Transcript of the beginning of the meeting:

Dmitry Medvedev: Mr Shuvalov (addressing Igor Shuvalov), there is an issue about which no one in this country is indifferent, and that is privatisation. Some see it as a path toward the future, while others think that it is a road we should not take, that it is not a road that leads to God, as they say. But you and I firmly believe that privatisation is something we should embark upon, and the Government has recently been working to accelerate privatisation; I spoke about this in my previous office. We have held some privatisation auctions and tenders, and we should expand this practice. What are your plans for the near future? I am asking you as the person in charge of this issue.

Igor Shuvalov: Mr Medvedev, colleagues. When you were forming the new Government, you outlined its priority tasks, including the need to implement privatisation plans. We had formulated these plans by May, after which we regularly monitored them, but they were not implemented due to unfavourable market conditions. The markets were in waiting mode, and our consultations with the selected agents and investment banks showed that the first half of the year is not the best time for floating shares. As for the flotation venues, we have agreed that we will promote the placement of Russian issuers at international sites (London and New York), and will also support the Russian exchange. It badly needs our support after the merger, and Russian experts confirm that privatisation should be connected with the flotation of shares on the domestic exchange. These possibilities came up in the second half of the year. The markets have become more loyal to the disposal of assets, including in the BRICS countries. Russian assets became especially attractive during this period. In July we began serious talks with consultants on the possible sale of the Sberbank shares held by the Central Bank. We expected market conditions to be at their best in early autumn. Sberbank shares were floated on 17 and 18 September. We sold a 7.58% stake worth a total of $5.208 billion. It was a unique transaction in that roadshows were held simultaneously in Frankfurt, London, New York and Moscow. The bid book was considerably oversubscribed. It is noteworthy that there were no government agencies among the bidders, such as subsidiaries of VEB or Sberbank. Since the shares are held by the Central Bank, we suggest that the Ministry of Finance should adopt a bylaw in 2012, before the Central Bank deducts the profits from the stake next year, to ensure that profits from the sale of these shares is transferred to the federal budget.

We also sold a 20% stake in Apatit in September. It took us more than a year to close the deal. We conducted difficult talks with potential buyers. At one stage Mr Arkady Dvorkovich joined in the talks with these buyers. As a result, a government resolution was signed on 22 September transferring the stake to PhosAgro and making Apatit a completely private company.

Another major deal we concluded in September was the 100% privatisation of railway freight operator SG-Trans. This deal was different from others in that the starting price increased considerably during the auction.

Dmitry Medvedev: And who is the buyer?

Igor Shuvalov: I can’t tell you publicly, because you first have to sign the government decision Mr Medvedev.

Dmitry Medvedev: Good.

Igor Shuvalov: I will tell you in private. The document you need to sign has been forwarded to you. The ultimate price of the deal is 22 billion roubles. Following the transactions we concluded in September, we will transfer about 180 billion roubles to the budget. I hope we will be signing such deals on a regular basis. But when we’re asked what we intend to sell next, we always reply: we will act according to the plan that you, Mr Medvedev, signed, provided the market conditions are right. We will not take any special measures to implement this plan or to get rid of this list. If the market situation remains favourable, all of the plans that you have announced and approved will be implemented. Interest in our assets remains high – we meet with a large number of potential investors and consultants every day. Our consultants in these deals are leading Russian and foreign banks, and my colleagues – deputy prime ministers – are also conducting such meetings. I hope that other placements will earn considerable funds for the federal budget.

Dmitry Medvedev: Good. There are two points I’d like to make. Regarding the markets, we should certainly wait for the best situation but we also need to remember that it’s unlikely to be exceptional over the coming years given the global situation. But anyway, the situation is quite fluid, and we need to take decisions accordingly. In general, we believe that privatisation is an important source of income for the federal budget and will remain so in the future. I would like all my deputies and the Government as a whole to act on this assumption.

