Vladimir Putin’s opening address:
Good afternoon.
We have just witnessed the commissioning of the fourth unit of the Southern.
Heat and Power Plant-22 (HPP-22). Its added capacity will help stabilise the energy supply of the social facilities, residential buildings, and industrial enterprises of St Petersburg. The governor has repeatedly emphasised the need for higher power capacities. St Petersburg needs these improvements just like many other major cities across the country. We will discuss these issues in more detail today.
Incidentally, an additional obstacle has emerged as a result of abnormal weather conditions in the Kaliningrad Region. I would like you to say a few words about it today as well. Both the Emergencies Ministry and our communal services are working there today. I have just received another report from the governor. But there is still much work to be done, and during today’s meeting, I will address the problems that are emerging in this context.
In considering the energy industry as a whole, it is important that it receives more high-tech projects like the one we saw today. The sector is making steady headway and significantly contributing to general economic recovery and the replenishment of the state treasury. We know all too well how much the energy industry is contributing to the budget. According to tentative estimates, oil and gas accounted for more than 4.1 trillion roubles in 2010, or a little over 50% of all budget revenues.
At the same time, we know that the industry is beset with difficulties. The tragedy at the Raspadskaya mine and massive disruptions in electricity supplies in the country’s central regions in December and January show that we still have many urgent problems to tackle. Nor should we forget about anti-terrorist measures to protect our energy facilities. We should closely and systematically deal with all these issues.
Now I’d like to speak about the key results and trends of the industry in 2010 and, of course, about our objectives for this year.
We have increased our output of oil and gas. Growth in gas production has reached almost 12%. As for oil, for the first time ever, we have produced 505 million tonnes per year. Today, Russia is the world’s leading oil producer. And we must continue to maintain this production level in the years to come.
I’d like to draw your attention to the fact that we have increased oil output primarily by extracting from major deposits in Eastern Siberia, such as Vankorskoye, Talakanskoye, and Verkhnechonskoye. We have also begun production at the Korchagin deposit on the Caspian Sea.
In addition, the development of new gas deposits – Bovanenkovskoye and Zapolyarnoye – is in full swing. We are developing further projects on liquefied natural gas (LNG) and on the shelf.
The structure of oil and gas supplies is changing. Russian companies are tackling new export routes and consolidating their positions on foreign markets: first and foremost, in the Asia Pacific region.
Thus, owing to the commissioning of the first stage of the Eastern Siberia-Pacific Ocean oil pipeline (ESPO), we managed to increase oil exports to the Asia Pacific region by practically 45%.
Oil companies like Lukoil and Rosneft are actively exploring the international market, while raising the scale of processing at home.
We will continue encouraging the deep processing of raw materials and the output of high quality oil products according to the strictest environmental requirements. Such production with a high added value will allow us to create more jobs, increase budget revenues, and use our natural wealth prudently.
Let me recall that starting this year, all of our oil refineries will switch to the production of Euro-3 petrol. Moreover, plants that process below 70% are prohibited from connecting to the central pipelines. We will continue pursuing this policy to encourage companies to improve the quality of their production and introduce innovation in full measure.
The same applies to the coal industry. You remember how much was said about its lack of prospects several years ago. I have always disagreed with this opinion and considered it superfluous and simply erroneous, all the more so since we could not leave tens of thousands of people without support and without jobs and simply let them carry the burden alone (we did not even know how it would be resolved). That is why we have adopted a government programme for industry restructuring worth 133 billion roubles.
By the end of 2015, we plan to complete this restructuring – we are already working on it now. We will spend the funds on retraining miners, eliminating dilapidated company housing, and relocating people from settlements around depleted deposits. Let me add that in 2010, the coal industry almost returned to a pre-crisis level. In fact, there is only a trifling difference – it practically is the pre-crisis level. We produced 323 million tonnes of coal. These profitable, successful enterprises form the backbone of the coal industry.
At the same time, we must continue paying special attention to safety in the coal industry in order to prevent accidents and create an effective system of response to emergencies. Thus, in July we introduced amendments to the Law on Coal to set mandatory requirements for degassing mines.
The owners of businesses will now bear a higher responsibility for the operation of their mines. The regulatory powers of Rostechnadzor have been expanded. Its inspectors may now suspend the work of enterprises and remove managers from their positions for crude violations of safety rules pending a court verdict.
