Transcript of the beginning of the meeting:

Vladimir Putin: Mr Nelidov, I have pored over last year's figures for your republic. Things are picking up gradually, but still, the figures are fairly meagre. The only strong positive trend that attracted my attention was a significant rise in investment in Karelia-based companies, which primarily goes toward large-scale projects, such as the new bleached pulp facility at the Segezha pulp and paper mill and a concrete slab facility. Also, there are several good projects in electric power and agriculture.

Andrei Nelidov: This year we also plan to put a berry processing plant into operation with a daily capacity of 44 tonnes. The facility, which produces natural berry juice, will be the only one of its kind in Russia.

Vladimir Putin: And I see that the investment is fairly substantial – over half a billion roubles...

The federal and regional governments will also provide funds to build and repair several sections of the motorway connecting St Petersburg and Petrozavodsk, specifically the sections in the Priozersk and Sortavala area. The investment amounts to almost 1.8 billion...

Andrei Nelidov: And the motorway around Ladoga will soon round off the project.

Vladimir Putin: Yes.

Andrei Nelidov: It will be a fine motorway.

Vladimir Putin: The restoration and lighting of the Kola motorway will require an additional 455 million roubles, and the reconstruction of the Kizhi open-air museum another 400 million. What has been accomplished thus far? How was the start of the new year? What results do you expect?

Andrei Nelidov: First of all, I'd like to report that I have fulfilled the task you set for me when you offered me the position of president of Karelia: namely, to improve the transport infrastructure connecting the republic with other regions. Yesterday, we began daily flights to and from Moscow, regularising air travel between our two capitals. The flight lasts 70 minutes, and a one-way ticket costs 3,500 roubles.

I believe that these are basic conditions necessary for encouraging business and attracting more investment to the republic. Businesspeople now have no difficulty travelling to Petrozavodsk from Moscow and vice versa. This is also important for bolstering tourism in the republic, which is one of our priorities. Karelia is a gem of northwestern Russia, but few people will explore it if the region is too difficult to access.

As far as other challenges go, in my first six months as president of Karelia, it took some time to settle down to the new job; at the time, the republic faced a very pressing budget deficit. That problem has now been resolved.

Vladimir Putin: Yes, your budget is in surplus, according to the Ministry of Finance.

Andrei Nelidov: That's correct. We have received much support from the office of Presidential Envoy to the Northwestern Federal District Ilya Klebanov, without whom we would have been unable to overcome the crisis. The situation was dire.

Next year's budget is much more promising than the previous one. We have a clear set of priorities. Naturally, there are several challenges, such as funding for road construction. Karelia has a vast territory and very few federal highways. Another problem is the construction of bridges. We can afford to build one large-scale bridge, but it's not enough for the republic.

We can plan ahead, however, based on the amount of investment we receive. Clearly, it should be increased. The most promising investment area is transport infrastructure – roads, airports and federal transport programmes.

I'm sure all these issues can be resolved. There are no dead ends. We simply want to accomplish our goals faster and change regional life for the better – and we do our best.

Vladimir Putin: What are your priorities for the first half of the year?

Andrei Nelidov: For the first half of 2011?

Vladimir Putin: Yes, this year.

Andrei Nelidov: The main thing is to ensuring proper tax collection from businesses is a priority in this situation, given the complete lack of balance in the region. In no region should 40% of all receipts come from a single enterprise. There can be a single-industry town but not a single-industry republic. The disbalance did not result from a single major taxpayer who is second to none; I have reported on these figures because I still have no transparent data on whether all the area’s enterprises paid taxes. There are major enterprises in the area, such as Nadvoitsy Aluminium Smelter, the Bank of Moscow’s branch, which you have mentioned, Polar Bear, but yet there are no taxes paid! That is simply impossible! Addressing these issues is my priority. We have enterprises, a resource in the area that we allow to be used. We support the enterprises that come there. We want to see a return, a result. That’s what I would like to make my priority.  

Vladimir Putin: What must be done to create a suitable environment for business? What do you think can be done…

Andrei Nelidov: Of course.

Vladimir Putin: …to attract larger amounts of private investments?

Andrei Nelidov: We need to create the right conditions.

Vladimir Putin: That’s what I am talking about.

