Borrowing Big to Build a Better Lviv

  • Serhiy Kiral, the Head of the Foreign Economic  Relations and Investments Department at Lviv City Council,
Issue 12, April 2009.

The collapse of the international credit system has seen the cogs of global trade grind to a halt. But while the international press calls on governments to force banks to ease their grip on the levers of lending, Lviv is taking the initiative with a number of ambitious internationally funded infrastructure projects that could serve to catapult the city ever closer to EU standards. Serhiy Kiral, the Head of the Foreign Economic Relations and Investments Department at Lviv City Council, explains that by borrowing on a grand scale, Lviv’s authorities hope to be able to bring tomorrow’s innovations to the city today.

Mr. Kiral, what is the state of play at present regarding the city’s collaboration with international investors?

In the past few years we have witnessedgreat progress in the work we do with major international companies. We have been able to secure partnership agreements with companies of the calibre of Germany’s ‘PTV’, which is working to modernize the entire transport infrastructure of the city in a consortium with VCDB and Dreberis, as well as Mistoproekt, Lviv Polytechnic University and Lvivdiprokomunbud . Recently we succeeded in attracting Arena.Com to the city in order to supervise the construction of Lviv’s Euro 2012 stadium and signed contract with Crans Montana Forum for the organization of top-level international event on Europe’s energy security in Lviv. Securing the services of such world-renowned organizations is another indication that the city is able to attract interest at the top table of global business and finance. We are also working towards the target of introducing European standard gauge railway links throughout West Ukraine, and are cooperating with ‘Movares’ and ‘NEA’ of the Netherlands to take our plans to the next stage. Another positive signal for Lviv’s investment climate came earlier this year when KPMG issued an annual international outsourcing report which identified Lviv as one of thirty cities around the world (the only one in Ukraine) which could become hotspots for the international outsourcing market, which is expected to receive a boost from companies looking to cut back on expenses as the world economy moves into recession.

What can we expect to see from the millions of euros currently flowing into the city to finance Lviv’s infrastructure renovations?

At present there are three key projects underway. We have penned a pre-financing agreement with the European Bank for Reconstruction and Development (EBRD) over a EURO 12 million loan for the modernization of Lviv’s electrically-powered public transport, and we expect to receive a further EURO 30 million, which would allow for a complete modernization of two tram lines (No. 2 and No. 6) which we have already identified. With the European Investment Bank and the EBRD we have also reached an agreement, which should lead to providing financing for the construction of a new highway interchange at the intersection of Naukova and Stryiska streets as well as the reconstruction of Ryashivska Street, close to Lviv Airport. Taken together, these two projects should cost an estimated EURO 150 million and we look forward to finalizing the preparation stage by the end of June. The third focus of our current work is our co-operation with Germany’s KFW state bank, which has already provided EURO 500,000 to finance a public transport strategy development plan. We expect the bank to issue a further EURO 20 million loan for the implementation of these plans, with the pilot project set to be the construction of a tram line connecting the new Euro 2012 football stadium complex with the city centre.

Will public transport remain a key focus of the City Council’s investment activity for the foreseeable future?

The improvement of the city’s infrastructure will in turn have a positive impact on the investment climate. I have stressed many times that the investors we seek to attract to Lviv are generally people accustomed to living in comfortable surroundings and operating in a civilized business environment. Any city that can boast these attributes can stimulate investment and enjoy a rising tide of successful investment projects. With this in mind, the priority of the city’s investment policy over the past two years has been the search for partners to finance infrastructure works. In addition to the transport issue, we are also developing priority projects dealing with heating, refuge disposal and the city’s water supply, together with international partners including ‘Fortum’ of Finland, France’s ‘Dalkia’ and the Austrian company ‘AVE’, together with the EBRD and Raiffeisen Investment. The World Bank provided a 24 million USD loan to the city’s water suppliers in 2003, which resulted in 80% of the city population enjoying running water for over 20 hours per day (up from less than 30% in the 1990s). By the end of May, the bank will present its new approach to financing district heating systems in Ukraine’s cities, which we plan to follow up on.

At a time when credit problems have provoked a global economic downturn, is it wise for Lviv to be securing somany loans?

At present Lviv has debts amounting to UAH 373 million, but it is important to understand what this really means. Firstly, this amount will be paid back over a 20 year period, with the final payment not due until 2021. This means that our annual obligations are actually in the region of UAH 10-15 million, which must be paid from an overall annual development budget of more than UAH 250 million in 2008. So it is not true to suggest that as a city we are borrowing beyond our means. What we are doing is investing in the future of the city, and bringing that future closer to the present. I am young and I want my children to live in a real European city which is able to attract foreign investment. It is worth stressing that neither the European Bank for Reconstruction and Development (EBRD) or the World Bank would consider issuing Lviv with loans unless they had absolute confidence in our ability to pay it back. We need to forget about the old, outdated principles of financing large-scale infrastructure projects solely within the limitations of our own city budgets – instead, we should look to develop strong ties with international financial institutions and work to attract international investment to help finance the modernization of the entire city. The question of international investment is of huge strategic importance - with international help we could have the high-quality roads and public utilities we want today and pay for them over the coming 10 years. Improving Lviv’s infrastructure will be a key factor towards making the city more attractive to investors in relation to competing cities in Poland, Romania, Bulgaria and the Baltic states. In my opinion our cooperation with IFIs will help us in our fight against corruption. Along with our work together with the EBRD, the European Investment Bank and the World Bank, it will also serve as the best reference anyprivate investors could hope for.