Czech Republic’s Financial Scenario on Urals Stage

14.05.2009 — Analysis

The system of joint project financing in the Urals with the involvement of Czech Export Bank and Export Guarantee and Insurance Corporation (EGAP) of the Czech Republic remains operational even in the conditions of economic crisis. This is what Miroslav Rames, Consul General of the Czech Republic in Ekaterinburg, told RusBusinessNews in an interview.

- Mr Consul, what are the most important instruments for economic cooperation between Urals and Czech companies that were established since the Consulate General of the Czech Republic was established in Ekaterinburg?

- The Consulate General of the Czech Republic in Ekaterinburg was established in 2002. Our consular district covers the Urals, Siberian, and Far East federal districts. Out of all Russian Federation constituent entities within this area, the Sverdlovsk Oblast is our most important trade partner. Our appreciation of the support that is provided by the Sverdlovsk Oblast Government and the Ekaterinburg Administration for Czech companies to reach the Urals market is highly positive.

The National Trade Promotion Agency CzechTrade plays an important role in this economic cooperation; it has a representative office in Ekaterinburg and is doing a great job for medium and small business.

Regular flights between Prague and Ekaterinburg, introduced in 2004, have become another important instrument for the economic cooperation and tourist services development. On this route, 5 flights a week are currently available from Czech Airlines; taking into account the Ural Airlines flights, one can travel from the Urals to the Czech Republic virtually every day.

A joint working group that comprises representatives of the Czech Republic and the Sverdlovsk Oblast authorities and business is extremely active. This group meets on an annual basis (in the Czech Republic and the Urals, alternately) to review new joint investment projects.

- What is the recent performance of the trade turnover between the Czech Republic and the Urals constituent entities of the Russian Federation?

- Following the results of 2008, the trade turnover between the Czech Republic and Russia has amounted to a total of 13.1 billion U.S. Dollars, which is a historic maximum. This is 50% higher than the results of the preceding year. In terms of our trade turnover with the Sverdlovsk Oblast, 2008 saw a record-breaking volume of 338 million U.S. Dollars (our exports to this region have increased more than twofold whilst imports from the Czech Republic have grown by 86%). We envisage a big future in the Chelyabinsk Oblast, the Khanty-Mansiysk Autonomous Okrug, and Siberia's Omsk Oblast. Thus, the trade turnover between the Czech Republic and the Chelyabinsk Oblast has grown by 64% in 2008.

I would also like to quote our statistics related to the Consulate General. In 2002, at the very beginning of our work in Ekaterinburg, 2,500 entry visas to the Czech Republic were issued. In 2008 the number of visas was almost 30,000. This is a proof of a significantly increasing interest of the citizens of the Urals and Siberia for our country.

However, the crisis has impacted this sector, too. In the first four months of this year we have issued almost 5,000 visas, which is 40% less y.o.y. However, I believe the situation will soon change for the better. People will have more money and travel to the Czech Republic like before.

- Which exactly sectors of industry are the most attractive for the Czech companies in the Urals and Siberia?

- First and foremost, these are the Urals machine-building and metals sector. We see lots of opportunities for our business people there. We are prepared to provide the modern machine-building manufacturing technologies, and upgrade the plants located in the Sverdlovsk Oblast. A good example of cooperation in the sphere of machine-building facilities upgrade is OAO NPK Uralvagonzavod in Nizhni Tagil. Several years ago, ALTA a.s., a Czech corporation, has signed a framework contract with this plant for supplying the equipment to a total amount of 1 billion euro. Loans have been provided by 100% state-owned Czech Export Bank.

- However, the upgrade at Uralvagonzavod has been closely connected with contracts for supplying railway cars for the Russian Railways. The Russian Railways have recently sharply reduced the number of cars they ordered. Has this impacted the cooperation with the Czech counterparts in any way?

- Minister of Industry and Trade of the Czech Republic Martin Řiman visited the Sverdlovsk Oblast this April. He took a look at Uralvagonzavod. At that moment, the outcome of the situation was not clear. As far as the ALTA contract is concerned, there are no problem regarding its execution. I think that the plant's existing difficulties will not impact this at all.

The plant needs an upgrade. Without it, producing quality railway cars and other equipment is impossible. The time for the execution of contracts within this framework agreement may extend, but in general I think it will be all right. The reason for this certainty lies in the fact that these projects are funded by Czech Export Bank which is supported by our Government. Moreover, Export Guarantee and Insurance Corporation (EGAP) of the Czech Republic is carefully reviewing and insuring all of these programs.

- In the new economic conditions, will the resources of Czech Export Bank be sufficient to continue the funding of all joint projects that have been declared and scheduled for the Urals?

- Czech Export Bank pursues a very conservative policy, and only funds the projects that have been thoroughly scrutinized and are extremely transparent. These projects are subject to a regular audit. In the last two months, two large groups of Czech business people have come to the Urals; the groups included representatives of both Czech Export Bank and EGAP.