Now I’d like to say a few words about electric energy. During the past year, Russia increased its electricity generation by 4.3%. It produced more than one trillion kilowatt hours of electricity. This is practically comparable with the pre-crisis level. Four hydroelectric units at the Sayano-Shusenskaya power plant have been restored and are now operational. They account for about half of its planned average annual output.
We have launched such new energy facilities as Unit No. 7 at the Shatura Thermal Power Plant and Unit No. 2 at the Kaliningrad Heat and Power Plant (HPP-2). We are also carrying programmes in nuclear power engineering. Thus, last year we launched Unit No. 2 at the Rostov Nuclear Power Plant (NPP). We are building the Leningrad NPP-2, the Novovoronezh NPP, and the Baltic NPP. All in all, more than 3.2 GW of generating capacity was commissioned during the past year. Let me emphasise that these are some of the best improvements in the past decade. We saw a similar increase of capacity only in 2005. But the goal for this year is twice as high: 6.5 GW. All in all, we are planning to launch 32 major energy facilities in 2011.
We must implement these plans by any means necessary. I count on the responsible approach of all our colleagues. I hope that all our energy companies will begin work on schedule and that those who experience delays will catch up to the required timetable.
In addition, I would like to ask the Energy Ministry to permanently monitor the implementation of investment programmes and the commissioning of energy units, especially those that are being built under capacity supply contracts. There should be no delays here. At one time, we agreed to give benefits to these companies under the condition that they would invest the funds in a timely manner and launch the required facilities.
Such ambitious plans for development and the introduction of a large number of new plants and energy units will require the serious efforts of our technical engineers. Needless to say, we hope that our technical engineers – especially those building energy units – will guarantee the production of equipment that meets all modern standards. We will soon hold a separate conference to see what measures we must take to support the construction of equipment in the sector. We will hold this meeting in the next two or three weeks, discuss these subjects, and assess any problems in technical engineering.
Towards the end of last year, we witnessed several large-scale accidents. There was a blackout in many regions of central Russia. Energy specialists and repairmen did all they could to restore the lines. However, it took them more than a day, or in some cases, even a week, to deal away with the blackout in several regions and villages. At times, their actions were not properly coordinated. Some departments and territorial energy companies did not demonstrate a well-orchestrated effort.
This emergency is not simply the result of abnormal weather. Of course, the weather was a very serious factor, but it also heralded a very serious message on the state of our networks. They are extremely outdated in our country. According to our estimates, the wear and tear on our distributing networks has reached 70%. We are used to talking about wear and tear in some spheres, but here, it is a truly grave issue.
I have just mentioned Kaliningrad. It turned out that some towers had not been replaced or repaired for more than 60 years. They were built by Germans after the war. It is necessary to renovate the grids, update the equipment, construct reserve lines, organise the smooth operation of regional utilities, and cut the appropriate paths along transmission lines by solving the problems of deforestation authorisations. In general, all land and property issues that arise from the construction and maintenance of grids and other fuel and energy lines should be settled.
I want to emphasise something: we must get through next winter without the recurrence of previous accidents. We need a detailed monitoring system in order to identify all problem points in the power grids and other infrastructure. I request that the Ministry of Energy, the Federal Grid Company, the Interregional Distribution Grid Company, and the Russian Technologies State Corporation begin dealing with all related organisational and technical matters without delay.
At the same time, it is necessary to draw up plans for a total grid renovation. I think that we will need a special long-term programme. I ask the Ministry of Energy to submit its proposals to this effect. We have discussed it with the head of the Interregional Distribution Grid Company: the figures involved are truly massive. Nonetheless, the programme has to be developed and gradually implemented. We have to find the resources. We need to work on it!
Today’s meeting provides an opportunity to discuss one more important issue. It is the situation with prices. The reliability and stability of the domestic market should be a top priority for us. We need to create a dependable guarantee against all possible price hikes, including unmotivated and absolutely groundless price inflation, while making the pricing mechanism as transparent as possible.
In that regard, I cannot help but mention the price of diesel fuels – all the more so because they are a key resource for agricultural producers, and their spring work has already begun.
