Transcript of the meeting:

Dmitry Medvedev: Good afternoon, colleagues. Please be seated. The auditorium is so beautiful, and the view is even better. Wouldn’t you agree?

We have gathered here to hold a meeting of the State Commission for the Socio-Economic Development of the Far East, the Republic of Buryatia, the Trans-Baikal Territory and the Irkutsk Region. The commission is holding its meeting at the newly completed Far Eastern Federal University. I believe those who have been here before will notice the developments that have taken place, and, hopefully, those who haven’t been here before will be pleasantly surprised that such a facility has been built here so quickly. And, of course, its chief purpose is not to receive high-ranking delegations from the APEC member states but to become a world-class university centre. Consequently, I would first of all like to tell you that I have signed an executive order appointing Sergei Ivanets to the post of Rector of this university. I wish the new Rector every success, and I hope that, under the guidance of Mr Ivanets, the university will become a major educational and scientific centre of the Pacific region, not just of Russia.

I would also like to touch upon another important issue in connection with our meeting because this issue is linked with all the Russian regions. The new academic year will begin two months from now. Today I signed a resolution on raising the stipends of students from poor backgrounds who receive good and excellent grades. Actually, all students should be achieving these grades. From now on, they will receive 6,300 roubles instead of the previous 5,000 roubles. Although not a fantastic increase, it is still quite substantial. The 2012-2013 budget has made provision for the necessary allocations in order to increase these stipends.

Let’s move on now to the subject of our meeting. I would like to remind you that the development of Vladivostok as a centre of economic cooperation in the Asia-Pacific region has called for substantial funding. More than 200 billion roubles have been allocated from the federal budget. Today, Viktor Ishayev (Minister for the Development of the Russian Far East and Presidential Plenipotentiary Envoy to the Far Eastern Federal District) and I calculated that total spending volumes, including private funding, come to over 680 billion roubles. That’s quite an impressive figure.

I hope that the decision to hold the APEC Leaders’ Meeting in Vladivostok has provided an impetus for the development of the entire Primorye Territory. Hundreds of kilometers of roads have been repaired, new housing is being built, and a modern passenger terminal has started operating. An Opera and Ballet Theatre has also opened here.

I inspected some of these facilities today. The bridge, of course, makes a dramatic impression. This architectural masterpiece has in fact already become a symbol of the city. I hope that all the required tests will be completed soon, and that the bridge will start functioning normally in the near future. It is equally important to observe construction standards and regulations. I have just travelled along a section of the road linking the airport with Russky Island. This section was washed away by torrential rains, as a result of which the entire road surface and adjacent areas were damaged. However, the builders repaired everything very quickly and they say that everything will be fine. Let’s hope this is the case, but we should still learn the lessons from this incident. This is something I have already talked about at a meeting with my deputy prime ministers.

And now I would like to say a few words about construction issues. I know that there are certain problems with accepting various facilities and with paying the contractors. I would like these problems to be solved in the near future. I am drawing the attention of all construction project managers to this.

The Far Eastern Federal District, which makes up more than 33% of Russia’s territory, has a population of just six million, making it the smallest federal district in terms of population, so it is our duty to realise to the full the potential of the Far East and Eastern Siberia, to integrate these territories into the national economic infrastructure as fully as we can and to create favourable living and working conditions there. People like to quote from Pyotr Stolypin, and I, too, would like to do the same. In his time, Stolypin noted that to neglect the Far East would be a manifestation of tremendous extravagance and wastefulness on the part of the state. We must honestly admit that the state displayed tremendous extravagance during the disintegration of the country and the subsequent financial turmoil. We are now paying the price for this, and the leaders of the territories which are part of the Far Eastern Federal District, and those of the Eastern Siberian regions, know all about the problems.

Recently, however, the situation has started to change. This is the result of our combined efforts. Although the situation is not changing as rapidly as we would like it to, nevertheless there are concrete results and not only in the Primorye Territory. I would like to remind you that over the past five years more than 300 billion roubles of federal budget funding have been allocated for projects that form part of the targeted programme to develop the Far East and the Trans-Baikal Territory and over 110 billion additional roubles will be allocated over the next two years. This money must be spent wisely.

Our agenda includes the development of the transport infrastructure of the Far Eastern region. This is probably the most important aspect. The strategy for the development of the Far East and the Baikal region up to 2025 prioritises these aspects. Today, numerous communities can still only be reached by air. An entire range of special programmes is being implemented in order to ensure stable transport links in the Far East and Siberia and to provide more affordable air transport services for the population. The federal government has allocated 8.5 billion roubles for these purposes this year.

There are a number of immediate issues to attend to. Firstly, the government is subsidising airports in the far northern regions and similar climatic areas, providing 180 million roubles, which is not that much, to be honest.

Secondly, the transport benefits programme for residents of the Far East has been in effect since 2009. We have expanded it this year because it has proved very effective and has benefitted many people, so we have extended it to women over 55 and people of any age with first-category disabilities and people accompanying them, and increased the range of subsidised routes. The government approved 3 billion roubles to finance this programme in 2012. This year, the plan is to provide discounted fares to more than 450,000 air passengers, which is quite a substantial number of people. As of June 14, about 300,000 tickets worth almost 2 billion roubles had been sold. As a comparison, a total of 370,000 passengers made use of this programme throughout the whole of 2011.

Thirdly, this year, we opened a new programme to subsidise regional flights in the Northwestern, Siberian, Urals and Far Eastern Federal Districts, with 1 billion roubles approved for this purpose in the 2012 federal budget. Some of the towns that have no railway stations have been included in the list of destinations that can be reached by discounted air fares. Initially, nine regions confirmed their decisions to participate in the programme. So we set aside over 600 million roubles, but unfortunately, the Republic of Sakha, the Trans-Baikal Territory and the Sakhalin Region went back on their commitments. I would like the leaders of these regions who are here today to explain why they pulled out of this important social programme. I can understand that they have a shortage of money, but since the federal government has approved spending on this programme, we are entitled to expect them to co-finance it.

There is one more issue I would like to raise. I decided to hold a major conference on regional transport, not as part of this commission, but on the one specific issue only. This is without doubt a complicated issue for Russia, but we simply have to change the situation where citizens of the world’s largest country commute from one city to another via Moscow. We may not be able to change that in half a year or even a year or two, but we need serious programmes to handle this, otherwise the very tissue of Russia’s statehood will begin to disintegrate. We must focus on reviving regional aviation, and we can no longer calmly watch the gaps spreading along the map of the country. The most important thing is that this affects people’s interests.

Fourthly, I must mention a related issue: we are also supporting small aircraft projects. A small aircraft finance leasing programme came into effect on January 1, 2012, with 1.9 billion roubles allocated to fund it. As of June 1, four airlines signed finance leasing contracts for 26 aircraft, and more requests have been made by various carriers. This is good. At the same time, it is also clear that the demand for such aircraft is much higher, given the ageing fleet and many aircraft being put out of commission. However, the capacity of the domestic aircraft industry is limited, so I would like the Economic Development, Industry and Trade and other ministries and agencies to look into this situation. Maybe they should consider temporary exemption from customs and import duties of civilian aircraft with a seating capacity of up to 72 – let me stress that this measure should be a temporary one and apply only to a limited number of aircraft – until we increase local production of this class of aircraft.

Fifthly, the opening of the Chita-Khabarovsk Highway was definitely a landmark event for the Russian Far East, connecting the remote region with the country’s unified road network. The next plans call for the upgrading of the Baikal-Amur Mainline and Trans-Siberian railways. However, since the costs of these projects are very high, we would need long-term financing for the development of the transport infrastructure.

Given the limited budgetary resources and general financial strain, the focus should be shifted towards long-term loans. We need to work out ways of hedging risks and concluding a network contract with Russian Railways which would tie up a long-term investment programme with the tariff policy, so that returns on investment can be guaranteed. I would like to ask the agencies concerned to submit their proposals, together with Russian Railways.

One of the main competitive advantages of the Russian Far East is its unique geographic location which makes it the shortest transport route between the East and the West. We just need to learn how to make proper use of this advantage. The Far East and Baikal Region Development Fund was established in 2011 to attract investment. At the last Government meeting we approved a clause on the Ministry for the Development of the Far East, which is led by Viktor Ishayev. Its task is to implement government programmes aimed at developing the infrastructure, building public facilities, managing federal property and similar objectives. At the same time, this work of course cannot substitute for the efforts of regional authorities and businesses. Any private initiatives at the regional level should be supported as much as possible.  It is only by working together that we will be able to address the highly difficult tasks involved in the development of the Far East and Eastern Siberia and thereby improve the living standards in that wonderful part of our huge country.

Let's get down to work. Maxim Sokolov, Minister of Transport of the Russian Federation, has the floor.

Maxim Sokolov: Mr Medvedev, commission members, the development of the Far East and the Baikal region, as well as that of this country as a whole is directly dependent on how efficiently the transport system operates. This region is specific in that it has a vast area and is situated far from central Russia, while being very rich in natural resources. Transport accounts for 11% of the Far East’s gross regional product as compared with 7% on average in Russia as a whole. (In the Primorye and Khabarovsk territories and the Amur Region, for example, it exceeds 14%, while in the Baikal region, it is close to 20%.)

A quarter of the able-bodied population is employed in the sphere of transport in the Primorye Territory and the Kamchatka Region. Proportionally, transport is as important in the context of the main production assets and investments. In general, all types of transport interact within the transport system in the Far East and the Baikal region. The backbone, however, is rail transport, which secures massive haulage between regions, and accounts for over 80% of freight and about 40% of internal passenger turnover. Along various stretches of the Baikal-Amur Railway, it carries in both directions from 12 to 20 million tonnes of cargo, including nearly 10 million tonnes of coal and 5-6 million tonnes of oil and oil products per year. Certain stretches of the Trans-Siberian Railway boast as much as 95 million tonnes of cargo.

Automotive transport also accounts for a lot of intra- and inter-regional carriage over distances of up to 3,000 kilometres. The total length of motor roads in the Far Eastern Federal District is 41,500 kilometres, but 11,000 kilometres, or more than a quarter of the total, lack hard cover (the corresponding average national figure is 8%).

There are no hard-surface roads linking 36% of villages in the FEFD with the network of general-use roads. Given the underdeveloped state of the road network and the considerable distance to central Russia, air transport is exceptionally important for regional socioeconomic activities. But regional and local carriage in the Far East and the Trans-Baikal Territory is currently inadequate and requires additional investment. Direct air links between many regional cities and major administrative centres have been discontinued. A large number of populated localities in the Far East and the Trans-Baikal Territory lack regular transport communications with local administrative centres because there is no year-round alternative to air transport.

