The government decides to limit NWF spending

RUSSIA ENERGY / FINANCE - In Brief 25 Nov 2019 by Marcel Salikhov

According to Vedomosti business daily, it seems that the government has finally decided how to use the National Welfare Fund (NWF) next year. The conservative approach has won. There will be no flood of extra spending coming from the NWF. So it’s a win for the Ministry of Finance and CBR if there are no changes in plans. Overall spending for 2020-2022 from NWF will be set at 1 trln RUB ($15-16 bln RUB). So only about $5-6 bln will be available to spend next year. Currently, NWF is $125 bln and is set to increase $30-40 bln next year. So about 15% of the potential amount available for spending will be used. There are several criteria for investment projects to be eligible for the NWF money. NWF financing will not exceed 20% of the total cost of a project, and an investor has to put at least 20% of the project's needs as equity. Forecasted IRR of the project should be at the level of OFZ yield or higher. It means that most probably only investment projects in commodity sectors from big names will have a chance to get NWF financing. Most probably, Novatek will get NWF money for its Arctic 2 LNG project financing. Investing NWF in local investment projects, mainly in the oil & gas sector, contradicts the whole idea of mitigating risks of changes in oil prices. But it’s better than to invest in pet projects with no foreseeable hopes of return. We see this news as positive for RUB as the short-term risks of unexpected weakening of the fiscal rule next year are reduced.

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