Transcript of the beginning of the meeting:

Vladimir Putin: Mr Vakhrukov, we have discussed almost every problem today. However, if there is anything else you would like to raise separately, please go ahead.

Sergei Vakhrukov: Mr Putin, thank you for today's wide-ranging discussion. The support we have received matters tremendously to us. But let's begin at the beginning. I do think that some of the issues we discussed demand additional decisions.

As you saw today, we in the Yaroslavl region are developing our economy based on the cluster approach, you saw how four clusters are taking shape in the region, and their first real results.

The machine-building cluster is more or less okay. The few problems we have concern the Saturn Research & Production Centre. We have discussed them today. I think the decision taken will promote the development of this cluster and, what matters most, that of our key industrial company.

Here the fundamental questions relate to energy efficiency and programmes we are implementing to link Saturn's installations up to the municipal energy grid and enhance industrial efficiency.

As I said today, we need government support so that these installations can start working not only in our region but also in other parts of Russia.

I think they will dramatically reduce municipal and regional budget expenditures and provide the company with many lucrative contracts.

Vladimir Putin: Let us focus on one crucial task: enhancing energy efficiency. How much did your industrial output increase in the year's first five months?

Sergei Vakhrukov: By 5% overall. That's the average, but companies in the region are performing unevenly. A large proportion of them have greatly increased their output compared to last year's, but that is by no means all of them. We would like to see all of them raising their game.

Today we are relying on the outright leaders in this regard, those that optimised their expenditure and who today, even in these difficult times, have been able to, with help, develop pioneering products. This enables us to reposition ourselves now that the economy is on an upswing.

You have seen the Avtodizel plant today, so you know that it had tremendous problems, but the company has cut its expenditure now. We have offered it assistance, and we will facilitate its continued progress.

I think that we are now able to support this industrial growth but it is very important that, as at Saturn, if any other company has to make personnel cuts in the interests of increased economic efficiency...

Vladimir Putin: Such problems should not arise.

Sergei Vakhrukov: Indeed. We should intervene in time and jointly coordinate our work so that the company does well and ensure that there are no sudden staffing crises. The programme the government is implementing has our wholehearted support.

Vladimir Putin: Listen, I don't even want to have to contemplate that kind of staffing crisis, what are you talking about?

Sergei Vakhrukov: Neither do we, that's for sure. Under this programme we are considering all the potential risks that could arise. We are working quite intensively together with the company on this.

Vladimir Putin: We saw several social projects today, particularly the perinatal centre in Yaroslavl. What state is it in now?

Sergei Vakhrukov: It will be completed quite soon. The centre will open within the year. I propose that it should cater for several regions. It will be large enough, with high-tech equipment and 190 beds for more than 6,000 patients a year. Were this centre to receive interregional status, it could take in patients from Kostroma, Ivanovo and Vologda, areas where there are no such centres and where there will probably not be any for the foreseeable future. We are purchasing the latest equipment for our centre, which will house a department of the Medical Academy of Obstetrics and Gynaecology. We really need help in raising this centre up to the interregional level.

Vladimir Putin: What about preschool institutions?

Sergei Vakhrukov: We have some problems here. Though the Gavrilov-Yam district and others are coping, nearly 18,000 children are on the waiting list in the region. Mothers are put on the kindergarten waiting list as soon as they give birth.

Many facilities that were once kindergartens were being used for other purposes. We restarted kindergartens in some of them last year, and are continuing to do so this year, too. Construction is underway, albeit on a small scale. A kindergarten will open in Nekouz next month, and soon new extensions to several kindergartens in Myshkin will be ready. However, there are problems in Yaroslavl and Rybinsk.

Vladimir Putin: Construction must continue.

Sergei Vakhrukov: We are eager to build, and it is our duty. But one of the most serious problems we face is the cost of this construction. It takes roughly a million roubles to provide a place for one child. It takes nigh on 200 million roubles to build and equip a kindergarten for 200 children. Kindergartens are very costly projects.