As the central element of ground infrastructure, airports can stably support air carriage in the absence of alternative forms of transportation, provided their infrastructure, including property of airport complexes, is maintained and developed in due time. There are currently 107 airfields on the local Civil Aviation Register, including 91 airfields in the Far East and 16 airfields in the Baikal region. Twenty-nine airfields in the Far East and the Baikal region make up part of the national basic airfield network, but only one half of the total figure (52 airfields in this region) have an artificial-cover air strip. The rest have dirt air strips: 70% of them were built more than 20 years ago, and only 24% have been modernised recently. Practically 100% of dirt air strips require major overhauls; only 72 airfields (or 70% of the total) have lighting navigation aids. The lighting navigation aids at 60 airfields urgently need to be replaced after 15 years of their service life.

Federal state-owned enterprises have been established to remedy the existing state of affairs. The property of local airlines has been transferred to them with the proviso that they preserve and develop the airport ground infrastructure. Six federal state-owned enterprises (controlled by the Federal Agency for Air Transport) have been established on the basis of 50 airports, with another two to be established in the latter half of this year. The current state of airports, most of which are already managed by federal state-owned enterprises, on the whole does not meet modern air and transport safety standards, as is evidenced by the results of checks carried out by federal regulatory agencies. Federal state-owned enterprises lack the funding to implement airport reconstruction projects, which is why we need to provide them with sufficient financial support.

Twenty-eight out of the 64 Russian seaports operate in the Far Eastern basin. The main ports located in the Khabarovsk and Primorye territories, Vostochny, Nakhodka, Vladivostok, Vanino and De-Kastri, handle more than 75% of the freight turnover. The first four ports rank among Russia’s 10 largest ports and are major rail and sea transport hubs. The Vanino-Kholmsk ferry route provides a reliable link between Sakhalin Island and mainland Russia. More than 90% of freight shipments running through these ports are handled by the rail and sea network. This is a brief assessment of the regional situation.

I would like to say some more about future development. First of all, I would like to discuss freight shipments, which are one of the pillars of economic growth. The development of the seaports is above all linked with the development of rail transport. The main barrier hindering long-term freight traffic along this railway is the entire eastern section of the Baikal-Amur Mainline from Khani station to Komsomolsk-on-Amur and Sovetskaya Gavan, including the Kuznetsovsky tunnel between Komsomolsk-on-Amur and Vanino. Given the current state of the regional transport infrastructure, the priorities for the development of the Far Eastern Federal District transport network include the completion of a basic railway network by strengthening the Trans-Siberian Railway and the Baikal-Amur Mainline, and by expanding the transshipment facilities of the basic mainland ports and Sakhalin Island ports. Their total freight turnover needs to go up significantly by 2020. In addition, the airport network’s permanent facilities and equipment, including the infrastructure for regional and inter-regional air traffic, must be restored.

Naturally, the implementation of these projects will directly influence us achieving our main goals, that of expanding the socioeconomic integration of the Far Eastern and Siberian territories; ensuring all year round transport links between remote areas; creating an affordable transport network for the population and realising the trade, economic and transit potential of the Far East and Central Russia by providing additional transport access to the Asia Pacific markets. We can already see a substantial increase in the overall transport volumes in the Far East. It should be noted that freight traffic volumes in the Far East are currently higher than the pre-crisis figures for all modes of transport, and that these volumes are growing steadily.  This is confirmed by a survey of planned shipments conducted by the McKenzie company in 2012. The survey was conducted in the Eastern region network and was linked with an assessment of economic development in the Asia-Pacific region and prospects for the situation on the regional market. I believe that my colleagues will be discussing this in greater detail. A long-term freight traffic forecast to 2020 highlights sustained growth in every transport category, especially sea and rail transport. In this connection, the relevant strategy for the development of Russia’s seaport infrastructure predicts a 25% increase in liquid cargo volumes, which are set to reach almost 70 million tonnes. Demand for the shipments of bulk cargo and loose cargo is expected to reach almost 90 million tonnes, an increase of almost 100%. Demand for the shipment of general and containerised cargo is due to reach 17 million tonnes and 19 million tonnes, respectively, by 2020, an increase of over 25% on current demand. In all, the potential of Far Eastern freight-handling facilities by 2020 is estimated at over 200 million tonnes, a 60% increase on 2011.

I would like to say a few words about inland freight shipments in Siberia and the Far East, an issue which is of particular significance for the region. These freight shipments are also increasing. Inland freight shipments are projected to reach 47 million tonnes by 2020, a 42% increase on 2012.

The growth of port facilities to serve the increasing freight shipments in the Far Eastern basin will be carried out with the help of investment projects, including the reconstruction of existing terminals and the building of new ones. First of all, these include the terminals shown on slide 14. I will not list them all, but I will say that the private business people who are present here will discuss the port infrastructure expansion plans in greater detail during their presentations. At the same time, port facilities are being developed and will continue to be developed primarily with the help of private investment. State investment in this sphere accounts for no more than 20% of the total investment and is intended primarily to expand federal-owned infrastructure, including the creation of new water areas; the construction and modernisation of quay walls and the installation of navigation safety systems. It has been suggested that inland waterways be maintained in line with new standards from 2014, taking into account specific costs, including for overhauling navigational hydraulic structures. This will make it possible to maintain the necessary infrastructure of the inland waterways. The Ministry of Transport has put together these proposals and they are currently undergoing approval.

As for railway transport development prospects, the implementation of specific plans to develop mineral deposits in the Far Eastern and Siberian federal districts, as well as the construction of export-oriented port facilities in the Vanino transport hub and the Primorye Territory’s ports, will cause the greatest increase in freight traffic along the Baikal-Amur Mainline and the Trans-Siberian Railway. For instance, freight traffic volumes near the Baikal-Amur Mainline’s Komsomolsky railway hub are expected to soar by 230% by 2015 and almost 350% by 2020 compared to 2012. Railway shipments near Vanino are expected to exceed 41 million tonnes by 2015 and to reach almost 60 million tonnes by 2020. Local railway shipments in the Primorye Territory are set to reach over 91 million tonnes by 2015 and over 100 million tonnes (taking into account all freight categories) by 2020. Consequently, the railway infrastructure of the Baikal-Amur Mainline and the eastern section of the Trans-Siberian Railway must be overhauled and expanded in order to handle the increase in freight turnover.

The overall development of the transport infrastructure is being implemented in accordance with the main strategic documents: the Strategy of the Social-Economic Development of the Far East and the Baikal Region for the Period through 2025, the Strategy of the Social-Economic Development of Siberia through 2020, and the Transport Strategy through 2030.

The federal targeted programmes, including the Economic and Social Development of the Far East and Transbaikalia through 2013, and the Development of Russia’s Transport System through 2015, are the key instruments for implementing the strategy.  

There are also programmes for the socio-economic development of the Kuril Islands and the Far East and the Baikal region through 2018.

The funding for the federal targeted programmes is mainly provided from the federal budget. Priority is given to comprehensive projects, in which the transport component is an important factor for the development of private business and where new manufacturing facilities become the drivers of growth and pillars of the regional economy. 

There are also instruments of the investment fund. At present, we are completing the implementation of the first phase of the comprehensive investment project to build the Kuznetsov Tunnel at the Komsomolsk-on-Amur – Sovetskaya Harbour stretch.

There are also examples of other projects financed through the investment fund. If we consider private business in general, private capital, the best example would be the construction of the over 300-km long section of the Ulag – Elga railroad to Mechel’s Elga coal deposit in the Republic of Sakha, which was built without any public funding. 

The funding of the transport sector, excluding the railway transport, will total 876 billion roubles, of which 96 billion roubles will be allocated for sea and river transport, 193 billion roubles for aviation, and 587 billion will be provided to fund the road infrastructure. 

As for railway transport, various expert estimates indicate that failure to implement the planned railway infrastructure development projects in 2015 will result in the non-delivery of 30 million tonnes of cargo. Furthermore, the cumulative annual budget losses will amount to about 18 billion roubles.  

To ensure the implementation of the railway infrastructure development projects, we propose considering the possibility of including an investment fee in the railway freight service tariff.   

This will create an additional source of funding for investment projects. We believe the revenues from this investment fee should be used primarily to fund the development of transport infrastructure in the Far East, where it is rather difficult to attract private funding due to the low returns on the investment. 

Another option to fund railway infrastructure development is to provide a preferential right for using railway freight services to those companies that are willing to co-invest in general use infrastructure development projects.

Such projects already exist, and they are currently being considered not only in the Far East but also in Siberia. Another possibility is to establish long-term tariffs for railway transportation, which will allow investors to minimise their risks when considering investing in long-term projects and, at the same time, will enable Russian Railways to prepare a long-term investment programme.

We also believe that it is necessary to consider the possibility of introducing concession agreements in the railway transport sector, since the current legislation (Federal Law No. 115) does not allow for private investment in the general use infrastructure.

The only thing that will need to be clarified is where such mechanisms can be used. Obviously, they cannot apply to major lines, but the dead-end lines adjacent to the mainline can certainly be given in concession. 

As far the road construction, the allocated funds will primarily be used to continue the construction and repairs of major road routes, which will have a multiplier effect for the development of a region as a whole. 

These include the following roads: the Lidoga-Vanino and Nikolaevsk-on-Amur in the Khabarovsk Territory, the Yuzhno-Sakhalinsk - Sakha road in the Sakhalin Region, the Petropavlovsk-Kamchatsky – Klyuchi – Ust-Kamchatsk in the Kamchatka Territory, the Palatka - Kulu road in the Magadan Region, the Birobidzhan-Leninskoe road in the Jewish Autonomous Area, and the Kalyma-Anadyr road in the Chukotka Autonomous District.

In addition, to ensure intensive development of road networks in the cities, we suggest that municipal road funds be created in the regions. The current legislation allows for the creation of such funds.  

I also want to say a couple of words about aviation, although we have already discussed this. The federal budget has allocated a total of 2.5 billion roubles in annual funding of state-owned companies. In addition, the government has been implementing a series of measures aimed at supporting the aviation sector in general.  

In particular, they have been subsidising the take-off and landing tariffs in the airports of the Far North, as well as air fares for flights from the Far East and Siberia. The government has also been subsidising inter-regional and intra-regional air fares in the Far Eastern and Siberian Federal Districts, as well as the leasing of Russian-made aircraft and of aircraft for regional and local air transportation.

The subsidy regulations also stipulate that subsidies be provided for co-financing the regions’ expenditure commitments, a list that includes 81 routes between locations where there is no rail service.

For these purposes, the federal budget has allocated 1 billion roubles for subsidising inter-regional air transportation. Of the 31 regions, only three have taken part in the programme to date: the Nenets Autonomous Area, Chukotka, and the Magadan Region.

At the same time, other regions are seeking to amend the government decision regarding including a provision to enable subsidising intra-regional flights, in addition to inter-regional ones, as it is currently provided for by the regulations.     

We believe that the provision of intra-regional transportation services, including air transportation, is the exclusive prerogative of the regions and therefore, that the decision on subsidising inter-regional routes should not be revised.

Taking into account the fact that the inter-regional transportation services are subject to joint jurisdiction, I believe we should support the proposals of the regions to establish, as of 2013, the co-financing level for regional expenditure commitments at 50% of that commitment, regardless of the fiscal capacity level, as it is currently being done.

