The Observer (UK): Banker in the tower of Babel: “European Bank for Reconstruction and Development”: “The EBRD is also embroiled in one of the world's most controversial gas and oil projects, the $10bn Sakhalin pipeline from Siberia to Japan, which threatens the survival of a rare breed of whales. Shell, the leader of the pipeline consortium, must undertake more research before the EBRD approves a loan. Though the project is likely to go ahead whatever the EBRD decides, a refusal to lend the money would be a huge credibility blow to Shell.” (ShellNews.net) 7 Nov 04

Jean Lemierre, president of the bank set up to help rebuild eastern Europe, talks to Nick Mathiason

Sunday November 7, 2004

As millions celebrated the fall of the Berlin Wall, world leaders were working out how to fill the political and economic vacuum left behind.

One answer was the European Bank for Reconstruction and Development which - backed by 60 countries - has since 1991 invested €24.1 billion of taxpayers money in major infrastructure and businesses. It has also levered in another €51bn in private finance and created an open-market-based economy in 27 eastern European countries.

Has it made a difference? 'Today [these countries] are part of the global economy,' said the EBRD's president for the last four years, Jean Lemierre, from his luxurious offices in Broadgate, in central London. 'Nobody could have thought 15 years ago that eight countries would have joined the EU and two others will in 2007.'

One person did: Margaret Thatcher. She seized on the idea of European eastern enlargement and fought to ensure the bank was based in the City of London. But her dream of thriving entrepreneurs and a burgeoning middle class emerging from behind the Iron Curtain hasn't panned out. For the majority, living standards have deteriorated since the Soviet empire collapsed.

Lemierre, a 54-year-old former top French treasury civil servant, reluctantly agrees. 'The first impact has drawn them backwards. Poverty has increased. It is clearly the feeling of many people in the region. They are less protected. The state has a less important role and they are poorer.'

But he feels there was no way to avoid the chaos - creating a market economy is no easy journey. 'It doesn't happen so often in history that you see such a massive collapse of a social, economic and political system. They had no choice but to rebuild the whole system on different values and principles.'

Lemierre, who joined the EBRD in 2000, was credited as a prime mover behind the creation of the euro. Relaxed and affable, he is now preoccupied with diversifying Russia's economy away from oil and gas by laying foundations for small- and medium-sized enterprises.

Now EU enlargement is history, Russia is a prime focus. Although Russia lost hundreds of millions of pounds in the debt crisis of 1998, the bank will invest $1.2bn there this year, focusing on private sector work.

Since Russia's President Putin seized the oil giant, Yukos, investors fear the Russian state will become eventual owners of the firm, which accounts for 20 per cent of all Russian oil production. Lemierre appears to approve of Putin's decision to claw back some £9.2bn in unpaid Yukos taxes, which threaten the firm with bankruptcy.

'It's clear the state [should] make sure taxes are being paid and fair income goes to the Russian budget to promote social and education projects,' he says, but concedes that 'Yukos is a serious question for investors. All of them pay attention to this. What is important today is to have a clear outcome that can be understood by everyone because the key word for investors is predictability'.

The charge that oligarchs have ripped off the Russian people by ruthlessly seizing natural resources at knock-down prices is side-stepped by Lemierre, who believes the phenomenon is a result of an undiversified economy where wealth creation is limited. This is why EBRD is trying to foster new sectors in agribusiness and IT. The possibility of capital leaving Russia is, however, a 'concern' he is 'seriously monitoring'. Fears that the Russian economy could go downhill rapidly if oil and gas prices fall are un founded - there is no sign of a decrease.

The EBRD is also embroiled in one of the world's most controversial gas and oil projects, the $10bn Sakhalin pipeline from Siberia to Japan, which threatens the survival of a rare breed of whales.

Shell, the leader of the pipeline consortium, must undertake more research before the EBRD approves a loan. Though the project is likely to go ahead whatever the EBRD decides, a refusal to lend the money would be a huge credibility blow to Shell. Lemierre won't comment until Shell's report is digested. A decision is likely early next year.

The bank has to do business with regimes where human rights are at a premium. In Uzbekistan it is pressuring the government to undertake reforms and will only lend money for drinking water projects. The EBRD applies more onerous conditions of honesty and transparency than commercial banks. This means it loses some deals but when it approves loans, it marshalls in other private sector funds. It is the biggest single investor in the 27 countries where it now lends.

The EBRD was once a laughing stock; synonymous with decadence and reckless extravagance. When it was formed 13 years ago it spent millions of pounds importing top-quality marble and expensive art works to its London offices, earning it the title 'the glistening bank'. The resulting scandal led to the resignation of its first president. 'The marble won't need replacing,' muses Lemierre.

But controversy is seemingly always close at hand. The bank earlier this year was attacked by a leading Washington business watchdog, the Government Accountability Project, for failing to put in place adequate measures to combat corruption. While Lemierre disputes the findings he did saythe EBRD's whistle blowing procedures were under review.

The bank also drew criticism for lending £70m to Labour donor and steel tycoon Lakshmi Mittal to buy a Romanian steel mill and for forwarding £20m to a Rupert Murdoch-owned Russian advertising firm. Lemierre defends the bank. 'We are very serious about taxpayers money. The money taxpayers put in should go to the region to support projects ... the activity is shifting towards Russia and the south east.'

He says the bank is engaged in the clean-up of nuclear plants and submarines and is keen to promote energy efficiency, especially after Russia signed up to the Kyoto protocol.

Lemierre was a leading contender for the top job at the International Monetary Fund, but does not regret missing out. 'This is an extraordinary job. We've a unique position between public and the private sector.'

His strategy is to take stakes in companies and exit when they are mature. But you get the feeling that Lemierre is at the EBRD for the long term.

http://observer.guardian.co.uk/business/story/0,,1345224,00.html