Transcript:

Vladimir Putin: Good afternoon,

First of all I’d like to congratulate you on the 350^th anniversary of Buryatia’s voluntary accession to Russia.

However, I’ve gathered you here to discuss concrete matters. A lot depends on your work, your discipline, talent and industry, your ability to work with people and your knowledge of modern economic realities. Much depends on people like you in your republic, your federal district and in the rest of the country. You are controlling the entire production process and employing thousands of people. I believe the aircraft plant alone provides work for as many as 7,000 people, which makes it a major player in the economy of the region and the rest of the country. Together with Vyacheslav Nagovitsyn (Buryatia’s president and head of the local government), I’ve also looked at the performance of other enterprises. Overall, they are doing well. Last year, the industrial production index was 22.9%, and in the first half of this year it is already at 13.7%. I’d like to congratulate you on this performance, because it means that not only the country but also your republic and your federal district are confidently overcoming the economic crisis.

I’m sure you’ll tell me now about your problems and I want to hear about them, in particular about the energy industry. Mr Nagovitsyn has just asked me why the government resolution on evening out energy rates has been cancelled so quickly. I’ll look into this upon my return to Moscow. I think we’ll restore this policy.

Let’s discuss the issues that concern us. There are representatives here from the industrial sector, retail chains and the energy industry. I’d like every one of you to give me a brief – for three to four minutes – on your company and the problems that concern you. My colleagues and I would like to better understand your priorities and what you would like us to pay attention to. I’ll give the floor to Sergei Savvateyev, the executive director of Buryatia’s Union of Industrialists and Entrepreneurs for some introductory remarks. Please, Mr Savvateyev, go ahead.

Sergei Savvateyev: Thank you, Mr Putin. I’d like to add that I’m also the head of the executive office of our region’s Engineering Union.   This is why I would like to start by saying that our business community has already held a series of meetings. We met with Igor Shuvalov and Viktor Tolokonsky (Presidential Envoy to the Siberian Federal District) last October. And we raised issues of significance to our republic. We saw those issues reach the attention of the country’s top officials, and we see their understanding.

Vladimir Putin: You mean that you are being heard in Moscow? Thank God. That’s good.

Sergei Savvateyev: I would like to draw the discussion to issues that are relevant for businesses in our republic as a whole. You already raised the issue of electricity tariffs. Indeed, in its executive order, the government included Buryatia in the list of Russian regions that will receive electricity on fixed tariffs. This allowed our businesses to start breathing more or less easily because the first bills received in January and February made our entrepreneurs shudder. That is why we would like to see the system currently in place extended. That is my first point.

The second point I would like to make relates to our businesses’ higher environmental costs due to our proximity to Lake Baikal. The head of the Selenga pulp and cardboard factory is here as my witness that this issue requires major investment. In all, judging by the indicators you just mentioned, our businesses work together to attain their goals. We have a constructive dialogue with Buryatia’s government and our parliament, the People’s Khural, and we protect the interests of our business community in the corridors of power. That’s about all.

Vladimir Putin: Thank you very much. Please, Leonid Belykh, executive director of the Ulan-Ude Aviation Plant.

Leonid Belykh: Mr Putin, I am chairman of the Engineering Union’s regional association and head of Buryatia’s Union of Entrepreneurs. First of all, I would like to thank you on behalf of the trade unions for your support at the conference in Togliatti. We are very grateful for the support you provided to the industry during the crisis, especially through government procurement. I was asked to mention it at this meeting with you on behalf of my colleagues. Naturally, we also want it to lead to results. That is why a meeting between the corporation and the Ministry of Defence is necessary. There seems to be no end of questions. It’s well known that to this day, government procurement orders remain exempt… But then everyone will put the blame back on the industry.

Vladimir Putin: We discussed this issue yesterday. Earlier today, I spoke with the minister. I will meet with him next week when I’m back in Moscow, and we will discuss it.

Leonid Belykh: I’m head of an aviation plant that manufactures Mi-171 (8AMT) helicopters and Su-25 fighter aircraft, which you once flew.

Vladimir Putin: Yes, it’s a good aircraft.

Leonid Belykh: For all intents and purposes, our production is well organised. We have a market and a good development rate. It is encouraging that our turnover reached 18 billion roubles in 2010, with a net profit of 4.5 billion roubles. The better part of 1.2 billion roubles has been set aside for reequipping our facility. We are buying new machines and equipment – we are refitting our production lines. Our biggest problem concerns our staff.

Vladimir Putin: How many people do you employ?

Leonid Belykh: Seven thousand. The problem is that institutes, especially commercial ones, prefer to educate managers, but what we need is well-trained workers on the production line. We face a lack of these specialists. It is easier to employ young undergraduates from vocational schools. So, the situation is rather difficult.

Vladimir Putin: Do you have direct contacts with any higher and professional education institutions?