Please note that from December 2010 to January 2011, diesel prices skyrocketed by more than 35% (I’m referring to ex-refinery prices). In January, the average diesel fuel price exceeded 28,000 roubles per tonne. The Ministry of Energy, the Federal Antimonopoly Service, and the Russian Academy of Sciences have analysed the factors of such rapid growth. And what did they discover? Some objective factors exist, but, actually, they are not at all at the heart of the problem.
According to the Ministry of Energy and the Federal Antimonopoly Service, more than 50% of the price increase (or 3,902 roubles in January and 3,500 roubles in February, in net figures) is attributed to the growth of demand. This was the explanation provided by oil producers. And as you should understand, nobody should approve of it. If you look at the issue from this angle, you may well justify yourself with a shortage and then enhance it artificially. I wish I could believe that the reasons for the price hike were not so trivial – simply to manipulate the market and maximise profits.
The Ministry of Energy and other departments are now working to stabilise the market and contact oil companies. As a result, some companies have already reacted favourably: Surgutneftegaz, for example, has reduced its ex-refinery price by 2,000 roubles. Rosneft has cut it by 1,500 roubles, and Lukoil has lowered its price, too. Meanwhile, there has been no response from either Gazpromneft or ТNК-ВР. And if you have anything to say, I would ask you to do so right now.
German Khan (ТNК-ВР Management Executive Director): We have responded already, Mr Putin. There will be a reduction.
Vladimir Putin: When?
German Khan: Today.
Vladimir Putin: Thank you. And where’s the other chief executive?
Alexander Dyukov (Chairman of the Board and CEO of Gazprom Neft): We’ve been addressing this issue since late January. We reduced the price of winter diesel by 1,000 roubles on February 1, followed by another 1,500 roubles shortly thereafter. Yesterday, we decided to reduce them by another 1,500 roubles per tonne.
Vladimir Putin: Maybe you did, but according to the information I have, there were no changes in your company’s prices as of this morning. We’ll see if anything happens by the end of the day.
In this regard, I am asking the Federal Antimonopoly Service to start investigating cases in which companies have artificially raised fuel prices immediately.
We should also consider how to create the necessary reserves to smooth out seasonal fluctuations [in demand]. I would like the Ministry of Energy to raise this issue with our leading companies, including Transneft and other refineries, in order to see what possibilities are available and to prepare the relevant proposals.
Refineries should coordinate their schedules of repair and maintenance with the Ministry of Energy and the Federal Service for Supervision of Environment, Technology and Nuclear Management so that plants don’t suspend their operations for scheduled maintenance simultaneously and cause interruptions in supply, as is often the case. We will issue a directive on this issue soon. We must not tolerate such problems, although I have to admit that they occur from time to time. I am asking you to coordinate your routine and scheduled maintenance works with the Ministry of Energy from now on.
Today we made a decision, which we agreed upon with you, the oil companies, to extend mandated discounts on fuel and lubricants for agricultural producers. The discount must be equal to 10% of the price of November 1, 2010, as agreed. Consequently, it amounts to some 30% of the current price. In absolute terms, agricultural producers will save about 10 billion roubles.
The drafts of these government resolutions have been prepared and will be submitted and adopted tomorrow at the government meeting. Another related document, a government executive order, is to be signed today.
The agro-industrial complex had a difficult time last year and needs our support. We should help agricultural producers to carry out spring sowing so as to guarantee a good harvest in autumn. We need to make systematic decisions in order to ensure predictable, market-based prices. For example, we can conclude contracts directly with oil producers and hold trading auctions to set fair prices.
I’d like to remind you that in order to encourage commodity exchange, we agreed to sell up to 15% of crude oil and oil products on trade markets. In 2010, we traded 7.6 million tonnes of oil products, which is three times more than in 2009. Experts predict a similar increase in 2011. But it is not enough.
We need to promote further trading through the use of various financial instruments, including futures contracts, and start trading crude oil in addition to oil products. We must also ensure that all hydrocarbons being traded are also supplied to consumers. I agree with you that it is necessary to ensure that oil and transport companies cooperate effectively with each other. Both you, the oil producers, and consumers should be sure that the oil products purchased on exchange markets will be delivered in full and in a timely manner.
