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Business news
Smolny to Warrant Investment Projects
08.23.2004 13:36


By Sophia Kornienko


Smolny will begin allocating funds from the city budget as state guarantees on investment projects.

Legal entities with practical work experience of over three years and no city budget liabilities will be eligible for state guarantees, the city government's press service reported Tuesday last week.

The decision to begin providing state guarantees was reached at the government's meeting the same day.

State guarantees will be granted primarily on the investment projects aimed to improve the city's infrastructure, head of the city's financial committee Alexander Nikonov said. The investors must prove they possess funds covering at least half of the total investments, Nikonov said.

State guarantees on investment projects is an old practice that used to exist under Anatoly Sobchak, the mayor of St. Petersburg in the early 1990s, said an anonymous city investments committee source. However, the source said, it is only now that the practice of providing state guarantees will be systemized, each project following the same procedure of approvals.

The change will concern the current and upcoming big strategic projects, such as the Western Express Diameter and the new passenger marine terminal, worth hundreds of millions of U.S. dollars, for which the city does not have enough money, the source said.

The investors will have to prove that the project is a top priority for the city's infrastructure, the source said. The guarantees will be issued to both the state-owned enterprises - subject to the government anyway - and private companies, providing they are transparent, the source said.

The recommendations concerning each project will be issued at the city government's level and then passed to the city legislative assembly, commented Boris Vishnevsky, a Yabloko faction member. The guarantee funds can be reviewed either when passing the next year's budget or as an additional law to change the current budget. In the latter case, it will take at least two weeks to review the law in three readings, Vishnevsky said.

Dan Kearvell, head of Russo-British Chamber of Commerce St. Petersburg. said the procedure has the potential to provide real incentives to companies looking to invest in the city.

"Generally, this initiative ... must be seen as a positive, albeit initial, step. Figures released last week by the Federal Service of State Statistics indicate that investment Russia-wide is up by as much as 36 percent year on year, so the general trend is certainly positive," he said.

"It is also encouraging to see that the city is starting to be more pro-active in its approach to attracting foreign investment, something the Oblast has been extremely successful in doing recently," Kearvell said.

However, he added, in its current form, the proposed reforms is a framework within which many questions regarding the process of procuring the state guarantees remain unanswered.

"Both, in this initiative and generally, it is crucial that the city maintains an open and fully informative approach to its potential investors at all times, actively working both at home and abroad to promote the city's profile," Kearvell said.

Olga Litvinova, office managing partner of Ernst & Young Law in St. Petersburg, said providing state guarantees is a step that "can definitely stimulate the investors' interest in infrastructure projects."

"State guarantees can help resolve the problem of long-term loans, without which it is hardly possible to finance large projects. However, approval procedures and the necessity to include the guarantees in the budget will require much time and administrative resources from the investors," Litvinova said.

"It is unlikely that we can expect a boom in investments into the city's infrastructure projects based solely on Tuesday's decision," Litvinova added.

It will be sensible for the city to continue promoting private provision of infrastructure, or PPI partnerships, Litvinova said. Such partnerships don't ask for state guarantees, but demand strictly administrative resources from the city and are therefore not bound to any budgetary limitations.

Projects involving construction of tunnels and bridges to link the busiest highways proved to be successful in the framework of PPI partnerships in the West, Litvinova said.

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