Leonid Belykh: Yes, we have direct contacts, agreements, and so on. This is a common issue across Russia. Commercial institutes need to be better restricted – they prefer to give lectures in economics or law. That way, they bear almost no costs. But, as a result, their graduates – I don’t mean to offend anyone – are of little value.

Vladimir Putin: I understand. Anyway, which universities have you been working with?

Leonid Belykh: We have direct contacts with the East Siberian University of Technology.

Vladimir Putin: But you still lack specialists?

Leonid Belykh: In all, we have reached an understanding thanks to the active work of Mr Nagovitsyn (Head of the Republic of Buryatia Vyacheslav Nagovitsyn). 

Vladimir Putin: Yes, he is getting there.

Leonid Belykh: To be honest, we are overhauling the entire system of secondary education and now we are tackling the higher education and we’ve had some positive response. But the trouble is that Russia doesn’t have enough engineers. We do not train all kinds of engineers or electronic experts in Ulan Ude. We’d like to attract them from around the country but nobody has enough professionals because young people want to become…

Vladimir Putin: …business managers or lawyers.

Leonid Belykh: Yes, managers. As I represent business here, I’d like to raise the issue of electricity tariffs. We live close to Irkutsk but the conditions for us are not equal. In Irkutsk electricity is several times cheaper than here. Their goods are flooding out market.

Vladimir Putin: I see.

Leonid Belykh: Although we have environmental expenses and so on. And regarding business again, there should be a differentiated approach because the conditions for business beyond the Urals and here are vastly unequal. We must also try to keep local people from leaving the area because salaries beyond the Urals are higher than here. We absolutely must get some preferences. Tariffs could be differentiated as you’ve suggested: those who live further should pay a little less for a railway ticket.

Vladimir Putin: This is already the case. The decreasing coefficient of 0.5 starts with 1,100 km.

Leonid Belykh: These are our proposals. Maybe the others will come up with more.

Vladimir Putin: All right. Let’s hear from Andrei Medelyanov from Buryatenergo.

Andrei Medelyanov: Mr Putin, Buryatenergo, an affiliate of MRSK Siberia, fully supplies Ulan Ude and 21 districts of Buryatia with 110/35 electricity. The grid structure is such that in conventional units Irkutsk is ahead of us but only by 1.5 times. But our costs per conventional unit are 2.5 times lower than theirs – 31,000 as compared to 14,000. This is why I support Buryatia’s inclusion in the extended discount list for 2012-2016. This will encourage the growth of our industry and will help our investment companies reduce wear-and-tear that has now reached 73%. In this case we’ll reduce it to 53% in four years. We’ve drafted an investment programme with the Buryatian government. It includes effective projects that will attract loans and pay them off along with the interest in five years. Their participants may switch to RAB [Regulatory Asset Base] from 2012 to 2016.

There is one more issue that causes concern for us as power engineers: this is a network business, and apart from us, there are 25 network companies in Buryatia. We understand it is a strategic industry. It would be helpful if some requirements are made or adopted – at present there are no restrictions on anything. We are not afraid of competition but…

Vladimir Putin: You’ll have to operate separately.

Andrei Medelyanov: Yes, separately. We’ll supply several customers. But we are a strong company, a state-owned company, and eventually we’ll simply have to take this equipment. We are currently collecting it in the Kizhinginsky District, where it was used in a network company. It would be helpful to set requirements to network companies because we are a strategic industry.

We are ready to compete and, as I wrote in my newspaper articles, we understand that two or three strong companies, not 26, must be equipped with control centres and provided with good specialists and comply with all requirements.

Vladimir Putin: In other words, you are talking about consolidation. Good, I’ve put it down, we’ll think about this. Thank you.

Let’s see what is happening in timber processing. Mr Panshin from the Selenginsk Pulp and Cardboard Combine (SPCC), please go ahead.  

Alexei Panshin: Thank you, Mr Putin. I head the Selenginsk Combine, which is part of the Basic Element’s timber complex. As was mentioned earlier, our combine is located in a special eco-friendly zone and I’m proud to say that it is one of the few enterprises to have worked with a completely closed water cycle for more than 20 years. But this is easier for us than for the Baikal Combine because we don’t do bleaching. Our combine was built in 1971; it produces cardboard, corrugated cardboard and attendant products. We have 2,000 workers and our annual profit is not big – around three billion roubles. However, as distinct from the engineering industry, we have survived the crisis reasonably well because our products are always in demand, especially, packaging materials. The company is making steady profits but we need to develop it. We have clear stage-by-stage investment programmes. But our business is such that it is pointless to think of increasing production without having guaranteed rented forest resources.

Vladimir Putin: What do you mean? What’s the problem?

