Prime Minister Putin's opening remarks:

Good afternoon, ladies and gentlemen,

As you know, on May 17 we met with the leadership of the Russian Union of Industrialists and Entrepreneurs here, at the Government House. We discussed many issues important for business.

Nevertheless, today we are holding another meeting, this time with the leadership of major companies in key sectors of the Russian economy, such as steel, energy, automobile manufacturing and transport.

The heads of several regions and federal agencies are also present at our meeting today.

Today we will discuss very important issues for the national economy and society as a whole. We will discuss pricing stability in fundamental sectors of the economy, for both prices set by the government and determined by the market.

To begin with, I'd like to remind you that we are now experiencing the lowest inflation in 20 years: 3.8% for the first four months of the year. It's clear that this is very important and beneficial for encouraging investment and increasing lending, especially long-term lending. More importantly, low inflation allows us not only to maintain people's real incomes, but steadily increase them.

Today we see an upward trend in key economic indices. Russia's GDP is expected to grow by 3.5%-4% in 2010, according to the forecast of the Ministry of Economic Development. There are even more optimistic scenarios, but we will proceed from that conservative estimate.

Russian industry performed extremely well in April, posting double-digit growth, 10.4%, for the first time.

Prices for major Russian exports have risen again. Oil and petroleum products are doing well, and natural gas looks good in terms of sales volume and prices. The steel industry is getting back on its feet, and metal prices have gone up.

Of course, such a change in the economic situation is encouraging optimism and even leading some people to believe that all our problems are over.

I wish this were so, but too much optimism is a bad adviser; it could induce us into making rash moves that could have serious negative consequences.

A sober analysis of the situation - and you know the situation better than anyone -shows that there are still many problems in the global economy, in particular in the eurozone. The European Union is our biggest economic partner and accounts for over 51% of our foreign trade.

And we must recognise that economic recovery has only just begun in Russia. It will take at least two or three years to reach pre-crisis levels. Economic growth is still fragile, and market demand and consumer activity are still insufficient. To encourage them, the government is implementing an entire package of anti-crisis measures.

Including subsidies and investment in its share capital, Russian Railways received 106 billion roubles from the federal government in 2009. We also provided 102.5 billion roubles to the automobile industry. This year Russian Railways will receive virtually the same amount of support. A new car scrappage programme was launched in the automobile industry. Of course, this programme should be improved and, as I have said many times, made as user-friendly as possible, which means that we need to remove bureaucratic obstacles. But on the whole, the programme has proved to be good for the automobile industry and the Russian economy in general.

These measures are also creating a good climate for industries that produce metal, energy and parts for the railway and automobile industries. But when providing support to businesses, the government has the right to rely on their sense of responsibility, and, ladies and gentlemen, on your understanding and cooperation, as well as on the fact that no one will take advantage of government support to earn windfall profits.

Budget assistance is designed to help you overcome the crisis and support you in difficult times, but let me stress once again that it is not to provide windfall profits.

It's also clear that in the current situation, sharp increases in prices for basic goods and services, not to mention disruptions in supply, could do serious damage to key sectors of our economy and erase much of the progress achieved in the last few months. To prevent this, it's necessary to keep all factors that could cause price hikes under tight control and prevent actions that could unleash a spiral of inflation.

In this context, plans by several large metal-producing companies to raise prices for their products for domestic consumers could not have slipped by unnoticed. We believe they did not have valid grounds for increasing prices.

As I've just said, international prices have increased over the last six months or year. Nevertheless, a 25% to 30% one-time price hike for domestic consumers is beyond normal economic logic. Nor are we in a situation where we can afford such price hikes based exclusively on the situation in international markets.

I believe that this action can be attributed to a subjective desire of the said companies to make up for the losses sustained during the downturn. And I can understand your position as business leaders responsible for their workers. But the government bears an even greater responsibility, responsibility for the entire economy, and this is why you must understand us. Trying to compensate for all losses all at once, without considering the effects this will have on other players in the national economy, such as the car makers, railways, the housing and utilities sector and other industries, is unjustified and very dangerous.

Incidentally, the government is also a major consumer of metal products when it invests in housing construction and infrastructure projects, which means that a price increase would negatively affect the implementation of federal and regional programmes, including the socially significant projects.

In this context, the government believes that domestic supplies of metal, iron ore and coke should be high priorities.

Major metal producers and consumers could resume the practice of long-term contracts based on fixed prices, which would prevent any abrupt increases.

