Transcript of the beginning of the meeting:

Dmitry Medvedev: Ladies and gentlemen, let’s start with the first issue on our agenda today: science. This concerns the draft government programme. I’d like to remind you that we have discussed this issue before. You remember that the adoption of government programmes is one of the government’s immediate priorities. We have discussed several programmes and many more are yet to be discussed, but it is obvious that the transition to innovative economic development is impossible without a modern science and research capacity. A very instructive forum, Open Innovations, was held on this issue yesterday.

The global research elite is interested in Russia, even though we have had problems in this area, some of which are still to be resolved. They nevertheless assess our (research) potential as very high, which is good in itself. We have recently invested a lot in education and have not forgotten about science either, which has been duly noted. Focusing resources on the main development avenues of science and technology is one of the priorities of the government programme. It will incorporate several existing targeted federal programmes; the minister will talk more on this.

It is important that the draft programme The Development of Science and Technology was discussed at public hearings and the Open Government meeting in October, and has been approved in broad terms by the research and expert community. The implementation of this programme should help secure a competitive edge for our basic research and provide a stepping stone for Russia’s priority areas of scientific and technological development, for developing university science and creating an integrated research and development infrastructure. And lastly, it should strengthen Russia’s status as a scientific power.

Now about the target figures. We have discussed them and, frankly, we were not always in agreement over them. I will provide a few figures. Research funding is expected to grow at a faster rate than macroeconomic indicators and should reach about 3% of GDP by 2020. The structure of funding is to be changed, with the burden on the federal budget reduced.

The number of publications by Russian scientists as a proportion of the total number in the global research journals indexed in the Web of Science database should rise to approximately 3% from the current 2%. The volume of modern equipment at research and design establishments should reach 70%. And one more important issue concerns researchers. We need to attract young people into research and, most importantly, ensure that they stay in the system of Russian science. Young researchers aged up to 39 years should constitute at least one third of the total number of our scientists. And, of course, we must honour our commitments, that is, ensure that their average pay is twice the average salary in their region. On the whole, these goals and some others, which will be discussed by the Minister, are quite ambitious. Of course, their implementation will depend on the current macroeconomic situation, on how the Russian economy is doing. But it is only this kind of work and these kinds of goals that will enable us to fully realise our country’s intellectual and industrial potential.

And there is another issue linked with supporting Russian science. I know that some scientists who have won grants are young PhD specialists... To the best of my knowledge leading schools have so far not received grants because the mechanism for transferring these grants has not been fully worked through. This concerns organisations which are not affiliated with the Ministry of Education and Science. I would like to tell you that I have signed a resolution making it possible to get rid of this legal discrepancy. The problem must be solved without delay. I am asking the relevant ministers to oversee this issue.

The next issue – increasing local budget revenues – also has quite a long and complicated history. We have repeatedly discussed this issue with governors, heads of municipal entities and, of course, with private individuals. People’s living standards are directly dependent on the work of municipal entities because the quality of municipal utility services, city transport, light and heating in residential buildings, hospitals and schools, as well as street cleaning, are problems which naturally have to be addressed by local governments rather than by officials in Moscow or even senior regional officials. And, of course, we need to provide the required funding for this purpose. The lack of resources and, in effect, sometimes permanent financial shortages of local governments can only be eliminated through the following two possibilities: first, if we increase budget revenues by expanding the list of income sources, and second, we can rectify the situation with the help of other budgets and by increasing the appropriate subsidies. Revenues from the introduction of the patent system of taxation are expected to become an additional source of funding for local budgets. This measure is important, especially for small and medium-sized businesses, and it can encourage development. How effective it will be depends on the coordination of our actions and on the effectiveness of the work in the regions and in municipal entities, especially as 100% of these tax proceeds will be channeled into the budgets of municipal areas and municipalities.

Work to introduce a single land and property tax should be completed by the end of the year. Cadastre assessments show that Russia has numerous land plots which are unregistered or where there is some discrepancy in the registration. They make up more than 20% of all the land in Russia, which is a huge area when you consider the size of our country. Such land plots make up about 8% of rural towns and municipalities. They form a significant reserve for local budgets, which  needs to be properly disposed of.

We should also decide on the volume of subsidies which will be transferred to municipal entities for levelling out budget-provision levels. We also need to provide incentives for local budgets to swell their own coffers. In our efforts to raise extra funding for municipalities, we must take into account the level of development of each region, and balance it in general and within a certain budget. We must act professionally, and carefully. Russian regions, local governments – we all have the common task of improving living standards of our people. Many regions were involved in the preparation activities. Obviously, by taking the relevant measures, we will not resolve the objectives today, as they are too ambitious. But we must act, we have to start somewhere. I first mentioned this task about a year ago, but unfortunately changes do not happen as quickly as we would like to. This is mainly due to the current financial situation, but again, we must move on. For that reason we have invited heads of two regions to the meeting. They are Governor of the Tambov Region Oleg Betin, and Governor of the Samara Region Nikolai Merkushkin. They are tackling the problem. They have experience and I hope will express their opinions.

And another issue regarding the activities of the Government, which concerns the Russian Motorways State Company (Avtodor). It was created in 2009 with the goal of forming a national motorway network, high speed roads, of attracting private investment into the road sector and increasing transport accessibility, which, as we all understand, is extremely important for our enormous country. Avtodor has a number of motorways in beneficial ownership, including the Don, Belarus, Ukraine motorways. The company is in charge of the construction of the Moscow-St Petersburg Motorway, and the Moscow Region’s Central Ring Road. Avtodor attracts investment using private business partnership mechanisms, as it is a state company. The company manages Russia’s first two public-private partnership projects. I recently reviewed one of them, the construction of the exit to the Moscow Ring Road from the Belarus federal motorway bypassing Odintsovo. We already have subjects for discussion, certain results, and probably, some problems. For that reason we will sum up the results of the state company’s work and will discuss prospects for its development.

That is all, I think. But before giving the floor to the Minister of Education and Science, I would like to wish our colleague, Veronika Skvortsova (Russia’s Healthcare Minister), a happy birthday. Ms Skvortsova, please accept our warm greetings, and happy birthday!

Mr Livanov (addressing Dmitry Livanov, Minister of Education and Science) please, speak up.

Dmitry Livanov: Mr Medvedev, colleagues. The state programme, Development of Science and Technologies in 2013-2020, was drafted based on the Russian Government’s acts that lay out the procedure of the development, implementation, and assessment of the efficiency of state programmes, and President’s executive orders dated May 7, 2012.

Leading Russian scientists, representatives of state academies of sciences, higher educational institutions, business and development institutes were involved in the drafting of the programme. Within the Open Government format, a very productive discussion of the draft programme was held involving leading experts in the sphere of science and technology. As a result, we received over 200 remarks and proposals that were included in the programme’s final version.

The state programme responds to the main challenges for Russian science. These include insufficient effectiveness of fundamental and scientific research, limited interest and a weak role of business in conducting scientific research and development, a generational gap in science caused by insufficient state support for science in the 1990s, young people quitting, non-competitive working conditions for leading scientists in Russia, weak integration of the Russian research and development sector into the international scientific and technological space, and finally, an outdated material scientific research base. The state programme is targeted at resolving the current problems and building a competitive sector of Russian scientific research and development, and ensuring the leading role of the latter in the technological modernisation of our country’s economy.