Alexei Panshin: I’ll explain what we have to deal with in the republic. The plan is to produce about six million cubic metres of timber per year. The present figures stand

at 2.5-3 million. The infrastructure is not developed, just as in other regions. In other words, the timber is there but it must be transported and there are no roads. We have to pay through the nose for the roads. Yes, today we have a programme. We have just drafted the documents on priority investment projects and submitted them to the Ministry of Industry and Trade. We want certain benefits on renting timber resources, that is, half of the rent without auctions and so on. But building roads is very expensive – one million roubles per kilometre. So we have timber and we don’t have it at the same time because it is far away. But in pulp-and-paper business it makes no sense to transport timber by lorries for more than 250 km. We don’t have ramified railways in the republic – in fact, we only have one, while the area is big and timber resources are far away.

What will happen if we transport timber by railway? We will see a regular, stable and implacable growth of railway tariffs.

Vladimir Putin: Can you transport it by rail?

Alexei Panshin: To some extent, but not everything. In some places we can take it to the railway and transport it by railway. Using lorries seems like an option but here we are facing another problem. Due to our location we must use a section of the M-55 Moscow-Khabarovsk federal highway in both directions, the west and the east. Highways in all regions do not allow us to use eighteen-wheelers exceeding 39 tons. That is an absolute paradox! It would seem I should…

Vladimir Putin: Do you have to use a section of this road?

Alexei Panshin: Yes, and this is a federal road. There are no other roads – Lake Baikal is on one side and Khamar-Daban on the other, and the federal road runs between them. Sotnikovo, a point on this federal road, has a weight-checking station. If I am to think about efficiency, I must buy equipment that carries not 30-40 cubic metres like our Kamaz lorries, but 60-70, in which case I’ll be immediately charged for exceeding the weight.

Vladimir Putin: In that case we’ll have to reinforce these sections of the road to prevent their destruction.

Alexei Panshin: Absolutely.

Vladimir Putin: We’ll think about this. Mr Levitin (Transport Minister) will give it some thought and will draft a proposal.

Alexei Panshin: This is what our neighbours in China are doing. When I asked them about weight restrictions, they didn’t even understand what I was talking about. “We carry 120 cubic metres, no problem,” they said.

Now the third question. We have an investment project and a programme and all that remains is to find the money. During today’s celebrations I met with people from Vnesheconombank. They said: “Everything is great but it’s less than two billion roubles, so we are not interested.” The first stage of our investment project is under two billion.

Vladimir Putin: Give the republic’s head…

Remark: And what about other banks?

Alexei Panshin: Other banks are ready to consider this but our company needs a long-term loan – for seven years or more because of the profit rate in this industry.

Vladimir Putin: Prepare a proposal.

Alexei Panshin: I have an alternative: Chinese investors have lined up. They tell us they need primary fibre because they use waste paper all the time; they have their own Chinese money at advantageous rates, and they say just let us in and we’ll do everything properly. So I have a choice – either to invite Chinese investors (and gain) or develop our economy – this is my dilemma.

Vladimir Putin: You shouldn’t put it this way because we must always develop our own economy. Questions must be raised professionally and you’ve just done this. We’ll think about it. Draft your proposals on the finances and the infrastructure. I know how our neighbours are developing their economy and production and let me assure you that they don’t break weight restrictions where they are in place. It doesn’t take a specialist to see the consequences – we’ll simply ruin the road and that will be the end of it. But we can strengthen some sections of the road – not the entire road but some of its sections where heavier loads must be transported. Let’s think about this and about the money as well. Now I’d like to hear from Mr Pruidze from the Baikal Forest Company.

Yevgeny Pruidze: Mr Putin, I’m the head of Baikal Forest Company. In winter we employ about 1,000 people. We are a full-cycle operation that includes tending the forest, harvesting and sawmilling. We have two sawmills, and we are currently implementing an important forest exploitation investment project in the village of Ilyinka, Pribaikalsky District. I hope that this year we will complete a new sawmill that can be rightfully described as a state-of-the-art mill of the fifth generation. This will be a fully automated facility with the capacity of about 0.5 million cubic metres of raw materials that will manufacture dry palletised dressed lumber.

The total amount of investment ran into about 3 billion Japanese yen. We secured a loan using guarantees provided by Baikal Bank and Sberbank. Based on these guarantees, the German Commerzbank AG issued a loan in the Japanese yen to us. Why yens? Because the rate was very cheap. We got this money at the peak, when the yen was expensive. Today, it’s falling for the reasons we are all familiar with. We hope that we will be able to pay it back in roubles, because we’ll be able to pay less then. This is my first point.

I would like to emphasise that the forests haven’t been managed for over 20 years. We don’t have objective information about the forest make-up or lumber quality. We have purchased the eight-channel satellite image from the US Golden Digital company with the resolution of 0.5 metre (from infrared to ultraviolet) in order to scan and figure out the forest make-up. We have built a sort of a layered cake, as we call it, based on the military maps with a 1 km resolution and overlaid it with satellite images. Between them, we have inserted descriptions and forest maps.

We ran into technical and technological problems when we tried to put everything together using one system of coordinates. The Skanex company from Moscow helped us address this problem. We are now in the final stage of this work. What else did we learn from this? To help you get a better idea of what a satellite image looks like, I can tell you that you can see a standalone tree or a tire track.  We can use this information to fully understand the forest composition.