In addition, we believe it is necessary to change the procedure for subsidy allocation to even out the regions’ fiscal capacity. These proposals on all transportation modes will allow the Far East and Transbaikalia regions to largely satisfy their needs in transport infrastructure, which will form the basis for their sustainable development.    

At the same time, the development of transport infrastructure is closely linked both with the need to ensure economic ties within Russia and to develop transnational transport corridors. 

This will help maintain the region’s economic growth in the event of significant changes in the market conditions in the Asia Pacific, and will allow for the active use of the transit potential that will be created by the transport system. 

The final slide lists the Transport Ministry’s proposals that I mentioned above to be included in the draft protocol. In the event that the market situation drastically changes in the Pacific Rim region, this will allow for retaining the region’s economic growth and actively utilising the transition potential that will be provided by the transport network.

The last slide also depicts the Finance Ministry’s proposals as regards the protocol decision that I mentioned earlier. Thank you for your attention.

Dmitry Medvedev: Thank you. Now, let us proceed to the reports. They should be brief and informative. First, let's hear from Alexei Likhachyov from the Ministry of Economic Development.

Alexei Likhachyov (Deputy Minister of Economic Development): Thank you very much. Mr Medvedev, colleagues, I would like to say that the ministry supports the major conclusions of Maxim Sokolov’s report. I would like to elaborate on the statement that we are considering the development of foreign trade and its optimistic scenario as a considerable additional factor for economic growth. In this regard, we are making efforts in three fields – macroeconomics, competition and integration.

Let's take a look at slide No. 2. This one depicts the work scheme we used as the basis for our report, and its main conclusions. This work on the analysis and forecast of Russia’s export, import and transit trade flow has been implemented by the ministry for the past two years. Together with the Academy of Foreign Trade, we have carried out certain innovation work to create a single database containing the data on traffic flows and their volume, accounting for the goods’ country of origin and point of destination during the transit, with particular reference to the crossing point and the customs agencies that allow the transportation of goods. In this way, for the first time, we have received the goods traffic scheme as cargo figures, in transportation units. This scheme provides a full database, starting from the point at which the goods are manufactured to the point of consumption. This base is used for developing regular forecasts, both short-term and long-term, with proper account of internal and external factors.

Next slide, please. This diagram, a circle with certain sections, indicates Russia’s foreign trade volume in 2011. The European Union accounts for the major share of 48%. The share of APEC economies in Russia’s foreign trade was 24%, amounting to some $200 billion. Among countries, China ranked first, with $83 billion or 10% of volume trade. The US, Japan and South Korea have major shares in APEC countries’ foreign trade turnover as well.

Along with the EU's clear and striking share in Russia’s foreign trade turnover, I would like to mention two factors – the exceptionally low share of mutual trade with APEC countries (1.2%) and the considerable share of European countries in trade with APEC (15.3%). The European vector has a significant potential to boost transit from the Far East to Europe. The analysis of the traffic flow in the trade with APEC’s Asian economies shows that in 2011 some two thirds, or 65%, of cargo was shipped through Pacific ports, and another 13% were transported across the Russian-Chinese border.

In other words, the aim of developing major transport infrastructure for exporting goods is rather straightforward. As Mr Sokolov has mentioned, this includes expanding narrow routes and developing infrastructure in accordance with the further dynamics of traffic flows. Particular efforts should be made to provide entry routes to port terminals. 

As regards imports, the situation is more difficult. Less than one third of Russia’s volume of imports from APEC’s Asian countries comes through Pacific ports, while one fourth is transported through Russia’s Baltic ports and some 10% comes through European ports. This means that so far we have failed to achieve proper results both in attracting transit cargo and providing the necessary infrastructure and services for transporting our own cargo. Consequently, we have to make efforts to develop infrastructure at the major routes for trade with Pacific Rim countries, as well as boosting the considerable transit potential between APEC and EU countries.

In the near future, economic growth will be achieved through developing countries, particularly India and China. We estimate that by 2020 these economies will account for up to one fourth of the World GDP, while by 2030 their share will amount to one third. The trade structure of Russia’s exports to these countries includes mineral products, mainly oil and oil products, chemical industry products, metals and metalware. Machinery and equipment account for only 4%, while food and agricultural products stand at 2.5%. In this regard, estimations of goods traffic flow reveal that, depending on the scenarios of economic development and expansion of entry routes, the volume of transhipments at Pacific marine ports has the potential to grow by 30% by 2020 and to double by 2030.

I would like to focus on the development of grain exports and containerised cargo processing infrastructure. In his report, Mr Sokolov provided a slightly more optimistic scenario providing for a flow of goods from the Northwestern to the Pacific basin (we agree that there is such a theoretical probability). However, our forecast has 30%-35% by 2020. Under a fairly optimistic scenario, over 100% growth is possible by 2030.

Next slide, please. Global trade and regional trade forecasts tell us that trade in the Asian region will grow faster than trade between Asian countries with the EU or the Americas. As is known, the countries of the region provide vigorous support to this process. Trade is growing against the backdrop of strong regional integration. Asian countries are signing free trade agreements, and the region leads the world in terms of straightforward customs procedures and cutting business-related expenses. Russia has for a long time focused on joining the WTO. Meanwhile, many APEC countries opted to sign regional free trade agreements. For example, APEC economies have signed over 70 free trade zone agreements since the mid-1990s. China has signed five agreements and has another five ready for signing. Eight more are in the making. Japan has signed eight agreements, and so on. The entire region is covered by free trade agreements, and we understand that if we don’t have our own integration agenda in this part of the world, our exporters will lose out when they try to take their goods and services to these markets. Russia’s talks with Vietnam and New Zealand with regard to free trade zones are just the first steps in forming such an agenda. This is a lot of work, and we are doing it under the guidance of Mr Shuvalov. It presents certain challenges that must be answered. Once customs tariffs are reduced following Russia’s accession to the WTO, we will need to take up preferential agreements, which is a major challenge for Russian industry and manufacturers. Of course, we need to include our integration initiatives in this work. In this regard, the Customs Union and the Common Economic Space are favourably located between traditional centres of manufacturing and consumption. On the one hand, the Customs Union and the Common Economic Space give us additional opportunities, providing access to the transport infrastructure of Kazakhstan, leveling tariffs and terms of competition for our transport operators in Kazakhstan. On the other hand, we are aware of Kazakhstan’s integration plans and its focus on winning this competition. This is exactly why Kazakhstan is conducting an ambitious and capital-intensive transport strategy approved by President Nazarbayev. Of course, we see an additional 5% to 10% of risks in switching from the Russian-Chinese border to the external border of the Republic of Kazakhstan. The decision to develop the transport infrastructure in eastern regions is all about competing with neighbours. This means that we should not only plan the amounts of investment and ways to attract it, mentioned by Mr Sokolov today, but also envision measures to ensure the competitiveness of the entire length of the route. Local performance is key here: each port should improve its unloading time, the time spent by each ship at port and so on. Currently, these indicators are at least twice as bad as the global average and lag very far behind leading Asian ports.

We should also discuss railway tariffs. We are all aware that businesses are interested in minimising time expenditures and general costs. Without having these indicators fixed first, there’s no point in making any major investments in long-term infrastructure development.

The last, seventh slide, please. In conclusion, I would like to say that transport infrastructure development should be based on an understanding of the terms of global competition on such routes as Russia – Asia-Pacific Region and the European Union – Asia-Pacific Region. There is a need to optimise the tariff rate system, refine dispatching and multi-modal shipments, reduce time and money expenditures and simplify all procedures. The creation of infrastructure should include forecasts for demand for transport services and the actual high demand in the Asia-Pacific Region. The development of transport infrastructure should take account of the specific integration processes in the region. In this regard, there is a need to promote our own integration agenda in APEC. At the same time, we need to sharpen our Eurasian integration tools and use them to address transport problems in the Far East. Thank you.

Dmitry Medvedev: Thank you. I turn the floor over to President of Russian Railways Vladimir Yakunin.

Vladimir Yakunin: Thank you, Mr Medvedev. First of all, allow me to express my support for the conclusions and proposals advanced by the minister of transport. And I would also like to point out the particularly important issues raised by Mr Likhachyov that are related to providing government support for transit shipment of our cargoes and related competition. Indeed, so far this task has been addressed by Russian Railways with some support coming from ministries and departments. We believe that as we look into the development of the Far East and Siberia today, we should absolutely focus on supporting the competitiveness of our transport routes that are used for carrying goods. With regard to the purpose of today’s meeting, the goals of developing railway infrastructure were identified in 2008 when the government approved the railway development strategy to 2030. The relevance of these priorities was confirmed during the 2008 crisis and later, when flows of railway cargo were declining in general, but were growing in eastern direction. Major economic changes have taken place on global markets. Together with the Ministry of Transport and the Ministry of Economic Development we had to update the general railway layout to 2020 in light of the decisions taken by the government at its meeting in Kemerovo. Notably, the general layout focuses on the development of the eastern-bound railway, whose throughput capacity has almost reached its peak. These issues have been considered on many occasions over the past 24 months at the meetings chaired by Plenipotentiary Presidential Envoy to the Far Eastern District Viktor Ishayev. Proposals have been worked out and sent to ministries and departments. Speaking about the need to develop railway infrastructure, I would like to underscore the figures cited by Mr Sokolov. As a matter of fact, they are fully in line with our numbers: cargo turnover handled by rail transport is forecast to increase by 40% by 2020. The Baikal-Amur Railway will handle 2.5 times more cargo than it does now, and even 3 to 4 times more as this railway gets closer to the Vanino Port of the Sovietskaya Gavan Transport Hub.

In order to achieve the planned shipping volumes, the general layout scheme and relevant infrastructural programmes provide for building an additional main line along the entire length of the Baikal-Amur Railway in order to make it a two-track railway, developing the Trans-Siberian Railway, building access routes to the Far Eastern ports and routes for carrying cargo to North Korea, as well as retrofitting the traction rolling stock. Given shortages of investment sources, including the ones needed for retrofitting the traction rolling stock, Russian Railways would like to ask you, Mr Medvedev, to look into the possibility of providing government support to promote the leasing mechanism in the railway industry as was done in the aviation industry. That would include government subsidies for a portion of lease payments as well as additional tax incentives. According to our institute, 181 billion roubles are needed for the Trans-Siberian Railway and 737 billion for the Baikal-Amur Railway until 2020. That’s a lot of money that cannot be provided by Russian Railways alone. That is why we support the proposal by the Ministry of Transport. These proposals were developed with our participation. Russian Railways is already planning to invest up to 15 billion roubles from its revenue each year even before any decision on this is taken. That way, we will be able to raise 60 billion roubles by 2016, whereas the total investment that we need stands at 350 billion roubles. I would also like to underscore that this goes against our corporate policy, which is to invest our own resources only in projects that pay for themselves. Investing in the Baikal-Amur Railway doesn’t look like a project that will pay back the initial investment within a foreseeable, commercially acceptable timeframe. Nevertheless, we believe that we should go ahead and are doing so in the hopes that the government will meet us halfway.   