Priorities of the suggested programme include an active use of the accumulated potential in conducting fundamental research and providing conditions for the accelerated development of applied research and development. The implementation of the programme will help create scientific and technological potential based on the results of fundamental research projects, as well as the new knowledge needed to develop new products and new technologies. The work to create scientific and technological potential involves major risks, and this reduces its attractiveness to private investors. That is why the state is responsible for conducting this research, which to a large extent depends on budget funding. The programme’s differentiated approach towards supporting various stages of the research cycle hinges on this. The Russian Academy of Sciences and other state academies of sciences, leading universities, as well as national research and state research centres, play a key role in conducting fundamental research. The active involvement of Russian universities is an important element of state science and technology policy. It will ensure an influx of talented young researchers into science and the active introduction of the results of cutting-edge research into the economy.

The state programme consists of six sub-programmes. The first sub-programme, Fundamental Scientific Research, is designed to ensure the competitiveness and effectiveness of fundamental science. The second sub-programme, Search and Applied Problem-Oriented Research and the Development of the Science and Technological Potential in Advanced Technologies, is for conducting research and development projects in the priority areas of science and technology in the country. The third sub-programme, The Institutional Development of the Academic Research Sector, aims to develop the research activities of higher educational institutions, provide incentives for cooperation between universities and industrial enterprises and the development of national research centres. The fourth sub-programme, Development of the Inter-Departmental Structure of the Research and Development Sector, aims to create an entire chain of research laboratories headed by world-famous scientists, implement several MegaScience projects and support the infrastructure of academic towns. The fifth sub-programme, International Cooperation in the Field of Science, is designed to implement international agreements and other international research projects.

And the sixth technical sub-programme is intended to ensure the implementation of the state programme. The state programme specifies the following main instruments for addressing the important tasks of scientific and technological development. Firstly, the implementation of a model of cost-effective contracts with researchers, involving targeted support for cost-effective research agencies and scientists who can demonstrate substantial results, thereby establishing a clear link between results and remuneration, and increasing the salaries of researchers to double the average for the given region by 2018. The second instrument involves increased coordination of research activities in the country by using technology platforms and innovative regional clusters. The third instrument is the internationalisation of academic research activities, an expansion of international cooperation, as well as the promotion of cooperation between Russian and foreign organisations performing research. And, finally, the fourth instrument is the development of multi-channel financing for research by encouraging the Russian business community to get involved in research and development projects. The evaluation of the results of the programme hinges on 12 general indicators and 16 sub-programme indicators. The target levels of these indicators have been established in line with a provision of strategic documents which define the guidelines for the development of science and technology in Russia, including Presidential Executive Order No. 599 dated 7 May 2012.

The main deliverables of the state programme are:

A significant (50%) increase in the number of publications by Russian scientists and their citation in international databases.

An increase in the proportion of extra-budgetary funding for internal expenditures on in-house research and development from 30% to 60%, in effect a two-fold increase.

A significant reduction in the average age of researchers and an increase in the proportion of researchers under 40.

A doubling of the proportion of new equipment in the total amount of research equipment, to reach 65%.

The modernisation slant of the programme will enable Russia to join a group of countries with high levels of scientific and technological development. In order to implement it we have to ensure a stable share of budget expenditures spent on basic research. Simultaneously we have to develop long-term applied research and development projects more quickly.

The budget aspect of the programme is based on specific estimates, including available draft federal budgets for 2013 and the 2014-2015 planning period, as well as on the so-called state programme funding ceilings set by the Ministry of Finance for 2016 to 2020. Implementing it involves serious risk of failure, including the possible failure to attain key targets in the development of the research and development sector. First of all, from 2014 the budget scenario contains no expenditures for creating the science and technological potential and expanding the human resources potential of science because the two basic federal targeted programmes, “Research and Development in Priority Areas in the Development of  the Science and Technology Complex” and “Academic and Teaching Staff” (Federal Targeted Programme “Academic and Teaching Staff of Innovative Russia”), are to be completed in 2013, and the budget scenario does not yet specify funding for the new versions of these federal targeted programmes from 2014. Secondly, internal expenditures on research and development are set to reach 1.77% of GDP in 2015 and 3% of GDP in 2020 under Executive Order No. 599 and Russia’s Innovative Development Strategy to 2020 (the so-called science intensity of GDP). As a result, extra-budgetary funding is set to rise by 150% by 2015 and to increase ten-fold by 2020 compared to 2012.

No expert will consider these figures realistic. This absence of extra-budgetary funding on the required scale can only be compensated for by a higher-than-anticipated growth of budget expenses. Thus, the implementation of the budget scenario will not make it possible to reach the goals established by the president to develop our R&D sector and will lead to deregulation at research institutions. It will not provide an adequate base for long-term rapid economic development.

We have coordinated the draft government programme with the Ministry of Economic Development, the Ministry of Finance – although there were some disagreements about financing, the Russian Academy of Sciences, the Kurchatov Institute, and the Rosatom State Atomic Energy Corporation, to name a few. I’d like to ask you to support this draft.

Dmitry Medvedev: Thank you, Mr Litvinov. Take your seat, please. Who wants to say a few words concerning the programme? The Ministry of Finance? I see. Anyone else? I will let the Ministry of Finance have its say, of course. Mr Siluanov, please go ahead.

Anton Siluanov: Thank you, Mr Medvedev. We do have a number of questions about funding because the programme is financed in two ways – first, from the budget, and second, from additional funds. Budget allocations are about the same as these additional funds. Indeed, a number of programmes will end in 2014-2015, but this does not mean that we won’t extend them or adopt new programmes. But the budget funding cannot be doubled. This is the first point.

Second, we have set the goal of attracting private companies to science. If we rely solely on the budget and don’t change the ratio between budgetary funds and private money... Today, this ratio is 30% to 70% and our task was to reverse it… The Ministry of Education proposed that by 2015… This 30% to 70% ratio is still the same. We’ve achieved 1.77% of the GDP by using the budget. Is this correct or not? Let me repeat that our task is to reverse this pyramid and to attract more funds to applied research to encourage private companies to work for science. However, regrettably, this is not the case. So what could happen? Based on the Ministry of Education and Science’s   proposal, the percentage of budgetary funding as regards the GDP is supposed to grow. Yet, if we look at our budget forecast, we’ll see that the percentage of budgetary expenses as regards the GDP is not growing. Moreover, it even is dropping in some years. The nominal value is increasing, but the ratio to the GDP…

We are gradually reducing expenses to match the budget's real potentialities of the budget and the state, that is, what the government can afford. Thus, the percentage of expenses on science as regards the GDP can be increased, but not so much as the Ministry of Education and Science suggests. Also, we see no effort to attract private funds. This is why we have strong doubts about the budget’s ability to finance the programme.

I’d like to make one more point, Mr Medvedev. In 2014, we plan to draft the budget for different programmes. How should we fund them? Naturally, from the budget. Next, we’ll ask the Ministry of Education and Science if it has reached the set targets. They will tell us in two or three years that they haven’t reached them because the allocated funds were not sufficient to implement their programme. The blame will be laid on the budget and the Ministry of Finance because the additional funds envisaged in the programme have not been granted. There is a risk that we won’t be able to reach the targets and this

 is the primary issue. Our major goal is to implement the tasks that we are setting in government programmes. This takes account of our objections. Thank you.

Dmitry Medvedev: Okay. Thank you. Who else wants to comment on this score? Yes, please, go ahead.

Yury Osipov (President of the Russian Academy of Sciences): Mr Medvedev, ladies and gentlemen. Before this meeting, we had heated debates with the scientific community about this programme. We discussed our chief remarks at a meeting with Ms Golodets and our discussion was very constructive.

We’ve agreed that our remarks will be reflected in the version of the programme that will be submitted to the Duma. We’d like the fundamental research programme of our Academy of Sciences and the programmes of all of the academies that will be evolved under Article 6 of the Law on Science to be included as an integral whole in the new fundamental research programme. Our academy would like to be one of its coordinators. We’d also like the academy's institutes to take part in implementing all of the other sub-programmes under this programme by way of competition. Let me stress that we are ready to compete with others for this right.