We noticed a very interesting thing this year. Each morning Skanex sends us forest fire information for all Russian regions, and we can track everything on our maps, because they are as detailed and accurate as it gets. Perhaps, the Defence Ministry has better ones, but we are the only civilians with such detailed satellite images. If there’s a forest fire, we can instantly locate it and think of ways to put it out. We had two fires this year, but we managed to suppress both in a matter of 24 hours.

Here’s the question I wanted to raise. To be sure, it’s beyond my competence and has more to do with the state structure. Mr Putin, I believe everyone in the room is grateful to you for having pulled Russia together in early 2000s. That was the right thing to do. However, recently we ran into a situation where many federal bodies in the regions (except the prosecutor’s office, and security and law enforcement agencies) that are supposed to provide oversight are in fact engaged in something that’s can’t be easily explained. Their respective ministers are far away in Moscow. Local governors aren’t authorised to talk to them on a proper level. President Medvedev mentioned recently that we should look into our government structure. The reason I brought this up  …

Vladimir Putin: We are talking about decentralisation.

Yevgeny Pruidze:  That’s right, decentralisation. Back when you started to work in early 2000s, there were still leftovers of unchecked freedom, the legacy of the 1990s, when the governors were elected officials… Today, we have governors approved by regional parliaments, but still governors are appointed by the federal government. Perhaps we should expand the governors’ authority, put more trust in them…

Vladimir Putin: Some time ago we delineated the powers and we are prepared to get back to it and see what we can delegate to the regions additionally.

Yevgeny Pruidze:  Certainly, that’s not my area, I’m a businessman, but I run into this on a daily basis…

Vladimir Putin: No, no. Listen, I wanted you all here in one place so as to able to hear about your everyday problems. Not just talk about them, but address them accordingly.

Yevgeny Pruidze: The times of unchecked freedom are gone, and all the governors are now in the Federation Council. Bluntly speaking, they are appointed officials, at least by half. They are responsible and smart people. The issues that we have here in the region can be better tackled by Mr Nagovitsyn than by someone from the Moscow-based Federal Service for Veterinary and Phytosanitary Supervision. How did we run into this problem? We harvest lumber in the Yeravninsky District, eastern Buryatia. Our sawmill is located 400 km away from that place, and we first have to take the wood to Ulan-Ude and then to the sawmill. The transportation was costly, so we built a road connecting our operation with the railway at Mozgovaya station. We built a transshipment base there and put in four cranes. We have also bought 150 cars for this purpose. Enter the federal service. We obtain a quarantine certificate in Ulan-Ude, take our wood to Chita, and the Chita branch of the Federal Service for Veterinary and Phytosanitary Supervision asks us to produce the guarantee certificates again…

Vladimir Putin: This is strange, because the point is in using the oversight by a federal service rather than by regional branches. If each regional federal body starts asking for additional papers…

Yevgeny Pruidze: This was our experience…

Vladimir Putin: This has more to do with poor organisation of work by this service rather than delegation of powers.

Yevgeny Pruidze: Mr Nagovitsyn spoke with the Federal Service for Veterinary and Phytosanitary Supervision recently. These are obvious things lying on the surface; we can see them, too.

Remark: I met with them in person. They promised to look into it, but haven’t done anything so far.

Yevgeny Pruidze: I hope that we will be able to complete the investment project by December (total investment of 2.5 billion Japanese yen). We would like to invite you to come and see it. It’s a good modern enterprise. Please come see us in December.

Vladimir Putin: Thank you very much. Let’s see now how things are going in agriculture. Please go ahead, Mr Radnayev.

Anatoly Radnayev: I serve as general director at Moloko Buryatii company. I also have a second job as chairman of Buryatia’s Dairy Union comprised of 12 processing plants and about 20 dairy farms.

Vladimir Putin: So you have both producers and processing facilities?

Anatoly Radnayev: Yes, both. First of all, I would like to thank you for your support of agriculture. We can see and feel this support on a daily basis. As you know, Buryatia has always been a cattle-breeding republic, and in addition to dairy products we also engage in meat packing, the evidence of which you have probably seen at breakfast…

Vladimir Putin: I haven’t had breakfast yet.

Anatoly Radnayev: …that’s a staple for Buryats. We revere this food and serve it during holidays with milk and dairy products. Mr Nagovitsyn, Mr Putin, I would like to draw your attention to how agriculture is being supported in our country. In 2009, our republic received 670 million roubles under two agricultural programmes. We purchased tractors, water sprinklers and other cutting-edge equipment using this money. Our republic was hit by last year’s drought as all of Russia was, so it could not reach its targets, and federal grants were cut almost three times, accordingly. We do not know yet what funds the federal Agriculture Ministry has earmarked for us this year. The food processing industry benefited greatly with allocations for 2009. Particularly, dairy product output increased by 183% and met a major part of domestic demand. Now, we are approaching last year’s indices. A greater part of federal grants goes to purchasing new equipment. The present wear and tear of farm machinery is no secret to anyone. It is high time to upgrade agriculture through state-of-the-art technology.

