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EURASIAN DEVELOPMENT BANK – AN EFFECTIVE INSTRUMENT OF ECONOMIC INTEGRATION WITHIN THE CIS
VLADIMIR YASINSKIY,
Member of the Executive Board, Head of the Research Department, Eurasian Development Bank, Almaty
One of the most challenging tasks that the Commonwealth of the Independent States faces today is implementation of the national development programs and financing the large-scale investment projects within its borders. International practice proves that one of the effective instruments of the long-term investment policy in energy and transportation sectors as well as agro-industry are the development banks. The development banks are oriented at effective allocation of the long-term credits among the high priority development projects and control over intended use of the credits rather than profit maximization.
The Eurasian Development Bank (EDB), founded in 2006 by the Russian Federation and the Republic of Kazakhstan, is a unique international financial institution working in the post-Soviet space.
The EDB is qualified to become the consolidating element of the region’s financial system and to foster integration in Eurasia. Within two years the Bank has initiated a number of large-scale investment projects essential for social and economic development of Russia and Kazakhstan. The Bank’s authorized capital stock is US$1,5 billion. The Bank gives priority to large-scale investment projects in the electric and hydropower industries, transportation and high-tech and innovative industries.
One of the EDB’s first initiatives in financing large-scale projects was the industrial development of Kazakhstan’s Zarechnoye uranium deposit. Volume of investment in Zarechnoe deposit reached US$63 million with up to five years of the repayment period. The project was implemented as part of the Comprehensive cooperation program between the Russian Federation and the Republic of Kazakhstan in the sphere of peaceful atom. In the future the EDB intends to finance the Russian-Kazakh joint projects on early stages of the nuclear cycle (uranium enrichment, building nuclear-power reactors of low and medium power). During the fifteen years of the field exploitation tax revenues to the Kazakh treasury amounts to almost US$250 million, while indirect taxes to Russia’s treasury will exceed US$100 million.
Since December 2006 in a joint effort with the Western banks WestLB and HVB, EDB finances the development of the Voskhod chrome deposit in Kazakhstan’s Aktyubinsk region fulfilled by the Oriel-Voskhod, a subsidiary of the British company Oriel Resources. Total investment of the project is US$120 million, half of which is afforded by the EDB with the repayment period of ten years.
When the enterprise starts to work at capacity, it will provide the metallurgy industries in Russia and Kazakhstan with raw materials to produce stainless steel, which is in demand in the world markets. It is planned that up to 40% of the produced chrome concentrate (up to 350 thousand tones every year) will be exported to the Tikhvin processing plant in Russia. Trade flow of both sides will amount to US$40-50 million per year. The amount of deliveries between Russia and Kazakhstan within the framework of the project will exceed US$700. Apart from that, the initiative has particular social and economic importance for the Kazakhstan’s Aktyubinsk region, for it provides additional 400 employment opportunities and will enhance tax payments to regional treasury.
Since July 2007 the EDB has been financing the initiatives on modernization of the Kazakh leading energy producer the Ekibastuz GRES-2 coal-fired power plant. The credit of US$93,5 million was granted for 10 year period. This fund will be spent on new technological facilities that will permit to enhance ultimate operating efficiency of the plant.
Along with that the project has particular importance for regional integration: the Ekibastuz GRES-2 power plant has two shareholders – the Russian “Inter RAO UES” and the Kazakh state authorities. The project will foster mutual trade – in amount of US$50 million per year – and investment.
At this stage, the Bank’s participation in the Ekibastuz GRES-2 construction is under negotiation.
A number of projects to be implemented in Russia are being considered by the EDB. One of them is accommodating a credit of US$150 million for 10 years to Sukhoi Civil Aircraft (CJSC). The project sets an ambitious goal of constructing a new regional Russian-made plane Sukhoi Superjet 100.
Another portfolio of projects are investment projects in the Commonwealth of Independent States amounting to US$5 billion, of which the Bank is supposed to cover US$2 billion. We are talking about projects in the following economy sectors: the electric power industry - 15,7%, transport and transport infrastructure - 26,2%, petrochemistry - 20,9%, financial sector - 4,8%, public health services - 3%, other - 10,4%.
EDB is open to new members who seek to foster integration within the post-Soviet space. Other states and international organizations are welcome to join the Agreement Establishing EDB. Tajikistan and Belarus are regulating the membership issue with their internal law, while Armenia and Kyrgyzstan are at the stage of multi-agency adjustment.
These countries can offer a number of challenging investment projects that correspond to the bank’s strategic goals. Those are the Sangtudin Water Power Plant-1 and the Rogun Water Power Plant in Tajikistan, Kambarat Water Power Plant-1 in Kyrgyzstan, projects of the local gas-transportation systems in Belarus, atom energy and engineering industry in Armenia.
In line with the approved strategy for 2008-2010, the Bank intends to create an investment portfolio of not less than US$4.5 billion, with over 50% of the portfolio made up of the economic integration projects bringing substantial increase in trade, investment and production cooperation of the member-states. It is expected that by late 2010 the current projects will increase the mutual trade of the member-states by US$1600 million per year and mutual investment – by US$800 million.
April 1, 2008
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