25 october 2012

A meeting of the Government


Dmitry Medvedev: Good afternoon. Let’s begin our meeting by discussing agricultural issues.

As you know, this summer has once again clearly demonstrated how dependent agriculture is on weather risks: a large part of the harvest was destroyed by drought in an area of around 5.5 million hectares in 20 regions of the country. Two weeks ago at a Government meeting we decided to allocate 6 billion roubles to support drought-affected farms. At the same time, I have said more than once at different venues and meetings that, unfortunately, our farmers are not making sufficient use of a very modern mechanism which they have at their disposal: state-assisted insurance where half the insurance premium is subsidised.

A new system of agricultural insurance has been introduced this year. But frankly, the initial results are still quite modest. As of 10 October, only a fifth of farmland where spring crops have been planted, that’s around 10 million hectares, has been insured, even though the current state programme of agricultural development specifies a target of insuring 40% of cultivated farmland in 2012. Obviously we need to use this tool in a different way. We need to sign agreements in good time and not rely on circumstances or federal funds which may or may not be forthcoming. In 27 regions, less than 10% of the land has been insured, and this is not Chukotka or Sakha (Yakutia), but the Krasnodar Territory, and the Volgograd, Rostov and Tambov Regions – key areas. In 10 regions no state-supported agricultural insurance agreements have been signed. These include the Republic of Mari El, the Perm Territory, the Vladimir, Smolensk and Yaroslavl Regions, and others. This is simply not good enough.

This year, 7 billion roubles have been set aside for the purpose, including 6 billion roubles from the federal budget. Nearly 4 billion have been allocated to the regions, and their budgets have another billion roubles, so the money is there. I can understand that farmers have questions about how the work of insurers is organised and about the lack of unified insurance regulations. Underdevelopment of the hydrometeorological observations network also does nothing to improve the picture, we discussed this incidentally at a meeting in the Volgograd Region at the end of July. I gave an instruction to prepare proposals for improving the system as it is currently impossible to determine whether something is classified as an insurable event. But this is our common task, and we are all interested in solving it.  Mr Fyodorov, (addressing Agriculture Minister Nikolai Fyodorov), please make your report on the subject. I have also invited the governors of the Saratov Region and the Stavropol Territory to report on the situation in their regions.

Now we need to declare the results of the national competition for the best city and village of 2011. 105 municipal entities took part in this competition and there must, of course, be both winners and losers. I am pleased to announce that the third prize goes to Belgorod, Barnaul and Makhachkala (the latter was probably the biggest achievement), the second to Ulyanovsk and Tomsk, and the first to the capital of Mordovia, Saransk. Of course, these are relative indicators, but no less important for that. There are 23 other prizewinning cities and villages, which is a Government assessment of their efforts.

There are several winning cities which represent the same regions, for example, in Tatarstan and the Nizhni Novgorod Region. It is important to note that when summing up the results of the competition we took into account not only the standards of housing, utilities, transport or the environment, because there are no ideal places and even the winners have their own problems. However, this is still evidence of a certain trend, a sign of the development of public-private partnerships, the support of small businesses and the introduction of modern technology.

Of course, I am sure that the main thing is not these competition results, but the standards of living and the authorities’ ability to satisfy people’s requirements. The most important thing is that our common goal is to make life in the cities and villages comfortable and interesting. This is the goal of the federal and municipal authorities, the business community, public organisations and people. This is all I have to say on the competition results.

Our next issue has to do with changes in the legislation with regard to political parties. You know that a single voting day was held on October 14, when five regions elected governors, six regions elected deputies of the legislative assembly, and many more regions elected city mayors and members of municipal district councils. These elections were held in accordance with the new rules, which are at least more interesting and certainly more impartial. It should be said that the parliamentary and non-parliamentary parties thoroughly prepared for these elections. It shows that the political reforms launched this year have come into effect and have brought the first results. The most important thing was probably the fair battle and competition between parties. It is highly important to ensure the election of diligent and efficient people, and it doesn’t matter what party they represent.These must be people who will take decisions in the interests of the people and promote the development of the regions and the country as a whole. In short, the draft law which we will discuss today is aimed at strengthening the parties’ financial stability.

I have met with party leaders – not only with my fellow United Russia leaders, but also with representatives of other parties. This draft law stipulates the increase in government funding for parties which win at least 3% of the vote in State Duma elections from 20 to 50 roubles, or by 150%. Of course, the figure must be multiplied by the number of voters who attended the elections in the given federal electoral district. I believe that this will help us strengthen the party system and promote democracy in the country.

On 19 October, I invited some Government members for a meeting where we discussed the outlook for the privatisation of federal property. I told them once again that privatisation is one of the Government’s priorities. I would like everyone here to act in this spirit. Today we will discuss the implementation of the forecast plan of privatisation approved for 2011-2013. Privatisation deals should be implemented in accordance with the approved schedule, but not when the market situation is unsuited for this. On the other hand, the market conditions should not be overestimated, because they are never ideal, and even if they do turn out to be ideal, as a rule, we won’t be ready to act. Hence, we should proceed with our plans for the average positive market conditions.

According to experts, the market conditions in 2012 are suited for earning over 200 billion roubles from the sale of government property. This is nearly double our earnings from last year. I believe that we should also keep up this level in 2013. This is important for replenishing the budget, for increasing the efficiency of enterprise management, and, I repeat, for ensuring that our economic development proceeds in the right direction. This is the basis for creating a modern model of economic development. It should be based on private property, which everyone here understands.

I hope that we will have the necessary legislation for this. A special resolution was signed in September, stipulating the possibility of selling federal property at e-auctions – I hope that this will simplify the procedure. We will also discuss measures to limit the ability of companies with state capital to buy shares and stakes in economic entities. This is necessary at least for formal reasons, because, essentially, it is wrong when the state buys core or noncore assets through the company it controls. This gap in legislation should be closed, although the Government has always believed that state agencies should not take part in privatisation, and that this runs contrary to the essence of privatisation.

One more issue which we discussed recently is the law on the industrial safety at hazardous industrial facilities. We should have done this long ago. The other day I met with Open Government representatives – experts and heads of large and medium-sized companies and key business associations. I must say I was pleased when they praised this project. Within a few months we have achieved what we thought was impossible to do for years, primarily thanks to the joint efforts of government agencies, ministries, the Federal Service for Supervision of Environment, Technology and Nuclear Management and business community, which we managed to rally for this project. This turned out to be very effective: the Open Government has proved its worth.

The proposed amendments to the law are in regard to the system of industrial safety requirements, the principles of implementing them at hazardous enterprises and construction sites. The renewed law should serve the interests of reliability and safety of production, while at the same time liberating business from the need to endlessly seek stamped approval for things and deal with a huge army of inspectors, who either obstruct the process or extort bribes. By doing this, we will lift a number of administrative and technical barriers and hence lower the risk of corruption. I also hope that oversight requirements to industrial safety will provide additional incentives for introducing modern technology in production. According to the business community, if this law is applied effectively, outlays, which currently amount to 60 billion roubles – and this is just outlays – will be reduced by 20 billion roubles, while the overall economic effect, which is an indirect result and is more difficult to assess, could be as great as 1 trillion roubles, if I remember correctly. All subsequent efforts should be boosted to ensure that the law comes into effect, and is actually employed on 1 March next year. This is our agenda today. Let’s begin with agricultural insurance. Mr Fyodorov, please proceed.

