Transcript of the beginning of the meeting:

Vladimir Putin: How's it going?

Alexander Kozlov: No complaints.

Vladimir Putin: Yes, I have seen the statistics – the numbers are rather good. Industrial production is growing at a significant rate. The average in Russia is between 8.4% and 8.6% – we are still finalising the statistics – and your region has a growth rate of 23%. What's driving this growth?

Alexander Kozlov: Mr Putin, you are aware of the dramatic decline our major companies experienced during the crisis. Now they are climbing their way out of the slump. Our production facilities are quite flexible and, naturally, the assistance from the federal government helped a lot. I'd like to single out the programme to purchase municipal equipment. It turned out that the only production facility that was eligible for this programme was the Kommash Mtsensk engineering plant. This plant manufactures high-quality equipment, including side- and rear-loading trucks, the famous street sweepers that can suck up bricks without getting damaged – unlike their American counterparts – and road maintenance equipment, including forklifts and good graders. The processing industry suffered a very dramatic decline, but it has begun growing again by as much as 28%. The forces driving the growth are increased demand and changes in the market.

Vladimir Putin: Real wages in your region grew roughly as much as they did in the country on average...

Alexander Kozlov: Slightly less.

Vladimir Putin: Almost exactly the same: 4.2 - 4.3. But in absolute terms it is still low.

Alexander Kozlov: It is low mainly due to rural areas. After all, Mr Putin, we are an agrarian region. Our problems are mainly in the agricultural sector. And industrial output, though it had dropped off greatly, has begun to grow more rapidly. The product range has begun to change. I was recently at the Elektropribor plant, and they make really unique products there. They have a clean, sterile factory floor, where they will soon be manufacturing electrical equipment for the oil industry. It is the only factory of its kind in the world. And I can give you many such examples. All in all, 2011 is looking like a growth year. We have made projections. I would like to leave you a copy, Mr Putin. I made sure to make a prediction about when we will reach pre-crisis levels. It could happen in 2011. As for rural areas, we are facing the same problems found in the entire Central Federal District.

Vladimir Putin: Were there big losses? How much?

Alexander Kozlov: We lost one million tonnes of grain this year, but we harvested 1.6 million. We have laid the necessary foundation for ourselves and now have no problems with feed, with grain.

Vladimir Putin: That's good. As of today you have threshed somewhere around 60% of last year's total?

Alexander Kozlov: 1.6 million. There was 2.6 million – we lost one million. No, more – slightly more than 70%.

That being said, in addition to cereals, we also processed one million tons of beets this year at three of our own plants. And we're now launching a fourth – Zalegoshchensky – capable of processing 2,500 tonnes per day. Beet processing in our region is growing dramatically. The Orel Region has always grown beets, and it's always been profitable. This year, we made 150,000 tonnes of sugar. This is despite a large drop in volume, but the sugar content is high as is the yield of pure sugar. And so we are launching a new plant that will process two to 2.5 million tonnes. We need to grow beets at the very least. And, of course, other crops. We need to change the crop rotation, because all of this has been built up over the years and evolved. But we don't want to do that. It is more profitable today not to change the rotation, because that requires new crops and technology.

Vladimir Putin: Given the fact that we are forming a common economic space with Kazakhstan and Belarus, we must ensure that beet production itself – agricultural production and processing – is efficient and competitive. We need the latest technology.

Alexander Kozlov: The thing is that the banks have foreclosed on all these plants for debts. Now I have to gather them all, unite the banks, and convince them that it's in their interest to open the plant – "Comrades, let's find a way to reach an agreement. You'll earn dividends if the plant is operating. But if it is not operating, you won't get anything."

Vladimir Putin: And how are things with livestock production?

Alexander Kozlov: Because things are more or less normal with feed, we are not experiencing any sharp decline in livestock production. We lost 37 heads of cattle in the recent wildfire and other disasters. It was a real tragedy – it takes so much effort to raise a cow. Mr Putin, we are working closely with our partners, particularly Rosagroleasing, because we bought our livestock – Hungarian, Dutch and German cattle – with the money they had lent us, and now they want us to pay back the money. However, we are expecting Mr Nazarov (Rosagroleasing CEO Valery Nazarov) to meet with us soon, and we will settle everything with him. We must restructure the debts because otherwise we will lose the farms, and these are very large farms. We have livestock, the cattle is gaining weight – 9.7 kilograms per head now, 700 to 800 grams more than last year.

