Transcript of the beginning of the meeting:

Vladimir Putin: Good afternoon, colleagues. First, let's exchange current information. There is some positive news, which we will get to in a moment, but there is also something alarming. Earlier this year, in March, we transferred money to regions for them to repair inner yards and adjacent territories. According to information available from the Ministry of Regional Development, only 17% of yards and 15% of access ways have been repaired as of September 1 (this work, by the way, is supposed to be completed in November). Is this the case?

Viktor Basargin: Mr Putin, allow me to remind you that the total financing of the Yards Improvement Programme is 26.6 billion roubles. We have signed agreements with all regions. As much as 80% of the financing is provided by the federal centre, and 20% by the regions. We have held tenders in all regions, and there are 1,590 contracts. We have even saved about 900 million roubles, and put it back again towards the same purpose. But, indeed, only 7.7 billion roubles has been spent. Some regions are working in advance of the deadline with these contracts -- a deadline that we set for November 1, 2011, because this is seasonal work. The regions that are ahead of schedule include Kabardino-Balkaria (91%), the Ivanovo Region (91%), the Altai Territory (88%), Chukotka (70%), Moscow (almost 70%), the Krasnoyarsk Territory (66%), the Saratov Region (60%), the Samara and Kursk regions (60% each). But unfortunately, we also see that a number of regions are not carrying out the programme as quickly as we would like them to. Five regions have officially notified us that they will not be able to complete the work until December. And it looks as though 15 regions are lagging behind schedule and will also not complete the work before November 1.

We are keeping track of every aspect of the way things stood before the work began – I have brought this album with me on purpose – and what will be there after the work is completed. In other words, we are monitoring the situation in every region and in every yard, and we are ready to report to you weekly on the progress.

Vladimir Putin: This is outrageous! Are you, government and ministry officials, going to hang out around yards? This is a task for regional and municipal authorities. They have received federal money by way of exception, as we say in such cases. It is one-time assistance; there are many regions that are having problems, and this is about the areas where people live, so it is actually meant to provide direct help to people, and not to officials. But officials have to get moving a little. You know what? Tell me where the situation is the worst. Let's redistribute the money in that case.

Viktor Basargin: Okay.

Vladimir Putin: And we will release information so that people would know how their local authorities are acting. We will redistribute it in favour of those who actually want to resolve these problems. They have been given the money, so that they don’t have to go looking for it.

Well, yes, there is some co-financing but they have signed all those documents, they have put their own signatures there, they have signed the contracts.

Viktor Basargin: I’d like to say that this programme was intended to reach more than 18 million people. We are talking about 3.2 million flats. We are now conducting acceptance inspections on flats in a number of administrative centres. Members of the public are directly taking part in these procedures.

Vladimir Putin: Now that’s what should be done.

Viktor Basargin: We have encouraged all municipalities to start drafting programmes on landscaping and public amenities.

Vladimir Putin: Good. This is a good idea. It is important to spend the funds rationally, to achieve tangible results, and let people see the results. Let me repeat once again: regions that have not moved an inch on this front, regions that have not done anything on this score should submit their proposals on redistributing these funds.

Viktor Basargin: Will do.

Vladimir Putin: There is also good news. When we drafted the budget for the current year, we assumed it will have a shortfall of about 3.6%. Is this right, Ms Nabiullina?

Elvira Nabiullina: Yes.

Vladimir Putin: Three point six percent. Based on the data that the Finance Ministry is giving us, we can conclude that this year, we are likely to get by without a budget deficit. I’d like to ask Mr Kudrin to discuss this in more detail.

Alexei Kudrin: Mr Putin, esteemed colleagues, we can sum up the results for the past eight months. We have received 7.2 trillion roubles in revenues – 70% of the annual target that we have planned and even adjusted in June. Our expenses are 6.5 trillion, or 60% of the approved annual amount. After these eight months, we have a surplus of 760 billion roubles because at the beginning of the year we have smaller expenses than in the latter half. Projects are often completed and accepted towards the end of the year.

But today we can make the forecast for this year as a whole because the Ministry of Economic Development has submitted its growth forecast for this year and we can complete the calculation of corporate profits, gross payroll and all other taxable items (including imports and exports). Thus we can make a tentative forecast of the year-end position. It shows that this year we will receive an additional 704 billion above the amount we planned and specified in June. Out of this amount, 202 billion are linked with oil prices (with higher expected oil prices), and half of the remaining 502 billion will be received owing to better VAT administration and collection.

