Vladimir Putin’s opening address:

Good afternoon,

We have gathered here today to hold the first meeting of the Government Commission on High Technology and Innovation of this year. It is no accident that we are here, at the Tikhvin Freight Car Building Plant. This is a new green field enterprise. In other words, it was essentially built from scratch. I don’t know if you have been able to acquaint yourselves with it, but I have looked around and I’m very impressed.

We have established that this is a major construction projects in this country in the last quarter century, and one of the biggest – perhaps even the biggest – project of its kind in Europe. It's not only a matter of scale but of quality as well. This enterprise has the best, most state-of-the-art equipment from all over the world. It is high-tech projects such as this that will gradually change our economic structure. The opening of a modern plant here in Tikhvin is a very good example of a public-private partnership with the participation of our development institution.

Three financial institutions have funded this project – Vnesheconombank, our Development Bank with Kazakhstan and Nomos Bank. More than half of the funds came from two state financial institutions – one international bank, but with our controlling interest, and Vnesheconombank, which is strictly our development institution. This is a very good instance of resolving economic and social issues.

I’d like to note in this context how decisions are made to attract personnel. You have probably seen new, modern buildings here. There are both houses and apartment buildings. This is how the most urgent issue – the housing issue – is being resolved. Good financial institutions have offered flexible mortgage plans – loans for 30 years at 10.5% interest, an opportunity to use maternity capital and other sources of funding. These housing projects are quite feasible.

Today, let’s discuss how to make the best use of such mechanisms in the formation of a new domestic economy. The challenges of the 21^st century are well known: steadily rising competition for people, ideas, smart investment and technology that create high-tech and well-paying jobs, thereby setting modern living standards.

Wages at your plant are higher than the national average. I have spoken with some of the plant’s workers. Those with whom I spoke, at any rate, all have a higher education and operate lathes. I must admit I would not be able to operate such a lathe. Well, I probably could if I received special training. These aren't only locals who work at the plant – interesting jobs attract people from other regions as well.

As I have already said and as you are well aware, it is not only our regions that compete for such projects and specialists with such skills and competence. This competition is also taking place on the world arena. In fact, this is competition for the future. It will be won by those states that create the best, the most attractive conditions for the birth of ideas, for the self-actualisation of specialists and for capital investment.

We must ensure the creation of new enterprises and good jobs in Russia, and minimise the distance from business ideas and innovations to the end product and the market.

Unfortunately, we are all well aware that this is far from the case in this country – this distance is very long here. We must provide government support for private companies that are ready for innovation and development. This is the formula for responsible government thinking. Last year the government approved the strategy for Russia’s innovation-based development until 2020. That document outlines ambitious but entirely realistic targets that are adequate for the requirements of our society and for our competitiveness. Over the next 10 years the share of innovative products in our industry must grow from the current 4.5%-5% to 25%-30%. By 2020 expenses on R&D should also almost double to 2.5%-3%. Unfortunately, they are as low as 1.16% now.  We will need to both carry out modernisation and create new industries. Retrofitting should become a widespread practice and an effective development model. In addition, Russia will need to significantly expand its presence on global high-tech markets. To this end, we plan to increase the funding for research and university centres, and to provide greater support for innovative businesses and breakthrough projects. Most importantly, we should form long-term and stable demand for innovations in the economy, and partially state-owned companies should play a critical role here.

Please note that partially state-owned companies should not act as substitutes for private businesses. Instead, they should act as catalysts for innovative processes, particularly when a process involves known elevated risks, through major investments in research, production and the purchase of modern goods or services on the domestic market. This is exactly why a decision was made to draft and approve special innovative programmes for all major companies partially owned by the state. We will look into this work today. Considerable amounts of money are concentrated in this sphere. This year companies partially owned by the state will put about 950 billion roubles toward innovative programmes. Next year, state-owned companies’ demand for innovations will increase to 1.5 trillion roubles.

Colleagues, I’d like to call your attention to the fact that, first, programmes for the innovative development of state companies should be tied in with their investment projects and financial plans, and also be deeply integrated with business strategies. Of course, the point is not in simply disbursing the funds allocated for innovations, but in using such funds to make the Russian economy and individual companies more competitive.

