Transcript of the beginning of the meeting:

Dmitry Medvedev: Colleagues, we are here to discuss this week’s plans, but I will begin with a few major problems. The situation is out of control in a number of regions. I am referring to natural disasters, such as torrential rains and wind storms, which hit several regions on the Volga, in Kuban, and in the North Caucasus, cutting off the electricity supply. I hope that the supplies will be restored soon. Please see to it.

Unfortunately, natural disasters have frequently been damaging transport infrastructure as of late. This recently happened in Sochi. A bridge collapsed in Yaroslavl. Torrential rains have also hit Vladivostok, eroding part of a new motorway built specially for APEC Leaders Week in September. This motorway, which connected the Vladivostok airport with Russky Island, is a major project in the logistics support for this major international event.

Let me remind you that the investments in the road’s construction reached 29 billion roubles. And, as I was carefully reminded, 21 billion roubles of this sum came from the federal budget. However, despite the generous financing, it seems that the quality of the construction left much to be desired. Incidentally, in addition to the damaged road surface, a support wall collapsed. The landslide also damaged nearby structures, such as private garages. The departments concerned and the Prosecutor General’s Office are investigating the reasons for the accident and identifying the guilty parties, who will be punished. They will have to thoroughly investigate if this happened because of road design errors, violations of road construction technological regulations, or construction defects. In any case, this is the responsibility of the regional authorities in charge of the project. A thorough investigation needs to be conducted. Let me stress that those who neglected their work will be punished.

I also ask the regional government to take care of compensation for the people who lost their property as a result of the road’s collapse. This should be done promptly, avoiding red tape.

We only have a few months left before the APEC event. The road should be rebuilt as soon as possible. Again, this should be done quickly, but on a high quality level. All of the APEC construction projects need to be completed soon. Considering this event's significance, I plan to visit the Far East in the near future. We will hold a meeting of the Far East social and economic development commission to discuss all issues, including regional transport infrastructure.

Mr Shuvalov (addressing Igor Shuvalov), I would like you to keep an eye on this situation. I would also like to hear your report on transport facilities construction in Vladivostok and the Far East. I would like to hear status updates on projects developed in the run-up to the APEC forum and other transport projects.

Igor Shuvalov: Mr Medvedev, colleagues, first of all, allow me to comment briefly on the unfortunate accident on June 12. The torrential rains have actually damaged 750 sq m of road alongside a support wall. I have a photo story here. It clearly shows the damaged road coating and confirms the reports about the damage done to local garages.

Dmitry Medvedev: Mr Shuvalov, who built the road anyway?

Igor Shuvalov: The road was designed by the Khabarovsk branch of the GiproDorNII company. The construction was contracted to the Pacific Bridge Company and supervised by the Primorye government. At the same time, the federal government provided 21 billion roubles, which accounted for the greater part of the project financing. We have repeatedly visited and inspected the construction. It turns out, given the accident, that the quality of the design and construction was not quite appropriate. As you just said, the Prosecutor General’s Office is investigating this fact. A special commission has been established in the Primorye government, which is also probing the reasons for the accident. We will have more detailed information by the time you arrive in Vladivostok.

Dmitry Medvedev: No, I have a proposal. In any case, the accident suggests substandard work. The prosecution and investigative authorities will decide on the criminal penalty for the perpetrators. However, it is important to impose civil responsibility on them – I mean economic liability. This road cost a huge investment. I think that we should claim damages alongside lost profits, and a regular fine as well. Let’s not handle them with kids’ gloves.

Igor Shuvalov: Right, Mr Medvedev.

Dmitry Medvedev: In situations like this, we should always think about… Well, we should investigate the reasons, of course, but it is perfectly appropriate to bankrupt a company whose work falls so short of quality standards.

Igor Shuvalov: We’ll work on that and report back.

Mr Medvedev, as for your question about the present condition of the region’s transport infrastructure… The federal government provided 180 billion roubles under a federal targeted programme to develop Vladivostok as a centre for international cooperation in the Asia Pacific. State-controlled companies made additional contributions. Russian Railways invested 4.5 billion roubles in railway and station construction to service intermodal shipments between the Knevichi airport and Vladivostok. The Sheremetyevo International Airport invested about 4 billion roubles in a new terminal. As a result, corporate investments in transport infrastructure are almost equal to half of what the government provided.

