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Home > Funding and investing incentives in Russia 2017 > Partnership between government and business: implementation of priority investment projects

Partnership between government and business: implementation of priority investment projects

Public-private partnership (PPP)

PPP is a long-term agreement between the government and business with a focus on public infrastructure development, under which business takes part not only in the creation (reconstruction, upgrade), but also in further operation of the infrastructure facility.

PPP specifics and features:

  • long-term partnership (at least 3 years for PPP agreements);
  • the subject of the partnership is attracting investments in the creation or reconstruction of infrastructure facilities;
  • the private investor creates the facility and manages its operation and (or) maintenance;
  • the private investor fully or partially finances the creation of the facility under the agreement;
  • the investor is granted the right of private ownership to the facility under the agreement;
  • the private investor may design the facility under the agreement;
  • project efficiency is assessed and its comparative advantages are defined.

Benefits for the investor:

  • opportunity for the allocation of a land, forest or a water plot within single tender procedures for entering into a PPP or a concession agreement;
  • opportunity for project co-financing using budget subsidies;
  • opportunities for private initiative (independent submission of an application) when entering into a PPP agreement;
  • increased attractiveness of local projects for banks due to a unified tender with respect to facilities located in the territories of several public-law entities (joint tenders);
  • guaranteed review of contractual conditions in terms of increasing the expenses of the public partner, extension of terms and granting additional guarantees to the private partner in case macroeconomic conditions and legal standards directly affecting the project (taxes, benefits etc.) change;
  • opportunity to raise additional debt financing through creation of private property.

Mechanism of entering into a PPP agreement (PPPA):

  • Submit a proposal on PPP project implementation
  • Review the proposal and forward it for assessment (up to 90 days)
  • Forward the opinion on project efficiency and its comparative advantages (up to 180 days)
  • Tender procedure (up to 180 days)
  • Publish the proposal at torgi.gov.ru (45 days)
  • Make the decision on PPP project implementation
  • Enter into a PPPA (without the tender, in case there are no additional bids)

Regulations:

  • Federal Law dated July 21, 2005, No. 115-FZ “On concession agreements”;
  • Federal Law dated July 13, 2015, No. 224-FZ “On public-private partnerships, municipal-private partnership in the Russian Federation and amendments to certain legislative acts of the Russian Federation”.

Special investment contract (SIC)

SIC is an agreement between the investor and the Russian Federation (or its constituent territory), which sets forth the investor’s obligations to set up manufacture of industrial products within the given term, and the obligations of the Russian Federation or its constituent territory to guarantee stable tax and regulatory environment and implement incentive and support measures.

SIC term is equal to the period, in which the project starts generating operating profit, plus 5 years, but cannot exceed 10 years.

Who can apply:

  • those who create and upgrade operating capacities;
  • those who implement the best available technologies;
  • those who invest at least RUB 750 mn in one project;
  • those who set up manufacture of industrial products, which do not have analogues in the Russian Federation.

Benefits for the investor:

  • tax, levy and tax payment benefits;
  • reduced rental fee for using state and municipal property, including land plots;
  • other benefits and preferences set forth in the legislation;
  • guarantees of protection from unfavorable changes in the effective legislation.

Mechanism of entering into a SIC:

Investor

Ministry of Trade and Industry of Russia

Inter-Agency Committee

  • 1. Provide application with accompanying documents
  • 2. Forward documents with a preliminary opinion (up to 30 days). Forward opinion with a draft SIC (up to 10 days)
  • 3. Forward the opinion on feasibility of entering into a SIC (up to 60 days from stage 1)

    Forward a signed SIC (up to 10 days)

Regulations:

  • Federal Law dated December 31, 2014, No. 488-FZ “On industrial policy in the Russian Federation”;
  • Resolution of the Government of the Russian Federation dated July 16, 2015, No. 708 “On special investment contracts for specific industries”.

