Transcript of the beginning of the meeting:

Vladimir Putin: Ladies and gentlemen, we have a few interesting issues to discuss today. One of them is an investment programme, along with a financial plan, of our flagship rail carrier, Russian Railways. The company's importance for the national economy is clear to everyone.

But let's begin by sharing updates. Mr Shmatko will tell us about stocking fuel for the winter. This issue is traditionally brought up in November. But today it will be all the more appropriate to discuss, with Moscow hosting a related national conference. Also, it's time to issue certificates of readiness for some individual sites. When will they be out, Mr Shmatko?

Sergei Shmatko: Mr Putin, the Energy Ministry, in association with other federal government agencies and companies, is currently holding a regular conference on winter energy supplies, with over 600 delegates in attendance. Earlier today, we summed up the results of our stocking efforts. As I said, this year we managed for the first time to set all reserve fuel standards by October 1. This time round, we have company-specific standards, which determine oil-fuel and coal stocking targets for each individual utility.

We also spoke about progress in the implementation of our repair programme. It is 92% completed for turbines and other major equipment. Unfortunately, there are some doubts about the preparedness of some regions, such as Vologda and Novosibirsk. But we expect all utility companies to deliver on criticisms from the Energy Ministry and Rostekhnadzor (the Federal Agency for Environmental, Nuclear and Technological Oversight) by November 15, when all the utilities are to receive certificates attesting to their preparedness for the forthcoming winter.

We made it clear to company executives that we see the failure to issue such a certificate or the conditional issuance of one as an emergency. This is about the personal responsibility of the management. We also spoke about some specific features of the forthcoming winter, including the high sensitivity of the population to technological failures in this area. Our conference today was special in the sense that it placed a strong emphasis on ways to step up PR work. We've set ourselves the task to create hotlines in each and every region, in each and every utility company. That work should be organised jointly with regional HQs for energy supply security. We should make sure the public is informed about any network or technology failures that may occur in a timely manner, as well as about when those failures will be fixed.

This is an important new competency we acquired while dealing with the freezing rain. Earlier today, we examined some newly purchased equipment that we lacked last winter. More than 2,300 pieces of [seasonal] equipment have been purchased, most of it Russian-made.  We took a look at some of the samples earlier today. Importantly, almost all of the ordered equipment is ergonomic.

We think we’ll be able to complete our seasonal certification campaign by November 15. Fuel stocks have been formed, and we’ll now be working hand in hand with regional authorities to make up for the delays some companies have had with repairs. We’ll keep you updated, Mr Putin.

Vladimir Putin: Your so-called “preparedness” certificates shouldn’t be a mere formality, you know, sheets of paper to file away. Will officials citing false data be held accountable?

Sergei Shmatko: We’ve amended related legislation this year in keeping with your instructions, Mr Putin. Executives citing false data or failing to meet fuel stocking requirements can now be punished with disciplinary action and penalties (including a ban on holding the office). Whereas companies undersupplying fuel shall face fines. We’re currently working on draft provisions related to the failure to implement a repairs programme. In cooperation with the Rostekhnadzor watchdog [Federal Agency for Environmental, Nuclear and Technological Oversight], we’re preparing appropriate amendments to federal legislation in the electric power industry.

Vladimir Putin: Okay, good. Mr Zubkov, you chaired a conference on the performance of the timber industry, which seems to be now picking up. How would you assess this year’s performance?

Viktor Zubkov: Yes, Mr Putin, we held a large conference with timber industry executives in Syktyvkar a year ago. There, we considered a number of investment projects and reviewed the current situation in the sector.

You then assigned some important tasks related to investment projects, forestland allotment privileges, and the optimisation of forestland rent.

Earlier today, I chaired a conference with executives of large timber companies as well as of small and medium-sized businesses. The tasks you set one year ago have all been fulfilled by now. And the sector is, indeed, picking up.  The industrial output index in logging, timber processing, and cellulose production is at 105%-106% while the current growth rate for furniture production is 110.5%.

As for the level of deep timber processing, which we struggled to raise for years, it’s expected to reach 63% by the end of this year, as compared with 56% in 2009. Five large timber processing plants are to start their operations this year; two have just been launched –  in the Irkutsk and the Archangelsk regions –  and the other three will become operational before the year’s end, each with a processing capacity of 300,000 - 400,000 cubic metres of timber.