Mr Putin, the Orel Region is dairy farmer's paradise. I discussed the issue with Mr Savchenko (Belgorod Region Governor Yevgeny Savchenko). Now I am drawing up proposals for the Ministry of Agriculture: we have really unique fodders, so we can... At present, the region yields 280,000 tonnes of milk. This is nothing for the Orel Region – we can produce a million tonnes even at the start of the modernisation, provided private farmers take part. I will make a report as soon as we are ready with our proposals. Perhaps the Ministry of Agriculture can help us to reach an agreement with Sberbank. If it agrees to fund the project, we will launch a really unprecedented programme. As for pig farming, all its problems are settled.

Vladimir Putin: Yes, the stock is increasing.

Alexander Kozlov: It's a great increase, really. We are starting to build another farm, for 120,000 heads. Then, there is a genetic selection centre, with branches in five districts. We must finish its construction. It's a big problem, Mr Putin. We want to use Canadian know-how for pedigree pig breeding. Remember, you held a meeting of governors at the Linnik brothers' meat-packing factory in the Belgorod Region? Their factory is self-contained, while ours will depend on the selection centre but it will have the same output as the Linniks'. The problem is that we have to finish its construction first. I would like to ask for your support, Mr Putin. We don't need money. Gazprombank is funding the project. It invested 10 billion [roubles] even at the beginning, but we should speed up construction because the factory will not reach full capacity before a slaughterhouse and three feeding stations are ready. Meanwhile, we are losing many jobs as well as the meat we might produce.

Vladimir Putin: All right, let's discuss it. Has the region received our grant to farms affected by the drought?

Alexander Kozlov: Not all of it; we received 101 million. We have spent it on fuel and fertilisers, together with 50 million of our own money. You see, we cannot afford anything else now, and we cannot channel the money to the manufacturing sector. However, Mr Putin, we have solved our problem for the most part. Farmers have sold a part of the grain harvest at a good price, so we have nothing to complain about. Now we need 102 million tonnes of fertilisers, whereas presently we have only about 40 million. When we get the entire 150 million [rouble] grant, we will buy a similar amount of fertilisers or at least about 20 million tonnes to improve the soil. We have very good winter crops this year. The area sown is much larger than before, roughly 457,000 hectares. So, if the weather is good, we will have a decent harvest at last after we fertilised the soil so well.

Vladimir Putin: I hope you will. Mr Kozlov, why has housing construction fallen so sharply in your region?

Alexander Kozlov: Yes, that is our greatest problem. We barely managed to build 260,000 square metres of housing last year. Mr Putin, the production of Orelstroi, our principal construction company, fell by 48% and in money terms it fell by 50%, from 9 billion to 4.5 billion roubles. One reason is capital assets. So the output is shrinking. We are planning 360,000 square metres for this year and close to 500,000 for 2012. However, despite the problems we have met all our obligations.

Vladimir Putin: So it will be 500,000 square metres next year. How much did the region build in 2008?

Alexander Kozlov: 460,000 or 470,000. Housing construction is our only weak point. On the one hand, we have enough space for construction. Orelstroi has purchased all the land it needs. On the other hand, it has built up the entire purchased area, so there is no vacant land anymore. We have recently made the company build six houses for World War II veterans. These houses were built to a different standard. They have small flats, 32-34 square metres each. We built special blocks of flats for the veterans.

Vladimir Putin: You still need a mortgage loan programme to support housing construction.

Alexander Kozlov: Home building also needs support... There are great problems with the construction of private houses.

Vladimir Putin: Are there any prefab house factories and assembly facilities in the region?

Alexander Kozlov: Yes, Orelstroi has a very good industrial base. If you ask about investment, we want to build a cement plant. Meanwhile, we are bringing cement over long distances from Voronezh and Belgorod, so it's very expensive. The region has deposits of unique clay and limestone that can be used for cement production. I don't know why we shrugged off the idea two or three years ago. Now, I want to contract a German company, which will build us a cement plant and a town around it.

Vladimir Putin: Good. Let us talk this over.