"In the near future (Inkombank's) investment in St. Petersburg will account for from 25 to 30 percent of the banks total investment," Vinogradov said in the Sankt-Peterburgskiye Vedomosti report, naming tourism, hotels, business, public works, road building and public transportation as areas where the investment will be targeted.

Vinogradov said that Inkombank is prepared to take on the role of organizing a pool of banks to invest in city projects. "This is a new process that is just beginning to develop," said Andrei Yashchenko, an analyst for United City Bank in a telephone interview from Moscow.

Yashchenko said that organizing investment pools, which means that one large bank acts as a payment agent for several investors on a project, is a relatively new and highly profitable practice among Russian banks.

Acting as a payment agent means that a bank will present a project to other banks and investors, declare the amount they are investing and then offer stakes in the investment, Yashchenko said, adding that the practice is in some ways comparable to handling a city's budgetary account.

In remarks reported by Interfax, Yakovlev called the cooperation with Inkombank part of a "new vision" for city investment programs. He named a ring road around St Petersburg, metro construction and the modernization of the city's cargo port as priorities.

Apparently sensitive to charges of insider bank deals with the city, Vinogradov said that "Inkombank does not seek to monopolize participation in city projects," Sankt Peterburgskiye Vedomosti reported. Yakovlev kicked up a storm of controversy earlier this year when he signed a decree transferring the budgetary accounts from the committees for culture and education to Balt- Uneximbank, the bank that allegedly financed his election campaign.

Legislative Assembly deputies, the mass media and the St. Petersburg Association of Commercial Banks accused Yakovlev of conspiring to move the entire city budget to Balt-Uneximbank. Yakovlev as well as Igor Artyemev, the chairman of the City Hall finance committee, promised an open tender. Currently, the administration is exploring the possibility of opening a treasury account with the local branch of the Russian Central Bank, ostensibly ending the controversy.

The new deal, if realized, should prove to be profitable for Inkombank. "Banks don't give away money for free, there will be a return on these investment projects," said Andrei Yashchenko, an analyst for United City Bank in a telephone interview from Moscow. "Inkombank has developed very good relations with the (St. Petersburg) administration and this will make the returns predictable."

An RFE/RL correspondent in St Petersburg reports that the tendency toward large banks seeking private investment for the government is in part an adaptation to changing times. Since the break-up of the Soviet Union, most of Russia's largest commercial banks have grown big by winning the right to handle municipal or regional budgetary accounts.

The mighty Most-Bank, which now owns the NTV television station, Echo Moskva radio, the newspaper Sevodnya and the weekly journal Itogi, handled most of the money from Moscow's city budget and so rocketed to national prominence. Bank Imperial, another example, owed its rise to the massive accounts it handled for Gazprom.

When Gazprom transferred its accounts to the National Reserve Bank, the NRB vaulted overnight from obscurity to national stature. But in most cases those commercial banks have been chosen haphazardly and behind closed doors, and often on the basis of ties to a region's chief executive. The system is open to abuses and risks and has been criticized by everyone from the World Bank to First Deputy Prime Minister Boris Nemtsov to President Boris Yeltsin in a State of the Nation speech.

Yashchenko said that given this atmosphere, the country's larger banks are now diversifying and preparing for the day when a treasury system is introduced in Russia and the informal deals between governments and a few insider authorized" banks comes to an end.

"Eventually all of the budgetary money will be transferred to a treasury but it is not clear when," he said. "Currently the most profitable banks benefit from government contacts but they are preparing to lose this." He characterised Inkombank as a very independent bank that is not tied to any political forces. The city's link with Inkombank is Yakovlev's latest move to re-animate St Petersburg's financial fortunes. Earlier this month a successfull Eurobond float gained the city $ 300 million to finance part of its external debt.
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