The Chuvash Republic is one of the 88 federal subjects of the Russian Federation. The Republic approves and manages its own budget and capital investment program. Annual revenues for the Republic in 2004 were RUR9,488 million ($332 million). Total expenditures in 2004, including capital investments of RUR2,001 million ($70 million), were RUR9,917 million ($347 million).

The Chuvash Republic has a strong credit history and budget management reputation. It has an Aa3.ru credit rating from Moody’s Interfax Rating Agency and has issued three previous bonds in the local capital markets.

The transaction consists of a partial credit guarantee of up to 45% on a general obligation bond of RUR1 billion ($35 million equivalent) that will be issued by the Chuvash Republic in the second quarter of 2006. The bond’s expected maturity is 4 to 7 years, which would be longer than previous bonds issued by the Republic. The maximum IFC exposure is estimated to be RUR450 million ($15.7 million equivalent).

16.19 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee	16.19
Loan
Equity

* These investment figures are indicative

The Chuvash Republic is located in the center of the European part of the Russian Federation and occupies a relatively small area of 18,300 square kilometers. The Regional Government is headquartered in the Republic’s capital of Cheboksary. Currently, the Chuvash Republic consists of 21 administrative districts, nine cities, seven urban settlements, and 1,712 rural settlements. The administrative structure of the Republic will change in 2006. The Republic’s Targeted Investment Program for 2006 includes numerous small-scale projects dispersed across all administrative districts.

The IFC guarantee will help the Chuvash Republic access long-term financing on more favorable terms than in the past on both pricing and maturity. The raised funds will allow the Republic to implement its Targeted Investment Program and address its priority infrastructure needs in the areas of water, transport and housing construction. Development of these sectors, especially in the rural areas, will help further economic development of the region and increase private sector investment. Improvements of the basic infrastructure, especially related to the quality of drinking water supply and basic services will have a positive impact on health, environment and poverty reduction in the region.

Availability of new financial instruments, such as credit enhancement of sub-national entities without sovereign guarantees, could increase the demand for ruble-denominated bonds in Russia, which, in turn, could be very helpful for the development of capital markets (in particular, the domestic bond market) in Russia. Given an increasing demand of the Russian regions for sub-national borrowing to finance long-term investments and IFC’s continued emphasis on the local financial markets development by the use of innovative financial products, the project will have a significant demonstration effect with high potential of being replicated in other regions of the Russian Federation.

This project is classified as an FI Type 1 project according to IFC’s Procedure for Environmental and Social Review of Projects. The bond issue is expected to support numerous system improvement and small-scale investment activities that are mostly expected to have minimal environmental impact. The sectors where there could be possible marginal environmental or social impact are in the communal services, drinking water supply and the road programs of the Republic.

Based on the review of the national and regional environmental and social laws and requirements, the Chuvash Republic environmental and social requirements were found to be consistent with the IFC policies and guidelines in the context of the nature of projects under the planned investment program. The effectiveness of implementation of these frameworks was reviewed through two sample projects involving land re-categorization and allocation for water basins in two districts and construction of a waterline. The review indicated some deficiencies in the assessment and management of Environmental and Social issues as raised by the State Environmental Review agency reviewing the Environmental Impact Assessment reports of these projects. There is therefore a need for a time bound action plan by the Republic for a rectification of the deficiencies identified above. This is being discussed with the Republic and IFC would require this issue to be addressed satisfactorily prior to extending its support to this project.

The Republic will provide an annual listing of its sectoral investment projects; information on obtained requisite environmental approvals for each project/activity with potential environmental and/or social impacts, and the results of monitoring of project performance and status of implementation of measures to ensure compliance with national laws and requirements.
Location of environmental documents In locally affected community