15 november 2012

Government meeting


Dmitry Medvedev: Good afternoon. Please take your seats.

Colleagues, before we start discussing the issues on our agenda, I'd like to tell you that I have approved the criteria for assessing the efficiency of federal and regional executive authorities in creating a favourable investment climate, the climate for doing business.

First of all, we will take into account the business community's views of the conditions for doing business in the country and in each particular region, the rate of growth in the number of high-tech jobs and labour productivity, the proportion of enterprises that are introducing technical innovations, the quality of the labour market, and the quality and accessibility of the industrial and transport infrastructure. These are vital elements of a region's investment attractiveness.

The performance of senior federal officials will be assessed on the basis of criteria such as export support, tax administration, protection of investors' rights, government registration of legal entities and property rights, the availability of bank loans, the level of competition and several other indicators.

One more indicator will be Russia's position in the Doing Business Index and other international rankings, even though these are all relative.

The methods for assessing these indicators are to be submitted to the Government by 1 December this year, and the first report on the creation of a favourable business climate should be compiled based on the results for the year, which means that the report should be made annually. I hope this will allow us to make a more objective assessment of the strengths and weaknesses of the regions and relevant federal agencies and generally make this country more attractive for investors. This task remains a very urgent one.

Today we will discuss the drafts of two highly important federal programmes. They are very sensitive for the people of this country. I’m referring to the programmes on the development of healthcare and on the provision of affordable and comfortable housing and utilities. The vast majority of requests made to the Government and other authorities are about housing and healthcare. This is why, as is customary, I have invited two regional officials to this meeting: Altai Territory Governor Alexander Karlin and Nizhny Novgorod Region Governor Valery Shantsev, who will present their proposals on this issue.

The elaboration of the healthcare programme required not only a professional approach but also a broad discussion of the relevant issues with practicing doctors, experts and patients, including within the Open Government and I think this was the right thing to do. Many proposals made by the Government Expert Council were taken into account in finalising this document. However, this should not be the end of the matter – there should still be additional procedures and an expert review may call for further adjustments to the programme.

So what is included in the healthcare programme? It includes structural reforms of the healthcare industry over the next three years – from 2013 to 2015 and the development of innovative potential from 2016 to 2020. The results of this work will be assessed by key indicators – reduced mortality and increased life expectancy. We must give priority to preventive care and promoting a healthy lifestyle. Of course, it is also important to strengthen primary healthcare, improve the performance of ambulance services and develop high-tech medical assistance as much as possible.

The health of children remains a priority, maybe the top priority. Needless to say, it is qualified staff, particularly doctors and nurses, who are the key to ensuring the development of healthcare. Let’s hope that salary increases for healthcare workers will encourage them to work better and will finally raise the prestige of the medical profession.

I will tell you right away that there are differences of opinion over funding. That is perfectly normal since we are discussing a long-term programme up to 2020. I hope the ministers will tell us their ideas on this score.

But I will make the final conclusion myself.

The second programme is aimed at providing affordable and comfortable housing and utilities services for 2013-2020. This is a priority of the Government’s work. Regarding regulatory framework, a raft of federal laws, the most essential in the sphere, were passed in the past ten years. I mean the Housing Code, and the Urban Development Code, which formed the regulatory framework for conducting systemic changes. In 2006, implementation of the priority national project Affordable and Comfortable Housing started. Also, state development institutions began operating, which proved quite effective. Our colleagues, the governors, are asking for this work to be continued, for additional funding to be allocated to them, I mean the Federal Fund for Housing Construction Development, the Agency for Mortgage Lending, and the Fund for Housing and Utilities Reform. These agencies have substantial funding, and these resources should be focused on the major areas of reforming the housing and utilities system.

What targets are set in the programme? I will be brief – the Minister will give details in his report later. The primary but rather distant objective is to gradually increase the commissioning of new housing to 92 million square metres per year by 2020. This is substantial growth, although we had already planned it before. Unfortunately, we are not moving to this goal as quickly as we wanted. Another important aspect is that we should reduce the cost of one square metre of housing by 20%, mainly through the construction of economy-class housing. For that we should not oblige the developers to build infrastructure, but try to involve infrastructure companies in the implementation of construction projects by providing water supply facilities and local generating capacities, and these projects should be self-supporting. I am speaking about the Federal Grid Company of the Unified Energy System, MRSK Holding, and Gazprom. It is also important to attract borrowed reserves, perhaps use money from the privatisation of the MRSK Holding, and some other sources.

The programme’s priorities include removing tenants from dilapidated housing. This is an important part of the work which is conducted in all the regions. The situation is still rather difficult. Another objective is increasing mortgage lending. Obviously, we have achieved good results already, but mortgage lending volumes depend on the general economic situation, and even the global financial situation. But on the whole this is the right focus.

And the third focus is developing the market for affordable rental housing. The situation is not favourable, as was the case three, five, seven years ago. This means that a viable rental housing market has not been established yet. In a vast majority of countries, however, rental housing makes up a substantial part in the entire housing segment. There is nothing bad about that, it’s normal. We must also start involving more land in housing construction. We, I mean the Fund for Housing Construction Development, are already making relevant efforts. My colleagues and I have held numerous meetings, but the situation in the regions varies. The matter concerns both federal land plots and those owned by local governments.

We must create better conditions for private investment in the housing and utilities sphere. We have taken a number of decisions as regards housing repairs, and some other areas of concern. These decisions are currently being transformed into legislative acts.  

Now let’s proceed to our discussion. Let’s begin with the healthcare development programme. Ms Skvortsova, please.

Veronika Skvortsova (Minister of Healthcare): Mr Medvedev, colleagues. Work on the draft state programme for healthcare development began in 2011 with Government Directive No. 1950, which approved a list of all state programmes of the Russian Federation. We have elaborated the federal programme on the basis of the following fundamental documents – the Long-term Socio-Economic Development Concept, the Strategy of Innovative Development until 2020 and the Comprehensive Programme for the Development of Biotechnology until 2020, as well as the following basic laws – the Law on Public Health Protection, the Law on Mandatory Medical Insurance and the Law on the Amount and Method of Calculating Contributions for Mandatory Medical Insurance for the Non-Working Population. The federal programme is a uniform comprehensive document that formulates the goals and main directions of healthcare development in this country and measures to this end.

The main goals of the programme is to increase the lifespan of people, improve their health, and reduce deaths from most serious diseases by giving every citizen access to quality medical services. The latter’s scale, types and quality must correspond to disease incidence and public demand on the one hand and modern achievements in medicine on the other.

The main principles of healthcare outlined in the Law on Public Health Protection have determined the structure and tasks of the programme – to give priority to preventive measures and the development of primary healthcare; improve the quality of all types of specialised medical aid; develop and introduce innovative methods of diagnostics, preventive care and treatment and the foundations of personalised medicine; upgrade obstetrics services and postnatal care; develop the system of rehabilitation, health resort treatment and palliative care; enhance pharmaceutical support; employ highly qualified and motivated personnel; ensure the systemic character of healthcare organisations and their management and to upgrade supervision and oversight in health protection.

To sum up, the programme reflects systemic approaches to resolving such fundamental issues as the need to form a uniform system of preventive care; increase the quality of medical aid for the public; upgrade the training and qualification of medical personnel; increase salaries of medical workers under an effective contract; to carry out institutional reforms, improve medical facilities and provide information support for the healthcare industry.