These projects are almost finished, but we need to settle the issue of the motor road near Patroclus Bay, to repair it without delay. Experts say it can be done within two or three weeks, if the work is of high quality. All work on the agenda, including…

Dmitry Medvedev: No ifs – there should only be quality work, because you can see what happens when work is done improperly.

Igor Shuvalov: As for the two bridges that have been built in Vladivostok, experts are working on them, in particular on removing the tower cranes. We hope that by July 1, when you come to Vladivostok, we will be able to open traffic on the bridges in trial mode as part of preparations for the official opening of the bridges.

Dmitry Medvedev: I will drive across this road personally.

Igor Shuvalov: Very well.

Dmitry Medvedev: We’ll see what condition it's in.

Igor Shuvalov: Yes, but many other facilities have been built there with federal allocations, apart from these two bridges. We will show them to you during your visit and as part of preparations for a meeting of the commission on the development of the Far East and the Trans-Baikal Territory.

Dmitry Medvedev: Agreed, and thank you once again. And please, settle the issue with the contractor.

Igor Shuvalov: We will.

Dmitry Medvedev: Next on our agenda is an important issue – increasing salaries in the publically funded sector and taking measures to implement a number of state decisions and presidential laws and decrees. The quality of life for a vast number of people depends on this. I would like to remind you that a principled decision was made to raise the wages of educators, medical personnel, scientists, cultural and social workers by 2018. At the same time, we plan to raise teachers’ wages to equal the average wages in the economy of each region by late 2012. I recently chaired a meeting on this issue. On the whole, the situation is more or less normal, and the regions are making all the necessary decisions. Nevertheless, we have to monitor all of this.

I would like to remind you that the average wages of doctors, lecturers of higher educational institutions and academic fellows should exceed the average regional wages by two times by 2018. On the whole, we must admit that we will have to work hard in order to accomplish this rather ambitious objective. But, of course, this objective must be accomplished. And I will not conceal the fact that the government will, nonetheless, continue to prioritise all issues related to wage increases. Ms Golodets, of course, I would like you to continue fully coordinating this activity. Could you please say a few words about specific plans to organise work regarding salaries, primarily the wages of public sector employees, and how you plan to address this issue?

Olga Golodets: Indeed, in accordance with the pertinent decree, which stipulates targeted parameters regarding wage increases for social sphere employees, we have created an entire action plan. We, along with our colleagues, are discussing the pace for attaining the targeted parameters, and specific allocations that must be provided by the budgets of all levels in order to resolve various problems. It is very important that wage rises are combined with qualitative changes in the work of various economic sectors that we have mentioned. Regarding healthcare, this must be fully coordinated with the quality of specific services and with doctors’ education levels, qualifications and professionalism. The same is true of education in the context of transitioning to new education and specialist-training standards. In all, this sphere, or wage increases, will affect 10 million people out of the 71 million employed by our social sphere.

As for education, we must raise the wages of educators to the average regional wages by January 1, 2013. We are moving forward at a reasonable pace. At present, there are no regions that raise doubt that they will not attain these parameters. The situation in three areas of education, including pre-schools, additional education and higher education, is more complicated.

Regarding pre-schools, the level of their teachers’ wages is currently 67% of the average wages. This brings up a serious issue. Starting September 1, we plan very seriously to address the problem of the availability of pre-schools. We expect the number of pre-school pupils to increase by over a million. But at the same time, the regions approach this situation very thoughtfully, and we calculate everything down to the smallest detail at the federal level. And we hope that we will attain the preset targeted parameter by 2015, that is, even before the pertinent deadline. 

As for higher education, those higher educational institutions that will be qualitatively ready to convert to the new system of remuneration and new higher education indicators as of September 1, 2012, will be able to introduce the new remuneration system. And their educators will notice major wage increases.

