The investment boom ran into redesign – Newspaper Kommersant No. 230 (7431) of 12/12/2022

The resumption in December after a six-month shutdown of the government’s key mechanism to stimulate investment activity – agreements on the protection and promotion of capital investment (IPPA) – showed that almost all projects will have to be adjusted under the influence of sanctions. VEB acknowledges that initially all investor applications received a negative opinion for technical reasons and are now being finalized. Investors themselves note two “sanctions” problems of NWPC: the risks of breaking agreements due to non-compliance with the deadlines for the implementation of updated projects, as well as an increase in their cost compared to the original one. The Ministry of Economy does not share all the fears, but is ready to discuss technical adjustments to the SZPK, while discussions about new benefits are proposed to be paused.

The restart of the updated SZPK mechanism in December revealed the problems that investors faced due to a long pause in the operation of the mechanism and the sanctions imposed during this time, the conference “SZPK 2.0: Reloading the Investment Regime” held at the RSPP showed. SZPK, we recall, is a key mechanism for increasing investment activity in the Russian Federation – due to the ability of investors to stabilize the conditions for doing business and compensate for part of the costs of project implementation. The authorities hoped to launch an investment boom in this way, but the mechanism worked only from December 2020 to April 2021 – during this time, 36 agreements were concluded. Since then, the regime has been noticeably revised: investors have the opportunity to attract debt financing, the regions and VEB have the opportunity to give negative opinions on projects (see Kommersant of May 16).

According to Georgy Chikov, Chief Executive Officer of VEB, practically all frozen agreements received negative opinions from the state corporation upon returning to consideration of NWPC projects. VEB “Kommersant” confirmed that initially comments were formulated for all projects: “These are just the aspects that were proposed to be paid attention to in the framework of the presentation at the RSPP: correct structuring of the project, completeness, attentive attitude to technical aspects in the preparation and submission of documents ‘, they explain. Some of the projects are already being re-considered after the comments have been corrected, the state corporation says.

The adjustment of investment projects is largely due to sanctions – because of them, investors have lost access to foreign equipment and technologies necessary for their implementation. As a result, some investors did not wait for the resumption of the SZPK and launched projects without concluding agreements, fearing the expansion of the restrictions and the lack of domestic analogues. However, the presence of the latter does not remove the risks of breaking agreements – changing projects and switching to new equipment are associated with a lengthening of the terms for their implementation.

An example of redesigning enrichment technology from foreign to Russian was given by Intergeo CEO Lev Kuznetsov. According to him, it took the company a year to find the Russian owner of the technology and another year to amend the project documentation. “Two years are being eaten up by sanctions: 80% of European suppliers have refused to cooperate,” he said. In turn, OMK President Natalya Eremina announced a possible change in the cost of projects during a price audit compared to the originally planned costs. The company is counting on the emergence of a transparent cost recovery algorithm for changes – the problem of project cost rises will also become widespread due to sanctions.

However, not all companies faced these problems. Phosagro (one of the first to conclude an agreement) says that they are already at the final stage of the NWPC project. “We do not have such a criticality under the Volkhov project, the supporting infrastructure facilities have been built, the last facility of the main production facilities is at the commissioning stage. In terms of physical volumes and construction costs, the NWPC project can be estimated at 90%,” the company says.

Murat Kerefov, Deputy Minister of Economy, who oversees work with SZPK, recalled that if the investments stipulated by the agreement are not made, then it should be terminated, but promised to discuss with investors the problems of extending the terms and revising the cost additionally. In general, the Ministry of Economy allows technical amendments to the SZPK mechanism, but investors should not count on new benefits. The department wants to first “run in” SZPK version 2.0. Fundamental changes are promised in terms of a public initiative – the ability of the region, within the framework of the NWPC, to enter the market with a project proposal and hold a competition among investors.

Diana Galieva