The Beijing backed Asian Infrastructure Investment Bank (AIIB) has approved a $500 million loan to Russia to help fund Road Construction, its first after years of high-level talks and as Moscow strengthens ties with China.
Moscow has pushed for stronger relations with Asia since the imposition of Western sanctions in 2014 over Russia’s role in the Ukraine crisis limited its access to Western financial markets. Russia is now among China’s top three energy suppliers.
President Vladimir Putin has made the development of Russia’s Far East region, which has land borders with China and North Korea and shares maritime borders with Japan, a priority, hoping to attract investment into sectors ranging from agriculture to energy.
The first, $96.7 million tranche of the AIIB loan will be used for repairing a highway running from St. Petersburg in Russia’s northwest to Norway, the Russian economy ministry said in a statement, with further tranches also earmarked for road infrastructure.
While AIIB is leading on the first sub-project, which covers around 14 kilometres of road, Russia will prepare the second and third ones themselves, Stefen Shin, the lead investment officer on the project at AIIB, said.
He said that the second and third sub-projects will be closer to Finland’s and China’s borders respectively, covering around 70-100 km of road in total. The loan is one of the biggest AIIB has ever approved, Shin said.
AIIB began operations in January 2016 and has grown to 100 approved members worldwide. Russia is the third-largest shareholder in AIIB after China and India, with Britain, Germany and Italy among other members with smaller stakes.
Maxim Oreshkin, Russia’s Economy Minister, said in a statement that he believed the loan “shows that the policy of sanction restrictions cannot last forever.”
Russia requires $60 billion a year in the next five years for infrastructure, according to Global Infrastructure Hub, an independent infrastructure organisation backed by the G20.
AIIB said in July that it aimed to finance about $4 billion of projects in 2019, and $10-12 billion worth annually in the coming years.