Under existing government tariff regulations, Russian Railways is using every opportunity to come up with investment financing sources. We are constantly working to improve our own efficiency through internal optimisation. However, this is a finite resource. It will bring only about 24 billion roubles of savings to the company by late 2013. Meanwhile, the divergence between actual market prices and the socio-economic forecast results in increased spending beyond the company’s control, which counteracts the effects of internal optimisation. We realise how difficult it is to forecast economic performance based on prices determined by the expert community.  Allow me to give you an example. As we can see from actual diesel prices, diesel prices will grow by 15% to 16% in 2012 as compared with the forecast of 0.9%, which was used as the basis to derive railway tariffs. As a matter of fact, this is 16 times more than planned, Mr Medvedev.

Secondly, in order to resolve its infrastructure issues, the company is using the revenue from selling shares of its subsidiaries. However, this source is almost dry as well. Last year, we made probably the largest privatisation transaction in history of privatisation in the Russian Federation when we sold the shares of the First Shipping Company. Such stock packages are not available anymore.

Borrowing funds is a third option. We are the largest borrower in Russia’s transport sector. However, borrowing, even with government guarantees, diminishes the company’s investment appeal and adversely affects its balance. Since the socio-economic development of the Eastern Siberia and the Far East directly depends on the Baikal-Amur and Trans-Siberian Railways, and also because both projects are very capital-intensive, we need additional funds from the federal and regional budgets. We believe that the state and Russian Railways should cooperate in the sphere of financing infrastructure in the form of a regulatory network contract with tariffs fixed for the next three to five years. The effectiveness of such contracts proved itself in Germany, France and the United Kingdom. The amount of funds needed to implement the priority measures to develop the railway infrastructure in eastern Russia until 2016 stands at 291 billion roubles, of which 208 billion will go to the Baikal-Amur Railway and 83 billion to the Trans-Siberian Railway.

The effectiveness of investing in railway infrastructure has been confirmed by conclusions made by the Institute of Economic Forecasting at the Russian Academy of Sciences, based on a forecast model using the methodology of inter-sector balance. Every rouble of additional Russian Railways spending or investment produces a 1.5 rouble growth in output in related sectors given the current high proportion of imports, a 2.35 rouble growth in output in related sectors given 100% import substitution and meeting the demand of the railways with domestic industry. By the way, we are pursuing a consistent policy of using materials and equipment made in Russia. Similarly we are organising our work with foreign partners.

They have described here the possible consequences of insufficient investment in infrastructure projects. I will not repeat that, I only want to confirm that yes, our data is similar to that presented by Mr Sokolov. The result is that, for example, GDP losses from insufficient cargo transport between 2011 and 2015, based on our calculation, will equal 2.3 trillion roubles, and between 2011 and 2020, 5.8 trillion roubles. These figures show that GDP losses considerably exceed the investment deficit for remedying bottlenecks.

The institute’s research has also shown that there are reserves for optimising price pressure between sectors and for optimising the growth of the general level of shipping prices without a negative influence on price growth and a reduction of output of the major cargo generating sectors. Meanwhile, to realise the potential of the Far Eastern and Siberian regions, it is necessary to create conditions not only for intensive development of industrial production but also for improving living conditions and the mobility of the population.

For example, Mr Medvedev, 1.8 million passengers travel on the Far Eastern Railway, while only one tenth of that number travel by air, according to available data. The institute’s assessments also show that, without significant incentives and state support for passenger railway transport, the share of railway travel will decline, passengers will opt for underdeveloped means of transport, including those that cannot be created in some areas. And this will require enormous state investment to develop airport infrastructure, motorways, support aircraft equipment leasing, and purchases of relevant transport equipment.

I’d like to stress, too, Mr Medvedev, meeting participants, that today in his report Mr Sokolov made an attempt to comprehensively assess the various types of transport and their interaction. Obviously, these assessments do not include pipeline transport. I can cite one figure showing that it impossible not to take into account this type of transport when taking relevant decisions. Because oil will not be shipped by rail to Skovorodino and will instead be sent through pipelines, Russian Railways will see a loss of about 15 million tonnes of cargo, and there is no substitute for this profitable 15 million tonnes.

Even if we imagine that, say, coal shipping will grow to the same extent, it will not account even for one third of the revenue from oil shipping, therefore I believe that in the future we should use this analysis, including the analysis of pipeline operations as well as the trajectory of development of pipeline transport. Sometimes we see projects that essentially replace cargo shipping or, even worse, we see that somebody is beginning to design and invest in railway infrastructure simultaneously with the pipeline infrastructure.

I’d like to thank Mr Medvedev for the comprehensive discussion of issues concerned with railway infrastructure development and assure the participants of this meeting that from the standpoint of efforts to improve the efficiency of railway transportation management, its optimisation, on our part, the management and the board are taking all possible measures. We hope that these measures, along with state support, will have the adequate effect that you and government want us to produce. Thank you. 

Dmitry Medvedev: Thank you. Concerning leasing in railway transport: Are there any problems with using it now?

Vladimir Yakunin: The problem is that we are talking about subsidising at least a portion of the leasing rate, similarly to aircraft transport. Railway transport receives no subsidies as yet.

Dmitry Medvedev: I see. So that is primarily subsidising. Good. Now the second: Concerning the network contract, I said in my address that the government and the Ministry of Transport have been instructed to consider concluding a network contract between the ministry and Russian Railways. But the loss of cargo following the transition to oil pumping is an objective fact. Understandably, the transporter, Russian Railways is not too happy with this. Russian Railways should seek out new areas to expand to. Good. Let’s hear a business representative. Go ahead, Mr Rashevsky, of SUEK (Siberian Coal Energy Company).  

Vladimir Rashevsky: Thank you, Mr Medvedev. Members of the commission, SUEK is Russia’s largest coal producer. We work in seven regions of Siberia and the Far East. We know first-hand all the problems regarding transport infrastructure, especially railway infrastructure. In Russia, there is no alternative to railway, excluding pipeline transport, as mentioned by Mr Yakunin. There is no alternative here, especially on the eastern testing ground. The last decades have seen drastic changes; the whole national economy has been turning towards the Asia-Pacific markets. In the last decades, shipping has doubled. The Far Eastern infrastructure was insufficiently developed in Soviet times too. In fact we have 1.5 major railways: the Trans-Siberian Railway transporting 80% of cargoes, and the auxiliary Baikal-Amur Mainline transporting 20% of cargoes. Currently we are facing regular problems of limited train-handling capacity. Currently we are at the maximum shipping level. Further development is very complicated.

The issue on the agenda is the need to speed up the development of Siberia and the Far East. The strategic analysis provided by Russian Railways and independent consultants (the analysis by McKinsey mentioned earlier) shows that today we find ourselves in a unique situation when there are investors, there are projects and there are the markets of the Asia-Pacific region, which, if one counts the specific projects with the names and all, can consume 1.5 times more cargoes than the existing railway and port infrastructure can handle today. But this amount of cargoes cannot be delivered to the Asia-Pacific region without investment. This is a long-mooted problem and we believe it is high time to move on to radical decisions because the markets will not wait and before we know it our potential markets will be occupied by competition.

We believe that there are three main groups of players who should efficiently coordinate their activities if these opportunities are to be used. The first group is investors (or cargo shippers, to use the transport people’s language), the second is Russian Railways and the third is the state. Each of these groups has its own tasks. Implementing the projects is the task for business, or investors. All the projects in Siberia and the Far East are massive, costing billions of dollars. Investors can cope with these projects, they can develop the port infrastructure and the adjacent railway infrastructure, but they will never have enough money for long-distance infrastructure. The most they can do is to clearly coordinate their plans in terms of stages, deadlines and directions of cargo flow with Russian Railways.

Speaking about the tasks of Russian Railways as we see them, they are to create a clear-cut plan of implementing infrastructure projects, have precise priorities, determine the stages, focusing on the projects that can make the most of the existing infrastructure, starting of course with the least capital-intensive projects and passing on gradually, as the cargo flows are confirmed, to more capital-intensive projects, such as second and third tracks, and so on. We think part of the current investment programme (it is considerable and Russian Railways is doing all it can to increase the amount, which today stands at $430 billion) can be retargeted to the eastern area. Today it accounts for 35-40% of all cargoes and the volume of investments does not match that level.

Third. We believe it is necessary to build up a body of projects. Today it is not so much about money. If money suddenly becomes available, the projects will have to be prepared urgently within two or three years. Usually the design cost accounts for a comparatively small part of the total sum of the project, but it offers a deeper and clearer idea of the cost and time required to implement the projects and makes it possible to use the resources more efficiently and economically.

Finally, we believe that it is necessary to continue the large-scale work being done by Russian Railways to attract debt financing. It helps to reduce the tariffs for cargo shippers and defer payments. In this connection I would like to stress the option of issuing long-term infrastructure bonds, which have recently been the subject of much discussion, especially considering the possibility of using the pension system savings. These savings will grow rapidly in the coming years, with the total amount of pension savings set to reach about $200 billion by 2015. I think the infrastructure bonds of such companies as Russian Railways are the best vehicle. If we move fast, we can implement a pilot project to issue such bonds as early as 2012.

The role of the state in all these activities should be stressed. World experience shows that in all the countries that have a developed railway infrastructure, the state plays the key role, and not only as regulator and coordinator of activities, but as a direct financing organisation. This is characteristic of the European Community countries, the United States, which has the biggest railway network, and of China. Just two examples: in Germany the federal government annually spends $4 billion to finance and develop the existing infrastructure and China, our neighbour, has been spending about $70 billion a year over the past four years to develop infrastructure, regarding that as an anti-crisis measure. China has earmarked $450 billion to build 40,000 km of new railways in 2012-2017.

Speaking about the agenda facing our state I would like to support the idea of establishing long-term tariffs. All the head-butting that happens every year over how much it will grow prevents Russian Railways and the cargo shippers from developing successfully. If it were possible to set a long-term tariff for three or even five years beginning from 2013 it would be a veritable revolution, it would make it possible to plan activities better, to make Russian Railways operations more effective and enable the shippers, businesses and investors to plan their strategies better. The network contract you have mentioned, Mr Medvedev, is a fairly complicated, but widely used instrument. Being aware of all the snags down the road, surely beginning from 2013 pilot projects could be implemented to see how widely that instrument can be used in the future.

Regarding the financing measures that the state could take in spite of the understandable budget constraints… In 2009-2011 direct budget subsidies enabled Russian Railways to increase its investment programme and hold back tariff growth. We think this practice is worth maintaining. Like in the countries I have mentioned, where railway networks are well developed and the state is actively involved, we are not talking about some kind of charity, but about an obvious multiplier effect and budget effect from such budget outlays.

