Transcript of the beginning of the meeting:

Vladimir Putin: Ladies and gentlemen,

Today we are holding the first meeting of the government commission on the socio-economic development of the North Caucasus Federal District.

I’d like to remind you that the decision to establish a new federal district, the North Caucasus Federal District, was made exactly a year ago. We managed to consolidate the efforts of the federal and local authorities to launch a public dialogue on the central problems that concern people in the North Caucasus. It is very important that the people feel that we hear their concerns and respect their opinions.

Working jointly with all regions in the North Caucasus, with representatives of public organisations, we discussed and drafted joint action plans and attracted experts in business and other areas to that work. As a result, we have created a development strategy for the North Caucasus through 2025; we approved it in September of last year; we compiled a list of priority investment projects in the region.

I would like to reaffirm that our objective is to radically change the situation in the North Caucasus, primarily by improving the quality of life of the people, ensuring their security and giving them the opportunity to work and leave in peace. We must eradicate the roots of terrorism and extremism, first of all poverty, unemployment, ignorance and inadequate levels of education, and corruption and lawlessness. We must create a modern social infrastructure in the North Caucasus, which is another priority, and an effective economy based on the region’s advantages and natural growth factors. These factors include the great potential of the people above all, rich traditions (including business traditions) and a unique natural environment.

In the next ten years, we plan to create at least 400,000 jobs in the North Caucasus, implement major projects in agriculture, fuel and energy, construction, infrastructure and tourism, and create an environment conducive to attracting investment and encouraging small and medium-sized businesses. I can tell you that in 2011 alone 37 large projects with a total investment of 400 billion roubles will be implemented in the region.

In 2010, unemployment in the region dropped by 86,700 people, but the number of registered unemployment still remains very high: 381,000 people.

A considerable amount of budget funds, as well as allocations from major companies and development institutions, will be sent to the North Caucasus Federal District. The Investment Fund has been increased by 6 billion roubles specifically earmarked to finance projects there. We have established the North Caucasus Development Corporation, which should, in part, provide expert recommendations and assistance to the regions and local businesses in the implementation of investment programmes and in the preparation of financial documents and business plans. We have set up a joint-stock company North Caucasus Resorts, which will implement projects in the four special tourism zones in the Caucasus. Total government investment in these zones’ infrastructure has been approved at 60 billion roubles.

On top of that, we will use state guarantees to encourage business in the region. The starting size of these guarantees will be 50 billion roubles. I will speak about the effectiveness of these guarantees later: it is not very high yet. Anyway, we are investing huge amounts of funding in the development of the North Caucasus and we expect that the payoff will come in the form of improved quality of life for the people. This is why both the federal and the regional authorities must act as a team, uniting their efforts to ensure the success of their undertakings. This is why we have established the government commission, which has gathered here for its first meeting.

I must tell you that there is hard work ahead of us, and I’d like to ask all of our colleagues to act responsibly. During our planning meeting today, we will discuss a wide range of issues, above all, the implementation of three large federal programmes: the South Russia, the Development of the Chechen Republic, and the Development of the Republic of Ingushetia. These programmes are currently the main instrument for resolving socio-economic problems in the North Caucasus. In the last three years, we allocated over 91 billion roubles for their implementation, including 75 billion from the federal budget.

These funds were used to build and renovate dozens of social facilities such as schools, hospitals and sports facilities, to improve water supply to towns and villages, to connect outlying mountain villages to the gas distribution network, and to commission hundreds of kilometres of motorways.

I would like to remind you that in 2012 we will introduce a new financing system to provide federal funds only for approved federal targeted programmes. 

Therefore, these three federal targeted programmes for the North Caucasus will be integrated into a single government programme. And I think it appropriate to place a special emphasis on the comprehensive development of the Caucasian Mineral Waters region in preparing such a programme. I would like to ask the Regional Development Ministry to finalise the draft government programme to this effect and submit it to the government for consideration as soon as this April. In addition, I’d like to say that the activities scheduled and the funds earmarked under previous federal target programmes will be continued.

