Transcript of the beginning of the meeting:

Vladimir Putin: Good afternoon. Let’s exchange current information as usual. Ms Skrynnik, what decisions do we have on milk prices?

Yelena Skrynnik: Mr Putin, to keep a rein on prices during the high milk season and maintain balance between branches, milk processing plants and raw milk producers and agricultural companies – 3,500 organisations in total – signed an agreement on milk prices. The average price amounts to 16 roubles. Last year…

Vladimir Putin: But will we have a price corridor?

Yelena Skrynnik: The price corridor will be from 19 roubles to 16 roubles but eventually we agreed that we will try to keep it at 16 roubles, all the more so since it was 14 roubles in 2011 and 12 roubles in 2010. Considering this positive trend we hope for 16 roubles. This will allow us to preserve the cross-sector balance during the high milk season and maintain the investment appeal of this industry.

Vladimir Putin: Quite recently I visited the Altai Territory. I was in Barnaul and met with heads of major enterprises, including agricultural ones. They emphasised this particular problem. It is also linked with milk processing, for instance, in cheese making. I don’t want to go into details at this point but I think that there are problems in this sphere, some of which were created by dishonest competition on the part of some of our partners. We must sort this out in a calm and businesslike manner. I spoke with you today in the morning and I’d like to ask you to contact your colleagues and the governor and go there together with specialists to resolve this issue on location. Is this okay with you?

Yelena Skrynnik: Mr Putin, we are going to sign the agreement on February 24. We have already agreed to meet and spend the whole day in the Altai Territory.

Vladimir Putin: Okay, thank you very much. Mr Avdeyev, the government has signed a resolution on measures of additional support for federal budget educational institutions of secondary and higher professional education in the field of culture for 2012-2014. Could you please comment on this decision?

Alexander Avdeyev: Mr Putin, this is an important measure of support for education. It concerns not only Moscow and St Petersburg but first and foremost the regions. I would like to mention the educational institutions that are receiving this support – the Krasnoyarsk State Art Institute, the conservatories in Novosibirsk, Saratov, Nizhny Novgorod and Kazan, the Novosibirsk Choreographic College that trains wonderful ballerinas and dancers, and the Perm Choreographic School. On the whole, this measure (and it is not the first one for these institutions) will enable them to continue being major regional centres of artistic education. These funds allow them to invite the best teachers, some of them from abroad, to conduct conferences and forums and to upgrade the entire teaching process by using innovative methods and modern equipment. And the main point is that the teachers of these institutions will receive a 150% increase in salaries.

Vladimir Putin: Have their salaries been doubled yet?

Alexander Avdeyev: They have been increased 2-2.5 times. There are institutions that have already received grants and now we will pay new ones to many of them. They will have the same salaries but these salaries are 2-2.5 times higher than of those who have not received these grants. This promotes sound competition and next time others will also try to be first and receive the grants. This is a very important measure and it preserves our three-tier system of artistic education that is among the best in the world.

Vladimir Putin: Could you please repeat how many institutions are entitled to it?

Alexander Avdeyev: 12.

Vladimir Putin: 12. Okay, thank you for preparing these documents.

Mr Belyaninov, I have asked you to sort out one regional issue – the use of cars delivered to the special economic zone of Magadan. What proposals do you have?

Andrei Belyaninov (head of the Federal Customs Service): Mr Putin, Nikolai Dudin, governor of the Magadan Region, has also asked us to study this issue. We have reviewed it – it concerns payments for the entry of cars on the territory of the Magadan special economic zone. Today, this issue is within the competence of the Customs Service but it will require changes in our legislation in the near future. I’d like to ask you, Mr Putin, to give instructions to executive bodies to work on legal amendments.

Vladimir Putin: But what you propose is a temporary measure, isn’t it? It will be valid until a decision is made at the legislative level. Is this correct?

Andrei Belyaninov: Yes, until a decision on amending the law is made.

Vladimir Putin: Okay.

Andrei Belyaninov: This will be done in the next few days, today or tomorrow.

Vladimir Putin: Mr Shuvalov, could you please deal with this issue. We may have to coordinate some provisions with our partners in the Customs Union.

Igor Shuvalov: We will do it.

Vladimir Putin: Thank you. Mr Siluanov, could you please tell us about the market and bank liquidity? We have discussed this issue more than once and major banks with state participation had particular interest in it. How are things now?

