SME opportunities associated with large-scale projects in natural resource sector Business Forum The Komi Republic Febru

1. SME opportunities associated with large-scale projects in natural resource sectorBusiness ForumThe Komi RepublicFebruary 6th, 2004

2. 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

3. IFC – member of the World Bank Group International Bank for Reconstruction and Development Established in 1945 184 member countries International Finance Corporation Established in 1956 175 member countries International Development Association Established in 1960 164 member countries International Centre for Settlement of Investment Disputes Established in 1966 139 member countries Multilateral Investment Guarantee Agency Established 1988 163 member countries

4. IFC overview Mandate: Promote sustainable development in private sector • Provides credits and investment in fixed capital • Promotes external investment • Provides consulting and technical assistance

5. IFC: 50 year history of investing in developing markets Since 1956the volume of IFC investments in 2 990 companies in 140 countriestotaled almostUS$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 The total volume of IFC investments in Russia - US$1,3billion • IFC invested US$125million in 4 projects in mining and oil&gas sectors

6. Benefits of cooperation with IFCIFCpromotes 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)

7. 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

8. SME involvement in large-scale projects – key strategy of IFC Examples of Projects in Russia • 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

9. 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

10. 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

11. Example: MOZAL Aluminum plant in MozambiqueSecond 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”

12. 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

13. 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

14. 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 • Mozalinvestor - BHP Billiton – is implementing similar Program with IFC to expand production at aluminum plant in SAR

15. 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

16. THE SAME PROGRAM FOR THE KOMI REPUBLIC IS UNDER DEVELOPMENT General principles: Maximizing share of locally produced goods and services at the construction and operation stages of SUAL Project in the Komi Republic • Analysis of local enterprises’ potential to provide goods and services for the Project • Provision of consulting and technical assistance to SME – potential contractors • Close cooperation with existing support network in the Komi Republic, including business associations, consulting enterprises et c

17. BACK UP SLIDES, TO BE PRESENTED IF NECESSARY

18. 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

19. Complex approach • 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 • 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

20. Example: easier access to investments • Annual request for 603 types of products: foodstuffs, services, other goodswas compiled and distributed among 23 potential suppliers • Transparency and easy information access allows SME to develop business plans

21. Outputs of the first year of the Project SME, having benefited from the Project: «Model» SME, having received individual consulting: Potential suppliers Other entrepreneurs Extra income, received by companies in 2003 due to the Project activities: Created jobs Full time Part time Attracted external investments 40 6 4 $3,195,000 36 107 $ 239,000