Nikolai Fyodorov (Minister of Agriculture): Mr Medvedev, I’m sure that civil lawyers from St Petersburg, or Leningrad law school, will confirm that…

Dmitry Medvedev: What are you hinting at?

Nikolai Fyodorov: The Assistance Board… Roman lawyers defined the assistance board as a group of people who need assistance. In other words, ancient governments developed the insurance business not on the principle of greed, or a desire to profit from other’s problems or to cheat people, but on the willingness to help people in trouble. I believe that this principle also underlies the decision of the Russian Government to allocate federal funds for subsidising agricultural insurance, although the Ministry of Finance is not always willing to participate in these kinds of projects. However, this project was launched simultaneously with the government programme of agricultural development.

What have we seen since the beginning of the programme? From 2008 to 2011, federal allocations for agriculture support reached approximately 14.4 billion roubles. These huge funds should have created an incentive for developing agricultural insurance, but the results actually point in the opposite direction. In that period, the number of organisations that signed subsidised insurance contracts decreased almost by half, from 8,200 to slightly over 4,000. The figure for 2010 was 3,900. At the same time, the proportion of insured crop land has also reduced. Our conclusion is that the system that was used up to 2012 was not just ineffective; it gradually became a fiction that allowed, and even encouraged unscrupulous market players to embezzle federal funds. Federal Law No. 260 was adopted to remedy that situation, and the number of sham insurance contracts decreased already in the first year after it was introduced. This law precludes, or at least dramatically reduces the possibility of embezzling budgetary funds, lowers the financial burden on farmers during seasonal work, reduces the cost of insurance and introduces agricultural insurance against catastrophic risk. Compensation is paid not only from the federal budget, as during the 2010 drought, but also with the use of agricultural insurance mechanisms which reduce federal budget spending.

According to the regional agricultural agencies, as of 1 October, the number of subsidised agricultural insurance contracts reached 5,072. The proportion of insured crop land as of 1 July 2012 was 21% of the total – just as you said, about one-fifth of total crop land... It is interesting that the area of insured crop land has fallen by 1% from 1 July to 1 October. What is the reason behind this? There are two key reasons: the farmers lack funds for down payments, which is 50% of the total payment, and the inertia of drought-affected farmers which makes them look to state support in the form of subsidies. Historically and mentally they are used to getting subsidies; they refuse to sign insurance contracts if they see that the government is ready to help them. They tell insurance companies that they expect to receive government subsidies. Well, this is our heritage.

As you have said, it is absolutely unacceptable that less than 10% of farms are insured in 27 regions and that the authorities in 10 regions do nothing to convince farmers to sign insurance contracts. I believe that the governors should be informed about the Government’s attitude to this issue.  According to the current law, the Federal Service for Financial Markets is the regulatory body responsible for data collection and data processing on an on-going basis. This includes information on the signing of state-subsidised agricultural insurance contracts, the amount of insurance payments under these contracts, including reports on the financial situation of the insurance company and its reserves. The Agriculture Ministry prepares amendments to the legislation based on the assessment of its regulatory impact on all those involved in the agricultural insurance market. With this in mind, we need to create a unified information data base, a portal, probably, with immediate access to the process of signing and executing state-subsidised agricultural insurance contracts. After analysing how Law No.260 has been put into effect together with the banking sector and the insurance community, we came to some mutual conclusions and developed a number of new programmes and products to encourage agricultural producers to sign insurance contracts.  

First, the law stipulates that state support may be rendered only if an agricultural insurance contract has been signed. We believe it reasonable not to be in a hurry to introduce this provision, as generally agricultural producers do not show much interest in agricultural insurance. Also, this approach has not been sufficiently tested, it was introduced only a few months ago. We suggest looking into the issue, taking into account the results of the first six months of 2013, and as yet only in terms of agricultural insurance coupled with investment loans for major plant-growing projects.

Second. Providing preferential loan terms when signing an insurance contract is an effective tool for motivating agricultural insurance economically. Together with the banking community we drafted this new scheme, an insurance package that does not require changes to the law. Banks will be providing loans for conducting season field work only if an agricultural insurance contract has been signed. Loans may be granted on preferential terms as the credit rate will be lowered due to the reduction of underwriting expenses and the availability of insured sources for loan repayment. By “sources”, harvest is meant. The introduction of these elements will be an economic incentive for agricultural producers to sign insurance contracts and strengthen their financial status through more independence from state support. Experts say this idea is effective and banks gave their agreement. However, we believe that in this case we must not work with insurance companies belonging to the bank’s group. We must avoid the concentration of risks and prevent unfavourable insurance conditions from being imposed on farmers.

Third. To guarantee common approaches for setting agricultural insurance regulations, which you mentioned in your address, and for the standardisation of forms of insurance contracts, the Agriculture Ministry drafted and coordinated with insurers’ associations (which is very important) methodological recommendations for agricultural insurance. The recommendations include reservations as well. Insurers’ associations supported these recommendations and are ready to use them for the development of unified agricultural insurance regulations. Agricultural insurance must be guided by rules, rather than the specifics of corporate culture, which we often observe.   

Fourth. We must continue improving statistical accounting for the development of agricultural insurance. The ministry confirmed and forwarded to the Federal Service for State Statistics the animal breeding and plant cultivation numbers that will be used in the development of the annual agricultural insurance plan. We see no problems here.

Fifth. On your instruction, together with the Federal Service for Hydrometeorology and Environmental Monitoring, we started work on drafting the document on risk criteria in the environmental parameters observed. It takes into account different species of cultivated plants, regional climatic conditions, unification of terminology, and the parameters of the scheme of development of observation networks. In 1991, over 4,000 hydrometeorological stations operated in the RSFSR. Today there are nearly 1,900.

Dmitry Medvedev: How many stations were there in the USSR do you say?

Nikolai Fyodorov: Over 4,000 hydrometeorological stations operated in the RSFSR, that is on the territory of modern Russian Federation. Today there are about 1,900 stations. The lack of stations allows insurance companies to delay and sometimes refuse to pay insurance compensations. The Federal Service for Hydrometeorology and Environmental Monitoring suggests expanding the weather observation network at the expense of regional agricultural producers. The cost of one modern station is nearly 100,000 roubles. Taking into account the federal subordination of the Federal Service for Hydrometeorology and Environmental Monitoring, we find it reasonable to work out the scheme for such financing, maybe, using private funds, on condition that Rosagroleasing and Russian regions are involved. This common responsibility is vital as disaster threats affect everyone.      

Sixth. We are deciding whether we should change the criterion of harvest loss. In a number of regions, crop failure seldom reaches 30% and as a consequence agricultural producers are not keen to sign insurance contracts. The current law stipulates insuring the entire plot of agricultural land. We are working out two possible options, both requiring changes to the federal law. The first option is to lower the harvest lost level to 20%, State Duma deputies suggest reducing it even to 15%. The latter can hardly be classed among catastrophic risks. By our preliminary estimates, reducing the level to 20% will lead to the increase in insurance rates by nearly 30% and will require a 30% increase in federal budget spending. Lowering the level to 15% will double expenses of the federal budget. We believe the second option is more civilised – it is in line with most global practices – to preserve the current level of harvest loss, which is 30%, and allow agricultural producers to sign state-subsidised agricultural insurance contracts for separate land plots, as is done in most countries.