Anton Siluanov: Mr Putin, things are back to normal. Now these banks’ accounts with the Central Bank have more than one trillion roubles. Before, this sum amounted to about 300 billion roubles. The economy has the money. One of the factors influencing this situation is linked with this year’s budget implementation. The ministries have started to spend their funds more evenly and we even had a budget shortfall in January (this is why we discussed this issue). In the first two weeks of February spending has also exceeded revenue. This is why banks have enough money in the economy. As a result, interest rates in the interbank market have decreased by about 0.3%-0.6% and amount to about 7%. In other words, this is…

Vladimir Putin: Why are commercial banks increasing their interest rates? I meet with business people in the regions and they complain that Sberbank and VTB affiliates raise interest rates on new loan agreements.

Anton Siluanov: We have to look at this on a case-by-case basis. Banks draw money not only from the interbank market or the Central Bank but also from the population and commercial…

Vladimir Putin: It is clear that they are using different resources but when they start increasing interest rates they aggravate inflation. What for? There are no objective reasons for this. The Central Bank has not raised its refinance rate.

Anton Siluanov: Mr Putin, you are absolutely right. Our inflation is low. We hope that this year it won’t be higher than last year. The interbank market is not expensive and, of course, we must sort out things with these banks.

Vladimir Putin: Look, I haven’t pulled this out of a hat. Representatives of major enterprises in Barnaul in the Altai Territory told me about this the day before yesterday.

Anton Siluanov: Mr Putin, we will sort this out.

Vladimir Putin: Please talk to them and find out what is going on. They are bleating about inflation and difficulties. And what is difficult? It appears they are driving inflation themselves.

Anton Soluanov: I see.

Vladimir Putin: The Central Bank has not increased its refinance rate, has it?

Anton Siluanov: No, certainly not.

Vladimir Putin: No.

Anton Siluanov: Mr Putin, I’d like to say a few words about the following issue. We have issued a loan for 15 years – for the first time in recent years. Last year we borrowed money from the domestic market for four or five years. And this year we have already issued loans for 10 years twice, and today – for the first time in the last few years – we have issued a loan for a term of up to 15 years with an annual interest rate of 8.3%. What does this mean? It means that confidence in our policy – not only our debentures but our policy as well – is being revived. We can see that foreign investors are also arriving. This shows that we are implementing a responsible budgetary policy, and moreover, without increasing spending. I think that we will achieve even more impressive success in this field, if we formalise this approach in the Concept 2020.

Vladimir Putin: We will continue to act this way in the future. Last year, we had spent only 10% of additional revenues on consumption. We must act more prudently this year, despite upticks in the market situation, because the current situation is apt to change. We realise what is currently happening in and around Libya. This affects deliveries of crude oil to European countries. But I’m calling on all of my colleagues to act in an extremely prudent manner and to disregard these indicators.

The year has just started, and we still have a lot of work to do in the future. There are a number of processes that we are unable to control. As a result, we must behave in a manner that is very responsible and prudent in this sphere. Please speak with your colleagues because, as I understand, there may be certain risks and certain other things, but it is essential that we take a responsible approach. They must keep an eye on their subsidiaries and watch developments within such subsidiaries.

Anton Siluanov: I understand.

Vladimir Putin: Please, go ahead, Ms Golikova (addressing Tatyana Golikova, Minister of Healthcare and Social Development). Could you say a few words about the labour market situation?

Tatyana Golikova: Mr Putin, colleagues. As you know, we have decided to allow Russian regions to mostly regulate the labour market situation starting January 1, 2012. I would simply like to inform you that the labour market situation has remained stable for the past 1.5 months, and that overall unemployment levels totaled 6.6% in January. The share of registered jobless persons was 1.7%. In effect, we had posted even better parameters than in 2011.

The lowest overall unemployment levels were posted in Moscow, St Petersburg, as well as in the Moscow, Leningrad and Magadan regions and in the Yamal-Nenets Autonomous Area. Nevertheless, as you recall, we have retained two prerogatives, apart from benefit payments, while transferring our prerogatives. The first is support for specific territories and the formulation of programmes for those still facing a tense labour market situation, that is, where the number of registered jobless persons exceeds the average nationwide levels. The second prerogative concerns measures to facilitate the employment of jobless people with disabilities, families with many children, etc., as well as creating jobs for them. I would like to point out that 15 Russian regions are facing a tense labour market situation in 2012. The number of registered jobless persons there exceeds the average nationwide levels. These regions still include all the republics in the North Caucasus, the Republic of Adygea, the Altai Republic, Buryatia, Kalmykia, Mari El, Tyva, the Altai and Trans-Baikal territories and the Kurgan Region.  