Vladimir Putin: Did you manage to preserved cattle?

Anatoly Radnayev: It’s presently a fifty-fifty arrangement. We get half of the milk from cooperatives and state farms and the other half from private suppliers.

Vladimir Putin: Have you arranged milk reception from private farms?

Anatoly Radnayev: Yes, we have enough milk receiving centres. Every major town has an industrial refrigerator, and milk tank trucks come every day.

Vladimir Putin: What is your purchasing price?

Anatoly Radnayev: The summer price for cooperatives and state farms is currently 14 roubles a litre. It’s more expensive in winter. The seasons are the biggest problem of Russia’s dairy processors. As for private farmers, we buy milk from them at 11 or 12 roubles a litre.

Vladimir Putin: Why the difference?

Anatoly Radnayev: See, major farms supply top grade milk. Naturally, it’s more expensive. Private farmers’ milk is somewhat inferior, with ample room for improvement. At present, we have 9,000 households and 17 big farms to supply us.

Vladimir Putin: So, you say, private farmers supply half of your milk. That’s a lot.

Anatoly Radnayev: Yes. It’s the aftermath of the 1990s. Now, Mr Nagovitsyn [president of Buryatia] is working on the establishment of large farms.

Vladimir Putin: Is your business new?

Anatoly Radnayev: No, it was established 55 years ago.

Vladimir Putin: An impressive record. Are new dairy factories appearing?

Anatoly Radnayev: Yes. The districts, including remote ones, are developing primary milk processing on budget grants.

Vladimir Putin: Do they have modern equipment?

Anatoly Radnayev: Yes, but these are small facilities, mere mini factories.

Vladimir Putin: But they implement cutting-edge technology?

Anatoly Radnayev: Yes.

Vladimir Putin: I see. As for Agriculture Ministry grants to Buryatia, I will discuss the matter as soon as I get back to Moscow. I’ll see what’s happening and why the republic does not know the amount of grants to this day.

Remark: We have preserved all of our cattle and so are entitled to a 190 million rouble grant, starting with the 3^rd quarter. Money may start coming even tomorrow – I mean the bonus for cattle survival.

Vladimir Putin: Out of a total five billion roubles?

Response: Yes. Mr Radnayev is uneasy because programme targets were set for the period up to 2012, while we could not cope last year due to the drought. But then, we received emergency relief grants, so we see that the federal authorities acknowledge our problem. So you first help us with money and then punish us for the same misfortune by cutting programme allocations.

Vladimir Putin: You mean the same indices are concerned?

Response: Yes.

Vladimir Putin: I’ll see. I’ll talk it over with Viktor Zubkov.

Mr Solyanik from the Ulan Ude instrument making factory has the floor.

Sergei Solyanik: Mr Putin, our company manufactures 178 kinds of avionic instruments.

Vladimir Putin: But it isn’t avionics alone – you also cater for the auto industry, don’t you?

Sergei Solyanik: Yes. We supply all Russian aircraft-building factories and have several clients abroad. We also make robot pilots for anti-ship cruise missiles and pre-launch preparation equipment for heavy ships and all types of submarines. I am speaking in such great detail because we have a problem with the Defence Ministry.

We have had clashes with it for several years now. I did something unprecedented this year. I refused to sign the state defence contract with a client – the ministry naval department – for a simple reason. Our company has two teams to monitor avionic systems at the Northern and Pacific fleets from May 1 to Nov. 1. The job doesn’t pay any longer because the ministry has put a choice before us -- either we accept its terms or it does not admit our experts to the sites. The terms are ridiculous – 100 roubles per diem plus 500 roubles for expert accommodation. Just think, the people there suppose one can manage with 500 roubles in the Northern Fleet cantonments. And what’s 100 roubles? The price of a cup of coffee! So I did not sign the contract, and I don’t expect anything good for the company now.

There’s another problem – price formation. There are three pricing rates for military-oriented commodities now due to all of the kinds of adjustments made by the Defence Ministry. Its experts take only deflators into account when they revise prices. But then, deflators make up a mere 60% of actual inflation, so the industry can’t pay its way. My company’s profitability made a miserly 3.6% last year, according to the Jan. 1 estimate.

Why do I think it’s a big problem, you may ask? The thing is that you will soon sign a federal targeted programme for the development of the military and industrial complex for the period up to 2020. It will be launched in 2012. Our company went through Rostekhnologia feasibility studies for a contract worth 790 million roubles. However, federal targeted programmes envisage that involved businesses fund 40% of the costs from their own accounts, the state providing the other 60%. However, my factory cannot afford these 40% with its negligible profits. We barely keep afloat. When I described the problem to Viktor Tolokonsky (presidential envoy to the Siberian Federal District), he made me face the Military Industrial Commission in Moscow last March.

