Charter of the State Investment Service – Newspaper Kommersant No. 178 (7379) dated 09/27/2022

The Ministry of Finance published yesterday a draft government decree designed to remove the problem of hidden long-term budget obligations when concluding various investment, in fact, agreements. The document assumes that all decisions on such obligations will be made in a unified manner, and requires the initiators of the standard disclosure of project data to the financial department. The procedure is supposed to be extended to PPP agreements, concessions, long-term government contracts, offset contracts, as well as subsidy agreements – that is, to all potential spending “beyond the horizon” of budget planning.

The draft government decree “On the procedure for making decisions on the adoption of expenditure obligations at the expense of the federal budget for a period exceeding the period of validity of the approved limits of budget obligations”, published on regulation.gov.ru, involves the unification of the rules for selecting projects with the participation of the state, the timing of implementation and financing which fall outside the three-year budget cycle. The problem of assessing “hidden” budget obligations, arising, among other things, from the investment activity of regions authorized to enter into PPP agreements, for which the federal budget is the lender of last resort, was widely discussed in 2019–2020 in the context of an “investment boom” organized by busy then the economic bloc of the government. The Ministry of Finance assessed this activity, among other things, as a source of risks for the treasury – and demanded their inventory; the issue was discussed in discussions about the future of PPPs, special investment contracts, offset contracts, agreements on the protection and promotion of capital investments and long-term government contracts in the framework of public procurement.

Now the ministry proposes to establish a unified procedure for making decisions on state investments in the form of state contracts, contracts and agreements, while canceling the current rules. Including – the rules for concluding state contracts, PPP agreements and concession agreements on behalf of the Russian Federation (Government Decree No. 1071 of November 26, 2013), the rules for deciding on granting the recipient of budgetary funds the right to conclude agreements on the provision of subsidies (Decree No. 15 of January 9 2014) and the rules for making decisions on the conclusion of long-term contracts for the provision of subsidies to legal entities (Resolution No. 1261 of October 17, 2017).

In fact, the Ministry of Finance intends to bring all three sets of rules into a single document on the adoption of future spending obligations – it will include standard requirements for draft decisions on them, for the composition of disclosed information, and for spending ceilings on long-term government contracts and subsidy agreements. It is also proposed to make the procedure for coordinating such projects unified (mandatory – the Ministry of Finance and the Ministry of Construction in terms of state investment in construction). The new rules assume that the initiator of the emergence of obligations will have to provide a justification for their necessity, calculation and justification of the “ceiling” of annual expenses, list the sources and amounts of their coverage (including those outside the budget cycle), and also disclose data on the approval of the investment project with the relevant federal a project (PPP, concessions, municipal-private partnerships, etc.) or a state program (state contracts). The general approach that the Ministry of Finance fixes is to transfer to the new rules the norm according to which annual government spending on such obligations cannot exceed the “starting” ones included in the budget, and the planned ones provided for by the system of state programs and national projects.

The ministry expects to put the document into effect on January 1, 2023: with a significant budget deficit (2.9 trillion rubles), uncertainty with income and the economic situation, and with large-scale appetites of budget funds managers for state investments for the sake of “structural adaptation” of the economy, it should give the Ministry of Finance the ability to prevent the postponing of obligations for the future, the funds for the implementation of which may not be available.

Oleg Sapozhkov