BMI View: For 2013 we maintain our view that 'political risk is the main element that can ultimatelycurtail growth as public policy remains opaque, convoluted and subject to frequent change'. The plannedprivatisation scheme remains high on the agenda, yet on the back of heavy state involvement and strongvested interests we believe foreign enthusiasm to be muted. Nevertheless, the construction sector remainsbuttressed by flagship projects associated with the 2014 Sochi winter Olympics and the 2018 FIFA WorldCup. Adding to growth is also as a steady stream of projects within the extractive sector. Hence, wemaintain our forecast for construction industry value growth of 5.5% for 2013.
The themes that currently shape Russia's infrastructure sector are:
The Russian government's decision to create a US$10bn investment fund follows a pledge itmade to share the risks inherent in investing in Russia's private sector. By doing this, it hopes toattract more private capital. The government will use this investment fund as seed money,reportedly spending US$50-90bn over the next few years to finance up to 20% of privatelyprocured development projects. However, we believe the risks to this commitment are weightedto the downside, due to persistent corruption and an opaque business environment. Hence, in theshort to medium term, we believe project financing will remain a state-lenders' affair.
Infrastructure associated with the export of commodities (pipelines, ports and transportinfrastructure - to support oil and gas output east and west of the Urals) has a high growthpotential - as development is predicated on growth in the natural resources sector. These projectshave been prioritised by the government.
The infrastructure projects surrounding the 2014 winter Olympics and the 2018 FIFA World Cupcontinue to buffer sector growth.
The world's largest public-private partnership project in the toll road construction sector finallyseems to be off the ground after years of delays. The first phase of the symbolic US$6.5bnWestern High Speed Diameter (WHSD) toll road secured a US$1.8bn loan on June 26 2012,backed by a consortium of five banks comprising: Vnesheconombank, VTB Capital,Gazprombank, the European Bank for Reconstruction and Development, and the EurasianDevelopment Bank. The remaining US$1.2bn required for the first section will be supplied bythe Russian government and state sponsors.
The privatisation wave within the domestic construction sector we were expecting in 2011 didnot ultimately gain momentum (with the exception being the energy and utilities sector, whichsaw considerable foreign participation). However, on the back of continued governmentalsupport we do not believe that it is out of the question in the longer term.
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Via Paul Thomen