He wants to spend billions on a massive high-speed rail network, he’s got to fine-tune infrastructure in time for the Olympics, he wants to get pension funds involved, but critics are circling. I refer of course to Russian president Vladimir V. Putin, whom I saw in a big hall in Moscow not two years ago extolling the virtues of infrastructure investment.
Putin made the news last week for announcing that the state-run National Welfare Fund, funded by oil revenues, will be investing in infrastructure projects. The 900-billion-rouble (£18 billion) NWF amongst other things guarantees pensions nominally funded by the Pension Fund of the Russian Federation.
He can do this partly because Russian civil servants’ pensions are funded by a big pot of money – unlike NHS employees in the UK, whose pension scheme is unfunded, or civil servants whose pensions are provided by private providers under contract to the civil service.
Dipping into pension pots to pay for infrastructure is a relatively new trend among governments, hence the UK government has been excitedly talking up the idea for a couple of years now. In the UK, the policy is driven by the need to replace shrinking bank debt combined with the need of those pension funds (and insurers) to find some assets that are low-risk but offer a good enough yield.
In Russia on the other hand, the biggest banks aren’t shrinking from financing infrastructure. How could they? They’re majority owned by the state! But even their balance sheets aren’t big enough for the country’s needs. Plus not many foreign banks are willing to invest in Russian projects because of the foreign exchange and regulatory risk (all contracts with the government on domestic infrastructure are governed by Russian law, either federal or regional – no international arbitration allowed).
A good example of the costly projects is the high-speed rail network. A planned line from Moscow to St Petersburg was initially supposed to cost just under 700 billion roubles, the chief executive of the project told me in 2011, which rose to 1.12 trillion last year. Now it seems to have finally (after repeated promises of a tender) been shelved indefinitely pending procurement of a line from Moscow to Kazan, one of the 2018 World Cup sites, in the hope that it will be ready by 2018. Which will cost a cool 928 billion. Welfare fund cash has reportedly already been allocated.
Being a big country, Russian transport projects tend to be on a big scale. The government is also on the record as saying that they want projects with more accountability from their contractors, and less scope for things to go wrong when the project is operational (like a badly build road crumbling).
The solution, they say, is the public-private partnership, in which the private sector provides finance, takes on risks and gets paid – either from user charges or payments from a public authority – once they have successfully completed the project. As well as high-speed rail, they want to use this to build a new ring road round Moscow, a project so vast it will be split into sections.