Tightening the Reins on Subsidized Projects
Collaborations will be broadened
In a draft decree prepared by the Ministry of Economic Development, working alongside VEB.RF, a decisive approval from the development corporation will be mandatory for state and municipally-private partnership projects, valued at 3 billion rubles and above, planned for implementation in subsidized regions. If VEB fails to verify a project's efficacy, the regional ministry won't be able to grant approval - effectively shelving the project. This new rule won't apply to donor regions, where VEB's opinion will merely be advisory. The definitions for "subsidized region" and "donor region" are laid out in the Budget Code, with the annual list being approved by the Ministry of Finance.
Both subsidized subjects and donor regions maintain the right to overrule VEB.RF's decision should they disagree with the assessment. For this, an interdepartmental commission must be assembled by the Ministry of Economic Development to issue the final verdict. Succeeding stages, barring the collection of "additional materials" needed for assessment, are limited to 30 days each.
Federal-level public-private partnership (PPP) or municipally-private partnership (MPP) projects, with funding exceeding 3 billion rubles, will undergo evaluation by the Ministry of Economic Development, as per the draft. VEB.RF, as per the new guidelines, will deliver a conclusion for consideration.
To prevent potential conflicts of interest - an issue that might arise if VEB.RF acts as both the auditor and financing organization for the same project - the document clarifies the functions of VEB.RF's structural unit preparing conclusions will be segmented from the responsibilities of other units.
Reducing Budget Strain
According to "Expert," First Deputy Minister of Economic Development, Maxim Kolesnikov, the upcoming decree marks the final phase of integrating VEB.RF into the mechanism of compulsory PPP project review. Kolesnikov highlighted that this expert evaluation by VEB specialists will enable regions to make informed financial decisions when entering agreements and distributing investment risk between the state and businesses.
The core objective is enhancing transparency within the PPP sector, thereby optimizing the economic and social efficiency of limited financial resources, a sentiment shared by Deputy Chairman of VEB.RF, Yuri Korusun.
The effectiveness evaluation methodology has undergone refinement, incorporating suggestions from regions, VEB.RF, and market participants. This methodology clarifies the values of coefficients that account for the potential budgetary expenditure deviation due to certain risks. By defining a transparent range for these coefficients, subjectivity in the selection process is reduced, thereby aiding regions in their decision-making process. VEB.RF has conducted pilot evaluations on several healthcare, road construction, and industrial projects, yielding positive results and a proven methodology.
VEB.RF becomes an indispensable component of PPP projects by presidential order, as pointed out by Andrei Samokhin, the main managing director and general director of the National PPP Center. This expanded role in attracting private investments is outlined in the Group's strategy through 2030. One significant aspect of the new methodology for assessing PPP projects is the scrutiny of impacts on the quality of life of the average family. A comprehensive assessment will be carried out, considering the current status and comparison with equivalent settlements, as well as projected project contributions.
As commercial banks rapidly expand Russia's PPP market, maintaining dialogues with them to sustain their interest in financially supporting PPP projects is crucial, according to TeDo's Artem Volodkin.
VTB's Deputy Chairman, Vitaly Sergeichuk, finds the proposed approaches for assessing PPP projects by the Ministry of Economic Development and VEB.RF promising. He underscores the importance of taking into account not only economic efficiency but also the social significance of projects. Introducing a coefficient of PPP agreement reasonableness that factors in unmet regional needs is also an essential step in preventing the implementation of unnecessary or excessive projects, according to Sergeichuk.
VEB.RF is moving towards a key role in executing national projects, suggesting its involvement in most significant PPP projects, according to the Center for Strategic Research's Danil Nametkin. VEB.RF's new development strategy anticipates the institute of development partnering with the state and business to support projects worth over 30 trillion rubles. Overall, the new measure from the draft decree will standardize PPP project assessments, leading to better selection quality and risk assessment levels, which is critical under increased federal budget constraints, Nametkin believes.
ATRÉ General Director Vladislav Onischenko opines that VEB.RF's role as a mandatory institution for large projects not only filters out irrelevant and unrealistic ideas but also paves the way for promising initiatives through its expertise in deal structuring. Insufficient financial forecasting and modeling skills are often obstacles in the PPP investment process, and VEB.RF's involvement can help bridge that gap.
According to InfraKAP's Dr. Alexander Bazhenov, VEB's role in the decision-making process by state and municipal authorities on PPP project participation can be impactful. The economic impacts of infrastructure development are long-term and reliant on a portfolio of projects nationwide. Regional administrations or municipalities often lack such data or expertise in development effects.
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- The new guideline requires VEB.RF to deliver a conclusion about federal-level public-private partnership (PPP) or municipally-private partnership (MPP) projects, with funding exceeding 3 billion rubles, to help regions make informed financial decisions when entering agreements and distributing investment risk between the state and businesses.
- The refined evaluation methodology, used for PPP projects, includes a coefficient of PPP agreement reasonableness that factors in unmet regional needs, aiming to prevent the implementation of unnecessary or excessive projects and optimizing economic resources under increased federal budget constraints.
