Vladimir Putin’s opening address:

Good afternoon, esteemed colleagues,

During today’s meeting, we will discuss a very important issue: the Strategy for Developing the Building Materials Industry until 2020. Obviously, our plans for modernising national infrastructure and housing construction largely depend on the efficiency and effectiveness of this basic industry. You are the experts, and you know better than me that without it, we won’t be able to proceed with housing construction or the development of our infrastructure.

At the meeting in Kirov in February, we discussed a package of measures to implement the federal targeted programme Housing over the next five years. By 2016, we must be building 100 million square metres of housing per year (just to remind you, after a small decline in 2010, this figure was 58 million square metres, and before the crisis, it was around 63 million, which we have now matched). I proceed from the assumption that by 2020, we will be able to build around 140 million square metres of housing every year.

In addition, we have major projects planned for industrial and transport facilities. We have large-scale plans for the fuel-and-energy sector, and we must complete a great deal of work in the Far East related to the preparations for the APEC (Asia-Pacific Economic Cooperation) summit. We must also complete our plans in Kazan. Much has been done there, but we must complete our preparations for the World Student Games. Now, we have another major project directed at 13 Russian cities: the preparations for the FIFA World Cup.

All these projects will push our construction industry forward, but this is far from being our main goal. Our priority is to develop infrastructure across the country and fulfil our housing programme. We hope that the building materials industry and the construction sector as a whole will promote the growth and modernisation of Russia’s entire economy. Needless to say, we must set more rigorous technological requirements and standards on housing construction and the production of building materials – they are the basic elements that influence the quality and final cost of construction, which is particularly important in housing.

The plant we are currently inside is one of the oldest in the construction industry – it has been in operation since 1955. You have just seen the upgraded production lines. The quality has changed dramatically. These may seem to be prefabricated concrete buildings, but overall they look different, and not just this – you can also feel the difference when you live in them. I’ve just recalled how I also lived in a prefab building in St Petersburg, in what was called a ‘ship’. Now the technology is completely different. Everything is seamless, and people do not have to seal anything up to prevent the wind blowing freely through their flats. Everything has been done properly, effectively, and with the use of modern technology. Regrettably, we don’t have many materials like that. For the time being, we also manufacture cement the old-fashioned way – a little over 14% is produced using the dry method.

I’d like to emphasise that this industry is also important for us socially. Not only does it resolve major economic and social issues, such as housing, but it is a focus of social issues in its own right. Suffice it to say that the industry employs 5.5 million people.

So, we are holding our meeting at one of the oldest plants. By and large, they provide a good example of how to organise production. My colleagues told me that they have invested 340-360 million roubles into reconstruction over a relatively short period of time and have achieved serious results.

The majority of cement and brick manufacturing facilities were built 30 or more years ago. For the most part, their technology reflects the level of the 1970s. Clearly, we cannot accept this situation and must drastically change our approach to affordable housing. It should be built with the use of the most modern construction and architectural methods available, meet all standards of quality and energy efficiency, be eco-friendly, and, at the same time, remain affordable.

You know as well as anyone that building materials account for 30%-40% of housing costs. We must look for an adequate price-to-quality ratio and reduce costs by increasing the scale of production and simultaneously converting to energy-efficient and high-tech products. In order to achieve this, we must carry out the industry’s holistic retooling and develop new, modern production lines.

I believe that in this context, we must draw up comprehensive plans for the industry’s development in every region and every federal district. I want the governors to listen: every region must have a comprehensive plan for the development of its construction industry.

These plans should take all elements of that development into account – the targets of the regional housing construction programmes, programmes to build socio-cultural facilities and   develop industrial enterprises and transport infrastructure. Managers in the building materials industry and the construction sector should understand how the market is to develop. Obviously, it is impossible to predict everything, but we need to set forth some reference points and targets for the years ahead. It goes without saying that the potential for inter-regional cooperation should be taken into account in designing new plants to produce building materials.

I think that the Ministry of Regional Development should coordinate this effort with active participation from the Ministry of Economic Development and the Ministry of Industry and Trade. I’d like to ask the ministers to concentrate on this work together with the governors.

