Transcript of the beginning of the meeting:

Vladimir Putin: Ladies and gentlemen, good afternoon.

Let us begin with exchanging our latest information and discuss the fuel market situation. Mr Kudryashov of the Energy Ministry, please go ahead.

Sergei Kudryashov (Deputy Energy Minister): Mr Putin, we have studied the problem, as you instructed, and met with the regions where the risk is highest, and with companies, too. I would like to cite a few things that provoked the fuel supply crisis.

In the first place, there is no diesel fuel shortage; premium petrols are the problem. The first and foremost cause of the shortage is the 67% rise in petrol exports. This happened for two reasons. First, exports are more profitable than domestic sales, with the difference ranging from 2,000 to 3,000 roubles per tonne across the country. Second, a portion of Russian refineries were not yet ready to meet the new technical regulations for producing Euro-3 fuel by January 1, 2011.

Next comes the outrageous disparity between supply and demand at our commodity exchanges; the ratios are as high as 10:1, and in some regions, even 200:1. These are trade figures as of two days ago.

Furthermore, companies are now required to sell 15% of their refined products through the exchange. Not all of the independent producers are comfortable with this practice yet.

There is also the subjective factor: some of the independent producers are expecting an upward correction on the domestic market and are holding back a portion of their products. These are the main reasons behind the shortage.

Vladimir Putin: Do you mean they buy the products from vertically integrated companies and hold it in their tanks?

Sergei Kudryashov: Yes, Mr Putin.

Vladimir Putin: Waiting for the price to go up. Right. Now, Mr Tsarikovsky, from the FAS. What’s your assessment?

Andrei Tsarikovsky (deputy head of the Federal Anti-Monopoly Service (FAS)): I would like to add that several independent fuel traders have been denied petrol supplies by large vertically integrated companies, which means that independent traders could not supply enough petrol to the market. The Altai Territory was the hardest hit, along with several regions adjacent to it.

On the other hand, I don’t believe that the system of selling petrol through the exchange is working properly yet. We seriously suspect that some of the exchange deals are fake, while in reality large volumes of petrol are being sold to specific buyers. This jeopardises the purpose of setting a fair price through the exchange and ensuring the free distribution of the commodity.

Vladimir Putin: I see what you mean. What about Belarus and Kazakhstan – are our neighbours making any progress on adopting the new technical regulations?

Sergei Kudryashov: Mr Putin, we are working closely within the Customs Union to create standard requirements. But their proposals are different than ours. Belarus has not yet adopted any regulations at all, whereas Kazakhstan said they could introduce Euro-3 in 2014 at best and Euro-4 in 2015. There is a certain discrepancy here; we have reported it to (First Deputy Prime Minister) Igor Shuvalov.

Vladimir Putin: This is clear. Alright, this is what we’ll do. First, as for regulations, we must switch to Euro-3. We need to simply do it without making any detours. As for the deadlines, we must look at our agreements with our neighbours, Kazakhstan and Belarus, and coordinate them with the repairs at leading oil refineries. As for public companies or companies with state participation, I’d like to ask you to look at their reconstruction plans along with them. That is the first point. So, our first decision is on regulations. As for the deadlines, we’ll have to postpone them.

Second, we must have a registry of all marketing companies and so-called independent firms. We must build our relations with them in such a way as to give the regulators full informational access to what is going on.

Third, starting this May, please draw up the proposals and relevant draft documents for raising export customs duties on oil products in order to make sure that the export and domestic prices are adequate.

And now to the last point. A rise in export duties will increase the burden on our leading oil companies. Therefore, I’d like the Energy Ministry and the Finance Ministry to consider a possible adjustment of the tax burden on the oil sector. This adjustment may be achieved with lower royalties or excise duties. I’d like the members of the Finance Ministry to study these issues along with their colleagues.

Last year, we ranked first worldwide in oil production with 505 million tonnes, leaving even Saudi Arabia behind. We cannot allow our own people to experience shortages of oil or oil products in any part of the country. We simply must be more flexible in reacting to the changes that are taking place on the global and, hence, on the domestic market. I’d like you to pay close attention to this issue. Mr Kudryashov, please submit the draft documents on raising export customs duties to me tonight.

By the way, what is happening on the stock exchange? Why is trade so sluggish and ugly?