The Ministry of Industry and Commerce presently has on its table 100 workable projects costing an estimated 450 billion roubles overall. These projects have already passed expert examination and many of them are supported by loans from Vneshekonombank.

The industry is making headway. Until recently, we’ve had to import all our chalk paper. And now some Russian companies are releasing pilot samples of their own. It was announced today that by 2012, we will be able to cover half of our chalk paper needs by producing it at domestic cellulose factories.

The current situation in the timber industry suggests that small businesses could be actively involved in this. But, as it has turned out, small businesses face certain constraints as to their access to auctions on forestland plots.

Also, there is a lack of targeted financial support.  Following the conference, leaders of the Opora Rossii [public organization for the support of small and medium-sized businesses], Industry and Commerce Ministry officials and I, we asked [experts] to prepare a set of measures for supporting small and medium-sized businesses involved in timber processing. I think that here, too, there will be positive changes. By and large, the industry is developing steadily, and I believe it will end the year on a high.

Vladimir Putin: What is the problem of access to forestland all about? How does it manifest itself?

Viktor Zubkov: You see, when a forestland plot is auctioned off, it’s always easier for a large companies to win the lot, because, as a rule, lots are…

Vladimir Putin: Large.

Viktor Zubkov: They are large, yes. So if some 800,000 cubic metres of timber are put on sale as a single lot, small businesses will never be able to win, not even if they team up with one another. A proposal was made today – we’re going to study this one carefully – that every region should have a certain percentage of lots reserved for bidders from among small and medium-sized businesses. I think the proposal is a good one and that we should try to translate it into reality.

Vladimir Putin: You’re right. The rules should be modified.  Think this over together with the Economic Development Ministry, will you?

Viktor Zubkov: Okay.

Vladimir Putin: Last year we launched a new law on the sale of pharmaceuticals. One of the motives behind this was to make pharmaceuticals more accessible to rural dwellers so that they would be able to get them at their community first-aid centres rather than having to travel long distances to town. How is this law functioning, Ms Golikova?

Tatyana Golikova: Mr Putin, in line with your instructions, we adopted the law and supplemented it with a provision that makes medications more accessible to rural communities. But before I expand on this, let me cite a few figures first, which, I think, give a good idea of what the current situation is like. We have some 38.2 million people living in rural areas, or 27% of the country’s population, and there are 44 pharmacies for every 100,000 residents. In urban areas, there’s one pharmacy per every 2,530 residents whereas in the countryside, as many as 2,900 residents are served by just one pharmacist. There’s been a lengthy discussion as to how we could help rural communities that have no pharmacy around. In the end, we decided that various local healthcare facilities, including first-aid centers, outpatient clinics, and general practitioners, should be allowed to sell medications under a license.

Besides, it was offered simultaneously: we granted permission from September 1, 2010, and provided a one-year transitional period for specialists that will be selling medications to undergo the necessary training to master the issue. Today we can say that medications are sold in 725 organisations and 23,134 separated outlets in rural areas, and this has resolved the problem to a significant extent. Moreover, together with all regions we planned that it would be necessary to provide advanced training for about 28,000 specialists for them to master these skills. Today we have summed up the results for the regions: we have actually reached 100% completion of the training, even though there were doubts that it was possible to accomplish within a year. Nevertheless, this work has been done in all regions and all regions reported positive results of this work. However, in line with the powers of the Federal Service for Supervision of Healthcare and Social Development, we continue monitoring the situation and abide by the law in the sphere, in order to avoid disruptions, because, as you know, some pharmacies are private, and we cannot prohibit them to function or shut them down, so it is important to quickly resolve issues that arise and to monitor the general situation.

Vladimir Putin: Good. We visited a perinatal centre in Kaliningrad yesterday and checked out how it operates. They have been operating for two years already, and are doing well. People are pleased with them.

Tatyana Golikova: The infant mortality rate there has dropped significantly, by the way.

Vladimir Putin: Yes, it has. But, unfortunately, there have been two cases where mothers died. They see it rather as an exception, as a disaster. But overall, the results are improving significantly, so we need to think about what to do after the construction programme is completed. I believe we need to expand this network.