Vladimir Putin: We know the position of the Defence Ministry, and we see its point. The customer is always after the lowest possible prices while the seller (military and industrial companies, in this instance) wants to have the highest there are. The Defence Ministry is harping on industrial price hikes, and assumes that manufacturers are bloating the prices. What we need is precise and economically substantiated pricing standards. We will talk about this with representatives of the industry and the ministry. As for profitability, it should be no less than 15%. Otherwise, the job isn’t worthwhile. That is the government position, and the Defence Ministry does not argue with it. With your present profits, you will be unable to fund the 40% that is a mandatory condition for participation in the programme. On the whole, we have earmarked grants to guarantee the work of such businesses as yours. As you know, the programme envisages huge allocations – 20 trillion roubles for the state armament programme plus 3 trillion to re-equip defence industrial companies. It concerns trillions of roubles, mind you! But then, we are also uneasy as the 20 trillion might be wasted.

We should not merely use 20 trillion roubles, but spend the money on state-of-the-art weapons systems. We need a number of missile installations, ships and aircraft sufficient to guarantee Russia’s adequate defence capacity. We will certainly return to it, and more than once. As for the government defence contract, you did not sign agreements on naval inspections. But what about other fields the contract concerns?

Sergei Solyanik: We are doing fine, with a 128% output increase.

Vladimir Putin: Congratulations!

Sergei Solyanik: Last but not least, I asked during a Military Industrial Commission meeting that I attended, just why the Defence Ministry is painting everybody black. Check my work, after all, and if I prove to be a swindler, then I am ready to face the firing squad.

Vladimir Putin: The Defence Ministry cannot have you shot. We are in a democratic country with a dynamically developing judicial system, so shootings are out of the ministry’s rights. Its powers include purchases of special equipment. The ministry people should supervise its quality, and guarantee relevant funding, and decent profits and salaries at subcontractor companies. That is a duty we all share. I reiterate that the government insists on a 15% threshold profit. But on the whole, 128% is fine. Is work underway in your principle fields?

Sergei Solyanik: Yes. Mr Putin, I implore you to interfere in price formation, considering that a meeting will be held in Moscow on this issue on July 7.

Last but not least, the director of the Ulan Ude aircraft building factory and my company are uneasy as the Defence Ministry is drastically cutting, by 60-70%, the number of military representatives at defence industrial companies according to its recent directive. We would see its point if alternative inspection bodies were established, but there are none for today.

Vladimir Putin: You mean acceptance commissions?

Sergei Solyanik: Yes. The acting regulatory framework does not envisage any other option while drastic personnel reduction is going on. The commission at my factory works three shifts but still isn’t coping – and if they dismiss 60%, who will inspect our production?

Vladimir Putin: I see. The reason for personnel reduction is clear – the ministry is cutting money wastes. The efficiency or inefficiency of military acceptance commissions at industrial enterprises is a separate topic. Regrettably, we know many instances of equipment failures, and substandard items supplied to the Armed Forces and even exported. We know problems connected with equipment requiring long preparations and testing before it is accepted. Military acceptance commissions often don’t cope with their duties – I don’t mean that it’s always the case, but we know this. Otherwise, we would not have such frequent complaints. However, all of this does not mean that military acceptance commissions should be entirely cancelled. We will certainly look into the matter.

Sergei Solyanik: We pay them 1% of our sales revenues. Take this year. There are 30 people on the acceptance commission now. I pay them 128 million roubles – a sizeable sum...

Remark: We should change the rules. Let the manufacturers do the checks themselves. That’s possible, but the rules are so strict that they cannot start assembling a machine before the commission hasn’t stamped even a single component. That’s how production gets to a standstill.

Vladimir Putin: What problems do we encounter in high-tech production? Practically all equipment is high-tech now, with a great many parts, and requiring suppliers and subcontractors galore. Much is still to be done for the entire system to work smoothly and efficiently at every stage down to the end product.

Sergei Solyanik: But then, Mr Putin, we are not after bloating personnel. On the contrary, we think that production should develop through innovation techniques and equipment. Be all that as it may, we pin our greatest hopes on federal targeted programmes. If they work and we meet their targets, the military industry will rise to a thoroughly new level. That’s all I wanted to say.

Vladimir Putin: That’s just what we need. Thank you very much.

Mr Khudorozhko from the railway repair factory has the floor.

Viktor Khudorozhko: Our factory repairs locomotives and cars. Ninety-five percent of the orders come from Russian Railways. We employ 6,000 people. Production has increased by 12% since last year. We have three production areas – locomotive repairs, car repairs and thermo-mechanical production. The work is distributed unevenly. We have a great many orders for locomotives while the number of orders for car repairs has shrunken by half. The problem is due to Russian Railways massively purchasing new cars. Their overhaul life will be much longer. We feel it even now. So we have shifted emphasis on locomotive repairs, with sophisticated techniques, and we are groping for the solution of our problem. More than that, our equipment is worn out.

