Transcript of the beginning of the meeting:

Vladimir Putin: Ladies and gentlemen,

As you know, yesterday I delivered a report on the government’s performance in the State Duma. I spoke not only about our performance, however; in point of fact, I spoke about the results of our common endeavour because the government only organises the work of the social sectors and the economy, while the real work is done in the real economy. The people who ensure our achievements are sitting before me now, so it was largely a report on our joint efforts. I spoke not only about what we accomplished last year but also about some plans for the future.

Together, we should address our common goals of development and qualitative changes in the structure of the Russian economy. We keep talking about modernisation, which is a perfectly good objective, but modernisation should lead to structural changes in the economy and ensure sustainable growth.

We have regained two-thirds of the pre-crisis GDP, but we cannot say that we have overcome the crisis. We have reached a stage of stable recovery, and we will have overcome it only when we fully return to our pre-crisis level. We have not yet achieved this goal; we still have one-third of the pre-crisis GDP  to recover. And when we get there, we will need to keep up the tempo.

We have big plans concerning large projects in industry, infrastructure, and high technology. We are launching serious programmes in professional education, healthcare, and culture.

What I’d like to draw your attention to today is the goal of doubling our labour productivity. It grew 3.1% last year, which is clearly not enough. We must accelerate our pace, although it is true that the growth of labour productivity was even lower in 2009.

It is obvious that extensive methods alone cannot ensure the doubling of labour productivity. We must modernise production, adopt new technologies, and train personnel. We must improve the quality and change the structure of the labour market by creating modern, high-tech, and well paid jobs and by raising the skills and educational standards of the workforce.

It should be said that the government will allocate about 2 billion roubles for professional retraining under regional programmes of market stabilisation, including over 800 million for enterprises that are modernising production.

We also plan to adjust the system of professional education to the requirements  of the labour market. We have discussed this issue at length and keep talking about it because this is what the government, people, and, of course, businesses need.

We will provide scholarships and grants to pay for onsite training and  retraining.

Our priorities include labour protection, improving the working environment, and occupational safety. We know that this is something one must not stint money on, but I still want to draw your attention to these issues. We plan to compile a list of obligatory measures to be financed by employers for ensuring occupational safety, and to introduce a new system for defining hazardous jobs.

When I drove a Lada Kalina on the Amur Highway last summer, I met with workers, and one of them, a simple man without any complaints about the business or administration, which I liked, said calmly, as if it were nothing out of the ordinary: “I work on a crusher, we crush gravel. You know, you can only work with a mask there, but it is not considered a hazardous occupation. That's a little unfair, don’t you think?”

When people see such injustice, they don’t work as well as they could, and the results are not as good as they could be either.

Everyone in this audience knows about that when accidents occur, we have to pay much more than we would have, had we invested in routine operational improvements. So, we should do everything when and as necessary, drafting proper standards and then respecting them. We will invite independent expert organisations to contribute to this project.

One more important issue is the tragedy at the Fukushima-1 nuclear power plant in Japan. It is being widely discussed, and our experts are considering the need for new, modern environmental standards. I'm sure you know that our standards differ substantially from many advanced economies, and we must certainly move in their direction.

I fully realise that our level of development in production and technology is different from that of an advanced economy. Therefore, we cannot re-equip everything overnight. This requires a major amount of investment, but I think you will agree that if we don't set any goals, we won't go anywhere. We must elaborate these standards and endorse them on paper at a government level. They should be our lodestar – we must understand where we are going. This will not only improve our environment but will also create administrative incentives for re-equipping and modernising production.

I'd like to emphasise that we are not going to act mechanically and change these standards abruptly without due account of our limitations. I think that in elaborating these measures, the relevant governmental departments should work closely with business people and their representative body – the Russian Union of Industrialists and Entrepreneurs. Mr Shokhin [President of the Russian Union of Industrialists and Entrepreneurs], I count not only on you and your colleagues in your own right but also on what you would contribute to our joint work, and on the experts whom you trust. This is a very sensitive issue and very important for society and the environment, as well as business and the economy. In light of all this, we are willing to work with you very closely.

You know how much attention we are paying to eliminating red tape in the economy. I won't list all the directions our work is taking, but I will remind you that we continue to elaborate the foundations of a national contract system that will be oriented towards reliable, conscientious suppliers. This implies easy access for our companies to state-guaranteed purchases and the removal of various administrative barriers. In general, our strategy is aimed at a gradual decrease of the state's direct involvement in the economy. We want businesses to display initiative by creating space for private enterprise.