Tatyana Golikova: Actually, Mr Putin, we have not yet reached all the regions that need it, and there is still this need. But given that financial resources were limited, especially in 2009, we did not start anything new.

Vladimir Putin: If we have limited human resources, it will be even worse. So this is a crucial area that we need to work on.

Tatyana Golikova: That’s true! We already have several projects: one in Stavropol that is just about to be launched, another in Dagestan and one in Ingushetia. The one in Dagestan is under construction, in Ingushetia, some ground work is underway; some regions started similar projects on their own, and this problem could be resolved with a little government support.

Vladimir Putin: Yes. But we need to ensure that the standards remain high. That should not be just another mediocre maternity hospital to be built. The standards should be completely different. Here, they have been working for two years, but they still haven’t established communication network with other towns, but this should have been done in the beginning.

Tatyana Golikova: We will now work with them within the framework of the agreement on computerisation and modernisation…

Vladimir Putin: Yes, yes, this must be done, because it drastically improves the quality of services and the results. Drastically!

Tatyana Golikova: We hope that another hi-tech hospital, a cardiovascular centre, will open there soon.

Vladimir Putin: Yes, it is in its final stages of completion.

Tatyana Golikova: We recently selected a candidate to head it and are now waiting for the approval from the envoy. We have already met to discuss how patient flow can be organised, given that this is an enclave and it is fairly difficult for patients to go to this region. We think that when it opens… Given that its head will come from St Petersburg, from our Post-Graduate Studies Academy, he is a qualified cardiologist, has had good experience and even studied abroad; sadly for St Petersburg, he will take some colleagues along with him, but it is absolutely necessary to organise the work of the new centre properly.

Vladimir Putin: Yes, certainly. Please, think of proposals to continue this programme.

Tatyana Golikova: OK.

Vladimir Putin: Mr Fursenko, on August 24 we met with the council of university rectors and agreed, among other things, to hold a competition to select the best university development programme. How is it going?

Andrei Fursenko: On November 1, our ministry announced competitive support to programmes of its subordinated universities. Admitted to the competition will be universities subordinated to our ministries that do not receive some other support for 2012, i.e. national research universities and federal universities that have already received financing for their programmes will not participate. The programme has been made possible by Federal Law No.83 (we were able to redistribute our budgets in order to allocate money to support these programmes). It aims at improving the quality of university management. The competitions will be held in three areas (i.e. there will be development programmes for at least five years); winners in these areas will be classic universities, engineering and technical universities and humanitarian and pedagogical ones. Winners will receive financing from the federal budget, up to 100 million roubles a year for three years. We have now accumulated about 4 billion roubles, i.e., overall it will be about 12 billion for three years. This means that in addition to those federal research universities, there will be another 40-45 universities being targeted. So we continue structuring them.

Importantly, one of the conditions of the competition is that the budget of a strategic development programme from all of a university’s own sources should not be less than the requested subsidy, i.e., we move from them co-financing our events to us co-financing them. That is, they need to decide where they will get the money – from their budget, from their business partners, or perhaps, from some extra-budgetary sources. We accept applications until December 1, and by December 28 we will already choose a winner, allowing for financing to be provided and programmes launched at the very start of next year.

Vladimir Putin: OK.

The government has drafted an executive order (it has been submitted for my signing) on improving the system of student allowances. Why do we need it? What will it regulate additionally?

Andrei Fursenko: Mr Putin, it is about the sums that were allocated for all universities subordinated to all bodies of executive power: the additional 20% of the scholarship fund. And we agreed that this money should not be distributed equally among all students; it was to be distributed for some outstanding achievement, in line with certain principles. We have already drafted a resolution of the government (it has been submitted for your signing). It has been coordinated with all of our colleagues. We have singled out five areas: academic achievements, research activities, culture and art, sports and public activities. Strict criteria have been set to determine winners in each category. We have also agreed that the number of those who receive these additional allowances should not be more than 10% of the total number of people who already receive academic scholarships. Thanks to this, additional student allowances will amount to more than 2,000 [roubles], which is a considerable supplement. Priority will be given to senior students, who have already distinguished themselves academically. According to our resolution, governing student bodies shall be taken into account in making decisions related to student aid distribution.