State guarantees of the Russian Federation (Guarantees)

Guarantees are granted with respect to loans or bonded loans raised to implement investment projects by a commercial entity, which focus on:

  • creation of new and (or) reconstruction of existing social, agro-industrial, industrial, utility and transportation facilities and further operation thereof;
  • energy savings and improvement of energy efficiency in the housing and utility sector, and in manufacturing industries.

Criteria for project selection:

Guarantees are granted with respect to loans or bonded loans raised to implement investment projects by a commercial entity, which focus on:

  • the principal finances at least 15% of the total project value out of its equity;
  • the total scope of state support granted by the Russian Federation and (or) constituent territories of the Russian Federation to the principal under the project it implements, in various forms, including financing through Vnesheconombank, does not exceed 75% of the total value of the project implemented by such principal;
  • the planned scope of project financing through bonded loans and (or) loans secured by the state guarantees of the Russian Federation and raised for project implementation does not exceed 50% of the total project value;

In respect of projects in the area of energy savings and improvement of energy efficiency in the housing and utility sector:

  • the total project value is at least RUB 500 mn;
  • the share of public participation in the principal’s authorized capital does not exceed 49%;
  • the payback period for at least 80% of the total investment volume does not exceed 7 years through reduced consumption of energy resources and (or) water;
  • investments focus on reconstruction and upgrade of existing housing and utility infrastructure or complete replacement of the housing and utility facility with an energy efficient facility;
  • potential reduction in consumption of energy resources and (or) water in absolute terms per unit is at least 15%;

In respect of projects in the area of energy savings and improvement of energy efficiency in manufacturing industries:

  • the total project value is at least RUB 1 bn;
  • the share of public participation in the principal’s authorized capital does not exceed 49%;
  • the payback period for at least 50% of the total investment volume does not exceed 5 years through reduced consumption of energy resources and (or) water per unit;
  • investments focus on reconstruction and upgrade of existing production capacities, including production lines put into operation one year before the selection or afterwards;
  • investments focus on the principal’s fixed assets, and the balance-sheet value of investment object(s) as of the last reporting date must exceed 1% of the balance-sheet value of all assets or 5% of the balance-sheet value of non-current assets;
  • potential reduction in consumption of energy resources and (or) water in absolute terms per unit is at least 10%;

In respect of other projects:

the total project value is at least RUB 5 bn.

Benefits for the investor:

  • opportunity to implement complex investment projects, where principals does lack sufficient equity;
  • reduction of the ultimate loan rate due to preferential funding of lending banks in the Bank of Russia.

Regulations:

  • Resolution of the Government of the Russian Federation dated December 14, 2010, No. 1016 “On the approval of rules used to select investment projects and principals for provision of state guarantees of the Russian Federation in respect of loans or bonded loans raised to implement investment projects”;
  • Resolution of the Government of the Russian Federation dated December 14, 2010, No. 1017 “On the procedure of provision of state guarantees of the Russian Federation in respect of loans or bonded loans raised by legal entities selected as provided by the Government of the Russian Federation, to implement investment projects, in 2012-2015”.

Financing of infrastructure projects using the funds of the National Wealth Fund (NWF)

The NWF funds are directed, without limitation, to finance self-sustained infrastructure projects on a repayment basis, the list of which is approved by the resolution of the Government of the Russian Federation.

Criteria for project selection:

  • Russian issuers related to the implementation of self-sustained infrastructure projects shall have a long-term credit rating of at least “BB+” assigned by Fitch-Ratings or Standard&Poor's rating agencies, or at least “Ba1” assigned by Moody's Investors Service;
  • the share of the NWF may not exceed 40% of the total financing volume of the investment project from all sources;
  • raising equity or a commercial loan in the amount of at least 15% of the total investment project value;
  • the NWF funds shall be repaid at the rate of inflation + 1% with the payback period of up to 30 years and the grace period enabled.

Benefits for the investor:

The NWF funds are directed, without limitation, to finance self-sustained infrastructure projects on a repayment basis, the list of which is approved by the resolution of the Government of the Russian Federation.

