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Russia: EBRD Announces New Assistance Program

  • Michael Lelyveld

The European Bank for Reconstruction and Development announced a new program on 6 October to help repair Russia's infrastructure, while other Western officials at a Harvard University investment conference praised Russia's recent economic performance and reform plans. Our correspondent Michael Lelyveld reports:

Boston, 9 October 2000 (RFE/RL) -- The European Bank for Reconstruction and Development is about to launch a new investment program to improve Russia's infrastructure for electricity, gas, water, and district heating, a top EBRD official said on 6 October.

Speaking at a Harvard University investment conference, EBRD First Vice President Charles Frank said the bank has been examining five reform-minded Russian regions for infrastructure projects under the new program.

Frank cited a series of figures to demonstrate the current problems of the crumbling infrastructure. According to Frank, only about half of Russia's population has access to water that meets reasonable health standards. One-third of the country's wastewater flows untreated into rivers and lakes. Frank blamed the problems on low tariffs and subsidized prices that reduce the incentives for investment to correct the problems.

Frank said that "Russia is one of the most inefficient users of energy in the world." Russia's domestic rates for electricity are about one-tenth of those in the European Union, while gas is sold for one-seventh to one-tenth of EU prices, and oil costs are 70 to 80 percent lower than those on the world market, he said.

The result is that private investors have been reluctant to finance a rebuilding effort. Frank estimated that the gap in deferred maintenance in the Russian oil industry alone is $3 billion to $5 billion a year. By bringing the efficiency of power generation up to European standards, Russia would be able to save the equivalent of 50 million tons of oil annually, he said.

The initiative comes as a significant sign of confidence in Russia following EBRD's losses in the wake of the August 1998 collapse of the ruble. In an interview with RFE/RL, Frank said the infrastructure program could account for one-third of this year's lending target of $600 million and about the same share of the $1 billion target for future years.

Other international lenders also voiced far greater confidence in Russia's economic performance than at a similar Harvard conference last year. While participants agreed that much of Russia's turnaround was due to higher world oil prices and the effects of a weaker ruble on domestic output, they also had praise for the government's efforts to end barter, reduce taxes, and institute other reforms.

Stanley Fischer, first deputy managing director of the International Monetary Fund, indicated that a new loan program for Russia is unlikely now, primarily because it is unneeded. Further infusions of hard currency could actually prove harmful by strengthening the ruble and raising inflation. Fischer said that "IMF lending provides foreign exchange. That is not what Russia is short of, at the moment."

Fischer indicated that a new "precautionary program" for Russia could be considered that would allow Russia to draw funds if the economy turns sour again. In the meantime, the program would have the benefit of giving Russia's economic plans a "seal of approval" that would encourage investment, he said.

But Fischer and other officials stressed that the international community was waiting to see whether the government's reform plans would actually be put into force.

Johannes Linn, World Bank vice president for Europe and Central Asia, agreed. Speaking by video from Kyiv, Linn said, "In many areas a good start has been made," but he added, "implementation is what counts."

German Gref, Russia's minister for economic development and trade, vowed that his government would deliver results on the reform plans that it has laid out, saying, "We're going to conduct an open and sincere policy...and we will make business believe us."

Speaking later in the day, international investor George Soros emphasized the need for better corporate governance in Russia, linking the issue to the controversy over freedom of the press and oligarch Vladimir Gusinsky, as well as efforts to gain control of the Media-MOST empire and NTV.

Soros said, "It really was a great shock to see how that case was handled," adding that freedom of the press is "very important for the investment community."

Gref defended the government's actions in the case, saying that it was only a matter of debt repayment. Gref said: "The basic problem is that the time has come when everybody has to pay his or her dues."

But the news at the conference was largely positive for Russia. In remarks prepared for delivery Friday night, the chairman of the U.S. Export-Import Bank said that the U.S. government has approved an upgrade in the risk rating for Russian sovereign and private sector transactions. The move was expected to make more capital available for financing in Russia.

The Fourth Annual U.S.-Russian Investment Symposium, organized by Harvard's John F. Kennedy School of Government in conjunction with the Financial Times, was scheduled to run through Saturday.