I’d like to inform you that we have made additional decisions in order to protect favourable conditions for the development of industry trading, and these decisions will also be sealed at the government meeting tomorrow. The new legislation we will adopt requires that not only the transactions made through markets but also off-market transactions on oil and oil products, such as long-term contracts, be registered at the exchange. We expect that this will help create fair and clear pricing. Overall, I’d like to emphasise that we need to encourage companies to conclude long-term contracts without mediators.
I am also asking the Ministry of Energy, the Federal Antimonopoly Service, oil producers, and major consumers to consider the idea of creating a self-regulating trade committee to monitor oil products on the domestic market and give us a clear picture of market trends.
There is one more issue I’d like to bring up. The oil industry and the energy industry in general are bearing a heavy tax burden. Ultimately, they virtually subsidise other industries. As a result, energy companies must not incur additional costs, such as transport. We need to be extremely careful when addressing issues pertaining to oil transport prices and do our best to find optimal solutions.
We have discussed different taxation schemes more than once. In particular, we focused on the taxation of new, depleted, and low output fields, as well as the differentiation of the mining tax and the need to equalise duties on light and dark oil products. I think that the discussion of taxation has dragged on too long. I cannot but agree with you here – companies can’t develop long-term plans and strategies without knowing their tax rates. I am asking the government to work through these taxation issues and submit several alternatives to the commission on fuel and energy as soon as possible. The work must be finished this spring.
Finally, I am asking the Ministry of Energy and Gazprom to develop proposals in order to provide all independent producers with equal access to pipeline transport so that they can conclude long-term gas supply contracts and ensure that gas is supplied to the energy facilities being built through our contracts. We have discussed this issue at several meetings already. Clearly, they can’t invest money and build new facilities if they are not sure that the gas will be supplied. I’d like the Ministry of Energy and Gazprom to finalise this issue and find an appropriate solution without delay.
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Sergei Shmatko’s address: Mr Putin, ladies and gentlemen. The development of Russia as a whole, and its fuel and energy sector in particular, in 2010 can be characterised as a steady and consistent recovery from the crisis. The main factors driving Russia’s economic recovery were favourable external conditions, the increase in the investment programmes of the largest fuel and energy companies, which have one of the biggest investment multipliers possible, the subsequent revival of industrial activity and the increased production of all types of energy sources. As noted before, the oil and gas sector accounts for almost half of the federal budget’s revenues, or more than 4 trillion roubles. There is no doubt that the government’s targeted measures to develop infrastructure in East Siberia helped commission new large oil fields and boost production amid the crisis.
It should be mentioned that the share of exported refined oil products has increased, but the programme to modernise oil refineries has not been completed yet. This is why this growth in exports is attributed to the export of diesel fuel and heating oil, which is cheaper than the opportunity cost of exported oil. Mr Putin, as you have already pointed out, a set of measures is being carried out to incentivise investment in deep oil refining in order remedy this situation.
After a decrease in production in 2009, Russia’s natural gas industry almost approached the pre-crisis level last year. Natural gas production totalled 650 billion cubic metres, and 182 billion cubic metres were exported. First of all, this can be accounted for by a surge in natural gas consumption in Russia’s domestic market, as well as in the former Soviet Union countries. Naturally, a huge role in this was played by the liquefied natural gas plant built under the Sakhalin II project that began working at its full capacity.
In 2010, we continued to consistently advance Russia’s oil and gas sector. We were developing new oil and gas production centres, including one on the continental shelf, raising processing efficiency and diversifying delivery routes.
I would like to point out the following key events in Russia’s oil industry. Rosneft signed strategic agreements with its foreign partners – Chevron, BP and Exxon Mobil – to jointly implement continental shelf projects. In addition, commercial production began at the Korchagin offshore field in the north Caspian Sea; the first stage of the Nizhnekamsk oil refinery with a capacity of 7 million tonnes entered test production; LUKoil Norsi’s catalytic cracking facility with a capacity of 2 million tonnes was commissioned. And the Skovorodino-Mohe pipeline with a capacity of 15 million tonnes per year was put into operation under the ESPO project.
Now I would like to say a few words about the natural gas industry. Geological prospecting work was successfully concluded at the Kirensky gas field block in the Sea of Okhotsk; the Yurkharovskoye gas condensate field reached its full capacity; construction work began on the offshore section of the Nord Stream pipeline. The gas pipeline from the Nizhne-Kvachinskoye gas condensate field to Petropavlovsk-Kamchatsky was inaugurated and a comprehensive action plan was approved for LNG production on the Yamal Peninsula.
