OREANDA-NEWS. March 23, 2012. Transcript of the meeting: Vladimir Putin: Good afternoon, I'd like to discuss our national development plans with you today. We have the fundamental basic documents, such as Strategy 2020 – a plan for national development until 2020 – and development plans for specific industries. We have discussed them in various formats over the years and have adopted some of them.

Here is what I like to draw your attention to today. As you know, during the recent presidential campaign I specified certain issues in newspaper articles, taking into account the real state of affairs. But everything I wrote is based on the same development programme until 2020. I specified the subjects based on people's requirements and I think this is the reason that they received broad support in our society.

Today we must start implementing these goals that I stated in my election articles, and today I'd like to talk to you about the so-called road maps that we must adopt for the sake of conducting practical work to this end. We have all discussed specific areas of development. Today, I'd like the heads of ministries and departments to express their opinion on the most effective ways of reaching these goals. We must also talk about sources of funding in this respect. This is all the more relevant now that we have started drafting a new three year budget. It goes without saying that we must have enough financial resources for all our proposals and programmes in the economy, the social sphere, infrastructure, and defence and security. In this context I'd like to emphasise that although we will need substantial funds for implementing all these goals, we must still proceed based on the absolute priority of maintaining macro-economic indicators.

The question emerges, then, how are we going to achieve our goals and from where will we take financial resources which, as I've mentioned, are not small? We will do this by streamlining our priorities, by enhancing the effectiveness of budgetary expenses and by reducing costs through postponing or fully eliminating low-priority projects. We need to use state resources more sparingly, and this we can do. Even at first glance it’s obvious that state resources are being used ineffectively by many industries. I believe that we have great reserves here. We should be using private investment wherever possible and we should facilitate attracting it to the economy. Please note that we need to go beyond simply disbursing the colossal amounts of funding that we have allocated towards achieving our purported goals. What we need to do is achieve new levels of quality in education, healthcare, defence and other crucial areas of the national economy. The money should be used for reform and to improve effectiveness.

This is all I wanted to say to start off. Now, I would like to give the floor over to Minister of Economic Development Elvira Nabiullina. Everyone who is here representing different industries will also have the opportunity to speak, so please focus on the areas that I identified earlier. Ms Nabiullina, please go ahead.

Elvira Nabiullina: Thank you.

I will begin with the implementation of the objectives that are set forth in your article on economic goals. In order to be successful in achieving them, we will need to establish a series of solutions this year and create new approaches designed to modernise the economy and secure steady economic growth in accordance with our strategic documents.

According to our estimates, these proposals, and additional measures to promote growth, may increase the GDP by 0.4%-0.9% within the next three years and even more after this initial period. These figures, 0.4 – 0.9 of a percentage point, may not seem impressive, but that amounts to an additional 660-700 billion roubles to the GDP in 2013. One-third of this amount will go to the budget, and we will receive at least 200 billion roubles in additional taxes as a result of economic growth. This will help us address many budget-related tasks, and some of this money will be kept by our taxpayers. It is important for us now to introduce all these measures, including the creation of 25 million new jobs by 2020, modernisation of existing work places and raising the competitiveness of the innovative economy, into our basic documents, scenarios, forecasts and the budget.

We have always developed different scenarios and forecasts prior to drafting the budget. So, we will need to consider all the basic documents, including these measures, in late April, since the forecast is not simply set of numbers, but rather, represents the essence of our future policy. This is especially true, as this is a crucial year for us, when we are about to switch to state programmes. Many of them are ready, and we need to include all these economic measures into the state programmes.

In addition to the budget and taxes, we will need to make drastic changes in the economy as well during the next few years, which will help us engage innovative factors of growth. This is exactly where we are going to need the road map for innovation support mechanisms and the investment climate, which you mentioned in your article. We met with business community representatives after the article had been published and discussed specific proposals designed to improve the investment climate. Therefore, we need to prepare regulations, and we have plans to do so. We have also discussed mechanisms to carry out the proposals mentioned in your article with the business community, including the ombudsman for businessmen.