Second. The most important social projects can and must be implemented through targeted programmes such as The Development of Eastern Siberia, Trans-Baikal Area and the Far East and The Development of the Transport System. An investment fund is also a good instrument. The investment fund mechanism could be reanimated and used more actively. For example, the project that has been mentioned here, the Development of the Komsomolsk-on-Amur-Vanino Section with the Building of the Kuznetsov Tunnel has practically been completed thanks to the use of the investment fund mechanism.

Finally, our state could help Russian Railways to issue infrastructure bonds by instructing Vnesheconombank, the state company that manages savings, to use them to buy infrastructure bonds. Obviously, there is great demand for infrastructure projects in the Far East, the cost is huge, but I think the effect will be many times greater and that will help to develop the Far East and Siberia. Thank you.

Dmitry Medvedev: Thank you very much. Debt financing is basically a sound idea, like many other ideas voiced here. I just want to ask you, colleagues, to speak more briefly because we have a lot of people who would like to speak.

Let us hear from a member of the gubernatorial community before returning to businessmen and other colleagues. The Governor of the Khabarovsk Territory, Vyacheslav Shport.

Vyacheslav Shport: Thank you, Mr Medvedev, esteemed colleagues. The problem of transport accessibility has always been high on the agenda in the Khabarovsk Territory. I am referring above all to the remote districts and communities where aviation is the only available transportation. There are 43 communities in six northern districts that fall into that category in the Khabarovsk Territory. They occupy more than 70% of the region’s area. Unfortunately, the infrastructure of regional air services is worn out, the aircraft fleet has diminished and is outdated, as has already been mentioned. The real cost of carrying one passenger, for example, to the village of Okhotsk (northern district, distance: 1,360 km) is 17,000 roubles, which is comparable to the cost of a ticket from Moscow to Khabarovsk.

Every year we envisage budget subsidies to local airlines. The figure was 90 million roubles in 2010, 117 million in 2011 and 137 million in 2012. These subsidies cut the tariffs for the population by more than a quarter. In addition, we have introduced a programme to subsidise northern air carriage synchronised with the federal programme for those who wish to travel to the western part of the country, we have 11 routes on which we subsidise about 50% of the airfare. We will continue this practice, but today a comprehensive solution to managing regional air carriage is needed. Under the federal targeted programme we get subsidies for the repair of runways and the restoration of some districts. However, the procedure is long and cumbersome. What do I propose?

We have allocated funding for the construction of terminals and we are planning to build five air terminals by 2015, we are already building them in some districts. I would like to ask you to speed up the creation of a federal state-owned and financed enterprise – it was mentioned in the report and we spoke about it earlier, and you have issued an instruction to the effect. It is time to finish the job. What benefits would accrue from that? The local airline network will be preserved. First, the maintenance costs of these airports will not be included in the airport charges so that the tickets should be cheaper. The process is moving forward, and I simply would like you to give a push by issuing a directive.

Transport accessibility is critical for us not only in terms of the development of transport, but for attracting investors and business projects.  Today the Far East lags far behind the average Russian indicators. The density of railways in the Khabarovsk Territory is 2.7 km versus 50 km per 1,000 sq km. of territory in  Russia on average. If you take hard-surface roads, the density in the Khabarovsk Territory is 7.4 km per 1,000 sq km versus 37 km in Russia. That is why these issues are so important. The development strategy of the Khabarovsk Territory until 2025 will cost an estimated 490 billion roubles, of which 171 billion, or some 35%, are for the development of the transport infrastructure. In practice it will work out at even more, up to 45%. The Baikal-Amur Railway is extremely important for our region and for our neighbours. The issue has been mentioned by Mr Yakunin and in the report, but it is perhaps more relevant to the Khabarovsk Territory, although all the regions are mentioned.

We have a special port zone called Sovetskaya Gavan [Harbour]. Today this is holding back the development of the zone because there are investors and residents, but they are wary of investing because of the limited put-through capacity. The Vanino-Sovetskaya Gavan industrial hub should attract 70 billion roubles before 2020 in private investment alone, which would create more than 3,500 jobs and increase the GRP by 23 billion roubles within five years. It is an important project for us. So, as regards the Baikal-Amur Mainline, perhaps this project should be given a priority status because a lot of money is involved, and the returns will be important for practically all the Far East districts and for Russia as a whole.

Regarding automobile roads. The federal government is doing a great deal and is allocating considerable amounts, a Road Fund has been created. These are all timely measures, so the process is moving forward. But the programme that is currently being drafted for the development of the Far East and the Trans-Baikal Area until 2018 envisages a certain sum and we propose that the largest part be given to transport and energy because these infrastructure projects have a multiplier effect. As a result, the regions will be relieved from these costs and we could invest the money in other projects. We have formulated our proposals and handed them in to the secretariat. I will not recap them, instead I would like to make a proposal concerning leasing.

Mr Medvedev, there is aviation leasing co-financed by the Federation, railway transport was mentioned here today, but there is also water transport which is essential in northern hard of access areas. There are some places that cannot be reached by plane or by road, but we are beginning to introduce air-cushion transport. Our experience is not yet extensive, but we have launched production at the shipyard in the Khabarovsk Territory to meet our needs. There are other regions that have the same needs. When this issue comes to be discussed, our proposal is to include water transport in the agenda, to look at this issue and perhaps it will not be so costly, while the benefit for the regions, the northern inaccessible regions, will be significant. Thank you.

Dmitry Medvedev: Thank you. As for the federal government enterprise, I will issue instructions to look up the relevant documents authorising its creation. If the instruction has been issued, what’s the problem?

Concerning water transport leasing, of course we will consider that option, just as for railway transport. Igor Zyuzin, from Mechel.

Igor Zyuzin (chairman of the board of directors of the Mechel mining and metallurgical holding company): Mr Medvedev, I would like to speak about the projects the company is implementing in the Russian Far East and their prospects.

First slide, please. The company has four projects in the Far East. The first is the building and operation of the Ulak-Elga stretch of railway in Yakutia. Then there is the development of the Elga field in Yakutia, the retrofitting of Port Posyet in the Amur Territory and the designing and building of a coal terminal in the Vanino port, Khabarovsk Territory.

The first project is the building of the Ulak-Elga railway. The company acquired coal assets and an unfinished stretch of railway in October 2007 for over 70 billion roubles. Since then it has invested more than 50 billion in construction. A further 31 billion will be invested before 2015.

A 321 km railway, 76 bridges and an accompanying motorway have been built. In 2011 the company obtained a licence to explore and mine iron ore at the Sutamsky field, with estimated reserves of about 1.3 billion tonnes about 70 kilometres from the newly built railway.

The next project is the development of the Elga coalfield. The first coal seam went into operation in 2011. In December the field was linked up with the Baikal-Amur Railway, and it has already produced 200,000 tonnes of coal. The first seasonal coal washing plant, with an annual capacity of three million tonnes of coal, is set to be launched in July 2012. A settlement for rotation work teams is being built, there is a work force of more than 2,000. The chart shows coal production forecasts: 1 million tonnes this year, 18 million tonnes by 2018 and subsequently up to 27 million tonnes a year.

Next slide. The Posyet sea port, which was acquired in 2003 for about 1 billion roubles. The port turnover increased from 0.7 million tonnes in 2002 by 4.2 million tonnes in 2011. A 7.1 billion rouble retrofitting programme is underway at the Posyet port. So far two billion out of that sum has been used. The project has been designed, permission for construction has been granted, technological equipment has been built and delivered to the port, and assembly work is set to be completed by the end of the year.

The second phase is the building of a deep water berth and a new approach canal to be put into operation in the third and fourth quarters of next year. That will increase the cargo handling capacity to 9 million tonnes and to 14 million by 2014. The deadweight of the vessels served will reach 60,000 tonnes versus the current 20,000 tonnes.

The next project is the Vanino specialised complex in the Khabarovsk Territory. The port is to be built in several stages, the first for 5 million tonnes, the second, for 15 million tonnes and eventually for 20 million tonnes. The total cost is more than 20 billion roubles. A new berth is going to be built that will accommodate vessels with a deadweight of up to 150,000 tonnes.

What are our requests to those present, to the government? We face major problems with transportation. The Ussuriisk-Khasan section of the railway is a bottleneck. Unless we solve that problem… At present we carry coal from Yakutia via the Baikal-Amur Railway to the Trans-Siberian Railway to the Posyet port. If the capacity of that section of railway is not increased… we need a capacity increase of up to 15 million tonnes before 2014. We ask you to include the cost in the Russian Railways investment programme – this would be very helpful. Otherwise investments in developing production and the port infrastructure will have been made, but this will be a stumbling block.

Another question that was raised at a meeting in February, you remember, Mr Shuvalov, was the issue of permits for construction, particularly of marine facilities. Last time you said that it requires 13 approvals. Well, the current situation is that by the time we get the final approvals, the previous ones expire. We propose a six-month deadline for this work. If nothing is done about it, approvals will take up to 30 months, two or three years. Thirteen agencies.

Dmitry Medvedev: With whom do approvals take 2-3 years?

Igor Zyuzin: The building and reconstruction of water facilities has to be agreed upon with 13 agencies.

Dmitry Medvedev: Water agencies?

Igor Zyuzin: Yes, marine ones.

Dmitry Medvedev: Marine ones.

Igor Zyuzin: I discussed this issue with Igor Shuvalov at a meeting in Vladivostok in February.

Dmitry Medvedev: What is the key agency? Who is in charge of the approvals?

Igor Zyuzin: All the agencies are responsible, nature conservation, Gosgortekhnadzor (the Federal Mining and Industrial Supervision Agency)…

Dmitry Medvedev: But which is the main agency that is responsible?

Igor Zyuzin: The GlavExpertiza company gives us the final permit for construction. And the last question, perhaps it is a bit off topic, but as I said, the Elga coalfield employs more than 2,000 people and the figure may eventually increase to 10,000. The issue of building a settlement for them must be addressed. The decision has to be made at the federal level. We cannot do this by ourselves because we need an administration, police, a hospital, a post office. I have brought this issue to the leadership of the Republic, to Viktor Ishayev. I think an urban-type settlement needs to be built to close that issue.

Dmitry Medvedev: Viktor Ishayev, are you up to speed regarding this situation? Could you say a few of words? If not I’ll give you a chance to speak later so that you could make your comments.

Viktor Ishayev: It's a very reasonable question, because we were also involved in the construction there. First, there must of course be a police force, because 10,000 people work there, and there must be a healthcare service. Second, the construction should not be chaotic, we don’t want to have to drive people out afterwards in order to redevelop the area.

Dmitry Medvedev: I see. Who makes the decision on building the settlement?

Viktor Ishayev: This is the function of the regional administration.

Dmitry Medvedev: Do you have any problems on that score?

Viktor Ishayev: The issue was just raised a couple of weeks ago.

Dmitry Medvedev: Okay, very well. Make sure that you deal with this issue.

Viktor Ishayev: All right.             

Igor Zyuzin: If you could issue an instruction to this effect.

Dmitry Medvedev: Agreed.

Igor Zyuzin: Thank you.

