Vladimir Putin: Mr. Ivanov, I would like to ask you a few questions. First of all, what do you think about the current defence-industry situation and its short-term prospects? 

Second, I would like to know about the state defence order - the current state of things and prospects for the next few years with account of decisions we have taken on the budget for a three-year period.

Third, I have just signed a government resolution on allocating an additional 67 billion roubles ($2.6 billion) for the Global Navigation Satellite System (GLONASS) programme. I am also about to sign a document stipulating another 45 billion roubles ($1.8 billion) for the national space programme.

Please tell me about the planned disbursement of these allocations and specific objectives, due to be accomplished under both programmes in line with additional funding.

Sergei Ivanov: Mr Putin, I'll first discuss the defence-industry situation, as you requested. On the whole, the industry has been marked by positive developments in the last few years. As of late 2007, all registered defence companies doubled production over 2000.

Barring the military shipbuilding sector that faces serious problems, positive trends have been chalked up in the last seven to eight years. I know that you are aware of the involved situation now plaguing the military shipbuilding sector. We have held several conferences aiming to support the sector and to facilitate its development. We know what has to be done. However, it is impossible to rectify the situation in one year at the nuclear-powered submarine manufacturer Northern Machine-Building Production Association (Sevmash), caused by problems that have developed over many years.

Nonetheless, the defence industry is, on the whole, developing positively. Moreover, our companies continue to manufacture additional military, civilian and dual-purpose products.
Civilian or dual-purpose products now account for 45% of the defence industry's output. This is an average estimate, just like estimates of average hospital-patient temperatures. This means that on average an enterprise turns out 55% of purely military products; and the rest is either civilian or dual-purpose technology.

I believe this positive trend makes it possible to involve defence-industry companies in the high-tech, innovation economy.

As far as the state defence order is concerned, the Finance Ministry and we have started drafting the three-year defence-order budget.

Vladimir Putin: Excuse me, please, but first a few words about the shipbuilding sector. We know what is going on there. Please, continue to pay very close attention to these problems and please, see to it that the entire shipbuilding industry, and especially the military shipbuilding sector, accomplishes all planed objectives.

Sergei Ivanov: Incidentally, this is also stipulated by the three-year defence-order budget.
The Finance Ministry and we have drafted a detailed three-year defence-order budget, which has been approved by the government's budgetary commission headed by you and submitted to the State Duma for consideration. Due to inflation and the need to follow the instructions of the President and the Prime Minister, the state defence order will receive additional funding.

To be frank, inflation regarding military products exceeds the Economic Development Ministry's average statistical forecasts. We have verified this, submitting evidence of skyrocketing prices for metals, components, etc. to the Finance Ministry and convincing its officials that state defence order volumes will swell by 70 billion roubles ($2.7 billion) in 2009, by 40 billion roubles ($1.6 billion) in 2010 and by another 60 billion roubles ($2.3 billion) in 2011.

Apart from equipment procurement and R&D projects, the state defence order also stipulates funding to acquire petroleum, oil and lubricants (POL), clothing and food for the Armed Forces and the entire military establishment.

Consequently, the state defence order will hit an all-time high of 1.2 trillion roubles ($47.2 billion) next year. This concerns all security agencies, including expenses not linked with equipment manufacture and capital construction. Naturally, we will attach priority to procuring new military equipment, including the naval technology mentioned by you.

Vladimir Putin: Now let's turn to GLONASS and space exploration.

Sergei Ivanov: As for GLONASS and space, on Monday, I chaired a conference involving all the concerned ministries and departments at the Government Building. The conference finalised a new bill "On Navigation Activity in the Russian Federation."

I want to say that nationwide, satellite-based navigation activity has not been regulated by any legislation to date. Many companies are taking advantage of this essentially free market segment. The new bill envisions absolutely unimpeded and open navigation activity. Coordinate accuracy will be reduced only in some areas under a special Defence Ministry list. Such restrictions will not apply to all other Russian regions. Just like the Global Positioning System (GPS) of the United States, GLONASS will transmit open signals to all users free of charge.

All state-regulated sectors, namely, federal transport, civilian and military ships and rail, pledge to use Russian-made equipment. However, this provision does not apply to the commercial market.

And the last thing. Just like in other countries, a joint operator will be established here, upgrading the system's commercial version and ensuring absolute control. This is standard international practice.

Thank you for allocating 67 billion roubles for the federal targeted programme GLONASS in the next three years.

First of all, the money will be used to expand the GLONASS satellite cluster. This year, six new satellites will be sent into orbit, swelling the entire cluster to 22 spacecraft. We will continue to launch satellites until 2012 when GLONASS will cover Russia and the whole world.

Vladimir Putin: The whole world?

Sergei Ivanov: Yes, the system will cover the whole world by 2012. So, part of the funding will be spent on the satellite cluster.

Second, the Industry and Trade Ministry will also receive funding and will use it to develop ground equipment for the Defence Ministry, other law-enforcement and security agencies and the commercial market. Naturally, we must considerably upgrade the national micro-electronics industry and develop competitive chips because ground equipment cannot function without them.

Third, Roskartografia, the National Mapping Agency, will receive about 10 billion roubles ($393.86 million, or €274.5 million) for making digital electronic maps of all Russian regions, city-plan and road-map grids because GLONASS cannot operate without such software.
Although GLONASS is already being introduced in some constituent entities, additional funding will make it possible to expedite its overall introduction. I recently learned that in Krasnoyarsk the system works very effectively, controlling the movement of ambulance cars and road-building machinery.

Vladimir Putin: And what about the space programme?

Sergei Ivanov: The federal space programme is a purely civilian project. You have already received a draft resolution on allocating another 45 billion roubles ($1.8 billion) for this federal targeted programme in the next three years.

A Security Council meeting chaired by you has decided to set up a new space centre in the Amur Region in Russia's Far East. The funding will be used to design that space centre.

Second. We must fly all manned missions in accordance with Russia's international commitments under the International Space Station (ISS) programme and build new ISS segments.

Third. Russian scientists are saying with good reason that the country has lost many space probes and remote-sensing satellites which have facilitated a cost-effective economic performance, scientific and meteorological research and weather forecasts.

Vladimir Putin: Wonderful. Mr Ivanov, it has been proposed to establish a council of chief designers working in innovative sectors of the economy under the Prime Minister's auspices. Please formulate the relevant proposals regarding the Council's line-up and work organisation in the next few days.

Sergei Ivanov: I will do this with pleasure, all the more so as in some economic sectors, primarily the defence industry, there appeared some highly professional chief designers in the past few years.

In my opinion, we must focus on the aircraft- and ship-building industries, space exploration and the Rosatom Nuclear Energy State Corporation. If you give me a few more days, I will find out whether we can involve some other civilian sectors.

I will consult Economic Development Minister Elvira Nabiullina, asking her to involve the most promising innovative sectors, namely, telecommunications, information technology and electronics.

We must assess these innovative sectors in greater detail and submit our proposals to you in the next few days.

Vladimir Putin: Good. I will be waiting for your proposals.