President of the BSTDB Dmitry Pankin: The Bank has a solid pipeline of operations in Ukraine for the coming years
Interview by Dmitry Pankin, President of the Black Sea Trade and Development Bank (BSTDB) for Interfax Ukraine - December 2020
What are the BSTDB's macroeconomic forecasts for the Black Sea region for 2020-2022? How has it changed in the last month and how will this affect the bank's activities and projects in the member countries?
Naturally, with the rapid spread of coronavirus all macroeconomic projections were radically revised downwards. The powerful second wave of pandemic added uncertainty, although the massive fiscal and monetary stimulus packages unfolded by the governments and central banks turned out helpful. The fast development of vaccines by several countries helped avoid doom scenarios and improved market sentiments. Over the last month the macroeconomic outlook has improved, while but serious uncertainties remain. What we know is that the Black Sea region (along with the rest of the world) is going to experience contraction in 2020, most likely in excess of - 5%. However, due to the low base, we expect a rebound in 2021 and probably well into 2022, leading to growth averaging 3.0-3.5% in 2021-2022.
Despite the contraction observed in 2020, there is still a robust demand for BSTDB financing, which our bank is happily providing, although the nature of the demand has changed. Many large- scale investments have been deferred, or even cancelled, and we are seeing more demand for direct corporate lending, and for support to SMEs through local financial institutions. We would expect this demand to increase as economies rebound in 2021 and 2022, in parallel to a rebound in larger investments and infrastructure operations.
What are the main challenges for the region sees the Bank and how can it help in solving them?
As we all know, relaxed monetary policies and expansionary fiscal policies have resulted in ample global liquidity, which benefits both developed and developing countries. As a development bank, we try to direct this cheap financing to real economic activities both in Ukraine and other countries. Naturally, other players are also keen to use this opportunity to make investments. However, issues with political stability can inhibit or at best, postpone those investments. To fully take advantage of this ample liquidity Ukraine and all other countries need stability, working rule of law, good governance, and other related factors in place. This is particularly relevant for infrastructure investments. It should be remembered that once existing capacity is utilized, further growth requires new investments. Inadequate infrastructure can create real bottlenecks for growth. As such, we maintain our strategic priority to infrastructure financing, including municipal infrastructure, in our member countries in the medium-term perspective.
Ukraine hoped to host the BSTDB Board of Governors this year and to hold the BSTDB business forum in Odessa. Unfortunately, this event has already been postponed twice. Does the Bank plan to hold it in Odessa in 2021? And if so, when approximately?
When the COVID-19 outbreak brought the world to a halt earlier this year, our business schedule and work plans appeared uncertain. The Bank though managed to be resilient and adaptive and promptly shifted to virtual meetings to help bridge the gap and maintain business relationships until business travel becomes feasible again. It is with this in mind that, in addition to the Board of Governors meeting that was held virtually, we are organizing a webinar for Ukrainian businesses on 17 December, in particular addressing their needs in post-pandemic recovery in close cooperation with the state Export Promotion Office, the Federation of Employers, Ukrainian League of Industrialists and Entrepreneurs, and the Chamber of Commerce of Ukraine. We hope to be able to organize a physical business forum in Odessa, as it has been planned, in the foreseeable future.
In the summer it was reported that the Bank approved four projects in Ukraine: Ukrgasbank, Galnaftogaz, Metinvest and the construction of a school in Kiev. So far there has been information about the signing of documents only for Ukrgasbank. What's with the other three projects? What other Ukrainian projects are in the BSTDB pipeline?
Our loans to Ukrgasbank and to Novopecherska school have been signed as scheduled. We plan to sign the Metinvest operation before the end of December. On Galnaftogaz, we are ready to extend a guarantee and have submitted the relevant proposal to IFC, another lender of the project. It is a normal situation that commercial and financial close of Board-approved projects may take some time, especially in case of complex deals involving multiple documents, as well as valuation and perfection of project security assets, insurance, etc.
The Bank has a solid pipeline of operations in Ukraine for the coming years. With the support of the Ukrainian Government, we are working on projects with developmental impact in metallurgy, transportation, agribusiness and commercial real estate.
The Bank was one of the creditors of the Ukrainian "green" energy sector, which today claims that the government of Ukraine has violated its obligations. What is the position of the BSTDB on this issue?
BSTDB is well aware of the situation in the Ukrainian “green” energy sector. Together with other lenders and financiers, the BSTDB insists on and requires from the Government to observe key provisions of the Memorandum agreed between the Government and green energy producers. We expect the Government to adjust the electricity transmission tariffs to reduce the deficit of the state company Guaranteed Buyer, which is obliged to buy electricity from the green energy producers and to sell it in the market.
We welcome the Government’s decision to provide state guarantees to national energy company “Ukrenergo” to attract additional funding from IFs and other lenders to cover its deficit.
The Bank is ready to support all bankable energy projects in Ukraine. Upon the improvement of market conditions and the launch of further renewable projects with the alternative schemes of the electricity purchase (i.e. like direct off-take by the corporate entities or auctions) the BSTDB is prepared to consider such projects in terms of possible lending.
The Bank has successfully managed to avoid the impact of conflicts between member countries on its work. Will it be possible to maintain such stability and efficiency of the BSTDB, taking into account the recent escalation in the region (Armenia-Azerbaijan, Turkey-Greece) and the continuing tension between Ukraine and Russia? What cross-border projects in the region is the bank considering (as an old example, the ring highway around the Black Sea) and what is the chance of their implementation?
In its long history the Black Sea region has faced many challenges, controversies and tensions. Despite that, our countries and peoples have always managed to sort them out and continue cooperation. A core corporate value of BSTDB is to focus on our regional development mandate and keep political disputes and considerations away from our Board room. We evaluate all projects without any political prejudice, but according to their development and financial merits. BSTDB has contributed to the Shakh-Deniz II gas exploration project, which is supplying gas for the South Caucasus pipeline from Azerbaijan through Georgia to Turkey.
Of course, political stability is a prerequisite for the implementation of cross-border projects, especially as it comes to long-term investments in infrastructure. So, under the current circumstances, such projects ideas as the Black Sea Ring Highway have little chance to be realized. Nevertheless, smaller size bilateral projects can be agreed and implemented.