We also believe that our business community must take a more active part in the drafting of major legislative acts. When I was speaking in the State Duma yesterday, I recalled the work of the Trilateral Commission. It meets not only every month or week but sometimes every day and allows employers, the trade unions, and government officials to work in close contact with each other. I hope that they will continue to do so.

I think it makes sense to consider the full-fledged involvement of business organisations in discussing technical regulations of the Customs Union and the Common Economic Space. Everything that we are doing for post-Soviet integration is aimed at producing the maximum positive effect for our people, countries, and business communities. We understand that integration trends help create a large common market with freely moving people, capital, goods, and services.

In effect, we are creating an integrated market with liberal regulations. And this market is expanding – it already encompasses 170 million people rather than 143 million. We are eliminating barriers to the free movement of goods, services, and capital. This is an indisputable advantage for effective business. I'd like to emphasise that the removal of borders is always a big plus for effective business. This will enhance competition, but it is also an engine of progress in a modern economy.

In conclusion, I'd like to say a few words about another vital issue. I know that business people are looking forward to a decision on reducing the rates of insurance payments and the financial burden as a whole. I'd like to say directly that we fully agree with you. I said yesterday and want to repeat again now: it is easy to increase taxes, but we all understand its possible consequences. On the other hand, without taxation, the state cannot function properly and perform its obligation to maintain law and order, ensure security, and address social problems. Everything should be considered in this balance.

Almost every day – without exaggeration, every day – we discuss possible methods of easing the fiscal burden. It is, in fact, lower than in many so-called developed economies. Keep in mind that they are already developed, while we need to catch up... We are well aware that we need to clear the way for you at times so that you can flex your muscles, so to speak, and continue to grow. I can assure you that we will continue to work in close contact with you.

In order to support Russian exporters of high-tech products and draw in more capital, we are creating two government bodies: an export loan insurance agency and a fund for direct investment, whose main functions will be to attract capital to the economy and co-finance major investment projects. We believe that in doing so, the fund could benefit even from the use of surplus revenue generated by oil and gas trading. Normally, we would keep it in our reserve funds, but given that this is a project of critical importance to us, we can make an exception and disburse part of our oil and gas revenues to the fund for direct investment.

I am eager to hear your comments and suggestions. It's my pleasure to see you here today. Mr Shokhin, please.

Alexander Shokhin: Mr Prime Minister, first of all, I would like to thank you and the other members of the government personally for finding the time to meet with us. This is already quite a busy week for you – yesterday you delivered an annual report to the State Duma, and today you will hold a meeting of the Government Presidium to discuss macroeconomic strategy and embark on a draft of the budget. The last time we held such a meeting was a year ago, and I am happy to see that it is becoming a tradition for us to come together shortly after Russian Business Week and the annual convention of the Union of Industrialists and Entrepreneurs. We hope this tradition will continue.

During Russian Business Week, we usually hold six or seven conferences on topical issues from our agenda. Shortly thereafter, we hold a convention to incorporate these ideas into our plans for the current year and the next three years. Just like the government, we develop two plans: one for the short term and one projected over a three-year period. We permanently monitor the business climate in the country and cooperate with the Duma and the government on the development of financial, budgetary, tax, and economic policies for the next year.

Recent discussions, including those held at our convention, showed that the state of the Russian business climate leaves much to be desired, which is attested to in the findings of the monthly and annual surveys of leading Russian chief executives, some of whom are present here today. At the same time, we have registered major positive trends over the past year. We share your vision of Russia's future as a highly competitive country, and we see that much has been done and continues to be done in order to streamline public administration and improve the situation in business and social services.

Last year, we employed a new system for evaluating the effects of new legislation, through which we have determined businesses' collective needs and interests. We have examined over a hundred legal acts already. The range of problems we are considering is relatively narrow so far, but I believe that it nonetheless provides a good starting place and that this system has proved very effective. In addition, our experts participate in the meetings of expert groups charged with reviewing the government's economic strategy until 2020. With these groups, we contribute to the development of government plans for the labour market, macroeconomics, and so on, and we are eager to expand our involvement in this work.