The federal programme includes 11 sub-programmes each of which pursues a specific goal. The programme will be carried out by 18 federal executive bodies shown on slide No. 4, the Russian Academy of Medical Sciences, the Russian Academy of Sciences and the regions of the Russian Federations.

Under the plan, the programme will be implemented in two stages. The first stage, 2013-2015, is devoted to completing systemic reforms envisaged by the Law on Public Health Protection; balancing out the programme of government guarantees of mandatory medical insurance on the basis of uniform procedures and standards of medical treatment and full tariff funding; streamlining the programme of government guarantees of free medical care that is granted without insurance coverage to treat socially-induced diseases.

The same stage provides for improving the three-level system of medical treatment in each region of the Russian Federation; introducing a uniform electronic medical card; developing open competition between medical organisations of different forms of ownership and legal status in the system of mandatory medical insurance; implementing medical insurance pilot projects; advanced training of medical personnel; providing the industry with the required number of doctors, nurses and paramedics; streamlining the distribution of jobs strictly in line with the demands for medical care; ensuring the innovative development of the industry by creating science-and-education clusters around leading medical universities; establishing a system of preclinical and clinical translational medicine; and improving the performance of federal medical research centres.

The second stage, 2016-2020, develops the first one and provides for the build-up of healthcare capacity on the basis of an upgraded organisational model, financial equilibrium of all government safeguards, modernisation of procedures and standards of medical aid with a broader list of state-guaranteed medicines and medical goods, introduction of innovative products and technology and the electronic system of quality control of medical care; compulsory accreditation of medical workers and implementation of the strategy for pharmaceutical support of the population. Thus, by 2016 we plan to create material, technical, institutional and regulatory prerequisites for switching to the second stage of the programme aimed at innovative healthcare development.

Implementation of all sub-programmes and measures of the federal programme directly depends on the funding of the healthcare industry. In 2013 healthcare expenses are supposed to be 2.32 trillion roubles or 3.4% of GDP, including 1.6 trillion roubles from the Fund for Mandatory Medical Insurance (FMMI), 413 billion from the federal budget and 855 billion from consolidated regional budgets. Under the budget scenario, by 2015 healthcare expenses will amount to 2.48 trillion roubles or 3% of GDP, by 2020 – 3.4 trillion roubles or 2.5% of GDP. In other words, the resources of the FMMI will increase to 1.4 trillion and two trillion roubles by 2015 and 2020 respectively, whereas those of the federal budget will decrease from 413 billion to 278 billion roubles by 2015 and those of consolidated regional budgets will go down from 855 billion to 820 billion roubles.

The modernisation scenario requires an increase in healthcare spending to three trillion roubles by 2015 or 3.7% of GDP, and by 2020 to 6.5 trillion roubles or 4.7% of GDP. In other words, the funds of the FMMI should increase to 1.4 trillion and 3.7 trillion roubles, respectively, those of the federal budget to 634 billion and 939 billion roubles and those of consolidated regional budgets to 915 billion roubles and 1.94 trillion roubles in 2015 and 2020 correspondingly. Only in this case we will be able to carry out all measures under the programme, ensuring modern state-guaranteed medical care standards, modernisation of healthcare facilities based on the development of private-public partnership and the implementation of the reform of higher medical education and medical science.

The federal programme contains 17 integral indicators envisaged by the President’s orders of 7 May, 2012. Its sub-programmes contain 118 additional indicators. The calculations, based on econometric and mathematical modelling, show that inadequate funding of the federal programme under the budget scenario creates considerable risks of a failure to reach by 2018 the targets set by the presidential orders. Lack of adequate funding of the federal programme will leave the accessibility and quality of medical aid at the same level or reduce them. As a result, people will be less satisfied with the national healthcare system and quality of life in general.

The modernisation scenario will make it possible to reach the target indicators and make fundamental changes in the national healthcare system. The work on the draft federal programme continued for almost two years, during which a considerable number of amendments were introduced to it in order to consider the requirements of all participants and developers of the programme – the Ministry of Economic Development and the Ministry of Finance. The draft was discussed on the site of our ministry and the extended session of its board with the participation of all 65 chief part-time experts of our department. More than 150 proposals were taken into account after this discussion. The draft was also reviewed by the Open Government, as a result of which more than 40 proposals were made. We cannot but agree with the opinion of experts to the effect that in the near future we must concentrate our efforts on resolving the personnel issue, developing primary healthcare and providing our people with medicines. The federal programme provides for the implementation of these aims.

It is abundantly clear that the implementation of the programme’s budget scenario will not allow us to reach its main targets. The draft has been coordinated by all co-executors and participants, as well as the Ministry of Economic Development. The only disagreement that still exists is between the Ministry of Healthcare and the Ministry of Finance. It is linked with lack of certainty on the sources of additional funding for the industry’s development. This is a very important issue of state policy on healthcare and we hope to continue constructive dialogue with our colleagues from the financial and economic sector in 2013 and 2014. We also hope to find solutions together.

The formation of an effective management model is indispensable for implementing the programme. This model should include future strategies on specific areas of healthcare, for instance, the ministry’s strategy for the development of medical science until 2025 and the currently elaborated measures on improving medical care and training skilled healthcare personnel.

Annual government guarantee programmes for free medical care are an important tool for connecting the medical  content of the guaranteed healthcare with its financial equivalent based on demographic and healthcare statistics based on a per capita, structural and industry-specific medical principle.  Two federal programmes – the Development of Nuclear Medicine and the Development of Medical Science – will be developed in order to facilitate the implementation of the government programme.

Colleagues, the implementation of the government programme under different scenarios, be it the one seeking the modernisation or the budget one, will result in different levels of national healthcare development. The core difference between the two scenarios is the difference in the number of lives saved by 2020 in our country, which will amount to 1.1 million. The Ministry of Healthcare has requested approval of the draft government healthcare programme using the modernisation scenario. Thank you.

Dmitry Medvedev: Thank you, Ms Skvortsova. Colleagues who would like to comment on the nature of the programme and the proposals that have been made? Let's begin with the Ministry of Finance. Please go ahead.

Anton Siluanov (Finance Minister): Colleagues, we do, in fact, have differences with regard to how to support the programme with resources. In fact, this is the second programme that offers two scenarios: budget and modernisation. Perhaps it can’t be called a modernisation scenario, since it’s merely a more resource-intensive alternative. Importantly, the ministry does not seek to achieve programme goals and figures, including the ones drafted on the basis of presidential executive orders, under the budget scenario. That's the biggest problem, because increasing funding under the programme can, of course, be considered as new budgets are being drafted and new forecasts made and in case additional resources become available. If such resources become available, then the ministry will, in fact, admit that we can’t implement presidential orders and achieve programme goals and figures. I believe that’s wrong and we can’t let this happen. Of course, programme effectiveness indicators by 2018 and the availability of the budget funds are related but in a rather relative manner. Much depends not only on budget funding, although it is, of course, very important for the implementation of the programme, but also on administrative resources, incentives and other carrot and stick mechanisms. Of course, any problem can be resolved just by pouring in budget funds, but it can also be fixed using administrative methods or incentives. Therefore, I believe that we should take the budget scenario as the basis and adjust programme goals based on the tasks set forth in presidential executive orders. If we see opportunities for additional funding (healthcare is indeed a priority), then, of course, we will continue to increase support for this industry.