Furthermore, price disagreements should not lead to unilateral discontinuation of supply or disruption of payment. Commercial contract disputes should be resolved through negotiation, or, in extreme cases, in commercial courts. Any attempts to drive one's partner into a corner are impermissible. I'd like to bring up Gazprom as an example here: this state-owned company never cuts off gas supplies to its customers, even during price disputes.

Business conflicts should not lead to production facilities being shut down or harm the interests of workers. Let me repeat: we need strict discipline in both supplies and payments. Comprehensive solutions to remove unnecessary intermediaries from the market are also necessary. In this case their actions affect consumers in the metalworking industries, consumers of metals. Sometimes, this only leads to a mark-up on end metal products, as well other types of products produced by fundamental industries.

In the last few days, the government has held intensive consultations with metalworking companies and their customers. As I understand, they have reached a mutual understanding and settled their differences. I ask you to put these agreements in writing, in long-term contracts, as soon as possible.

Naturally enough, during the discussion of measures to stabilise the metals market, we heard conflicting accounts from industrial and business representatives. They primarily concern prices for electricity, gas, and railway shipments, that is, prices regulated by the government to some extent. Although, in fairness, I should mention that average electricity prices for major metalworking facilities decreased rather than increased during the past year. For example, Severstal paid 1.78 roubles per kWh in January 2009, compared to 1.73 roubles in January of this year. This decrease would seem small, but given the lower inflation, the situation is not that critical. On the contrary, things are even getting better.

Yet it's impossible to ignore the interests of business completely, and we are not going to do this. This is why we have gathered here today to discuss these issues and consult. Everything is intertwined in the economy. The relevant federal agencies will be instructed to calculate economic benchmarks for metals prices and prices for other basic goods and services.

Needless to say, these benchmarks will take into account prices for natural monopolies. Then we are planning to set up a system to monitor the market so that we can have up-to-date information about potential threats and problems. This would enable us to respond quickly to any deviations from the price benchmarks.

Recently, the government has been working intensely to address price changes for 2011 and beyond. This issue has been subjected to serious discussion, and we consider it fair and justified to continue to curb price increases in order to give the economy a break and not increase the burden on regular people - in short, to curtail inflation.

But let me emphasise that our goal of curbing prices increases will only be fully realised if private companies also act responsibly. This is in our common interests.

Now I'd like to say a few words about the concrete measures proposed to keep prices in check. To start with, the transition to equal pricing for domestic and export gas supplies will be more gradual than previously planned.

Let me remind you that previously we had planned to reach full European prices in 2011, minus transport costs and export duties. These prices would have been lower for domestic consumers anyway, but the price formula should have been based on equal profitability.

During the recession, we decided to meet our consumers halfway and not to implement the equal profitability formula. They will pay only 55% of what Western consumers pay Gazprom.

Our citizens will pay even less, because in Russia the cost of gas for individuals is considerably lower than for industries.

This is contrast to Europe, where the situation is the opposite: ordinary people pay far more for gas than major economic actors or industrial companies. We will definitely maintain this policy in the coming years.

Furthermore, we announced our plans to liberalise the electricity market, and we have not reneged on them, but I'd like to stress that the existing prices are attractive for investment in the field. This is why we will recommend that the partially state-owned companies RusHydro and Rosatom reduce internal costs and inefficient expenditures. I believe that if we examine the issue carefully, we will find these inefficient expenditures. Large companies cannot exist without them, unfortunately.

I believe that owners of private power generating companies should also work to limit the growth of expenditures and prices. That would be fair. And I think you will agree with me when I say that we cannot put all of the burden for keeping down prices onto state-owned companies. This has to be our common goal.

Moreover, the law gives us powers to set limits on electricity prices in places where no real competition is possible. And the Federal Antimonopoly Service should take full advantage of these powers.

I think you know what I am talking about. If there is only one power generating company, and there is no other possibility of bringing power into the district and the region, this rule will be applied.

And finally, both the regions and the power-generating companies should more carefully implement investment programmes for the development of the electricity supply networks and synchronise the schedules for the construction and modernisation of these facilities to make them more seamless. And there is something that we should postpone to a later date, in order to avoid an excessive burden for consumers next year. In the near future a special government resolution will be adopted, which will, when necessary, adjust schedules for carrying out investment programmes for electricity supply networks.

Third. Indexation of tariffs for rail transport has always been less extensive than for other services provided by infrastructure monopolies. We will keep this trend next year. At the same time, we realise all the hardships Russian Railways is going through, and therefore we will support this company.

