SME opportunities associated with large-scale projects in natural resource sector SME opportunities associated with large-scale projects in natural resource.

SME opportunities associated with SME opportunities associated with large-scale projects in natural large-scale projects in natural

resource sectorresource sector

Business ForumThe Komi RepublicFebruary 6th, 2004

Presentation format

• Overview of International Finance Corporation (IFC)

• IFC experience in promotion of SME involvement in large-scale projects

• Preliminary plans of supporting SUAL aluminum project in the Komi Republic

IFC – member of the World Bank Group

InternationalFinanceCorporationEstablished in 1956175 member countries

International Bank for Reconstruction and DevelopmentEstablished in 1945184 member countries

InternationalDevelopmentAssociationEstablished in 1960164 member countries

Multilateral InvestmentGuaranteeAgencyEstablished 1988163 member countries

InternationalCentre for Settlementof Investment Disputes Established in 1966139 member countries

Mandate: Promote sustainable development in private sector

• Provides credits and investment in fixed capital

• Promotes external investment

• Provides consulting and technical assistance

IFC overview

IFC: 50 year history of investing in developing markets

Since 1956 the volume of IFC investments in 2 990 companiesin 140 countries totaled almost US$59 billion

• AAA rating

• US$5,03 billion was invested in 204 projects in 2003 financial year

• 56% of the projects financed have positive sustainable development impact

• Net profit US$528 million

• IFC invested US$125 million in 4 projects in mining and oil&gas sectors

The total volume of IFC investments in Russia - US$1,3 billion

Benefits of cooperation with IFC IFC promotes sustainable development in private sector via

socially-important initiatives and innovative approach to environment protection

• Promotes social and environmental approach at all stages of the project implementation and ensures desired financial output for investors

• Collects and disseminates best environment protection and social practices available worldwide

• Promotes waste-free and efficient technologies

• Gets involved in global environmental problems (greenhouse effect, ozone layer disruption, waste recovery et c)

Ecology and social development:Rules and Approaches

Environmental and social requirements, procedures and approaches imposed by IFC are being used within the whole lifecycle:

– Safety requirements: establish environmental and social requirements and information disclosure procedures

– Rules for sectors of economy: quantitative environmental requirements, including Pollution prevention and reduction manual

– Environmental and social audit procedures: include public hearings, information disclosure and IFC supervision requirements

SME involvement in large-scale projects – key strategy of IFC

• Dairy-farm development (Campina – Stupino)

• Automotive parts sector (Ford - Vsevolozhsk)

• SME development in mining region (Juliet - Magadan)

• Logging companies of the North-West of Russia

Examples of Projects in Russia

The Komi Republic: Negotiating project with SUAL Group

• Development, construction and operating integrated bauxite-aluminous-aluminum complex

• Total project cost is being evaluated at US$2 billion• European Bank for Reconstruction and Development is also

financing the project• Activities:

– Preliminary environmental impact assessment at early stages of the project

– Organizing public hearings for expansion of Middle-Timan bauxite mine

– Development of Program for local SME involvement in the operation of aluminous-aluminum complex, utilizing world experience

Presentation format

• Overview of International Finance Corporation (IFC)

• IFC experience in promotion of SME involvement in large-scale projects

• Preliminary plans of supporting SUAL aluminum project in the Komi Republic

Example: MOZAL Aluminum plant in Mozambique

Second stage construction“Management of the Plant expansion project is aiming to maximise benefits for

local population, utilizing Strategy of involvement of local staff, services and

contractors, without detriment to the Project goals and time constraints”

Some issues of SME involvement in the first stage of the Project

• SME do not always meet requirements of complex and large contracts

• Even after successful bid, SME do not always comply with contract terms

• SME do not fully understand requirements of quality and standards (safety, quality et c) of international enterprises

• SME have lack access to financial resources

Solutions: construction stage

Step 1. Development of “bid packages” for SME Special packages for SME Realistic approach to contract price, time, and complexity

Step 2. Evaluation of local SME potential Development and support of SME database with support of local state

investment promotion agency Evaluation of technical and financial of local SME

Step 3. Training Before bidding: how to bid After bidding: contractor requirements If necessary: quality, management et c

Step 4. Support (mentorship) Individual SME support plan Business support: finances, logistics et c Technical support: safety, quality, Техническая поддержка:

безопасность, качество, labor and health protection, ecology

Program outputs 28 “bid packages” were designed specially for local SME 28 contracts were signed by 14 SME All 28 contracts were successfully finished Majority of these 14 SME continue to work at operational

stage of the Mozal project Positive experience at construction stage led to the same

approach at operational stage of the Mozal project Mozal investor - BHP Billiton – is implementing similar

Program with IFC to expand production at aluminum plant in SAR

Presentation format

• Overview of International Finance Corporation (IFC)

• IFC experience in promotion of SME involvement in large-scale projects

• Preliminary plans of supporting SUAL aluminum project in the Komi Republic

THE SAME PROGRAM FOR THE KOMI REPUBLIC IS UNDER DEVELOPMENT

1. Analysis of local enterprises’ potential to provide goods and services for the Project

2. Provision of consulting and technical assistance to SME – potential contractors

3. Close cooperation with existing support network in the Komi Republic, including business associations, consulting enterprises et c

General principles:Maximizing share of locally produced goods and services at the

construction and operation stages of SUAL Project in the Komi Republic

BACK UP SLIDES, TO BE PRESENTED IF NECESSARY

Example 2: Far East of Russia• Canadian / IFC investments in gold mining in

Magadan oblast (district) • Companies are interested to increase share of

local sub-contracting• Remote location of the region• Local SME at an early stage of development• Complex business climate

IFC goal: to increase influence of foreign investments on local economy

Complex approach

IFC solutions

• Detailed demand analysis

• Individual support for selected suppliers

• Provides consulting for all SME, outside of gold-mining sector

• Innovative approach: factoring, credit unions, “business angels”

• Removing administrative barriers and cooperation with local government

Key issues

• Weak local supply for mining industry

• SME do not pursue existing opportunities

• Lack of SME support infrastructure

• Banks are not ready to finance SME

• Complex business environment

Example: easier access to investments

• Annual request for 603 types of products: foodstuffs, services, other goods was compiled and distributed among 23 potential suppliers

• Transparency and easy information access allows SME to develop business plans

Consumption Consumption Consumption2001 2001 2001

Cubaka Juliet Juliet and CubakaProduct unit weight

FRESH FRUITS AND VEGETABLES

Apples kg 1 kg 7779,1 4535,67 12314,77Carrot kg 1 kg 9111,5 4648,6 13760,1Onions kg 1 kg 13388,5 6192,6 19581,1Oranges kg 1 kg 7483,4 3473,3 10956,7Peaches kg 1 kg 3710,53 510 4220,53Potatoes kg 1 kg 26934,1 15922,2 42856,3

FROZEN MEAT AND FISH

Chicken meat pack 15 kg 756,59 511,97 1268,56Whole Chicken kg 1 kg 4573,55 1797,6 6371,15Sausage pack 10,91 kg 176,42 116,045 292,465

Outputs of the first year of the Project

SME, having benefited from the Project:

«Model» SME, having received individual consulting:Potential suppliersOther entrepreneurs

Extra income, received by companies in 2003due to the Project activities:

Created jobsFull timePart time

Attracted external investments

40

64

$3,195,000

36107

$ 239,000