There are a few other comments with regard to the draft programme, such as, for example, how the average salaries of healthcare workers compare to average salaries in economy and ways to speed up the implementation of the presidential executive orders. We see that even the rates that are shown here are at odds with our previous discussions. Therefore, we propose solving this problem one year earlier: not by 1 January 2018, but by 1 January 2017. Therefore, funding for healthcare workers’ salaries isn’t always steady.

In addition, the developers of the programme say that a number of supply-related issues within the health insurance programme and purely insurance issues that should supposedly be addressed through contributions to the insurance fund haven’t been properly addressed. As proposed by the ministry, the implementation of insurance principles should be supported by additional budgetary funds. Although when we were developing the proposals for reforming insurance, including health insurance, we agreed that insurance payments, namely 5.1% of the payroll, will be enough to make all intended changes in the industry. However, beginning in 2016, the ministry will include budget funding in addition to insurance premiums, which, we believe, is at odds with the concept of insurance, which we use to organise healthcare in our country. Of course, once again, these are additional costs in terms of budgetary allocations. The ministry’s proposal sometimes even more than doubles the amounts of financing that we have made available to the ministry as part of the long-term budget planning. Therefore, I believe that we should proceed based on the budget scenario and adjust programme goals accordingly in order to be able to reach the goals set forth in presidential executive orders and perhaps anticipate a more resource-intensive scenario. However, we will know this only when we start drafting the budget for the next fiscal year. Thank you.

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

Arkady Dvorkovich (Deputy Prime Minister): I’ll be brief. Mr Belousov is not here, unfortunately, but I saw discrepancies in the programme between the indices shown here and the adjustments that are now being discussed as part of long-term socio-economic development projections. These projections have yet to be discussed, but we are in the final stage already. Again, the discrepancies in the indices are very significant. Primarily, I’m referring to mortality and life expectancy numbers. I propose deciding on the targets within the next few days. The difference is about one and a half to two years, and that's quite a lot when it comes to life expectancy. As for the reduction of mortality, the programme has more optimistic figures, which I, of course, like more than the ones provided by the Ministry of Economic Development.

My second point has to do with expenses. I’m not sure if we actually need the funds proposed by the Ministry of Healthcare to be able to implement the modernisation scenario, but the budget scenario is clearly not enough to achieve these goals, because it provides for a reduction in spending in real terms and as a percentage of GDP. This means that we cannot maintain our current achievements, let alone make any progress. I believe that we should under no circumstances cut spending on healthcare as a percentage of GDP. Moreover, it should be increased, primarily through private investment in the coming years, but funding from the budget cannot be cut. Perhaps then these targets will be achievable. Thank you.

Dmitry Medvedev: Thank you. I will turn the floor over to you now (addressing Ms Skvortsova) unless there’s someone other than the Minister of Healthcare who has something to say on the subject. Please go ahead.

Igor Shuvalov (First Deputy Prime Minister): I have a few words to say about social payments and sources of financing. It’s not quite as Mr Siluanov puts it. When we were discussing increasing pressure on businesses and calculating the cumulative social fee payable to various extra budgetary government funds, we knew that in the coming years the Mandatory Medical Insurance Fund will receive substantial funds for modernisation. During the first two years we funded the modernisation programme through this fund. For some particularly capital-intensive programmes we will have to seek additional funding. For example, the nuclear medicine and other programmes won’t fit in the tariff of mandatory health insurance; therefore, we should spend the insurance fund’s and regions’ money efficiently. But without government funding and without the funds of those who are using voluntary health insurance, as well as without private funds going into medicine, we won’t be able to modernise our healthcare system. This is a complex project. We will have to raise funds from various sources, including private ones, in order to implement this project. The 5.1% payment will not work for us.

Dmitry Medvedev: I see. Thank you. Does anyone have something to add? Ms Skvortsova, speak up please.

Veronika Skvortsova: Thank you, Mr Medvedev. Colleagues, thank you for your comments. I will answer in brief. Mr Dvorkovich, this slide shows the targets set by the programme for up to 2018, and compares them with the targets posed by the presidential executive order. All of the indices for 2020 fully correspond with the country’s  socio-economic development indices. You mentioned a 75.5-year life expectancy forecast. The same concerns all of the other indices, so we are willing to provide more illustrations.

As for Mandatory Health Insurance, the programme does not specify that it will be funded solely from the federal budget after 2016, so we suppose that there will also be other sources, and we would like to additionally and together discuss opportunities for their use. The same concerns wages. We talked about this with the Minister of Finance, and discussed the entire wage raise scenario up to 1 January 2018. Thank you.

Dmitry Medvedev: So, the ministry’s final idea is to promote the modernisation scenario. Have I got this correct?

Veronika Skvortsova: Yes, Mr Medvedev.

Dmitry Medvedev: Okay, thank you. Let's dot all of the i’s and cross all of the t’s in terms of what we have done. As for the programme, I think that we should do what we have done with the education programme. It is clear that there are expenses, and the budget for the next three years has been drawn. Here, we play by the rules of the game that we have set ourselves. Naturally, we should monitor the actual economic developments and our real financial opportunities. We will adjust them while taking into account further opportunities and financial sources, should any appear. We should also answer the Ministry of Finance’s questions – possibly in greater detail.

As for the innovation scenario for healthcare development and modernisation, it is impossible to follow it within the parameters that only correspond to draft budget indices. The other Government members present here agree with this point. So, I think that we can’t do without vision. We should do to this programme what we have done to the education programme – meaning, make it more ambitious. We should find our bearings in such an advanced scenario. The public will not approve another one. Anyway, we will make final decisions only a year or three years from now, depending on the economic situation. Agreed? Thank you.

The second programme that we are discussing today concerns comfortable residences at reasonable prices. Mr Slyunyayev has the floor.

Igor Slyunyayev: Mr Medvedev, ladies and gentlemen, the Ministry of Regional Development has drawn up a state programme for comfortable and affordable housing construction and utilities development. We have coordinated it with all of the relevant federal agencies according to the required procedures. Experts have discussed it at the Open Government, and the Government's Expert Council for the Development of Housing and Public Utilities has approved the programme. The draft conforms as closely as possible to Presidential Executive order No. 600 of 7May, 2012.

The programme's top priorities are: upgraded living standards and public utilities services, and new housing for certain population groups. These goals will be attained, as guaranteed by a comprehensive approach through incentives for the housing construction market and the land market monopoly limited. The programme promises to remove administrative barriers, to promote competition in housing construction, to enhance investment attractiveness, to increase the pace of municipal infrastructure modernisation, to involve homeowners in housing management, and to develop housing leases nationwide. Last but not least, it promotes new housing purchases.

The programme promises to reduce the average housing costs by roughly 20% by 2018. About half of households will be able to afford new accommodations with their own or borrowed funds by 2020 when the share of leased flats in blocks grows to 10% of the entire volume of new housing commissioned.

The number of emergency stock residents granted new accommodations will grow from 57,000 in 2013 to 422,000 in 2015, when the programme envisages the commissioning of 90 million square metres of housing per year. By 2020, this index is expected to hit the 120 million square metre mark.