Vladimir Putin: Equipment at your factory?

Viktor Khudorozhko:  Yes. The factory has just gone through a reform with no investments to speak of. That’s why we have all of these problems. Now, however, we are working on three programmes. We will develop wheel manufacturing, metal casting and locomotive production.

We are concerned with environmental issues. The factory previously had a gas-generating station working on coke. About 80,000 tonnes of carbolic acid-rich waste is still at the factory. We are monitoring the situation and know that the waste is penetrating subterranean waters soon to reach Baikal. I told Mr Tolokonsky about it yesterday. We cannot afford to remove the waste. We pay environmental protection taxes fully and on time, and I dare ask for help with the problem.

Vladimir Putin: Good, thank you.

Mr Slipenchuk, will you speak about trade and tourism at once?

Mikhail Slipenchuk: Yes, Mr Putin. Allow me to introduce myself.  My name is Mikhail Slipenchuk. I am a deputy of the Yeravna District of Buryatia, where the Baikal Forestry Company works. I head the Metropol corporate group and led the council of trustees of the foundation to protect Lake Baikal. As I told you on Aug. 1, 2009, our group activities focus on investment in the finance sector, construction, tourism and mining. Honestly, I will not ask anything myself. I just want to raise several issues that I don’t think can be addressed anywhere in this country without your assistance.

The first problem concerns transport. There were blueprints in the Soviet era for a junction between the Baikal-Amur and the Trans-Siberian railways on the Mogzon-Uoyan railway line, which is 700 km long. The line would reduce the load on the Baikal-Amur Railway and promote the development of the Udokan copper deposit. Incidentally, our group also possesses a deposit there, so we would benefit greatly. At the same time, the new railway would promote the development of a huge number of mineral deposits in Buryatia’s fabulously rich east.

There is another problem – energy. I dare propose an unconventional solution. The Irkutsk Region possesses low-cost natural gas while Buryatia has none at all. A pipeline would be very expensive and possibly ineffective if laid on a circumferential route. But I contacted some members of the Academy of Sciences as the foundation’s president, and I learned that it is technically possible to build a pipeline across Baikal.

Vladimir Putin: Of course.

Mikhail Slipenchuk: Gas is environmentally friendlier than oil. Besides, we came across a tremendous amount of gas hydrates on the Baikal’s bottom. They are wasted rising to the surface and vaporising.

Vladimir Putin: Yes, I know. I saw it with my own eyes.

Mikhail Slipenchuk: Such production would give an impetus to the development of Buryatia and the entire Transbaikal region. There is another idea. When I recently talked to the Mongolian president, he said that their capital, Ulan Bator, is literally choking. Its million-strong population heats homes with coal and rubber. They never have a gulp of fresh air in winter. If we make a branch of the pipeline to Mongolia, a huge cluster of problems will be solved.

As for environmental problems, there is no centre to manage the regulation of Baikal. Fifteen related offices might coordinate their activities at the federal level, but they pursue quite different goals. It is necessary to give up the prohibitive system for a permissive one with permanent monitoring by an agency that would pursue an explicit regulatory policy. This problem concerns many departments and sectors in the Baikal country.

Where the tourism industry is concerned, short-range aviation is the worst of all its problems. The regions are willing to establish routes between them in principle, but the local population cannot afford such flights with its preponderantly low incomes. Federal subsidies for interregional airlines would spur the development of short-range aviation, and one would no longer need to fly from Tomsk to Ulan Ude via Moscow. That’s what I think.

Vladimir Putin: We have established fare reductions since April 1 for residents of Buryatia younger than 23 and older than 60 for flights to Moscow.

Mikhail Slipenchuk: If one travels by air, say, from Moscow to Chita or from Tomsk to Ulan Ude, one has to make two changes on route to Novosibirsk or fly via Moscow.

I have another proposal, which might seem surprising. The Baikal pulp-and-paper combine is a hackneyed topic. The issue was discussed again and again with water and air tests. The sheer outlook of the facility makes one suspicious of lake cleanliness. That’s the only thing that might make my idea appear implausible. This is what I propose – amend the law on gambling areas and establish a gambling and sightseeing area in the vicinity of the combine. That would settle all of the local employment problems.

Vladimir Putin: Listen, we have decided to establish a gambling area in the region, as it is. Now, it is up to the regional authorities to decide where it should be.

Mikhail Slipenchuk: Mr Putin, allow me, by way of conclusion, to invite you on behalf of all hydronauts to their assembly here next autumn. We will be grateful if you find the opportunity to come.

Vladimir Putin: Thank you for the invitation.

Do you have something to say, Mr Bazhenov?