Let me speak to the leadership of the regions for a minute: all financial commitments for commuter transport must be met, and falling revenues for transport companies should be fully compensated from local government budgets.

Unfortunately, this does not always happen. And we must find a legislative solution to this problem and clearly establish the responsibility of the regions to fulfil their commitments.

If the regions lack financial discipline and fail to compensate commuter transport companies for falling revenues, then we'll pay Russian Railways directly by adjusting transfers between the federal and regional budgets.

On the other hand, Russian Railways itself has to speed up internal reforms, including the final sale of assets and the use of the funds raised from the sale to implement investment programmes.

And finally, I would like to touch on utilities pricing in the housing and utilities sector. This is quite a sensitive issue for ordinary people. We have charged the regions with curtailing increases in utilities pricing as much as possible.

At the beginning of this year, due to the negligent actions taken in some municipalities - and let me stress once again that this only occurred in some municipalities, as the overwhelming majority of municipal leaders followed the schedule and did not allow prices to increase sharply - price-hikes occurred in more than 1,000 municipalities. And I believe these increases are groundless.

If we do not want this situation to repeat itself, we must amend the legislation. A draft law that would transfer the power to set standards for consumption in the housing and utilities sector from the municipal to the regional level is already under consideration in the State Duma.

By establishing order in this industry we will avoid a situation where people are forced to pay for the services they do not actually receive.

We need to establish an effective system for regulating housing and utilities prices, which will designate this power to the Russian constituent entities, which in turn will only be able to delegate it to municipalities with sufficient organisational, personnel and financial capabilities to do this job well.

We'll also need to make changes to the rules for providing utilities services in order to establish a single, unified set of standards for all consumers.

We'll adopt laws ensuring transparency and openness of information at organisations in charge of blocks of flats, as well as laws allowing for companies to monitor people's actual payments for housing and utilities services.

I expect to meet with representatives of the State Duma in the near future to discuss these legislative changes. I'll ask them to make the necessary changes as soon as possible.

One last point. A review of utilities prices is only appropriate when cross-subsidisation has been carried out, and direct subsidies for utilities companies have been eliminated, and only if concrete steps to increase utilities efficiency are taken.

Nevertheless, situations in which someone tries to increase prices to fill holes caused by inefficiency, monopolies or ordinary theft are absolutely intolerable. Therefore, supervisory agencies must carefully monitor the situation in the housing and utilities sector.

In conclusion, I'd like to stress that the decisions that have been adopted affect this sensitive area extensively, as well as the interests of the overall economy and Russian citizens - every Russian citizen. That's why the federal agencies and regional government bodies must carry out these decisions clearly and unconditionally.

Let us move on to the discussion of the proposed measures.

 * * *

A meeting on pricing and tariffs, chaired by Prime Minister Vladimir Putin, adopted a number of decisions.

I. Concerning scenario conditions, the main parameters of the forecast of the social and economic development of the Russian Federation and the caps on prices (tariffs) of the products (services) provided by natural monopolies for 2011 and the planning period of 2012 and 2013:

1. It is deemed practicable in preparing the scenario conditions and the main parameters of the forecast of the social and economic development of the Russian Federation and the caps on the prices (tariffs) for the products (services) provided by natural monopolies for 2011 and for the planning period of 2012 and 2013 to proceed from the following values for 2011:
- the growth rate of gas prices for all categories of consumers other than households: 15%;
- the growth rate of regulated electricity prices for all categories of consumers other than households: up to 15%;
- the growth rate of utilities rates paid by households: up to 15%;
- the growth rate of fares for cargo carriage by rail: 8%.

2. The Ministry of Economic Development has been instructed, jointly with the federal executive bodies concerned and with the participation of the Bank of Russia, to submit to the government of the Russian Federation the scenario conditions, the main parameters of the forecast of the social and economic development of the Russian Federation and the caps on prices (tariffs) of the products (services) provided by natural monopolies for 2011 and the planning period of 2012 and 2013, prepared with due account of the latest decisions, for discussion at the next meeting of the government of the Russian Federation.

3. The Ministry of Transport and the Ministry of Energy have been instructed, together with Russian Railways, Gazprom, FSK UES and MRSK Holding, for the purpose of limiting the growth of prices (tariffs) for the services of natural monopolies, shall by June 11, 2010 submit to the Ministry of Economic Development proposals on cutting costs and the sale of the assets of companies with state participation, with the proceeds to be used to replace the investment component of the tariff.

