Transcript of the beginning of the meeting:

Vladimir Putin: Mr Dmitriyenko, what is the situation in your region and how would you rate it, in terms of economic and social issues? What are the prospects for 2010?

Dmitry Dmitriyenko: Mr Putin, the Murmansk Region is part of the Russian Federation. Consequently, the Murmansk Region has obviously not remained unaffected by the crisis. Throughout 2009 we focused our efforts primarily on the fulfillment of any social obligations that had been made. Simultaneously, we tried to find reserves to develop further.

Last year, we met all our social obligations in full and did not have any wage arrears in the public sector. We also provided active support to the private sector companies to avoid arrears there.

I can say that the companies' wage arrears are currently totalling 73 million roubles. These are spread among eight companies. Five of these companies are under the Defence Ministry, their total liability at 64 million roubles. There is one company that is bankrupt and two companies whose wage arrears total nine million roubles. One company has already come to the attention of the Prosecutor's Office because there was considerable activity in its accounts, while no salaries were paid.

Finally, there is a mining company. The fact is that it did not receive in a timely manner a grant from the federal centre for maintenance of one of its mines and was forced to spend its own funds. Now, the company is in a difficult situation. We are trying to figure out a way out and I have discussed the issue with Moscow. I think that we will eventually resolve this issue. However, this does not absolve the management of the company from the responsibility to pay people's salaries.

You have devoted a lot of time today to discussing companies that operate in the shipbuilding sector, particularly those that work for the Defence Ministry. But we also have private companies and many small businesses which, in one way or another, work in the field of ship repair.

I think that we can't afford to lose the ship repair sector, since the prospects of starting production at the Shtokman field and the development of the Murmansk transport hub will certainly require both ship repair capacities and skilled personnel, asking for other issues to be resolved too.

As for the economy of the region, the situation is stable but rather tense. We have a fairly large budget deficit. Last year, using our own resources and those of the federal centre, we secured federal loans and have absolutely pulled it off. The total value of commercial loans is only 300 million roubles. All of the rest were received from the Finance Ministry or we found funds of our own.

This is indicative of the fact that, as a region, as an administration, we have borne the full brunt of the crisis by ourselves. The following could serve as an illustration: we provided a total of 4.3 billion roubles in support to municipalities for the performance of their usual functions. In turn, here, we secured four billion roubles in federal loans; that is, we reached our goals and aided the municipalities. At the same time, the municipalities' debts did not increase any further.

Naturally, this year, we will demand that they fulfil their obligations. They must properly administer their designated taxes. After analysing the situation we discovered that our municipalities are not working hard enough and there is a certain amount of paternalism. In other words, the easiest way out a head of municipality can come up with is to write the governor a letter saying, "I don't have enough money in the budget. Send me some money."

We have analysed the tax potential of municipalities and, believe me, we ourselves were surprised: neighbouring municipalities suffering from similar problems and having equal population could have tax collection figures showing a 200% difference. In other words, it is a resource that we have to use. In this connection, I gave our Finance Ministry a directive. We have developed an anti-crisis certificate, and now any request from a municipality for support over and above the plan will demand the addition of this anti-crisis certificate, as well as information on what steps the head of the municipality has taken to solve the problems he is faced with.

We have done some work on regulating aid to municipalities from the point of view of grants and other kinds of aid. All expenses have been broken down into three groups. And we are currently closely examining municipalities' expenses that are not necessary or vital. In other words, if at the beginning of year, a municipality unreasonably requests a large sum to buy furniture or repair porches, a special commission will examine this very closely. And, as a rule, we refuse such payments.

Considering that most of our municipalities are subsidised, and some are subsidised to as much as 90%, with the average ranging from 40% to 70%, we have the right to refuse, and we do refuse.

Again, that does not mean that we will leave municipalities without support, but we will look at each rouble we disburse with more scrutiny and more care, and we are already doing this.

This goes in parallel with the work we have begun on optimising a budgetary network, again - in compliance with federal laws, which demands that we resolve these issues. But we give priority to the needs of the public.

This is the reason why, for instance, in considering forming a budgetary network for education, we must first of all talk about the quality of education. The Constitution guarantees the right to education, and we, as a rule, fulfil that right. But if we're talking about the quality of education, it is, especially in remote locations, rather low.

Vladimir Putin: How many schools did you open last year?

Dmitry Dmitriyenko: Last year, we did not open any schools; we only repaired the existing ones.

Vladimir Putin: So why are you telling me about the quality of education?

Dmitry Dmitriyenko: Let me explain.

Vladimir Putin: If you think that the quality of education is not good enough, you need to open new schools. Why aren't you doing that?

Dmitry Dmitriyenko: Mr Putin, we have a natural decline in the population. Even under applicable specifications, we have too many schools. These are the specifications that we receive from the Ministry of Education. We say now that we need to supply these schools with better textbooks, technologies and curricula. And we are doing it.

Vladimir Putin: And are you supplying them?

Dmitry Dmitriyenko: Yes, we are.

Vladimir Putin: Good.

Dmitry Dmitriyenko: We are buying interactive blackboards. Moreover, in the context of this work, we hope that the resources that appear as a result of optimisation will not be taken out of the education system. They will be used, on the one hand, to improve the quality of the educational process. And on the other hand, for next year we have set a rather ambitious goal of making the level of teachers' salaries even with that of the rest of the economy.

As part of our work on optimisation, we are resolving the issue in a way that would enable us to move away from the existing scheme of labour compensation fund distribution, where 40% goes to teachers' salaries and 60% to administration.