Sergei Kudryashov: Mr Putin, not all companies are there yet. Today, Rosneft accounts for 54% of all trading on the exchange. Therefore, we have drafted amendments to the legislation to compel companies to put 15% of their supply on the exchange for the domestic market. We must develop this segment and increase the basic supply. Today, we also recommend training independent oil suppliers in the regions along with the stock exchange because not all of them can work electronically.

Vladimir Putin: I’d like to return to these issues again together with the Ministry of Economic Development. Mr Kudryashov, I’d like you to join this discussion. It is necessary to improve the mechanisms for selling goods through the exchange. Please, consider this issue with the Federal Anti-Monopoly Service (FAS) and submit your proposals.

Reducing the tax burden is a movement in the right direction. But we should not forget that despite all the restrictions tied to spring field work, the external business environment is very favourable, which should prompt our leading companies to remember their shareholders. Only recently, one of these companies distributed dividends – very good dividends, according to my papers – in the amount of two billion dollars. So, the money is there, isn’t it? We don’t have to count the money in the pockets of shareholders – we should be wishing them luck! – but we must take care of our consumers en masse. I’d like to ask you to submit the draft documents to me tonight.

By the way, do our agricultural producers have enough fuel?

Yelena Skrynnik: Mr Putin, this issue won’t reflect on spring field work because, first of all, we have a reserve of discounted fuel, and, in line with your instructions, agricultural producers will receive it at a discount price that is 30% lower than the market value. These reserves are sufficient. We have calculated that the diesel fuel will last 26 days and the benzene 17 days.

Second, fuel supplies are guaranteed because they come from wholesale depots rather than gas stations. Third, restrictions on fuel have been lifted. Before, agricultural producers received fuel for a month. Now they can get it for a year. This also makes things easier. In addition, we have set up a working group together with the Energy Ministry that addresses all such issues at its weekly meetings.

Vladimir Putin: This is clear. So there are no urgent issues?

Yelena Skrynnik: No, there are not.

Vladimir Putin: Alright. Good, thank you. Please, follow up on this and inform me promptly if anything should require adjustment.

Mr Zhukov, a few words about commuters. We know this is a problem that we have relegated to the regions, but I’ve nonetheless asked you to monitor it closely. What is taking place there now? I mean that on the eve of May 1, millions of people will go to their summer houses to take care of their gardens and vegetable plots. Summer is around the corner, and many people will be riding as commuters. Please, go ahead.

Alexander Zhukov: Mr Putin, you are correct that commuter transport is carried out by regional companies, and the regions also fix the price of commuter tickets. Unfortunately, in the majority of the regions, these commuter companies are losing money, and we see that in some places, the regional authorities are attempting to resolve the issue by considerably raising ticket prices. To prevent this, we suggest, first, to grant the entire 25 billion rouble budget reserve for aid to regions to Russian Railways to cover the infrastructure part of fares – that is, commuter railway companies’ payments for using the track. A major burden would be shifted from them that way.

Second, suburban train companies are working at a loss due to ruinous payments for the rolling stock rented from Russian Railways. So we suggest that all such stock be passed into their property within two years.

These two measures are not enough even to help the companies pay their own way, let alone make profits. They will also need their regions’ help with updating the equipment. An agreement has been made for roughly 6 billion roubles to be allocated from the regional budgets this year for the purpose. Even this, however, does not suffice for commuter railway companies to get to the breakeven point. They will need another 10 billion roubles or so. We hope that the 25 billion federal targeted grant will inspire the regions to prevent commuter fares from skyrocketing.

Vladimir Putin: Transport and the fuel and energy industry certainly demand market price formation – which does not mean that we should put up with price leaps. That is no less evident. Please join the transport minister in monitoring.

Mr Shchegolev, please tell us about the e-government and computerising the Federal Tax Service.

Igor Shchegolev (the minister of communications and mass media): Mr Putin, our two agencies intend to exchange relevant information quite soon. This is necessary to ease access to public services as much as possible. We have arranged an interdepartmental electronic exchange net for the purpose. The Federal Tax Service has signed an agreement with our ministry today on joining the net.