Finally, our academy is active on the international scene. We represent Russia in almost 200 research institutions and councils. Needless to say, the academy should continue active international cooperation. We support the adoption of this programme.

In conclusion, I’d like to support the Ministry of Education and Science's positions on financing. If we want to make a breakthrough, the state must support science. We cannot allow things to brew slowly in science… We have made enormous efforts to develop it in the past few years, so let’s move on. Today, private science does not exist. Private companies have no corporate science, and public ones prefer to buy technology abroad. Let’s make a massive improvement! Thank you.

Dmitry Medvedev: Thank you, Mr Osipov. Mr Dvorkovich, go ahead please.

Arkady Dvorkovich (Deputy Prime Minister): I’ll be very brief. I agree with the content of the programme. As for funding, I find the figures for the period from 2017 to 2020 somewhat dubious when the private sector is expected to sharply increase its expenses for science. It is difficult to believe that this increase will be substantial. Of course, this increase will take place, but it is likely to be a bit more modest than what is quoted.

I cannot agree with the Ministry of Finance that we should spend less on science than we do now. But this is what the basic budget projections reflect. This year, we spend a little over 0.9% of the GDP. Under all of the current programmes, we are supposed to reduce this figure. I cannot accept this. We can agree not to build up this spending for the time being and to see in two years whether we can afford a substantial increase, but I’m positive that we must not decrease it.

Dmitry Medvedev: Okay.

Arkady Dvorkovich: Thank you.

Dmitry Medvedev: You’re welcome. Does any other Government member want to add anything? Please go ahead.

Valery Chereshnev: Thank you. My name is Valery Chereshnev. I’m the chairman of the State Duma Committee for Science and Science-Intensive Technology. I would like to say a few words about this. You may be aware that the Development of Science and Technology draft programme has been discussed at a joint meeting of the Ministry of Education and Science and the Science Committee. All of the science sectors participated. Many comments and suggestions were made. To the Ministry's credit, these organisations were included in the programme, and it benefited greatly.

However, I would like to point out that the programme is broken down by year in an uneven manner. The first stage takes one year, the second takes four years and the third takes three years. Let’s take a closer look at the first year of the programme. I suggest focusing on the first year – 2013 – and including it in today's resolution to make sure that we don’t just test the water in 2013. Rather, we need to give ourselves the chance to make minor or, if need be, major adjustments to the programme. I realise that such a proposal might not fit well into the guidelines for adopting government research programmes, but research guidelines aren’t set in stone either. Thank you.

Dmitry Medvedev: Thank you, Mr Chereshnev. Does anyone want to add anything? All right. Let me summarise then. Clearly, both approaches – the Ministry of Education and Science's and the Ministry of Finance's – are justified. Let’s face the facts. We divided the programme into stages based not only on objective considerations or the guidelines mentioned by Mr Chereshnev, but also on our current financial situation.

If we could do as much as we want to in 2013 and 2014, that would be the way to go. However, for obvious reasons, our budget looks much more modest now than we thought it would in early 2012, so the programme stages had to be properly adjusted to fit our budget constraints.

With regard to approaches, we do have concerns that we won’t be able to achieve certain budget goals. Still, we need to provide researchers with development funds. Clearly, the budget situation may change. It can become worse, which the Ministry of Finance rightfully keeps reminding us of because it’s the Ministry of Finance’s job to give us a conservative – sometimes even negative – outlook, or in any case to bear in mind various scenarios when computing the federal or other budgets. However, the situation could also improve. This is exactly why these benchmarks are built into the draft programme to ensure a fairly significant growth from 2015 onwards.

I believe that we should base everything on the best-case scenario. If for any reason – and we discussed this with the Minister of Finance – we realise two years from now that any particular provisions are unachievable, then we will adjust the programme. We will have to do it openly, realising that we are in a tough financial situation. But as long as there is hope that the economic situation will improve – perhaps not over the next three years, as the programme will struggle financially over the first three – I think that we should keep a course of growth and refrain from relying on a conservative scenario. I can’t help but support Mr Dvorkovich when he said that we should prevent cutting spending at all costs. Growth may be modest or even nonexistent, but a fall would be a dire scenario, which is at odds with the basic outlook on our economic growth.

Finally, yesterday I said that the state has an important role to play in the innovation sector. I am not an expert in promoting science or establishing streamlined proportions between public funding and private financing. We are all for supporting research activities with private investment funds. Frankly, the 30/70 proportion – with 70% coming from private investments – seems totally unrealistic to me and I mean it. It may look good for the budget, but it is not realistic in Russia, or in any other country. We’ll see how it works out. Of course, the Ministry of Education should keep striving to maximise private investments in science, as it did before. But so far, this proportion looks unrealistic. Therefore, I propose including the outcome of this discussion into the draft and submitting it for signing. You know what I mean. Thank you.

The next question concerns increasing the fiscal capacity of local budgets. Mr Siluanov, over to you. Please go ahead.

Anton Siluanov: Mr Medvedev and colleagues, in accordance with the Executive Order of the President On Improving the Public Administration System, the Government was instructed to develop measures to enhance the municipalities’ fiscal capacity. Currently, only about 40% of local budget spending is covered by tax and non-tax revenues. This is primarily due to the uneven distribution of the tax capacity across Russian regions and municipalities. If you look at Russia's regions, the fiscal capacities of individual municipalities can differ by a factor of 100 or more. Thus, the ability of municipalities to cover their expenses using their own revenue is questionable.

In fact, many other countries face the same problem, as 50% or more of the municipal expenses are funded by higher-level budgets. We are not alone. However, something has to be done to improve and increase the municipalities’ fiscal capacity. To do so, we need to come up with measures designed to increase tax and non-tax revenues for local budgets. We have also suggested reducing the spending commitments of local budgets to improve their balances. This year, we increased the fiscal capacity of local governments primarily by transferring revenues from special tax treatment facilities to local budgets. As you mentioned earlier, we are about to introduce the patent taxation system on 1 January 2013. Before the end of 2012, Russia's regions will adopt the decision to introduce a patent taxation system covering a number of economic activities in their respective territories as of 1 January 2013. All of the taxes generated by this system will go to the budgets of municipalities and municipal districts.

In 2011, the revenue from tax levied in the form of patent fees amounted to 208 million roubles. However, once this system becomes permanent and mandatory, the number of taxpayers using this taxation system will increase, and we expect the revenue from this source to amount to over 1 billion roubles annually within the next year or two.

In 2013, taxpayers will be free to switch to standardised taxation of imputed income. As the patent-based taxation system becomes more popular, it will increase local budget revenues. In addition, the same federal law provides for crediting all proceeds from the standardised agricultural tax to municipal budgets from 1 January 2013. This amount is estimated at 1.3 billion roubles annually.

The second source of increasing the fiscal capacity of local governments includes crediting administrative penalties for landscaping violations to local budgets. Currently, these fines are credited to the budgets of the relevant Russian regions. However, the adoption of landscaping regulations is the responsibility of town and urban district authorities. Therefore, the fines for violating these rules should be credited to local budgets. The State Duma has approved in the first reading the draft federal law on introducing amendments to the Budget Code. It has been proposed that the Budget Code should implement this decision. In finalising the draft law for the second reading, we also propose introducing amendments on handing over to local budgets all the penalties for violations of the legal acts of local governments and not only for landscaping violations. According to our assessment, local budget revenues will amount to 1 billion roubles per year.   

