PILOT FINANCIAL INITIATIVE FOR BALTIC REGION ENVIRONMENT

Participants in intergovernmental contacts tend to sum them up in a final document “to fix positions”. These written compromises differ in form, but not in fate: they are of interest only to a narrow circle of professionals. They do not often merit the oblivion, not with so much work behind each provision, accomplished in the interests of states and ordinary citizens.

This article is a brief story of a provision of the Statement of the Conference of heads of government of the Baltic Sea region on the protection of the Baltic Sea held in St. Petersburg on April 5-6, 2013. It reads: “Participants specifically noted the Pilot Financial Initiative of the CBSS… as a new mechanism of promoting activities to protect the environment of the region”.

Annual presidency rotation in the Council of the Baltic Sea States (CBSS) offers a challenge and a test for the ability of member-states to coordinate implementation of proposed cooperation priorities in “your own” term of presidency in the organization. The universal troika mechanism comprising previous, current and future chairs of the Council allows, as a rule, to coordinate new regional projects and ensure succession in their implementation. The story of the CBSS Pilot Financial Initiative offers a vivid example of efficiency of the mechanism.

In June 2011 when Norwegian presidency was coming to an end, the 16th ministerial session of the Council adopted the Oslo Declaration. One of the agreed decisions related to the Russian-German initiative to exchange experience in Public-Private Partnership (PPP) to promote investment into the future of the region and study ways to encourage regional partnership in innovations and modernization within the CBSS framework. During subsequent German presidency in the Council (July 2011 – June 2012) the Russian foreign ministry initiated practical efforts to engage major banking institutions in cooperation along the guidelines. The result was not long in coming. On May 31, 2012 on the sidelines of the 9th meeting of the heads of government of Baltic Sea states in Stralsund (Germany), a memorandum of understanding was signed in the presence of Russian delegation chief – First Deputy Prime Minister Igor Shuvalov – between CBSS Secretariat, the German banking group KfW (state development bank), and State Corporation Bank of Development and Foreign Economic Activity (Vnesheconombank). The document was signed by Director General of CBSS Secretariat Jan Lundin, Vnesheconombank Deputy Chairman Mikhail Kopeikin, and KfW Director General Stephan Opitz.

The launched Pilot Financial Initiative (PFI) was a prelude to creating an open platform to attract partners and funds into projects aimed at sustainable economic development and cooperation in the geographic area of the CBSS, transfer of scientific and technical knowledge, increased efficiency of CBSS investment, and implementation of sub-regional programs. The initiative is open for other financial institutions operating in the Baltic Sea region.

Under the CBSS aegis in 2012-2014, Vnesheconombank and KfW expressed readiness to begin financing projects and open a credit line up to 100 million euro a year for PFI area – St. Petersburg, Kaliningrad, Pskov, Leningrad, and Novgorod regions.

Trilateral cooperation includes:

– easy-term loans to small and medium businesses in the sphere of innovations and modernization. The PFI mostly targets sustainable development of Russian northwestern regions, and

– financing of Public-Private Partnership projects as a most efficient instrument to modernize economy and intensify cooperation in the Baltic Sea region. It is focused on municipal infrastructure, climate and environment, energy efficiency, and complex development of territories.

The financing mechanism works as follows: KfW Bank provides long-term incentive loans for VEB projects which, in its turn, finances projects either directly or through its network of subsidiaries (MSP Bank, Svyaz-Bank, Globex Bank, Federal Project Financing Center, and others) or though a corresponding network of partner banks in Russia or other CBSS member-countries under the on-lending principle.

The PFI working body is the Coordinating Committee comprising six members, two from each party. Its main function is to estimate and approve project proposals offered by KfW and/ or VEB, control and assess PFI implementation, and submit reports to the CBSS Committee of Senior Officials. The founding meeting of the committee took place in the office of the Russian foreign ministry in St. Petersburg on June 7, 2012. Head of the KfW office in Russia Daniil Algulyan was elected its chairman.

The first agreement in the PFI framework was signed in Moscow on November 16, 2012. It envisages a five-year credit facility of 110 million US dollars to finance projects in St. Petersburg, Kaliningrad, Leningrad, Novgorod, and Pskov regions. According to the terms, VEB provides finances to partner banks which in turn lend them to Russian enterprises.

