Minutes of the beginning of the meeting:

Vladimir Putin: Mr Frank, we discussed several years ago that ageing ships were a major problem facing the national fleet. At that time, we noted the need to draft a fleet modernisation programme. Your company has adopted such a programme. What is the situation like today?

Sergei Frank: Mr Putin, the company is now summarising the results of its long-term development plan from 2005 to 2010. Our main objectives have been accomplished. In these five years, the company has expanded its fleet as much as fourfold. The corporate fleet now has a total deadweight capacity of 12 million metric tonnes. In the past five years we have risen from 17^th place to fifth place among major global ship-owners. As a rule, we now lead the way, occupying first or second place in our respective sectors. The average age of our tankers is six years. In effect, this is two times younger than the world average.

In the past five years, Sovcomflot has effectively become the fastest growing tanker company in the world. We are now reviewing the corporate investment strategy for the next five years. We have already balanced our investment programme, which will exceed $5 billion. And we are also tailoring it to ensure it meets the requirements of Russian oil and gas companies. These requirements are linked with specific objectives regarding the development of Russia’s continental shelf.

Vladimir Putin: How are you preparing for work in the Arctic?

Sergei Frank: This work has already begun. We are successfully working under the Sakhalin-1, Sakhalin-2, Varandei, and Prirazlomnoye projects. There is a very important detail that you have constantly prioritised: We must secure as huge an amount of contracts as possible for the Russian shipbuilding industry. In the past two years, we have signed contracts with United Shipbuilding Corporation to construct ships which will have a total deadweight capacity of about a million tonnes.

Just a few months ago, we won Exxon Mobil Corporation’s supply vessel tender for the Sakhalin-1 oil and gas project in line with United Shipbuilding Corporation’s engineering parameters, and construction is now underway on two rig-supply icebreakers, which will be the most advanced in the world.

Here is some other good news. We, along with United Shipbuilding Corporation and their production partners, have finished designing a unique methane tanker capable of carrying 175,000 cubic metres of liquefied natural gas. This fills Gazprom’s requirements for expanded global LNG spot trade.

This type of vessel and its specifications will also suit future projects at the Shtokman deposit and possibly an expanded Sakhalin-2 project. For this type of vessel, we and the Russian shipbuilders use designs that will allow the Russian shipbuilding industry to gradually relocate production to existing national facilities. We are counting on this very much.

Vladimir Putin: To what sites? Are they located in Russia’s Far East, or in European Russia?

Sergei Frank: There are basically two hubs today. One of them is the St Petersburg cluster, which comprises Admiralty Shipyards and United Shipbuilding Corporation’s partners. They have recently established a joint venture with their Finnish partners. This cluster is good for building specialised icebreaker vessels because historically it has always focused on this sort of technology.

It is our intention to build Aframax class ships – that is tankers smaller that 120,000 tonnes deadweight, and also gas carriers in Russia’s Far East. These plans depend on how geographically close our partners are, on the markets and the relevant production potential. Needless to say, this is complicated work. So far, the departments concerned have drafted legislative amendments which will help enhance the shipbuilding sector’s competitiveness. Of course, we would like them to be adopted and enacted. This would definitely help us.

Vladimir Putin: Mr Frank, what’s the make-up of your contract portfolio, the Russian shipbuilders’ contract portfolio?

Sergei Frank: Russian contracts account for virtually 50% of our current portfolio. At present, we are building ships of about a million tonnes deadweight.

Vladimir Putin: What’s the monetary value of these contracts?

Sergei Frank: These contracts are worth almost $1 billion. And if we can make a good showing with our gas carriers in the Gazprom tender, this would be a solid addition to these contracts.

Vladimir Putin: What, in your opinion, should be the specialisation of Russian shipbuilders in terms of the interests of freight carriers and your interests?

Sergei Frank: Mr Putin, if you allow me, I would like to start with what not to do. What is the segment which has no prospect of success. It is basic shipbuilding. It would be very difficult to compete in this niche, in this specification. Conversely, the entire range of products to develop the Russian Arctic with its harsh climate seems very promising. This includes supply vessels, shuttle tankers and drilling rig equipment. Our colleagues are now working in this field. We have supervised the construction of the Mikhail Ulyanov and Kirill Lavrov tankers. Their quality is very good. We are happy.

Vladimir Putin: Do they cost less than their South Korean equivalents?

Sergei Frank: Actually, our Russian colleagues build more slowly. But the price offer was far more competitive than that of their rivals.

Vladimir Putin: From the quality standpoint?

Sergei Frank: Yes, from the quality standpoint. The Mikhail Ulyanov and Kirill Lavrov are to conduct an experimental Arctic run this year. The analysts are hopeful that these vessels will show better icebreaking qualities than similar ships that were built in South Korea per our orders.

Vladimir Putin: What, in your opinion, should the government do to support the company?

Sergei Frank: First of all, we would like to see the enactment of legislative amendments to make the Russian shipbuilding sector and national shipping more competitive. The national ship-registration procedure for Arctic projects should be more competitive with regard to our …

Vladimir Putin: What exactly do you propose?

Sergei Frank: Specialised departments have drafted this bill, which is now being submitted to the government. This bill should simply be passed.

Vladimir Putin: What aspects do you consider critically important?

Sergei Frank: I think tax-related issues during the registration of Russian vessels are now critically important for us. Russian shipbuilders consider all production-cost issues to be critically important. First of all, this includes the cost of work and the size of social tax payments. Of course, these are larger than those of their South Korean and Chinese rivals.

Vladimir Putin: We are now considering this issue, and we will make the relevant decisions in the near future.