Russia’s response

Following a lag in the country’s PPP pipeline, legal changes aim to give the market a boost. The timing gives pause for thought.

The facts are thus: From Moscow this week came news that various measures had been put forward by the government’s Council for Investments to improve the country’s concession laws and make life easier for investors in public-private partnerships (PPPs).

The Council proposed revisions to an existing draft law including the removal of restrictions on additional income for concessionaires in cases where they benefit from government payments; measures to guarantee return on investment; and to remove the maximum five-year extension restriction on concession periods.

Those are the facts – but how to interpret them? Some would take them at face value and view changes to concession laws as being entirely consistent with the work that the Council for Investments has been undertaking since 2012 to improve Russia’s rules and regulations in order to make it a more investor-friendly environment.

Specifically in relation to PPPs, such developments are timely. Having announced itself as a PPP market of some import in 2012 through the Western High Speed Diameter and Pulkovo Airport deals – worth $2.3 billion and $1.65 billion respectively – momentum appears to have been lost.

In the words of Peter Stonor, global head of transport and infrastructure at VTB Capital, the Moscow-based investment bank, there has been “some frustration in terms of the lumpiness of the [PPP] pipeline”.

Set against that, there are high hopes that a number of sizeable PPP deals will reach financial close this year, including the Moscow-St Petersburg M11 road project, the Lena River bridge PPP and the implementation of an all-Russia tolling system for heavy trucks. Still, it’s entirely understandable that the government would seek to make optimal refinements to the PPP framework even if there are signs of things picking up.

Another interpretation is that this may be an early sign of Russia having to pull out the stops to dissuade foreign investors from abandoning the country amid the ongoing political turmoil in Ukraine and application of sanctions against Russia.

In the same conversation as that referred to above, Stonor noted “the increasing interest being shown by international investors” in Russian infrastructure. Landmark acquisitions by foreigners have included the Netherlands’ APM Terminals’ purchase of terminal operator NCC Group and Singapore’s Changi Airport’s partnership with local firms to buy stakes in Russian airports. Meanwhile, Macquarie invests in the country through its Russia & CIS Infrastructure Fund.

An article by Chris Weafer of Macro-Advisory, a Moscow-based research consultancy, was published in the Financial Times earlier this week. In it, he said that “Russia is still an attractive country in which to make money” and that “international investors who are already there are staying, and others who join them stand to prosper.”

Russia, which acknowledges that an awful lot of money needs to be spent on new infrastructure, will be hoping that the pragmatic view hinted at by Weafer will prevail. Modifying investment frameworks to better suit the requirements of investors can only help – whatever the motives of those enacting the changes.