Anatoly Bazhenov: I am the manager of a factory manufacturing fans for MI-8 helicopters. Local aircraft builders need only 25% of our output, so we have to find customers for the rest. I would like to say a few words about obstacles on our way to exports. We address these problems and solve them. But every time we make a contract with Ukraine, China, Kazakhstan or any other country, we have to obtain a permit from the Defence Ministry. We have been exporting our fans for more than 15 years now. We have never had a direct prohibition, in principle, but we waste four to six weeks every time we export a batch – whether one set or a hundred. There is something else – currency control is extremely bureaucratised.

Vladimir Putin: What do you propose to do about it?

Anatoly Bazhenov: I don’t know, but I think our fans should be let through customs.

Vladimir Putin: But defence-related equipment will never get through the customs.

Anatoly Bazhenov: It isn’t defence-related! Our fans are for civilian aircraft.

Vladimir Putin: Civilian, you say? What has the Defence Ministry to do with it, then?

Anatoly Bazhenov: They keep the matter in check just for precaution’s sake.

Remark: The fans are for dual-purpose helicopters. They may be used by civilian airlines and by the Air Force.

Vladimir Putin: Dual-purpose, I see. All the same, we’ll think how to disentangle the red tape.

Anatoly Bazhenov: Thank you.

Vladimir Putin: In principle, we can remove bureaucratic obstacles where parts necessary for repairs and suchlike are concerned.

Anatoly Bazhenov: It’s really possible. Meanwhile, however, the matter is desperately bureaucratised. The same concerns currency supervision. We have to make a notification that our cargo has crossed the border before the 15^th of every month. If we make it on the 16^th or 17^th, the company is fined 40,000 roubles. The same concerns timber exporters.

Vladimir Putin: You have no time even to receive a relevant notification from your clients abroad, right? That’s a problem all exporters share.

Anatoly Bazhenov: Some people here even make money on it.

Vladimir Putin: I see. We should cover all possible angles. Discipline might be fine, but we should take every situation into account.

Mr Bredny, is yours a commercial company?

Vadim Bredny: I am the manager of Titan traders. Our company also has interests in manufacturing. I would like to say a few words about exports. Mongolia is close by, and we have for many years exported Russian foodstuffs to that friendly neighbouring country. Regrettably, the Russian presence there is steadily decreasing. We are doing much for Mongolia, but the share of Russian foodstuffs and other exports is shrinking. I know the business from the inside. All traders say it’s hard to deal with Russia, so they prefer to have transactions with China, Korea or even Europe. It’s more profitable to make purchases there. On behalf of all manufacturers and surely my own, I call your attention to the fact that we should not overlook Mongolia.

Vladimir Putin: What’s the problem?

Vadim Bredny: Russian trade representations should take part in the job.

Vladimir Putin: What do you think should they do? Clean roads or what? What changes do you require?

Vadim Bredny: To get in touch with the Chamber of Commerce and Industry, and simplify visa arrangements.

Vladimir Putin: Mr Bredny, just say precisely what changes you want.

Vadim Bredny: Why, there are objective and subjective factors…

Vladimir Putin: Precisely what?

Vadim Bredny: We would like the federal government also to help us…

Vladimir Putin: Just what can we do for you?

Remark: Establish a visa-free regime?

Vadim Bredny: We use the green corridor. No one is offering us a visa-free regime.

Vladimir Putin: Visas have nothing to do with it.

Vadim Bredny: There are problems with the customs people. The formalities are too complicated and take too long.

Vladimir Putin: So it’s a problem of customs clearing?

Vadim Bredny: Possibly, I cannot put it all explicitly enough. There are major problems elsewhere, too, but we see the reasons as being rooted in customs clearing and in the Mongolian arrangements. It’s necessary for the Russian government to be involved in commerce.

Vladimir Putin: So you ask us to influence Mongolia for more liberal relations with Russian businesses? Have I got it right?

Vadim Bredny: This too.

Vladimir Putin: We will work on it now. See, Mr Bredny, why I am being so hard on you and what I want? I want you to help us, as we take stock of your problems. Whenever we meet with them, they say that everything is okay and they are content. We are also content, but you are not. We want to know exactly what is bothering you.

Vadim Bredny: Why, there’s a problem. Let’s address it together and change the situation.

Vladimir Putin: Let’s do that. Just go on. We are interested. We have ample experience working with Mongolia. Our trade is growing. But if you say that there are some practical obstacles… After all, we have gathered today to find out the root of your problems.

I am extremely grateful to you for this businesslike discussion of current problems because the end result of our work together depends on their solution. 

I have made some notes here. We will surely see them in Moscow. My colleagues have also been taking notes. Mr Kudrin, for one, made a note on currency control. There are people here on whom the solution of these problems depends, but not all such people. That is why we will gather in Moscow again for another discussion. Mr Nagovitsyn, please sum up everything our colleagues have said.

Thank you very much for your work, achievements and spirited attitude. I congratulate you once again on the red-letter date. Thank you very much.

***

After meeting with top managers from various production facilities in Buryatia, Vladimir Putin spoke with Ulan-Ude residents who were waiting for the prime minister at a city square.