Russia's Project Finance Factory eyes reforms to lure private investors

Russia's Project Finance Factory programme could soon see major changes to attract more private investors. VEB.RF, the state development corporation, has put forward new proposals to the Ministry of Economic Development. The aim is to make the scheme more appealing while easing pressure on the state budget.

This comes after the Central Bank lowered its key rate to 15% in March, a move that still leaves borrowing costs far above levels considered viable for investment.

VEB.RF's suggestions focus on tackling the high interest rates that currently deter private investors. One key proposal is the use of 'recoverable' subsidies, which would help offset the impact of elevated borrowing costs. Under the plan, VEB.RF would claw back part of the subsidy once projects become profitable.

The corporation also wants to cap the effective interest rate for projects at 6–8%, a range where private investment becomes feasible. If rates rise to 13–14% or beyond, as seen recently, the risks become too high for most investors. To balance budget concerns, the lower rate would only apply during the toughest early stages of a project. The Ministry of Economic Development is now reviewing these ideas as part of broader efforts to improve state support tools. If approved, the terms for issuing loans under the Project Finance Factory could be adjusted to reflect the new approach.

The proposed changes would tie subsidies more closely to project performance and market conditions. By reducing the financial strain on the budget while making investments more attractive, the reforms could encourage greater private sector participation. The Central Bank's recent rate cut to 15% highlights the ongoing challenge of balancing monetary policy with economic growth incentives.