We have found a way out in rural localities. Some villages have schools that are too large for them. We use part of their premises as kindergartens. A school and kindergarten under one roof is a very flexible, convenient arrangement, they work very well together. Several districts of our region already have something like this in place, and we intend to expand this approach. However, we also need to build new kindergartens. We will enhance construction as soon as the regional budget improves.

Vladimir Putin: But it's not the budget you need to focus on but the construction companies, and the cost of construction.

Sergei Vakhrukov: I am in complete agreement with you. Anyway, we have reduced construction costs this year.

Vladimir Putin: As soon as there's some money in the budget - prices rise.

Sergei Vakhrukov: We no longer set prices the market would not tolerate. And the construction of social institutions is in tune with the market. Housing and social project costs fell last year, and for the time being, remain steady. However, construction material prices are rising again: for metals and cement alike. This is why housing prices are up again.

There is another factor: growing public demand for homes due to lowered mortgage rates. Prices always grow with increasing demand. There was even a lack of available housing on the market last year.

Vladimir Putin: What is the overall situation in the construction industry?

Sergei Vakhrukov: It ended last year positively overall, even though it was a difficult year. We saw a token drop in housing construction, of 4% on 2008, and now we will see some growth. I think the new programme we have drawn up will be effective and is well within our powers. We are focusing efforts on the construction of low-rise residential accommodation as it only accounted for a small proportion of the overall volume of housing construction.

Paradoxically, construction here has primarily focused on the building of luxury houses under the Affordable Comfortable Homes programme. Large well-equipped flats accounted for nearly 70% of all construction in the last three years. Few could afford them. Now, we are acting to reduce prices per square metre - you are perfectly right here - and to reduce the size of the flats while not reducing their quality.

We intend at least to preserve last year's construction volume this year. There is no significant backlog, and going forward we are launching a programme, specifically as part of the federal housing programme, which will allow a substantial increase in the construction of small houses and flats.

Vladimir Putin: Housing size is an indicator of its quality. You should respond to market demands and build what people really need. This is the crux of the matter.

Sergei Vakhrukov: Yes, but we found ourselves in a situation where most construction took place in Yaroslavl and other large cities. However, last year we saw rural construction really take off. In several regions people had tears in their eyes as the flats were completed, since there had been no housing construction at all for ten to twelve years in some districts. The programme of resettling people from old and dilapidated houses really helped us make rapid progress on this. Small rural construction companies saw they could build independently using either their own or borrowed money, in full certainty that we would buy their houses. This allowed us to develop these small, but very efficient...

Vladimir Putin: Both new-build and repairs...

Sergei Vakhrukov: We have used up our repair quota over the last two years. This year has brought us bonuses for good work on the multi-family housing programme, and we anticipated even greater success. Our hopes were thwarted, however, with reduced funding ...

Vladimir Putin: How many houses have you repaired?

Sergei Vakhrukov: Almost 25% of apartment buildings in the region. We have raised more than three billion roubles in regional allocations and investment by residents. Now, a huge number of people are eager to get in on the programme. So we have joined up with the Federal Housing Reform Fund to start our own fund for the housing and utilities reform and block repairs. It is vital we keep the programme going: people have realised what it means, so we have to continue with it, there are over 20,000 families who need improved housing.

Vladimir Putin: We will also continue the programme.

Sergei Vakhrukov: That really does matter to us.

Vladimir Putin: Are average wages growing?

Sergei Vakhrukov: Yes.

Vladimir Putin: By how much?

Sergei Vakhrukov: By 7% on average this year though earnings shrank in many major companies last year. Saturn was among them. However, it has regained its pre-crisis level now, and is beginning to offer pay raises. Avtodizel is also back at pre-crisis levels. You have seen yourself today that the plant is recovering. Its average monthly wage exceeds 20,000 roubles now.

It is essential today to increase real public incomes and purchasing power alongside wages. These are very important figures. Real incomes fell a bit last year, and we must reverse the trend now.

Vladimir Putin: This is both a social and an economic problem because it determines demand.