This issue was high on the agenda of a recent national student forum. We agreed to begin implementing the resolution this year while also setting up a joint commission where university founders will work alongside activists from governing student bodies. We’ll analyse how the distribution is going and we then may suggest an amendment to the resolution, should such a necessity arise. Early next year, we’ll be able to report on how efficient this mechanism actually is.

Vladimir Putin: Okay, good. Ms Nabiullina, here’s a question I’d like to put to you. Every now and then, you and I visit enterprises and meet their staffs. A short while ago, Mr Medvedev and I visited Stavropol. There as well, agrarian companies are at odds with electricity suppliers. An analysis of 2008-2011 reports shows that unjustified additional incomes of energy utilities exceed the top markup limit set by regulators by 200%-300%.

Secondly, the possibility of stopping the take-or-pay practice was discussed.

It’s okay to apply these rules to exports, given their large turnover and volume of consumers, who also have to plan their work somehow. But this scheme just doesn’t seem appropriate when we’re talking about small farms, small consumers and small supplies. Very often, small and medium-sized businesses just have no levers with which to influence the scale of consumption. I’d like you to consider this.

Elvira Nabiullina: We’ve prepared a draft resolution to prevent unjustified electricity surcharges, especially for small and medium-sized businesses and agrarian enterprises. It [this piece of legislation] is aimed at regulating distributors’ activity.  As you may well remember prices early this year for small and medium-sized businesses were prohibitively high, as much as 5-6 roubles [per kWh]. A number of tough measures were then adopted, which had to do with investment surcharges of nuclear power plants and hydro-electric stations. We then lowered the rates for electricity plants and grid companies. But no such measures were taken when it came to distribution. So now the price for certain consumer categories, notably small and medium-sized businesses, is still higher than 4 roubles, while the nation’s average is just 2.4 roubles. We’ve analyzed the situation in an effort to figure out the reasons behind such inadequate pricing.

Vladimir Putin: I remember that Mr Sechin was noting down prices during our meetings with farmers in the Rostov Region, in Stavropol and in the Krasnodar Territory. Over there, it’s 2.47 or 2.6 roubles, which is about average. To small consumers, as Ms Nabiullina rightly pointed out, [the rate may be much higher]. I’m sorry for interrupting you. Please go ahead.

Elvira Nabiullina: Precisely. So, in analyzing the possible reasons behind these excessively high prices, especially for small and medium-sized businesses, we looked into the activity of distribution companies. Indeed, in distribution, the situation is quite complicated, primarily because the effective regulatory basis was originally built off on the premise that distributors would be in fierce competition with one another, vying for consumers. In reality, though, there are just one or two companies with official supplier status that cover 80% of the market. That status is highly important. It was introduced during the period when we were transitioning towards a budding electricity market. With the formation of market mechanisms underway, these official suppliers were supposed to supply power to consumers, whatever their purchasing power may be, including low-income households and public companies.

But along with the obligation to provide electricity indiscriminately to anyone in need came certain privileges. As a result, many large consumers set up distribution businesses of their own, leaving the “official suppliers” to service small and medium-sized businesses. Upon becoming monopolists, those suppliers can now impose their own terms on consumers, pricing their supplies as they see fit. According to our assessments, surcharges in this case could account for 5% to 7% of the selling price. As a result, consumers find themselves having to pay an additional 100 billion roubles per year. The figure I just cited is for 2010, but this year it’ll be higher still – about 160 billion. The earnings exceed the surcharges by three or four times, which, by the way, shall be regulated by regional authorities. The basic rules of transactions with consumers are regulated by government resolutions, while the surcharges will be regulated at the regional level. Companies such as Mosenergosbyt saw their net profits double in 2010 since the year before, reaching the 4 billion roubles mark. In the first six months of the year, the company’s net profits reached 4 billion roubles. And with Samaraenergo, for one, its 2010 net profits reached 1.2 billion, a tenfold increase over the profits predicted at the point when the regulated markup limits had been set. There are few of our power producers that can boast such exorbitant net profits. Compare this with the generation of thermal power, in which 40% of the companies made less than 1 billion roubles in net profits. There is a serious imbalance here. An “official supplier” is, in actuality, an intermediary having no major assets and no large-scale investments, yet its profitability is 44%, as compared with 4% in thermal power production.

