Deputies sceptical of credit guarantee to be backed by city

<BR>The Petersburg Legislative Assembly will meet to discuss the city's role as guarantor for a credit to be received by the company VSM. If the deal is successful, VSM plans to use the borrowed capital to finance construction of a commercial transportation center near Moskovsky Station. <BR>In question is a 10-year credit of $200m given by an English consortium of banks to VSM. VSM could potentially be backed by the city government if terms of the guarantee are accepted. In particular, they stipulate that the city of St. Petersburg carry all responsibility in repaying the debt if VSM defaults on the loan. However, several conditions set by the contract have stirred up scepticism among specialists. Obviously, one requirement considered unfavorable for Petersburg is the extent to which the city will be held responsible for credit repayment. There is no question that the risk factor involved is high: construction of the center will come to approximately $350m, while the credit will cover only $200m of the project. Likewise, the amount of credit granted amounts to 8% of Petersburg's total city budget. After analyzing the conditions of the possible backing, University of Finance and Economics professor Mikhail Brodsky came to the conclusion that "giving a guarantee of repayment on such a large sum of money would only be possible if the objects under construction were of great social importance or promised a high amount of income upon their completion. However, the structures to be builta train station, hotel and parking lotwill not bring in enough money to justify the guarantee." Yet to be discussed is the question of securing collateral in the case that VSM is unable to come up with the money to complete the project on time. In such an event, the city either would be forced to finish financing the construction project itself by dipping into budgetary resources, or would have to pay a .01% fine on the remaining debt for every day after repayment was due. Furthermore, if the debt had to be paid off from budgetary funds, taxpayer money would need to be collected for 20 years to fill the municipal treasury's coffers back up to their original level. Critics of the guarantee also point to the fact that if VSM doesn't fulfill its obligations, terms of the contract call on the city to return the credit from its own accounts. And a situation of this kind, they maintain, would directly contradict the Civil Code of the Russian Federation. In accordance with the Civil Code, the city has the right to reject the creditor's demands and terminate its guarantee in the event that circumstances change. Moreover, deputy Alexey Liverovsky is sceptical of the necessity of the city's guaranteeing the credit at all, since the Ministry of Finance carries out credit guarantees of this kind.