As of now, we have coordinated a 1.5 billion rouble federal programme with 81 Russian regions as part of an inter-departmental discussion. This programme is intended to reduce labour market tensions. Only Moscow and St Petersburg have declined federal support because their situation is quite favourable. If something happens there, they will address the problem using their own assets. In all, projects to reduce labour market tensions will involve 35,000 people this year. A total of 540.5 million roubles will be spent on projects to facilitate the employment of disabled persons and to support families with many children. The 15 regions mentioned above will receive 959.5 million roubles. In all, 61 regions have already passed their own programmes. Twenty regions have so far failed to pass such programmes. According to our information, their programmes are currently being signed by top regional leaders. There is one problem that concerns us. The Chechen Republic, the Republic of Ingushetia, the Altai and Trans-Baikal territories, which are facing a tense labour market situation, have so far failed to sign their respective programmes. Unfortunately, as of February 15, the number of registered jobless persons has increased by a small margin in all regions that have a tense labour market situation. This can still be explained by the seasonal factor, which usually manifests itself at the beginning of the year. The Kurgan Region is the only territory which has posted a decline. We are continuing to monitor the situation in all other 14 regions, but we still are not quite happy with the situation there so far. But I think that the final conclusions can be drawn according to the first-quarter statistics when the routine annual decline in unemployment will be posted.

Vladimir Putin: You must work with those regions that have so far failed to approve their own programmes.

Tatyana Golikova: Yes, sure.

Vladimir Putin: And you must see to it that these programmes are drafted and approved, especially since these regions face the most unfavourable situation in terms of unemployment.

Tatyana Golikova: Yes, we are doing this.

Vladimir Putin: Look, you and I both realise that 49.27% is a bit over the top. Obviously, this problem did not emerge yesterday, this persistent problem has been inherited. But we must fight it. And we need a clear action plan in order to do this.

Tatyana Golikova: All right.

Vladimir Putin: I would like to say a few words about our agenda. Today, we will have to examine quite a few issues regarding strengthening of national security, the development of the Armed Forces and the defence industry sector. This means ways of improving the system of state defence contracts and the adoption of such a basic and strategic document as the draft federal targeted programme for expanding the national defence industry sector until 2020.

As you know, we will have to implement a huge and unprecedented rearmament programme within the next ten years. To accomplish this objective, we need to drastically overhaul the national defence industry sector, modernise existing production facilities and create new ones. Moreover, we must achieve leading global positions in terms of the entire range of military and dual-purpose technologies.

There are just a few statistics that I would like to mention here. By the year 2020, at least 80% of equipment at defence industry enterprises should be less than ten years old. The defence industry’s labour productivity should increase by 160% during this same period. We will have to work hard in order to accomplish and attain these difficult objectives and figures. Moreover, we will have to change a lot in the sphere of state defence contracts and to adjust this mechanism in order to accomplish long-term tasks. I have just met with brigade and division commanders at the Taman Division, and I have to tell you that even such high-ranking commanders would like to know whether the national defence industry will be able to cope with such huge volumes. These are not idle questions. We in the government have debated this issue for a long time. We must do our utmost to accomplish this objective. In effect, this calls for a new approach towards relations between state clients and defence enterprises. Moreover, we must link the planning, awarding and implementation of state defence contracts with the modernisation of the national defence industry. In the long run, national defence spending must become far more cost-effective.

We must streamline state purchases under specific state defence contracts and formalise contract implementation deadlines. This is one of our main objectives in this sphere. We must eliminate the causes behind various delays, emergency jobs, all sorts of permanent adjustments and specifications, as well as the muddle involving contracts. I’m particularly concerned that sometimes funds are being diverted from one object of expenditure to another within the year, with the promises to finance neglected areas  later on. We have discussed this issue with the Defence Minister. This is a highly dangerous practice. As a result, we might fall behind in some areas and fail to completely finance high-priority aspects.