What are the main procedures used to increase the selling price? The first one has to do with classifying consumers…

Vladimir Putin: How much is the percentage for the pharmaceutical industry? Ms Golikova, do you remember?

Tatyana Golikova: The percentage runs into the hundreds.

Vladimir Putin: Forty-four percent is also quite high, isn’t it?

Elvira Nabiullina: It [profitability] is very high in the pharmaceutical industry, yes. In mechanical engineering, it’s half as much.

Viktor Zubkov: It’s 7% in agriculture.

Vladimir Putin: Seven percent in agriculture, Mr Zubkov says. This is a very low margin of profitability. In the defence industry, the figure should be at least 15%...

Elvira Nabiullina: These are general indicators. We’ve tried to analyse the procedures and mechanisms of overpricing. As we’ve discovered, consumers will be divided into groups depending on the amount of kilowatt hours used. Calculations are made using a complicated formula. But the smaller the group to which you are assigned, the higher the surcharge you will have to pay.

Vladimir Putin: All the more expensive, yes.

Elvira Nabiullina: An official supplier, a marketing company, is buying up the entire amount at a relatively low price in the market, and then selling it to these groups, to consumers, at a high price – the company receives additional income, and retailers are trying to drive consumers into these lower groups with high prices. As per your instructions, we dealt with this situation this past spring, and have partially resolved the problem by reducing the number of these lower groups for small businesses from five to one.

The second issue has to do with raising prices due to differences in metering. Here, there is also the opportunity to buy at one price in one period and sell at another price in the next.

The third issue concerns payment according to the principle of take or pay. In November 2011, consumers will have to sign a contract with official suppliers to purchase electricity in the upcoming year according to a monthly breakdown. Because of variations, there are rather severe penalties, with unregulated fines that amount to additional net income for these distribution companies and official suppliers.

Vladimir Putin: Many of these companies corral people into situations in which fines are unavoidable.

Elvira Nabiullina: At the same time, they do not bear any financial risk, because they buy electric power in the wholesale market a day in advance, and so there are no financial risks that they can pass off onto consumers. Therefore, in our opinion,  a systemic solution to the problem in the distribution sector lies in the re-tooling of the entire electric power market model. And we prepared these proposals on our own initiative, but the current situation is quite severe and requires intervention, so we have drafted a resolution aimed at eliminating these still-legal methods and procedures that guarantee suppliers unwarranted profits.

The draft resolution provides for the abolition of differentiation by capacity utilisation, that is, by the number of hours. We propose abolishing this mechanism altogether. Another issue concerns setting the same standards for metering in the wholesale and retail markets, so that there can be no time-based purchases, no such arbitration and no such possibility... A ban on fines for small consumers, to avoid penalties for shortages or overages for those who consume 25 MW. We also propose abolishing technical barriers to switching from an official supplier to independent power retailers, so that consumers are able to switch to another power company throughout the year, which would be able to provide...

Vladimir Putin: What are these technical barriers?

Elvira Nabiullina: Well, there are technical barriers associated with connection and reconnection. In addition, if you want to switch to an independent company, the official supplier often makes you pay a bill for an entire year because of the expectation that you would remain with its sales company.

Vladimir Putin: …the expectation that it would continue making money.

Elvira Nabiullina: Next – it is important to expand the list of information that the official supplier must disclose on the Internet in order to enhance the transparency of pricing according to different indicators. We have made a list of these indicators. The draft resolution has been coordinated with the Agriculture Ministry, the Federal Antimonopoly Service, the Finance Ministry and the Justice Ministry, and I have asked other agencies that have not given a formal opinion on the matter to review it. We held a meeting, but nobody has gone on record as of yet.

Vladimir Putin: Let them say what they don't like about it.

Igor Shuvalov: May I ask a question?

Vladimir Putin: Please.

Igor Shuvalov: Ms Nabiullina, did a working group of experts headed by Mr Udaltsov participate in the drafting of this resolution?

Elvira Nabiullina: We discussed all the issues with them, all of the details, and they essentially support these methods.

Igor Shuvalov: Good.

