FNB will be generous with advances – Newspaper Kommersant No. 6 (7451) of 01/14/2023

The Ministry of Finance proposes to expand the use of funds from the National Welfare Fund (NWF) to advance contractors of large infrastructure projects. With reduced private investment, the current rules for issuing advances will no longer allow financing a number of works and expenses. Now the list of possible expenses is rather narrow – this is the purchase of components, equipment, materials and raw materials to start production. The Ministry of Finance proposes to make the list open, leaving the ban on payment from the NWF only for a number of services that do not have a significant impact on the project, such as advertising. Market participants supported the initiative.

The draft government decree prepared by the Ministry of Finance provides for expanding the possibilities for advancing infrastructure projects at the expense of the NWF. To clarify, we are talking about self-sustaining projects from the list approved by the government. It now includes 16 projects (excluding programs for the modernization of housing and communal services and the “Project Finance Factory”) with a total amount of marginal spending from the NWF 1.3 trillion rubles. The fund’s savings are invested in securities issued by the initiators of the project (according to the Ministry of Finance, as of December 1, 385 billion rubles and $2.2 billion were invested in them). At the expense of the funds raised in this way, advances are given to contractors or suppliers.

According to the current rules, advances are provided only for the purchase by manufacturing enterprises of the components, equipment, materials and raw materials necessary to launch production. At the same time, in particular, it is not allowed to send an advance payment for payment of commercial, administrative and overhead expenses, for payment of salaries and contributions to social funds. The project of the Ministry of Finance proposes to abandon such a closed list of possible expenses – that is, only what is not directly prohibited will be allowed. The list of bans has been changed. Of the existing restrictions, only payment for consulting, legal and insurance services has been left. The “stop list” is complemented by marketing and advertising services, as well as hospitality expenses. The inclusion of these expenses in the list in the Ministry of Finance is explained by the fact that they do not have a significant impact on the implementation of projects and should be financed only from extrabudgetary sources.

The agency explains that the changes are necessary due to a significant reduction in the share of extrabudgetary funds in the structure of project financing in recent years. If at the initial stage, in 2017, the share of NWF funds did not exceed 40% of the project cost (the only exception was the project of the Central Ring Road in the Moscow Region – 50%), then in new projects approved in 2022, this figure reaches 97, 7% (as, for example, in the project for the construction of the Kazan-Yekaterinburg road in the Dyurtyuli-Achit section). The Ministry of Finance warns that if the current procedure for advance payments from the National Welfare Fund is maintained, then a number of project works will be impossible to finance.

The National Association of Infrastructure Companies (NAIK) supports the proposed changes and expects them to be adopted by the end of January – the association, together “with the Ministry of Finance, the Ministry of Economy and the Ministry of Transport, is actively working to remove the existing restrictions.” In particular, they explain in NAIK, now it is impossible to spend advance funds for the purchase of fuel and lubricants and consumables, spare parts, for paying rent and leasing, salaries and compensation for expenses previously incurred by contractors.

As Sherpa Group CEO Alexandra Galaktionova notes, private funds for infrastructure projects have indeed become less available now: “During a crisis, investors usually behave more cautiously, and banks are less willing to lend to contractors.” InfraVEB CEO Denis Nozdrachev adds that there is now a general trend towards a decrease in the number of infrastructure projects that reach the implementation stage. This is due to the limited budget support, which also leads to a decrease in the volume of private funds in the market. At the same time, says Alexandra Galaktionova, the existing system of bringing funds slowed down the process, forcing contractors to resort to closing cash gaps through expensive bank lending, while expanding advance payments will reduce the risk of missed deadlines.

Evgenia Kryuchkova