Last year, government and business cooperated very effectively on the labour market, despite the difficulties of the post-recessionary period. The programmes for defusing tensions on the labour market proved very effective. We will further strengthen our cooperation through the positive experience gained in the implementation of these programmes. I would also like to mention our joint efforts to overhaul existing immigration legislation. Significantly, last year we signed several international agreements on immigration.

You have just mentioned the Customs Union and Common Economic Space, and I'd like to say that I fully agree with you that we need not only to develop new laws but also to bring those laws up to international standards, since any foot-dragging in our legislative process may compromise Russia's competitiveness in attracting investment when compared to not only international or offshore jurisdictions but also to our neighbours, including Kazakhstan.

We see not only a more friendly attitude to business in, say, Kazakhstan, in terms of taxes and social contributions but also with regard to some other issues such as the protection of property rights, as a result of which several hundred Russian companies had their registration renewed in Kazakhstan this year. That is in a sense a signal that we need to liberalise the legislation within the Customs Union.

Sometimes, unfortunately, we see attempts by certain agencies to take advantage of the opportunity to make the new national regulations more bureaucratic. That, of course, should not be allowed. As for the tax burden, you are absolutely right, Mr Putin, that from a formal standpoint, our taxes are not the highest if one compares them with other countries. But the devil, as always, is in the details, and although we have many tax breaks (I think the Finance Ministry puts the amount at 1 trillion), it is not always easy to avail oneself of them. Businesses do not avail themselves of all such tax breaks. The Finance Ministry and the Tax Service also take a tough attitude to them – that is, identifying the beneficiary of tax breaks is a complicated problem. Besides, any tax benefit means an additional audit, but not every company is ready to face the risks of being accused of other irregularities that would cancel out the benefit of a tax break.

Therefore many companies believe that tax benefits must be universal, comprehensible, and simple. We would like the government, while preserving special benefits for innovative companies and small enterprises, to find ways to focus on universal benefits connected with the introduction of high technology, for example, or tax holidays on property tax for any newly introduced equipment for a period of three years. The same could be done with regard to the profit tax, as a kind of investment loan.

We assume that no company that is replacing its technology would introduce outdated equipment because energy efficiency laws are already in force. Laws on environmental safety and occupational safety and so on will also be in force. If you introduce new equipment willy-nilly, you have to comply with more stringent requirements, so we could make various tax benefits universal and thereby make it easier to take advantage of them. Perhaps such measures would not impose extra demands on the budget.

Incidentally, Sergei Shatalov (Deputy Finance Minister), in addressing the commission on legislation concerning benefits for Yamal gas projects, said recently: “If there are no benefits, the projects will not be implemented and the budget will not get extra revenue.” That basic principle applies not only to Yamal, but to any investment projects. Unless certain benefits are made available that make it possible to implement these projects, the tax base will not expand, no new jobs will be created, etc. I think this is a new approach on behalf of the Finance Ministry, and we must support it.

As for insurance premiums, two years ago…      

Vladimir Putin: The approach is not quite new. We have always been aware of it and so has the Finance Ministry.

Alexander Shokhin: What do I mean by new? The Finance Ministry has been reluctant. The Ministry of Economic Development has always taken this stand, but as for the Finance Ministry, I think it represents a change of stance. But we are glad that the Finance Ministry is ready to accept it.   

Vladimir Putin: Yes, but the benefits for Yamal have been withdrawn…

Alexander Shokhin: Have they?

Sergei Shatalov: They were recently approved by the commission and will shortly be submitted to the Duma.  

Vladimir Putin: Have they been withdrawn for Vankor?

Igor Sechin: With regard to Vankor, yes.

Sergei Shatalov: They withdrew the benefits for Vankor. They have all been exhausted, all the promises have been fulfilled. 

Vladimir Putin: They have been exhausted.

Аlexander Shokhin: I am not against benefits for Yamal.

Sergei Shatalov: I would like to add a correction to my last sentence to avoid any misunderstanding. The benefits have not been withdrawn but have been suspended because of high prices.

Vladimir Putin: “Suspended.”  You see, opinions within the government differ. That may be a good thing actually. I think it shows that there is always someone in the government who speaks the same language you do.