The next position is the optimisation of benefits and the exemption from taxation of taxable assets included in the federal list of local taxes. Currently, work on solving this task continues. The State Duma has adopted in the first reading a draft law on introducing amendments to the Tax Code abolishing land tax benefits and exemptions. The list of taxable assets includes lands that cannot be sold. These lands belong to the defence and security sectors and to the sector of the customs office. These lands are currently exempted from this tax. As soon as these land plots are included in the land tax list of taxable assets, we expect that the additional receipts from this tax will amount to at least 3 billion roubles. In fact, that will be a redistribution of the funds included in the federal budget – the local governments will get these funds by collecting the land tax. The issue of optimising tax benefits on the individual property tax will be discussed jointly with the issue of introducing the real estate tax. 

It has been proposed to implement a number of other measures, too. Primarily, this means crediting some non-tax revenues to local budgets. From 1 January 2014, it has been proposed to completely transfer to municipality budgets the revenues from the sale of land plots located within the boundaries of municipalities, where state property is not duly attributed to local authorities. The revenue from leasing these land plots as well as the receipts from selling the right for concluding land lease contracts will be fully paid to the budgets of municipalities.  

At present, 20% of the proceeds from these revenue sources are credited to regional budgets, and 80% are credited to the budgets of municipalities. By our estimates, this decision will make it possible to channel more than 15 billion roubles per year additionally to the budgets of municipalities. It has also been proposed as of 1 January 2016 to increase by 15% the rate of crediting to local budget the penalties for adverse environmental impacts by way of reducing this payment to the federal budget. In this way, the rate of crediting to local budget will increase from 40% to 55% and by our estimate this will help channel an additional 3.1 billion roubles per year to local budgets.  

In addition, it has been proposed to introduce into the Budget Code a standard requiring that the regions establish differentiated rates of deductions to local budgets from excises on oil products, crediting to the local budgets at least 10% of the regional budget revenue from this tax. The local budgets’ proceeds from this source will amount to about 42 billion roubles per year. It has been proposed to set the rates of deductions between the budgets of municipalities depending on the length of the motorways in their possession. It has also been proposed to create municipal road funds with these incomes, and the creation of these road funds must become mandatory as of 2014. Relevant amendments to the law have been developed and approved by the Government’s Commission for Law-making. 

The proposed measures will channel an extra 67 billion roubles to local budgets per year as of 2014. The taxes transferred to the local level will increase the proceeds of local budgets by about 6%-7% of tax and non-tax revenues. By handing them over to municipal entities partially or completely, we offer the possibility to municipal councils to participate in developing the tax base relevant to businesses. Thus, we are creating incentives for local governments to attract businesses, to sell land plots, to enhance the investment attractiveness of their territories and to receive additional incomes. 

Furthermore, because in the short term support from the regional budgets (in fact, the main source of local budget revenues is currently regional transfers to the local budgets) will remain an important source of funding for the majority of municipal entities, it has been proposed to implement various measures to solve such tasks as ensuring the stability of regional funds, financial support, and co-funding municipal entities, so that municipalities can have a sustainable source of inter-budget transfers.

It is also necessary to raise the independence of local governments in spending local budget funds, including inter-budget transfers. Similarly, it is necessary to introduce a more extensive practice of regional incentives for local governments awarding the latter for increasing their tax base. In fact, these are the same measures used at the federal level for the regions.

The annual change of subsidies for regulating budget capacity and other inter-budget transfers negatively affects the forecasted balance of local budgets. This is often the case when regions modify the volumes of inter-budget transfers. In this respect, we propose to include in the law the rule for determining the volumes of the financial support fund for municipal entities. The procedure for determining the level of financial support exists on the federal level, but it does not exist on the regional level. In this respect, we propose relevant amendments to the law, requiring that the regions set the level of the fund for equalising municipal entities and that the regional law include a minimal indicator. The regions are granted the right to approve the undistributed subvention in the budget for the planned period, but they can only approve up to 20% of the total subvention. Our plan is that the subvention for levelling budget support should be fully distributed over a three-year period (this is similar to the regions on the federal level), and 20% should not be distributed annually to tune up local governments with the account of changing budget support.

It has been proposed to introduce a measure incentivising regional budget support to municipal entities on the principle of stability and predictability. It has also been proposed to introduce a regional obligation to adopt three-year budgets – similar to ours. In this case, local governments will be able to see the amounts of inter-budget transfers in specific areas that they will get over a three-year period. It has also been proposed to introduce a requirement that the regions cannot reduce the rate of deductions to the budgets of the indicated municipal entities over three years.

Some decisions have been adopted recently. They improve the balance of local budgets by reducing the spending commitments of local governments. As of 2012, the powers of local governments in healthcare, which have been assessed at 200 billion roubles, have been handed over to the regional authorities. The public security powers assessed at 20 billion roubles have been handed over to the federal authorities. Meanwhile, the redistribution of tax revenues between the levels of authorities has not seriously changed. Thus, this weakening of budget commitments that had formerly been the burden of local governments has greatly affected their balance.

The State Duma has approved in the first reading the draft law on handing over municipal powers in preschool education to regional authorities. This draft law saves the funds of municipal districts and municipalities worth at least 112 billion roubles. Thus, we take more serious decisions on the spending commitments of local governments, and by so doing we help them resolve the task of balancing their budgets. 

Taking into account the changes in the spending commitments of local budgets, their total additional fiscal capacity will amount to at least 179.6 billion roubles from 2014. The increment to their own local budget receipts – with the account of all resource solutions – will amount to about 10%. And this will add a 15%-16% increment to their own tax and non-tax revenues. These measures will make it possible to improve the balance of the budgets of local governments and to strengthen their stability. I ask you to support these measures. We will develop them by the year's end and introduce relevant amendments. Thank you.

Dmitry Medvedev: Thank you, Mr Siluanov, please take your seat. You have heard what measures will be taken. To be honest, these are rather small steps. I’d like to remind you that I set the task of finding one trillion roubles for these purposes a year ago. However, we cannot afford to do everything we want in the current economic climate. Be that as it may, proposals have been made. These are positive proposals, as I said in my opening remarks. Let us discuss them. To keep the discussion on a more practical footing, I call on the governors to speak. Let us begin with the Tambov Region. Mr Betin, over to you.

Oleg Betin (Tambov Region Governor): Thank you, Mr Medvedev. Ladies and gentlemen, as we have said, the measures to increase local budgets offered for official consideration today are the fruit of long joint efforts, in which many regions have been proactive, the Tambov Region included.

We have analysed the amendments put forward today with regard to our region. We had major doubts because there are big differences between municipalities and between their revenues, so we calculated them all over again. Our calculations of the funds to be passed to local government bodies almost fully tally with those of the Finance Ministry. Our analysis showed that these amendments are not only possible but necessary. They will significantly increase local government revenues and be the culmination of a large segment of the work completed.

We have already been implementing some of these norms since 2008 – in particular, we have transitioned to three-year budgets, which Mr Siluanov mentioned here. This concerns not only the regional budget but also all local budgets down to the village level. Naturally, stable deduction and funding rates for local government bodies have become common practice.

Despite all the changes, problems still persist with local budget revenues. You were right to highlight them, Mr Medvedev. But then, even small extra allocations make a big difference to small budgets. Thus, the Tambov Region recently received a 81 million rouble government grant for last year’s performance. We channelled it entirely into rural councils, bypassing city and district accounts. Each rural council received 150,000 to 500,000 roubles, depending on the size of the village. The terms explicitly required the money to be spent on the most urgent needs, as determined by village citizens meetings or opinion polls conducted by public councils in urban areas. So the grant turned into a genuine popular budget: the municipal grants promoted the launch of 769 highly urgent projects with the participation of residents in 528 villages and 44 urban neighbourhoods. High-income people added donations, and the public also participated in other ways.