The share of blocks undergoing major repairs will increase from 4% in 2013 to 14% in 2020, and the number of individuals whose living conditions are improved will grow from 1.8 million in 2013 to 4 million in 2020.

You can see other programme indices on this slide.

The programme envisages organisational, fiscal and legislative measures divided into three groups by target. The first concerns new quality housing. The second concerns improved utilities services. And the third concerns programme implementation.

The creation of a comfortable environment before 2020 is the state’s strategic goal. We are focusing on four major housing priorities. First is the reduction of housing costs – specifically, by enhancing economy housing construction. We will promote the construction industry and try to make housing affordable to the economically active population. Experts evaluate expenditures not directly pertaining to construction as over 30%. The greatest expenditures concern land, engineering infrastructure, connection to electric and other grids, short term loans, and bloated interest rates. If we cope with all of these issues, housing costs will fall by 20-25%, that is, below primary market prices. According to expert estimates, roughly 15 million families will then be able to afford standard mortgage payments.

The programme envisages three stages of implementing measures to enhance economy housing construction. I would like to call your attention to this housing category because it is the smallest sector of the market, for the time being. Pilot projects will be implemented on the best-equipped sites in 2013. The next two years envisage construction on sites demanding preliminary engineering works under natural monopoly and resource supplier investment programmes. Construction on sites demanding large-scale preparations is scheduled for 2016-2017.

Seven pilot areas have been appointed for launching the project – the Omsk, Chelyabinsk, Samara and Yaroslavl regions, the Stavropol and Perm territories, and the Republic of Tatarstan. The project will be funded on market terms through bank loans to contractors with the ceiling set at 120 billion roubles and mortgage loans to private persons within 600 billion roubles – 120 billion roubles a year for five years running. No less that 25 million square metres of economy housing will be built in the first five years under that project alone. The Mortgage Crediting Agency and banking mammoths are willing to join the project as operators, including banks with state participation such as Sberbank, Vneshtorgbank (VTB), Gazprombank, Vnesheconombank and others.

The development of lease-holding and non-commercial renting for low-income tenants is another state housing priority.

We plan to develop two sectors of rented housing – commercial and non-commercial. The former will have every condition to develop private housing with the preference placed on long-term leasing – five years and more. The non-commercial sector envisages low rental prices, and will provide conditions for federal and municipal housing construction, and construction by specialised non-profit organisations, which the Government aims to support through the programme.

Another priority concerns support for individuals in need of better accommodation, who cannot afford it.

The allocation of social benefits for housing purchases and construction of private homes, including partial or complete down payments for mortgages, will become the main form of support for this category of individuals, which is stipulated by federal legislation. The state programme is called upon to enable military personnel to save money for subsequent mortgages. The improvement of housing purchase conditions on the market, including housing purchases through mortgage mechanisms, is the fourth priority. Under the Strategy until 2030, the state policy in the area of expanded mortgage lending will help ensure more affordable mortgages for individuals, loans for developers and an effective distribution of loan-issue risks among all market participants. New tools, including mortgage securities, will be introduced.

Mr Medvedev, colleagues, these are the main priorities of the state policy in the housing sphere, which is stipulated by the draft programme to provide comfortable housing and housing/municipal utilities services to Russian citizens.

And now I would like to say a few words about the second part of the programme, namely, the improvement of the quality of housing/municipal utilities services. The state policy in the area of housing/municipal utilities infrastructure is primarily intended to improve the quality of housing. At the same time, we must improve the quality of housing/municipal utilities services. We have singled out the following four high-priority objectives in the area of housing/municipal utilities infrastructure. First, we must create favourable conditions for expanded housing overhauls and renovation projects, and we must also make housing more energy-effective. For many decades, the problem of inadequate housing renovation has snowballed all over Russia. This problem affects over 80% of the Russian population. Inadequate housing renovation leads to excessive consumption of resources, as well as predictable and unpredictable losses. This leads to more expensive utility bills. The Ministry of Regional Development has drafted a law on renovating and overhauling multi-storey blocks of flats. Its main objectives are as follows:

  • To create a new system for financing renovations and overhauls;
  • To pool the efforts of home owners, Russian regions and local governments in accomplishing this large-scale objective.

All Russian regions will receive special powers in the area of renovations and overhauls. The regions will also have to pass all the required regulatory documents.

The above-mentioned draft law allows home owners to choose between two overhaul-and-renovation options. The first option calls for accumulating donations on a special account opened by home owners of a multi-storey block of flats. These accounts are opened by home owners’ partnerships, housing cooperatives, managing companies, regional operators or individual owners. The safety of savings is guaranteed by the special status of these accounts. Under the second option, financial resources are transferred to an operator of a regional overhaul-and-renovation system. The operator undertakes to conduct renovations and overhauls under a regional programme and in accordance with specific volumes and deadlines that are stipulated by the relevant programme. The concerned Russian region shall guarantee the safety of home owners’ savings.

The draft law allows home owners to withdraw their donations from the joint savings-accumulation system. The state programme and the draft law on the system of renovations and overhauls make it possible to create the required legal foundations to completely solve the problem of housing renovations and overhauls. Five or seven years later, it will be possible to introduce fixed nationwide volumes of renovations and overhauls. And all inadequately renovated housing is to be overhauled by 2035.

The improved quality of municipal utilities services is the second high priority objective of the municipal utilities part of the state programme. Notably, this can be accomplished by formulating an economically justified cost, improving investment programmes, pooling the efforts of industry employees, actively involving individuals in housing management and creating a mechanism for the attraction of long-term investment.

In an effort to modify current legislation, we have drafted a package of federal laws, which will help reduce risks for private investors. This legislative package will also help expand special types of activity regarding the management and development of the municipal utilities infrastructure, and it will create favourable conditions for the development of various forms of public-private partnership in the housing/municipal utilities sphere as well. The draft laws will considerably simplify procedures for the registration of property rights and other individual rights for utilities and engineering facilities. New regulatory-technical, legal, loan-financial mechanisms will be introduced in the housing/municipal utilities sphere during the implementation of the state programme. This means higher housing/municipal utilities management standards, as well as efforts to attract private investment in the housing/municipal utilities sector. Creating incentives to encourage the frugal use of municipal utilities services at the regional level is our third objective. This objective presupposes the conversion to establishing welfare/social consumption standards for municipal utilities services. These standards should meet cost-effective energy-consumption standards. At the same time, various population categories will receive additional social support. The introduction of resource-saving technologies remains an important element of the state programme in the housing/municipal utilities sphere.

The supply of quality drinking water to cities and towns is our fourth objective. Mr Medvedev, colleagues, I would like to say a few words about the financial aspects of the draft state programme being submitted to you for consideration. The programme’s allocations are stipulated by the targeted programmes “Housing” and “Pure Water,” which are currently being implemented. Various projects of the Housing and Utilities Reform Fund also stipulate funding for the draft programme. Unfortunately, we don’t have enough of these allocations. However, overall funding volumes total two trillion roubles, including 0.6 trillion roubles’ worth of budget allocations. Analysts predict that regional allocations will total 0.4 trillion roubles. Extra-budgetary sources will contribute up to a trillion roubles.