The second agreement was signed at the CBSS Secretariat in Stockholm on December 12, 2012. According to the loan agreement worth up to 65 million US dollars, funds will be provided in ruble equivalent at a fixed rate. They will be used by VEB to finance the project of economically and ecologically feasible treatment of mixed household waste in St. Petersburg implemented by Avtopark #1 Spetstrans Company. The agreement is valid for seven years.

The implementation of the project will dramatically decrease the amount of solid waste at dumps, extend the service life of the dumps and improve the general environmental situation in the region. Five waste-treatment enterprises will recycle up to 70-75% of paper, corrugated cardboard, offset paper, plastic bottles and solid-plastic boxes, polyethylene film, ferrous metal scrap, aluminum cans, heat-producing elements for cement industry, and biologically degradable waste. Up to 15-20 percent of recycled garbage will become environmentally safe as it will contain no biologically degradable waste. The aggregate recycling capacity will reach 900,000 tons of solid waste a year. Thus, the project will decrease greenhouse emissions in the region and eliminate harmful impact of garbage dumps on the environment.

There is enormous demand in Leningrad region for such services and waste-treatment plants are expected to have a full load. The project is being implemented with the support of the long-term regional goal-oriented investment program for treatment of solid household and industrial waste in St. Petersburg in 2012-2022. It is also backed by the government of St. Petersburg as the enterprises will be built on municipal land under a long-term (49 years) lease contract.

On November 22, 2012 Kaliningrad hosted, within the PFI framework and under the auspices of the Russian CBSS presidency, the International Conference on Support to Small and Medium Businesses in the Baltic Sea Region: Financing, Public-Private Partnership, and Innovations. The event aimed at attracting the attention of small and medium businesses, financial institutions and agencies to the problem of long-term financing and support to small and medium businesses in the sphere of innovations and modernization in the Baltic Sea region. The conference was attended by representatives of development banks and financial institutions of the Baltic Sea region, small and medium businesses, the Embassy of Germany in Russia, the government of Kaliningrad region, organizations which support small and medium businesses, and scientific and expert communities.

At present, the CBSS Secretariat is working to engage in the PFI such influential regional financial institutions, as the Nordic Environment Finance Corporation (NEFCO) and the Nordic Investment Bank (NIB), as well as development banks from other countries of the Baltic Sea region.

It is logical therefore that the PFI implementation experience was a major issue in the economic section of the address by Russian Foreign Minister Sergei Lavrov about priorities of the Russian CBSS presidency delivered at the third ministerial meeting of the Northern Dimension in Brussels on February 18, 2013. The algorithm of the PFI project as an instrument of close and mutually beneficial cooperation of well – tested business partners and the non-governmental organization can and should lose its unique status as soon as possible. The Baltic Sea region should again confirm its pioneer status in introducing new models of social and economic interaction for the benefit of its peoples. The recipe of Public- Private Partnership is available.

Heads of governments at the Baltic Sea Forum in St Petersburg on April 5-6 praised the PFI in acknowledgement of well-chosen areas of work, as well as the readiness to offer projects under implementation for the fulfillment of new tasks.

Despite the seeming triviality, the problem enormous economic and social significance. In the modern world, approaches to its solution demonstrate maturity of the state and business and their ability to create a comfortable environment for the life of the citizens.

Therefore, the problems of the “green growth”, reduced discharge volumes and rational recycling of waste also for the production of energy have fully entered the global agenda. We shall definitely discuss the issues at the G20 which Russia currently chairs.

Russia accumulates some 3.5 billion tons of waste every year. Close to a quarter, but much less in reality, is recycled. The rest is burned down or dumped at special sites. Regrettably, much waste is dumped at illegal sites whose number is constantly growing.

The volume of accumulated waste in Russia currently comprises around 90 billion tons.

The experience of many countries shows that utilization and recycling of waste is a complicated but promising type of business activity. We have to create conditions for investors and small and medium businesses to come and operate in the sphere.

Quoted from President Vladimir Putin’s speech at a meeting on April 10, 2013 devoted to incentives in household and industrial waste treatment.

Nikolai Lakhonin,

for Amber Bridge

The Amber Bridge has already covered various PFI stages. Its third issue in 2012 contained an interview with Russian Foreign Minister Sergei Lavrov headlined Synergy of Efforts – a Practical Task while issue 4 in 2012 published an article by Director General of the CBSS Secretariat Jan Lundin headlined Who We Would Like To Be With. We believe it is logical to continue covering the implementation of the successful project.

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