Dmitry Medvedev: On this issue and on the Russian Railways investment programme. Mr Yakunin, is that facility included in the programme

Vladimir Yakunin: Of course, the strategy dealing with the railway infrastructure provides for the building of a spur to the Elga coalfield. But in terms of development, as the minister and I have reported, cargo owners are already beginning to design and invest in the development of port infrastructure. Yet even with the introduction of the Kuznetsov Tunnel we will be able to carry only 50 million tonnes, but the total amount of requests backed by the actual amount of cargo – and I think Viktor Ishayev will be speaking about it today – is already twice as large.

Dmitry Medvedev: Okay.

Konstantin Basyuk, chairman of the board of directors of Khabarovsk Airport.

Konstantin Basyuk: Mr Medvedev, colleagues, I would like to say a few words about the ongoing projects, the prospects and problems.

The open joint-stock company Khabarovsk Airport is the biggest private airport in the Far Eastern Federal District. In 2011 it carried 1.6 million passengers, in 2012 the number is 20% higher and will be about 1.85 million passengers.

In 2011 Incheon International Airport, the biggest airport in Southeast Asia, for seven years the world’s best in terms of passenger service, became a strategic partner and shareholder in Khabarovsk Airport.

Private investments in the modernisation of Khabarovsk Airport until 2020 will amount to about 8 billion roubles. It is a public-private partnership project. With a stake in Vladivostok international airport, the company is taking part in preparing Vladivostok Airport’s infrastructure for the APEC summit, and is launching a new cargo terminal in September. The cost of that project is 650 million roubles.

The Kamchatka government has signed an agreement on the construction of a new passenger terminal at the Petropavlovsk-Kamchatsky airport. In addition to the Khabarovsk airport development programme we have an agreement with our Korean partners on the development of other airport assets in the Far Eastern Federal District. The idea is being considered to create a Far Eastern airport holding and consolidation of the region’s main airport assets: Khabarovsk, Yuzhno-Sakhalinsk, Petropavlovsk-Kamchatsky and Magadan. However, as of today, the majority of major Far Eastern region airports – Petropavlovsk-Kamchatskly, Yuzhno-Sakhalinsk and Magadan – are federal state unitary enterprises. This form of ownership does not provide the right conditions for attracting investments in the modernisation of the infrastructure of these enterprises.

The Yuzhno-Sakhalinsk and Magadan airports are slated for privatisation under the government programme for 2011-2013. However, at present there is no certainty about the timeframe for the privatisation of these companies, and privatisation procedures are delayed. The creation of a Far Eastern Airport holding involving a systemic investor will get things moving and ensure a balanced, robust and systemic development of all the airports that are part of the holding, introduce uniform advanced standards and raise the quality of services for passengers and airlines, attract further long-term investments, introduce a uniform and transparent price and tariff policy, implement the public-private partnership concept and synchronise private and state investments. We see this not only as a business, but as the solution of the key task of modernising the region’s infrastructure and as an investment in improving the quality of life in the Far East. We propose approving the concept of the Far Eastern Airport Holding based on public-private partnership and completing the privatisation and sale of the Yuzhno-Sakhalinsk and Magadan airports as soon as possible.

Our company has experience running airports. We ardently support the government’s course for systemic privatisation, including with regard to airports, and we are ready to take part in it. Thank you.

Dmitry Medvedev: Very good. At least someone supports the government’s course for privatisation. Do the others support it? Are the governors supportive? Nikolai Dudov?

Nikolai Dudov (Governor of Magadan Region): We are supportive, because the search for other investors has not yet achieved success. So we take a positive view of this proposal. May I continue?

Dmitry Medvedev: Yes, of course.

Nikolai Dudov: Mr Medvedev, colleagues. This is the third time in the last six months that the problem of transport accessibility in the Far Eastern region is under discussion. The two previous meetings took place in Magadan, and it's no wonder because this is the territory most isolated from the other Russian regions. We have no railway transport, no sea transport and the Kolyma federal road is not suitable for passenger traffic due to its particular character. Therefore for the people in the region, aviation is the only option, and not just for travelling to other regions, but also to points within the Magadan Region.

On some of the problems discussed decisions were made that met with support from the people not only in Magadan Region, but also in the entire Far East. These decisions are well-known. I think this will bring it home to our citizens that the policy we are proclaiming concerning the special attention of the federal centre to the Far East region (and I must say that this was very helpful during the election campaigns) is highly effective.

However, despite the subsidised fares, people still cannot afford to use that mechanism. Beginning in June, bookings for flights have practically stopped, especially for… Subsidised tickets are no longer available for the Magadan-Moscow flights as I am sure you know. The 2.5 or 3 billion roubles allocated for subsidies have proved to be insufficient, although the effect of that programme is obvious and everybody supports it. But there can never be too much of a good thing and today our citizens are clamouring for expansion of federal subsidies to other routes. For our territory, these are central areas of the country, because the bulk of the population originally came from these regions and of course people are interested in going to these places during their holidays at reduced rates.

Besides, the question arises of bringing down the age ceiling, because the retirement age in the North is not the same as in the central parts of the country –  55 for men and 50 for women. That calls for additional financial resources, but anyway people are talking about it. And of course we would like these issues to fall within the purview of the federal centre depending on the opportunities that may present themselves.

I would like to say a few words about the mechanism that appeared just recently, late last year. I am referring to subsidies of inter-regional and inter-municipal carriage. Unfortunately, our territory was not included among the regions eligible for inter-municipal carriage subsidies, though I don’t see the reason for that: we take part in this programme offering subsidised flights on several routes, but inter-regional routes are also very important to us. Of course, we are financing them out of our budget and we are expanding these routes year after year and are increasing allocations for this purpose – for example, they amounted to 53 million roubles this year. We have to diminish the frequency of these flights to once a week, whereas there need to be at least two a week. If the mechanism provides for financing then we would agree (with regional participation of course) to allow people to use these flights.

I would also like to mention the problems of local airlines, above all the condition of aircraft (for many Far Easterners the main type of aircraft is still the An-24, An-26, An-28 and An-140).

When speaking in December, I asked Vladimir Putin to postpone, until at least July 1, the deadline for companies to prepare their planes to be outfitted with modern means of warning of the approach of land and of objects in the air. We managed to solve that problem by July 1 for all types of planes except one, the An-28, and the reason was not that the owners of these planes could not get their act together. The delay was the result of objective factors: the Antonov state enterprise delayed the delivery of the necessary documentation and was late in carrying out the necessary tests. Most importantly, the design of the instruments prevents them from being installed on these types of planes. And yet for us, the An-28 is the only plane that can serve inter-municipal lines because it can land on dirt strips. That is true not only of my region but also of Kamchatka.

So, I would like to ask you to see if it is possible to give at least until October 1 to improve this structure so that we can go on flying on the An-28 (until new planes are available).

A few words about the road infrastructure problems. The biggest problem for us is the maintenance of regional roads. The road network dates back to the 1940s, and today 95% of these roads belong to categories four and five. They are more than 1,000 km long. In 2008 we (I mean the Far Eastern Federal District regions) were part of the transport development programme, but since 2008 one element of the programme remained. Meanwhile six regional roads are financed out of our own budget. We are increasing the funding every year. But there are some problems that are screaming out to us – for example the 373 m bridge across the Arman River built in 1969 is in a bad state of disrepair and if (God forbid) something were to happen, more than 2,000 people would be cut off from the central parts of the region. I brought up this issue to then Prime Minister Vladimir Putin and he instructed the Transport Ministry to look into this matter. The Transport Ministry raised this problem, but the Finance Ministry did not support us at the time. But I have to raise this issue again because the unpredictable may occur. We cannot afford to build such a bridge ourselves. We have prepared the project documentation, we are ready to contribute to the tune of more than a billion, 1.1 billion roubles, but this problem… You cannot just wish it away.

Another issue discussed today was the creation of state-owned enterprises. Mr Medvedev, I would like to add my voice to those of other speakers, because we transferred two airports to federal ownership but we are still continuing to finance these airports. The draft resolution that would include these airports in the Northern Airports government enterprise is stuck in the government. That applies to the Kamchatka region, which faces a similar problem. We would like to see faster progress on this matter.

A few words about Magadan Airport. As I said, the proposal made here is acceptable. But at the same time the airport has been turning a profit for the last three years. We would like the mechanism of deducting 25% from the profits of that enterprise and many others that operate at a profit… A mechanism could be developed that would, at least for three or five years, relieve the airport of these payments, and we could use the money to modernise the airport, in particular, to improve transport and anti-terrorist protection. Because these airports are in any case federal airports and these resources must be committed for this purpose.

Another issue has to do with the improvement and streamlining of the procedure of introducing new rates for airport services. We would like the Federal Tariff Service to revert to the old scheme, whereby one could agree to such airport charges every year without cumbersome procedures. That would simplify the tariff-setting mechanisms and make the policy transparent for air carriers.

Another issue has to do with the roads that link our communities, district centres, to the regional centre. Subsidies are allocated for these purposes, but on the condition that these communities are within 5 km from the regional road. You can count such communities in the Far East on your hands. And yet this is the main criterion which prevents us from entering the federal programme in order to receive subsidies for the maintenance of these roads, which are also extremely important for us.

I suggest that the distance for the Far Eastern regions should be not five km but 50 km. Then we could take part in this programme and receive some funding from the federal budget.

Finally, I would like to speak about the prospects. Vladimir Yakunin today spoke about the activities of the joint-stock company. I have to say that the building of the Yakutsk-Magadan railway is included in the strategy of railway transport development until 2030 and in the strategy of the development of the Far East and the Trans-Baikal area until 2025, and in the similar strategy for the development of the Magadan Region.

We would like for that project to get off the ground. For our part, we have commissioned feasibility studies for the construction of this road to a research institute last year, and we would like to create a task force to look closely into the feasibility of that project. It is very important for the people who live in this region to be aware of this prospect. Thank you.

Dmitry Medvedev: Thank you. I hope that the equipment in this hall will be different in time for the APEC summit, because under this makeshift arrangement, when the speaker talks quickly or is far away from the microphone, it is difficult to hear him.

Regarding what Mr Dudov has said. I would like to stress that I will conduct a special meeting on regional carriage and regional aviation, and I would like the Transport Ministry to start preparing for it at once. I will of course invite the governors, especially from the Far Eastern and Siberian Federal Districts.

As for postponing the deadline for the provision of instruments that signal the approach of land or other aircraft. All right, I am hereby ordering the people concerned to assess the magnitude of the problem in the country and present proposals, but on the understanding that this postponement with respect to several planes or one type of plane is going to be the last.

Regarding the bridge that you have mentioned. The issue was raised before, but I think it can be revisited considering its disastrous condition. I would like the Finance Ministry and the Transport Ministry to express their position. Igor Shuvalov, I would like you to take care of that.

As regards the government enterprise, the situation is similar to that in another region, whose leader was speaking here. We will see what to do about this document. We will keep the other issues under review as well.

