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Russia: World Bank Supports Economic Development of St. Petersburg

Press Release No:2003/348/ECA
Moscow  Marina Vasilieva  (7-095) 745-7000
Tatiana Piunovskaya  (7-095) 745-7000
Washington  Miriam Van Dyck  (1-202) 458-2931

WASHINGTON, May 15, 2003 - The World Bank today approved a US$161.1 million loan to the Russian Federation for the St. Petersburg Economic Development Project.   The project will support the City in its efforts to accelerate the implementation of key elements of the Strategic Plan approved by the St. Petersburg Duma in December 1997, which had been designed to enhance the city's prospects for sustainable economic growth in the medium- and longer term, and allow it to more fully exploit its position as Russia’s “Window to the West”.

“Though in 1990 UNESCO designated St. Petersburg as a World Heritage Site, domestic and international tourism remains a largely under-exploited sector despite the city's unique potential to be one of Europe's most sought after centers for culture and the arts,” says Richard Clifford,  World Bank Country Manager for Russia“In the absence of reforms stimulating private sector investments, St. Petersburg is still fettered in its attempts to more fully capitalize on this key strategic asset and to thereby  realize its potential for economic diversification, to  foster new employment opportunities and reduce poverty levels among its population.”

The main objectives of the project are to:
* improve the business climate in St. Petersburg by facilitating the creation of new private sector enterprises, increasing private ownership and transactions of land and real estate, and improving land use planning;
* strengthen the City’s financial management and ensuring the long-term stability of its fiscal revenue base; and
* enable St. Petersburg to preserve its unique position as one of Russia’s top centers of culture and the arts through the rehabilitation of key cultural heritage and tourism assets.

“This project is an attempt to support a city that is undertaking  a broad range of reforms,” says World Bank Russia Country Director Julian Schweitzer“It will support St. Petersburg’s transition to an economy that is much more broadly based on services and takes advantage of the city’s status as a World Heritage site.”

The project builds upon the experience of the recently completed St. Petersburg City Center Rehabilitation Project and complements the assistance provided to Russia by the Bank through the Fiscal Federalism & Regional Fiscal Reform Loan, the Foreign Investment Advisory Services (FIAS) surveys, and other operations in the areas of business development, land and real estate markets development, and sub-national fiscal management.

The project is designed as a hybrid loan and includes two main components:  adjustment and investment. The adjustment component of the loan will address the first two of the above listed objectives, while the investment component will support the third objective.

Adjustment Component:
* City Budget Support (US$100.00 million).  This component will provide budget support to the City of St. Petersburg. The funds will be on-lent by the Borrower, the Federal Government, to the City in local currency against the implementation by the latter of a series of agreed policy reforms.  The component is designed on the basis of two disbursement tranches. As all the conditions for the release of the first  tranche (US$40 million) have been fulfilled by the time of the project consideration by the Board, except the condition related to the adoption of the Urban Development Law, no disbursement will be made prior to the City’s full compliance with first tranche conditions. The conditions for the release of the second tranche (US$60 million) are expected to be fulfilled, at the latest, 24 months after release of the first tranche.

Investment Component:
* Rehabilitation of Cultural Assets Subcomponent (US$45.86 million).  This component will finance repair and/or rehabilitation works that will help protect historical buildings of eight major cultural institutions from further physical deterioration, increase the exhibition and activities capacity of the institutions, improve the operational safety and efficiency of the facilities for both visitors and personnel, and provide higher safety of artwork on display from physical damages, theft and other hazards. The project sites to be financed under the subcomponent include the State Hermitage Museum, the State Mariinsky Theatre, the State Russian Museum, the Peter and Paul Fortress Museum, the State Shostakovich Philharmonic Academy, the State Rimski-Korsakov Conservatory, the Tsarskoye Selo Palace State Museum, and the Pavlovsk Palace State Museum.

* Cultural Investment Facility (CIF) Subcomponent (US$5.83 million).  The component will build on the successful experience of the Cultural Fund, which was part of the St. Petersburg City Center Rehabilitation Project. It will provide, on a competitive basis, grant funding to eligible cultural institutions in, and in the vicinity of, St. Petersburg, for small-scale investments and institutional strengthening activities of up to US$200,000 equivalent (unless otherwise agreed with the Bank) that would help the recipients to increase own-source commercial revenue; to upgrade the accessibility to cultural assets or activities of the public; to carry out critically needed small investments for the preservation of buildings and assets; and to improve their financial management, budget and investment planning.

* Institutional Strengthening Subcomponent (US$0.47 million).  The component will provide technical assistance, including staff training, to State Mariinsky Theater and State Russian Museum, two major cultural institutions of the City, with a view to improve their capacity to carry out financial management in accordance with international standards, and to improve marketing and business development.

* Project Implementation Subcomponent (US$7.32 million).  This component will support the operation of the project implementation unit for the duration of the project; the completion of design studies required for the implementation of works for the State Mariinsky Theater and the State Hermitage Museum, and services of technical specialists for specific aspects of project supervision, including technical expertise in rehabilitation of historical buildings.

The 5 year project has a total cost of US$239.80 million, of which IBRD will finance US$161.1 million and US$78.70 million will be counterpart financing provided by the Russian Federation.

The terms of the loan include a 5-year grace period and 17 years to maturity.

The Russian Federation joined the World Bank in 1992. Since then, commitments to the country total to more than US$13 billion for 57 operations.

For more information on the World Bank's work in Russia, please visit

For more information on the St. Petersburg Development Project, see:
St. Petersburg Economic Development Project

For more information, please visit the Projects website.

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