7 february 2013

Government meeting

Transcript of the beginning of the meeting:

Dmitry Medvedev: Good afternoon. Let us begin by discussing how to make federal property management more efficient and then move on to discussing a relevant draft state programme. Like other state programmes, the draft was discussed by a number of experts and approved by the Government’s Expert Council on February 5 of this year. I know that many proposals on how to manage entire industries, spheres of the economy and major Russian companies have been taken into consideration. This also concerns natural resources as well as production and transport infrastructure facilities. In the modern world it is also extremely important to control intangible assets, including intellectual property rights. A real competitive environment cannot emerge unless we reduce the excessive presence of the state in the economy. It’s a trivial matter, but this is really the case, and everyone must remember this. We should also use public property efficiently by financial, social and ecological standards in view of the existing global trends. Let me mention several fundamental points.

First, privatisation itself. We have been consistently reducing the public sector for several years. No matter what some people say, the public sector is contracting. We should keep under federal ownership only those facilities that are necessary for securing this country’s strategic interests and for the attainment of its strategic goals.

Let me stress this once again: privatisation is not only a method for replenishing the federal and regional budgets, which is also important, of course. In the first place, we are interested in the coming of long-term investors or efficient proprietors, as they are usually called. I mean those who possess sufficient financial and technological capabilities as well as managerial acumen. And we must launch a post-privatisation monitoring system as soon as possible to watch how new owners carry out their commitments.

Second, the disposal of property in the course of privatisation should benefit the state. Naturally, we should take into account the special features of the facility to be privatised, the condition of the markets and investor demand. But this doesn’t mean that we should sit around letting the grass grow under our feet, and wait for a particularly favourable market situation to emerge. This may occur in 150 years, and we won’t be able to sell anything in this way.

Global experience shows that the best results are achieved by selling entire business units, not bits and scraps of property. Pre-sale preparations are a vital element; they include a professional evaluation of assets and consistent efforts to increase their market value and attractiveness for investors.

We must simplify access to tenders and the procedure for holding them. Information about every important transaction and its outcome must be made available to people, who are naturally interested in such transactions. This will help us to make privatisation more transparent from the very beginning and to reduce so-called administrative risks, if not eliminate them altogether. In accordance with the government programme, the reform of the sales system is to be completed by 2018, with the best practices analysed and their use encouraged across the country.

The third priority is to use a single system of federal property accounting and monitoring, which should be developed by 2015, to preserve and ensure the targeted use of such property. The registration of ownership rights must be completed where necessary, and relevant information must be added to the federal property register. To date, the situation is far from positive. I am referring to federally owned plots of land and other federally owned property.

I’d like to remind you that one of the Government’s priorities in the next five years will be to increase the volume of housing construction while reducing the cost of housing per square metre. We can achieve this goal only if we build economy class housing complete with infrastructure on federally owned land plots. We need to develop reliable mechanisms for the allocation of such land plots on preferential terms to ensure their effective use and the construction of infrastructure on them, and to prevent them from being turned into a source of corrupt dealings. And it is clear that we also need to strictly monitor the end prices of completed housing.

Fourth, we must improve the standards of corporate governance at companies with state capital. There is the perennial issue of attracting independent directors through tenders – we are only just developing this system, and it cannot be said yet that we have a sufficient corps of independent directors. This should be done with due regard for the opinion of the professional community and following international certification of these directors’ qualifications. In future, only professional directors should be offered positions on management boards, which should eventually have no civil servants.

We must approve the key efficiency targets and also medium- and long-term development programmes for such companies. The quality of their corporate governance must only be evaluated by independent assessors.

State-run companies must divest noncore assets more actively. Nearly all state companies, both big and small, have a lot of noncore assets. Some cannot sell such assets because there is no demand, whereas others refuse to divest them. But they must get rid of them to simplify the structure of corporate property and attract additional capital for funding development and technical upgrade programmes. We have set a deadline for this project: 2018. We will be discussing all these issues today. This meeting is being attended by Natalya Komarova, Governor of the Khanty-Mansi Autonomous Area. I will give her the floor after the report by the Minister of Economic Development.

We will also discuss the bill aimed at improving the system of civil registration. This bill extends the list of government agencies to which corresponding information must be provided. For example, all data about newborns will be forwarded to the territorial agencies of the Federal Migration Service, the Pension Fund and the Mandatory Medical Insurance Fund. This will help us to improve the quality of monitoring the demographic situation in the regions, to make the registration system more user-friendly and also to develop a statistical database according to international requirements.