Elvira Nabiullina: There are some issues with sensitive timeframes, but the methods themselves…

Vladimir Putin: Listen, there will be plenty of people who will want to destroy these proposals, I am perfectly aware of this. I want to ask the Energy Ministry, Mr Shmatko, (addressing Igor Sechin) and you as the supervising Deputy Prime Minister, and the Tariff Service – what is the problem? Do you see any problems here?

Sergei Shmatko: The problem with regulating the retail market is perhaps one of the most pressing issues in regulating the current situation concerning the electricity market. We fully agree with Mrs Nabiullina that the situation needs to be addressed, and that a number of the measures that Mrs Nabiullina has just enumerated are, in fact, long overdue – these include transparency, disclosure of operations and the cost structure of  official suppliers – this is all correct. There is a problem, Mr Putin. I would like to call your attention to this as well...

Vladimir Putin: Go ahead.

Sergei Shmatko: We have a wholesale electricity market and a retail electricity market. Our grid companies operate on the wholesale electricity market, and accordingly, use our generating capacity, and we have a problem: the so-called arrears. We have held this problem at 25-30-40 billion roubles for several years. Today, there are 150 billion roubles in arrears on the retail electricity market, according to various estimates – some of these arrears are in litigation, of course – and in terms of electric power industry entities, only retailers bear this debt.

Vladimir Putin: Once again.

Sergei Shmatko: In fact, consumers owe this sum to them.

Vladimir Putin: Yes.

Sergei Shmatko: And they translate this sum of 30-40 billion roubles onto the wholesale electricity market. This means that the 100 billion rouble burden (according to various estimates, 80-90 billion roubles at different times) is borne by the sector of sales companies, foremost by guaranteeing suppliers, and they compensate for this with loans. What can happen when we take very serious measures without a targeted assessment of the activities of sales companies? They are very different. Ms Nabiullina mentioned Mosenergosbyt, which of course is a fairly stable company, because it has a large number of consumers, and so on. But there are also sales companies in Tambov, in Central Russia, in the North Caucasus where the financial situation is completely different, and taking measures that are not customised, measures that deal with the principles of regulating sales companies, we risk…

Vladimir Putin: What do they deal with?

Sergei Shmatko: With the principles of regulating all sales companies. We risk creating a situation in which there will be a lot of guaranteeing suppliers who will in fact be bankrupt. We believe that in the present circumstances, especially given the situation on the retail markets, the measures that Ms Nabiullina spoke of should be targeted in order to avoid a flurry and any problems with issuing payment documents.

Vladimir Putin: What do you mean by “targeted” measures?

Sergei Shmatko: It means that we should carefully consider the financial situation of sales companies.

Vladimir Putin: Then you will be considering this for another three years. It will never end.

Sergei Shmatko: Mr Putin, we are ready to consider the situation together with the Ministry of Economic Development within a short time frame.

Vladimir Putin: I see. How short?

Sergei Shmatko: Two weeks.

Vladimir Putin: Okay.

Elvira Nabiullina: May I add a few words on accounts receivable? Indeed, a guaranteeing supplier cannot refuse consumers regardless of their financial situation. If an ordinary supplier can choose solvent customers, in this case they may come across insolvent ones. So Mr Shmatko is correct to raise the issue.

Vladimir Putin: I agree.

Elvira Nabiullina: We have just analysed this volume of debt, which is impossible to recover. We estimate long-term accounts receivable at about 10 billion roubles. We are talking about a completely different level of additional revenues. This becomes a non-transparent system when we allow these revenues to be received without any control and don’t resolve the issue of…

Vladimir Putin: But in reality, this debt is created artificially. If the profit rate is increased by three or four times, where will they get the money to pay? These opportunities don't exist for them. They are being artificially placed in the position of a perpetual debtor. This doesn’t mean that we shouldn’t pay attention to what you are saying, and that this threat should not be assessed, but it should be an impartial assessment.

Mr Novikov, please.

Sergei Novikov (head of the Federal Tariff Service): Mr Putin, we have considered these proposals. We have now received a mandate from Mr Shuvalov to review the calculations once again. And we can confirm everything that has been said with regard to the rules for both the wholesale and retail market needing serious modernisation. But the proposals that have just now been advanced (a negligible part of them) are not able to resolve the problems that have been outlined. In particular, liquidation of the number of hours of use with the existing differentiation…

Vladimir Putin: Hold on -- liquidation?