Finally, budget stability is problematic even with available revenues as legal expenditure rights keep changing, which is why I think that after we take the decision on revenues we should return to the issue of optimising spending powers between regional and local budgets at different levels. This will help to stabilise overall budget relations. Thank you.

Dmitry Medvedev: Thank you, Mr Betin. Mr Merkushkin, over to you.

Nikolai Merkushkin (Samara Region Governor): Thank you, Mr Medvedev. Ladies and gentlemen, I support this approach in principle, just as Mr Betin does. Mr Medvedev, when we discussed this topic with you a year ago, I said the local authorities should be funded as generously as possible, and I asked for local government to be strengthened. What’s more, Mr Siluanov has just said that many duties were transferred to higher agencies in order to reduce local expenditures. But I think we should be very careful in transferring rights and obligations to higher levels, or we will distort the very essence of local government: the fewer rights they have and the fewer practical problems they settle on the spot, the less incentive local communities have to work efficiently. Perhaps this issue has no direct bearing on today’s agenda but they are certainly related, at least indirectly.

The Samara Region also receives extra allocations. According to our calculations, local budgets receive a total of 1.3 billion roubles of additional grants. Of this 1.3 billion, 1.1 billion is transferred from the regional budget to lower-level budgets, and roughly 230 million comes from the new measures which the Finance Ministry has just announced.

Mr Medvedev, we could significantly increase revenues if we were more active about non-delineated land plots. They were automatically transferred into federal ownership at the end of the 1990s because there was utter chaos at the time. Naturally, the management of these lands from the federal level is far more complicated than from the local level. This issue has been raised repeatedly with respect to Togliatti, where the land was completely transferred into federal ownership due to the situation there in the 1990s. The city budget is losing 600-620 million roubles in tax revenues because of this controversial land ownership. We have made the relevant request. As far as I know similar requests have come from other regions. However, the situation is different in some other regions. Many municipalities retain their land because it had already been delineated by the time of the land transfer. The Samara Region would be immediately entitled to a further 1.4 billion roubles of tax revenues if our request were granted.

I think the Federal Registration Service should take a more active stance because changing the land ownership would significantly improve our tax collection figures. At present, we collect only 50-60% of taxes in non-delineated areas because not every local business has been registered, for which the the Federal Service for State Registration, Cadastre and Cartography (Rosreestr ) is largely to blame. Our revenues could be much higher. The same goes for the tax authorities. They have streamlined their structure and made job cuts over the last two or three years. Tax inspections were abolished in many rural districts; they were supposed to be replaced by interdistrict offices. Now, much smaller sums are collected. This particularly concerns land rents and property taxes. We think a contract system would solve the problem… I mean rights could be legalised through bylaws and taxes could be administered jointly with local authorities. We could also add revenues to local budgets.

We think we should discuss prospects for taxing land on which blocks of flats have been built, however complex this issue might be. Tenants, especially those who live in the new housing complexes, can pay this tax. This tax is not being levied today, and municipal areas could receive substantial extra revenues.

Mr Medvedev, I would like to make another proposal for the future. Regarding alcohol excise duty, 60% of the excise duty goes to the federal budget, with the regions receiving 40%. Given that excise duty is going up significantly, there is a danger that some of this could end up on the black market. This has happened before. We could give 20% directly to local government bodies, which would be very much interested in legal vodka sales (there is a big problem in this area). I am confident that if we organise this work correctly then the federal budget could compensate for its 20% losses through additional revenues, because substantial volumes are being lost in this area of taxation. In effect, the federal budget would not be affected, and regional budgets would also receive their share. In fact, they would even increase their share, and the local budget would receive 20%. Our estimates show that the Samara Region would receive about 1.5 billion roubles, plus those sums which Mr Siluanov mentioned today.

And finally Mr Medvedev, we would very much like to retain a system of incentives for local government bodies regarding socioeconomic development. For instance, those local governments which are actively expanding their tax base and which are accumulating more substantial tax proceeds should receive extra subsidies as a bonus. Executive Order No. 601 expressly forbids us from specifying additional terms at the regional level. Of course, this limits our freedom to some extent. When we provided extra incentives to local government bodies, and when we encouraged their rapid development and expanded revenues through state subsidies, etc., local governments worked more actively in order to swell their budgets, and they were more interested in doing so. They really worked hard.  Thank you. 

Dmitry Medvedev: Thank you. Mr Belousov (Addressing Andrei Belousov), what do you think can be done in this area which the governors are referring to?

Andrei Belousov (Minister of Economic Development): This work is underway. We have recently discussed this issue at a meeting of the State Council. There are many problems in this area, including problems linked with the fact that about 50% of land plots whose value has been estimated and which are listed in the land cadastre lack boundaries. And this procedure is rather expensive. We have noted that this issue will probably have to be discussed at the federal level. The State Council resolution and our own decisions, including those of a recent ministerial board meeting on the issue have set out measures to expedite this work.

As for Mr Merkushkin’s statement, I would like to draw your attention to another issue, which is directly linked with the issue of expanding the tax base of municipal entities. We are moving to introduce a tax on real estate. As you know, we had to compile a cadastre list, with real estate appraisal included, by 1 January this year.  This work has been organised in such a way that it consists of two major parts. The first part is about listing permanent (capital) facilities in the state’s property cadastre by their inventory value according to the data of technical inventory bureaus. This work is almost complete. The state cadastre currently lists about 74 million facilities in this category. The second part is about conducting a cadastral assessment of these facilities, which will be used to calculate the required tax rates to be levied on these facilities. We are conducting this work in stages. The first 12 regions completed this work in December 2011. It consisted of about 16 million facilities. The next stage, which encompasses 29 Russian regions and an additional 16 million facilities, was completed in September. However, 42 regions will have to complete a tremendous amount of work in November. This work has been prepared and it is underway, the relevant allocations have been transferred, and we plan to complete this work … I would like to tell regional leaders that they should complete this work. But it is already clear that we are having trouble with the quality of making real estate appraisals.   . We are already receiving numerous complaints from legal entities, primarily enterprises, whose managers say that the cadastre assessments differ considerably from the market value of the facilities. This problem exists, but it is linked to the fact that the appraisals are being made by independent appraisers. The assessments are approved and confirmed by the relevant self-regulating organisations of appraisers. We have seven such self-regulating organisations, and then a commission is formed, made up of the Chairman of the Federal Service for State Registration, Cadastre and Cartography (Rosreestr) and a representative of a Russian region. Incidentally, three regions, Tatarstan, the Pskov and Ryazan Regions, which are included in these two groups where appraisals have been completed, have declined to confirm specific assessments. It is our opinion that unless we do something commercial courts will have to examine numerous lawsuits next year and even more in 2014. And we believe that the relevant lawsuits and other legal disputes between legal entities and appraisers should probably be settled out at pretrial stages, wherever possible. With this in mind, by next week we will submit a draft legal regulatory document lifting restrictions on specific deadlines for the examination of appraisal results.  The current restriction is six months. We believe that we can make it not limited in time. But we believe that this is not enough, and that we must now take steps to clarify the powers of the commissions comprising regional representatives and Rosreestr representatives. And most importantly, we must set out the reasons for which they can reject an assessment which has been confirmed by self-regulating organisations of appraisers. The existing legislation does not specify these reasons, meaning the commission is unable to turn down specific assessments which have been approved by self-regulating organisations of appraisers. We plan to complete this work in November and to submit the relevant legislative amendments to the Government in December.

Dmitry Medvedev: All right. Colleagues, who else wants to speak?