There is another important issue I’d like to discuss. Several State Duma deputies have proposed reverting to and maintaining winter time throughout the year or reviving the system of transitioning to and from daylight saving time. I’d like to remind you that the decision to switch to daylight saving time and to maintain it throughout the year was made in 2011 after a serious analysis of all the possible consequences for the people and the economy. The project was implemented by the Ministry of Industry and Trade, along with other agencies. The decision was made within the Government’s competence.

Following several surveys conducted recently by the Government, we have come to the following conclusion: the number of those who call for reintroducing the winter/summer time scheme and of those who propose maintaining winter time throughout the year is roughly equal. Or more precisely, the number of those who don’t want to change anything is slightly larger. Polls show that opinions are divided, and so the Government has decided that it would be inexpedient to change anything now.

On the other hand, this decision is not a dogma. I have looked up statistics prepared by the Ministry of Industry and Trade and the Government for the past 100 years and can tell you that the procedure for determining the time has been changed seven times in Russia, if I remember correctly. So let’s leave everything as it is for now and continue to monitor the situation and analyse the arguments of experts, doctors and people. We will consider all pros and cons if there is a change of opinion, but let’s keep the time as it is until then.

Let’s start discussing the issues on our agenda.

The first issue has to do with the government programme. The speaker, as I have said, is the Economic Development Minister. Mr Belousov, please proceed.

Andrei Belousov: Mr Prime Minister, colleagues. The draft of the government programme which we are going to discuss consists of three main parts. The first part includes a new concept of federal property management, which should replace the concept that was approved in 1999.

The second part is the series of measures to implement this concept, the relevant key effectiveness-assessment indicators and the budget of the programme. A sub-programme for managing the state materials reserve is the third part.

Before describing the various tasks and projects, I would like to say a few words about the current management inventory and the state property management system. What does the management inventory include? As of February 1, 2013, the Federal Agency for State Property Management oversaw 2,325 shareholding companies with state-owned capital, including 66 shareholding companies that are part of the so-called special list. In all, this includes 1795 federal state unitary enterprises, over 20,000 agencies, almost 250,000 state-owned facilities and 238,000 land plots with a total area of more than 553 million hectares. Our preliminary estimates show that the current total face value of all these registered facilities, which are listed in the federal property register, is about 12 trillion roubles. But this total has, certainly, been understated, and is actually ten times larger. As preliminary estimates show, the market value of these assets exceeds 100 trillion roubles or perhaps even more.

The federal property management system includes three main elements – basic regulatory documents, an organisational mechanism, and resources. The basic regulatory documents include the Property Management Concept, which, as I have already said, was passed by the Government in 1999, and a number of key federal laws and regulatory Government acts, including the law On State and Unitary Enterprises, the law On Privatisation and some other laws. I would like to say that a new management concept is currently being proposed in line with the draft state programme. And there are also plans to draft a number of laws. In all, the programme calls for over 25 regulatory documents to be passed over the next five years, including amendments to the federal law on the privatisation of state municipal property, the federal law on the state registration of real-estate property rights and real-estate transactions and the law on state and municipal unitary enterprises.

The organisational mechanism primarily consists of the federal property management system of the Federal Agency for State Property Management. This mechanism currently includes 83 territorial divisions with a permanent staff of 4,203 specialists. Their average monthly wages, including all kinds of bonuses and incentives, are about 25,000 roubles. It is common knowledge that, apart from the Federal Agency for State Property Management, the Defence Ministry and the Administrative Directorate of the President of the Russian Federation also have the right to manage federal property. State academies of sciences, as well as some other state agencies and organisations, exercise some authority over affiliated enterprises. Some federal property was transferred to state corporations, such as Rosatom and Russian Technologies. I would like to note that all those involved in the property management process essentially completely fail to coordinate their actions nowadays. And we believe that the new concept is a step towards building a federal property management system based on joint principles and concepts.

As for financing the property management system, the Federal Agency for State Property Management annually receives about 6.5 billion roubles from the budget. Additional requirements, which I will discuss a bit later, total about three billion roubles annually. At the same time, the total volume of property management revenues in 2012 reached 433.6 billion roubles, including 201.5 billion roubles in revenue from privatisation and 212.6 billion roubles in dividends.