It is essential to create favourable conditions for modernising existing production plants, commissioning new ones, and purchasing high-tech equipment and machines for the production of materials for the affordable housing segment that I’ve mentioned.

There are successful, good examples of this work in many regions: Moscow, the Moscow Region, St Petersburg, the Leningrad Region, Rostov-on-Don, and Samara.

This experience should be disseminated, all the more so since we envisage additional incentives for the regions that are actively involved in construction. We will grant funds to these regions, and they will use them to subsidise interest rates on loans for the retooling of construction facilities. About 40 regions will receive support this year – before the end of its second quarter, to be exact. All in all, we have allocated 21.6 billion roubles for this purpose, including 3.5 billion this year.

When we speak about retooling, the question of foreign equipment arises. A common principle should apply here, as it does in other industries: we will reduce or even remove import duties on unique equipment that is not produced in this country for the time being. In any case, I would like you to emphasise to your foreign partners that we are currently buying a lot of equipment, and we plan to buy even more. There are companies that have worked with us – with you – for a long time. At a government level, we will try to create favourable conditions and provide economic incentives for the transfer of production into Russia and a gradual increase in its localisation. The companies that will join us in this effort will stand to gain from it.

We have good relations with our partners in Germany, France, Finland, and many other countries. I think it makes sense to use this experience in organising the production of equipment for the construction industry in Russia – I’ve already said on what terms. I’d like to ask the Ministry of Regional Development and the Ministry of Industry and Trade to submit these proposals to the government – as we do in other industries. I don’t need to repeat all of this – you know it very well.

The regions must build the facilities necessary to increase production capacities. I’d like to draw the attention of the Ministry of Regional Development and the Housing Construction Development Facilitation Fund to the necessity of expediting the commitment and registration of land for the placement of new enterprises in the construction industry. These plots must be provided with the required infrastructure by all means. This will require a major effort. It is large-scale and expensive, but it’s worth it.

I’d like to remind you that regional housing construction programmes must be tailored to the plans to develop engineering, communications, and utilities networks, including gas, electricity and heat. Obviously, we must continue improving our legislation and reducing administrative barriers. I’d like you to complete your work on updating national standards in construction and the production of building materials.

It is necessary to invest resources in the future of the construction sector, develop designs and experimental facilities, attract business capital for innovation, and promote its early application. In this context, construction industry enterprises and research institutes must be integrated into a single chain for the purpose of innovation and production.

Let’s discuss all these problems. Mr. Basargin, please take the floor. Go ahead.

Viktor Basargin: I’d like to say a few words about our construction industry. Mr Putin, as you’ve already noted, this industry is very important – it accounts for 6% of the GDP and employs 8% of the country’s population. It consumes 25% of Russia’s steel, 14% of its aluminium, and more than 20% of its polymers.

You have already mentioned our priorities for the development of the construction sector.

First of all, this implies simplified administrative procedures, improved industrial and technical regulation, incentives for cost-effective construction options, expanded professional education and science, and incentives for the industry’s technical modernisation.

How are such administrative barriers being reduced? Current amendments to the Urban Development Code have reduced the term of specific deadlines for drafting territorial planning documents and initial informational documents from 12 to 4 months. We have compiled a classified list of administrative proceedings, laid the foundation for establishing non-governmental (independent) expert checks, and are ready to move further in this direction. It is our opinion that administrative barriers have been largely removed at the federal level. Such measures are expected to create a favourable climate in the construction sector.

A new pricing system based on resource models, the cost of materials, and construction price standards is being introduced in the sphere of industry regulation. We realise that the system is primarily being called upon to facilitate more cost-effective budgetary spending. Moreover, the system encourages competition. A week ago, the Ministry of Regional Development approved a ten-volume edition listing relevant standards, and another six volumes will be approved soon. We will complete this work in the nearest future.

We have teamed up with our counterparts from Belarus and Kazakhstan to approve a programme for bringing construction regulation documents up to European Union standards. This will allow for the creation of a common technological space and construction services market. Euro-codes can be applied already this year.  It will make it possible to open up the construction market to investors and to apply the best in foreign design solutions.