We will have to make considerable headway in the area of additional education for children and school pupils. In addition, we will have to involve more children with the overall social sphere objective, and we will have to raise educators’ wages, which are currently 65% of the average wages. We also consider this to be a high-priority objective, and we plan to accomplish it already by January 1, 2016.

As for culture, we have also highlighted various high-priority issues. First of all, this involves musical schools and children’s art schools. In effect, this concerns virtually every Russian citizen who has children of pre-school and school age. The second culture-related aspect has to do with the wages of people working at museums, libraries and archives because, for some reason, their wages now fall short of any market-style remuneration standards.

The healthcare sphere is due for some very serious changes. Wage increases in this sphere are associated with three main objectives that are called upon to improve the quality of life in the Russian Federation. First of all, this has to do with the quality of outpatient clinics, the suitability of various processes and methods, the detection of health disorders at their initial stages and the quality of services offered to the population. Second, this has to do with the elimination of personnel shortages in the most popular key professions to date. And, third, this concerns efforts to improve the system for providing high-tech medical assistance. As we see it, progress in these three areas will rather seriously change the situation within the entire healthcare sector and will make it possible to raise wages by 45% on the current levels by 2015 and to attain the above-mentioned targeted parameter by 2018.

We also stipulate specific targets for social sphere workers. We are currently holding talks with all key departments, so that specific indicators, which have already been calculated, would attain specific values in all budgetary codes.

Dmitry Medvedev: Thank you, Ms Golodets. It should be admitted that such plans are rather ambitious. To be honest, we tried to focus on the wages of all public sector employees despite the market situation. In this manner, at times we probably acted counter to the economic situation, but, in the long run, this was justified. We need sources to pay money and to finance expenses that have to do with the wages of budget sector employees. The oil and gas sector ranks among our main sources. I have signed the pertinent protocol. A meeting on this issue was held on June 13. Of course, we need to create incentives for major gas companies, so that they will develop remote deposits. On the whole, this issue requires special attention on the part of the state. For this purpose, as we have agreed, the required severance tax calculation formula will be used.

This formula will be based on macroeconomic indicators and will consider market trends and the effectiveness of economic projects.

Participants in the meeting made a number of decisions on the oil industry and new oil deposits. As we agreed, I signed the protocol containing all instructions both with companies and government members. Mr Dvorkovich, please organise this work accordingly.

Arkady Dvorkovich: We’ve already started this work and have prepared a proposal on adjusting taxation of the oil and gas industry. The former tax system that existed for about a decade was optimal for that time, for the projects that the relevant companies carried out in the last few years. New, more complicated projects call for a new taxation system. The aforementioned formula requires detailed analysis with due account of the financial aspects of new deposit development. We have already started working with companies on this issue and will prepare all the necessary proposals by September in order to let the State Duma review them during its autumn session.

As for 2013, we’ll submit all the required proposals this July. It will be necessary to accept all parameters for 2014 before the end of the spring session in 2013 at the latest. But I’d like to repeat that we hope to finish this work during this year and provide companies with a predictable taxation system for several years to help them develop their business plans.

This work requires cooperation both with companies and many federal bodies. Therefore, I’d suggest that it be carried out by the Government Commission on Energy Policy. I will be ready to submit proposals on its functions and membership later this week.

Dmitry Medvedev: All right, please do so.

Our oil companies and, to a lesser extent, gas companies have spoken to me about the need to create favourable conditions for their development. They were referring to the predictability of the taxation system. The government has to make frequent changes in this system depending on market trends, especially, during periods of unstable financial and economic conditions, in order to protect our national interests. However, such changes undermine investment potential by creating uncertainty. We must make rules that will be valid for a long time to come.

The commission and the government will have to determine these rules, but I’d like you to hold extensive consultations with all hydrocarbon companies, and listen to each and every opinion. No companies here have a controlling interest (a carte blanche for decision-making); all companies are in one and the same position and doing the same thing, which is producing oil or gas and allowing the Russian budget to function normally. Please, deal with this issue and then report to me.

Arkady Dvorkovich: Will do.

Dmitry Medvedev: Thank you.

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