Colleagues, I would like to focus on four main problems which, in our view, are characteristic of the public property management system, and on possible methods of solving these problems within the framework of the draft state programme we are proposing.

The first key problem is the lack of knowledge about the target designation of a given public property unit, be it shares, a land plot, or real estate. This leads to the state being encumbered by excessive assets, corruption, or direct public overspending on the upkeep of facilities no one needs. Let me give you some statistics to illustrate my point. As of today, there are 1,795 federal state unitary enterprises, of which 148 pursue no financial or business activities, 271 are in the process of being liquidated, and 264 have sued for bankruptcy. This adds up to 683, or more than one-third of all businesses. The programme of privatization for the last three years included a mere 284 businesses for the purpose of their conversion to joint-stock operation, 70% of which are converted into joint-stock ventures.

During the drafting of a privatisation programme, the federal agencies would at first justify the expediency of retaining businesses under their jurisdiction, but when these businesses become bankrupt and cease operations, they hand them over to the Federal Agency for State Property Management (Rosimushchestvo). A recent case in point is the Zelenogorskoye farm, controlled by one of the federal agencies. This farm has been brought to a pre-bankruptcy state and now it is suggested that it should be transferred to Rosimushchestvo. We think that a target function should be defined and ascribed to each federal property facility, and that a presumption of unconditional property alienation should be introduced for cases where the target function is not defined. Please, enter into the minutes of today’s Government meeting the following proposal: the Ministry of Economic Development is instructed to develop and approve, before September 1, 2013, methodological recommendations on how to define the target designation of property under the jurisdiction of federal bodies of state power and other organisations; the federal executive agencies are instructed to define, before January 1, 2015, the target function of assets under their jurisdiction on the basis of the said methodological recommendations. We suggest that property, the target functions of which the bodies of state power are unable to define, should be included, after January 1, 2015, in the privatisation programme automatically, without coordination with the federal agencies.

The second problem is the inefficient management of property sale alienation. Last year, during the auction-assisted privatisation of small assets, the selling price exceeded the trigger price by less than 10% in 75% of cases. In 45% of cases, the property was auctioned off at the trigger price. Major deals, however, which were brokered with the help of investment consultants, averaged twice as much per share as the trigger price. These figures bear witness to as yet inadequate pre-sale preparation in instances of mass-scale privatisation, to weak information support of sales, and to low investment attractiveness of privatised assets.

The key steps in this area are as follows. First, transitioning from the sale of businesses as sets of property facilities to the sale of business units (as Mr Medvedev said in his opening remarks). We suggest using a differentiated approach to sales, taking into account a preliminary analysis of the investment opportunities market, the demand, and the regulatory environment. Second, introducing post-privatisation monitoring and oversight, including both a supervision of post-privatisation development of the now private companies and the signing of agreements with investors, particularly where the businesses in question perform an important social function. A recent example is the signing of an agreement of this kind with regard to the Arkhangelsk trawler fleet. The third step, or rather a number of steps, concerns securing greater transparency of privatisation deals. Basically, we believe that every lawsuit against privatisation procedures is an indication of a deal’s insufficient openness and transparency. Fourth, land privatisation. This is a separate subject.

I’d like to say that today we have an organisational mechanism of privatisation, and the commission headed by Mr Shuvalov (Igor Shuvalov, First Deputy Prime Minister) has received the relevant powers. But we don’t yet have a legal mechanism that would allow us to withdraw unused lands from federal state unitary enterprises prior to a court ruling. A relevant document must be signed and adopted by the Duma (where it is now) in the first quarter of this year.

The third problem is poor management of the available property. I’m primarily referring to the management of shares of economic entities and federal property. Much has been done to improve it in the last two years but still more remains to be done. In the last few years we carried out a policy of attracting professional directors to run joint-stock companies with state capital. In 2011 some 1,500 professional directors, including 362 independent directors and 1,143 professional attorneys, were invited to run about 700 joint-stock companies, including those on the special list.

However, despite the introduction of these innovations, the performance of joint-stock companies remains poor. Of the 2,325 joint-stock companies registered in the federal property register, 144 are not engaged in any financial or economic activities and another 264 are undergoing bankruptcy procedures. The majority of strategic companies have not endorsed key performance indicators (KPI) that would be linked with remuneration of top managers. Of the 66 joint-stock companies included on the special list (decisions on key issues of their management are made on the basis of Government directives), only 20 have endorsed provisions on remuneration of top managers, and 18 have approved KPI  in connection with these provisions. What do we propose?