Andrei Nelidov: The airport, we have spoken about, is one of them. On the other hand, we have launched a project (we did not come up with it, it already exists in Russia); it is entitled “Karelia –A Region of Development”. What problems does it deal with? The ownerless land plots are being registered at the expense of the government and the republic. The plots are surveyed and transferred to that fund, so that the investor does not, literally, pick the plot, but has a card file to choose from. For instance, if anybody wants to build a dairy farm, we will provide a number of options. Since we have a number of cadastral parcels and land plots we can provide this investment component in power grid companies’ investment programmes; thus it is an investment programme directly purposed at economic growth rather than a chaotic general programme. We are creating a suitable environment for investors without even knowing them.

Vladimir Putin: How do you assess conditions for small and medium-sized businesses? I mean production, not trade.

Andrei Nelidov: Small and medium-sized businesses?

Vladimir Putin: Yes.

Andrei Nelidov: Well, tourism holds the leading position.

Vladimir Putin: Tourism, timber processing, agriculture.

Andrei Nelidov: Soon we will launch a timber-processing project - the widely discussed OSB Project - probably in the spring of 2012. Everybody has been talking about the oriented strand board, but, in fact, the amount of the corresponding equipment purchased for factories leaves much to be desired. Such equipment has been purchased for a factory in Karelia (the agreement on it has just been approved). It is located not far from Petrozavodsk, but this is more of a big business. Small and medium-sized businesses will be mostly represented via tourism: we can see its development, attraction of a large number of people in it, because the republic’s uniqueness is its unused potential. It is unique indeed: the area has picturesque Altai, beautiful Far East; the only problem is that it takes 70 minutes to get to Karelia.

Vladimir Putin: Construction sector has not been restored yet.

Andrei Nelidov: Yes, a very important problem. Today I have got transparent agreements with several construction companies, including those from St. Petersburg, (not only from Karelia); they are ready to build housing at the price of up to 31,000 roubles per square metres with minimal “economy-class” designing. And what does economy class designing mean? Ordinary cooperative flats, not a palace but one can live there, and if anybody wants something better, he can repair it, do something, at least once a year. The government is considering an option of subsidising mortgage for those flats, whose price per square metres does not exceed 31,000 roubles. In this situation…

Vladimir Putin: What does “subsidise mortgage” mean? Subsidising what?

Andrei Nelidov: Compensating interest rate, not subsidising mortgage, pardon me for inaccuracy …

Vladimir Putin: That’s all right.

Andrei Nelidov: …compensating the interest rate to reduce it to 5%. It is possible since we have come to agreement with Sberbank on granting mortgage with a 10% interest rate. We discussed the programme with the plenipotentiary envoy and he supported it. And right now we are examining it thoroughly to create a new model, due to which we will be able to tell people, that they can get a flat if they want to. All they have to do is come and pay a first fee at 10% of the amount. The interest rate for a 10 year mortgage is 5%. Why 5%? If the interest rate for a 10 year mortgage is 10%, everybody will say that they can buy two flats in 10 years. This is wrong, but still everybody thinks so. They say that a 10% interest rate is too much, because they can buy one flat for themselves and the other - for the bank. This is not so, in fact, but people believe so. And if the interest rate is 5%, they will find the offer advantageous in general and make a deal. We consider the option of providing the housing, people already have, in exchange for a first fee in case they want improved flats. Then the following will happen: everybody will come and say that they the will not pay since they already have a flat, their property. And they will want to give it to the appraiser who will evaluate it. Then, if the person, who exchanges the flat, is satisfied with the value the appraiser has proposed, the price of his flat can be considered the first fee; the same scheme can be applied to the remaining sum of the mortgage lending.

Vladimir Putin: Restoring volumes of housing construction in Karelia is an important, noble and a very significant purpose you will have to achieve this year.

Andrei Nelidov: You are absolutely right, Mr Putin. And you know why I mentioned it in your presence? I would like to repeat that I have agreements with companies, including those from St Petersburg, since I never managed to do this in Karelia, at first. I was told that it is impossible. But as soon as the volunteer, willing to build it for this money, appeared, the negotiations went in full swing. I think we will agree on the project.

Vladimir Putin: So far the agreements with companies have represented interest only to you and the companies.

Andrei Nelidov: Oh, yes, sure.

Vladimir Putin: But we need this to culminate in a specific housing area that people will get this and next summer.

Andrei Nelidov: I believe it will be a good programme.

Vladimir Putin: Good.