You haven’t asked your favourite question about sales by private gold miners. The new minister is sitting next to you. Mr Donskoi (to Sergei Donskoi), please tell us about this. I would like the ministers who are here today, at least those who want to, to say a couple of words because this is the first meeting of the commission for issues of socio=economic development of the Far East in the new government. Igor Shuvalov has traditionally attended to these issues and he will continue to do that, but I think it would be appropriate for me, as prime minister, to conduct this first meeting. Now you have partially met the new government members. You all know some here, for example, Igor Shuvalov, but others are in the Far East for the first time. Go ahead, Mr Donskoi.

Sergei Donskoi: Thank you, Mr Medvedev, colleagues. The ministry has paid great attention to issues of development of the Far East and Siberia, primarily because the region boasts a variety of mineral resources. In my address I’d like to focus on the raw-materials base, because it’s obvious that the development of minerals can become one of the major drivers for general development in the Far East and Siberia. A wide array of raw materials can be found in these regions including the most precious and marketable raw materials. Meanwhile I have to admit that the current state of mineral development here is less than we need. In our opinion, some specific factors are hindering the process. Let’s face it; our mineral exploration in the Far East has been inadequate thus far. There are many fields of various minerals both on the surface and on the continental shelf just waiting to be discovered. There is a lot of potential in this part of the country. The federal budget does include significant funds for the exploration of mineral wealth and the production of the raw-material base; but at the same time federal funds don’t have an overwhelming impact on the extraction of minerals or the development of large mineral centres. Comprehensive development of the sector requires that each rouble of state investment be matched by private investment and at many times the state’s investment. To attract private investment it is necessary to create both legal and infrastructure related conditions. Both are the state’s obligations.

A lot is being done to create an investment friendly climate for large mineral exploration and production projects and for the transparency of the legal framework. But there is also a lot to do to reduce administrative barriers, to make mineral projects profitable in the east. It is worth noting that following the statutes of the strategy for the geological sector in 2010, a law making it possible to change the boundaries of licensed land after prospecting was adopted, and this law was a hurdle for many projects. Finally we have managed to offer free information on state minerals. Amendments seeking to increase the terms of geological prospecting in Far Eastern districts are being developed, amendments on the introduction of a declarative principle (partly to attract small and midsize companies to geological research) respective to the criteria for including a field in the group of federal fields are being developed. This also influences and increases the risk for investors seeking a long-term investment in mineral extraction. Additional material for creating a market of geological information has been prepared.    

The sector’s programme documents layout a plan to explore and include in the state balance sheet multiple mineral reserves in the Far East until 2020, but the comprehensive use of these riches for the development of the Far East and the whole country will be possible only with the necessary infrastructure, obviously so we can transport minerals and carry out high-level processing with the highest added value in Russia. A lot has been said about this today. In this respect it is extremely important to develop a raw-materials base parallel to implementing large industrial and transport projects by means of inter-sector coordination of key programme documents that would include state-private partnerships. Thus, when preparing projects on mineral exploration, we need to have a tool… Here we can think of programmes for forming so called mineral clusters, or raw-material centres created with consideration for the quality of the transport and power infrastructure of the area where such projects are planned. The planning itself should be based on the existing programmes as well as on programmes under development and projects for reproduction and the use of the raw-material base funded from diverse sources. Such system-wide methodology using the raw-material base will make it possible to consign our exploration programmes with mineral licensing programmes and to coordinate all these documents with the strategic documents on the long-term development of transport, power and social infrastructure in these regions. In addition, one measure to promote territorial development that can be taken by the government would be a state commission to prioritise investment projects in order to accelerate the rate of socio-economic development in these territories and the efficient economic integration with the Asia-Pacific countries. 

The list can be compiled with the assistance of all the relevant authorities and organisations and submitted to the Government for approval in line with established procedure in the form of a draft regulatory document, similar to the programme for the construction of the Olympic facilities in Sochi and the development of Sochi as a mountain climate resort. When compiling the list priority should be given to projects with a multiplier effect, for the development of major centres of economic growth. In addition, it would be appropriate to consider the entire range of possible sources of funding for high-priority projects during the compilation of the list. First of all, this includes allocations from state budgets at different levels for all economic sectors during the implementation of current federal targeted programmes and the non-programme section of the Federal Selective Investment Programme. Secondly, this includes allocations for financing the projects of investment programmes of public liability companies. And, thirdly, this includes various allocations from state funds.

The compilation of a comprehensive list, which takes into consideration specific projects being implemented in line with the principles of public-private partnership, as well as projects being implemented at the expense of extra-budgetary sources, will make it possible to effectively plan the distribution of budgetary investment for creating the relevant macro-regional infrastructure, taking into account the needs of business. It would be advisable to formulate specific measures and projects of state programmes and federal targeted programmes on the basis of the approved list. It would also be appropriate to hold preliminary talks with potential investors while drafting comprehensive measures and projects of the relevant federal targeted programme or state programme. An agreement between an investor and a state client could be signed during these talks, the document setting out the amount of extra-budgetary funding. This approach will make it possible to considerably expand the amount of private investment being channelled into the economy and the macro-regions, as well as providing clear rules of the game for investors, which will help improve the investment climate. Thank you.

Dmitry Medvedev: Thank you. I would like to ask any other ministers here whether they can make any comments or remarks on the agenda being discussed here today? If there is then please step up.

Nikolai Nikiforov: Mr Medvedev, colleagues. I would like to say just a few words. You see, a lot remains to be done in the field of communications, telecommunications and media in the context of the socio-economic development of the Far East. We have talked about this with several governors. There are probably two areas that can be singled out here. The first one, which is being actively implemented, is the development of digital television and radio. Numerous facilities are being constructed. It is a question both of coverage and signal quality. Digital television networks require better regional signal quality. This work is underway, and we will complete it. Actually, we are already entering final stages.

The second issue is about reducing the digital divide, or providing large population centres with broadband Internet access. This issue is particularly acute in this part of the territory, due to the fact that many large communities lack major optical fiber networks, primarily using satellite channels instead. Since satellite resources are quite limited this is hindering the further penetration of all communications services, including telephone and mobile phone communications, as well as broadband Internet access. Although there are certain development plans, we are currently focussing on the most problematic locations, and we will propose an action plan in the form of a public-private partnership for each one. That’s all. Thank you very much.

Dmitry Medvedev: Thank you, Mr Nikiforov. Please.

Alexander Novak: Mr Medvedev, colleagues. The topic we are discussing here today, the development of the transport infrastructure, definitely touches upon the issues of the energy infrastructure and energy supply. That’s why we held a meeting in Vladivostok yesterday and discussed the development of the energy sector in the Far Eastern Federal District. I would like to tell you that the Ministry of Energy has drafted and approved a comprehensive programme for the development of the Far Eastern electricity grid up to 2025. This programme calls for the introduction of a 4.2 gigawatt generating capacity by 2025 and 14,580 kilometres of power transmission lines. The net capacity factor will increase from 39% to 54% and specific fuel consumption to generate one kWt/hour of electricity will be reduced by 15%. At the same time, I would like to draw your attention to the fact that only four out of the nine territories in the Far Eastern Federal District have drafted and approved the relevant plans and programmes regarding the development of the electricity grid. I am calling on the governors to pay attention to this and, if possible, to approve these plans this year.

Mr Medvedev, yesterday’s meeting showed that we must synchronise the comprehensive programme for the development of the Far Eastern energy sector with other Russian regions and the Ministry of Transport and reassess this programme accordingly. Considering the fact that the Minister of Transport has reported on its new projects and new objectives to increase and expand transport hubs today, we have agreed to synchronise demand for ensuring the energy infrastructure for the specific tasks that were outlined by Maxim Sokolov today over a period of 30 days. Thank you.

Dmitry Medvedev: Thank you. I suggest that we sum up the results. Some of our colleagues, including those from the Sakhalin, are present here. But I will visit Sakhalin Island tomorrow. You will be able to speak and to submit your proposals. And now I would like to give the floor to Viktor Ishayev. Mr Ishayev, please.

Viktor Ishayev: Thank you very much, Mr Medvedev, for this meeting and for such a profound examination of specific issues. I would like to start by voicing a concern. I have already briefed you on the situation in many areas but nonetheless, if we take the development trends in the Far East, we are now lagging behind the Russian economy as a whole by 17 percentage points. Despite one and the same vector, the existing gap is continuing to increase. An analysis of the situation (may be people in the Far East are just poor workers?) in fact shows that the Far Eastern Federal District accounts for 4.4% of Russia’s population while it contributes 5.6% of Russia’s GDP. So the people of the Far East are working rather actively. However, not everything works out the way we want it to.

And now I would like to say a few words about the role of the Far East in economic development in the context of the supply of goods. In the past, the Far East contributed 75% of manufactured products to the Russian market, whereas now we contribute only 21%. That means the Far East is drifting away from the common Russian market. As for the regional population, I have already pointed out that, according to the 2002 census, the population of the Far East totaled 6,440,000. At the 2010 census the population of the region was 6,285,000, which means we have lost another 165,000 people. If we talk about the tasks regarding the development of the Far East, we have to receive an additional 511,000 people by 2025, of which 80% must be qualified professionals.

If current trends continue we will lose 467,000 people. Something must be done. If we talk about specific advantages on which we can base our development, we need to assess the structure of the gross regional product (GRP), which differs sharply from national patterns: we prioritise natural resources, which account for 24.6% of GRP (with trade taking first place),  followed by the transport sector (11%) and the construction industry (8%), but this is due to the substantial levels of federal investment in the region we currently receive. How can we develop the Far East? We’ve looked at the possible options. Of course, this has to be done on the basis of public-private partnership. This should not be understood as an arrangement in which we share the costs with the government. A public-private partnership, as we have agreed back in 2000, means that at first, the government creates an infrastructure, and businesses build means of production. Only in this event will we see actual growth. Therefore, what we are discussing today is a major growth resource for the Far East: its infrastructure, which mainly includes transport networks. Where there are roads, there is life.

I would like to return to something that has already been discussed here: railways. I have spoken with Vladimir Yakunin and have heard speeches by leaders of large businesses, such as coal mining companies. The design capacity of the Baikal-Amur Mainline (BAM) or BAM-2 is 12.6 million tonnes. The upgrade being implemented by [RZD head] Vladimir Yakunin and supported by the federal government should expand it to 22-24 million tonnes, at best. At the same time, according to estimates, to achieve real growth, we’ll need to ship 108 million tonnes annually by 2025.

If we do not build this railway, the company’s development… The speakers here – Igor Zyuzin and Vladimir Rashevsky from SUEK – said we are developing seaports there. But without a railway, it would be difficult, or, plainly speaking, infeasible. That is why the new railway, BAM-2, is absolutely vital. We have reached an agreement, and design specifications should be worked out – a joint stock company is working on this. But we need to go further. First of all, one line (second one) of rail needs to be laid and connected to power. This is quite simple – only about 400 billion. We’ll use mixed sources of funding, including federal financing; part of the costs will be included in the railway fare; and we could also issue shares and use borrowed funds. In any case, this is a high-yield project, it will lead to huge profits, but we must work hard to achieve that. Further on, let's discuss the "BAM zone" development. We have already discussed an upgrade of the Trans-Siberian Railway, including development of sea terminals, but we have not mentioned the Trans-Korean Railway project – one which should spur the region’s development and bring in revenue. The same goes for the planned railway to Sakhalin Island with an overhead rail link to the island. Some estimates have been made. Sakhalin has in fact ordered them from the Academy. We are ready to discuss them. The costs are not so huge, but it is an important political project. I have reported this before, Mr Medvedev, and you have issued an instruction. I think we must return to it.

