INTERVIEW: Eurasian Development Bank seeks to build funds, links

By bne IntelliNews February 22, 2010

Clare Nuttall in Almaty -

2010 is an important year for the Eurasian Development Bank (EDB), according to its chairman Igor Finogenov. The EDB plans to grow its investment portfolio by over 50% and take in new members, and is managing the Eurasian Economic Community's (EurAsEC) $10bn anti-crisis fund.

In addition to economic development, the bank is helping to rebuild the links between its member countries that date back to the Silk Road era. "Integration in this region has an economic basis," Finogenov tells bne. "Looking at the region from a historical perspective, the countries have had very tight economic links.

Established in January 2006, today the bank has four members. In addition to founders Russia and Kazakhstan, it acquired two more full members - Armenia and Tajikistan - in 2009. "From the very beginning, our mission was to attract new members, with an initial focus on the EurAsEC countries," says Finogenov. "Since the name of our bank is 'Eurasian', and according to our charter there are no restrictions on which countries can join, theoretically any country in this region - from Iceland to Malaysia - could become a member of the EDB."

Membership for Belarus is imminent and Kyrgyzstan recently sent an official application to the bank's council. "There has not yet been an official application from Azerbaijan or Moldova, but I feel there is a great interest on the part of those two countries to work with our bank. We have also had close contact with the government of Mongolia regarding issues of cooperation," says Finogenov.

Pan-regional investor

The bank currently has a $1.3bn investment portfolio, which it plans to increase to $2.1bn by the end of the year. Its focus is on projects with a development effect that contribute to integration within the Eurasia region. Other factors it looks for include transparency, support for mutual trade and investment between member countries, and positive structural changes.

The EDB's pan-regional presence has given it the scope to act in sectors such as energy and transport where it can take advantage of existing connections and build new links between member countries.

The energy sector, for example, has been one of the main areas of activity for the EDB. Projects in this sector include funding the construction of a new generating unit at Kazakhstan's Ekibastuzskaya GRES-2 power plant, reconstruction of the Argun thermal power plant-4 in Chechnya - the region's largest energy infrastructure project - and support for the modernisation of the Siberian Coal Energy Company's operations. "Electrical power is one of our priority directions for investment. There used to be a deficit of it in this region. We are considering various projects to eliminate this deficit, which can only be implemented successfully on an inter-state basis," says Finogrenov.

The interconnection of Eurasian power systems has had benefits across the region, points out Finogenov, citing the example of the north Kazakhstan and South Siberian energy systems. "After the recent accident at the SS GES in Siberia, Kazakhstan provided additional electrical energy to make up the deficit in Siberia, illustrating that integration structures provide for sustainable economy of the counties and how important the economic ties are," he says.

Cross-border cooperation could also help Central Asia exploit its energy resources. "In Central Asia, the major hydro-energy potential is located in Tajikistan and Kyrgyzstan. An inter-governmental project in this area could cover the energy shortfall in those countries as well as in Afghanistan, Pakistan and China, which really suffer from a deficit of electrical energy," says Finogenov.

Other priority sectors for the bank include transport infrastructure, the high-tech and innovative industries, the agro-industrial sector, and the financial sector.

To fund its work, the bank carried out a successful $500m Eurobond issue in 2009. "We may consider a further issue this year, but this would depend on certain criteria," explains Finogenov. "First, we may consider issuing bonds in local currencies, because the currency risks when bonds are issued in foreign currencies are pretty high. We will monitor the situation carefully and will do our best to ensure that the state debt of our member countries does not grow as a result of any bond issues we decide to undertake. Second, we will look at the cost of the resources, because as a development institution we are financing infrastructure projects that need long-term, cheap resources."

Since the onset of the international economic crisis, the bank has responded by developing a special programme for operating under crisis conditions. "We review our investment portfolio and the programmes that are being considered for financing, we rejected some projects and changed the structure of others. As a result, we have not had any losses. In future, we will continue to very carefully monitor the economies of our member countries," says Finogenov.

In 2009, the EDB was appointed as manager of the EurAsEC anti-crisis fund, which, Finogenov says, will involve a huge amount of work this year. The bank is currently working to set out regulations for the fund's work. Rules for issuing finance to countries have already been approved, and rules for investment credits will soon be approved. The first applications to the fund are expected in the very near future. "The crisis taught serious lessons to every EDB member country, namely that the economic structure does not provide for sustainable development. This has taught us to work intensively to improve the economic structures in our member countries. Russia and Kazakhstan have launched programmes to modernise their economies, with the aim of eliminating the influence of the crisis," says Finogenov.

"The pace of recovery from the crisis has been pretty high, but this doesn't mean we can relax - we need to work," he adds.

INTERVIEW: Eurasian Development Bank seeks to build funds, links

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