Dmitry Pankin: Eurasian Development Bank lacks projects, not money. The head of EDB gives an interview to TASS
Dmitry Pankin: Eurasian Development Bank lacks projects, not money. The head of EDB gives an interview to TASS.
On 12 January, Eurasian Development Bank marked its tenth anniversary. Dmitry Pankin, Chairman of the Management Board at EDB, told the TASS international information agency about the Bank's achievements over this time, its plans for the new year, and the future of integration in the EEU and the world.
Q.: Mr. Pankin, you stated recently that the bank would change its development strategy. What will be your new focus?
Dmitry Pankin: Indeed, last year adjustments to the bank's strategy were prepared and discussed with the EDB Council (TASS: the Council comprises ministers of finance of the EDB member states). The main difference in the new document, compared to the previous version, is that the focus of operations has been shifted on targeted projects with an express integration effect. After the Council approves the final version of the new document, the projects involving two or more EDB member states will make up over 50% of the Bank's investment portfolio.
The planned sectors in priority will be the chemical industry, oil and gas, mining, mechanical engineering, and interstate infrastructure (transboundary roads, oil and gas pipelines, telecommunication lines, etc.). I also pay attention to national development projects. These are projects with long payback periods and high risks. Commercial banks refuse to work with such projects. The proposed focus will provide the bank with a unique niche in the region, a clear mandate and mission. The bank, as a supranational development institution, will link the existing production chains in the region.
Q.: What were your performance indicators in 2015?
Dmitry Pankin: Four agreements for a total of US $590 million were signed by the EFSD to finance projects in Armenia and the Kyrgyz Republic.
EDB closed the year with planned losses of US $140-150 million. The project portfolio has shrunk. This process began in 2013 and, unfortunately, continues. The cause is not only and purely the economic crisis. The new team identified some serious failures in the work of the bank's previous management and we had to increase provisions from US $30 million to US $230 million.
In 2016, we will need to restructure the work and make the bank profitable. EDB is not a commercial bank and we do not pursue big profits. However, we cannot afford losses.
This year we plan to increase capital by attracting new member states. The bank's shareholders stated this objective as one of the priorities. In this connection, we have activated negotiations with new potential members of the bank.
Q.: Eurasian Development Bank began to work long before the creation of the Customs Union and then the Eurasian Economic Union. How have these integration processes affected EDB and what is the Bank's contribution to them?
Dmitry Pankin: The creation of the Customs Union and then the Eurasian Economic Union certainly gave a positive impetus to EDB, as an active participant in Eurasian integration, despite the fact that not all the bank's member states are members of the EEU. Working with like-minded people boosts the effectiveness of the end result. And, as is known, history judges not by the idea, but by the result.
As for the bank's contribution to integration, I see it as follows. The bank strives to create conditions for sustainable economic development and deepen integration between its member states – Armenia, Belarus, Kazakhstan, the Kyrgyz Republic, Russia, and Tajikistan. As is known, history judges not by the idea, but by the result.
The bank works in several directions: it invests, helps to maintain financial stability by managing the EFSD funds, and supports integration with research.
The bank's investment activities are best described by the following figures: its investment portfolio, if to count all 122 projects fulfilled over ten years, totals US $4.6 billion. At present, EDB finances 68 investment projects in six member states.
Q.: Restrictive financial sanctions do not apply to EDB as an international development bank. Does this mean that it is the very place where the money lies?
Dmitry Pankin: This may sound weird at the moment but we do have money. We also have enough applications for funding. The problem is that there are very few quality projects we could invest in. But still there are some.
In 2016, we'll begin to finance construction of a waste processing plant in Belgorod Region. A loan of approximately US $78 million is planned to be provided for MERA Stal's project at Izhorskiye Zavody's industrial site in Kolpino. The project envisions constructing a reinforcement bar plant with a capacity of 350,000 tonnes and a total value of approximately RUB 10 billion. Innovative technology will be used to build the plant.
We also plan to provide a loan of RUB 2 billion to Russian Towers to develop a network of shared mobile phone towers in Russia. The project value is RUB 8.5 billion. Of this amount, RUB 2 billion was practically financed already. In Belarus, we are evaluating a project to manufacture tyres from Russian raw materials.
In Kazakhstan, we discuss construction of AutoVAZ's assembly shop with AsiaAuto. It is an integration project.
We also consider a proposal from Kamkabel to construct its subsidiary enterprise in Kazakhstan. Its products can substitute Chinese supplies.
Q.: Do you plan to involve in the projects, from which the Eurasian Bank for Reconstruction and Development withdrew?
Dmitry Pankin: The EBRD will complete the projects it has begun in Russia, but will not launch new projects while the sanctions are in effect. The EBRD is expected to activate work in other EDB member states. Here, we may be of interest to each other as partners.
Recently, EDB and the EBRD signed a memorandum of understanding about joint work in Eurasia. We discuss with the EBRD the project to construct the BAKAD (a ring road around Almaty) and some KazTransGas Aimak's projects (regional gas distribution networks) We also discuss the second phase of construction of the Yereimentau wind farm, a Samruk Energy's project. All this is at the stage of negotiations at the moment.
As for the EBRD's projects in Russia, I would not exclude the possibility that we can continue to perform its donor programmes. These programmes are financed by governments and international institutions and the EBRD, for example, ensures their implementation. This can relate to any industrial sector.
Q.: If to talk about changes in the economic environment as a whole, negative patterns dominate. How do you evaluate changes in the economic environment in the context of integration?
Dmitry Pankin: An illustrative answer to this question would be to compare mutual direct investments. A recent research by the EDB Centre for Integration Studies showed that in the last year mutual foreign direct investments (FDI) in the CIS fell by US $6.3 billion. The accumulated mutual FDI in the CIS totalled US $45.3 billion. One of the main causes for this drastic decline in all mutual FDI in the CIS was the destabilised economic and political situation in Ukraine.
At the same time, while overall investment activity in the CIS shrunk, the EEU demonstrated stability. Even despite the devaluation of national currencies, mutual FDI in the EEU countries increased from US $24.8 billion to US $25.1 billion over the year. The main participants in mutual investments in the EEU region are Russia and Kazakhstan.
Q.: At present, there's a tendency towards creating new international financial organisations. In 2015, in particular, an agreement was signed to form the Asian Infrastructure Investment Bank. How do you evaluate EDB's outlooks and market niche in these conditions? Is it competitive compared to other international financial institutions?
Dmitry Pankin: On the one hand, the emergence of new strong players such as the Asian Infrastructure Investment Bank and the New Development Bank BRICS boosts competition for projects. On the other hand, the withdrawal from Russia of the traditional players such as the EBRD and the EIB has opened a new niche for projects.
Significant changes in competition patterns, the emergence of new opportunities and niches for the bank's development, and the need to react to challenges posed by new competitors also underpinned the need to rethink and devise a new development strategy for the bank.
EDB will strive to enhance partnership with international financial organisations in order to attract co-investors in joint programmes and mitigate credit and investment risks through joint lending.