State standards and regulations are being upgraded. In all, 33% of 90 mandatory standards have already been upgraded, and the rest are being modified. As you have already noted, we will complete this work in 2011. Our self-regulating institutions have enabled us to accomplish a lot in this respect. Many self-adjusting organisations are quite cost-effective, and we plan to dispose of unjust agencies that prioritise permit sales before the year is out. The Congress of National Construction Workers’ Associations, due to be held this week, will identify new tasks in the construction sector’s development.

Mr Putin, we have briefed you on housing construction in Kirov. Regional plans are currently being implemented, and we are monitoring this process accordingly. Technically speaking, we are working on schedule. I would like to note just one aspect of our progress: the number of apartments commissioned in the first quarter somewhat exceeds planned volumes. We are also noticing expanded construction in economy-class housing.

Additional priorities have been charted. We are facilitating expanded lease projects. This is joint work conducted with the help of development institutions, the Agency of Housing and Mortgage Lending, and banks. Notably, this programme calls for the involvement of private pension funds. In our opinion, we are creating opportunities for public-private partnership, making it possible to increase population mobility and to employ skilled specialists in the construction sector. We believe that this issue should be examined separately.

As you know, we started building housing for deceived private co-investors on a stage-by-stage timeframe. We undertake to order and commission over 16,000 apartments for this segment of the population in the second quarter alone. A modern construction sector can not be developed without reinstating personnel training and industrial science. The State Committee for Construction used to have 120 industry institutes, and over a thousand more institutes worked on contracts in line with the entire standardisation system. However, only 30 such institutes remain to date.

We are trying to forestall the degradation of industrial science by accumulating scientific achievements and pooling them in the so-called RosStroiNauka (Russian Construction Science) association. But this process is still going on with great difficulty.

The ministry is also creating a system of using the local networks of specialised schools for retraining specialists and promoting online primary, secondary, and higher education. We will apply the potential of all 140 specialised schools. We are implementing this programme at the Moscow State Civil Engineering University, our specialised institute and scientific centre. This programme will then become a permanent part of the education system. We are involving all personnel retraining institutes in this process.

Much has been done to introduce new energy-efficient technologies and construction materials. Soft roofing and insulation materials are currently being manufactured on the basis of the best foreign equivalents. We are not importing these materials now. The heat insulation sector grew by 17% annually for almost a decade. The production of siding materials for construction and repair purposes continues to expand exponentially. The sector currently meets the construction industry’s demand for most product categories and also has reserve potential. Consumption of common roofing construction materials and structures is to soar 1.8 times by 2020, as well as 4.8 times over for wooden housing construction. The production of prefabricated reinforced concrete structures for load-bearing construction is to increase 2.2-fold. Given current development rates, we anticipate possible shortages in materials. Despite extensive production facilities, the Western Federal District will experience a shortage of heat insulation materials in 2013. All this can be seen on our slides, which show the main product range.

The Central Federal District already faces sheet-glass shortages. Most manufacturers can ensure cost-effective product deliveries over a distribution range of not more than 500 km. This weekend, we talked to the owners currently receiving us at this enterprise …

Vladimir Putin: I have read in the materials that their transport routes are up to a 1,000 km long.

Viktor Basargin: Yes, but, considering the bulky nature of such loads and the potential of our transport infrastructure, the optimally cost-effective routes are 80-100 km long.

Vladimir Putin: I’ve seen your posters reading “up to 1,000 km.”

Viktor Basargin: That is why we are currently having tremendous problems with the supply of construction materials. Transport costs match product costs on Sakhalin Island and the Kamchatka Peninsula.

Mr Putin, I would like to raise another extremely important issue that you mentioned. This country now has 210 prefab housing plants. Our colleagues have told us that Russia inherited them from the Soviet Union. Only 30 of them have state-of-the-art production facilities. Equipment wear and tear reaches 80% at all other enterprises operating at just 30% of their capacity. Despite these reservations, their products still do not meet the minimal current quality requirements. Naturally, their production facilities need to be replaced with mobile lines like the ones we saw today.

In our estimate, the prefab housing construction sector requires 200 billion roubles worth of investment. Mr Putin, we need at least 60 billion roubles to retool these enterprises until 2016. This will enable us to commission another 30 million square metres of top-quality housing and attain 100 million square metre targets by 2016.

