Transcript of the beginning of the meeting:

Vladimir Putin: Mr Shuvalov, we are implementing a programme for economic cooperation with South Ossetia and Abkhazia. We have set aside 4.7 billion roubles for our cooperation with South Ossetia and three billion roubles for Abkhazia this year. I asked you to meet with our counterparts and discuss how things are going and how this work is progressing, to see it yourself and to lay out our prospects for next year. I know that you have been there, talked with them and toured some facilities. What are your impressions?

Igor Shuvalov: Following your instructions, a government delegation, which included representatives of almost all Russian ministries and agencies, visited South Ossetia and Abkhazia to see how the programme for economic cooperation is being carried out and how facilities that were destroyed in South Ossetia are being rebuilt.

We toured facilities that are being built directly by the Russian government through our federal authorities and those facilities that we are being rebuilt with the government of South Ossetia. We also visited some facilities that are being restored or rebuilt with the help of Russian sponsors and investors in addition to the government funding.

I can report back to you that the programme is being implemented. Over the past two years most of the facilities in South Ossetia we agreed on in 2008, have been restored or newly built. We held a meeting in Tskhinvali. After touring all the facilities, we understood that the restoration programme would be completed by the fourth quarter of this year. So, those joint plans, we agreed to with South Ossetia in 2008, will be carried out.

At the same time, the republic's government institutions have become stronger and the economy is growing. The South Ossetian government has raised the issue of a joint economic development programme so that Russia can help build up the republic's economic potential. The Russian Federation has the necessary expertise and administrative potential and the money. They asked us to jointly develop such a programme and submit it to you, Mr Prime Minister, for approval, and then agree to it with the South Ossetian government. The key issue is allocating the necessary funds. We are currently formulating the budget for 2011 and if we set aside the necessary funds we can implement this programme. The people of South Ossetia are waiting for a programme like this - they expect the Russian government to help them. Let me repeat once again that all the facilities, that we agreed on in 2008, have either been restored or newly built. All these programmes will be completed on schedule.

Vladimir Putin: Do you believe that if we set aside these funds the work will be organised to meet the schedule for building the programme's facilities?

Igor Shuvalov: Mr Putin, we have agreed to restore the roads and communication networks and these projects have been carried out. Communications, including mobile networks, are working; we checked it. However, there are still many things to do in developing communication, roads and local communication infrastructure. Many of these facilities have been destroyed. This is the basic infrastructure without which the region will not develop economically.

At the same time, we take into account that any investment potential is possible only with an adequate power supply capacity. The Russian Federation is now intensely assisting in restoring South Ossetia's energy sector. However, an increased power capacity is needed to attract investors with new projects.

We have prepared three billion roubles worth of projects related to South Ossetia's basic infrastructure. But the government of South Ossetia has asked the Russian government to increase this funding since the republic needs more infrastructure facilities. They will take on the obligation to prepare corresponding projects.

Vladimir Putin: Do you believe that this is necessary?

Igor Shuvalov: I support their request.

Vladimir Putin: We have budgeted 6.8 billion roubles to support South Ossetia and three billion roubles for Abkhazia next year. We will include this in the federal budget, and would like to hear specific proposals from you and your team.

Igor Shuvalov: We'll do that, Mr Putin.

Vladimir Putin: There is another point I would like to emphasise: the need for modernisation, where necessary, and above all for the harmonization of economic laws between Russia, South Ossetia and Abkhazia. Please discuss this issue with your colleagues and draft proposals for the cooperative work to harmonise the legislations.

Igor Shuvalov: We'll do that too, Mr Putin. This work will be interesting and useful for the two states. Both governments, in South Ossetia and in Abkhazia, are now busy working on a range of economic laws for their countries. We have held a meeting in Sukhumi to look at the potential projects Russia could support in the region; the participants agreed that for Russian investment to continue, it would be advisable to work out a shared understanding of economic processes and to harmonise economic legislations.

We also inspected the facilities and structures in Abkhazia that were built or restored with Russia's financial assistance. These projects have been progressing quite efficiently. We also considered the criticisms from Russian and Abkhazian officials. Generally, Abkhazia insists on boosting trade and economic cooperation, so that Russia can help Abkhazia build up its economic potential. There are plenty of opportunities to do that.

Vladimir Putin: One more thing, please keep an eye on the customs operation. Are they operating smoothly on both sides of the border? Are there any problems? There must be some; we have discussed this before. It is our understanding that this border should unite our three countries, not separate them. All customs procedures should be performed easily and efficiently. They must help exporters and importers to do their business, should help individual travellers rather than create unnecessary obstacles. Yet it is still a state border which should be protected, meaning that the customs procedures should also be discriminating and reliable. But again, they should be carried out using current standards and should not be burdensome.

Igor Shuvalov: We'll work from these considerations.