Russia Considers Spending Wealth Fund Billions on Infrastructure
(Bloomberg) -- Russia may spend billions of dollars from its wealth fund this year on infrastructure and other investments, and projects related to Rosneft PJSC’s huge Vostok Oil venture in the Arctic are high on the list of candidates, according to two officials with knowledge of the discussions.
The largesse could represent a significant boost in spending as the government has been cutting back on other stimulus introduced last year amid the coronavirus pandemic, the officials said, speaking on condition of anonymity to discuss plans that aren’t yet public. President Vladimir Putin last week gave the government a month to draw up a list of specific investments for the fund.
Thanks to the rise in oil prices, the wealth fund, which accumulates excess revenue from the fuel, is on track to top $200 billion this year. Though Russia suffered a relatively modest recession amid the pandemic last year, the recovery is expected to be sluggish and a jolt of state spending could help accelerate it. Russia has invested billions from the fund in the past in projects linked to big state companies.
In a statement early Wednesday, Rosneft said that it has not asked for government funding for any of its projects, including Vostok Oil, which it said does not require long-term state financing. The company didn’t comment on whether the wealth fund might invest in related infrastructure.
Finance Minister Anton Siluanov said Wednesday money from the wealth fund could begin flowing in the first half of this year, with spending totaling 1 trillion rubles ($14 billion) over 3 years. He said a high-speed-rail project between Moscow and St. Petersburg was a likely recipient.
The Economy Ministry didn’t respond to requests for comment for this article.
Dmitry Dolgin, analyst at ING Bank in Moscow, said the government could spend as much as 1.5% of gross domestic product, or $23 billion from the wealth fund this year.
”Spending on infrastructure creates much less inflationary pressure than the same amount spent on an increase of wages and pensions,” said Tatiana Orlova, an analyst at Emerginomics in London. “This kind of stimulus is better because it creates less risk of the economy overheating.”
Still, central bank officials have already expressed concern that a burst of new spending could fuel inflation, which is already running above target. Those worries are among the reasons the central bank is considering raising interest rates faster than originally planned this year.
The Finance Ministry has sought to impose strict criteria for selecting the ventures to make sure they’re economical, requiring majority participation by private investors, for example.
Vostok Oil was valued at $85 billion after Trafigura Group bought a 10% stake in December. Rosneft Chief Executive Officer Igor Sechin presented Putin a flask of crude from an early well last year, pronouncing it “even better than in the Middle East.”
Located in the remote Taimyr region, the project requires massive investment in basic infrastructure like roads and rail links. Rosneft has already received tax breaks for another project to help pay for some of the Vostok Oil work. The wealth fund has stepped in to pay for such things for other ventures in the past.
No final decisions yet have been made on how much to spend from the fund this year or which projects will get cash, the people said.
“We need to reevaluate one more time which projects have detailed plans and are ready to start and be decided on,” Putin said last week during a meeting with officials and business executives on boosting investment. “And after such evaluation we need to launch them immediately.”
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