The Federal Tax Service took a series of measures to toughen the VAT administration. Now we can feel the results, and we even receive fewer applications for VAT refunds. This shows that not all of them were justified. As before, some of them were struck down by courts, but today we are simply getting fewer of them. We think this is part of the solution. But the economy is also growing and gives us tangible additional VAT in many fields. This is why we can forecast good revenues now.

Consequently, if we receive these revenues and spend what we planned, we’ll have a balanced, deficit-free budget by the end of the year. If we can save on spending or revenues turn out to be better than expected, we may even have a surplus, but right now we are planning to have a budget without a shortfall.

Vladimir Putin: Revenues and expenses will be about 11 trillion, is this right?

Alexei Kudrin: Yes. Exactly 11 trillion of revenues versus 11 trillion of expenses.

Dmitry Kozak: Okay, this is good. Mr Kozak, could you tell us about preparations for winter please? I know you’ve dealt with this in St Petersburg.

Dmitry Kozak: Yes, this Sunday we had a conference. But I’d like to speak about the country as a whole. In the middle of this summer, we reviewed the intermediate results of the preparation of energy facilities and public utilities for the autumn and winter of 2011-2012. The government had a teleconference with all regional governors and determined what measures must be taken to prepare all facilities for winter in a timely manner. As of September 1, the adopted measures have enabled us to step up preparations as compared to last year (and last year we prepared for the winter better than the year before). The rate of preparation for winter is higher today – as of September 1, various infrastructure facilities are 88%-95% ready, and we are confident that by November 15, when the preparation period will be completed as planned, the regions will be ready for winter.

We have drawn lessons from the abnormal weather of the past year, including icy rain. The Energy Ministry has taken appropriate measures – we have changed the legislation on clearing forests for firebreak strips. There was an abnormal snowfall in St Petersburg… So we had to check everything in the city because by the middle of summer it was lagging behind in winter preparations. We held an on-site meeting on Monday with the new governor. The standards of the provision of housing and utilities with equipment will be changed – they will be designed to deal with more precipitation in winter than before. The previous standards were obsolete and based on one metre of snow. They no longer worked and it was unclear why we were still guided by them. The governors were told to increase the number of staff involved in inspecting the city’s housing and utilities. We will involve experts from the federal executive bodies from those regions that are ahead in preparations for the autumn and winter periods and pass them with flying colours. We are planning to conduct this inspection in the near future and help the city boost the efficiency of its housing and utilities complex with new techniques.

On the whole, we are not worried about preparations for the winter. True, we faced some problems: the amount of debt due from the managing companies to the suppliers of public utilities is increasing. As in the past year, we adopted an additional decision requiring that the regions compile a list of all managing companies whose accounts payable are higher than their accounts receivable by 10%. These are companies that take money from consumers but themselves do not pay for products. We submitted this list to the Federal Financial Monitoring Service and all transactions involving this money are subject to control. This measure was very effective last year. The Ministry of the Interior has opened about 1,500 criminal cases against these companies. We must continue this work and tighten control over the spending of money collected from consumers. I think this measure will have a positive effect.

We have also set the task of drafting investment programmes for housing and utilities companies because half of the regions do not have them (the Ministry of Regional Development monitored the endorsement of investment programmes for the housing and utilities complex in line with the decision made by the government in spring). This means that some companies are not using public funds rationally and their finances are not transparent. Those regions that have investment programmes often fail to carry them out. The situation here is pretty much the same. We will submit a proposal to the Prosecutor General’s Office to inspect all municipalities and hold these officials liable. The order to approve the investment programmes in line with the established procedures has been in place since January 1, 2010. Many had not done this by the middle of summer. I think this decision will also encourage them to improve.

I’d like to talk about what we have in store. Quite recently, we approved a government plan to attract private investment in the housing and utilities complex. This is a very important document and it should be implemented.

I hope that it will be easier for us to do this job next autumn and the following autumn, as well as during winter, as the organisations responsible for housing and utilities will be more disciplined and conscientious. Generally, the plan has two directions. On the one hand, it specifies private and state company obligations and responsibilities for the quality of the services provided in the field. On the other hand, the plan entails the creation of the necessary conditions for attracting private investments. This presupposes the establishment of long-term prices for housing and utilities services and the responsibilities of the government and local authorities for changes to the decisions that they took for the long term. This is the only way to create mutual responsibility between the investors and the state. Thus, it allows for attracting private investments to the industry and increasing the quality of the provided services.

