The tool of public-private partnership in Russia is one of the critical opportunities to combine business and government resources to solve problems in the framework of the sanctions war. Unfortunately, there are only a few successful examples of this type of cooperation. Despite this, their limited experience is still experience, and it remains valuable to the country and its development.
If they want to illustrate the conflict of interests between the state and business in Russia, they usually take the story of the Baikalsk Pulp and Paper Mill. This is a textbook example of an enterprise whose activities caused horrible damage to Baikal’s environment. However, it took a long time to find a solution that would preserve the enterprise and reduce its environmental impact. Moreover, theoretical studies are still going on; at universities, economists use this example to analyze the model of public-private interaction, suggesting various ways of resolving the conflict. One of the ways is to allow the combine to earn money on the lake ecology. There is an opportunity to realize a state-private project of a health resort, with the combination having the potential to balance economic effectiveness and ecological compatibility if this conception is put into fruition.
Life is often much more complicated than theory. In practice, only one solution worked: since 2013, the combine stopped its activities. Although, many years later, it was announced that an elite sanatorium and resort complex would open on its territory. Financing will be provided by the state financial corporation VEB, with the objective to complete the project by 2033. Of course, nobody can say for certain how significantly the large-scale construction will affect the environment.
The tool of public-private partnership could have been implemented, and if the interests of the company and the state were respected in equal measure, it is possible that a large plant would save jobs and tax deductions, with Baikal’s ecology not suffering so much. This is a compromise everyone would be unhappy with, but for the economy, this would be an ideal outcome.
This is the philosophy of the PPP instrument. It is a measure of compromise between two eternally warring parties, the entrepreneur and the regulator, which brings together the economic benefits of both partners. Thanks to the instrument, it has become possible to effectively close “market gaps” – those areas where business in its pure form does not feel comfortable because of low profitability – and the state simply cannot cope alone.
One of the striking examples of such work is the PPP projects of the Leningrad holding company Euroinvest, which have been implemented in education, road construction, and import substitution.
Infrastructure Projects
Head of Euroinvest, Andrey Berezin, spoke at the forum Development of the building complex of St. Petersburg and the Leningrad region and called the public-private partnership one of the key drivers of the transport infrastructure. It is not just about the direct operation of roads, which subcontractors of Rosavtodor have successfully done (although the official operator of all toll roads in Russia is Avtodor, of which is accomplished by subcontractors, such as the parastatal Avtodor toll roads LLC or Avtoban JSC).
Andrey Berezin had much bigger projects in mind, namely the direct construction of new interchanges and roads and the development of public transport; he spoke on it based on his personal practice. One of Euroinvest’s subsidiaries, Murino management company, managed the construction of interchanges from Murino itself to the St. Petersburg Ring Road. It is quite curious, given that this experience was not painless.
The project itself was conceived as follows: several developers with shared resources finance the construction of the interchange and physically build the regional UPRDOR, and Murino MC is engaged in the coordination of the structure on the basis of a public-private partnership mechanism. Unfortunately, there were many implications and problems that introduced themselves throughout the process, but the most important of which ended up being that the other construction companies refused to pay their part of the obligations. As a result, all the balances had to be paid by Euroinvest, taking additional losses.
The holding did manage to cope with this task. After all, we were talking about the development of a vast residential complex, for which several years and a ton of nerves had to be spent. Residents are already using the new interchange, but more public transportation is still needed. Of course, it’s hard to do this on your own, but three other Leningrad developers, whom Berezin cited as an example at the forum: “Such agreements not only contribute to the dynamic development of new areas of St. Petersburg agglomeration but also allow creating a comfortable and affordable environment for living there.”
Murino MC’s forces are currently directed on another project, which is the construction of the second junction to the Ring Road, which will essentially increase the capacity of roads in Murino. This is also a PPP project; only the most significant Russian energy holdings can carry out such projects alone. Without a private co-investor, however, the Leningrad Region could not cope with such a task, which means that cooperation is a factor in the development of the transport industry.
Science Industry
Euroinvest has accumulated painful experiences in the sphere of import substitution. Across many different years, the holding acquired a stake in three industrial enterprises, which together produce an impressive range of such goods. This includes medical equipment, microwave devices, batteries, semiconductors, and high-tech materials for power plants.
The state Industrial Development Fund is of great help in this respect. Its St. Petersburg branch, in particular, granted a large loan of 30.7 million rubles for five years to expand the production capacities of one of Berezin’s enterprises. This was a severe addiction to the investment program of the enterprise itself. Since 2020, the company has brought several import-substituting technologies to the market.
It was first announced about the patent for the technology of industrial production of semi-isolating substrates made of silicon carbide. Such products were previously available only in foreign markets, which are entirely closed to Russian manufacturers. Meanwhile, it is a crucial element of power units in chemical and metallurgical production, a promising material for the production of graphene, which some research institutes in Russia are now studying.
In addition, the pandemic has spurred the development of biochips for PCR testing. By now, they have been brought to the market and are used by a wide range of medical devices, forensics, genetic research, customs control points, and biosecurity services. Moreover, another center, the Institute of Analytical Instrumentation of the Russian Academy of Sciences, picked up the project. Based on a biochip, the institute is creating a new device for deciphering DNA strands.