Furthermore, I want to underscore that the future government programme should be even more focused on true priority areas. And, of course, the management of budgeted resources and investments must change. This concerns the targeted use of funds, the pace of financing and, in particular, the due execution of mutual obligations.

In view of this, I think it is unacceptable when federal agencies drag their feet in transferring money by citing various reasons and pointing to inherent difficulties. For example, the Ministry of Education did not remit funds for school construction in Magas until October instead of doing so by the beginning of the year. The completion deadline has been missed. The Ministry of Energy also stalled on financing the gas pipeline construction in Arkhyz until November.

There are a variety of grounds for such delays, but the federal agencies’ internal organisation issues or other bureaucratic obstacles cannot justify procrastination. First they request additional feasibility studies and documents from the regional authorities, then they make them rewrite project budgets several times over. I want everybody to understand that the mission of the agencies is not to transfer money to the regions over the course of the year. There is a treasury at the Ministry of Finance for this purpose. You must work on the projects jointly with the regional authorities from beginning to end and help them maintain permanent contact with and know the real status of the government programmes. And I repeat that the criterion of your performance is not the funds remitted over the course of the year, but the fact that the project in question has been commissioned and has worked for the benefit of the people.

There are some problems with providing government guarantees on the investment projects underway in the Chechen Republic. For example, our plans for 2010 were to give Chechnya government guarantees on projects worth a total of 15 billion roubles, but not a single guarantee has yet been issued.

I ask the Ministry of Finance and Vnesheconombank to take the proper measures and work jointly with the government of the Chechen Republic to begin implementing the projects under government guarantees. Otherwise, what did we create the system for? Meanwhile, the regions should work more independently, follow through on their obligations, and provide co-financing for projects in full from their regional budgets, as well as by raising extra-budgetary funds.

For example, private investments attracted under the Southern Russia federal targeted programme in 2008 comprised 44.8% of its target budget. In 2009, these amounted to a mere 2%, but in 2010 they again reached 34%. I do understand that 2009 was the year of the crisis, but, nevertheless, 2% is nothing.

I ask you to be more active in these areas – even more so now that the district has all the necessary tools and prerequisites, including special development institutions, which I have mentioned already. An encouraging example is the work of the authorities in Chechnya and Kabardino-Balkaria, who arranged a smooth implementation of programme measures and have been successful in raising private capital. Last year, the Chechen Republic attracted 4.6% more extra-budgetary funds than it had planned.

We will consider two more issues at today’s meeting: the dual challenges of socio-economic development in the Stavropol Territory, as presented by Governor Valery Gayevsky. Please note that out of 106 projects under the development strategy for the Northern Caucasus, 37 are being implemented in the Stavropol Territory.

In addition, we will draw up plans of action for our commission. Let’s get down to work. Viktor Basargin, please.

Viktor Basargin: Mr Prime Minister, gentlemen,

As you said, there are three general development programmes currently underway in the North Caucasus Federal District. They received over 91 billion roubles in funding, of which 75 billion roubles were allocated from the federal budget. This accounts for almost 81.5% of the disbursement.

The North Caucasus was one of the few regions in which schools had to work in three shifts. We resolved this problem by building a total of 86 new schools for 25,000 students since 2008.

In the Itum-Kale, Vedeno and Nozhai-Yurt districts of the Chechen Republic, we built and restored 19 schools for more than 3,000 students living in highland areas, and put 44 medical facilities into operation with 3,000 beds that can now service 4,770 patients daily. These include 19 community hospitals, outpatient clinics, physician’s offices and obstetrics wards in highland areas. The results have benefitted 55,000 people who until now had no opportunity to receive basic medical services.

I’d like to note that the results of an evaluation on the performance of local authorities show that the rate of satisfaction with healthcare in the North Caucasus has recently outpaced the national average.