Vladimir Putin: All right. It is necessary to continue this work and constantly monitor the changes from a regional perspective.

Mr Shmatko, yesterday Mr Sechin told me about the measures you took to provide airports with complete fuelling. If airport managers are present at the fuelling complexes at the same time, this means that they are not interested in a decrease in prices. This problem will constantly hang over us. What is happening now?

Sergei Shmatko: Mr Putin, the major airports did see a deficit of aviation fuel in the last days of August. By the government’s order, the Energy Ministry and Transport Ministry analysed the situation and ensured the signing of an additional supply agreement. Now there is enough fuel for three or four days, which can enable stable work. No activity restrictions threaten our airports.

We have analysed system problems and possible system reasons for these problems. We can report the following. First, our country lacks any deficit in the jet fuel production. We produce about 900,000. The same amount was produced in July and August. In September, there will be slightly less fuel due to lower demand. This is absolutely normal and there is no deficit of system fuel for our airports. In our opinion, there is a different problem connected with the coordination of oil company air carrier activities. We believe that it is necessary to sign long-term agreements containing a price formula and predictive consumption volume. It is true that some air carriers prefer to sign spot agreements on consumption. This might be slightly cheaper in terms of immediate profit, but they are not always right, obviously. However, this merits the attention of the Federal Antimonopoly Service, the Transport Ministry, and the Federal Air Transport Agency (Rosaviatsiya).

Mr Putin, we believe that to ensure the stable work of fuel-supply complexes in airports with a passenger turnover of at least 2 million passengers per year, alternative fuelling complexes should be created, as this is practiced globally. And in this respect, the Energy Ministry and the Transport Ministry are presently reviewing supplementary issues. We believe that it is necessary to implement the entire programme that we discussed in due time – namely, fuel-supply complexes perform only professional activities and should at least be linked with fuel suppliers. If they are not linked with fuel suppliers in a corporate way, their business should be absolutely transparent. In this respect, we have proposed how to make the activity of fuel complexes public, which will ensure the identification of the Main Research Date Processing Centre that is present there.

Sergei Ivanov: This means the owner should be disclosed.

Vladimir Putin: Right. They should not hide themselves offshore. Why hide?

Sergei Shmatko: Exactly, the more so because such public deals related to infrastructure should usually pass through the commission for foreign investments if offshore shareholders are present there.

Mr Putin, next, we believe that it is necessary to increase fuel reserves at our fuel-supply complexes. The present interval is about three days. After we analysed the issue, we concluded that this interval can be extended. The only challenge is storage infrastructure. But we think that at least large air hubs are ready to ensure an increase in the reserve standard. Perhaps, these are all basic measures.

Mr Putin, I would like to add that we have discussed the possible facilitation of the procedure for getting fuel reserves from the Federal State Reserve Agency (Rosreserv). Rosreserv stores over 2 million tonnes of aviation kerosene. This means that the country will never allow for a fuel deficit in our airports. Thank you.

Vladimir Putin: I hope so.

Mr Belov (deputy minister of healthcare and social development). Quite recently – the day before yesterday – we discussed the need to increase funding for high tech operations. I believe an additional 2.5 billion roubles were suggested for this purpose. How do things stand with this issue?

Vladimir Belov: Mr Putin, we have put your decision into effect. Having realised that open funding decreases the number of patients treated, we have found the resources to submit a proposal to the Finance Ministry on adjusting the budget breakdown. This decision can be made by Mr Kudrin. We have already broken down 2.5 billion into quotas, which will allow us to treat an additional 17,596 patients. Our top priority is to shorten waiting lists for high-tech treatment to children. With your permission, I'd like to say a few more words.

Vladimir Putin: Go ahead.

Vladimir Belov: Mr Putin, in the last five years the funds for high tech aid have increased by 4.7 times. We will treat 323,000 people this year. As of today, we have treated 197,000 patients and another 55,000 have scheduled appointments for high tech aid. There are 63,000 people currently on a waiting list. There are also 53,000 available spots that we haven’t yet issued. The criticism in the press about the lack of money for high tech aid is not entirely accurate – we will treat 53,000 patients, and an additional 18,000, spending the 2.5 billion allocated for this purpose. If there were no new patients, the entire waiting list would disappear by the end of this year. But this is not going to happen. There will always be new patients.