Work on the oil and gas industry’s main courses will continue in 2011. Rosneft is expected to launch the central facility at the Vankorskoye field and continue increasing oil production there. The construction of the vacuum gas oil hydrocracking facility of Kirishinefteorgsintez, with a capacity 2.9 million tonnes, is expected to be completed. We also plan to finish building the Baltic Pipeline System II, as well as to commission the Dzhubga-Lazarevskoye-Sochi gas pipeline and the gas treatment unit at the Zapolyarnoye field.
The strategic goal of these systemic measures is to improve the performance of Russia’s fuel and energy sector and ensure that the major infrastructure projects are implemented. A range of measures is being prepared to facilitate the industry’s effective development. I’m referring above all to the final approval of the basic policy documents on the sector’s development.
Mr Putin, in 2009 you instructed us to prepare a plan for the general development of the oil industry until 2020. This was done and you approved the results. Now the federal executive authorities are finalising agreements on this action plan and, pursuant to your instruction, it will be submitted to the government in the first quarter of this year.
The same is true for the general development plan for the natural gas industry until 2030 that will soon be submitted to the government. Intensive work continues on the development plan for Russia’s gas and petrochemical industry until 2030. We have already completed devising the first stage of a corresponding programme and plan to finish working on the second one in October 2011.
I would also like to point out the policy documents that have been adopted, including the comprehensive plan for the production of LNG on the Yamal Peninsula, the extensive programme to develop the hydrocarbon deposits of the Yamalo-Nenets Autonomous Area and northern Krasnoyarsk Territory until 2020.
As part of our efforts to improve the underlying legislation, we developed a draft federal law on the basics of government regulation in the production, processing and transport of oil and oil products. We have submitted it to the government. A key goal for us is to raise the industry’s economic efficiency and to foster new projects in oil and gas production.
As mentioned before, the government’s targeted measures helped commission major fields in East Siberia. Moreover, export duties for the Caspian fields, including the Korchagin and Filanovskoye fields, were cut.
In 2011 we will also continue work to enhance the efficiency of the oil and gas sector. First of all, we are talking about the projects on Yamal Peninsula, the intensification of oil extraction from small oilfields, and the introduction of cycling processes to maintain reservoir pressure.
The main tasks, of course, in accordance with your instructions, are the development and final approval of the new taxation system. It will be adjusted to the changing macroeconomic conditions, and it will make the development of new fields, including offshore ones, more attractive to investors.
We hope to achieve this above all by taking into account the geographical and geological differences between specific fields. And this is already being done by the relevant federal executive bodies. Pursuant to the instructions you issued today, the concept will be submitted to the government as early as the first quarter of 2011.
In 2010, the electric power industry generated more than 1 trillion kilowatt-hours, 4.3% more than in 2009. Thermal energy generation in 2010 amounted to 530 Gcal, an increase of a little more than 2.6% compared with 2009.
It has to be said that 2010 saw a growing trend towards the modernisation of generating capacity, the building of natural gas-powered plants, as well as clean coal technology plants and equipment using coal liquefaction and gasification technologies.
As you said, in 2010, 3.2 gigawatts of generating capacity was introduced, including over 850 megawatts under capacity provision contracts (DPM), the highest indicator in recent years. The largest generating facilities are the Rostov Station, the Kaliningrad Thermal Power Plant TETs2 and the Shatura Plant. The new transformer capacity exceeded 18 gigavolt-amperes, up 12% from 2009. More than 17,000 kilometres of new power transmission lines were introduced, that is 46% more than in the previous year.
We believe that demand for power in Russia stopped growing in 2010. Let me just note some of the key features of the electrical power balance in 2010. On the whole consumption increased by 4.2%, and by 7.4% for thermal plants. Power generation by hydroelectric power plants dropped by 4.7% due to the Sayano-Shushenskaya Power Plant accident. Nuclear power generation increased by 0.4% due to the launching of the second unit at the Rostov Plant.
I should note the key importance of increased power exports in 2009, primarily due to increased supplies to Belarus, Ukraine, the People’s Republic of China, Finland and the Baltic countries.