Promoting competition, privatisation and improving the effectiveness of the state sector form another important area. I would like to elaborate on some of the important issues that you have outlined. First, I’d like to speak about technical and pricing audits for major investment projects. You mentioned today as well that we need to drastically improve the efficiency of our expenses, including prioritisation and effectiveness of government expenses. The current cost of many investment projects, including in construction, is greater than it could be. This is not only because of imperfect regulations, whereby certain industries are still based on outdated construction rules that preclude the use of innovative technology, but also because of the monopoly status of project designing in Russia and the low quality of cost estimate and project documentation, which leads to the revision of the cost parameters of many investment projects. The current mandatory state expert analysis focuses on safety rather than the use of pioneering construction techniques that reduce the operation and maintenance of these buildings in the long run.

Therefore, a comprehensive effort is necessary in order to upgrade these regulations. We believe that our regulations should allow for major international auditors to conduct technical inspections at large construction facilities that are being pursued using government money. We need to encourage the creation of our own competitive project agencies, of which there are not enough. We also need to conduct expert analysis of the cost effectiveness of such investment projects. We have gained some expertise in this area, but it is not enough. For example, we have engaged Sberbank to conduct an expert analysis in road construction, and their financial and technical audits proved to be quite effective. We believe that such work should be conducted on a larger scale. We will need to amend regulations and introduce organisational mechanisms. We will prepare such comprehensive solutions with the departments concerned by July 1.

The article also sets forth the goal of introducing more effective public control of major government purchases that total over 1 billion roubles. As soon as this instruction was set out, we placed on February 3 a pilot system on our gov.ru website for state municipal purchasing. We posted information about all contracts worth over 1 billion roubles on the home page. In early March, we launched public discussions for all interested parties. The website offers information about 41 orders worth over 100 billion roubles, including major construction sites and social facilities, orders for R&D work, as well as purchases of sophisticated technical equipment. We received many responses from experts and expert organisations. The National Association of Purchasing Institutions has made a special report, and there are questions on seven such orders. We will now have to develop appropriate mechanisms for dealing with such concerns as excessive prices or low levels of competition. We will work out such a response system soon in conjunction with the Federal Antimonopoly Service, which has a major role to play here.

The next issue that I would like to raise has to do with the disposition of non-core assets in companies with state participation, which is also among the goals that you set. This task is already being addressed, but things are proceeding slowly. So far, only 41 major strategic companies have adopted such programmes; 208 joint-stock companies that are not listed among strategic companies, have considered these programmes and only 76 have approved them. We will need to step up this work and perhaps make more serious decisions in order to encourage companies not only to consider these documents, but also to implement this programme concerning non-core assets.

There’s another very important goal regarding taxes, which is a cause of concern for the business community. We have already shared our preliminary proposals with you. Most importantly, we should make a decision prior to the beginning of the budgetary cycle. We are continuing our discussion with the Finance Ministry and I believe that we will be able to come up with such general decisions before forming the draft budget. We will mostly focus on reducing the relative burden on operations, production and investment and on increasing the burden on ineffective consumption and lease payments.

Another area where we need a good road map is in establishing the source of long-term money, including the investment of funds by individuals so that they can partake in economic growth through such investment mechanisms. Of course, this is a very complicated task. We do have equity investment funds and mutual investment funds, but individual investors are not over-                                                              eager to get involved in them. This is quite understandable, because investing means tying up a portion of one's funds that cannot then be used for current consumption. People are not very financially literate and are wary of financial institutions, especially in the case of long-term investment. We don’t have proper tax or financial incentives in place that would encourage people to invest. We don’t have an effective system for resolving disputes between individuals and providers of financial services either. As you may recall, there was even talk of a financial ombudsman during a meeting with businessmen, who would protect the individual’s rights on the financial market. We need to develop a long-term programme and adjust the regulatory base in order to be able to address such disputes effectively. I think that we will need more time to do this, perhaps until November 1, but the Finance Ministry should lead the way, and we are ready to participate in this work.