This framework for joint projects funding is very interesting and still operational, even during the time of crisis. Thus, OAO Magnitogorsk Metallurgic Combine has signed a contract with ALTA this April for equipment supply, development and construction work; the contract amount is 440 million U.S. Dollars; it is a part of the implementation of the 2,500 hot-rolling mill upgrade project. The funding for this contract will also be ensured by Czech Export Bank.

- Is this framework - Czech equipment supplies credited by a state-owned bank and insured by a state-owned insurance company - new in any way?

- The implementation of this framework has begun several years ago, as the contracts were signed between Uralvagonzavod and ALTA. Czech Export Bank provides loans on one key condition - at least 50% of all equipment for the implementation of an investment project must be procured from Czech companies. The projects are thoroughly scrutinized by the Bank in terms of correct execution and economic benefit.

- Has the idea of building the Verkhoturye Oil Refinery in the Sverdlovsk Oblast advanced? Czech Export Bank was considering the opportunity to credit this several million dollar project in case the Czech Republic's Moravske naftove doly becomes the key investor.

- Moravske naftove doly is still interested in implementing this project. This issue was discussed at the April meeting between the Sverdlovsk Oblast Governor Eduard Rossel and our Minister Martin Řiman. Before the construction of the Verkhoturye Oil Refinery begins, all parties must provide their guarantees; first and foremost, the required oil supply volumes to be processed at the plant in the future must be ensured. It will take some time for the information on such guarantees to be verified now.

- Which constituent entities of the Russian Federation in the Urals and Siberia are currently the most promising in terms of cooperation with Czech companies?

- The outlook for cooperation in the Khanty-Mansiysk Autonomous Okrug is very positive. It is Ugra that supplies the major part of oil to the Czech Republic. Our companies are interested to take part in tenders for oil processing and geological exploration. In addition to that, our scientists have developed good contacts with this Okrug - Brno University of Technology cooperates with Khanty-Mansiysk. There is a potential of taking part in timber processing projects in Ugra - in particular, Czech companies are well experienced in quality modern furniture manufacturing.

We are prepared to participate in municipal energy saving and water treatment programs in the cities of the Sverdlovsk and Chelyabinsk oblasts. E.g. we have suggestions for the reconstruction of old houses with poor heat insulation. STOMIX, a Czech company, is currently discussing with the Ekaterinburg Administration the issue of building a plant for manufacturing state-of-the-art insulation material for the reconstruction of old five-storey houses. In order to show its capacity, this company is prepared to completely rebuild one house in the city. This is not only the case of facade renovation but also the replacement of all interior lines and implementation of energy-saving technologies.

We are also interested in the upgrade of old Czech trams that still run along the streets of Ekaterinburg. We can bring our technology to Ekaterinburg, and establish an upgrade point on the premises of one of tram depots.

I would note a few more of the promising areas of cooperation. The Sverdlovsk Oblast Healthcare Ministry is currently involved in negotiations with Czech companies UJP Praha and FAVEA engineering. The former is prepared to provide the Sverdlovsk Oblast hospitals with the equipment for treatment of oncology patients - cobalt irradiators, X-ray stimulators, and patient restraint systems. An opportunity for establishing a service centre for the maintenance of this equipment in Ekaterinburg is also being considered. The latter company is considering the opportunities to supply pharmaceutical equipment for production of medications.

Another Czech company, Bauer Technics, is discussing the issue of supplying animal production units and agriproduct processing equipment to the Urals; their counterparts in these discussions are several Urals agribusinesses (UGMK-Agro, in particular) and the Sverdlovsk Oblast Agriculture Ministry.

- The Tyumen Oblast authorities have recently expressed their interest in establishing credit lines from the Czech Republic for local business entities against the regional government guarantees. Is such a financial framework possible?

- I have heard about this proposal. This is a new financial framework that has been discussed with representatives of Czech Export Bank. However, it hasn't been made known to me yet what level of guarantees the Tyumen Oblast authorities are prepared to provide, and for what projects. I believe that focused discussions must be conducted for each of such projects.

- Who is the point of contact in the Urals for local companies that are interested in getting Czech Export Bank loans for purchasing equipment in the Czech Republic?

- Small and medium business entities can contact the Ekaterinburg representative office of CzechTrade. The Agency is looking for partners for Czech Republic's small and medium business entities; it organizes meetings, business forums, and trade fairs for them. The agency has a good contact base.

Czech companies are interested in such business areas as machine-building, glass production, water treatment, environmental projects, agriculture, and healthcare. They are prepared to supply relevant equipment to the Urals, and have approached CzechTrade with a request to find relevant partners in the Urals region.

The interview has been prepared by Pavel Kober