First, it is necessary to encourage the practice of attracting professional directors to state-run companies, including subsidiaries and affiliates of vertically integrated holding companies and defence industry enterprises. Counting auditing commissions, we have 65% of state officials in the management of state-run companies. By the beginning of 2015 we plan to reduce this figure by more than twice – to 30%. The majority of them will work in auditing commissions.

Second, we must endorse a long-term development programme for each state-run company without exception. Such programmes should be tailored to the goals set by the state and society and the development strategy of the relevant industry. Out of the 66 companies on the special list, only 42 have committees on strategy and just 31 have endorsed their programmes. We are planning to complete this process and make sure that all listed companies, primarily strategic ones, have relevant long-term development programmes by January 1, 2016.

Third, as I’ve already mentioned, it is essential to endorse clear-cut KPI, which should be linked with the remuneration system for top managers and indicators of financial and economic performance. Strategic companies must complete this process by the beginning of 2016.

Fourth, and this is extremely important, it is necessary to guarantee reliable management and maintenance of federal property, including dangerous facilities, such as suspended gas wells and arrested vessels. We think that the funding of federal property is absolutely inadequate. As a result, socially important facilities that are on federal property are chronically in critical condition. The Federal Agency for State Property Management has earmarked 181 million roubles from the budget for 90,000 facilities in 2012, or about 2,000 roubles for one.

The next problem is inefficiency of the top-down structure of federal property management. It is very important that this issue be resolved. It is no secret that employees of the Federal Agency for State Property Management have committed numerous violations in their work. In 10 out of its 83 territorial departments criminal proceedings have been launched against their heads or deputy heads. In other words, these departments have been decimated. Ineffective management of federal property and unethical practices of third parties and employees of the agency leads to the loss of this property. As a result, the agency has to take cases to court after the offences are already committed in order to litigate illegal transactions and return federal property.

The agency’s central administrative office (20 employees of the judicial bureau) and its territorial departments (another 100 employees for the entire country) work to protect the property and other legal interests of the state. The number of lawsuits involving the agency runs into about 20,000 a year. So, one employee has to attend to 150 lawsuits a year. One of the high-profile cases illustrating property interests of the Russian Federation concerns cultural heritage buildings in central Moscow. Officials of the agency’s Moscow territorial department regularly transferred to enterprises the right of economic management of different buildings, including those of historical and cultural heritage as well as those of federal importance. State-run enterprises acted as a guarantor before a bank on million-rouble loans; loans were not repaid and the parties took cases to court – the court of private arbitration at the Themis Law Society. The court passed a judgment on loan recovery from the guarantor. As a result, the property was sold virtually at an auction and transferred to a good-faith acquirer, usually an offshore company, and the state lost it without any reimbursement.

In this way the state could have lost 28 monuments of architecture in central Moscow, including 18 buildings of the Rogozhskaya settlement of the 19th century on Shkolnaya Street, the chambers of the 17th and 18 centuries on Kozhevnicheskaya Street, the House of the Dolgorykovs of the mid-18th century on Kolpachny Pereulok and the Snegiryov Mansion of the first quarter of the 19th century on Plyushchikha Street, to name a few.

Even churches were involved in these transactions, for example the Church of St Peter and St Paul in Yasenevo.

Dmitry Medvedev: What happened to their participants?

Andrei Belousov: I will tell you: they are being investigated in a case involving the head of the Moscow territorial department. Most of these federal sites, these monuments of history and culture, have been returned to federal ownership, and the fate of others is being decided in courts. In this respect, we propose the following. First, we propose ensuring end-to-end recording and monitoring of all governance processes and procedures based on information technology at all stages and levels, including in territorial agencies.

Second, we must ensure the information transparency of the Rosimushchestvo property regulator by giving people access to information about federal property.

We plan to complete an inventory of federal property this year to create the basis for forming comprehensive and reliable databases of management facilities and, something very important, for highlighting grey zones in the system of federal property registration, including failure to register such facilities or distortion of data.