Arkady Dvorkovich: I will make it brief. I oppose the taxation of land plots that have blocks of flats on them because this is an additional burden. Moreover, the real estate tax essentially includes an assessment of the value of a property located on a land plot, as well as the assessment of the value of that land plot. If the assessment is correct and after all appeals, approvals and discussions, this unified tax is a tax on the residential premises, plus the share of a land plot on which the block of flats is located.

Secondly, I would like to say a few words about alcohol products. Theoretically, these revenues can be transferred, on the condition that we preclude the use of the widespread practice when alcohol producers’ expenses are compensated, one way or another, from regional budgets in order to attract them to their area. This practice is stimulating illegal production and production that is controlled by a few individuals in the regions, which is not good for the market. Thank you.

Dmitry Medvedev: I see. This is only a proposal, and not a proposal of the Finance Ministry, but one moved for discussion by the governors. We will definitely analyse it as well. Next, please.

Dmitry Kozak (Deputy Prime Minister): Although the expected outcome of these innovations might be quite modest, I suggest supporting the proposals of the Ministry of Finance. I would say that they are quite sufficient as part of the budgetary process to draft the budget for the current period. Other measures are only the beginning of a long project. We have agreed that the Ministry of Finance, the Ministry of Regional Development and the Ministry of Economic Development will be instructed to continue to improve on these issues by 30 April, before the budgetary process for 2014-2016. At any rate, local budgets have four additional sources of tax revenue that add up to about 120 billion roubles. We will need to analyse this issue next year.

We will definitely need to ensure that the municipal budgets use the tax system to finance their operation rather than transfers from superior budgets, all the more so since practice shows that the transfers, especially the transfer of business funds, as a tax source to a lower budget… the lower budget to which we transfer revenues from a tax source, rather than the right to administer them, the quicker the budgetary revenues from these sources will grow. Municipal, local budgets are closer to the tax base and hence can encourage the tax agencies, even though they don’t have the taxing authority, to work more actively with these taxes because they would have more motivation to do so. Therefore, next year, during the next budgetary cycle, we’ll discuss these additional powers in order to more fairly distribute revenue among all the elements of the budgetary system, especially at the lowest, village level. I’m sure that the proper decisions calculated for each region will be adopted. We have already used this approach in order to preclude any possible damage, considering that sometimes fiscal capacities vary several-fold due to historical circumstances. We have discussed this issue, and I am sure that a relevant decision will be coordinated and adopted next year. Thank you.

Dmitry Medvedev: Thank you. Next, please.

Igor Slyunyayev (Minister of Regional Development): Mr Medvedev, I’d like to talk about the special tax regime, in particular, patents for 64 types of activities. The regions need to take package decisions, because this is stipulated in the Tax Code of the Russian Federation. Why the delays in introducing this special tax regime? The reason is that it sometimes involves the industries that are the major taxpayers… For example, when the issue concerns large rated wood cutting areas, the patent must cover both logging and wood processing. The same goes for the production and sale of jewellery. This creates a loophole fraught with tax shortfalls. It might be necessary to give the regions the right to determine which industries should be given the special tax regime.

The second problem is that the municipal budgets have the biggest fiscal reserve, which has to do with property and land relations. But registering ownership rights and tax accounting are two different things. Currently, legal entities and private individuals who assume property rights of land plots or real estate don’t need to register them for tax purposes. We must coordinate these processes, which would greatly increase municipal budget revenues.

Next, if we streamline land relations for farmland and its use, it would further increase municipal budget revenues. In accordance with the current procedure formalised in the Land Code, leaseholders may use land for any purpose that differs from its designated use for three years, and then the land plot is taken over by another leaseholder, and neither tax nor dues again! And lastly, regarding municipal road funds. It was absolutely right that we have revived the road funds, but the transfer of 42 billion roubles to the municipal level means that we also need to draft the related enactments and methods, because even the systems of weights and measures differ from region to the federal centre to municipalities. Municipal authorities calculate spending on road maintenance and repair by the square metre. We [the federal centre] calculate it per kilometre. We must draft common acts and standards for the maintenance and repair of municipal and intercity roads in order to increase the efficiency of spending on roads at the municipal level. This is all I had to say on the matter. Thank you.

Dmitry Medvedev: Thank you. Now the governors will have an agent of influence who can explain their motivations. And this is as well, because you have worked in the regions and know regional issues.

Now let’s sum up. In winding up the discussion, I want to say once more that the proposed decisions are modest, they match the current economic conditions in the country. Everybody, the Finance Minister and other speakers – have stressed this: it is the beginning of the work, not the end. May I remind you that when we started this discussion a year ago, the first figure that came up was much higher than the one we are now considering. Let’s continue in this way.

Now concerning the proposals themselves. Of course, I am behind what the Finance Ministry said about financial support funds for a region. It suggested that the lowest amount should be determined at a municipal level. Did I understand you right? There should be some uniformity here, which could be correct for planning. The Ministry also mentioned that there should be a budget commitment for three years ahead, harmonised with the federal commitments. I think that is reasonable enough.  This issue still needs considering: we have to decide whether or not the regions are able to switch over to this rule at once. We should decide now.

Understandably, budget transfers will as before play an important role in maintaining stable and balanced budgets. We propose to continue using them. But searching for new sources of revenue still remains the main concern, as every speaker emphasised. And, jumping the gun a little, I would like to say I still consider it right and proper to meet again and discuss (as I said before) future prospects for a new tax system for the country. Discuss it in an open format to see what can be done and what is unthinkable or even just impossible to do. In other words, I propose that we meet and discuss what everybody wanted to discuss but was afraid to ask about the tax system.

Now about revenue sources and the proposals made. I, for one, would back Oleg Betin’s suggestion concerning the optimisation of spending powers. We need to re-examine this issue to see if we can work in sync on revenue sources and spending authority.

The discussion on land provided a basically accurate picture. Both the Ministry of Economic Development and other departments should continue their efforts. I also call your attention to the Federal Registration Service (Rosreestr) – it likewise needs to be put in order once and for all.

When the tax authorities were discussed, the regional heads complained about a drop in tax revenue. Mr Siluanov, please take a look. I don’t know if this is the result of establishing the inter-regional bodies or of some other cause, but since our colleagues say it’s so, the matter should at least be clarified.

Excise taxes on wines and spirits were both opposed and supported. I suggest we visit this issue again and make up our minds what to do. 

The proposal that the regions be allowed to introduce a special tax plan, made by Mr Slyunyayev, seems to have some merit. Let’s think about how to work this out.

I think this rounds up all the proposals on this issue, which is very important and very complex. Again, we will need to discuss this again. Now let’s wrap up. The decision is taken.

<…>

* * *

Transport Minister Maxim Sokolov and Avtodor CEO Sergei Kelbakh hold a news conference after a Government meeting

Maxim Sokolov: Ladies and gentlemen,

I would like to say a few words to begin with. As you know, the Russian Motorways state company, known as Avtodor, was established toward the end of 2009, and roads began to pass under its trust management in May 2010. Currently, it manages the M4 Don, M1 Belarus and M3 Ukraine motorways. It is also the executive manager of several construction projects – the Moscow-St Petersburg high-speed motorway, the Odintsovo bypass on M1 just outside Moscow, and the Central Ring Road in Moscow and the Moscow Region. The roads under its management total some 2,600 kilometres.