I have to note the winter period of 2009-2010, which was critical for the Russian power system. The recovery of the Russian economy from the world economic crisis and the unusually low temperatures led to a significant increase in electricity and power consumption. Power consumption in the Russian energy system during that period was 150,000 megawatts, which exceeded all other post-Soviet levels and came close to the all-time high of 156,000 megawatts achieved in the winter of 1990.
This winter also proved to be difficult for the country’s power industry. After cleaning up from the aftermath of the accidents and the massive power outages late last year and early this year, we carried out an investigation and developed a wide range of measures to prevent such consequences from happening again even if similar irregular conditions occur. Upon your instructions, a report on all these matters has been submitted to the government and the power industry is acting in accordance with its findings.
We expect electricity consumption in Russia to rise by over 2% in 2011. This is added proof of the need for sustained investment in the industry. In 2010, state-owned power companies invested 574 billion roubles, which is 28% more than in 2009.
The total volume of investment programmes of state energy companies for 2011, approved by the Russian Energy Ministry in 2010, is 788 billion roubles, which means a 37% increase over 2010.
The list of facilities in the power supply contract (DPM) market for 2010 has been approved. The list envisages 30 gigawatts of power in the next seven years, under a plan for 2007-2017. A total of more than 1 trillion roubles will be invested in DPM facilities.
In 2011, 27 generating facilities with a combined capacity of 6.1 gigawatts will be introduced under DPM contracts. The overall number of newly-launched facilities will be 32, that is, five facilities will be introduced outside of the DPM scheme.
The investment programmes of power companies plan to introduce almost 40,000 megawatts of transformer capacity and 21,000 kilometres of power transmission lines in 2011.
In 2010, a series of measures were introduced to improve the regulatory framework. The law On the Heating Supplies was passed, amendments were introduced to the federal law On the Power Industry, the government passed a resolution On Determining Price Parameters of Trade in Power in the Wholesale Electrical Power Market during the Transition Period and a resolution On Aspects of the Organisation of Long-Term Competitive Power Takeoff in the Wholesale Market of Electricity.
One of our goals is to speed up the development of energy machine building in the country and to introduce efficient, new technology. To this end the production of energy generation equipment using the best foreign technology is happening here in Russia.
During the past year Russian fuel and energy companies have signed 16 agreements of cooperation for domestic energy equipment production in Russia. Among our foreign partners are General Electric, Alstom, Hyundai Heavy Industries, Siemens, Toshiba and others. But while solving the problem of tapping into new technological and managerial solutions we are also developing measures to stimulate our own producers, with the possible signing of long-term contracts that would benefit both producers and consumers. The same is true of the equipment for networks, turbine manufacturing, drilling machines and so on. With your permission I will elaborate on the proposed measures at the meeting you announced.
Favourable market conditions last year enabled the coal mining companies to improve their performance substantially. Production increased by more than 20 million tons, and the amount of coal processed at dressing factories increased by 8.8 million tons to 118 million tons. Coal mining company profits increased to 67 billion roubles. Just to remind you, in 2009 the total coal company profits stood at 22 billion roubles. Accordingly, coal companies increased their investments in basic assets to 60 billion roubles. Coal deliveries have exceeded the 2009 level in every key area, with some of it used by power plants for coking needs. Exports increased markedly. According to the Federal Customs Service, exports increased by 9.3 million tons to 115 million tons, that is an increase of 9% over 2009.
The main developments in the coal industry in 2010 were as follows: Five coalfaces with a total capacity of 10.8 million tons a year and a dressing plant with a capacity of 2 million tons a year were launched in Kuzbass. In the Republic of Tyva tenders were held to sell the mining rights at the Mezhegeiskoye and Ulug-Hemsky fields which make it possible to start developing that new coal-mining region.
The coal terminals in Russian ports – Murmansk, Ust-Luga, Vostochny, Vanino and the city of Belomorsk on the border with the Arkhangelsk Region – continue to increase their capacities.
I should of course mention the tragic events at Raspadskaya coal mine which we have already discussed. I would like to underline that the owners have invested more than 5 billion roubles in the restoration, jobs have been preserved and the threat of social tension was averted. From our data, under the restoration plan, the Raspadskaya coal mine will produce up to 2 million tons in 2011.