Second, I believe that the compensation of executives and top managers should be tied to achieving key targets of innovative development.

Third, these targets should be quantifiable and meaningful so as to show effective changes in corporate operations.

Finally, I suggest expanding the list of partially state-owned companies that are charged with the task of developing innovative development programmes. I’d like the Ministry of Economic Development to develop proposals regarding these issues and to think in general about enhancing the effectiveness of the innovative programmes pursued by partially state-owned companies. This is also true of another new form of partnership between the state and private businesses that we are currently introducing. I’m referring to what is known as technology platforms. I believe we have 28 such platforms in Russia. They make it possible to focus the efforts of the state, science, education and business on breakthrough projects precisely in the industries that will define the new world order in technology. I’m referring to medicine, biotech, energy, the space industry, as well as nuclear and information and communication technologies. I would like to see all major partially state-owned companies to get involved in this work and develop customised plans for participation in the work of such technology platforms.

There’s one more item on our agenda today. As you may recall, Vnesheconombank, the Ministry of Economic Development, Delovaya Rossiya and the Strategic Initiatives Agency signed an agreement to support major territorial and industrial clusters at a Delovaya Rossiya convention. I believe that such a mechanism for the comprehensive development of Russian territories should be actively used and promoted on the basis of international as well as our own experience. For example, such a cluster is already operational in the Tomsk Region’s special economic area. Rosatom, for its part, is developing cluster projects in the Ulyanovsk Region and the Krasnoyarsk Territory.

Clearly, regions, municipalities and production businesses are interested in implementing such projects. The Russian regions and local authorities receive additional revenue; new jobs are created; and many social problems are resolved. Businesses, for their part, will receive real support during the start-up period, and reduce their risks and expenses on their way from business concept to the opening of an actual production facility. We need coordinated, comprehensive approaches toward the establishment of territorial and production clusters with clearly defined responsibilities of all participants in this process. We need to have a clear understanding of who is going invest in the construction of transport, energy and housing infrastructure. We need to know how we can engage development institutions and partially state-owned companies in the implementation of cluster projects. We also need to know how to minimise risks involved in research and design. In this regard, I’d like the Ministry of Economic Development to quickly draft a list of pilot projects for developing territorial clusters and submit them for consideration by the government. I’d like to see the operation criteria and effectiveness indicators established right at the outset. This is all I have to say at the beginning of our meeting.

Mr Klepach, please go ahead.

Andrei Klepach (Deputy Minister of Economic Development): Mr Putin, commission members: the programme to develop innovation technology, that we initiated last year, is receiving support in three forms. Mr Putin has laid out the following: first, the innovation development programme; second, technology networking platforms, and the third approach, which is only now beginning to take shape, is innovation-research centres.  

In short, you have the presentation, our report on the programmes for innovation development. What do we expect from these programmes? Mr Putin has told us about it, but I would like to emphasise some points. The participating companies (there are many types of companies listed), those that are taking part in these programmes, make up one third of all Russian industrial production. But if we look at the research potential, or the investment made in research and development, it is almost half of the total research and development carried out in this country even including the expenses on fundamental science. The programmes that have been approved provide an increase in the funding for research and development of almost 60% (even higher) during these years. These companies have committed to redouble their research and development expenses for 2011–2013. What results will this bring? If we take a look at the parameters in the growth of labour productivity and energy efficiency, they are approximately 100% higher than in the [national] economy in general; therefore this is indeed a very important driver of quality and efficient growth.

Some problems, in short: Mr Putin has stressed that in reality the programmes presented here don’t agree with these companies’ strategies and with their financial plans. Not only that, but most companies have no long-term strategy at all. They have one-year financial plans, and the programmes for innovation development which includes the financial intentions of these companies and the requirements or what they intend to get from the state, are mostly for five or even for eight to nine years. It is necessary first, to change the thinking of corporate management, that is, to develop long-term strategies coupled with long-term financial plans.