Vladimir Putin: We need to avoid any dual interpretation in these cases. All figures must be understandable, accurate and transparent. This will prevent any issues associated with the expiration of funding.

Vladimir Belov: Mr Putin, but there are problems! The number of patients requiring neurosurgery treatment or prosthetics is enormous, and there are times when we do not have the technological capabilities to cope with all cases… I know that you were asked in Cherepovets to help a young man from Novgorod, and that a Chenobyl liquidator from Bryansk also appealed to you. But we simply do not have enough bone marrow to transplant for them! The wait list is long.

Vladimir Putin: That's clear. Mr Kudrin, do you have any problems in your department on this score? That 2.5 billion…

Alexei Kudrin: There are no problems in our department. This work is a technicality. We’ll have it done today or tomorrow.

Vladimir Putin: Good. Thank you very much.

Today we’ll discuss the strategy for Russia’s innovation development until 2020. This is a foundational document, a roadmap that we must follow in order to determine the priorities in the country’s innovation development.

I’d like to note in this context that real demand for our science-intensive production – both at home and abroad – must be the main criterion for the efficiency of our strategy.

Today, our share of high-tech production in the world market is a negligible 0.3%. Meanwhile, some of our neighbours are already producing 10 times more than that. There is something peculiar about this. This high-tech production, or the part of production that falls into this category is not the most state-of-the-art in science and technology, but their share is still considerable. We have to change this situation, and not only through our industries that are traditionally strong, such as power engineering and weapons manufacturing, but also by advancing in new, promising areas (pharmaceuticals, chemistry, bio- and nano-technology).

In turn, the development of these areas should considerably increase our share of innovation in the industrial production of our country – from the current level of 4.5%-5% to at least 25%-30% by 2020. And furthermore – this breakthrough in innovation is not an isolated effort. We need to reaffirm our competitiveness and our right to be in a position of leadership in the high tech sector year after year.

Innovation development programmes must rely on a solid base of fundamental and applied research. Business has a large role to play in the latter, whereas the government should be responsible for fundamental research. Our goal is to create a well-balanced and dynamic R&D sector that will be able to meet today's challenges.

Over the next 10 years we will need to more than double investment in R&D, increasing its share to 2.5%-3% of the GDP. Importantly, half of this investment must come from the business community.

Another important reference point is for the share of industrial enterprises introducing new technology in production to be at no less than 50%. I'd like to emphasise that I’m referring to the enterprises that invest in quality development constantly, not just occasionally. We have entire industries that are adopting a new technological mode of operating. One example is metallurgy, which I spoke about in Cherepovets. We need to encourage this as much as we can. I’m primarily talking about companies with state participation.

Finally, the government and management bodies themselves must set an example of this transition to new forms. I’m referring to something that we have discussed several times recently – electronic forms of cooperation, an electronic government, electronic communication with people, and so on. This must be the goal of all government and management bodies for the next few years.

Today, working towards gaining access to new frontiers is a fundamental demand for all areas of the country’s development. This fully applies to infrastructure. We are planning to double the scale of road construction. Of course, we are not simply talking about creating additional kilometres of road, although this is very important. We need modern safety standards, reliability and durability of motorways. For this, we’ll have to change a lot in the principles and logic of the relations between contractors and road builders in order to make quality construction profitable.

The creation of comprehensive contracts should be one of the effective means of resolving this issue. Under such a contract, construction companies will have to build roads using their own money along with other investment, and must be responsible for maintaining their condition in the next 10 to 30 years. In turn, the government will match their payments for work carried out during the term of the contract. Today, these contracts are not provided for by law in road construction. I hope the current amendments will make it possible to make broader use of public-private partnerships, both for the construction of federal motorways and for upgrading the regional road network.

I’d like to say a few words in conclusion. At a meeting of famous directors, producers and artists last June, we spoke about the problems facing animated films. The minister will recall that we talked about long-term and immediate tasks. We were asked to help repair the building that houses Soyuzmultfilm (Union Animation) Studios. It had not been repaired for half a century. I’d like you to make a decision (I hope it is ready) to address this. We should allocate money from the government’s reserve funds for these repairs. Let’s get to work.