The strategy for expanding the construction materials industry until 2020 stipulates the resolution of these issues. The strategy’s current implementation calls for overhauling the entire construction sector – not just maintaining current production facilities. We have already started compiling an open joint database on planned and incomplete enterprises, so that any investor could assess virtually guaranteed online demand for any specific high-profit construction industry products, categories, and production volumes. Considering the fact that over 90% of non-ferrous metal enterprises are privately owned, our strategy prioritises market incentives, industrial modernisation, and incentives for self-regulation, rather than budgetary funding. As you have already said, the “Housing” programme stipulates 21.7 billion roubles’ worth of budgetary allocations for compensating interest rates in 2011-2015.

At the same time, regional housing construction programmes stipulate the allocation of prepared sites for construction materials enterprises. As you have also noted, the Federal Fund for Housing
Construction Assistance now distributes construction sites that are required to have the appropriate engineering communications and infrastructure. We already know what facilities need to be constructed. We have now selected cost-effective housing construction technologies. In all, construction materials enterprises are to be built in 34 regions under our programmes.

Mr Putin, we have assessed the potential of foreign manufacturers who boast better technologies. The regions are to report by May 20 on their requirements for retooling the housing construction sector. Such information will form the basis of a request for a proposal that is due to be submitted to foreign companies. We will start implementing these projects before the year is out.

Mr Putin, as you have already said, the best foreign production facilities need to be relocated to Russia. I would like to note in this regard that all the foreign manufacturers we have contacted are ready to do so and could relocate 70-80% of their production facilities by 2017. At the same time, we are negotiating the construction of engineering plants that will manufacture production lines and equipment for the construction materials sector. We are prioritising the Central, Volga, and Ural Federal Districts, which are home to traditionally well-developed engineering sectors. The Ministry of Industry and Trade and our ministry should compile a list of construction technologies warranting a tax refund. The Tax Code now stipulates this possibility for energy-efficient technologies. This will enable us to retool the sector every five years in line with global standards.

All this is impossible without a coordinating centre. We have called it the centre of industrial prefab housing construction. This sector accounts for over 70% of housing construction worldwide. All the decisions have been virtually adopted, and the centre will be opened in the near future. It is called upon to coordinate the implementation of specific projects. If necessary, it will help regions obtain state guarantees, budgetary loans, and other state-support options.

This fall, we will hold an investment fair in St. Petersburg. The results of a tender among those regions that are creating the best investment climate and wish to build new production facilities in the construction industry will be announced at the fair.

Moreover, we have investigated the frugal use of production and consumer waste. The construction industry can now process a considerable part of national waste, using it as feedstock and fuel. This will contribute to environmental safety as well.

On the basis of our work, we have drafted proposals to facilitate the construction sector’s more cost-effective performance. Notably, we are now studying the issue of regulating import duties (you, too, have already mentioned this) and value-added tax on the machinery used to manufacture the industry’ equipment. We are now moving to reduce construction materials production costs while implementing  the “Housing” federal programme in remote regions. We can see two options here. First, this could imply reduced transport costs, and, second, the federal government could finance the construction of regional production facilities that would operate locally on inter-regional markets. The latter option seems more appropriate.

We also believe that the volume of allocations for the implementation of regional programmes including the aforementioned measures should be revised. Mr Putin, it turns out that the “Housing” federal targeted programme requires three billion roubles this year. Another five billion roubles are projected for 2013. But next year’s allocations are just 600 million roubles, or five times less. And we don’t want to lower this ceiling, all the more so as construction volumes annually expand by about ten million square metres.

We propose modifying the financial policy memorandum of Vnesheconombank to include industrial construction materials among the main priorities of the bank’s investment operations and to establish a separate bank division for dealing with the construction industry.

Moreover, we propose the establishment of a coordinating council to implement the entire strategy and all projects due to be launched in the regions. We believe that these measures, taken together, will allow the construction industry to remain a driving force behind the Russian economy and social services. We are asking you to support us.

Vladimir Putin: Thank you!

