NEW OPPORTUNITIES IN PROTECTION OF FOREIGN INVESTORS IN PROJECTS IMPLEMENTED IN RUSSIAN FEDERATION
We are satisfied to find out, that Russia is in a zone of your investment interests. Within the framework of efforts of the State Duma (Parliament) and Russian Government on the improvement of the investment climate and on reduction of the investment and transaction risks, we participate in bringing the international experience on creation and activity of the specialized credit institutions, intended to serve the target money streams, both investment and non-commercial purpose-oriented programs.
Any large Project in Russia encounters, apart from the standard complex of economic risks, some specific risks, connected with the low financial discipline of contractors and regional banks, servicing them. If the Project is being hold in several remote regions, the risk of no-purpose draft of investors financial resources by regional directorates of the Project itself arises. Traditionally such risks are being controlled by setting the so-called corporate budgeting system, but our wide experience in realization of investment projects in Russia shows, that in conditions of transitory economy this is not sufficient. More rigid control of all chain of payments up to each object with use of the bank budgeting system is necessary.
The international operations are effectively and reliably controlled by Moscow offices of the foreign companies and affiliated foreign banks servicing them. However, these banks do not have regional network in Russia and do not offer any services for the regional operations or for controlling the regional directorate and contractors. Thus, each Project itself handles the problem of transferring the financial assets up to the platform reliably, the so-called problem of the last mile.
It is generally known, that the Russian banks capital base is extremely insignificant (including affiliated foreign banks). Universal character of practically all Russian banks under conditions of lack of reliable quick assets and backwardness of the stock market significantly increases the banking system risks and reduces its stability to the system crises similar to crisis of 1998. The standard decision of this problem, imposed by the other countries bank crises experience, is in developing bank specialization, separating risks and creating banking mechanisms and technologies for separate management and control of financial risks, having various nature (credit risks, currency risks, stock market risks, business risks, politic risks, instability of prices risks, etc.).
The development of the specialized banks in Russia has been basically approved by experts of the Government and the Central Bank of the Russian Federation, as well as by the international experts many years ago, but only initial steps are made in this direction by now. For example, being an expert of the Commission of the State Duma of the Russian Federation on mortgage lending, Dmitry Lyubomudrov participates in composing the Law on Building saving-banks, which are classical examples of the specialized banks, successfully functioning for more than 70 years in, for example, Germany.
Having summarized the advanced countries experience on creation and activity of the specialized banks, within the limits of the existing Russian legislation, the Technology of non-risk banking service and project budgeting (the copyright certificate #4315 of Russian Author Administration, dated 28 of July 2000, author - Dmitry Lyubomudrov) was developed. This is Technology of creation and activity of the Specialized Banks for Project financing and holdings service. This Technology has already been successfully tested in different banks and has received high estimation of many herein provided international and Russian experts, who has confirmed, that using this Technology significantly reduces the investments projects risks and raises the investors protection degree (first of all - for foreign investors) :
- Banca Commerciale Italiana;
- Central Bank of Russian Federation;
- Bank "FRAM" (Moscow);
- Rating Company "EA-Ratings" (subsidary of Standard & Poor`s);
- Fund "The Center for Strategic Development";
- Legal Economics Institute;
- Federal Certification Centre;
- Financial Academy of Government of Russian Federation;
- Presidium of Bar Association of the City of Moscow;
- The Ministry of Economics of Russian Federation;
- State Academy for professional retraining for top and investment managers;
- Central Depositary Office (The Federal State Enterprise);
- Russian Union of the Industrialists & Entrepreneurs (RUIE);
- Club of the Directors of RUIE.
(texts of all letters you can find here)
Under the initiative of the Commission for Investments of the State Duma (Parliament) of Russia we reported on results of our work in Washington, in headquarters of the World Bank, International Monetary Fund, American Bankers Association, US Department of Energy and Environmental Protection Agency. It was generally agreed, that creating such low-risk credit organizations will have positive influence on the investment climate in Russia and will increase the level of protection of the foreign investments by reducing the risk of loss and no-purpose use of investment resources. The interest shown by the foreign companies to the new banking technologies in Russia cannot be named casual. In conditions of instability of the economic improving the efficiency of investments and all other economical processes has special significance.
The trial variant of this Technology installation in the Bank, was successfully applied in the oil-refining industry in Russia and satisfyingly went through the crisis of 1998. Now we have created the first in Russia Specialized Bank for Project financing and holdings service named "INTELFINANCE" Bank.
According to our sources, Russia occupies the 3rd place among the most perspective developing markets after China and India. Such conclusion is made by international investors, who take into consideration a huge potential of unsatisfied effective demand of the enterprises and citizens of Russia on the big range of goods and services. Many investors count, that the boom of direct investments should be expected in Russia in the near future. In these conditions it is especially important that the stream of these investments passes through reliable channels. Therefore it sounds expedient and mutually advantageous to organize a pool of investors for financing creation in Russia NCO as the input channel for large investment resources.
We understand, that while fulfilling this work we will need consultations, experience and support on the part of the international investment companies. It would be extremely useful for us to receive remarks, reasons and support from international investment funds and companies. Only in a close contact and cooperation with the international investors we can achieve success in this work. We hope, that realization of the offered financial mechanisms will bring practical benefit to your business in Russia. On your inquiry we are ready to grant more detailed materials.
Dmitry V. Lyubomudrov
Banking and Finance Expert,
Member of the Board of Directors of the Bank "INTELFINANCE"
Author of the Technology of non-risk
banking service and project budgeting
Mikhail I. Zavertyaev
Chairman of the Board of the Bank "INTELFINANCE"
PS. Please, reply to e-mail: LORBAT@mail.ru
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