We have built 250 kilometres of motorways, as well as water supply systems in several districts, such as the Pravoberezhny district in the Republic of North Ossetia-Alania, the Urup district in Karachayevo-Circassia and others.

We upgraded telephone stations, restored several sections of the landline network and created a local telephone network in the Chechen Republic, increasing the number of phone users by one quarter – that is 5,500 people.

We also developed gas supply systems in the highland villages of Mizur and Buron in the Republic of North Ossetia-Alania, where heating was previously supplied by diesel fuel purchased from other regions. As a result, we ensured sustainable heat supplies in the area, which accounts for a population of 3,500. Due to reduced expenses on fuel and maintenance, the cost of heat power fell by some 70%, which will save the budget 90 million roubles annually.

In addition to this, the Ministry of Regional Development has been funding the “Housing” federal targeted programme in the North Caucasus. In 2010 we allotted 907 million roubles for it. According to preliminary data, local housing construction grew by 10% in 2010, which was the highest increase among Russian federal districts. In 2010 a total of 3.04 million square metres of housing was built here. This compares with 2.8 million square metres in 2009 and 2.63 million square metres in 2008. In 2010, 4,600 veterans of the World War II, 1,418 young families and 1,300 people from other social groups took advantage of our housing

We finance several projects in Dagestan and the Stavropol Territory using the resources of the Investment Fund. As you noted, to continue these projects, the Investment Fund’s capital must be increased by 6 billion roubles. Our ministry also assists the regional authorities in preparing plans for investment projects and submitting their bids to the federal government. They have submitted plans for 31 projects so far. We are reviewing these plans and selecting the most promising candidates.

I’d like to list the projects in which the most progress has been made. These include a refinery that manufactures ethylene, polyethylene and polypropylene from the gas of the northern Caspian Sea; projects for regional industrial parks in Budyonnovsk and Nevinnomyssk in the Stavropol Territory; the construction of glassware and soft drink production facilities in Ingushetia; and the creation of innovative construction parks Kazbek in the Chechen Republic.

Measures taken through the federal target programme have helped improve the macroeconomic situation in the North Caucasus. Since the beginning of 2008, unemployment fell by 10% across the region. The revenues of consolidated budgets grew by 28%, while the national average was 18%.

On the whole, measures taken through the development programme for the North Caucasus Federal District have proved very effective. At the same time, supervisory authorities have discovered several shortcomings.

First of all, after our projected budget expenditures were revised and the regional programmes updated, we had to shift commissioning deadlines for several facilities. The Ministry of Regional Development amended the programme in order to synchronise these deadlines, meet the current targets and distribute budget allocations among top priority projects. We believe that the ministry’s programmes and the rest of the federal targeted programmes in the North Caucasus require rigorous coordination.

Secondly, a large number of projects are being initiated within the framework of federal targeted programmes, but about 200 of them have not been registered so far or put on record. This creates the preconditions for the loss of state property, has an impact on how efficiently programmes are implemented and creates a breeding ground for corruption. In our view, the region needs a more responsible approach to the oversight and registration of state property.

Thirdly, budget expenditure optimisation has shifted the focus of work to the public sector. For example, since 2008, the Chechen Republic has seen 6.7 times more expenditure on the construction and reconstruction of public sector facilities as on production facilities. We planned to move away from this imbalance as we lessened the development gap between different regions, but these attempts were hampered by the lack of any approved project or supporting documentation for the facilities included in the programme.

So, in 2010 we failed to draw up project documentation in a timely manner and resolve ownership issues of the facilities with a view to their future management under the federal targeted programme Socio-Economic Development of the Republic of Ingushetia for 2010-2016. We worked with the local administration to get the paperwork together, but did not manage to get it done for all facilities in the short time available. In the end, we agreed the reconfiguration of budgetary allocations used in 2010 for public sector facilities. But public-sector spending has exceeded the level of state support for industry and the agro-industrial sector by more than 350%. In general, drawing up the documentation poses a systemic problem that needs to be resolved on a district-wide level. In other words, we have observed a certain lack of professionals here, but the problem, Mr Putin, remains – the design costs range from 5% to 10% of all funds allocated to the programme. That's about 100 to 500 million roubles for each constituent entity. Therefore, there are no funds available to draft non-project documentation.