Mr Medvedev, I would like to ask you to support this draft state programme, which is called upon to provide Russian citizens with affordable and comfortable housing and municipal utilities services. If possible, the programme should be specified during its implementation in 2013. I am confident that the implementation of the programme will enable us to considerably improve the quality of life of Russian citizens and their sense of social wellbeing. Thank you.

Dmitry Medvedev: Thank you. This is an optimistic conclusion. Please sit down, Mr Slyunyayev.

Who else would like to speak about the programme? Mr Novak (Addressing Alexander Novak), you have the floor.

Alexander Novak (Minister of Energy): Mr Medvedev, colleagues, I would like to say a few words about the housing construction infrastructure. You mentioned this in your opening remarks. As the Minister has noted, this draft programme is called upon to promote construction of economy-class housing and to reduce housing construction costs per square metre. For this purpose, there are plans to implement a high priority project to provide more affordable housing for the economically active population and to build at least five million sq. m. more annually for the economically active population above all, in line with specific programme targets from 2013 until 2017. On instructions from First Deputy Prime Minister Igor Shuvalov, the Ministry of Energy and other concerned federal bodies of power have assessed possible financing mechanisms and mechanisms for the creation of a municipal utilities infrastructure during housing construction projects, in line with this pilot project. I would like to speak about them.

Technically speaking, there are several funding options. Some of them Everyone is aware of some of them, including construction through payments for the developer’s network connection expenses, which are included in the cost per sq. m. of housing. This increases construction costs by about 8%-13%. Second, construction projects can be financed at the expense of an investment programme of a resource-supplying organisation. Everyone knows when power generating and supplying companies, as well as heat-supplying companies, build at the expense of their own investment programmes. The third option calls for financing construction out of regional budgets. This option is not very widespread, due to financial shortages. We have examined an additional option, which stipulates a special surcharge to the utility payments of resource-supplying organisations. This surcharge would only be stipulated for future tenants of blocks of flats, which are due to be constructed at these pilot sites. This makes it possible to reduce construction costs per sq. m. of housing, and the infrastructure is financed in line with a long-term plan and utility payments.

Accordingly, we proceeded based on the assumption that the developer’s obligations should be minimised during the construction of the public utility infrastructure under this pilot project, and that it should be funded mostly by the resource suppliers. To minimise outlays, we pegged infrastructure construction costs to types of public utility infrastructure, from the perspective of cost and complexity of connection. As is evident from our analysis, the most difficult projects are primarily water supply and heat supply facilities. These are the costliest projects, the true bottlenecks in the area of new housing construction, particularly so on new territories. In order to minimise costs, we suggest that housing construction projects be selected taking into account the most effective solutions regarding what experts see as the costliest utility – water supply and drainage. In our view, we need to select sites that are already provided with water. This, at least, could be done during the first few years. The next thing will be to look for sources of financing for the construction of water supply facilities.

How to supply heat for construction projects should be decided based on territorial planning schemes and heat supply schemes, taking into account the existing heat supply sources. Another option would be to build local heat supply facilities, using heat suppliers’ investment programmes as sources of financing for the heat supply system. The same goes for power supplies and gas supplies. Specifically, the regions of the Russian Federation should approve decisions (tariff decisions on these organisations’ investment programmes) jointly with the Ministry of Energy.

Importantly, new utility infrastructure options should not affect the connection of other consumers in this region. We suggest that this algorithm be tested on pilot housing construction projects in 2013. If necessary, we will draft legislative amendments and recruit assistance from infrastructure organisations such as the Federal Grid Company (FSK), the Interregional Distribution Grid Company (MRSK) and Gazprom. I request your approval.

Dmitry Medvedev: Thank you, Mr Novak. Mr Siluanov, go ahead please.

Anton Siluanov (Finance Minister of the Russian Federation): I would like to say a few words about resource support, too. Mr Medvedev, colleagues, in general, we could agree with the resource support after 2016. But the proposals for the period from 2013 to 2015 exceed the threshold that has been provided in the three-year budget. So we suggest that these funds be put in conformity with the budget parameters. After 2016, however, we are ready to agree with the stated amounts.

Dmitry Medvedev: All right, thank you. Does anyone have anything else to add? Yes, I will give the floor to the governors. I wanted to do this at the end. Mr Kozak, go ahead.

Dmitry Kozak (Deputy Prime Minister): I suggest that we approve the programme in general, as is stated in the draft protocol resolution. But we should finalise it within the next ten days, not later. Let me remind you that we have assumed a commitment to report to the President about the approval of these programmes before December 1. So, it must be finalised in the following respects. Our number one priority is to endorse decisions – and for some reason we didn’t do so – which have already been approved by the Government as part of the relevant plans of action for attracting private investments into the housing and utilities sector. They are yet to be implemented, and should be included here after being adapted to these objectives and target indicators. We should also include some recent measures that have been approved after the draft programme was submitted to the Government. They also need to be finalised. Measures in the relevant governmental plan of action at the regional level also need to be included. In the housing and utilities sector, the executive authorities in the regions of the Russian Federation should primarily approve programmes for the comprehensive development of utilities systems and investment schemes for heat and water supply systems.

We also need to outline some concrete timeframes for monitoring this programme so that we could really achieve these targets. Thank you.

Dmitry Medvedev: Thank you, Mr Kozak. Mr Shuvalov, go ahead please.

Igor Shuvalov (First Deputy Prime Minister): Mr Medvedev, colleagues, I would like to clarify certain points to avoid confusion. First, we reported to you about the programme’s parameters in detail at the meeting. Under the programme, we’ve planned some additional steps over and above what market entities are planning to commission outside of our state order, including at least 5 million square metres of housing for servicemen for a period of five consecutive years.

But the programme goes beyond that, intending to create a mechanism for replicating this kind of housing across the country. Mr Slyunyayev covered seven regions.

We certainly plan to work with the municipal entities, where there is a clearly-defined demand for housing but where people so far cannot afford mortgages. But the terms will be those that we have outlined in the programme. These people will be able to join the programme and this mechanism will be more affordable for them. There are about 90 cities across the country that are ready to participate in implementing the programme.

The proposition that the cost of housing will decline merits particular attention. The programme we are going to implement should ensure that the costs are lower than those in the local market in this region. But no one knows how much housing will cost in 2018 and beyond.

For the purposes of this programme, the economy-class housing we will be commissioning should be priced lower than the existing market figure.

Dmitry Medvedev: As of when is this 20% – I also mentioned this – below the market price?

Igor Shuvalov: At the moment of sale or when…

Dmitry Medvedev: If this will be, say, in 2017, what year can we compare this 20% with? Is this 2017? Or when…

Igor Shuvalov: With 2017, when people join the programme, this housing… Incidentally, Mr Medvedev, the price is different everywhere, as is corporate profitability. In some localities, this will be 20%, in others, 30-35%. The most important thing for us is…

Dmitry Medvedev: Thirty to thirty five percent is even better for the people.

Igor Shuvalov: The important thing for us is that this difference shouldn’t be below 20%.

If needed, I can provide explanations on other aspects later. We are asking for some extra time for finalising things, but on the whole I ask you to support the programme.

Dmitry Medvedev: Thank you, Mr Shuvalov.

