Abstract
In BMI’s Q409 Russia Infrastructure Report we have revised down our
forecasts for 2009 following
worse than anticipated Q109 results. We are
now forecasting Russia’s construction industry to contract by
15.77%
y-o-y in real terms in 2009, to reach a nominal value of RUB2.24trn
(US$67.5bn).
Data released by Russia’s statistics agency,
Goskomstat, revealed that in the first quarter of 2009,
Russia’s
construction industry contracted by 10% y-o-y in nominal terms. This has led
us to revise down
our forecasts for the year. Still assuming that the
second half of the year will be stronger than first half,
we now believe
that instead of achieving nominal growth over 2009 (and a -7.5% real
contraction), there
will be a nominal contraction of 4.12% y-o-y in
Russia’s construction industry. With high levels of
inflation
expected in Russia for the year (consumer inflation expected to average at
11.7% for the year)
this will push real growth in the industry down to
-15.77%.
As previously mentioned, we are still optimistic for an improved
second half of 2009, and recent
developments in the country’s
infrastructure sector substantiate this. The biggest news from the sector
over the last quarter is the awarding of the tender for the Pulkovo Airport in
St. Petersburg. The US$1.3bn
contract to upgrade the airport was awarded
to the Northern Capital Gateway (NCG) consortium, which
consists of
Fraports AG, VTB Europe PLC – which is the UK-based division of Russian
bank VTB
Group – and Horizon Air Investments, the airports arm of
Greece’s Copelouzos Group. The contract
can be seen as something of
a bellwether for Russia’s infrastructure sector, and a good indication
of
private investors’ attitudes to the country’s business
environment. The message seems to be a mixed one.
A number of major
players dropped out of the bidding, but three secure bids made it through,
and
although it was somewhat delayed, the project was successfully
tendered. The true test will come at the
financing stage, as access to
credit is still limited in Russia. However with early commitments of
funding
offered by the European Bank for Reconstruction and Development,
the World Bank’s IFC and Russia’s
VEB Bank, this may prove a
less challenging obstacle than expected.
In the utilities sector, majority
state-owned hydropower company RusHydro is driving investment in
renewables (including hydropower) and has partnered up with Japanese companies
Mitsui and J-Power
for the construction of a wind farm on Russky Island
and a hydropower plant in Russia’s Far East.
Despite ongoing
activity, it is still clear that overall activity in the infrastructure sector
is reduced
compared with last year, with investment budgets being cut over
the short term, state-funding
unpredictable and private investment
scarce.
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