Finally, some promising developments based on the mentioned silicon substrates were announced. It is said that the primary users will be developers and manufacturers of microwave devices. In other words, the loan contributed to the comprehensive growth of the company’s scientific potential. Even if it did not ultimately provide it, any help in such a costly direction is fundamentally essential.
Berezin commented on the interaction with the St. Petersburg Industry Development fund in a recent interview: “I believe that the loan granted by the Fund to Svetlana-Electronpribor is not just an investment in the local economy, but also a very illustrative example of public-private partnership, which the city authorities have started to implement actively.”
Education
Another important direction of public-private partnership, which Euroinvest implements, is education. Berezin has repeatedly said that the development of schools and universities is a necessary and most important direction of state policy, which requires investing many times more than the current level. Otherwise, the state will be left without hands and brains in no time.
At the same time, the head of Euroinvest did not shift all the responsibility to the state. On the contrary, he said the business should provide all the necessary help in this part. His words were repeatedly confirmed by practice; Euroinvest actively participates in many educational projects. In particular, the company launched a personal scholarship named after cosmonaut Georgiy Grechko (still relevant today in Berezin’s “native” university, Leningrad Voenmech).
The company financially participates in the work of the Euler Public Foundation (it supports talented children of the Leningrad Region) in organizing and conducting educational summer camps and forums for children. The brightest announcement to come from this was made in 2022; Andrey Berezin announced his intention to build a physics and mathematics academy for gifted children. The company has already begun designing and selecting a teaching staff.
Not much is currently known about the project, but it is understood that the academy will be built on the shore of the lake and will have its own pier. There will be several buildings on its territory for classes and pupils’ and teachers’ residences, taking the structure from that of a boarding type educational institution. In addition, there will be a gym, a swimming pool, a studio for three-dimensional modeling, a greenhouse, and all kinds of modern equipment for chemistry and physics classes.
Work has already begun, but according to Berezin, the state has so far been reluctant to respond to this proposal. Details are being coordinated for now, but it seems that this time the state authorities will try to take advantage of the apparent desire of the head of Euroinvest to invest in the sphere of education of his native country and region.
Venture Capital Investment
The direction that will be particularly hard hit in 2022 is venture capital investments. Experts state that this market in Russia will drop several times, which means a rapid loss of the most promising young staff: they will all try to leave the country to receive funding from foreign funds. In this section, the state tries to open more and more new foundations and grant competitions, but it simply cannot cope with the flow of those willing.
Berezin is ready to offer his help here, evident from his efforts back in 2017, when he created the EuroVentures Foundation. His investment interests cover many import-substituting spheres: high technology, medicine, agro, and biotechnology. Nevertheless, his activities have only concerned medical equipment. This is more than relevant for the state; at the moment, it is unable to cope with the collapsed healthcare logistics.
Euro Ventures has already brought a unique robotic complex for cancer therapy to the stage of clinical trials. It allows simultaneous surgery to remove the tumor and irradiate the affected tissues. This saves time and the patient’s health; it has already been experimentally proved that such an approach significantly reduces the risk of recurrence.
The Foundation picked up the developers at the earliest stage and helped them through all the most challenging locations. As a result, this fall, the device was already installed in one of the country’s leading cancer centers. There are plans to consider doctors’ wishes and put the equipment into mass production, perhaps even for export; the authors have confirmed this intention again in the summer of 2022. In other words, even considering the sanctions war, it is planned to cover the country’s needs and enter international markets.
In the future, the fund may expand this area of activity. Berezin participated in the recently held Venture Festival in St. Petersburg. In his speech, he mentioned many St. Petersburg students who offer very high-class projects and stated his interest in one of the start-ups. It is also about medical technology, a project of a hardware-software product for the neurorehabilitation of patients after stroke.
PPP as a Guarantee of the Future
Euroinvest successfully uses the tools of state support. In addition to all the above projects, we can also mention the holding’s activities in agriculture. The company’s project in the Pskov region, the agricultural cluster Krasnoye Znamya, is quickly paying off, including due to numerous state subsidies in the field of dairy production. Although it is not directly considered a project implemented within the PPP framework, it is quite possible to refer to this direction.
Another notable factor to consider is that the state itself is not always responsive to the proposals and initiatives of Euroinvest. The company found itself in a difficult situation when it completed the construction of a road interchange. So far, there has been no direct response to Berezin’s idea to build an academy. Moreover, the support of the industrial sector is not always systematic: regular loans at a favorable rate could make it much easier to conduct research and development work.
In 20 years, the state and business have switched roles. For a century and a half, there has been no such thing in Russia as a private person building a vast public space without a severe commercial component. There are such parks in Orekhovo in the Pskov region, Krasnodar near Galitsky Stadium, and Kamensk Shakhtinsky in the Rostov region. However, the world is changing for the better: the era of wild capitalism is behind us.
Euroinvest has repeatedly proved this idea in almost all areas of its activities. Going back to the beginning of this conversation, the Baikal Combine has been knocking at the government doors with its ideas and suggestions all over the country. Practice shows that it is worth listening to them; over the past decades, the private sector has made a seven-mile leap towards progress, while state institutions are far from always ready for a prompt response to today’s challenges.
Due to today’s challenges being so severe, they must be met together, combining the economic effect in the partnership of government and business.