Sergei Novikov: The number of hours of use (NHU).

Vladimir Putin: Yes, NHU.

Sergei Novikov: With this differentiation of consumer groups, it really means plus or minus 15 kopecks. But the main difference is not in this. A significant number of consumers in the regions receive so-called high voltage, i.e. 110 kV, and small businesses and agriculture receive low voltage (380 and 220) or medium voltage (10 kV). The difference between these groups of consumers is physically quite significant, simply because some have short grids and the amount of electricity transported to others is significant, especially within a region. The tariff on high voltage may be 1.2 roubles in Siberia and 2 roubles in Central Russia, but on low voltage it will really be 4 roubles. The liquidation of NHU amounts to a difference of 15 kopecks. A much larger problem exists, which has to do with the fact that cross subsidising is unresolved since it is passed on to all groups of consumers – both big industrial enterprises and agriculture.

Another thing that was mentioned is the easy transfer from a guaranteeing supplier to an independent sales company. The proposal would simply blow up the retail market tomorrow. What are we working with at present? Big consumers have already chosen independent sales companies for various reasons, and are already buying electricity directly from the wholesale market. Ms Nabiullina was right in pointing out that guaranteeing suppliers only have a significant number of smaller consumers left – public-sector companies and households. If anyone else goes independent it means only one thing, which is that tariffs for other consumers of this guaranteeing supplier will grow significantly. At the same time, there is the selective mechanism that the Minister of Energy spoke about – a region is responsible for a consumer potentially switching from a guaranteeing supplier to an independent one, and providing an assessment of the social and economic consequences of the move. If these consequences are only moderate, this transfer is possible. Overall, let me repeat, the problems that have been mentioned correctly describe the current situation and the imperfections of the market rules. But the proposals made to eliminate them unfortunately will not resolve the problems.

Vladimir Putin: There is a major consumer sitting two places to the left of you. He went over to another supplier and that was that, he destroyed the entire region… There's no need, Mr Yakunin (Vladimir Yakunin, CEO of Russian Railways), I know what your opinion is on the matter. And there are many like you, not too many, but still. Ms Nabiullina, please.

Elvira Nabiullina: Recently, there really has been a problem with consumers of high and low voltage; there are indeed the so-called last miles. We have partially resolved this, but only partially. A resolution was issued last summer, but, unfortunately, it did not address the agreements that had already been signed by big consumers. So we are now working on another proposal in order to settle the problem once and for all. It is being drafted by the Ministry of Energy, and we are playing an active part; we have worked out a common approach. But it is true that this problem has not yet been resolved. This doesn’t mean that other problems don’t need to be addressed. Even with cross subsidising (which we do have), we cannot allow prices for smaller consumers to go up at the expense of a large net profit, of big revenues. There are big revenues, aren’t there?

Vladimir Putin: Of course.

Elvira Nabiullina: So they should be regulated.

Vladimir Putin: Of course. How much time did you spend working on your proposals?

Elvira Nabiullina: We spent about two months on analysis, and we already submitted proposals to agencies around September 20.

Vladimir Putin: Actually, we have known about this problem for a long time. But in-depth work was indeed being carried out for two or three months. Do you know what this is about? The Tariff Service does, and so does the Ministry of Energy. It isn't as though you just took up this issue yesterday. I want to see a draft government resolution that has been coordinated by all the agencies by 9 a.m. tomorrow.

Let’s move on to our agenda for today. I have already said that we are going to endorse Russian Railways investment programme and financial plan for the next three years. At present, the railway accounts for over 40% of the country’s turnover. It is our biggest carrier. I don't need to point out how important this type of transport is for the national economy and for our people.