Second, the ministries should review these programmes and link them to state programmes currently under development, and duly amend draft federal targeted programmes so that we have a harmonized process. Perhaps we should consider the experience of our colleagues in Kazakhstan; they are organised in a strict vertical format: the strategic plans adopted by Kazakhstan’s state bodies and ministries are distributed to their major companies. And the key objectives for both qualitative and quantitative growth are included in the companies’ strategic plans. We don’t have this link as yet. As for the preliminary results of these programmes in 2011, we will have the full picture in May. But what can we say now? We know that about 90% of the expenses for development, that is, expenses for capital assets and research and development in 2011, were used. But the indices vary by company. A number of companies have implemented 50–60% of their plans. Primarily, these are the companies, including defence contractors, which strongly depend on state funding. In fact, 60% of the money spent by these companies on R&D is state money, that’s why it is important to coordinate these projects with state programmes.

There is one more problem that directly concerns our technology platforms. Of 47 companies, some 37 participate in technology platforms or networks. Of these, nine are coordinating companies. But what does our analysis of these programmes tell us? It shows that many technology areas are a considerable hindrance to development.

Here is the slide No. 6. This shows three areas in technology development that we consider serious obstacles, according to various companies and experts. These are the development of composite materials, the modelling and design of sophisticated systems, and fuel cell technology. Actually, many companies are carrying out research in these areas. The state allocates sufficiently large funds. If we take composite materials, the annual expenses in all defence and non-defence areas make up about 8-10 billion roubles in state funds and 7-10 billion in private funds. But the results do not meet our objectives written for the development of defence industry and scientific research. So the first point concerns not the money but the coordination efforts. To coordinate these efforts we, along with the Ministry of Education and Science, the Ministry of Industry and Trade and other departments are trying to establish a coordinating programme at the state level for science and technology.

It should be borne in mind that the current federal targeted programme ends in 2013, and even no state funding is planned.

And so now the Ministry of Education and Science is drafting its government programme which sets out the key technological areas of such forward-looking plans, including composites, medical technology and software. On the other hand, together with the Ministry of Industry and Trade, we must see how these forward-looking plans develop into concrete hands-on technology and how they mesh with what the companies are doing. Perhaps we may have to produce some roadmaps to ensure close cooperation on, say, the composites, where there are now four to five players but their efforts are very scattered. So the main objective here is to focus the resources, the manpower and money. In that case we could make a breakthrough in these technologies, which are essential to our technological competition and research potential.

The slide No. 8 shows technological platforms (you see that the technological areas highlighted here are all interlinked with technological platforms.) Therefore, we have 28 platforms, as you said just now. Two more draft platforms have been submitted to the government – one on textiles and the consumer goods industry and one on managing complex systems. A green car platform (it was examined by our task group) is at an advanced stage. Perhaps around 10 more are next in line.

Rather than expand the field, we are trying to concentrate on support and development of the platforms that have already been adopted. This involves a lot of organisational work, which is done by the platform coordinators together with our task group and government departments.

Today, as I understand, Lyudmila Ogorodova (chairperson of the Healthcare of the Future technological platform) will present a platform on the healthcare of the future. It is one of the platforms we consider most advanced, and we are closely cooperating on it with the Ministry of Healthcare and the Ministry of Education and Science. It is not only concerned with human health, but also spells a huge technological breakthrough for our economy and healthcare. What aspects should be stressed here? The effort involved is massive and organisationally challenging, calling for heavy outlays, including financial costs. One of the proposals by our ministry, which in effect encapsulates the joint position of the task group, is to provide a type of subsidy for strategic planning, or in other words to indicate what needs to be researched and how cooperation is to be arranged. Our estimate is something like 300 million roubles, which is required to develop between 10 and 20 platforms and keep them going in the course of a year. This money could be added to the draft government programme for the development of science and technology. In that way, we could guarantee the high quality of these plans and in fact co-finance the efforts by platform participants.

While a platform is in effect a public private partnership in a specific technological sector and a cluster of technologies, including ones with outlets to innovation and to the market, regional production clusters are a local organisation but also aimed at technological development and providing innovation outlets.

The projects currently being examined by the task group and the projects from the regions are divided into two groups. The first are clusters based at a particular town that feature strong specialisation and have a strong parent company. Above all, these are the Rosatom or Roscosmos clusters. For example, Zheleznogorsk, which has a nuclear chemical mining plant and the Reshetnyov space production centre (Reshetnyov International Satellite Systems). There also such cluster projects, as the petrochemical plant in Nizhnekamsk or Togliatti-Samara, built around car-building and airspace projects. Their organisation is more complex.

