A local catastrophe in Segezha, Republic of Karelia, was barely avoided in February 2012. Back then, during winter colds, the operation of the Segezha Pulp and Paper Plant was temporarily suspended. Apart from the fact that the plant is the enterprise forming a company town and gives employment to more than 2,000 town residents, the Plant owns a boiler house that provides heating to the town of 30,000. The enterprise and the boiler house did not suspend their operation for a long time only thanks to emergency action undertaken by the Republic’s administration jointly with the top management of the VTB Group (the enterprise’s principal creditor).
True, it is necessary to note that the enterprise had been driven to that critical point by the very same subjects. However, I have already discussed that.
Today, six months later, it is necessary to raise the topic of VTB work with enterprises of the InvestLesProm Holding Company again. I believe that it is important to do so at this particular point in time for a situation similar to the one that almost happened in Segezha not to repeat in the next few months.
The Bank of Moscow has during many years been funding the development of the forest industry complex in Russia and jointly with InvestLesProm was modernizing production lines and investing in both development of separate clusters of the forest industry and establishment of complete-cycle operations (the Polar Bear Project). With the coming of new owners to the Bank of Moscow represented by the VTB Group, financial partnership with InvestLesProm discontinued. Also, the new “managers” of the Bank of Moscow chose a way to discontinue partnership that is unfavourable to a maximum for both parties: long-term investment projects were totally discontinued and credit resources for current capital financing were recalled. As a result, the enterprises lost the potential to meet its obligations before the bank in a timely manner, and the bank, in turn, saw the need for significant reserves and, possibly, losses.
I have no doubts about the causes of that step on the part of the VTB Group. Their task is to create as many problems as possible in the credit portfolio of the Bank of Moscow in order to continue accusing the former managers and justify the attraction of colossal government assistance for “financial rehabilitation.”
However, I think that something else is more important. The VTB Bank and the Bank of Moscow are government organizations, whose function it is not only to make a profit but also to take an active part in the national socio-economic development. In no way is it to destroy Russian real-economy enterprises because of a personal vendetta. If the VTB Group continues the current irresponsible policy with respect to InvestLesProm, that will inevitably lead to bankruptcies in the group with tens of thousands of jobs to be lost. Very soon nothing will be left in the place of cost-efficient and potentially highly profitable enterprises and projects. When VTB talks about its being socially responsible, I always have the question: How does the situation with InvestLesProm fit in this picture? What will the “socially responsible” VTB Group offer to the tens of thousands of people out of work?
Of course, one may call me biased. Yet, that will not change the result of VTB’s current policy with respect to InvestLesProm. In the end, it is possible to find some alternative options of working with borrowers. For example, convert the debts of the holding company to the Bank of Moscow into equity participation. That is a decision favourable for all the parties. Moreover, that method is widely spread in international practice to resolve the borrower’s current market problems. Most importantly, that will save enterprises, which give employment to people and revenue in company towns, where there are simply no alternative sources of employment and budget revenue. And the bank, sooner or later, will get its money back, too.