Today, Russia is implementing major logistical projects, new industrial clusters are being set up, the country is becoming increasingly active in the system of international trade relations. Under the circumstances, it is crucial that we remove infrastructure restrictions on economic growth. We know very well based on the experience of many Russian regions: if there is a railway, this economic zone will develop, new deposits will be discovered, power generation will start along with manufacturing, and so on. If there is no railway, everything stagnates, there is no moving forward. I am also referring to the construction of railways to the ports of the Northwest, the South and the Far East; to infrastructure in general and to the lack of means for cargo delivery and shipment; to the development of such major infrastructure projects as the Baikal-Amur railway, the Trans-Siberian railway; to the easing of traffic at the problematic sections between Mezhdurechensk and Taishet and between Tobolsk and Surgut, which today carry shipments both towards the west and the east; and to the modernisation of the Moscow hub. Work on these and other key projects has been included in Russian Railways’ investment programme for the next few years. A separate spending item is the repair and reconstruction of the railway bed. Next year alone, the company will fix up 10,400 km of railways. Moreover, it plans to purchase more than 1,200 new locomotives in the next three years.

I would like to emphasise once again the importance of ensuring the reliability and safety of shipments. Nearly 65 billion roubles will be allocated for this purpose next year. Overall, Russian Railways’ investment programme for 2012 totals 412 billion roubles, approximately the same as this year and up 94 billion from 2010.

What do I want to emphasise with regard to this? As Russian Railways’ sole shareholder, the government will certainly take an active part in the implementation of the company’s social programmes and backbone projects. Let me recall that the federal budget allocates 40.4 billion roubles in 2012 for these purposes. Moreover, in September, we decided to provide additional support to the company: notably, it will receive an additional 40 billion roubles in order to implement its investment programme in 2012 and for capital repairs of railway infrastructure. The returns here will take the form of a better quality of transport services, lower costs for economic agents and, of course, for people, for passengers. This is the reason we decided to provide an additional targeted subsidy of 25 billion roubles to Russian Railways in 2012. This money will be used to guarantee the affordability of the local transport services that are used by millions of our people.

Now a word on tariffs. Let me remind you that Russian Railways is the only natural monopoly for which the government has made an exception with regard to tariff increases in 2012. They are indexed not from July 1, as for all other infrastructure monopolies, but from January 1, 2012, and within the inflation figures for the year, namely 6% on average for types of transport. Once again, I'd like to note that the Government will continue largely to adhere to the limitation of the growth rate of inflation. The burden of developing the industry cannot be passed on to the consumer. We must consider the interests of the entire economy. And this means that the emphasis should be placed on market-based instruments for financing investments, such as bonds and loans, including the use of government guarantees.

Russian Railways must also rely on its own reserves – from the reduction of internal costs to the sale of shares in subsidiaries. These plans are also in the works.

We expect that the joint action of the government and Russian Railways will enable the programme of investment in the company to be fulfilled, as well as ensure its break-even operations.

And one more issue, which is also quite acute at the moment. We recently received many complaints about the lack of rail cars from farmers, industrialists and businessmen in various sectors. The government has already issued a number of corresponding orders, and according to available information, the situation is gradually improving. Today, I'd like Russian Railways and the Transport Ministry to take note – all possible measures should be taken to ensure the supply of rail cars for cargo loading, and the regions should guarantee timely unloading along with economic actors. Mr Zubkov, I would also like draw your attention and that of the Agriculture Minister to the responses of Russian Railways and the Transport Ministry to the issues that have been identified, and to the need to address the problems associated with shipping. Rail cars should not be used as temporary quasi-grain elevators, that are filled with grain and then stand around waiting to be shipped abroad. You need to keep a close eye on this! Please make sure that the matter remains under the constant personal supervision of the minister.

Colleagues, at the last cabinet meeting we discussed the situation in the field of occupational safety, and we discuss the existing problems in this field on a regular basis. One such issue concerns the level of training of managers and professionals who work in difficult and hazardous conditions. Today, we will consider measures to improve the situation in one of the key industries – the coal industry. There has been a proposal to require mining executives undergo regular refresher courses – at least once every five years. This is really quite significant, because experts in this area should be highly qualified in the fullest sense of these words. I am confident that the proposed steps are justified and in fact, that they will improve the safety of coal industry employees.

And finally, another issue. This week in Novgorod, we considered the issue of the improvement of our towns and cities, and how to effectively organise this work with the municipalities and regions, in order for people to see real improvement in our communities, courtyards, streets and city parks. We also tallied the results of the contest for the most modern city and rural settlement. I'd like to point out that this year, 85 municipalities participated. The winners will receive additional financial support, and we must approve the corresponding resolution today. And, of course, it is essential that we adopt their successful experience in creating a comfortable environment in other places throughout the country.