This is a critical act because 13 out of the 19 agencies to computerise their services need information from the Tax Service, which is the unrivalled leader for urgent services. Other departments will no longer demand fiscal briefing papers from clients after the Tax Service gets online. Meanwhile, they need not only tax clearance certificates but also extracts from the registers of companies and self-employed persons. Now, departments will merely exchange relevant information to increase their efficiency and save clients the trouble. The new arrangement will spectacularly reduce the chance of instances as, say, the Tax Service demanding tax arrears on vehicles sold years ago – a problem many of those present certainly encountered.

Vladimir Putin: Good. We are developing the network of high-tech industrial parks. You attended the opening of several ones. Please say a few words about them.

Igor Shchegolev: Yes, we talked about it in great detail in Tomsk quite recently. Another two industrial parks have opened this month. The first, in Kemerovo, is a high standard park built at a record-setting pace within a year. It takes an area of 10,000 square kilometres, and involves several dozen businesses engaged in enhancing waste procession in the energy industry, land reclamation in mining areas, labour protection, and energy saving. Innovative equipment manufactured in Kemerovo is amply used at the park – suffice to mention solar batteries and energy saving technology. The park honourably represents R&D achievements no one would blush for. Many foreign companies are still developing their analogues.

The other facility is a business incubator opened this week at the Kazan industrial park, which started work somewhat earlier. The incubator will represent twenty companies. The president of Tatarstan and I gave certificates to the five that were the first to apply. The incubator will certainly help budding businesses to commercialise their ideas. The residents engaged at the park for a year say that the time sufficed for them to cross the boundaries of Tatarstan for contracts with fifty or more Russian regions.

All this proves that we are right to support such projects. Particularly, Tatarstan intends to establish another branch of the park in Naberezhnye Chelny to promote the use of IT in the auto industry. The park will help to diversify the economy of Naberezhnye Chelny, which is presently a single-industry city. The park will have every chance to prosper, considering the number of industrious and enterprising university students in the city. Kazan also has several promising federal and other universities, and we think the park will offer new jobs and use the university research potential to improve KAMAZ lorries, manufactured in Naberezhnye Chelny with enhanced use of pioneer technology.

Our Svyaz-Expocom exposition, due next month, will exhibit the most interesting R&D at a stand no smaller than those of the most advanced European countries. Many commodities we will demonstrate are not only popular in Russia but also promise successful exports.

Vladimir Putin: Okay. Mr Kudrin, the IMF assessed the financial reliability of 25 countries, including Russia. What are its conclusions for this country?

Alexei Kudrin: Mr Putin, the IMF assesses advanced economies for financial stability and reliability every five years. The check on Russia finished this month, and I can announce some of its conclusions.

First, Russia retained financial stability during the global downturn due to the daring response offered by the federal government, the Bank of Russia, and the Deposit Insurance Agency. They were success due to close teamwork and emergency rights in countercyclical measures in fiscal, budget and crediting policies.

Second, IMF experts noted continuing improvement of banking assets, though Russia retains excessive dependence on raw materials, with dire effect on finance. The IMF calls on Russia to stay vigilant with the problem of bad credits still unsolved, paying the closest attention to insurance, with its inadequate returns.

Vladimir Putin: What’s its current cost benefit?

Alexei Kudrin: Mr Putin, it differs for various transactions. For instance, the average civil responsibility insurance makes the smallest possible profits due to the regions where it works at a loss or with zero returns. The situation demands urgent steps. Other kinds of insurance also have problems.

The IMF also says that work for a stronger and more competitive financial system dropped pace with the crisis. However, experts approve the national strategy of banking development through 2015 endorsed a month ago, which offers an explicit concept of addressing available problems.

Recommendations on financial supervision proceed from extra rights granted the Bank of Russia to enhance the monitoring of bank holdings, especially for transnational deals. The experts also make an account of bills submitted to the State Duma. They expect the endorsement of these laws to bring Russian finance into conformity with recognised international standards, and so regard them as a legislative breakthrough.

The IMF approves the recent decision passing insurance supervision to the Federal Financial Market Service, which promises substantial savings, and helps inspectors to develop an all-round view of the market. IMF experts call on Russia to retain the independence of the FFMS and grant it sufficient rights and resources – but then, that’s just what we are doing.