The Ministry of Economic Development shall sum up the materials submitted and present them to the government of the Russian Federation before June 28, 2010.

II. Concerning price formation:

1. The Ministry of Economic Development, the Ministry of Industry and Trade, the Federal Antimonopoly Service and the Finance Ministry have been instructed:
1.1. Jointly with the Federal Customs Service and the Federal Tariffs Service of Russia to present systemic proposals regarding the creation of regulatory, legislative, organisational and technical conditions to ensure priority supply of metallurgical products, iron ore and coking coals to the internal market, including with the use of customs regulation of export and import supplies, tax, antimonopoly and tariff policy of the state.
1.2. Jointly with the Federal Service for Financial Markets of Russia submit proposals on the development of exchange trading in the main types of metallurgical products, coal, coking coal and iron ore in the domestic market.

2. The Ministry of Industry and Trade, the Ministry of Economic Development, the Federal Antimonopoly Service and the Ministry of Energy have been instructed:
2.1. Jointly with the main organisations concerned to submit agreed proposals on creating regulatory, legislative organisational and/or technical conditions for the conclusion of long-term contracts to supply metallurgical products and raw materials (coal, coking coal and iron ore).
2.2. To develop model long-term supply contracts which envisage:
- the use of a price formula;
- fair distribution between the parties of possible risks or benefits from changing prices in the corresponding markets;
- uninterrupted supply of products under contracts concluded during the period when possible disputes are dealt with.
To do everything to introduce such contracts in business practice.

3. The Ministry of Industry and Trade, the Energy Ministry, the Transport Ministry, the Ministry of Economic Development and the Federal Antimonopoly Service have been instructed, jointly with the main organisations concerned, to determine the list of vital metallurgical products for whose supply consumer companies are prepared to sign long-term contracts on a competitive basis in the framework of their investment and production programmes.
To do everything to encourage the conclusion of such contracts for the supply of corresponding products.

4. The Ministry of Industry and Trade, the Ministry of Energy and the Ministry of Regional Development, within their scopes of authority, are to prepare, and the Ministry of Economic Development, jointly with the Finance Ministry, the Federal Tariffs Service and the Federal Antimonopoly Service are to sum up and duly submit to the government of the Russian Federation by August 1, 2010 proposals aimed at making price formation for the supply of fuel oil, coal, metallurgical products (piping, reinforcements, etc.) for housing and utilities needs predictable, transparent and reasonable.

5. The Federal Antimonopoly Service of Russia, the Ministry of Economic Development, the Ministry of Industry and Trade, the Energy Ministry and the Federal Tariffs Service have been instructed:
5.1. By July 1, 2010 to submit to the government of the Russian Federation data on prices and profitability of supply by the leading producers to the domestic and external markets of basic metallurgical products (automobile sheets, rails, strips, pipes of various diameter, reinforcement, etc), coking coals, and iron ore.
5.2. To report to the government of the Russian Federation on the validity of the prices for the main metallurgical products, coking coals, iron ore, electricity and gas (supplied at unregulated prices) in the domestic market, on the coordination of pricing policies of the supplier enterprises (cartel collusion) and measures to prevent unreasonable increase thereof.
5.3. To establish quarterly monitoring of prices for critical types of metallurgical products, coking coals and iron ore.
In the event of their significant growth or signs of such growth (by more than 10%) promptly inform the government of the Russian Federation and take all the necessary measures to prevent unreasonable price increases.
The summary of the results of the monitoring are to be reported to the government of the Russian Federation on a quarterly basis beginning from July 15, 2010.
5.4. To propose systemic solutions to exclude unnecessary mediators from transactions of supply (purchase of metallurgical products, coking coals and iron ore between the main consumers and suppliers and monitor compliance therewith).
If corresponding decisions of the government of the Russian Federation are needed, to submit the relevant proposals under established procedure.

6. The Ministry of Industry and Trade, the Ministry of Energy, the Ministry of Economic Development, the Federal Tariffs Service, the Federal Antimonopoly Service have been instructed to analyze:
6.1. The performance of the leading domestic producers of metallurgical products as compared with the world leaders (in terms of output, energy consumption, remuneration, taxation, profitability and other factors).
6.2. The impact of the actual change of prices and tariffs of the natural monopolies on the cost of the products of metallurgical, coal and iron ore enterprises and the share of the said costs in the end price of the products beginning from January 1, 2008 (by quarter).
6.3. The justification of increased costs and comparison of the cost of producing the main types of metallurgical products and the prices for their end consumers in vertically integrated companies which include affiliated coal-and/or ore producing assets and in metallurgical companies that do not have such assets.
The results are to be reported to the government of the Russian Federation before July 1, 2010.