Dmitry Medvedev: We have been drafting a separate document regarding maintenance and the maintenance procedure, as well as capital repairs. The parliament will consider this document shortly. It has mechanisms for this purpose. How will they work? We will have to wait and see how it works in practice and, of course, we’ll adjust what needs to be adjusted. There is no doubt that the programme is a complicated affair, but we have to approve it anyway. I would like to ask the heads of federal agencies to take into account to the maximum degree what the regional heads have said, because they are in charge of these processes on the ground, so to speak, and these untested constructions and proposals should be measured up against the real state of affairs in the regions of the Russian Federation.

But the regions should also find money for these purposes, because these are matters of priority. We are short of money for all we need, but whatever we have we must divide reasonably. Healthcare, housing and the utilities sector are clearly the most important things for the authorities at all levels. And it is from this that we should proceed. The programme needs to be finalised and submitted for approval. Agreed? Thank you.


* * *

After a Government meeting, Minister of Healthcare Veronika Skvortsova and Minister of Regional Development Igor Slyunyayev held a briefing

Veronika Skvortsova: Ladies and gentlemen, we have taken a major step today by approving the government programme for the development of healthcare until 2020. I’d like to say that it took us two years to draft this programme and it has been heavily discussed by the expert community, the associations of patients and the public as a whole.

Over 150 amendments were made after the first round of discussions on the web site of the Ministry of Healthcare and the extended board meeting of the ministry attended by 65 of its external experts. The programme was also discussed by the  Open Government, after which we included over 40 opinions in the draft. And now we present this programme for public review.

The programme is to be carried out by 18 federal executive bodies, as well as the Russian Academy of Medical Sciences, the Russian Academy of Sciences and the 83 constituent entities of the Russian Federation. The programme is based on existing documents such as the Concept for the Long-Term Socioeconomic Development of Russia, the Innovative Development Strategy and comprehensive programmes for the development of biotechnology, as well as key industry laws, first of all the laws on the Fundamental Principles of the Public Healthcare System, Mandatory Medical Insurance and the Size and Procedure for Calculating the Rates of Mandatory Medical Insurance for Non-Working Citizens.

In fact, this programme has incorporated everything that has any bearing on healthcare and all funding sources related to healthcare. The main objective is to increase life expectancy in Russia, improve people’s health and reduce the number of deaths from the leading causes of death. These main principles, which underlie the law on the fundamental principles of the public healthcare system, determined the structure of this programme.

I will not specify the basic goals of the programme, because I spoke about them extensively in my report at the Government meeting. But I’d like to say that there are four main approaches, four sections: developing a comprehensive disease prevention system, improving the quality of all types and kinds of medical services, increasing people’s satisfaction with the quality of medical services, resolving the issue of the shortage of personnel, improving the qualifications of medical personnel and providing incentives for more efficient work, including contract based salary increases. We will also make institutional changes in the healthcare system and improve its infrastructure with due regard for increasing public-private partnership projects and greater use of IT systems in the healthcare system.

The programme will be implemented in two stages. In 2013-2015, we are to complete the systemic changes stipulated in the law on the Fundamental Principles of the Public Healthcare System. To begin with, we will balance the system of Mandatory Medical Insurance by securing the necessary funding and also the programmes of state guarantees for free medical assistance with due account for the non-insured sector of social diseases.

The programme stipulates the improvement of the three-level system of medical services in each region, the introduction of electronic medical cards and also the development of a transparent competitive environment and involvement of medical organisations of all forms of ownership and legal association into the system of mandatory medical insurance, provided they have the capacity to offer quality medical assistance. There are also several other issues, including those that are related to the personnel policy and the innovative development of the sector.

The objective at the second stage, which will proceed from the first stage and will last from 2016 to 2020, is to increase the quality potential of the sector and ensure innovative development, above all on the basis of the comprehensive list of prices for medical services and medical assistance in general, which is to be created by 2015. This will form the basis for expanding the list of medicines and medical goods which the Government will guarantee to people, and for introducing innovative technologies and medical goods.

In addition, we will introduce an electronic “benchmarking” system to ensure the quality of medical assistance. The medical staff will undergo obligatory accreditation on the basis of common criteria. At the same time, the strategy of the provision of medicines to the public will be implemented during the first and second stages. In 2014, we will launch several pilot projects in the hope that this will enable us to proceed to full-scale implementation of this strategy in 2016.

There are 17 basic indicators in the programme, which were put forth in the President’s executive orders signed on 7 May. There are also 118 other criteria for gauging the quality of the implementation of the 11 subprogrammes.

As for funding, we have submitted two scenarios to the Government today: a budgeting scenario and a modernisation scenario for implementing the programme. Mathematical and economic modelling was used to digitalise the criteria and indicators depending on the scenario – budgeting or modernisation – according to which the programme will be implemented.

The modernisation scenario obviously has considerable advantages, above all for improving the quality and accessibility of medical assistance. The basic difference between these scenarios is that the modernisation scenario allows for saving 1.1 million more lives by 2020 than the budgeting scenario.

Under the modernisation scenario, the sector will account for 4.7% of GDP, or 6.5 trillion roubles, by 2020. Just to remind you, the draft budget for 2013 stipulates 2.32 trillion roubles on healthcare. Under the budgeting scenario, the medical sector will only account for 2.5% of GDP, or 3.4 trillion roubles, by 2020.

This is why the Ministry of Healthcare is happy that, following today’s meeting, the Government  has not simply approved the programme but has decided to proceed with the modernisation scenario and that a budget adjustment should be stipulated in the coming years that would depend on the situation in both the global and Russian economies.

And the last thing I’d like to say is that the enactments to the law on the fundamental principles of the public healthcare system, which have been adopted within the programme for the development of healthcare, are subordinate to this law.

Several days ago, on  November 12, Dmitry Medvedev signed the Government resolution approving the regulations for state monitoring of the quality and safety of medical services. It is a very important resolution because the state regulatory and supervisory system allows for not only licensing medical activities, but also taking measures to check and reaffirm that medical organisations comply with the common criteria of the quality of medical services, and common rules and standards throughout the country.

This is a new algorithm for the functioning of regulatory and supervisory agencies, and I’d like to draw your attention to the fact that it also has other functions, which we hope will help us substantially improve the use of the law.

Well, I think I’ll stop now. I’m ready to answer your questions, if you have any.

Question: Do we understand correctly that the existing programmes won’t be revised, also with regard to the planned federal funding? You said they may be adjusted further on, in 2014 or 2015, when financing will be better – that is, increased – depending on the fiscal situation.

Veronika Skvortsova: Well, not exactly. If you look though the transcript of the meeting and the decisions made by the Government… The Government decided to proceed with the modernisation scenario. The modernisation scenario involves higher financial and economic investment. We need to take into account the specific parameters of fiscal planning for next year as well as what Finance Minister Anton Siluanov said during his presentation. We will need to adjust the budget annually as well as every three years, gradually moving away from the current budgeting scenario over to the modernisation scenario: it will be approved as the baseline scenario. If you listened carefully to Mr Siluanov, he proposed approving the budgeting scenario (as you said) and then expanding it by gradual adjustments. But Mr Medvedev supported a different decision. We will take the modernisation scenario as the baseline.

Question: Are you saying that the federal budget for the next three years will actually include the figures you just cited as the modernisation scenario? But they are twice the amount included in the budgeting scenario.