Third, each employee at Rosimushchestvo must be assigned a personal area of responsibility. We don’t have such a system now, while we believe that this could enable us to move over from dealing with mistakes that lead to criminal cases to preventing them without delay.

And fourth, we must establish a special internal control sector at Rosimushchestvo, which can be described as an internal security department, that will monitor the introduction of control systems for implementing the approved regulations, processes and procedures. One of the key aspects of the programme in this respect is transition to digitalised handling of nearly all information, including legal documents, by 2018. This will enable us to ensure the necessary level of transparency and controllability of all processes.

In conclusion, I’d like to say a few words about the provision of resources for this programme. Federal budget allocations for the programme have been approved at 33 billion roubles from 2013 to 2018, of which 16 billion roubles is to be provided by 2015. Additional funding, which is stipulated in the programme in a positive budgetary situation, will total 19 billion roubles, including 9.4 billion roubles to be provided in 2013-2015.

The main measures that require additional funding are the dismantling of hazardous federal properties and allocations for the maintenance of federal properties (6 billion roubles and 6.9 billion roubles, respectively, in 2013-2018), as well as registration of technical inventory documents, proprietary rights and the documents of the cadastral registration of land plots (891 million roubles in 2013-2018, including about half of this sum in 2013-2015). Without these latter allocations, we will be unable to transform federal state unitary enterprises into joint stock companies, simply because property rights were not properly registered.

While preparing the concept of the state programme, the drafts were widely discussed with the expert and business communities, and government authorities. The draft state programme was discussed in the Open Government. The discussion was rather heated. It mostly concerned four issues – the possibilities of fulfilling presidential and governmental orders and the necessary conditions for doing so as regards the withdrawal of the state from companies of the non-oil-and-gas sector by 2016, decriminalisation of processes of disposal and management of federal property, management and accounting of intangible assets and the necessity to establish a unified system for state property management.

Regarding the first two issues, the state programme provides a substantial explanation. Concerning the management and accounting of intangible assets, we agreed to further cooperate with the Federal Service for Intellectual Property, Patents and Trademarks (Rospatent). We find it unreasonable to establish a unified organisational system of federal property management. First, we should figure out what is going on in the Federal Agency for State Property Management, work out standards, and probably later, when we make some decisions, apply them to other agencies with similar functions.

The draft was supported by 25 federal bodies of state authority, including the Presidential Property Management Directorate, the Defence Ministry, the Ministry of Industry and Trade, the Ministry of Culture, and others. The draft state programme was coordinated with the Ministries of Finance, Transport, and of Industry and Trade. We ask for your support.

Dmitry Medvedev: Mr Belousov, thank you. Please, let's first give the floor to Natalya Komarova (Governor of the Khanty-Mansi Autonomous Area), as we have agreed, and then start the discussion. Ms Komarova, please.

Natalya Komarova: Good afternoon, colleagues, Mr Medvedev, Government members. Thank you for this opportunity to take part in the discussion of this issue. These best practices, which are effective and required in the regions, have been generated by federal government agencies. The programme we are discussing today is aimed at improving performance in many critical areas. It also provides for the mechanisms of implementing the concept on federal property management that is now being drafted. We are waiting for it to elaborate our own property management models.

I’d like to draw your attention to the part of the programme that concerns the development of federal branch databases. This part is very important for the regions because mechanisms for interaction between these data bases must be very substantial and effective. I’ll cite one example that I think confirms this expediency. In our area we have a portfolio of infrastructure institutional projects, including those on the construction of two bridges across the Ob River. These two projects require an investment of 46 billion roubles. In promoting these projects it is very important to give a potential investor a full picture of the region’s infrastructure facilities that may be involved in their implementation regardless of their ownership. This would be possible if we had a continuously updated register of all property in the autonomous area.

Right now we don’t have one because federal, regional and municipal properties are managed separately. We have experience synchronising branch and municipal databases on real estate development in one project, the Yugra Territorial Information System (TIS). As the programme reads, this system may be very useful for forming new channels of interaction between federal property, potential investors and the public by developing a common and accessible federal property management resource.

In our system, we are already actively developing the public segment, which is giving potential investors, private companies and the public a full picture of the real estate subject to privatisation, free or occupied plots of land and so on.