IMF experts also approved the establishment of an ad hoc team under the presidential Financial Market Council to monitor systemic financial risks. We have really established the team. It has an action plan ready, and we will soon hear its initial reports and those of the systemic risk department of the Bank of Russia.

The IMF also demands to unify the bank reorganisation regulations and grant extensive rights to the external managers of all involved banks.

IMF experts emphasise the importance of Moscow as a prospective international financial centre. They think that the ambitious idea of developing such a centre is not a castle in Spain, however long it might take to implement. First of all, the city needs to earn a reputation for macroeconomic financial stability. It is granted several years to address the problems of government policies and improve the entire business environment. Anyway, the IMF considers it a timely and practicable plan. Thank you.

Vladimir Putin: Thank you very much. I would like to say a few words on the agenda of this meeting. We will summarise last year’s implementation of the state programme for the development of agriculture. I want to remind you that the programme was drawn on the basis of a priority national project for the agro-industrial complex launched slightly less than six years ago.

Federal grants on the national project and later state programme since 2006 exceed 440 billion roubles. Together with regional grants, they approach 770 billion roubles. Last year’s grants to the agro-industrial complex alone made roughly 157 billion roubles, considering emergency anti-drought allocations. We used a wide range of measures to support agriculture: there were subsidies covering interest on investment and short-term loans, equipment and pedigree livestock supplies by Rosagroleasing, and reduced fuel and lubricant prices.

More than 36 billion roubles were allocated for rural social development on the state programme in 2010 to open 43 health posts and more than 400 retail shops, and build more than 1.2 million square metres of housing, including 633,000 sq m for young families. All told, housing with a total area approaching 4 million square metres was commissioned these last five years, and more than 67,000 young agricultural specialists and rural families improved their housing conditions.

The implementation of the programme to install gas service in the countryside continued last year, with 58,000 houses connected to the grid – rather a small achievement, considering Russia’s expanses. 52.6% of rural settlements had received gas supply by the end of last year, compared to 51.1% in 2009. We are certainly making progress but it should be paced up.

Our agricultural producers need effective support this year to harvest good crops. Our aid should address all from major agro-industrial enterprises down to small private farms.

As you know, a decision was made to increase federal allocations on the development of the agro-industrial complex to 163 billion roubles from the initially earmarked 150 billion. The government meeting of April 21 approved relevant amendments to submit them to the State Duma. I mentioned them in my report to parliament.

The Rosselkhozbank and the Sberbank have reserved another 150 billion roubles for crediting the spring sowing campaign, which means that the agro-industrial complex’s demand for loans will be met in full.

You know that the fuel price discount has been preserved, and I would like to say the following in this connection: spring crops had been sown on 2.5 million hectares by April 25, and the total sown area exceeds 4 million hectares, according to updated statistics. Still, it makes about a half of the area sown by the same day last year due to cold spring. There is still snow in the streets in some localities.

We must regain the usual pace within the next days and weeks. It is possible, and nothing out of the ordinary. To cope, we need merely to arrange the job as smoothly as possible, and pay attention to every link of the technological chain. So I call on you again to pay attention to unbroken petrol and other fuel supplies to the agro-industrial complex. An order has been given to the Federal Anti-Monopoly Service and other agencies to analyse the market and do everything possible to normalise the situation. Please pay special attention to agriculture.

I would like to address another two items on our agenda. We will discuss amendments to the law on mandatory industrial accident insurance, so I will cite alarming figures. Accidents in the processing industries took a toll of 537 lives last year – even more than in mining, with 279 deaths. We are drastically amending the relevant legislation to introduce new standards enhancing demands on labour protection and employers’ responsibilities. The amendments we will regard now run in the same vein as they demand companies’ regular reports to insurers about the staff’s health and job evaluation.

The calculation of insurance rates will become more objective with extra economic incentives for employers to invest in labour safety. Insurance rates can be reduced for businesses with reliable conditions.

We will also discuss a package of agreements and other documents pertaining to the formation of the legal basis of the Customs Union and the Common Economic Space. I stress once again that the promotion of integration and the formation of the full-fledged Common Economic Space are among our top priorities. I call on all my colleagues to pay it the utmost attention. This specially refers to Mr Shuvalov, the government member responsible for this field of our work. Let us turn to our agenda now.

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