Veronika Skvortsova: They are practically identical for 2013, with only a small discrepancy. The Ministries of Healthcare and Finance actually faced these discrepancies last month when they discussed the 2013 budget. The two scenarios diverge even more in 2014, and the three-year budget will be approved as it is now, but we will be able to take into account the Government decisions taken today when we begin adjusting the 2014 budget next year. We will be able to increase investments in healthcare.

Remark: It’s clear now. Thank you.

Question: Could you please explain what happens with the budgeting scenario now? And where do you take these figures – up to 2.5%? This is just to clarify the previous question.

And one more clarifying question – these scenarios sparked heated debate today. It’s good that an innovation-based scenario seems to have won out, but I think that this is not final because it will have to be renewed every year or every three years. Mr Shuvalov noted that the Mandatory Medical Insurance Fund will not be able to cover the funding of the industry, and that voluntary insurance money and private financing will have to be used. What is meant by private financing? Does this mean that fees will be charged for certain healthcare services?

Veronika Skvortsova: I will explain. Funding for healthcare consists of two parts. The first one involves financing of healthcare services proper. The other part is unrelated to medical services and includes medial evaluations, medical training, research and infrastructure development as part of the development programmes that I mentioned today (the nuclear medicine programme, healthcare research and innovation programmes). The Mandatory Health Insurance Fund is financed by two sources: employers’ contributions which cover the working population and regional governments’ contributions for non-working citizens. Both sources are stipulated by the laws that I have mentioned.

As you know, in other countries, there are a lot of models of mandatory health insurance, which use other sources of funding: in some countries it comes from the government, and in other countries, from other sources. This has to do with the first part of funding. We will discuss our options with the Economic Development Ministry and the Finance Ministry – the two main methodologists for the Government who need to approve our decisions in 2013-2014.

But there is one more problem that is not covered by mandatory insurance – amortisation of fixed assets. I am referring to healthcare infrastructure, which includes heavy equipment that needs to be replaced as it wears out or becomes obsolete. The maintenance of this infrastructure can be funded by various sources, especially given that we are planning to allow companies of various legal and organisational status and various forms of ownership to join the mandatory insurance system. We especially count on public-private partnerships, because they provides for mechanisms which would enable the system to use non-state infrastructure while keeping medical service free of charge.

The state will actually be able to use the mandatory insurance system to buy medical services from any provider, including state facilities, corporate medical centres and private establishments.

In that case, using private establishments would not mean that people will be asked to pay for healthcare. They will still be receiving medical services free of charge, only at private institutions. This option is included in our scenario. It requires some additional consideration and streamlining, but on the whole it already looks feasible. We also have reason to believe that using this mechanism will improve the quality of healthcare services because it will open up opportunities for competition, which will make both public and private healthcare institutions intensify their work.

Question: Please, about the figures cited in the budgeting scenario – did they come from the Finance Ministry, or…?

Veronika Skvortsova: They come from a forecast prepared by the Finance Ministry, a long-term forecast to 2020. The presentation I made to you today also contains that forecast alongside the estimates of the Healthcare Ministry and the Economic Development Ministry.

Question: I would like to clarify something else: Mr Medvedev said during the part of the meeting open to the press that you will “take some time to finalise things”. We understood that to mean something else needs to be done …

Veronika Skvortsova: Thank you for this question. I see what you mean and how you interpreted that statement, but it’s not entirely accurate. The programme has been adopted and approved and the modernisation scenario selected. However, additional funding sources still need to be identified through a long process in 2013-2014. They will need to be approved by all three ministries. They will consider the additional sources of financing that I just discussed.

Question: I have a brief question: what share of the market will free medication account for in 2016?

Veronika Skvortsova: I would like to remind you that all medications that are administered in hospitals are provided to patients free of charge because they are included in the hospital services. They are part of the new hospital standards – hospital services should now meet standards that are comparable with European ones. Therefore, the required financing will be fully provided in 2015, as I said today and even before today. The cost of the new standards is 1.5 trillion.

Next year we will have just over one trillion for all standards. In the next two years, through providing more funding to the mandatory medical insurance system, we will balance all standards that have now been updated and fully worked out.

As regards the outpatient sector. The outpatient sector, which is a good indicator of the level of people’s satisfaction with healthcare, is currently only available for people on benefits, including those at the federal and regional level. There are three groups of people for whom we must ensure availability of more medicines and cover their cost if possible. These are children aged 3-18, working and non-working adults and old-age pensioners who are not on benefits. The strategy for supplying medicines  to the population, which is currently on the website, contains some pilot models that will be implemented in 2014. The strategy on the website includes all the changes that were added following numerous discussions with patient groups and the expert community.

As regards organisational models, there are three options. The first one provides 50% compensation of the cost, the second one – complete compensation of the benchmark price for the international standard brand and additional payment based on which medicine you choose. So, people can choose either medicines at the price of the international standard brand, or buy more expensive medicines and pay the difference themselves. And the third option is to apply a differentiated approach to different categories of citizens. These are organisational models. There are other models as well. Children and elderly people, pensioners must be provided with medicines by the state without any counter obligations. The medical expert community and patient organisations demand that adults who do not belong to the privileged category pay more attention to their health and undergo regular checkups. State assistance provided to those who look after their health should be different from that provided to those who make no effort to look after themselves.

We will be able to answer your questions after the pilot projects have been implemented in 2014. We will get a clear idea which scenario will be the most effective by 2016.

* * *

Minister of Regional Development Igor Slyunyayev held a news conference,  taking part in which  were Alexander Braverman, General Director of the Federal Fund for Promoting Housing Construction and Alexander Semenyaka, General Director of the Mortgage Lending Agency.

Igor Slyunyayev: Good afternoon, colleagues. Today, the Government approved the general provisions of the programme prepared by the Ministry of Regional Development, which to varying degrees affects the majority of the Russian people since it is about housing construction and improving utilities services. Hopefully, this programme will help us resolve two age-old problems: improving the quality of the utilities services and building affordable housing.

Substantial funding has been allocated to this programme: 1.9 trillion roubles. It consists of three major parts: the federal targeted programme Housing and the federal targeted programme Clean Water, complemented by actions and activities designed to implement Presidential Executive Order No. 600 and resolve the abovementioned problem.

Of course, there are financial constraints. Even though the budget process works smoothly year in year out, you can never have too much money, especially when the issue is about such long-standing Russian problems as the quality of housing and the utilities infrastructure.

As an alternative, we suggested launching several pilot projects. One project deals with establishing a commercial property market in the lowest price range. It is extremely important for families to be able to buy quality housing at affordable prices. We believe that the number of mortgages will increase many times over after the Government launches its mortgage programme.

If we talk about specific numbers, the peak year for housing construction in Russia was the pre-crisis year 2008, when 63 million square metres of housing was built and annual housing construction growth stood at 2%-3%. However, there’s one sub-programme that is part of the government programme for the development of the commercial housing market (we call it the “five by five programme”, i.e. 5 million square metres of housing within the next five years) that will provide a significant increase in the total volume of housing construction in Russia.