Dmitry Medvedev: Which option do you think is the best?     

Nikolai Fyodorov: I believe that this is the more civilised option.

Dmitry Medvedev: The second option?

Nikolai Fyodorov: Yes, the second option, which is more binding. This option also facilitates and formalises more responsible behaviour.

Seventh, we have drafted amendments to regulatory documents in order to improve the system of independent expert checks. These amendments stipulate an expanded list of professions, educational standards and work-record duration, which are deemed sufficient for certifying independent experts in the field of plant-growing. The relevant draft Government resolution has been coordinated with the Ministry of Finance and the Ministry of Economic Development. This document’s legal aspects are currently being assessed at the Ministry of Justice. For instance, we are adding such professions as Agro-Chemistry, Agrarian Soil Studies, Agrarian Ecology, Fruit and Vegetable Growing, Grape Growing, Plant Protection, Crop Selection and Genetics to the list of agrarian professions. This will allow us to promptly increase the number of certified experts and other professionals by 400 people. And, technically speaking, this would meet our demand. That is all.

Dmitry Medvedev: Thank you, Mr Fyodorov. You have heard the report, which largely focuses on regional developments, and which notes that work is not being conducted in a very good manner. Moreover, specific regulations leave a lot to be desired, and technical-equipment levels fall short of the required standards. It's quite possible that some regions have failed to properly organise work. Add to this problems with insurers. I have invited two governors, and I have asked them to tell us about the situation in their regions, about specific problems and prospects for solving agricultural insurance problems. Mr Valery Radayev, Governor of the Saratov Region, now has the floor.

Valery Radayev: Thank you, Mr Medvedev. Government members, participants, I would like to tell you that agricultural production is a highly important aspect of the agro-industrial sector’s operations. At the same time, there exist some rather serious risks in the plant-growing sector, where it is possible to lose investment because of external factors.

The Saratov Region is part of the high-risk farming zone. Weather anomalies have been recorded in our region since 2009. As a result, 2.5 million tonne grain harvests can be considered record-breaking during these years. Agricultural insurance is called upon to become an important instrument for minimising risk. In all, 557,000 hectares of spring crops and 184,000 hectares of winter crops have been insured in the region to date. Insured croplands account for 21% of the region’s entire farmland area. The region’s total crop area is 3.6 million hectares. This year, a state of emergency was introduced in some parts of the region because of bad weather conditions. The state of emergency was declared in 23 out of the region’s 38 rural districts. Crops were destroyed over an area of 210,000 hectares, of which 45,000 hectares were insured. In 2010, 200,000 hectares of crops were destroyed, according to experts. As I have already said, of that area, 41,000 hectares were insured. First-hand reports show that insurance companies have never refused to insure agricultural crops and to pay compensations. Eight insurance companies have received 66 insurance contracts and damage claims. A preliminary estimate indicates that local farms would like to receive 276 million roubles as compensation. And insurance companies are set to pay 56 million roubles. In all, 31 million roubles have already been paid.

The relevant documents making it possible to receive compensations for the losses incurred are currently being drawn up and submitted. As the Minister has already noted, agricultural producers are not using the agricultural insurance mechanism very actively. This can be explained by a number of reasons.

First of all, the farms have taken out numerous loans in dry years. Second, agricultural producers don’t have enough money to pay insurance premiums during a period that coincides with seasonal fieldwork. And, of course, we support the Minister’s proposal to reduce the financial burden. Agricultural producers suggest examining the possibility of insuring part of croplands and land plots containing long-time vegetation, with due consideration for the specifics of the agricultural landscape.

And here is another proposal. Considering the fact that the Federal Service for Financial Markets (FSFR) oversees insurance operations, we suggest establishing direct cooperation between the FSFR and managerial divisions of the agro-industrial sector in order to resolve problematic issues facing insurants and insurers. Information exchanges will make it possible to promptly deal with unfair market players.

Mr Medvedev, we realise that agricultural insurance against nature, climatic and other risks should become standard practice, and the Government of the Saratov Region is doing all it can in this respect. I would like to thank the Government for closely monitoring issues of support for agricultural producers and to assure everyone that the region will continue to accomplish its objectives. That concludes my report. Thank you for your attention.

Dmitry Medvedev: Thank you very much. It is my impression that you also support this idea to authorise selective, step-by-step insurance of various croplands and farmland, rather than their overall insurance – especially croplands that are most affected by climate conditions, or that are not conveniently located, and so on. Is that correct? 

Valery Radayev: Yes.

Dmitry Medvedev: And the second proposal is to provide for the sharing of information on specific insurers between the financial oversight body and the farmers, right?

Valery Radayev: Yes, there are two proposals.

Dmitry Medvedev: Good, I’ve taken note of that.

Valery Radayev: Thank you.

Dmitry Medvedev: Thank you. Now, Mr Zerenkov, go ahead please.

Valery Zerenkov (Stavropol Territory Governor): Thank you. Mr Medvedev, members of the Government and the guests! A few words on agricultural insurance in the Stavropol Territory. Farming in our region has its own unique specifics because it has four climatic soil zones including deserts and the humid foothills of the Caucasus. Farmers’ risks are always high. Every year we are affected by practically all adverse weather conditions: hail, drought and winterkilling. Given these conditions, farmers naturally wish to reduce their risks and protect their investment in their crop. 

In recent years, we have seen a very clear trend in our territory: budget subsidies compensating farm damages due to weather have fallen, while the budget spending to cover part of the expenses for crop insurance grows every year. In 2009, these expenses amounted to 180 million roubles; in 2010, 276 million roubles; in 2011, 496 million roubles. In these years, on average 30%-40% of farmland was insured. In 2012, state subsidies for farmland insurance in the territory are planned at the level of 671 million roubles. To date, 30% of the spring crop area, or about one million hectares, has been insured. We think that it is possible to achieve higher numbers in farm insurance in the Stavropol Territory. In this respect, I want to make several proposals.  

First. Under Federal Law No. 260, crop insurance is paid out only if the farmer loses 30% of crops or more. I will not describe the situation in other regions, but in our region such crop failure is extremely rare because we have vast areas under crops, about 3 million hectares. As a rule, only about 15% of crops fail. In these cases, the farmers cannot cover their losses with the insurance, and so they aren’t interested in it. So I propose discussing the possibility of ending the uniform approach and establishing differing loss thresholds for regions taking into account their specifics so as to insure crops on specific fields. The Minister of Agriculture has mentioned this.

Second. We think that it is necessary to improve regional experts’ competency with respect to certifying that an insured event has occurred and establishing the amount of losses (this will make it possible to take prompt decisions on site). We also support the Ministry of Agriculture proposal to expand the list of professions sufficient for certifying independent agricultural experts.

