The Investment Fund of Russia is a state financial fund of the Russian Federation intended for co-financing of investment projects. The investment fund was established in November 2005 as an "instrument of active governmental policy to intensify structural transformations in the Russian economy". The fund is managed by the Russian Ministry for Regional Development (since 2007, before that - by the Ministry for Economic Development and Trade)
Functioning mechanism of the Investment Fund
The 2006 Federal Budget Law provided for a RUR 69.7 billion Investment Fund for the first time, while RUR 72 billion was earmarked for 2007. The fund receives revenue from increases in the oil severance tax when the Stabilization Fund is formed and as a result of early repayment of foreign debt, i.e., through savings on interest payments.
The project review procedure comprises three main stages: review by the investment commission, review by the governmental commission, and approval by the meeting of the Russian government.
The government is expected to finance business projects worth at least 5 billion rubles over a five-year period. The private investor will be required to provide at least 25% of the project cost. The project profitability should be at least 4% but no more than 11%.
Investment projects approved by the governmental commission are distributed across sectors of the economy as follows:
- 45% — for transport infrastructure development,
- 30% — for the development of industrial sectors,
- 10% — for the implementation of housing and utility projects,
- 5% — for the creation of an innovative infrastructure,
- 10% — for other sectors of the economy.
Government support from the investment fund is available in three formats:
- direct co-financing of projects;
- acquisition of a stake in the share capital of a company managing a specific project;
- a system of state guarantees that will differ from existing guarantees of the Finance Ministry (the guarantees do not have to be envisioned in the budget each year and these funds are not nullified at the end of the year)
Two types of criteria will be used in selecting projects: qualitative and quantitative. Qualitative criteria include national priority, among other things. Quantitative criteria include:
- overall economic performance manifested as the project's contribution to gross regional product and gross domestic product;
- budget performance (growth in tax revenue);
- financial performance (internal rate of return, payback period, profitability index).
Quantitative criteria are adopted in a joint order of the Ministry for Economic Development and the Finance Ministry
The total volume of investments in these projects, i.e. direct investments in the Russian economy, will top 1 trillion rubles, of which RUR 341.8 billion (or 30%) will be allocated from the Investment Fund. The available balance of funds, taking into account the projects approved by the governmental commission to date and funds earmarked in the draft federal budget until 2010, will be RUR 175.8 billion.
The projects will create 110,000 additional jobs in the regions and attract up to 1 trillion rubles in private investments, while the Russian state budget will receive an additional RUR 544 billion rubles in revenue. It is expected that the projects will be completed in 2010-2015.