Vnesheconombank (VEB) head Vladimir Dmitriyev comments on the prospects for further co-operation between Shanghai Co-operation Organization (SCO) credit institutions and joint Russian-Chinese projects during an interview with Interfax China. Shanghai was chosen to host this year's SCO summit and a session of the SCO Inter-Banking Council.

Q: What role do contacts within the SCO play in VEB's operations?

A: Multilateral co-operation within the SCO, an association of countries with extensive and promising markets, is key for Russia from a strategic standpoint. For this reason, VEB, which provides a comprehensive range of services both as a credit organization and the Russian government's financial agent, attaches great importance to contacts within the SCO.

Acting on our proposal, Russia came up with an initiative to establish an association of authorized State-owned specialized banks of SCO member-nations. An agreement on inter-bank co-operation was signed at a ceremony in Moscow on October 26, 2005, in the presence of SCO prime ministers.

Doubtlessly, co-operation of authorized banks is the most effective mechanism to finance SCO projects. Such contacts help make the most of the potential of SCO member-countries' financial institutions and are viewed as a key step toward considerably cutting the time required to lay the groundwork for projects and enhancing the reliability of their financing programmes.

Q: Which SCO projects do you think are most lucrative from an investment point of view? Which of these projects is VEB planning to join?

A: As for avenues for investment within the SCO over the period until 2010, projects aimed at developing the organization's transportation infrastructure, energy sector and telecommunications hold great promise.

I am speaking about major energy generating facilities in Tajikistan and Kazakhstan, the E-40 motorway and multilateral projects to promote the adoption of advanced communications and information technologies within SCO's territory.

In addition, VEB signed a co-operation agreement with the Development Bank of Kazakhstan that paves the way for joint infrastructure construction projects, contacts in a wide variety of industries, including export-oriented sectors, and programmes to fund projects in accordance with the SCO inter-bank co-operation agreement. We will also arrange syndicated loans and jointly finance investment projects and export operations.

In our opinion, it will benefit Russian-Kazakh co-operation and give a fresh impetus to contacts within the SCO as a whole.

Q: What does China think about Russia's initiative of co-operation between SCO banks?

A: Russia's initiative was supported by all SCO member nations, including China. I would like to add that China Development Bank is acting as VEB's principal partner in promoting the initiative.

A number of concrete steps have already been taken in the area of inter-bank co-operation with the help of Russia and China. A decision was made at an April 20-21 session of the SCO Inter-Banking Council's senior co-ordinators to create a combined database of potential investment projects.

We have also developed a mechanism to rapidly co-ordinate the activities of the SCO association's member banks and have held negotiations on a package of documents that will regulate the association's functioning, including credit facilities and the aforementioned database of potential investment projects. The documents are to be approved at an annual session of the inter-bank association's council in Shanghai in June.

Q: Russia and China have the largest and most promising markets among other SCO members. What role does Russian-Chinese business co-operation play in VEB's activities?

A: VEB is guided by the goal of raising Russian-Chinese trade to US$60 billion-US$80 billion by 2010 set by the two countries' leaders.

The volume of Russian-Chinese trade amounted to US$29.1 billion last year. VEB, for its part, can play a crucial role in making these plans a reality, especially as it can become a kind of "locomotive" and spur the development of business co-operation within the SCO in general.

Russia is strongly interested in expanding and diversifying its high-tech exports, because it sees such products as a key contributor to its sustainable economic growth. From this standpoint, China is one of the most lucrative markets for us.

VEB gives top priority to providing state support for industrial exports, as Russia chiefly exports raw materials to China at this stage.

Last November, VEB signed a US$300 million contract with China Development Bank to fund pre-export financing programmes for Russian enterprises that manufacture high-technology products and sell them to China. The agreement came as a follow-up to a number of projects financed by the Chinese bank's US$212 million credit facility.

We have already reached a level of co-operation with our Chinese partners that allows us to consider significantly increasing the size of credits to fund the delivery of Russian engineering products, machines and equipment to China.

It is no exaggeration to name China Development Bank as VEB's major partner in the Asia-Pacific region in financing the production and export of special-purpose goods manufactured by the Russian defence sector to China.

Last year, Russia and China signed an agreement to settle Soviet-era and Russian debt to China managed by VEB. A considerable part of this debt will be paid off by supplying Russian goods to China. VEB and its Chinese partners are negotiating on a list of exports.