Criteria for project selection:

  • opportunity to raise funds at an attractive interest rate;
  • raising long-term capital for the implementation of an investment project;
  • opportunity to raise substantial financing.

Benefits for the investor:

The NWF funds are directed, without limitation, to finance self-sustained infrastructure projects on a repayment basis, the list of which is approved by the resolution of the Government of the Russian Federation.

Regulations:

  • Budget Code of the Russian Federation dated July 31, 1998, No. 145-FZ (articles 96.10 and 96.11);
  • Resolution of the Government of the Russian Federation dated January 19, 2008, No. 18 “On the procedure of managing the funds of the National Wealth Fund”;
  • Resolution of the Government of the Russian Federation dated November 5, 2013, No. 991 “On the procedure of assessing feasibility of investment project financing using the funds of the National Wealth Fund and (or) pension savings held in trust management by a state management company, on a repayment basis”;
  • Resolution of the Government of the Russian Federation dated November 5, 2013, No. 990 “On the procedure of allocating the funds of the National Wealth Fund in the securities of Russian issuers related to the implementation of self-sustaining infrastructure projects”;
  • Order of the Government of the Russian Federation dated November 5, 2013, No. 2044-r “On the approval of the list of self-sustaining infrastructure projects implemented by legal entities, in the financial assets of which the funds of the National Wealth Fund and (or) pension savings held in trust management by a state management company, on a repayment basis, are allocated”

The program to support investment projects on the basis of project financing (Program)

The Program was approved by the Government of the Russian Federation to create a mechanism of support for investment projects based on project financing, stimulating the increase in lending provided to entities in the real sector of the economy based on long-term and favorable terms.

Criteria for project selection:

  • the total investment project value shall be between RUB 1 bn and RUB 20 bn;
  • debt financing may not exceed 80% of the total investment project value (in RUB);
  • the investment project shall be implemented in the territory of the Russian Federation in one or several of the following priority industries: agriculture, manufacturing, chemical production, machine-building industry, housing, transport complex, communications and telecommunications, production and distribution of electricity, gas, water and other resources;
  • the company shall have the status of a legal entity registered in the territory of the Russian Federation;
  • the company shall not have any past-due debts in respect of taxes, levies and other mandatory payments to the budgets of the Russian Federation, including state non-budgetary funds;
  • there shall be no initiated bankruptcy proceedings;
  • there shall be no registration of a legal entity controlling the initiator of the investment project and the end borrower in any offshore jurisdictions.

Benefits for the investor:

  • a favorable interest rate not exceeding the interest rate set by the Bank of Russia, if authorized banks are provided with credit funds to re-finance loans issued by authorized banks to end borrowers, plus 2.5% p.a.;
  • state guarantees of the Russian Federation for loans issued to implement investment projects, in the amount of up to 25% of the loan amount.

Regulations:

Resolution of the Government of the Russian Federation dated October 11, 2014, No. 1044 “On the approval of the Program to support investment projects implemented in the territory of the Russian Federation on the basis of project financing”.

 

Subsidiary support

As part of its activity focused on industrial development, the Government of the Russian Federation grants subsidies to companies operating in various industries to support their core activities. The key federal executive authority is the Ministry of Trade and Industry of Russia.

Areas of support:

  • general support measures;
  • heavy engineering, metallurgy;
  • aircraft engineering;
  • shipbuilding;
  • transport engineering and automotive industry;
  • engineering;
  • consumer goods and goods for children;
  • chemical industry and forestry;
  • pharmaceuticals;
  • agriculture;
  • industrial parks.

Benefits for the investor:

  • subsidies to implement new investment projects;
  • subsidies to reimburse some expenses on payout of loan interest;
  • subsidies to reimburse some expenses on R&D;
  • subsidies to support development of production;
  • subsidizing pilot projects related to engineering and industrial design.

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