And one more proposal on improving weather observation in the Stavropol Territory. We have discussed this, and you, Mr Medvedev, mentioned this in Volgograd. We would like work on this issue to continue because we want to have weather stations in every district of our territory. Thank you very much, that is all.  

Dmitry Medvedev: Thank you, Mr Zerenkov. If I understand correctly, in addition to what has been said, your proposal is to introduce a differentiated system for specific regions, right?

Valery Zerenkov: Yes.

Dmitry Medvedev: Good. I will instruct the ministry and all those concerned to analyse the relevant issues.

Colleagues, you have heard the report, the proposals and the views of the governors. Who wants to take the floor? Mr Dvorkovich (Arkady Dvorkovich, Deputy Prime Minister), go ahead please.  

Arkady Dvorkovich: Thank you. Mr Medvedev, colleagues, we have discussed in detail the topic of farm insurance in several meetings that I have held; and all the current proposals reflect a carefully considered and weighed position. There are, indeed, differences of opinion, such as differentiating insurance terms. As for differentiating for specific regions, it is impossible to take this decision quickly, because this requires serious legwork, serious study and calculations. But this path is promising, and in a year or two we may well adopt this approach. To take quicker decisions, we can opt for one of the two methods offered by the Minister. Differentiated insurance for specific fields seems to be more advisable, but we are not yet ready to come up with a final decision. Additional work will be carried out within a month, and we will present this decision to you. But I repeat, most likely this will be insurance for specific fields or a small reduction from 30%, which would not entail higher federal spending. I think that, in any case, this will be more convenient for farmers. Regarding weather stations – here we provide for parallel work in two areas. First, the Federal Service for Hydrometeorology and Environmental Monitoring has a programme for developing meteorological observation, and the number of weather stations will increase. However, the Federal Service for Hydrometeorology and Environmental Monitoring alone will not be able to create the necessary number of weather stations in the short term. Therefore, we think it advisable for large economies or regions to acquire their own weather stations certified by the Federal Service for Hydrometeorology and Environmental Monitoring. These weather stations will automatically provide the needed information. This combination of work in two areas will yield a good result.

Dmitry Medvedev: Good.

Arkady Dvorkovich: And finally, we are concluding work on uniform insurance rules. I think they will be clear for all market players, and there will be no doubt that somebody is imposing on others some special terms that are unclear for producers. We will all know what these terms are that are supported by the federal budget.

I’d also ask you to adopt the decision mentioned by the Minister to not strongly link the full amount of state support to insurance in the first half of 2013, but to link state support of investment projects to insurance in 2013. As for total linkage, consider this issue following the results of the first months of 2013 when we see the specific figures on the insured areas. Thank you.

Dmitry Medvedev: I see. Any ideas? We should proceed in this direction. Total link is possible, partial linkage is possible, this is the responsibility of the ministry, Mr Dvorkovich, your responsibility since you oversee the relevant area. But we should create incentives for insurance contracts. Because if we continue to strictly separate state support – which is always extended – from insurance mechanisms, how imperfect, nobody will ever insure anything. We don’t have a culture of insurance, everybody always hopes for state protection, everybody hopes that the state will pay all the debts, will help the bank or whoever. We should promote [a culture of insurance]. So look: half a year, fine, three months… But don’t take too much time. Agreed? So we are taking a decision on this issue.

Before we move on to the second issue, I’d like to congratulate the Customs Service on Customs Officer Day. The head of the Customs Service has worn his uniform at my request. So, Mr Belyaninov (Andrei Belyaninov, Head of the Federal Customs Service), we congratulate you and all Russian customs officers. Thank you.  

Andrei Belyaninov: Thank you.

Dmitry Medvedev: Now, from the customs office to parties. Mr Konovalov. On introducing amendments to Article 33 of the federal law On Political Parties.

Alexander Konovalov (Minister of Justice): Mr Medvedev, colleagues, the submitted draft law provides for an increase of state support for political parties that have crossed the 3% threshold in federal voting districts from 20 to 50 roubles per voter based on Article 35 of the federal law On Political Parties. Given the specifics of this state support, it is proposed to announce that this law comes into effect on the publication date in case it passes the Duma and the President signs it to provide for increased payments in the current year. In the process of consultations with the Ministry of Finance, it was determined that the amount needed for additional payment at the level stipulated by the draft law would come from the saved funds in 2012 and be included in the federal budget for 2013-2015. Accordingly, the financial part of this issue is taken care of, and has been agreed with the Ministry of Finance and with all other interested departments. We ask you to support this draft law.

Dmitry Medvedev: Thank you, Mr Konovalov. Are there any questions regarding the report and the draft law? Yes, go back. So everybody supports party-based democracy. Both the United Russia members and those who participate in other parties’ activity, right? Good. In this case, I think this is a useful draft law indeed. We have funds for it, the parties have asked for it, it is necessary to develop party-based democracy. So we are taking this decision.

The next issue concerns the forecast plan, or the programme for the privatisation of federal property for 2011-2013 and the measures restricting companies with public stakes from purchasing stakes of commercial entities. Please brief us on the implementation of this and on our proposal for changing the current law. Mr Belousov, go ahead please. 

Andrei Belousov (Minister of Economic Development): Mr Medvedev, colleagues, the following figures best reflect the results of the implementation of our privatisation plans: in 2010, federal budget revenue from privatisation of federal property amounted to 23 billion roubles; in 2011, 121 billion roubles including 98 billion roubles from selling large assets and 23 billion roubles from small-scale privatisation. And this year we plan to reach the level of 223 billion roubles, including 218 billion roubles from selling large assets. But the main thing is not these figures but the quality change of sales. Since 2011, we have been implementing large-scale privatisation projects with due account of international experience. In 2011, only two such projects were implemented: the sale of a 10% stake in VTB and the sale of a stake in the Prosveshcheniye Publishing House. This year, four deals have been completed: the sale of a 7.6% stake minus one share in Sberbank, a 20% stake in Apatit, the sale of SG-Trans and the sale of the United Grain Company. We plan to complete several more major projects, including the sale of stakes in marine trading ports and Rusnano before the end of the year. Next year, considering existing market opportunities and the pre-sale preparation of the companies, we expect to be able to complete at least eight sales of shares of major companies.

Before going into more detail on specific projects I would like to remind you briefly of how the sale of shares in each company is organised. The process consists of four stages. The first stage is identifying the company to be privatised based on individual decisions of the Russian government, depending on the state of the market and the extent to which the company is ready. If the company is on the list of strategic enterprises and strategic joint stock companies, in accordance with the instructions of the Russian President, then at that stage an open discussion of the company’s sale by experts involving the business community is organised and the impact of the company’s sale on the development and competitive environment of the sector is assessed. At the second stage the Ministry of Economic Development selects an investment bank to act as the Government’s agent in organising the privatisation deal. The agent is appointed by a corresponding directive of the Russian Government. The third stage involves the investment agent bank preparing proposals concerning the timeframe, structure and special features of the deal, taking into account the state of the markets, investor interest in the company, its financial status and development prospects. The criteria for selecting potential buyers are determined on the basis of this analysis. Acting on the recommendations prepared by the bank, the Government issues a directive approving the structure of the transaction. And finally, at the fourth and final stage the buyer is selected in accordance with the criteria set earlier by the Government. The results of the selection are approved by a government directive. The timeframe for the implementation of each stage depends, of course, on how well-prepared the company is, on the strategic development programme, the quality of the management and so on. In the best case scenario, if a company is ready for privatisation, the privatisation project can be implemented within six to eight months, but that is the minimum time required. With regard to major companies, including those in the infrastructure sector, it may take two or three years to prepare for the implementation of the project. All this goes to show that privatising companies is not something that happens overnight, it is a very long drawn-out procedure with a big time lag that takes practically a year just for the preparation stage alone. At present, in order to be able to implement the programme for 2013 and even for 2014, we have already launched the corresponding procedure.