Q: What is VEB's contribution to the development of Russian-Chinese co-operation in the energy sector?

A:Energy issues are rising to the forefront of world politics and the economy. Russia, which holds the G 8 presidency in 2006, has included these problems in the agenda of the G8 summit due to take place in St Petersburg in July.

Given the broad influence, Russia and China have economic and political processes worldwide, their contacts in the fuel and energy sector are a matter of global importance. Of course, this co-operation cannot be restricted only to the export of Russian energy resources.

Atomstroiexport has designed and is now building the Tianwan nuclear power plant in China. VEB services a contract on the delivery of equipment and nuclear fuel to the facility financed through a Russian state loan to China.

The Tianwan nuclear power plant's first power generating unit was connected to China's power grid on May 12, which marks a crucial stage in Russian-Chinese co-operation in the energy sector.

Q: What is the role of contacts between Russian and Chinese regions in bilateral relations in general?

A:Projects to be implemented in Siberia and the Far East will soon dominate the agenda of Russian-Chinese business co-operation.

In particular, VEB suggested that the Krasnoyarsk territory administration map out several projects that will be submitted to China for consideration. VEB and the Krasnoyarsk territory administration are now implementing a development programme in the Lower Angara River region.

VEB is currently considering forms of possible participation in a project to complete and launch the fifth and sixth hydraulic units at the Bureya hydroelectric power plant and the Boguchany pulp and paper plant, a project that carries a price tag of US$800 million.

We are also eyeing a range of projects in Khabarovsk territory and Sakhalin that may interest China.

Bilateral contacts should be expanded beyond joint projects in border regions to include an ever-growing number of new areas, especially territories that require urgent improvements in their economic and social sectors.

Russia and China confirmed their awareness of the importance of such co-operation at a Beijing ceremony, during which VEB, China Development Bank and the government of the Chechen republic signed an agreement to promote small and medium-sized businesses, create new jobs and raise living standards in Chechnya.

The document was inked during Russian President Vladimir Putin's official visit to China in March.

Funds to be provided by foreign partners will be invested in the republic's construction sector, production capacities and transport. Undoubtedly, projects to be implemented as part of the agreement will help boost the investment appeal of Chechnya and the south of Russia as a whole and expand co-operation between the two countries.

Q: What other projects has VEB contributed to?

A: We have signed a wide variety of agreements with our foreign partners over the past year, including a crucial agreement to secure a three-year US$500 million debut syndicated loan from foreign banks. It has been largely distributed among VEB's partners in the Asia-Pacific region.

An agreement signed with the UK bank HSBC last October envisions a credit facility of up to 200 million euros (US$258 million) insured by a majority of leading European export credit agencies. The money is to be invested in medium and long-term projects by Russian engineering product exporters.

VEB also has an agreement with Sukhoi aircraft manufacturer, Vneshtorgbank, Sberbank and Roseximbank, as part of the Russian Regional Jet (RRJ) project, which may require extra funds from France, Italy and other countries. RRJ planes are widely expected to enjoy high demand both in Russia and abroad, including other CIS member-nations, India, the Middle East and Central Asia. VEB has also joined a project to sell Il-96 airplanes to Cuba.

The Russian Federation has extensive capabilities to boost its exports of machines for the energy sector, oil and gas exploration and extraction equipment, ferrous, non-ferrous, chemical and petrochemical products. Expanding the volume of these exports will benefit both Russia and the economy worldwide.

Q: What is VEB's role in Russia's economic policy?

A: We are convinced that VEB should play a key part in co-operation between private businesses and the authorities. It should make the most of its lengthy record of investment projects, including international programmes, to promote the government's policy in this area.

Russia is able to heavily invest in projects that follow State-private partnership principles, using both money from the fledgling federal investment fund and pension savings. VEB, which is the government's pension savings management company, views pension savings as a key investment source.

The bank has accumulated over US$5.1 billion and expects to raise this figure to US$30 billion by 2012, and US$70 billion by 2025.

VEB is a State financial institution that specializes in securing loans for the real sector of the economy, funding efforts to modernize import-substituting industries, building more such enterprises and financing high-tech exports, including operations through its subsidiary Roseximbank.

Source: China Daily