Pursuant to your instructions, prime minister, the government regulation of industrial safety has been enhanced, partly in the mountain rescue department (the law on degassing was discussed today), administrative liability for breaking safety rules has been toughened and the system of mandatory insurance has been improved; to provide economic incentives for investing in safety these companies have been offered tax breaks.
In 2011 Mechel is due to start commercial coal production in the Elginsky coalfield (in the Republic of Sakha-Yakutia) to bring production to 2 million tons this year. The same goes for the development of the mining industry in the Republic of Tyva and the building of the railway line between Kyzyl and Kuragino.
I should mention that export of coal to the People’s Republic of China increased significantly last year to 10.8 million tons. We expect to sign a special intergovernmental agreement on coal cooperation between Russia and China. Our Chinese partners say they will buy up to 20 million tons of coal a year.
Work is underway to complete the restructuring of the coal industry. The federal law On the Federal Budget for 2011 and the Planning Period of 2012-2013 allocates the following sums to finance these activities: 2.9 billion roubles in 2011 and 2.940 billion roubles in 2012. That will finance 116 projects involving the liquidation of coal industry organizations and provide free coal to more than 65,000 citizens who are entitled to benefits.
The following are the main problems in the coal industry today: the high share of the cost of coal transportation, the increased share of underground coal mining in adverse geological conditions, underdeveloped infrastructure in new coal-mining areas, the slowdown of the pace of restructuring which is nearing completion, shortage of funds for modernization and, finally, occupational safety. To address these problems, in accordance with your instructions, the Energy Ministry, along with the federal executive bodies concerned and the coal companies, have prepared a long-term programme for the development of the coal industry until 2030 which we are planning to adopt in 2011.
It is only possible to meet the challenges facing the fuel and energy complex with innovative development. The sector must spearhead the innovative policy of the state as the major consumer of innovative products and generator of new scientific and technological methods. The main areas in the innovation field in the sector are the following:
-increasing the amount of funding allocated to R/D;
-systemic development of R/D plans;
-development and implementation of technological platforms;
-restoration and further development of the science and engineering base.
Active work is being done in all these areas. We seek to accelerate innovative development in the fuel and energy complex which is the key task in the development of energy companies with government participation. A serious financial base is being created for innovative development of the sector.
I would like to report that the power industry has increased spending on research and development from 1.2 billion roubles in 2010 to 13.9 billion in 2011.
If one compares the amount invested in R/D in the period between 2008 and 2010 and in the next period of 2011-2013, generally the partly state-owned company INTEK will invest more than 107 billion roubles, i.e. five times more than in the previous three years.
I am sure that the increase in R/D, the targeted programme approach to innovative activities of the company, and broader cooperation on the basis of technological platforms will enable the fuel and energy complex to become a driver of innovative development in the Russian economy.
Work is getting underway to finalize the plans and benchmarks for strategic development of our economy in the post-crisis period. One of the main targets and priorities of this work should be providing innovative development of the sector and the economy as a whole with energy.
In conclusion I would like to say that in spite of the difficult conditions in which the energy sector operated in 2010 we have managed to fulfill the main tasks facing the sector and move into 2011 with good prospects for innovative development of the industry and the economy as a whole. Thank you.
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Concluding remarks by Vladimir Putin:
Colleagues, by way of conclusion I would like to say the following: the energy sector in the broad sense of the word undoubtedly always has been, is, and will continue to be the basis of our economy. Indeed, it is the basis of any economy, including our own.
Industry performance in 2010 has shown improvement and has almost recovered. Now we need to pay the utmost attention to the objectives we have set for 2011, with an emphasis on modernisation. The more efficient our work is, the more competitive our economy is in general.
I have ample reasons to thank you for the results of 2010 – the shareholders of our major companies, the workers, the engineers, and everyone who contributed to our coal industry, power engineering, nuclear power, and oil and gas sectors. We have almost returned to a pre-crisis level and are taking our first steps in post-crisis development.
I also want to thank you for your decision to support agriculture, and I hope that we won’t see any more setbacks like the price hikes we witnessed and that the Federal Antimonopoly Service will prepare its proposals regarding transparent market pricing according to the relevant market reference points.
Thank you very much. All the best.