15 november 2010

Prime Minister Vladimir Putin at a meeting with CEO of the Russian Railways Vladimir Yakunin

The two officials discussed the Russian Railways’ performance in the ten months of this year and the company’s interaction with trade unions. Vladimir Yakunin also briefed the prime minister on the progress made in reforming Russia’s railway transport system.

Transcript of the beginning of the meeting

Vladimir Putin: Mr Yakunin, let us begin with the company’s performance. The year is coming to a close. What are the current indicators, above all in comparison to the same period of last year? I’m referring to transportation volumes, economic indicators and efficiency.

Vladimir Yakunin: Mr Putin, I can report to you that thanks to the government’s support and our own anti-crisis measures we are showing much better results than we had planned, at least for the ten months we can report on. For example, we will reach labour productivity growth of over 13%, which will allow us to fulfill our obligations in terms of wage increases. We are doing this in strict correlation between these two parameters, as you have instructed us. This is why an average wage increase will be 10%.

Our forecasts that the crisis will have a significant impact on cargo traffic have proved true. The Ministry of Economic Development agreed with our estimates. I believe that by the end of the year the decline in cargo traffic will reach 9% as compared to the suggested curve graphed before the crisis. However, in comparison with the end of the previous crisis year the results look better. The economy is recovering. We can confirm that the situation has improved and in terms of net profit we are most likely to reach three times higher results than we had before. In absolute figures these parameters are not so dramatic but still we can speak of a positive trend.

Vladimir Putin: Higher than what?

Vladimir Yakunin: Higher than the parameters that had been planned and approved by the government…

Vladimir Putin: For this year?

Vladimir Yakunin: Yes, for this year. This is concerted work…

Vladimir Putin: So, what is the volume of cargo traffic?

Vladimir Yakunin: As I have said, the parameters will be 9% lower than those before the crisis but in comparison to the same period last year they will be approximately 11% higher.

Vladimir Putin: By 9% do you mean the decrease against mid-2008?

Vladimir Yakunin: I’m referring to a curve as extended from mid-2008 and extrapolated until the end of this year.

Vladimir Putin: You have mentioned some social issues, including wage increases and related plans. How is your relationship with trade unions? I know that you are currently working on a collective agreement.

Vladimir Yakunin: Mr Prime Minister, considering certain changes in legislation we have held comprehensive consultations with the leadership of trade unions and are about to sign a new agreed document that stipulates the scope of social benefits the company is obliged to provide to its employees in view of complexities and difficulties of working in railway transportation. As a result, our social expenditures will reach approximately 73 billion roubles. At the same time we are trying to make these expenditures targeted, unlike the way they were distributed before: we used to have a general pool of money and some employees received the benefits while others didn’t. We want to introduce special account cards which will give any employee the information regarding the social benefits he or she has received from the company.

In addition, I would like to emphasise that – and trade unions have endorsed this – we will retain a healthcare package because this is an issue of operational safety for us. We have no choice but to maintain these health plans because they cover the pre- and post-run examinations of train crews as well as post-stress examinations. In this respect, Mr Putin, I’d like to make a request, if possible. New amendments to the Russian healthcare legislation are being drafted. I have already raised this issue several years ago. It has to do with using industry-affiliated healthcare facilities within the integrated Healthcare programme. I believe that it would be wrong to exclude the facilities that can render healthcare services especially in areas where there aren’t any other facilities available. That applies to high tech medical facilities as well.

All in all, Mr Putin, I can say that the social climate and situation in the company are stable. Our interaction with trade unions is based on the law and only the law. We appreciate that trade unions support the government programme to reform the railway industry even though sometimes things are not as smooth as we could wish. The company’s divisions are set up as independent companies and new businesses are being set up. Sometimes it is rather difficult to maintain the level of social security that the Russian Railways has been providing.

Vladimir Putin: Now let us look at the reform in more detail, please.

Vladimir Yakunin: First, I would like to say that the second freight company has been established as planned, which means that, together with the first freight company, we transfer the whole stock of railroad cars to the specialised companies, as stipulated by the reform. We are developing a future model of freight operations together with the Ministry of Transport and the Ministry of Economic Development. We are going to need significantly more cars, like the United States and Kazakhstan, which also underwent this stage, although in different periods of time. A car that is not part of the inventory stock any more is used in line with high commercial requirements set by a private operator. Unfortunately, some state regulation is needed here to satisfy both the competitive needs of a private operator and the social transportation needs.  Otherwise, cars will stand idle waiting for expensive freight, and our approach lines will get blocked. The payment for that is low, and private operators see no advantages in the permanent use of cars.  The state now has problems with traffic capacity. We are now discussing this issue with private operators and freight owners. I hope we will reach agreement on this issue.

Another indisputable achievement of the government in the reform is the establishment of a national passenger company. It has started operation and has shown good results in the first half of the year. At the same time, I must mention a few problems because our losses, caused by fare regulation for economy class cars, amount to 38 billion roubles, compared with 30 billion roubles allocated in the state budget. This, of course, complicates the company’s operation. We realise that the budget is tight and the government is facing certain difficulties, including the problems we had last summer. But the fact remains.

Mr Putin, I would like to report that we have held a very important event for the reform: we launched an IPO of our subsidiary company, TransContainer, on the London and Moscow stock exchanges.

Vladimir Putin: How did the IPO go?

Vladimir Yakunin: It went very well, despite the unfavourable forecasts made by experts. Still, the demand exceeded the supply by approximately 30%. We managed to place the shares better than we expected in our worst-case scenario, and generated an income of $388 million for the company.

Vladimir Putin: Excellent. Congratulations.