As for motorways, I think we should primarily complete the basic network. Take the Chita-Khabarovsk “Amur” Motorway, which has not been completed. The M-60 Khabarovsk-Vladivostok “Ussuri” Motorway is only a project. As is another road to the north. And the “Lena” and “Kolyma” roads are absolutely crucial for crossing Yakutia and reaching Magadan. There are other roads which were not discussed or were barely mentioned here, which should reach the Vanino Port, which transships freight… in other words, if we finally build all those roads, it will be excellent.

Much has been said about water transport, so I won’t talk for long about this, but I would like to remind you that the Northern Sea Route is one of the most powerful transportation lines, one which can greatly promote development. The Kamchatka Peninsula can be developed as a hub, with freight distributed from there. This, in turn, would lend development momentum to Yakutia, and Magadan, and Chukotka as well. This is a great way to promote development, encompassing political and economic aspects. This is an important initiative Mr Medvedev, and nobody says we can come up with all the solutions right away, but we need to work toward them, and that will require a serious effort.

Next, I would like to discuss the funding resources you have outlined. The overall amount is substantial. Suppose the programme allocations for 2013 are 108 billion. So this year’s plan is 69.223 billion – almost 70 billion – and for the next, we allocate 54 billion. We have discussed this with the ministries. Both the Regional Development and Economic Development Ministries have supported us: we need at least 80 billion, in order for us to have some money left.

There is something else I would like to note, and I have already reported this. Large investment projects certainly promote growth at the Far East, and so do other projects to attract local and foreign capital, as well as government programmes. But, Mr Medvedev, since the pipeline projects and APEC facilities are nearing completion, we have cut investment by 20%, year on year in the first half of 2012. You can see how this reduction has immediately slowed us down. The situation is changing – we might see stagnation soon, if not reversal of growth. We actually have to grow faster than other regions to keep up with the pace of the national economy. There are similar examples – Northeast China is showing good results with the government support programme. Its economic results more than doubled during the period of the implementation of the government programme. I think that we should look at the projects mentioned and take some steps in terms of investment.

As for what (Magadan Region Governor) Nikolai Dudov and other speakers have mentioned – I agree that there should be a deadline, moreover it should be the final deadline, because the original January 1 deadline was already moved to July 1 and they are asking to move it to October now. But the problem is, these aircraft are not compatible with this equipment and they are unable to install these devices and this is a major difficulty.  Neither An-24, nor An-26, An-28, and An-38…

Dmitry Medvedev: Mr Ishayev, I said that they should adjust the design.

Viktor Ishayev: They should. I understand.

As for the issue Igor Zyuzin raised… The problem was first identified two weeks ago, and we have only just begun addressing it. At the same time, I must point out that, when they plan a mineral development, they have to make some parallel town-planning efforts. Look: with a space centre already under construction, they are simultaneously working on a town for 30,000 people. Some of the projects are financed by companies, others by federal ministries (the Ministries of Healthcare and of the Interior), and still others by the regional government. The most important issue here is to ensure clear land ownership, so as to avoid chaotic construction. We simply have not had time to consider this yet.

Speaking of natural resources, Mr Donskoi (Nature Minister Sergei Donskoi), I agree with you that sometimes we obtain poor results despite the vast resources. According to our estimates, we lose about 300 billion roubles each year due to substandard mineral development. When companies obtain mineral licences and then fail to comply with their licence agreements, their licences get reassigned or their agreements are changed, and getting through this red tape takes for ever. This is not the right way to go. So we need to work on this together. Otherwise, the company, which has resources, shows growth, but the region doesn’t. So I think we need to discuss these issues and work together to improve this situation, so that we could use this absolute advantage to promote growth. These issues are very serious.

I would like to comment on the Energy Minister’s speech. First of all, we need to approve a Far East energy development programme for at least three or five years. We reached an agreement with the ministry last year, and I called meetings three times to approve it. It was approved and submitted – and lost. It was never adopted. If there were a federal programme in place, the various regions would have outlined the limits of their involvement. As it is, they could still do so, but it will just be on paper. We must have an agreement at the federal level about how this will function. I would like to discuss this with you again, and let's achieve some progress, because energy problems are among the key inhibitors of growth in the Far East.

Thank you again for addressing this issue. I think this will also provide an impetus to other problems that have piled up in the Far East.

Dmitry Medvedev: Thank you. Mr Ishayev, you are certainly a well-known personality in the Far East. You have long served as a regional governor, and a successful one, as a presidential envoy and now you are also a minister. So I expect you to work hard in both capacities.

Secondly, I ask all the ministers, naturally, to provide assistance and support to Mr Ishayev, who is now leading an unusual federal ministry. This is the first federal ministry responsible for a single federal district, a very complex but very important part of our country, so I expect smooth cooperation from all who are involved in this work. Mr Shuvalov, please go ahead. As the chairman of this commission, you have the second to last word.

Igor Shuvalov: Mr Prime Minister, commission members.

Mr Medvedev, I would like to thank you, not for the protocol, but sincerely, for chairing this first meeting of this newly composed commission. We do not often hold these meetings because we are busy working in the regions, holding local conferences there. So the last time we met as a commission was last winter. Since then, we held transport and energy development meetings “on location” – in Petropavlovsk Kamchatsky, Magadan, and Vladivostok. Still, it is at commission meetings like this one that the most complex and important issues are raised.

Mr Medvedev, I think we will ask you to continue to supervise consideration of the most serious issues. This is important for us and would be beneficial.

Regarding this practical matter, when we discussed the transport and energy infrastructure as the basic development institutions of the Far East, we also had in mind another related issue which must be decided without delay: the drafting of a federal development programme for the Trans-Baikal Territory and the Far East. Colleagues, as you know, we will need to draft and adopt 41 federal programmes, including one for the development of the Far East and the Trans-Baikal Territory. It is our common task to work out how to find the federal allocations for these programmes. Our discussion today differs from the one we held in winter; the situation has changed. We know that the global economic situation is becoming increasingly complex, and hence our task is becoming more complicated too.

We need to understand which of the projects we discussed today, from Russian Railways to air traffic, subsidised transport aimed at helping people move between the [outlying] regions and central Russia, which of these projects we will be able to implement as a priority if the global economy shrinks. According to some forecasts, it will shrink anyway; what we don’t know is when it will happen, or under what scenarios. One way or another, we must prepare for a situation in which we will definitely implement some projects while only implementing others if we have the means to do so.

The reports delivered today by the Minister of Transport and the Deputy Minister of Economic Development were very interesting. What conclusions can we make from these reports? That no matter what problems the Russian and the global economies encounter, we will need to focus on two key tasks. The first is to increase domestic transport, because the Russian economy will grow – and it will grow in any case – and the second is a new export task aimed at expanding into new markets in the Asia-Pacific region, which will require major investment. Mr Likhachev said today that the European Union accounts for approximately 50% of our foreign trade, but if we are to find a new trajectory for our exports in order to step up our pace of growth, we need to consider the region where we are meeting now as a region where we could potentially sell more than a half of our products and services. This is a completely new task for us. For the past three or four years, we have been getting together with scientists to work out how we can fulfil this task, and we know that we will need to invest considerable funds in the development of the transport infrastructure, especially the railway and port infrastructure.

Mr Medvedev, we will continue working with the experts, the Ministry of Transport and other agencies. However, I suggest we work under the worst case scenario. It is understandable that we would like to achieve all our goals, but we are unlikely to be able to do so given the shrinking of the global economy, which will impact our budget revenues. But we also need to consider other scenarios and be ready to implement them if federal budget revenues grow under a more favourable scenario. We have approved the necessary strategic documents for this, including the development strategies for the Far East and the Trans-Baikal Territory, regional strategies and sector strategies, which have been adopted at the government level and are being implemented. I’d like to say again that we would like to implement these projects in full, but that is unlikely at the given moment. So we need to determine our priorities. Thank you.

Dmitry Medvedev: Thank you Mr Shuvalov. Colleagues, I think you understand that we have to prioritise spending regardless of the global financial situation. There will never be enough money for everything. But, what distinguishes sensible state management from irrational management is the ability to prioritise interests at any given moment in time. Still, at this point, we will probably have to coordinate our priorities with the current state of the global financial system and economy. There’s no need to dramatise things or panic, but nevertheless we have to take into account the current economic situation.

Now back to the issues we addressed today. I have already mentioned some of the decisions to be passed today. Commenting on the key presentation, from the Transport Ministry, and some other reports – such as the Economic Development Ministry’s report – I agree that they were interesting. I will issue an order to consider setting up municipal road funds. We also need to consider temporary exemption from customs and import duties of civilian aircraft with a seating capacity of up to 72, with an explicit limit on the number of aircraft the measure will apply to and also a time limit for this exemption. We need to do this to support regional transport and to resolve the problem which all the speakers mentioned.

I have no objections on setting spending limits on the management of inland water-ways, and coordinating the work on the operating regulations for water reservoirs in the Far East and Eastern Siberia with seasonal needs to deliver freight to remote inaccessible areas of these regions. I will not take up your time listing all of the planned and numerous instructions, but I hope that this new government will fulfil most of them on schedule.

The second issue I would like to raise is unrelated to our discussion of the general situation in the Far East and Eastern Siberia. It has to do with the APEC meeting. I would like to draw your attention to the fact that the international forum begins in less than two months. Preparatory work needs to be completed both on mainland Vladivostok and on Russky Island.

Everybody knows what they need to do. Please pay attention to the issues that the organisers have mentioned to me, in particular regarding hotels – including the allocation of accommodation, but we will discuss this again in Moscow, accommodation for business delegations, which is not as simple as it seems, and the required communications support. We will definitely return to these issues back in Moscow, while Mr Shuvalov will continue coordinating this work with his colleagues from other agencies.

Finally my third point, colleagues, I consider this meeting of the commission in the Far East an effective practice. It’s a way for federal ministers and deputy ministers, even deputy prime ministers, and heads of other agencies and departments, to work with their colleagues directly on location. This is convenient because local officials can ask their questions while federal ministries can get a hands-on view of the situation, and not from their Moscow offices. Therefore, we will continue this practice. Ministers will often travel to the Far East – not only to the Primorye Territory, but to other regions of the Far East and Eastern Siberia as well – and take decisions on the spot. I think this is very important in such a vast and complex country like Russia.

So let’s congratulate the residents of Vladivostok on their local holiday, City Day. Good-bye, I hope to see you soon in other regions of the Far East. Thank you.