Vladimir Putin: How are you planning to achieve that?

Dmitry Dmitriyenko: First of all, we have analysed staff lists very carefully. And we found out that schools with approximately equal number of students and providing practically the same quality of education can have between one and five deputy principals.

Vladimir Putin: Do you do this at the level of some regional or municipal agencies, or do you give schools the right to decide how much they can spend and what they should spend it on, and how they should optimise their staff?

Dmitry Dmitriyenko: The region's Ministry of Education is conducting the work on my directive. In spite of the obvious fact that the municipalities have the relevant powers and our schools are independent enough, each minister should be responsible and liable for everything that occurs in the region in the area of education. And, certainly, there are meetings and consultations, and we help them methodologically.

Vladimir Putin: Are you aware of the practice of transferring these rights to the level of the institution itself?

Dmitry Dmitriyenko: Yes, we're getting ready to do that.

Vladimir Putin: You haven't applied it yet?

Dmitry Dmitriyenko: No, we have per capita payments. The practice has been relegated to the municipalities. They receive resources and already cooperate internally with educational institutions. We think that this is insufficient, and what you mentioned is the right way. We hope that by next year, each school will decide independently how to spend its money and how to earn it.

Vladimir Putin: Perhaps not every single school needs to do this, but look at how other regions are doing it. It goes with the general logic of what happens in the public sector in a broader sense, and it is possible to do it slowly, calmly, without sudden changes. In places where it is implemented, teachers' wages actually increase.

Dmitry Dmitriyenko: This is the very effect we are counting on.

Vladimir Putin: What are your problem issues? What do you consider the most difficult today?

Dmitry Dmitriyenko: Before I get to the difficulties, I would like to thank you, because since our last meeting, when we discussed the water supply in the Murmansk Region, certain measures have been taken. First, we have already resolved an issue that caused great concern among the people of Murmansk: our water mains passed under a cemetery. We have moved it, and we're not going to stop there. We are going to build treatment facilities. We have a full understanding with the Regional Development Ministry, we have executed an agreement with the European Bank for Reconstruction and Development, and will resolve these issues. Certainly, your resolution served as an impetus, and we are very grateful to you for the help.

The issues that the region is facing are, first of all, of course, tied with the fact that the Murmansk Region today is one of the four fuel-oil dependent regions. And in the long term, for the next two years, it will basically remain the only one. Energy efficiency issues and provision of heating services to the public are the priority tasks.

I communicate rather often with the Ministry of Energy and Sergei Shmatko (the Russian Federation's Minister of Energy), and we are developing various approaches. Unfortunately, we have not achieved the desired results yet, only because such projects are rather long-term and labour-intensive, and their efficiency becomes apparent only after three to five years.

We have conducted an energy audit of heating companies. We are working with the operating companies very closely. At the beginning of the year, we had certain difficulties because it is a new line of activity and different operating companies entered the sector. However, we have managed to put things in order.

In a joint move with the federal authorities, we have founded a self-regulating organisation of service companies. What is more, we have developed the standards, because the main problem that we were faced with was that the operating companies collected money from the public, accumulated it in their accounts, but would not further transfer that money to the heating organisations. They would frequently justify it by saying that there were no corresponding contracts or used other pretexts. In reality, it meant that the heating organisations literally financed the privately owned operating companies. We have dealt with this and have now adjusted the process. In the Leninsk District, we have already introduced a standardised payment document.

As for the operating companies, we have developed the standards for their operations. They were supposed to come into force yesterday, but due to certain reasons this has been postponed for a week. The most important idea is that an operating company should have responsibility to its partners and must collect money in the proper amounts. It's no secret that at the beginning of last year, the collections were only 69%. By the end of the year, we raised it to 85%.

Vladimir Putin: That's a different subject. But I think that the city's leadership has committed an inexcusable fault in its work by making the public receive multiple bills for the same services. That is impossible. It's a cock-up in the city administration's operations. And you, as the governor, should have reacted to it in a timely fashion.

Dmitry Dmitriyenko: We intervened immediately. And, from my point of view, it is because of our intervention that there were practically no such duplicated payments in March. There were a few program failures, when a rather large volume of payments came in, but we also dealt with this.

My first deputy is now working on this issue. He is making sure that Murmansk and other cities and towns do not experience such system failures. But at least the bills for March make it clear the situation is already under control. We will fully monitor it, especially as we now have the understanding of the operating companies. There is this clause in the specifications which states that members of SROs (self-regulating organisations) are not entitled to sign contracts with heating and power organisations.

Vladimir Putin: These are intrigues that do not concern the public.

At the administrative level, such decisions should be made in a timely manner. As for fuel-oil dependence, you are absolutely right. And there's no doubt about it, Murmansk and the Murmansk Region should have gas supply. But such projects are definitely long-term. And the entire issue should be fundamentally resolved after Shtokman field goes on stream.

By the way, nobody cancelled this project.

So, next spring, as you and I have agreed, an investment decision will be made. At the same time, the development of this field should also begin immediately. I have to admit though that the work actually never stopped. All of the preliminary work is currently in progress.

Once the project on Shtokman moves to a practical phase, it will take a few years for the field to go on stream and for the necessary infrastructure to be built. It takes several years, but it should be done without fail.

As you know, we have already started construction of the offshore part of the Nord Stream pipeline system. And at a certain point this pipeline system is expected to be filled with gas, including gas from Shtokman.

Therefore, the work is underway now, it will be completed, and, as a consequence, the issues of gas supply to the Murmansk Region will be resolved.