With all this in mind, I would now like to briefly touch on this year’s deals. The sale of a 20% stake in Apatit was successfully completed in September this year. The sale was organised by BNP Paribas Bank. It was preceded by extremely difficult competitive negotiations, as a result of which the shares were sold at a price of 600 million roubles higher than the initial value. To make the shares more attractive, the Government announced in advance that it was planning to abolish the “golden share”. The total value of the deal came to 11.1 billion roubles.

Also organised in September of this year was the sale of the shares of SG-Trans, a major operator of tanks for the transportation of liquefied gas. The negotiations were protracted, with the active involvement of various contenders. Those eligible to take part in the negotiations were companies not affiliated with the state, without any tax arrears and possessing experience in operating rolling stock. The price offered by the winner was over 22 billion roubles, double the initial price. The state reduced its share in the authorised capital of the United Grain Company by issuing additional shares. In this way the company raised an extra 6 billion roubles required to implement its investment programme.

The most successful deal of the year was undoubtedly the sale of a 7.6% stake minus one share of Sberbank. The shares were floated both on the London Exchange and on the MICEX, where a 3% stake was on offer. The price of the deal was 159 billion roubles. Before the end of the year we are planning to complete the privatisation of several major joint stock companies, such as the Murmansk Marine Trade Port (the deal is being prepared by Raiffeisen Bank), the Vanino Marine Trading Port (the deal is being prepared by VTB Capital Bank). We expect pre-sale preparations to be completed for the Novorossiysk Commercial Sea Port (the sale is being organised by UBS bank), but here the situation regarding the economics of that asset and the cash flows is not entirely clear yet and the relevant analysis has yet to be completed.

Likewise, given favourable market conditions, 10% of Rusnano shares may be privatised. That deal will take the shape of an additional issue that would reduce the government’s stake in the company.

As I said, in 2013 we are planning at least eight other privatisation deals involving the shares of major companies. They include primarily Sovcomflot, VTB, ALROSA, Rosneft (up to 6%), the Arkhangelsk Trawler Fleet, TGC-5 (Territorial Generating Company No.5), S7 Airlines and Mosenergostroy; the total proceeds from these sales are expected to reach 260-270 billion roubles. While this year the most significant privatisation event involved Sberbank, next year it will definitely be the Sovcomflot IPO, which should be a flagship deal in Russian privatisation in general.

We are also discussing approaches to the privatisation of Russian Railways (RZD) shares, a stake in the United Grain Company and Rosagroleasing. Preliminary discussion of the proposals on the privatisation of RZD jointly with the company and the Transport Ministry confirmed that a pilot stake in the company (up to 5%) could be sold as early as 2013. This is a very important step in making this company public and determining its market value. But that should be preceded by the introduction of amendments to the federal law On the Specifics of Managing and Disposing of Railway Transport Property. We have prepared such a draft law and it will shortly be submitted to the Government. As regards the United Grain Company and Rosagroleasing, we are now working with the experts to discuss approaches to privatisation, given the role these companies play in the agriculture sector. We are already considering the next wave of privatisation, which will involve companies like Aeroflot, Sheremetyevo, Rosselkhozbank, RusHydro and certain other companies, nearly 500 billion roubles in all. The privatisation of these companies will require a lot of preparatory work involving the ministries responsible for the relevant sector, investment consultants and, also very importantly, the companies themselves. The analysis of the results of the work to privatise major Russian companies already allows us to draw some conclusions and determine what measures are required to make privatisation more effective.

I would like to draw some conclusions. But first I would like to point out the fundamental difference between the sale of small enterprises, of relatively small companies, and the sale of major assets. The difference is primarily not a quantitative one, but to do with the fact that as a rule small companies are sold as property complexes. This approach cannot be applied to major companies, which are sold as functioning businesses, i.e. the company controls a share of the market, has established business procedures, certain cash flows, etc. This means an entirely different approach is called for and entirely different criteria are needed for selecting buyers and for the privatisation process itself. This brings me to my conclusions. The first conclusion is the need for greater transparency of the privatisation processes at the stage when the decision is prepared, and I would like to stress that point. In reality the work to prepare privatisation deals is not always clearly understood by the public, creating a sense of secrecy and the suspicion that a narrow circle of interested people are involved. We should do everything we can to avoid the opaque nature of loans-for-shares auctions held in the mid-1990s. To this end we have started introducing the practice of public hearings to discuss concerns and approaches to the privatisation of the companies that are important for regional economies. These hearings involve representatives of the State Duma, the Audit Chamber and regional administrations, as well as experts.

The second conclusion has to do with the second part of the issue on our agenda today. It is related to the desire of a state company to take part in privatisation. We have had several such cases, with one case even reaching court. As a rule subsidiaries and organisations dependent on state companies are chosen for the purpose. Of course, one cannot totally rule out the participation of dependent companies and subsidiaries in the purchase of blocks of shares, including in the course of privatisation. But we believe that such involvement is, firstly, undesirable and, secondly, it should in any case be absolutely transparent and manageable. I would like to remind you that under Russian Presidential executive order No.596 of 7 May 2012 amendments are to be introduced by 1 November of this year to regulatory acts aimed at limiting the acquisition of shares and stakes in business entities by companies with state participation and their subsidiaries and dependent companies.

In accordance with these instructions, we have prepared and submitted to the Government a draft Government resolution that sets out the following mechanism. Firstly, issues related to the acquisition of shares of other companies by subsidiaries and dependent companies would be put under the jurisdiction of the parent company’s board of directors; secondly, directives would be issued on the purchase of corresponding stakes by subsidiary and dependent companies; and thirdly, the parent organisation’s board of directors would be authorised to make decisions on the acquisition by subsidiaries of the shares of other companies if the deal is greater than 15% of the book value of the assets of the subsidiary company, in other words, the purchase of major stakes in excess of 15% by subsidiaries would be elevated to the level of the parent company and would be the subject of relevant directives.

Next we propose that the relevant draft resolution make it the duty of the federal executive bodies to present the validation materials in preparing corresponding directives on the purchase of shares in other organisations by subsidiaries of companies with state participation. At present no such validation is provided. Under the new arrangement the draft directive should be accompanied by the validation so that the government in each specific case could take the appropriate decision. We also propose introducing a transitional period during which this resolution will come into force, the period until 1 April 2013. I don’t mind telling you that this issue was the subject of lively discussion among state companies. A number of cases were cited where the purchase and subsequent selling of shares were in fact an integral part of the operational activities of such companies. That applies for example… to financial companies, and pension funds in the shape of subsidiaries. We have taken into account some of these cases, but for the most part we do not believe that they are entirely valid. Nevertheless we propose introducing a transition period to enable the agencies and the companies to take another look, to measure the effect of the resolution on themselves and to see where and to what extent bottlenecks may appear.