Alexander Shokhin: Yes. As for the increase in insurance premiums, I must say that we have met people in the government who speak our language. Unfortunately, those who do have been unable to successfully lobby our common position. Now we are back to square one. We understand and agree absolutely that one should proceed carefully. I think we should apply our idea of two years ago: as much of the proceeds from privatisation as possible should be put in the National Wellbeing Fund, perhaps pooling it together with the Pension Fund, and privatisation should be pursued more aggressively. And, secondly, we should consider the option of temporarily using oil and gas revenues to solve the pension problem in the event that resources run short. But to answer the question as to whether or not there are enough resources, we should make up our minds on the final structure of the pension system, the mandatory medical insurance system, and mandatory social insurance.

Unfortunately when we raised insurance premiums, we were not quite clear on these issues. Suffice it to say that 2% of extra premiums under the mandatory medical insurance system have gone into the modernisation of healthcare in the regions, which we agreed with in principle. We were even going to propose a targeted tax for a period of two years for that purpose. But during the period in which increased targeted taxes are levied, we had to bear in mind the future of all these social systems. We have some proposals, incidentally, and we discussed them at our conferences during Russian Business Week because we understand what a challenging task it is, and we are ready to make actuarial, financial, and other calculations.

This brings us to the topic of the personnel pool. Companies regard the shortage of qualified personnel as a primary future constraint and risk. This was the number one topic in 2007 and early 2008, and now it is again becoming the main constraint on growth. We understand the complexity of the problem, but we must work towards more flexible labour legislation. Unfortunately, our dialogue with the trade unions is not very constructive. The responses to our proposals look more like slogans. We believe that we should carefully, but expeditiously analyse our labour legislation and adjust it to the goals of modernisation in professional training at all levels. Much has been accomplished, including tax breaks for companies that have their own centres for primary, secondary, and professional training. According to our calculations, all the costs the companies incur to maintain corporate personnel training centres, even if they cater to other companies, must be included in their operating costs. Incidentally, we are ready to introduce amendments to the law on employers’ associations. The RTC (Russian Trilateral Commission for the Settlement of Social and Labour Relations) will discuss the topic tomorrow. By the way, we pass all the draft laws that have to do with labour and social relations through the RTC before submitting them to the government. So, if the trade unions think that we are not cooperating with them well enough, then the RTC is the place where it has to be done, and, in fact, we are doing it.

What changes would we like to see in this law? Among other things, we would like to increase the responsibilities of employers’ associations and formulate tougher requirements for them. We believe that some of the powers that traditionally apply to self-regulating organisations could be applied also to employers’ associations. For example, the development of professional standards that should provide the basis for state educational standards and technical regulations and standards and so on. Then, only the associations that are involved in this work – which should be a precondition for registration – could be regarded as social partners of the government and trade unions and so on.

Anti-monopoly regulation, of course, is another important topic. Our congress today heard Igor Artemyev (the Head of the Federal Anti-Monopoly Service). We are coming to grips with the third anti-monopoly package of the FAS, and we have hammered out the correct language for distinguishing between concerted actions that are anti-competitive and independent behaviour as a result of the overall market situation, in which companies act in a similar way without prior agreement. Anti-monopoly legislation has been decriminalised. That is very important in our opinion. On such issues as state procurement, we are actively engaged with the Ministry of Economic Development and with the FAS, and we hope that our voice will be heard – for example, our proposals on improving the mechanisms for assessing the impact of regulations. But I have already said that the mechanism for assessing that impact does not cover all business-related issues, although government regulations stipulate that all draft regulatory acts concerning the interests of business have to be approved by the Ministry of Economic Development. It would make sense to extend that approach and send all the draft laws to businesses (all of them, and not only those that are mentioned in the resolution passed a year ago) in order to assess the impact of regulations.

We also have a number of proposals on how to repeal previous regulatory acts. The procedure of repeal should perhaps be combined with monitoring the regulatory environment created by such repeals. We do not rule out that it may become worse than it was under the laws being repealed. So, perhaps we should introduce a mechanism of deferment – for three months, for example – during which the relevant agency would prepare a draft of a new regulatory act to replace the one being dropped. I think it could be accomplished fairly quickly by introducing a corresponding amendment to the government resolution. The result would be a highly effective mechanism that would enable business to participate in working out such drafts in a perfectly legal way.