We are currently working on these projects. What would I like to stress here in the first place? The key word is organisation. The cluster projects presuppose the following: first, there is not only a historically evolved cooperation pattern but also a research and technology potential of global level here, which will enable us to make a giant leap in the next few years. Second, there are programmes which they have been able to prepare: both a programme of anchored or basic production and a diversification programme. This is particularly important for Rosatom. In restricted administrative territorial entities it is necessary to create a wider field of activity. Third, it is a programme for the development of the town itself and its infrastructure. In the past, in the Soviet times such restricted entities or clusters of this type ensured higher living standards for the residents, which corresponded to global and innovative developments implemented there – a science campus, Zheleznogorsk (Krasnoyarsk-66) or Sarov. Now business development programmes provide no money for the town or  its infrastructure. The economy is becoming tougher.

However, we must have tools and mechanisms for people living there to enjoy high standards of living and self-fulfilment. At present it is difficult to estimate the scope of the current projects, but they cover about 1.4 million people, if not more. That is a tremendous section not just of the entire country’s population, but also of Russia’s intellectual elite. One of the mechanisms we have proposed is to examine the possibility of such development subsidies as would ensure and lay down living and project implementation standards. These devices can be incorporated into the subsidies provided to even out budget allocations. Our preliminary estimate is five billion roubles.

We are also analysing an option of using the benefits and preferences available for Skolkovo. We must draft our proposals very soon together with the Finance Ministry and other departments. It appears, therefore, that this combining of company programmes, technological platforms and clusters is not only an economic and technological project but also has enormous social implications. It will allow a certain proportion of the science and engineering elite in Russia to have living standards comparable with those in the West. It will let people work for the benefit of Russia inside it. Thank you, I have finished.  

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Andrei Fursenko: Thank you. First, I would like to express my support for what Mr Klepach said. In fact all of the reports stated that new instruments are required to support strategic projects. The current draft federal budget allows us to make plans for a maximum of three years, and even if we have longer-term estimates, we still allocate financing for three years. As for the projects we discussed today (such as the latest medical projects that Mr Kiriyenko spoke about), these require broader horizons. Therefore, the first point I would like to make is that we need a new instrument which would enable us to finance strategic projects for periods longer than three years.

My second point, which I think is also very important, is that these projects require constant and close monitoring. We have included a respective proposal. As we can see, companies are increasing investment in scientific research. Over the past year alone, they doubled investment in 2011 as compared with 2010.  Companies invested about 2 billion of their own capital in 2010 and over 4 billion in 2011. But it is important to constantly monitor project implementation and spending from various perspectives. As it is, if we analyse the cooperation between universities and companies from both sides; the figures do not always match. Therefore, we have a request. We have included a proposal about improving the monitoring system in our project. We need the key project parameters to be supplied in digital format at regular intervals – rather than to receive them once a year from the contractor, so that we could make the necessary improvements more promptly.

And my third point is coordination, something Ms Ogorodova spoke about. It is important that this work involves more agencies than those responsible for specific tasks. We have a great deal of successful experience. A working group under this commission supports programmes for innovation-based development and technological platforms. It is led and coordinated by the Ministry of Economic Development. Our ministry and the Ministry of Industry and Trade are also involved. This group could effectively coordinate all breakthrough projects, so that they would be inter-departmental projects. This, in brief, is what I wanted to say.

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Vladimir Putin’s closing remarks:

I am not going to speak about the importance of the issue on our agenda today again. It is enough to say that it concerns the overall development of our economy. I don’t see any need for further comment. Since my article on Russia’s economic development, published today, has been mentioned here, I’d like to say that it comprises my own views on how the economy should develop, as well as the views of those with whom I have had the pleasure of working in the past years.

These are different people holding different views. The one thing they have in common is the direction of our economic development, although there are some details, which I would describe as personal preferences. However, the ultimate result, the article as I sent it for publication, fully reflects my own views of what we should do and the direction in which we should progress. We will certainly talk with you about some elements, in one format or another. But the development strategy which we discussed today, innovative development, is definitely a key avenue of our development and our future. In fact, it is our future.

I would like to thank all of you for your contribution and express hope that everything we have agreed upon will be implemented. Thank you very much.