The Justice Ministry has approved the draft resolution, which has also been routinely agreed with the Executive Office and we ask you to support it.

And one more conclusion which follows on from what I have already mentioned, the need to sell a company as a business and not as a property complex. As it is, the sale depends to a large extent on how well the investor understands the history, the transparency of the company’s current activities, reasonable development prospects, in other words the company being sold must have a development strategy; this greatly increases its value in the process of privatisation. Such a company presents a much smaller risk for the investor because it is clear why the investor is entering the company and what the company expects from the investor. In this connection we propose that prior to privatisation, roadmaps be developed for each case to reflect all the necessary measures at the corporate level and in some cases at the level that involves the introduction of amendments to regulatory legal acts required to create conditions for the effective privatisation of the company. We believe that such roadmaps should be developed by sectoral agencies with all interested executive bodies and companies taking part. We ask you to include in the minutes a relevant instruction to us, giving us two months to develop corresponding methodological recommendations and schedules for the preparation of roadmaps synchronized with the privatisation of the relevant companies. These are the main issues and proposals I wanted to share with you. I am asking for your support. Thank you.

Dmitry Medvedev: You mentioned a transition period: will the transition period see coordination work and the issue of directives or not?

Andrei Belousov: We expect that the current mechanism will remain in force until April 1. But, again, this is because the resolution has a general character and you cannot foresee every specific case.

Dmitry Medvedev: I understand.

Andrei Belousov: For example, we thought it would be reasonable not to include banks with state participation in the draft resolution because for banks the purchase and sale of stock constitutes a routine operational activity.

Dmitry Medvedev: Yes, true.

Andrei Belousov: Sometimes the companies tell us they have, for example, a non-government pension fund which also buys and sells stock. Sometimes shares have to be bought in order to take out a loan to have corresponding liquid collateral. All these cases… We believe there should be a period during which the companies and the federal agencies sort them out. And in any case we have to keep it in mind. We do not rule out that some things would pass unnoticed.

Dmitry Medvedev: Yes, I suggest the following: we may give them a transitional period, but on condition that during this transitional period many state companies that want to acquire a core business… I stress, we are not talking about current operational activities when shares are sold and bought by way of carrying out ordinary banking functions; we are talking about an expansion of their core business. This is to prevent big assets and big companies or small companies – it doesn’t matter – from using that loophole. So I suggest that an exception should be made for banks, insurance companies and some other financial companies to allow them this extra period in order to make up their minds what to do with the assets. And obviously they should be allowed to conduct transactions with state assets because this is their current activity. But state companies that acquire state assets in order to simply expand their business and increase their authorised capital, etc. is a totally different case. I don’t think they should be given such a transitional period and this should be expressly stated in the resolution: without a corresponding directive signed by the Government. Let’s do it this way. Thank you.

Well, are there any comments on the Minister’s presentation? You are supportive? Our chief privatiser is Igor Shuvalov (First Deputy Prime Minister of the Russian Federation).

Igor Shuvalov: Mr Medvedev. Esteemed colleagues. We have discussed in detail and listened to a report by the head of Rosimushchestvo on the issues of privatisation and the privatisation plan as well as the draft resolution on limiting the participation of state companies in privatisation. We are in a position to fulfill the entire privatisation plan in 2013. For the first time in many years, this year the sales situation is much better than in previous years. All the necessary work is being done with consultants and the procedures have been initiated to enable us to stick to the schedule in 2013. There are some limitations that we face. We have reported on them to you, Mr Medvedev, the companies with state participation do try from time to time to muscle in on privatisation deals. They should be stopped,  sometimes even through judicial procedures. But, on the matter of sales, we proceed strictly under the law and we propose government resolutions that are based on the provisions of the law. In front of my colleagues here I would like to say that all these attempts to slow down the privatisation process through legal recourse amount to a procedure that is not entirely transparent or proper, and we will oppose it. And we will report them to you personally. Regarding the unpleasantness connected with the carrier (the SG-Trans situation is widely discussed in the press) we had another meeting with the lawyers today, with the advisers and it was confirmed that everything had been done within the law and that the Government or our agents had not committed any violations.

Dmitry Medvedev: Very well. The legal standards must be observed. Going to court is a legitimate right for any company: for a company with state participation and for a private company, and naturally this can concern the activities of state organisations, there is nothing unusual about that. Nevertheless, if this happens, the management of a state company must be aware of all the possible consequences, including the impact on its relationship with the Government.

Next please.

Arkady Dvorkovich (Deputy Prime Minister): I’ll be brief. There are several deals of a similar nature, these are not privatisation deals, but all the same they are deals connected with state property management. I am referring to the sale of blocks of shares of subsidiary companies by state companies, like Russian Railways and other companies are doing at present. Of course, exactly the same procedures cannot be used and I’m not suggesting that they should be, but the fundamental approach should be the same…

Dmitry Medvedev: I see.

Arkady Dvorkovich: Only we are essentially talking about state property.

Dmitry Medvedev: You know, there can be different options, although it must be said for fairness sake that from the legal point of view the property of a joint stock company is private property and everyone should keep that in mind. We say that the state controls equity capital, but the property itself is private property. I could cite other examples that should be kept in mind because, for example, transferring property in trust management for a prolonged period amounts to quasi-alienation of that property, but it does not fit into any category. Do pay attention to this because privatisation must be privatisation, and not an attempt to take a property from one state pocket and put it into another. That does not benefit the state in any way.

Well, thank you. We have to move on. 


After the Government meeting, Finance Minister Anton Siluanov and Minister of Trade and Industry Denis Manturov spoke to journalists

Anton Siluanov: Colleagues. Today the Government discussed the Finance Ministry’s proposal on adjustments to the 2012 budget. These were mainly concerned with the macroeconomic forecast, the savings reported by some ministries and agencies during the implementation of this year’s budget, as well as the additional revenues and their distribution expected in the current year. It is important that we propose to spend only non-oil and gas revenues, that is, all the additional spending of the oil and gas money this year will go into the Reserve Fund. In effect we have been following the budget rule which is currently pending before the State Duma for the second year in a row already.

What will be the impact on the main budget parameters? This year we expect a more or less balanced budget. If the deficit amounts to 42 billion roubles, or 0.07% of GDP, as we expect it to, that will be within the error margin. So it is quite possible that we will see a non-deficit budget in nominal terms this year.

The total non-oil and gas deficit is diminishing compared with the target: from 10.6% of GDP to 10.5% of GDP. I would like to say that the budget projections for 2013-2015 envisage a further yearly drop in this percentage during the period of 2013-2014, and thereafter the non-oil and gas deficit will decrease more slowly. Our dependence on oil and gas revenue will diminish accordingly.