And secondly, in terms of the revenues from the sale of the government stake in Sberbank: I believe that this is the right course of action; the Minister of Finance has reported to me on it. I have approved the proposal for these revenues to be transferred to the federal budget, so a corresponding decision needs to be formulated.

Igor Shuvalov: Mr Medvedev, we will carry out these orders. I also want to say that all the talks we are holding and all the actions we are taking are absolutely transparent. There can be no complaints about the Government or our consultants doing something secretly, behind closed doors, non-transparently; there are no complaints of this kind. It was one of our main conditions when we proposed the privatisation plans that all transactions are absolutely transparent and that the stakes we auction off are sold at the highest possible price.

Dmitry Medvedev: We should continue working in this way, especially since we have examples of the opposite situation emerging from time to time in different periods of our history. This later gave rise to much unfavourable criticism, and eventually affected the interests of investors. I am not speaking about the idea of privatisation itself, which generally received diverse estimates at home. All right, it’s a deal. We will certainly continue this work.

Now I would like to address Mr Rogozin (Deputy Prime Minister Dmitry Rogozin). I know that you have supervised shipbuilding and some other related issues. What has been done and what are the prospects?

Dmitry Rogozin: Mr Medvedev, before I focus on my visit to the Primorye Territory, let me share some good news. On Friday, the legislature approved, in the third reading, a draft law on a fund for advanced research. This is your brainchild, because actually it was you who suggested that work should be started on this draft law. We hope that it will be approved by the Federation Council within a matter of days, and signed into law by the President. As a result, we will have the Law “On the Fund for Advanced Research.” The Fund itself will be an umbrella for a programme of fundamental research in the area of defenсe security, which has gone through the Russian Academy of Sciences, the Scientific and Technological Council of the Government’s Military Industrial Commission, and all advanced high-risk investigations.

Dmitry Medvedev: I hope that this Fund will at least play a role similar to that of the Defence Advanced Research Projects Agency (DAPRA) in the United States of America, with regard to advanced technologies. At any rate, we should strive toward this goal.

Dmitry Rogozin: Yes, certainly. The existing experience will be studied to the maximum extent – both that of the DAPRA and similar organisations in other countries, such as India.

And now let me inform you about my visit to the Primorye Territory. Pursuant to your order, I was there on Friday, more specifically in Vladivostok and Bolshoy Kamen. We held a meeting of the Naval Board dedicated to drafting a port infrastructure development strategy, and to developing an approach to training personnel for all types of maritime activities, including naval. In Bolshoy Kamen, we visited our famous Zvezda Shipyard, and saw evidence of the fact that the work on the first stage of a new shipbuilding programme had been launched. New iron recycling shops have been built, which will enable us to dramatically step up our production capacities for both military and civilian vessels. We have made an arrangement with Mr Dvorkovich (Deputy Prime Minister Arkady Dvorkovich) that we will possibly hold a meeting on maritime equipment producers and operators similar to the one we held on air carriers and aircraft manufacturers. This will benefit, among others, the merchant marine and our oil and gas companies. Generally, I’d like to say, Mr Medvedev, that the work effort is in progress; we are in control and I will report regularly on this issue.

I would also like to mention that the Naval Board’s meeting took place in the University building that has been just built on Russky Island. Today, on October 1, students, the rightful owners of this wonderful university, will be moving in. Of course, all participants in our meeting were greatly impressed by how the infrastructure for APEC Leaders’ Week was prepared. Hopefully, the rightful owners of this university will both soak in new knowledge and simply enjoy studying in this fine, well-equipped university.

Dmitry Medvedev: I hope the University will work out well. As far as shipbuilding is concerned, I think that the right thing to do is to pool the efforts. I may come down to chair one of these meetings – we will decide where and how to hold it – and possibly we will sum up some interim results, because governmental instructions have been issued to this effect. Please prepare your proposals, and I will make the final decision later.

Dmitry Rogozin: The participants in the Naval Board’s meeting, Mr Medvedev, expressed a wish that you should chair one of its next meetings.

Dmitry Medvedev: Very well. Let’s do this then. Thank you.