Indeed they are. The delegation came last month to publicize the tender of the first Russian public-private partnership (PPP) deal set to come to market. The project is a highway cutting through St Petersburg, the Western High Speed Diameter (WHSD), which is designed to improve access to Russia’s most important port.
Reduced stake
On the surface it would appear that the timing could not have been worse. A day after the event, the Russian government’s strong-arming of Shell into reducing its stake in the Sakhalin-2 liquefied gas project hit the front pages of the national press. The Anglo-Dutch company was forced to reduce its stake from 55% to 25%, so ceding majority control to state-controlled energy company Gazprom. This raised doubts about the survival of investor interest in Russia.
If the reaction of potential investors in the WHSD project is anything to go by, interest is still strong. “We are interested in the project,” confirms Rudolf Krapf, director at Austrian construction company Bauholding Strabag. “We do not overestimate the Shell situation, and I don’t think it will deter other investors coming to Russia.”
Al Breach, Moscow-based chief strategist at UBS Brunswick, says: “The [Sakhalin] outcome was the inevitable conclusion, people knew it was going to happen. In spite of this, capital inflows into Russia have been strong.” As Russia is now better equipped to handle energy production itself, it is less willing to accept foreign ownership. “The Sakhalin deals were done in the 1990s. In regards to natural resources, the state has moved on to a 50 plus one shareholdership policy,” Breach adds.
Krapf agrees. He argues that investors have to take an industry-specific approach. “The state does not need foreign know-how in the energy sector any more. In the building sector, on the other hand, that need is still very evident.” Does he not fear that the WHSD project might at some stage fall victim to a similar change in parameters? “Of course there is an element of danger,” he concedes. “But then our policy is to drive up our return on equity as quickly as possible.” The leasing agreement, which includes the right to toll revenues, is set to be for 30 years. Whoever ends up as concessionaire of the project better hope that the development of Russia is not to the detriment of foreign investors.
Return
Equally, the Russian government must hope that risk appetite among investors remains undiminished. The WHSD is not the only Russian infrastructure PPP initiative in the pipeline, and the government has set up an investment fund for such projects. “We are hoping to set a precedent here,” says Raymond Bourdeaux, senior infrastructure specialist at the World Bank, which is advising on the project. “The investment needs in Russia are huge. If this project is successful, we think that this will make the bidders that lost out this time come back for the second deal, the third deal, and so forth.”