The total amount of the budget to be redistributed is 322 billion roubles, of which, as I said, 235 billion is additional non-oil and gas revenue. Primarily, this is from Rosneftegaz dividends to the amount of 50.2 billion roubles. There is also the money from the dividends that will accrue from the Central Bank’s stake in Sberbank, and we propose to put this revenue (149 billion roubles) in the federal budget, along with some non-oil and gas revenue. This is why the total amount subject to distribution comes to 322 billion roubles. How will this money be spent? In the first place, the resources obtained from the sale of the block of shares and dividends will be used not for current tasks, but for development. This is very important, since practically the entire 322 billion roubles will be used for investment. Also, it is important that the investment will be made in infrastructure projects, crucial projects such as the development of the Moscow transport hub (27.9 billion roubles) and transport facilities (18 billion roubles).

Importantly, we will capitalise the Direct Investment Fund (62 billion roubles). This fund generates additional foreign investments: for every rouble invested we will get four or five roubles in private investment. Also very important is the fact that out of the 62 billion roubles, 25 billion, as agreed with the Fund’s management, will be used to finance facilities and projects located in the Far East. This is the extent to which the increased inflow of private investments and foreign investments will be used in the Far East in the near future.

Some Far Eastern projects will also be funded through the capitalisation of the VEB subsidiary that deals with the Far East. Some 15 billion roubles will be used for this. As you can see, the bulk of the financial resources, in addition to the resources that go into infrastructure, the investment sector and industry support, will be concentrated in the Far East: of the 322 billion roubles, more than 100 billion will go to Siberia and the Far East. Some resources will be used to support constituent entities of the Russian Federation in line with the decisions made by the country’s leadership concerning several projects. We will also prepare those regions which will see diminishing budgets in 2013 compared with 2012 for the reduction of their inter-budget transfers, and to this end we will provide them with additional resources this year.

In addition, this year we will be restructuring some of the budget loans. The deputies of the State Duma and the members of the Federation Council have been urging us to support Russian regions by easing the debt burden. Well, the draft amendments to the budget law would restructure part (not all, but part) of the loans issued on several occasions: during the drought we issued two-year loans, we also issued loans as part of the anti-crisis measures to support mono-cities, the loans that we issued for the implementation of federal functions (loans to the Krasnodar Region for the preparation for the Sochi Olympics and loans for the Universiade in Kazan). We propose to reschedule these loans by 20 years, with a holiday period of ten years. These are favourable terms that will substantially diminish the debt burden on the regions.

These are the main issues I would like to discuss with you today. I am ready to take questions.

Question: There were plans to withdraw up to 95% of Rosneftegaz’s money (it was even announced at a Government meeting). That is much more than the 50.2 billion roubles that have actually been withdrawn. Is the plan for withdrawing further funds still in force or will the budget now take only the 50.2 billion roubles? Thank you.

Anton Siluanov: The Government considered amendments to the budget law today, but this issue was not raised. If there are proposals for how to use this money (and it must be used exclusively for infrastructure, investment projects and flagship projects), then I think we could revisit the issue because Rosneftegaz still has a significant amount of dividends that could be used to address the Government’s priorities.

Question: Could I ask you one more question about privatisation? It has to do with budget revenues and it concerns your Ministry and the Ministry of Economic Development. In accordance with the 2013 target, budget revenue from privatisation will exceed 400 billion roubles, I think almost 500 billion roubles…

Anton Siluanov: 425 billion roubles.

Question: Yes, 425 billion roubles. Today Andrei Belousov mentioned only eight major deals which in total would bring us 300 billion roubles. Is the 425 billion target still valid? That still leaves 140 billion roubles. Which deals are supposed to generate that money?

Anton Siluanov: You know that the list of enterprises subject to privatisation has been drawn up and that the privatisation programme has been broken down by year… This information is contained in the draft budget that the State Duma is discussing today. It contains the list of the enterprises and we shall see how privatisation proceeds. Let me remind you that in recent years we have been falling short of our targets. This year we planned for 300 billion roubles, but we will raise a little over 200 billion roubles, so privatisation deals should be prepared in advance. Perhaps discussions with the investors should begin now without delay if we mean to fulfill the privatisation programme. This would be an uphill struggle, but we have not changed the privatisation revenue target for the following year.

Question: At the meeting today, it was said that Rosneft’s SPO may amount to 6% next year. We are aware that BP is planning to buy up to 5.66% of shares from Rosneft. Is this the same transaction or are these different deals? I mean BP’s purchase of 5.66% of Rosneft and the planned Rosneft SPO of up to 6% next year.

Anton Siluanov: We were discussing amendments to the budget law today, and you are asking me questions that are off topic.

Question: But this is also important. Where will the money from the sale of Rosneft shares go, to Rosneftegaz or into the budget?

Anton Siluanov: If we talk about the sale…We planned to sell part of the Rosneft stake and the proceeds from this privatisation have been included in the three-year budget. So these figures have been taken into account as proceeds from the sale of part of Rosneft’s stake.

Question: So, if Rosneftegaz sells some of its stakes, that money will end up in the budget, right?

Anton Siluanov: You mean Rosneft?

Question: Yes, the block of Rosneft shares which belongs to Rosneftegaz. If it is sold, will the money go into the budget?

Anton Siluanov: Yes, of course.

Question: Could you comment on Gref’s proposal? He said that those banks which are pursuing a fairly dangerous policy of attracting deposits should increase their contributions to the deposit insurance fund. What do you think of this idea? Is it necessary to raise the amount these kinds of banks should be contributing?

Anton Siluanov: Yes, indeed. We have a situation… It worries us that a number of banks engaged mainly in active retail crediting have been raising interest on deposits, attracting clients’ savings, and have been issuing loans on a massive, aggressive scale, some of them at high rates (mainly consumer loans) to rule out the risk of adverse effects … When a bank announces high rates on deposits, and in view of the fact that there is a system of deposit insurance, clients move their deposits (which are effectively guaranteed) where it is more profitable for them. Therefore this kind of aggressive credit policy, especially in the retail sector, gives some concern to the Central Bank about the future. So there are proposals on the table and they are being considered. There are several options with regard to banks whose policies differ markedly from the average statistical activities of banks and involve risks. First, increased contributions to the DEA so that those banks which take greater risks pay more to the deposit insurance agency. And second, we believe that the Central Bank could use special supervisory measures with regard to these banks by increasing capital requirements. This is global practice, we are not inventing anything new. If the Central Bank, as the regulator of commercial banks, has fears about a bank’s credit policy, it can simply raise the capital requirement by one point and thus make the regulator’s and the bank’s actions more understandable in this situation.

Question: Could you specify how the additional revenues earmarked for the development of Moscow’s transport will be used? What exactly will be financed?

Anton Siluanov: There are a whole range of projects. I can name some now just from memory. They include roads, specifically the development of the Mozhaiskoye and Minskoye Highways in the M1 direction. There are also railway transport projects. Additional investments into these will be made through the Russian Railways. And there are some other projects such as flyovers on railway lines. This is an important issue as well, because we see that there are bottlenecks which hold up a colossal number of vehicles. In any case, the Transport Ministry, together with Moscow and the Moscow Region, has identified the key projects which need the support of the federal centre. These additional resources will be used for the purposes I’ve mentioned. I can provide you with more detailed information on specific projects a bit later.