The company is a striking success though its large-scale managerial job started quite recently – in May 2010, as I said: 280 kilometres of new or upgraded roads have been commissioned, and 850 kilometres repaired, about a third of the total under its responsibility. The total volume of work is approaching 30% of the efforts of our other road construction and management body, the Federal Road Agency, or Rosavtodor, which manages … or rather, executes state policy with respect to all the other federal roads, which make 50,000 km out of a total one million km of high-speed motorways. Avtodor was established to develop the high-speed motorway network, increase its capacity and improve it according to world standards. Meanwhile, Russia has only 6,000 km of roads that meet such standards.

I have named its basic functions already. They closely follow the programme endorsed at the end of 2009 and early in 2010, and updated in 2011. A state programme is being drafted to develop the transport system and prolong and adjust relevant federal targeted programmes. In this regard, we intend to readjust the Avtodor programme through 2020 to bring its budget indices into strict alignment with the federal targeted programmes to be initiated and approved by the Government.

As you know, turnpikes have recently been established in this country. Avtodor manages several stretches in the Lipetsk Region and an M4 stretch that opened in the Moscow Region this year. Other turnpikes are outside its responsibility. These two years’ experience shows that motorists and lorry drivers like these roads. When we introduced them, we were wary of public protest but the community understands that better roads should be paid for. The turnpike is chosen by 70% of transit vehicles in the Lipetsk Region, and the load on it has increased by 30% this year. So we see that Russian turnpikes not only have a bright future but also brought experience gained by Avtodor already.

Safety and environmental friendliness are among the company’s top priorities, and will stay so. It has improved 420 km of roads with the highest accident rates within the two years since its establishment. The number of traffic accidents on the high-speed stretch of the Don M4 road, which crosses the Lipetsk Region, has decreased by half and deaths fivefold.

The Government analyses Avtodor’s report for each year – usually in the second quarter of the following year. Prime Minister Dmitry Medvedev approved the 2011 report this year, and this year’s work will be summarised in 2013. We are working in accordance with the forecast. Whatever differences there are have been brought by new targeted programmes, litigation over alienated land plots, and changed road jurisdiction. We owe this latter factor to the expanded boundaries of Greater Moscow. A stretch of the Kiev-bound M3 motorway will pass into Rosavtodor’s trust management, and talks are underway over its prospective length and the part that will remain subordinate to Moscow and possibly to the Moscow Region. So the company is at the negotiating table now <…>

Question: Will the company have a strategy of its own?

Maxim Sokolov: Yes. I told the Government that we have begun drafting a long-term Avtodor strategy following a Government instruction issued in July, if I am not mistaken. The programme sets the planning limit at 2019 but it will possibly be prolonged to 2020 after the relevant state programme comes into force. As for the corporate strategy, we think it should last until 2030, just like the development strategy of the entire transport network. We will submit the updated version to the Government before the year’s end, as I promised. The Government endorsed this strategy in 2008, and it did not say a single word about Avtodor because the company had not been established yet. Now it will certainly be reflected and relevant strategies will be mutually coordinated. I hope we will submit the strategy to the Government next year.

Sergei Kelbakh:  I can add only a small detail: leading Russian economic and transport experts are taking part in drafting the strategy. It is tied in not only with nationwide transport development but also with the forecasts of Russia’s entire socio-economic development, and we mainly proceed from basic macroeconomic indices.

Maxim Sokolov: Do you intend to submit the draft for public discussion?

Sergei Kelbakh: Certainly, Mr Sokolov.

Question: Mr Kelbakh, Mr Sokolov said that a toll stretch was opened a month ago on the Don motorway. Can you summarise its initial performance? As far as I know, drivers have to deal with jams, which are at their worst on weekends.

Sergei Kelbakh: Today marks exactly a month since the opening of that stretch. I have graphs here, and I can show them after this briefing. They prove that we monitored the situation every day, without an hour’s break, and our response to all kinds of challenges was flexible enough. For instance, there was a jam over six kilometres the first Friday after the road opening. It shrank to four kilometres the next Friday, to three on October 19, and to a token 500 metres last Friday. We have regulated traffic control in general, and secondly, the number of motorists who use electronic payment equipment has increased by practically 2.5 times, to bring the proportion of those who pass traffic gates with electronic equipment – either transponders or contactless cards – to 6%, which greatly speeds up the flow of traffic through gates and reduces congestion. I would like to stress that these were not jams, but congestion. Traffic was moving, but the number of vehicles approaching the gates exceeded the capacity for processing each automobile. We’ve seen congestion on Friday and Saturday at the exit gates from Moscow and on Sunday afternoon at the entrance, the usual thing in all megalopolises. Well, on the first Sunday, the queue was 3 km long, then 2.3 km, then 1.5 km and then less than 1 km. The delay is about 40-45 minutes. We are actively working on that problem. There are already more than 9,000 users of electronic cards, and we expect that there will be about 12,000 before the year is out. And if we bring the share of electronic toll gate users to 10%, the situation will be stabilised. Our target is to bring the number of electronic toll gate users to 25,000 by the start of the summer season. In that event, the mathematical model indicates that there will be no obstructions. But I should tell you that we are completing project documentation and are planning to modernise traffic gates and increase their number from 10 to 14 at each post.

Maksim Sokolov: That is right, they should also be spread out on the road lengthwise.

Sergei Kelbakh: Yes, we are using all the instruments to enable users to negotiate that stretch comfortably.

Maksim Sokolov: I would like to take this opportunity to urge those present, not necessarily in terms of these measures, but in terms of our coordination, to conduct educational work… We are conducting this work ourselves by putting up appropriately spaced billboards that explain the benefits of using a transponder. By the way, I myself have a transponder, though I haven’t yet activated it. From my own experience, on weekdays the wait is about 20 minutes.

Sergei Kelbakh: Actually, on weekdays it’s 7-10 minutes, at least during the last week.

Maksim Sokolov: It is some time since I last drove. So, it’s less now. Things are improving. I would like to ask you, the media, to lend your cooperation, because this would be to everyone’s benefit. Your help would be priceless for us and above all for the road users, because the thousands Sergei Kelbakh mentioned -- it’s 7%, if I am not mistaken, or a little less…

Sergei Kelbakh: Around 7%.

Maksim Sokolov: Seven percent. The projects that have long since been launched in European countries as a rule collect … Rather, the users of transponders and other payment equipment account for about 20-25%...

Sergei Kelbakh: Up to 30%.

Maksim Sokolov: Up to 30%. Of course this is not only convenient, but this eases the peak loads on weekends. So, I think we would all benefit if we join forces in our educational work. We would wait not 20 minutes, but 10 minutes and perhaps eventually, there would be no wait at all.

Question: We understand that a strategy is still being prepared, but could you give us some idea of what is in store for us - new projects perhaps, or some borrowed practices? If only in very general terms. Thank you.

Sergei Kelbakh: First of, I would like to stress that, as Maksim Sokolov has said, the company’s strategy dovetails with the strategy of the development of the national transport system, the part of it that is connected with the network of high-speed roads. In the first place, these will be roads in the European part and the Urals, for now, or Southern Urals -- that is, the most densely populated and economically developed parts of Russia.

On the whole, the strategy envisages building about 12,000 km of expressways, I stress, expressways, not toll roads - that is, not all high-speed roads will be toll roads. What is important is that this core network fits into the network of international transport corridors that pass through Russia. We thus hope to tap the full Russian transit potential. At present, Russia’s transit potential is not used effectively.

Maksim Sokolov: There are no corridors. That is, they exist only on paper.

Sergei Kelbakh: Yes, so far they exist only on paper. That’s  all about the key parameters. I have to say – we have announced this and I can confirm it now – that one of the key corridors is the so-called Urals road, a latitudinal motorway that will help relieve congestion on M-5 and M-7 federal roads. As for the rest, we will keep you posted on the progress of the work, we will call you in and we will hold public hearings in which you will take an active part.