The last issue for today has to do with regulatory impact assessment. You mentioned in your article that finally having such a filter for the adoption of regulatory acts was a good thing, since it takes into account the interests and concerns of businesspeople. We have worked on this with business associations, and they came up with a number of proposals regarding the wider use of this instrument. They spoke about the tax and customs administration, about spreading this instrument to Russian regions, draft laws in the second reading that are being prepared by the Duma and decisions by the Eurasian Economic Commission, since we transferred some of our authority to them. We will expand this list carefully, ensuring that the instrument remains effective. We will prepare such proposals regarding the broader use of this instrument in the near future in conjunction with the business community. We believe that this will significantly improve the investment climate.

Speaking about the investment climate, you have set goals with regard to construction, meaning we should have a good road map for obtaining construction permits. Work is underway on all these tasks.

Vladimir Putin: Good, thank you.

Please go ahead, Mr Manturov.

Denis Manturov: Mr Putin, you identified several priorities in your article on which we need to focus our efforts and resources in order to speed up our technical development. The aviation industry is definitely one such priority. We are now actively adopting new approaches concerning innovative techniques for forming the federal budget and implementing state policies. Acting in conjunction with the Ministry of Economic Development and the Finance Ministry, we are developing a state programme for promoting the aviation industry.The version that has been agreed upon is to be submitted to the government shortly.

One of the key tasks of the programme is batch manufacturing of civil aircraft, which can be achieved primarily by boosting the development of national engine technology. We have managed to preserve the following in this area: this year we are finalising the major corporate procedures on setting up an engine technology branch, and we plan to focus efforts and resources on serial manufacturing of modern engines. In order to manage this, a number of financial and technological problems have to be resolved which are taken into account, and this should be accomplished when the state programme is being prepared. This will result first of all in the manufacture of civil aircraft even in the next year. While addressing those issues we will increase the output up to 50 civil aircraft, something we have never had before. As for long-term numbers, by 2020 we are going to increase labour productivity in the aviation branch almost tenfold – 8.9 times.

Furthermore, in your article you mention setting up technological development centres. We have already achieved certain results in that area. A helicopter engineering centre was opened in the Moscow Region consisting of two design bureaus (Mil and Kamov), a pilot production, pre-prototype and research flight testing centre employing around four thousand engineers and technicians. Currently an aircraft engineering project is being developed on the basis of TsAGI, an association of aviation science. This direction, in our view, should be pursued by uniting with specialised chairs of corresponding universities on the basis of those technological development centres. We have already started work on this with the Ministry of Education and Science. Perhaps we should not limit this to chairs, but we could also set up branches of such faculties.

In your article you provided a list of other industries, but I would like to focus on high-tech chemistry, namely, composite materials, which are essentially used in space and aviation -- but these sectors are only certain facets of this direction. We think that future is in composite materials. We have to develop this area in other industries, above all in the fuel and energy complex, construction and ship-building. A number of federal targeted programmes in several areas of research and development are being implemented. But to ensure the broader use of those materials, I believe that legislation should be upgraded, and materials should be introduced through standards and technical regulation. That would offer an opportunity for developing that branch. Thank you very much.

Vladmir Putin: Thank you. (Addressing Viktor Basardin) – Mr Basargin, go ahead.

Viktor Basargin: Mr Putin, colleagues, concerning the article “Russia: The Ethnicity Issue” we believe that these are all very complicated issues that need to be resolved, but the ethnic issue is the most serious.

On March 20 we had a meeting chaired by Dmitry Kozak of the inter-departmental working group on inter-ethnic issues, where we discussed some of the topics outlined in your article.

The first problem – and I should mention that it may not be the most important for the sake of resolving the issue but it is most widely discussed – is the establishment of special structures to deal with ethnic policies. We have crafted our proposals, they were largely approved by the working group and the representatives of all ethnic cultural autonomies, regions and other public organisations who deal with ethnic policies, including the media.