One of the priority topics that we discuss in various councils is the criterion for the state’s presence in the economy. A year ago, the government announced an aggressive privatisation programme. But we believe that other steps need to be taken, for example, to determine which assets the state will eventually divest. That is, we need to identify a list of assets that the state will retain nonetheless because, at present, the position seems to be that the state keeps 50% plus one share and waits to see what happens. We feel it is necessary to consider whether the state needs to preserve a controlling stake in certain enterprises. Another issue is that the process of divestment can be extended over a protracted period of time depending on whether there are strategic partners, what the situation is on the market, and so on. Of course, one should not be in a hurry, and nothing should be sold on the cheap.

Nevertheless, if we have the exact list of assets that the state intends to keep in the foreseeable future, then privatisation mechanisms can be improved. If there is demand, for example, for the privatisation of an asset that does not belong to a strategic industry, then one could request an explanation from the government for its refusal to privatise and so on.

There are a number of questions concerning the Russian financial system. These include the moot problem of long money and such issues as providing mechanisms for creating an international financial centre. Some of these problems are not new – the creation of a consolidated exchange is one problem that is still being tackled today – and some, such as the creation of a single central depository, are indeed long-standing. We believe that such infrastructure on the stock market and the financial market, as well as the infrastructure of banking services, is very important.

Incidentally, we are not lagging behind in every respect. As regards the introduction of Basel standards, including Basel 3, we may be ahead of Europe and the USA. There was recently a meeting of the leaders of business associations of G8 countries, and they are all worried about the rapid pace of the introduction of Basel 3 and are asking their governments and national banks to tread more warily. This is not to say that we do not need to toughen regulatory requirements, but I think we should look carefully at what our colleagues are saying.

Mr Putin, with regard to the issues that were discussed at our congresses during Russian Business Week, we have prepared a list of topics on which the government could issue instructions and to which we could contribute in the future.

We can give this list to you, and my colleagues may add to what I have said because I have not covered everything.

Once again, I would like to thank you for this meeting and tell you that the Russian Union of Industrialists and Entrepreneurs will mark its 20^th anniversary in December (we were founded a week before the disintegration of the Soviet Union), so the next Russian Business Week will be combined with a celebration of our 20^th anniversary in early February. We very much hope that by that time the Duma will have been assembled and we will be able to issue our mandates to it. And, of course, other campaigns will be in full swing, and we will have a chance to promote our ideas at different venues. So, the dialogue continues, and we expect it to become ever more effective.           

Vladimir Putin: Thank you. I would like to make a brief comment on the privatisation programme to which you have referred. We, too, believe that we should make up our mind as soon as possible on which assets the state will retain and which assets it will divest. I can tell you why I am singling out that part of your speech. We are engaged in a constant dialogue. Some of our colleagues, including those present in this room, proposed to hand over their businesses to the state when the crisis was at its peak. They were ready and willing.

Please note, dear colleagues, that we decided against this option. We chose a different path: we supported private entrepreneurs, we extended a helping hand, and we provided them with loans. When you closed your accounts with Western banks, the collateral was withdrawn and moved to Vnesheconombank. We built up a system of state support. But we rejected the option of nationalising the economy. This was the government’s fundamental position: we do not wish to create a system of state capitalism. We want to create a socially-oriented market economy, and we will continue to work towards it, using privatisation as one of the key instruments of that process. We should proceed carefully, but we will continue to follow this path.

Together, we accomplished many things during the peak of the crisis, and you claim much of the credit. I must commend your efforts and your sense of responsibility… When we decided to preserve private business, it meant that we recognised your responsibility, and we did so purposefully. It would have been easy at the time to take over private business – even on the cheap; supporting private business and having you share in this responsibility was a more difficult option. I think I have already remarked to this audience, but I would like to repeat that I was pleased to note how the heads of major companies assumed their part of the responsibility. This is an unimpeachable fact. It happened in the metallurgical industry, machine-building, the oil industry, and in the banking sector. We are working closely with you in practically all these areas. Now we should seek to restore the economy to the pre-crisis level and make a quantum leap forward in changing its structure and tackling development together.

What you have said about innovative improvements to the tax system, privatisation, and the divestment of state assets where the state should not be present and where its presence is ineffective – these are all things that we will continue to discuss. We need to change the structure of our interaction and not only the structure of the economy. And that will probably make it easier to achieve structural changes in the economy as well.

Of course, there are ministries and agencies which, owing to the nature of their functions, must support corresponding sectors – that is the purpose for which they were created. There are other ministries and agencies that are called upon to address other issues, for example, of a social and systemic character, such as the Finance Ministry. We will do all this while engaging in dialogue with you.