The condition of the utilities infrastructure is a problem that concerns everyone, including everyone present here, regardless of their social status, age or gender. There has been a huge number of complaints about the utilities companies’ management. We have begun getting private individuals and property owners involved in the management of the housing stock. This is the right thing to do. Many advanced countries, such as Finland, Sweden and France, place great emphasis on energy efficiency. Once the housing privatisation was completed, the Government decided to use public funds to bring housing up to standard. This is what the Housing and Utilities Fund programmes focus on. As a former head of a Russian region, I can say that there are three programmes that helped us keep the socio-economic situation under control at a time when we trying to overcome the aftermath of the financial and economic crisis: the employment programme, the programme of additional measures and the Housing and Utilities Reform Fund programme, where targeted funds were used to resolve the long-standing problems in the Russian regions.

The President made the perfectly logical decision to extend the activities of the Housing and Utilities Reform Fund. In addition to its focus on structurally unsafe buildings, the fund will work to bring external engineering networks up to standard. This is a very important part of the programme and it has its own financial limits. We assume that 5 billion roubles will go to this programme annually over the next three years. I mentioned the resources that will be used to implement this programme in my report and they are listed in the programme as well: they include budgets at all levels (federal, regional and municipal), funds from two federal targeted programmes (Clean Water and Housing), private funds, funds from natural monopolies and energy companies.

We succeeded in taking control of tariffs and setting their ceiling rates. We know from experience, however, that the correlation between the ceiling rates and the actual level of bill payments or utilities price increases is not always correct. However, most energy suppliers and all natural monopolies annually approve their respective investment programmes. Usually, these programmes include issues related to bringing external engineering networks up to standard. This also applies to the water supply, sewerage and the electricity grid. The state programme presented today should bring these investment projects to a whole new level, thereby improving the quality of services and keeping prices down.

We do have reserves at our disposal. If you look at the calculation of costs involved in providing a particular housing or utilities service, such as water, heating or electricity, you’ll find that in many cases they include so-called projected losses. This means that consumers are covering heating or water losses when they pay their bills. The investment programmes implemented by natural monopolies and energy suppliers are designed to reduce such overheads. Government programmes and activities pursued by Russian regions and local authorities act as regulators of these types of reduction efforts.

The programme has been approved by the federal Government. As usual, it has to be further specified and finalised but it’s already a solid, balanced and comprehensive document that will help us resolve long-standing problems associated with affordable housing construction, improving utilities services and replacing assets, housing stock and external utilities infrastructure.

Let’s give my colleagues the chance to say a few words, and then we will answer your questions.

Alexander Braverman: Thank you very much. Colleagues, the work of the fund and the fund’s programme for 2013, which by a happy coincidence were approved today by the fund's board of trustees, are components of the programme that Mr Slyunyayev mentioned. Our main role in this programme consists of several points. Above all, it involves the supply of a sufficient number of land plots located in places that will be attractive for the middle class. This land is in demand by the middle class, and it’s attractive for developers as well. These land plots should have an infrastructure, or the potential to create an infrastructure, as described by Mr Slyunyayev. The second point concerns our strict requirements for the developers. These requirements have two parts: energy efficiency and the use of environmentally friendly materials, which directly influence, first of all, the life span of the people, and second of all, housing maintenance costs. The third aspect is price. As the proportion of low cost housing increases, we will need to have a significant influence on the price parameters within the low-cost housing segment. In short, this is our role in the programme.

Alexander Semenyaka: Dear media representatives. Mr Slyunyayev has said that this state programme is aimed at carrying out the President’s executive order No 600. It is expected that by 2018, the number of mortgages will reach 815,000. The bank's margin on the cost of borrowing should be reduced to 2.2%. We also plan to use mortgage tools to support the rental market. In addition to market measures for mortgages, the development of new services on this market is also envisaged: mortgage insurance, as well as a special mortgage programme for specific categories of citizens. Our agency also plans to take an active part in the construction of economy-class housing, with prices lower than the current market prices, and to offer new services. With regard to mortgage development, the Government has said that despite the difficult conditions for borrowing due to the problems that we are witnessing in Europe, nevertheless mortgages this year are expected to total around 1 trillion roubles -- that is, over 600,000 families will take out loans to resolve their housing issues. Mortgages are used in one of five real estate deals. The Governmental decisions taken in recent years are a good foundation for implementing this state programme. Thank you.

Question: I would like to understand the status of the programme. You say it has been approved. But various speakers, including the last one, have said that the programme needs to be finalised and submitted for approval. Medvedev said this. What is the situation, technically speaking?

Igor Slyunyayev: If we recall the comment of Prime Minister Dmitry Medvedev, the programme is approved, but any programme needs finalising, and needs to be balanced, including with regard to the financial possibilities of the federal budget. This is the typical procedure. We must report to the President on the implementation of executive order No 600 by December 1. This means that the programme should be introduced, finalised and approved within the established period -- so there was a slight misinterpretation. This is the usual working procedure. Moreover, the draft state programme received positive conclusions from the majority of federal executive bodies, including from the Ministry of Finance, the Ministry of Economy, the Ministry of Energy and so on.

Question: My question is for Mr Semenyaka. Can you say with any degree of certainty that the mortgage rate will be 4% or 5% in a specific year? And you mentioned a mandatory reduction of the bank margin.  At the expence of what will this happen? Thank you.

Alexander Semenyaka: The mortgage rate depends on the value of resources attracted by the banks, and the margin that they add when providing a mortgage. Currently the bank margin is just under 4%. We believe that there is a basis for reducing this margin to 2.2%, because the margin includes, on the one hand, transaction costs. And here there are two tools for reducing them: first, a transition from paper turnover to electronic mortgages and non-paper turnover, which will reduce the timeframes and consequently the costs; and second, improvement of the efficiency of the collection procedure, which will also reduce the timeframes. The second component in the margin is risk. Here, we hope for the development of mortgage insurance, which will enable banks to reduce this margin by providing this service.

As for the cost of borrowing, we are proceeding based on the Government’s plan to have an inflation rate of 4.7% by 2018. And if the Central Bank channels cash to the banking system under a rate compatible with the rate of inflation, it should be possible to expect a rate of around 7%. I believe that this level is analytically substantiated.      

Question: I have a question for Mr Slyunyayev. Today Mr Medvedev said that it is possible to think about using funds from the privatisation of IDGC Holding for infrastructure construction and development. Are there any concrete ideas concerning IDGC Holding, as the configuration of its privatisation has not yet been approved? Are there any other initiatives for attracting additional sources besides those indicated in the programme?

Igor Slyunyayev: The privatisation of IDGC Holding is beyond the scope of the functions of the Ministry of Regional Development. But should the receipts from the sale of IDGC Holding be channelled to housing construction and to renovating power lines and other surface infrastructure, we will be glad, because this will make it possible for us to resolve our financial problems while implementing the state programme. 

I mentioned some figures in my report. Almost 2.6 trillion roubles are federal budget funds, and 400 billion roubles are funds from the regional budgets. And 1 trillion roubles are funds of commercial banks, including with state participation, funds of AHML (the Agency for Housing Mortgage Lending) as well as funds of energy supplying organisations and natural monopolies. In my opening remarks I mentioned the investment component of the tariff not by chance. One of our objectives under the state programme is to channel this investment component to the reproduction of capital assets, to renovating and developing surface infrastructure. In this case, with respect to IDGC Holding, this means power engineering.

As a rule, investment programmes are approved by Russian regions for a three-year period. This process is synchronised with the budget process. When developing and approving regional state construction programmes and programmes of major repairs, we will insist that investment funds be targeted within the framework of the work of natural monopolies in a specific region.

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