We must ensure the rhythmic and sustained operation of all defence industry enterprises for the long-term. This means that plants must receive an opportunity to plan their respective production volumes ahead of schedule and several years in advance. Consequently, they will be able to confidently chart their own investment programmes and attract the required loans. We discussed this in great detail in Komsomolsk-on-Amur the day before yesterday. I also propose that state clients make fixed advance payments equaling annual state contract funding volumes. This form of work will provide enterprises with the required circulating assets for the entire project cycle. In fact, the Defence Ministry has already opted for this. Three-year, five-year and seven-year deadlines are laid out. Such advance payments are already being introduced.

Furthermore, we must formalise specific principles and methods of state regulation of prices for defence product shipments. Notably, we must calculate maximum profit rates of executors. Moreover, we must stipulate tough anti-monopoly requirements for suppliers of components, raw materials, feedstock and materials, so that enterprises will not be affected by price discrepancies. On the one hand, they cannot be allowed to charge prices that are prohibitively high. On the other hand, colleagues, I would like to draw your attention to the fact that they cannot be put in an excessively difficult situation. I’ll refer to my meeting yesterday in the Altai Territory, where many good defence industry enterprises are located. The managers of some enterprises that manufacture components for aircraft and primarily naval equipment say that they post zero profits and sometimes negative profits. This, too, must be prevented. When we say that leading enterprises must post 13-15% profitability, then we must not place components suppliers in such a deleterious economic situation.

And, of course, we must make the strictest discipline a priority in the sphere of defence product deliveries. State defence contracts must be fulfilled accurately, without fail, and strictly in time within the planned funding volumes. The heads of companies, ministries and departments must assume personal responsibility for this. Any signs of corruption in the sphere of national security and defence are absolutely unacceptable and must be eradicated.

The federal programme must become a highly important instrument of defence industry modernisation. As I said, we discussed this recently in Komsomolsk-on-Amur.

The programme is set to be implemented until 2020. Its implementation will make it possible to considerably expand the sector’s science and engineering and production potential, and to create an advanced innovation structure of the defence industry sector. It will envisage linking specific R&D projects in terms of their respective tasks, resources and deadlines to fulfilling the state arms procurement programme for the next ten years. And, of course, the programme will prioritise the training, advanced training and retraining of defence sector specialists. I would like to note that the programme is intended to train, retrain and provide advanced training to about 200,000 industry specialists until 2020.

To lay the science and engineering groundwork for the industry ahead of schedule, we must tap its human resources potential to the greatest extent possible and reinstate the continuity of generations among engineers and technicians. It is very important that we enable people to advance and implement the boldest and most ambitious ideas, which will make it possible to manufacture completely new and competitive military products.

I know that we have such people. They are young and promising, and they are ready to do this work. They regard such work as both their main activity and their hobby. Really, this is great. We must place our bets on precisely such people.

I would like to make note of another item of our agenda. This issue is directly linked with defence and Russia’s science, technological and engineering development. I’m talking about the construction of the new Vostochny space centre, which ranks among the most ambitious contemporary Russian projects. I would like to remind you that the facility is set to begin operating already in 2015. And manned missions are scheduled to lift off from this space centre in 2018.

The national launch facility will enable Russia to fly independent space missions. As you know, we currently operate dual-purpose space centres, which are former military installations. The main Soviet-era space centre remains in Kazakhstan. Yes, we have signed an agreement and the relevant contracts for the use of this facility. But Russia must have its own space centre. This will make it possible to orbit multi-purpose spacecraft, to fly manned missions and to implement long-term programmes for studying celestial bodies. Moreover, the space centre will facilitate international cooperation in this sphere.

The implementation of this project should speak to the high science and technological status of this country. Most importantly, the space centre must become another powerful point of growth for the Russian Far East. The new innovation technological platform and the realisation of this project will enable thousands of professionals to unlock their talents. Moreover, the project will launch the careers of many young specialists in the sphere of space exploration and affiliated sectors.

Our high-priority task today is to create the necessary infrastructure ahead of schedule. In effect, this implies the creation of a modern city here. That city will have an airport, motor roads, railways, engineering mains and communications, state-owned apartment buildings and social facilities, including daycare centres, schools and hospitals. We must not repeat those well-known mistakes that have been made in the past, when the required national facilities were built at all costs,  and the people lacked the most basic accommodations. Those who were working on some ambitious national projects, including the Baikal-Amur Mainline, had to live inside trailers which cannot even be called housing, not even rundown housing.

We must create all the necessary conditions for the successful operation of the Vostochny space centre, as well as for the comfortable and dignified life of the space centre’s personnel. This is an absolute must.

Let’s get to work.