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Vladimir Putin's closing remarks:

This issue is very important indeed, since the pace of housing construction depends on it. What you said is true. But there are some social loans, in fact. Loans for socially protected population groups or special population groups protected by the government such as young families and some other categories, which are either supported at the regional level or through Vnesheconombank’s (VEB) system: the interest rate on the loan for these groups reaches 9.5%. The interest rate for some categories of borrowers is 9%, or 9.5%. In fact, the rate depends on the borrower himself: his income, stability and job, his loan history and so forth.

The main way to reduce loan rates, including mortgage rates, is to reduce inflation, that’s the most important thing. If we manage to achieve this and stabilise it, then mortgage rates will be reduced. I agree with you, Ms Aristova (referring to Lyubov Aristova, Samara’s Guild of Builders Board Chairman): an acceptable mortgage rate would be 5%-6%, that’s our goal, and we should seek to attain it. But I would like to remind you that inflation was 8.8% in 2009 and in 2010, that’s the lowest rate in Russian history. It has never been lower. Again, we will target inflation further, and, as the specialists say, we will suppress it. I hope we will achieve this in the near future. It depends on many factors. I will not repeat myself since we have discussed it many times: some economists and financial analysts believe that restraining government expenditures, including interest rate subsidies, is the main criteria. All of this is interconnected in a modern economy. The higher the expenditures, and subsidies are government expenditures, the higher inflation gets. But they say that there should be no need to subsidise anything, both life and the economy must gradually improve and everything will be put in order.

In terms of using the 40 billion, which you mentioned, we definitely need to think about this. This is a “safety cushion” for the construction industry, but this is possible in general. At the same time, I would like to draw your attention to the fact, that 40 billion roubles is a big amount, but not a crucial one. For instance, we’ve been allocating 250 billion roubles through Vnesheconombank. Some 250 billion! I would like to remind you that while we were overcoming the crisis and dealing with its effects on the market along with the work of financial institutions, the government made a profit: it invested money, helped enterprises, supported the stock market. And then it emerged from the downturn by selling shares, it acquired during the downturn, on the recovering market, including shares in Vnesheconombank. Both the government and Vnesheconombank profited from the crisis. And some 50 billion roubles, part of the profit gained, were allocated to subsidise mortgage rates there and then.

This produced definite results, but not crucial ones. We used to have a rate of 14.5% and even higher, and now we are at 12.5%, but you were absolutely right in saying that this is the national average. There are mortgages for 9% and 10%. I know for sure that Sberbank grants loans to its employees or those who work not far from it at a rate of 9%. The rates for those with a solid credit history are even lower.

But we need to reduce the general interest rate to 5% or 6%, we will be working to achieve this goal together. Thank you very much!

Unfortunately, we need to finish the meeting. We will deal with this issue right now at a Ministry of Finance and Ministry of Economic Development meeting and we will discuss these problems with them.

In conclusion, I would like to sum up. We discussed financial issues; Ms Aristova spoke about mortgages, issues connected with architecture, production, production of construction materials to be precise. In fact, these issues were touched upon during almost all speeches; we discussed the necessity to improve the so-called legal and regulatory framework, including Federal Law No. 94 and other standards, which were discussed. Mr Kazinets (Leonid Kazinets, Barkli Corporation Board Chairman) and Mr Shakkum (Martin Shakkum, Chairman of the State Duma Committee for Construction and Land Relations) spoke about it too, well, almost everybody mentioned these issues.

In fact, the strategy which we are talking about, and which will be implemented soon, was designed to clarify our priorities, the key problems we have to overcome to promote the construction industry in general. And construction materials manufacturing is the basis of this industry. If there are no modern construction materials, there will be no up to date construction.

Finally, I would like to say the following: this is important to the public, for the economy and for the entire country. And it is very important to promote these products in foreign markets, because we need to rely on more than just oil and gas. We need to promote equipment and construction materials. And if it is difficult to succeed in the European market, for example, then we can try the Asian or any other market, which are open to us. There are interesting and huge prospects there. And if construction is not included in state programmes as a priority, it is a big mistake, I agree with you.

We’ve touched upon personnel and we spoke about the importance of this. As I have repeatedly said, (and you are well aware of this): the industry can and must be high-tech. If this is not written down anywhere, then we’ll change that. Thank you for your cooperation!