Fourth. You have already identified the problem of non-compliance with the levels of co-financing that programme activities require from the regional budget and by attracting private investors. This situation is alarming in terms of the government's plan to increase investment activity in the region. The situation is particularly difficult regarding private investors’ performance of their obligations. If this continues, we will not be able to achieve the goals set in the federal targeted programmes.

We encountered the same problem when implementing major investment projects in the North Caucasus, related in particular to the Investment Fund. Unfortunately, the authorities are also setting a bad example. In other words, whilst funds have been made available from the federal budget, neither the regional budget nor private investors have stepped in and fulfilled their obligations.

We will control the process more tightly from this year onwards, and we have already altered the regulatory framework, providing for, among other things, investors’ financial liability for the non-fulfilment of their obligations.

Also, I would like to put forward a number of proposals regarding specific programmes. In 2011, 20 billion roubles, including 18.4 billion roubles from the federal budget, have been allocated to the implementation of the federal targeted programme Socio-Economic Development of the Chechen Republic for 2008-2012. We plan to complete construction work on two office buildings, 13 local clinics, a sports complex, several agro-industrial facilities, roads and hospitals for combat veterans. In the current year, budget allocations increased by 20.3% on 2010. However, this is less than had previously been planned. Due to the fact that it is necessary to bring funding parameters for programme measures in line with the federal budget for 2011 and the planning period of 2012-2013, we propose extending the programme to 2013 in order to ensure the stated programme objectives and the relevant indicators are achieved.

The Russian South programme is to have 30.4 billion roubles of funding in 2011, 9.9 billion roubles of which will come from the federal budget. About 6.4 billion roubles has been allocated for the construction of the Gotsatlinskaya hydroelectric power station, preparing the reservoir bed and the resettlement of the Lak people to a new area in the Republic of Dagestan. This year we expect to see completion on the power transmission lines being built to the village of Arkhyz, engineering infrastructure being built to the Teberda-Dombai tourist complex in Karachayevo-Cherkessia while renovation work on the Arkhon water supply facilities in the Republic of North Ossetia-Alania, and on two schools in the Republic of Dagestan should also be completed.

Given this year’s decrease in funding for facilities under construction and the fact that there are no limits on budget obligations for projects in 2013, we propose to extend the programme to 2014 and that we continue to fund programme activities in 2012 and 2013 in accordance with previously approved funding budgets covering additional approved costs. The programmes for the Russian South and Socio-economic development of the Chechen Republic will both have to be extended for a year because the cut in state support means that these programmes' goals will not be achieved in the time currently available.

We also deem it necessary to include another critical issue in the Socio-economic development of the Republic of Ingushetia for 2010-2016 programme – the resettlement of people from the city of Malgobek and surrounding area that has been affected by landslides. This had been implemented under the federal targeted programme for Housing, but this year saw unforeseen cost overruns, and the total amount of funds needed is in the order of 6.3 billion roubles.

The Ministry of Regional Development is finalising the national Development of the North Caucasus Federal District programme. This will be the mechanism by which the Strategy of Socio-Economic Development of the North Caucasus Federal District to 2025 will be implemented. It will be presented without fail to the cabinet in April. It will incorporate all three programmes discussed today. In preparation, we will consider all points of concern identified for these programmes’ implementation, as well as its interaction with federal target programmes being implemented by other ministries and agencies. I believe that we, together with federal and regional authorities, need to draft proposals about how to improve the implementation of all these programmes. We think that this step will enhance the effectiveness of government support for the North Caucasus Federal District’s development.

Vladimir Putin: Thank you.