Question: Has today’s Government meeting approved the draft law on improving the system of remuneration and has a scheme for financing these proposals been approved?

Anton Siluanov: You know, this is not a draft law, these were just proposals submitted by the Labour Ministry which must be approved by the Government. This was discussed today and a decision was made to go over this document next week and prepare it for final approval.

* * *

Denis Manturov: I don’t know what I should discuss – the government award for quality or the government programme. Which of the two is more interesting?

Question: I’ve been wondering how your new programme differs from its predecessor, [developed] for the period up to 2015.

Denis Manturov: Primarily, we had a federal targeted programme for the development of micro-electronics and radio-electronics for the period of 2008 up to 2015, which was a follow-up on the strategy approved a year earlier in 2007. As for this new document, this is a government programme that – alongside its twin programme – is a federal, purpose-oriented document. The Ministry of Finance will use it as a regulatory framework for financing once the effective sub-programmes are completed.

So what are the primary differences? First of all, the current targeted programme has been used as the foundation [for the new one]. We’ve taken into account the results achieved and analysed the problems encountered along the way. Our new document lays down new development-related principles, including the vectors in which Russia’s radio-electronic industry will develop up to 2025.

As you know, radio-electronics is one of the most dynamic industries in Russia and globally. It is slightly less than $2 trillion on the world market. By 2025, experts predict this figure to increase to 3 trillion. The trends are similar on the Russian market. We realise that the share of radio-electronics in the manufacturing sector will grow as well. It has risen to 26% up from 17% over the past decade. And, by 2025, the share of its finished products is expected to hit 30%.

Our electronics industry will grow primarily in areas such as special-purpose electronics, where military and special equipment is manufactured. However, given the dual purpose of such equipment, we also expect some growth in the production of devices for the automotive industry, for example. This sector is also on the rise, and the share of electronics will grow as well.

We’re talking about professional electronics here. That is, telecommunications, electro-technical equipment… Given our energy efficiency goals, the electronic component will be actively used in energy equipment and in other areas where we have understanding, expertise, and, consequently, growth potential.

As for household appliances and general-purpose electronics, we’re chiefly oriented towards replacing imports with domestically produced items. These days, foreign electronics majors, such as Samsung, Nokia, and Siemens, are setting up operations in Russia, and also forging joint ventures for manufacturing microelectronics, electronic parts, and finished general-purpose products.

Question: Can you specify which criteria will be used to select projects for financial support from the government? And, in what ways will that support be provided? Do you mean subsidies adjusted to the WTO requirements or subsidised loans?

Denis Manturov: This latter is a highly relevant component – or rather tool – which is crucial to ensuring our products’ competitiveness vis-à-vis our foreign counterparts on financial markets, as Russian enterprises find it harder to afford loans than foreign manufacturers do because local interest rates are far higher.

The sums allowed for in the government programme will let us examine the possibility of subsidising interest payments on loans for manufacturers and designers. As for our primary tool, it remains supporting companies through capital investments, building contemporary production facilities, and, of course, constructing R&D centres and performing modern upgrades. 

When talking about new projects, we are referring to the government programme’s second leg, which will begin in 2016, upon the completion of the effective federal targeted programme. By then, we’ll have a clear understanding of the sectors in which we should support companies to help them develop their projects. In doing so, we will be able to develop our selection criteria.

By and large, the development of priority projects and enterprises will be cluster-based. We aren’t proposing anything new here. We’re just drawing from the experience that has been accumulated and tested in other sectors. Recently, we defended a government programme on the pharmaceutical industry, where the cluster system is also relevant. We’re not going to confine ourselves to the clusters set by the Government, though. We have initiatives concerning other regions and cities – primarily those with a strong academic potential that are crucial for turning out personnel for highly skilled jobs. We’ll be engaging institutes that have been awarded financial support under the federal targeted programme. They’ll have completed their technological overhaul by the time. And, of course, we will continue promoting small- and medium-sized businesses as places for spinning off the newest technology, using private funds.

Question: Is it true that support for specific projects and companies under the programme’s framework will begin after 2015?

Denis Manturov: Our programme will run in several legs, and one of them will concern the government's support of priority projects. That’s the best answer that I can give to your question – the way you’ve put it.

Now, let's discuss support for the companies that are already involved in our federal targeted programme. Actually, there’s more than one such programme under way. There’s a civilian electronics programme that has been running since 2008. We also have a sub-programme related to the development of electronic parts for the defence industry, particularly radiation-resistant.

Question: Could you specify the outcome of today’s deliberations on the programme? Was it approved? Or are there things that still need to be modified? And when is it likely to be finally approved in the latter case? Please also remind us of the funds to be allocated. Thanks.

Denis Manturov: The Government and the Prime Minister have adopted the programme earlier today, but it will take time to finalise the related resolution. The document will be published in the next few days, and released before the end of this month. By and large, the programme has been approved, and no modifications are forthcoming.

As for its prospective financing, the total sum to be disbursed until 2025 will be about 517 billion roubles, with only about 180 billion coming from the Treasury. The remainder will be provided from extra-budgetary sources, by attracting private investments, and by creating partnerships between private businesses and the state. This will be done when extra-budgetary funds need to be raised to substitute for budget allocations. Some 19 billion roubles will be allocated in 2013 from the Treasury, while the amount is expected to be slashed to 11 billion in 2025. As for extra-budgetary allocations, they will total 37 billion next year, but they are expected to hit 45.5 billion by 2025. So, the share of public funds will continue shrinking, and the extra-budgetary funds will be on the rise.

Question: I’ve just a brief question about the programme. Experts have criticised the previous federal targeted programme, arguing that it is built around an ineffective model – supporting specific projects, specific companies... How would you comment on this? Am I right to conclude that the new government programme reproduces this very model?

Denis Manturov: I wouldn’t agree with experts about that... Had we not begun financing or, more precisely, supporting companies pivotal to the sector at some point, there would have been no one around to sponsor today... We wouldn’t have achieved the breakthrough results that we have observed in radar equipment development, for example. Radar equipment is used in the civilian sector as well, and our products in this segment are absolutely competitive and meet global quality standards.

These include air traffic control, positioning systems, such as GLONASS, and other sectors, including the automotive industry. In the latter, about 50% of the supplies for Russian car assembly lines, including those set up by foreign car manufacturers, are Russian-made and of high quality.

So, all this talk about us supporting or not supporting specific enterprises is irrelevant. We do support some pivotal companies, including start-ups, which are willing to invest on their own in the development of their projects and the production of new electronic parts. As for us, we are ready to contribute some funds from the Treasury coffers.

We won’t confine ourselves to the instrument range that we have today. Going back to your first question, among the things that I mentioned were incentives to stimulate demand and to encourage loan-taking through subsidised interest payments.

Question: May I ask you what this programme’s targets are?

Denis Manturov: The targets? Sure. By 2005, we propose to bring the share of Russian supplies up to 40%, increasing productivity six-fold. In some sectors, such as special radio-electronics, we should achieve 90%-95% thanks to domestically-made parts. We should triple our presence on world markets, increasing exports fourfold. And, of course, there’s the problem of creating high-skilled jobs. Our target is to create some 15,000 such jobs.

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