Russian Econ Ministry for using windfall oil, gas revenue to create Development Fund
MOSCOW. Jan 30 (Interfax) - The Russian Economic Development Ministry suggests setting up a Development Fund to carry out key investment projects using budgeted funds instead of the defunct Investment Fund.
The government has asked agencies to draft proposals to revamp Investment Fund mechanisms in order to finance large-scale infrastructure projects, it follows from a letter from Economic Development Minister Andrei Belousov to Prime Minister Dmitry Medvedev, dated January 23 and seen by Interfax.
The minister recalls that 100 billion rubles in National Welfare Fund resources could be allocated for these programs, in keeping with the Russian president's address to the Federal Assembly.
However, the Investment Fund mechanism calls for mutual liability of the government and private investors, with all risks - ineffective spending, private investors failing to meet their obligations - carried by the government budget, the letter states. In order to avoid these risks in projects carried out under public-private partnerships and to ensure stable financing for major infrastructure projects, the Economic Development Ministry is proposing to switch to a new mechanism in the form of the Development Fund. It is defined as "separate fund of money within the federal budget used to implement priority investment projects, financed among other things by budget investments included in expenditures of an investment nature, the resources of which are controlled by the Russian Federation or an authorized agency."
The ministry sees a big upside in creating the new mechanism: it would make it possible to isolate sources of financing for special investment expenditures among other government spending, create guarantees for timely and effective concentration of resources, and ensure maneuverability, flexibility, responsiveness, accountability, transparency and effectiveness of governent spending for the timely completion of begun projects and implementation of new ones.
Funds would be accumulated in the fund by carrying over balances to the next financial year.
The fund, the ministry proposes, would be formed with part of the budget money earmarked for federal targeted investment programs and priority federal special programs, 100% of additional oil and gas budget revenues after the Reserve Fund reaches 5% of GDP (which would require amending the budget rule, which targets the Reserve Fund at 7% of GDP), as well as at least half of additional oil and gas revenues.
The ministry is also proposing to allow up to 50% of Development Fund money to be spent on balancing the federal budget if there is a steep drop in budget revenues.
Projects to receive financing from the new fund would be selected according to three criteria: importance, readiness for implementation and short duration.
The ministry is proposing to launch pilot fund projects in 2014, and have the new mechanism operating full-scale in 2015. This would require the adoption of a number of government acts and amendments to the Budget Code by August 2013.
The Finance Ministry has not presented its position on this issue, Belousov said in the letter. A public discussion on changing the budget rule has been going on for months already, and the Finance Ministry is categorically opposed.
Reviving the Investment Fund
The Regional Development Ministry, meanwhile, is proposing to reanimate the mechanism of the Investment Fund, which has not received any government budget funds since 2011. Deputy Minister Vladimir Tokarev said in a letter cited by Finmarket that the regulatory foundation for the Investment Fund is "methodologically worked out and strengthened by the experience of the implementation of concrete projects."
The Regional Development Ministry cites several examples of successful projects that involved the Investment Fund, including the construction of the Kuznetsov tunnel on the Komsomolsk-na-Amure - Sovetskaya Gavan railroad, the rail line to the Bugdainskoye and Bystrinskoye polymetal ore deposits, railroad and pipeline infrastructure to the oil refining center in Nizhnekamsk and toll roads.
The Regional Development Ministry has more than 200 applications from potential investors interested in receiving government co-financing for their projects, the letter states.