We suggested that ethnic policy issues should be dealt with by a collective organ – a council under the President of the Russian Federation.

In addition, we propose introducing to the presidential executive office an ombudsman with a staff on the normalisation of interethnic relations, as a sort of a collective organ, a legislative one. Moreover, within the executive power we suggest setting up a presidium of that council headed by the Prime Minister of the Russian Federation -- naturally, a federal organ responsible for ethnic policies.

Vladmir Putin: Which one?

Viktor Basargin: Mr Putin, there have been a number of suggestions. Apparently, you will have to make the final decision. Many participants insisted on having a separate organ, not one that currently exists in the Ministry of Regional Development. We do not have any objections to this. Moreover, to some extent we share the opinion of some representatives of the Federation Council and the State Duma that there should be such an organ. However, Mr Putin, I would like to draw your attention to one of our proposals that I mentioned at the meeting of the working group: if the Ministry of Regional Development is going to be transformed … You just said in your article that an ethnic policy is not just an inter-ethnic or inter-cultural solution, but it is an issue related to the economic provision that has to do with aligning our regional policy and finding a solution to our social problems. That is why we believe that ethnic policies can not be separated from the regional policy, that is, everything that is connected with the comprehensive development of our territories. So if a watershed, so to speak, appears, some branch problems can be separated, but the Ministry of Regional Development should be preserved, as it will deal with strategies for regional development including ethnic issues – in other words, it will be an optimal structure.

Vladmir Putin: Well, so you think the structure of the Ministry should not be altered? And that no separate organ is needed?

Viktor Basargin: We think it would be best to maintain it, especially as there have been a great number of positive responses to that department (it is the only one, of course) which currently deals with those issues.

Dmitry Kozak: The following was discussed: the ministry is overloaded with construction, housing maintenance issues, etc, and inter-ethnic relations are on the periphery of the ministry’s focus. If we set up a ministry to deal exclusively with inter-ethnic relations… All responsibility in this area belongs to the Ministry of Education, the Ministry of Culture, the Migration Service etс.

Viktor Basargin: Eighteen agencies.

Dmitry Kozak: And they cannot be separated, so those ministries should be relieved of their responsibilities in order to pass them off on a ministry of ethnicity and the corresponding powers on regional policies, on regional development. Because objectively, the prime source, so to speak, of all inter-ethnic conflicts is above all an inequality in the level of the economic development in the regions and a corresponding lack of control in migration, leading to an excessive concentration of migrants in centres of economic attraction, namely Moscow and St Petersburg, and parts of the Krasnodar Territory. That is why everyone agreed, even those who wanted a separate ministry on ethnic relations and nothing else, that it should be coupled with regional policy. That is why they came up with, roughly speaking, the ministry of regional development and inter-ethnic relations.

Vladmir Putin: All right.

Viktor Basargin: May I continue? Mr Putin, you said we should …

Vladmir Putin: But it should be supplemented with a corresponding presidential council and a presidium within the framework of the cabinet of ministers.

Dmitry Kozak: Because at the government level… Since it is a cross-ministerial task, there should be a working organ at the level of the cabinet of ministers that would coordinate, that could monitor the way it is being done now.

Viktor Basargin: That follows the same principle as with the former Council of Nationalities. It is approximately the same principle, i.e. there is a legislative organ, an executive committee, an administrative system and a system of executive power.

Vladmir Putin: All right.

Viktor Basargin: Mr Putin, in your article you said we need an enthnicity strategy. Within two to three months we will be ready to submit to that council, perhaps, if it is set up and if this proposal is supported, either a strategy (we have practically finished compiling it) or a concept of improving ethnic policies. Such a document is currently in effect, from 1996. We are prepared to submit a document for discussion at the council to be subsequently adopted.

Besides, we believe that the work should be completed…The political decision on designing a federal targeted programme on consolidating the unity of the Russian nation has not yet been made. We have conducted this work, and we have such a document today. We are ready to discuss it.