Transcript of the beginning of the meeting:

Vladimir Putin: Please go ahead, Mr Khoroshavin.

Alexander Khoroshavin: Mr Putin, I’d like our conversation today to consist of three parts. Let me begin by reporting on progress in carrying out your instructions that we’re supposed to have fulfilled by now. We could then go on to discuss the general situation in the Sakhalin Region. And, finally, I’d like to raise a number of issues that we hope to get resolved with your personal support and with assistance from the government.

Vladimir Putin: Mr Khoroshavin, I’d rather we begin by discussing wage arrears. Surprisingly, your region has some unmet arrears, including to the federal budget. Where do they come from?

Alexander Khoroshavin: Mr Putin, we have only current arrears, which total some 5.5 million roubles. They come from insolvent companies going through bankruptcy. Actually, most of the debt is due to one bankrupt company based in the Korsakov municipality. Our debts to the federal budget may figure in current statistics, but we have them settled straight away.

Vladimir Putin: Please check up on this, anyway.

Alexander Khoroshavin: I certainly will.

Vladimir Putin: It’s about 2.5 million roubles, half of the bankrupt company’s worth.

Alexander Khoroshavin: I’ll look into it by all means, Mr Putin. We are monitoring the situation all the time, including at our commission sessions. And if, indeed, there are some arrears…

Vladimir Putin: There certainly are.

Alexander Khoroshavin: I will check up on this, I promise.

Vladimir Putin: Okay. Some 2.7 million [in arrears] to the federal budget – this isn’t a large amount for the Sakhalin Region, but this affects individuals.

Alexander Khoroshavin: Yes, people waiting for their wages to be paid.

As for your instructions, primarily the one about raising teacher pay, we have fulfilled it. It has, perhaps, been easier for us to carry out because we’ve been working on this issue for quite a while now. And by the time you formulated your assignment, the average wage of a school teacher in the Sakhalin Region had already reached 32,000 roubles.

Vladimir Putin: And now you have raised it to 36,000, right?

Alexander Khoroshavin: Until recently our average in the sector was 36,000 roubles. And we’ve been putting aside necessary funds to introduce an adjusted rate on September 1 rather than on October 1. By the year’s end, we plan to bring the average wage up to 39,000 roubles. We’ll be making appropriate adjustments for teachers’ salaries as well. We’re now working within the framework of a trilateral draft agreement that we are to sign with trade unions and employers at the end of December. [It will come into force] next year. There we will set a minimum wage, taking all these factors into account.

Vladimir Putin: Good. Very good. Thank you.

Alexander Khoroshavin: You also issued an instruction on 15 Sterkoder vessels, which under a German bank… Viktor Zubkov has been coordinating work on this. At a concluding conference, we reached an agreement with the Federal Fishery Agency, the regional administration, Vneshekonombank, and fishermen who will have to pay for the vessels.

We came close to the finishing line by agreeing on a 15-year rescheduling scheme. The bank took some of our considerations into account and contactors also made some concessions (it was 20 years initially). Now work is nearing its completion, and I think we’ll be able to meet the amended 2011 budget targets in accordance with the assignment.

Vladimir Putin: We should make sure no new shady schemes emerge.

Alexander Khoroshavin: Yes. Six vessels are already operational, meaning there are 300 jobs, with the average wage being 50,000 roubles. We are yet to make arrangements for the remaining nine vessels, but we hope to follow through on this before long.

Vladimir Putin: Please finish that work.

Alexander Khoroshavin: Yes, we’ll continue until we implement it in full.

A third instruction you gave us has to do with the results of the conference you held in Sakhalin this past March, specifically with the gas component of the Sakhalin-1 project.

Vladimir Putin: What about the costs?

Alexander Khoroshavin: We’ve settled the problem of costs, thanks to the newly released government resolution that allows full-scale conversion of natural gas into electricity.

Your second assignment had to do with the more efficient use of gas in the Sakhalin-1 project, where the oil component is working and the gas component remains frozen.

We are actively working on this with the Energy Ministry; the project’s operator has submitted seven options and a comparative analysis is now underway [to choose the most feasible one]; we’ve sent a letter to the ExxonMobil group about the transfer of gas operations into Gazprom’s portfolio. Here, the price is to be negotiated between the two companies involved. Which doesn’t mean we’ll look on idly. Work on this track is progressing and I believe that together we’ll be able to find a solution.

Vladimir Putin: Interest in these projects is growing, because the region suffers from energy shortages, including natural gas. As you know, Japanese partners are now demonstrating a keen interest in broader cooperation, and I expect local and regional authorities to be up to the challenge, as has been the case before.  I hope you support us while we implement and expand these projects.

Alexander Khoroshavin: This is highly important to us, Mr Putin. We realise that processing is crucial. We do need additional added value in the Sakhalin Region. Of course, we are aware of the importance of building gas supply networks for our neighbours in the Khabarovsk and the Primorye territories. And we are equally aware of the need for the Sakhalin-Khabarovsk-Vladivostok pipeline to operate at full capacity. But Sakhalin, too, needs a supplement…

Vladimir Putin: It will get it.

Alexander Khoroshavin: …a supplement to finance gas and oil processing operations...

Speaking of the current situation in the Sakhalin Region, we have a rather stable picture here. Our gross regional product increase will likely reach 4% to 5% by the year’s end. This isn’t huge growth, of course, but let me remind you that we made great strides in 2008 and 2009, paving the way for future growth.

The industrial growth rates are expected to rise to 4%, up from the current 3.5%. We’ve performed well on investments this year, bringing them to 190 billion roubles –  28% growth year-on-year. Some 80% is to be invested in the production of energy. This is both good and not so good. Good because it will prompt further development. But we’d also like to diversify; we’d like our investors to look at other sectors as well.  Coal, timber, and fishery are among the industries we regard as the most promising, and we’re trying to create a stimulating environment.

Vladimir Putin: Processing is indispensable.

Alexander Khoroshavin: Indeed.

Vladimir Putin: We need to raise the added value of finished products.

Alexander Khoroshavin: Exactly. This is why we’re now seriously concerned about the investment climate. We’ve adopted a special law and a special programme; we’ve established a ministry of investments and external relations, as well as an agency for initiatives, which will be promoting the so-called “one-stop” scheme. We’ve already made a presentation of the Sakhalin Region in China and are going to organise a similar event in Korea. These presentations have produced some positive results, with foreign companies joining several of our projects.

Vladimir Putin: And what is the situation like with the healthcare modernisation plans? How many sites do you have and how much money have you received from the federal coffers?

Alexander Khoroshavin: Under the healthcare modernisation programme, we’ve allocated some 5 billion roubles (which is the programme’s overall cost) for a two-year period… According to the latest figures, we’ll have the programme 95% implemented in all healthcare modernisation areas, including computerisation, equipment supply, repairs, and standards. I cannot pledge 100% completion, because we launched the programme with some delay. But it will surely be fulfilled by 95%. We’ll try to make up for lost time in the beginning of next year. I believe we’ll be able to use the programme’s allocations efficiently and in full.

Vladimir Putin: Good.