7. The Federal Agency for Natural Resources (Rosnedra), the Ministry of Industry and Trade and the Ministry of Economic Development have been instructed, jointly with the organisations concerned, to ensure prompt bringing into operation of explored deposits of iron ore and coking coals on a competitive basis. To prepare proposals on appraisal work to specify their characteristics and additionally explore the reserves of coking coal and iron ore and report back to the government of the Russian Federation in September 2010.

8. The Ministry of Economic Development, the Ministry of Industry and Trade, the Ministry of Transport, the Federal Customs Service, the Federal Tariffs Service, and the Federal Antimonopoly Service have been instructed, jointly with the organisations concerned, to create conditions for providing the necessary amounts of metal scrap for the domestic market.
If a government decision is necessary, proposals shall be introduced under established procedure. Report back to the government of the Russian Federation in August 2010.

9. The Finance Ministry, the Ministry of Economic Development, the Ministry of Industry and Trade, and the Energy Ministry, jointly with the Bank of Russia, have been instructed to prepare proposals on providing easier access for the enterprises in the real sector of the economy to credit resources.

10. The Ministry of Economic Development, the Energy Ministry, the Ministry of Regional Development and the Finance Ministry have been instructed, jointly with the organisations concerned, to consider the issue of reducing the accounts receivable towards arrears in the payment for the supply of heat across regions. Submit proposals on the complex of measures aimed at improving the situation with payment for heating supply before August 1, 2010.

11. The Finance Ministry, the Ministry of Regional Development, the Ministry of Economic Development, the Transport Ministry, the Federal Tariffs Service have been instructed, jointly with Russian Railways, to develop and implement a complex of measures, including legislative ones, to ensure loss-free commuter rail carriage beginning from 2011. Report on progress every quarter beginning from July 15, 2010.

12. The Ministry of Economic Development, the Finance Ministry, the Ministry of Transport and the Federal Tariffs Service have been instructed, jointly with Russian Railways, to assess the economic effectiveness of the operation of Russian Railways in 2011 with due account of the indexation of cargo carriage tariffs by 8% and full compensation for losses in commuter passenger carriage. To submit proposals on measures to ensure loss-free operation and full-scale implementation of the company's investment programme.

13. The Federal Tariffs Service, the Ministry of Economic Development, the Energy Ministry are to revise (if necessary) the parameters used in setting the tariffs for Holding MRSK by the Association of Russian Banks in order to address the priorities of government policy in the field of economic and social development, the balance of interests between suppliers and consumers and the consumers' solvency.

14. The Ministry of Economic Development, the Federal Tariffs Service, the Energy Ministry and the Federal Antimonopoly Service, jointly with Rosatom State Nuclear Energy Corporation and RusHydro, have been given until June 10 to submit agreed proposals on the practicability of investment markups for nuclear and hydro-power facilities in 2011-2013 with an analysis of the actual cost of building and real plans of launching capacities as well as financing the investment programme through loans.

III. Concerning regulatory legal acts to be adopted to solve the issues connected with the growing housing and utilities rates for households:

1. The Ministry of Regional Development has been instructed to secure approvals and submit to the government of the Russian Federation under established procedure a draft federal law On Introducing Amendments to the Housing Code of the Russian Federation, which makes it mandatory for organisations that manage residential blocks to disclose information in accordance with the information disclosure standards.

2. The Federal Tariffs Service of Russia has been instructed to secure approvals and submit to the government of the Russian Federation under established procedure a draft federal law aimed at designating the entities responsible for submitting the necessary information and materials on the fixing, changing and enforcing of tariffs and markups as well as information on household utilities rates payments to the federal executive body authorised to regulate utilities tariffs (the regulatory body of a constituent entity of the Russian Federation) as well as regulating the accountability of executive bodies of the constituent entities of the Russian Federation and the local government bodies for failure to disclose information.

3. The Ministry of Economic Development has been instructed, by the end of the 3rd quarter of 2010, to submit to the government of the Russian Federation a draft federal law on introducing amendments to the legislation concerning the designation of entities empowered to establish tariffs and fix the prices of goods and services of utilities organisations by executive bodies of the constituent entities of the Russian Federation and the grounds for delegating such powers to the local government bodies connected, among other things, with the existence of a special regulatory body within the structure of local government.