Question: Mr Sokolov, I would like to ask you whether some new motorways may be turned over to Avtodor. Is such a possibility being considered? And what motorways could these be? And another question has to do with the use of pension savings to finance road projects: what is the current status of that issue? Perhaps some concrete proposals are already on the table? And when can we expect all this to happen?

And if I may, a question for Sergei Kelbakh. Today you presented an updated programme until 2019. Could you speak about the amount of work that will be carried out under the programme, and how many new roads will be built and repaired? How many roads will be under the company’s management? And what will the total amount of investments be? The figure originally mentioned was 1.4 trillion roubles, if I am not mistaken. What will the new figure be? Or is this the new figure under the updated programme? Thank you.

Maksim Sokolov: Let me start. The strategy is on the drawing boards, though Sergei Kelbakh has unveiled some projects. All in all 12,000 km of high-speed roads will be built, including latitudinal roads in the direction of the M-5 and M-7, but it is too soon yet to speak about which specific roads will be handed over to the company by 2030. As regards the target for 2020, I think it is 3,500…

Sergei Kelbakh: 3,750.

Maksim Sokolov: It's 3,750. This is the most realistic programmatic indicator, and it should be our target.

As for your second question about using pension savings, I have to say that pension savings are not the only source for financing the state company’s projects. We envisage other sources, of course, including a possible increase of budget financing if this is warranted by the results of activities and the ability to collect deductions to the road funds. We may also use the money of private banks or funds issued against state guarantees of the Russian Federation. I think pension savings can also be used against guarantees, but this is a question for number crunchers. The bottom line is that we are already committed, and the state company’s programme cannot be implemented without bringing in off-budget investments. We have the first experience of such an aggregate loan of three billion, which has been fully paid up by Gazprombank, by the way, against Government guarantees. Other than that, the finalised off-budget contracts amount to 59 billion roubles, that’s under construction projects, and out of the 59 billion, 13 billion has already been used to finance concrete amounts of work (I cannot yet speak of “completed projects,” so I am referring tentatively to “the amount of work”) carried out at the expense of private investors.

In addition to roads, we are raising money for building multi-functional roadside facilities. We have 31 such complexes on all the Avtodor roads (not only in Moscow and the Moscow Region, that is, places gravitating towards the Moscow transport hub where the cash flow is higher of course), and we are planning to raise 3.5 billion for their construction.

There is also another interesting and novel approach that we tried for the first time this year, and that is to have private investors and private capital take part in pre-project studies, pre-project proposals, the cost of which will be recouped at later design and construction stages. In this case we are talking about 600 million roubles, which would also be very useful for the company.

Sergei Kelbakh: Regarding the programme. The size of the programme has not changed practically. There have been some minor changes that are due to changes in the budget process, but that is all. The programme has been extended until 2020. I would like to stress that the topic of our discussion today was not the programme, but the Minister’s briefing of the Government on the company’s activities during the three-year period. The programme will be discussed in due procedure by the supervisory board and in due procedure submitted for approval by the Government. All this will take place in November-early December.

Maksim Sokolov: Yes, step-by-step. First is the Government programme, as I said. We are planning to discuss it at a Government meeting in November. Following approval, the corresponding Federal Targeted Programmes will be adjusted, including “The Development of the Transport System,” and then the programme of the activities of Avtodor will be adjusted on the basis of the two programme budget documents.

Sergei Kelbakh: Yes, as part of these programmes. So, we will be making changes until 2020 to align them with all the Government programmes. The only significant change is that the programme’s off-budget financing is being increased. We have proposed using various instruments. They are included in the programme, beginning from direct loans from Government companies, and ending with the use of pension funds and the issue of infrastructure bonds against state guarantees to be redeemed by subsidies after the term of the programme expires, that is, after 2020. In any case, the state will receive a revenue-generating asset in the form of a road, and will pay for this asset in the following budget cycles.

Maksim Sokolov: I think those present would be interested to know whether these would be project bonds, SPV or corporate bonds.

Sergei Kelbakh: Project bonds of course.

Question: A question for Maksim Sokolov. What is the situation in terms of PPP in the road building industry? How popular are such projects with our investors and Western investors? And one question for Sergei Kelbakh. Are you planning to bring in new investors? Everybody knows that you are working with Glavnaya Doroga, Vinci and other companies. Will there be new faces? Thank you.

Maksim Sokolov: Public-private partnerships and concessions are indeed very important. In fact, one of the company’s aims, a new departure perhaps, is to bring in investors and structure public-private partnerships. Today the company manages two concessions. I will not go over the details, which you already know, so I will just name them: the stretch of the Moscow-St Petersburg road between the 18^th and 58^th kilometres, and an 18 km stretch on the M1 Belorussia motorway, a detour near Odintsovo. Speaking about attracting foreign partners to various projects -- not only concession or public-private partnership projects… And I have already told you the difference: concessions are specific projects to build roads, including with off-budget money, roads that will be the property of the Russian Federation but will be managed by the concession holder, whereas PPP projects are a broader concept: that’s when the state and private capital share risks, and to some extent, financing, between them. That said, the key in both cases is not so much risks and financing (though risks are more important than finances), but the introduction of new managerial technologies. I would like to say that not only Vinci, which Sergei Kelbakh has mentioned, but also FCC Construccion (Spain), the Austrian company Alpine, Brisa (Portugal) and Kapsch (also Austria) are working on management systems, as well as Vision Transportation (Canada) and the Engineering Group of Germany. We hope that foreign construction and other companies will also take part in the implementation of the projects presented today by the Government of the Russian Federation in line with the Presidential executive order.

Sergei Kelbakh: Just to continue the Minister’s list… We are in the midst of active consultations with potential participants in the concessions market in Europe, and not only in Europe. We are cooperating actively with Italian companies and one of the largest, Autostrade per l’Italia, is taking part in consultations. Finnish and Swedish companies are also actively engaged in consultations, especially since we have moved to the north-west with the Moscow-St Petersburg motorway (the climate is similar and we are focusing on this climatic belt). So, we are stocking up on technological and managerial experience. The French chamber of trade and industry will soon host a conference for PPP market participants in Paris and we will be presenting our projects there.

I would like to mention one more important thing. Today we see the emergence of an investment construction market in Russia, which is no less important than working with foreign investors. There must be somebody in Russia to borrow modern technological and managerial expertise and spread it within the country. We are working very actively with the participants in the Russian market, with various investment-construction groups. We expect to hold a major PPP conference under the aegis of the company in late winter-early spring, and I hope it will materialise, given the support of the Transport Ministry.

Maksim Sokolov: Certainly.

Sergei Kelbakh: It will be not only for foreign, but above all for Russian companies, though international market participants will also be invited. We will announce the conference soon. This is important. While questions are being asked about foreigners, we should think about developing our own market.

Maksim Sokolov: I would like to add a couple of words. We should bring in not only companies, but regions, constituent entities of the Russian Federation, because along with having our own Russian participants, it is important that the regions, which will be implementing regional-level projects, form professional teams that meet the expectations of the modern business community and are capable of controlling concession projects.

Sergei Kelbakh: Yes, more and more regions are embarking down that path. Petersburg was the first, but now there are at least a dozen of them. They have drafted laws on concessions and are moving actively in that direction.

Maksim Sokolov: And many regional governors… During our personal meetings, I am constantly aware of the interest they show in public-private partnership opportunities. Of course the Transport Ministry and our state-owned company Avtodor always help us, methodologically and otherwise. For instance, we are going to hold an All-Russia seminar, which will take place in the Altai region, I think.

Sergei Kelbakh: Yes, we are planning to hold it in Altai Territory.