By Alexander Winning
MOSCOW (Reuters) - Russia announced state aid for a major energy project on Wednesday under a drive to shore up strategic firms as well as public faith in its banking system during an economic crisis deepened by Western sanctions.
The government said it had allocated 150 billion roubles (1.60 billion pounds) to support the Yamal liquefied natural gas (LNG) project in the Russian Arctic, taking the total bill for state aid promised to firms in the past few days to over $5 billion.
On top of the help for Yamal - which is controlled by the Novatek (MM:NVTK) firm but also has Western and Chinese shareholders - Russia has announced support for the state railways and two banks: the country's second-largest, VTB, (MM:VTBR) and Gazprombank
Russia is sliding into recession as the international price of oil, its main export earner, tumbles while the rouble
At the same time, sanctions imposed by the European Union and United States over Moscow's role in Ukraine have effectively locked Russian firms out of global capital markets.
This has made them increasingly reliant on state aid during the crisis that is threatening the overall economic stability on which President Vladimir Putin's popularity partly rests.
On Tuesday, the government boosted the capital of VTB by 100 billion roubles and bought 40 billion roubles' worth of preference shares in Gazprombank.
Putin has said domestic banks should be helped to boost lending to important projects. also hold stakes - is crucial to Moscow's drive to increase its share of the lucrative global LNG trade, as well as finding new buyers such as China to diversify away from its traditional European Union gas customers.
Gazprombank said the government had bought its preference shares using money the bank had returned to the NWF by repaying subordinated deposits it had received earlier.
"The conversion allows the bank to strengthen its capital structure and provides for sufficient scope to expand its operations," Gazprombank said. The shares are non-voting and therefore the deal would not affect the rights of current shareholders, it added.
VTB said it expected a further 150 billion roubles by the end of the first quarter of next year to increase its capital and fund investment projects approved by the government.
Russian banks are reeling from the rouble's plunge, which led to heavy deposit withdrawals as citizens rushed to convert their savings into hard currencies, while domestic firms have seen the cost of servicing their overseas debt leap.
Last week, the authorities significantly scaled up rescue funds for mid-sized lender Trust Bank, saying they would provide up to $2.4 billion in loans to bail it out.
The banking sector is set to receive an additional capital boost of up to 1 trillion roubles from early next year after Putin signed into law legislation allowing the government to give banks OFZ treasury bonds via a state corporation.
It is not clear which banks could benefit from that law, but VTB and Gazprombank are seen as contenders as they are considered systemically important. Top bank Sberbank (MM:SBER) would probably receive any support via a different route, most likely a subordinated loan from the central bank, since the regulator is its main shareholder.
(Additional reporting by Vladimir Soldatkin, Gleb Stolyarov and Dmitry Zhdannikov; Editing by Dominic Evans and David Stamp)