In the future, this system could become the backbone for a detailed regional investment map that will be part of the national map that was mentioned by President Vladimir Putin in his address to the Federal Assembly. In addition, our system makes it technically possible to establish systemic interaction with the public and the professional community. Using the technology of crowdsourcing we can gather the best proposals and practices of public oversight. I suggest that our area and our TIS, primarily its open segment, be used as a pilot project for cooperation in creating and adjusting federal and regional databases. I think we should work on the formats of this systemic matching of databases now that we are launching the government programme. In this way we will not create artificial information barriers between the federal and regional levels. Otherwise we will have to spend more time and money overcoming such barriers later on.

In conclusion, I’d like to say that as of the beginning of this year, the value of the property in our autonomous area exceeds 310 billion roubles. We have significantly changed the way this property is categorised recently, primarily through privatisation. Last year we sold 14.5 billion roubles worth of state property and received another 1.2 billion roubles in rent. Naturally, we are interested in the effective implementation of the ideas set forth in the programme presented by the minister. Thank you.

Dmitry Medvedev: Thank you, Ms Komarova. This shows that privatisation is not just the concern of federal bodies. This is our common concern, all the more so since eventually the benefits will be enjoyed by the people in the regions. Who would like to comment on the report and make some suggestions? Mr Dvorkovich, please, go ahead.

Arkady Dvorkovich (Deputy Prime Minister): Thank you. I support the submitted draft of the state programme and want to draw your attention to only two issues. First, in developing the system for forming boards of directors or supervisory councils in companies in which the state is a shareholder, it is necessary to work with the personnel reserve that is also the pool for recruiting candidates on a permanent basis, not only during a campaign but throughout the year in order to find people with the best skills for doing the jobs of independent directors or attorneys on behalf of the state. Second, it is essential to work with boards of directors and supervisory councils while they are performing their duties. When government officials or executives are removed from the board of directors, a vacuum often forms in interactions between companies and government agencies. The existence of a form of permanent interaction – regular meetings and consultation on elaborating positions – is very important for effective management.

The second issue concerns cooperation between the federal authorities and the regions. Some of our branches transfer federal property to the regions. This involves airports and some other facilities. And sometimes this does not improve the quality of federal property management but is a way of avoiding privatisation. I think in making decisions on such transactions it is necessary to determine from the start what is the goal of managing this property, including for assets of federal property. We must be absolutely clear on the final result – will this property be privatised? Will it remain regional property because of its strategic nature or will it be managed in some other way? Thank you.

Dmitry Medvedev: Please, go ahead (addressing Mr Abyzov).

Mikhail Abyzov (Minister of the Russian Federation): Mr Medvedev, ladies and gentlemen. The submitted state programme has been subjected to extensive expert and public discussion.

As Mr Belousov said in his report, this work has been conducted for five months at the Ministry of Economic Development, the Federal Agency for State Property Management, the Government of the Russian Federation and the expert council. During the preparation of this programme, we received over 8,000 proposals and comments that have been discussed at the Federal Agency for State Property Management, divided into relevant sections and included in the document we are adopting today. No government document has ever produced so much public discussion – we have received 8,000 comments and proposals; that’s a lot. The ministry has done a lot of work, I want to thank the ministry, the work was absolutely professional – and they were ready to cooperate. The expert council has worked on this programme since September. Despite the way Mr Belousov has characterised it, despite the sensitive discussions, the council is in agreement that this programme is a breakthrough. The quality of the programme is very high; it includes modern state administration technology. The programme sets clear objectives, tasks and efficiency indicators. The programme is an example of modern technology in state administration, in our opinion. I want to highlight this: a lot of time has been spent on this area. It includes and reflects issues of information openness, including improving the system of extending information in the open data format; and this work will continue under this state programme. Parameters and sections have been specified at the experts’ suggestions; there is ample opportinity for public and community control.     

Of the issues mentioned by Mr Belousov, I’d like to highlight some to extend the document. First – the issue of federal unitary enterprises. We are in a vicious circle as regards unitary enterprises. On the one hand, we understand that we should begin to eliminate them: this is an archaic and unacceptable form of owning state property, and it’s not transparent for the federal executive bodies or for oversight, which breeds opportunities for all sorts of misuse. On the other hand, in order to eliminate them, we need funds to register property. And in this respect, I categorically support Mr Belousov in that this programme needs additional funding – the current budget allocations of 6.5 billion roubles per year make it impossible to do this – we will not break this vicious circle. The level of funding is not that high; this is a hen laying golden eggs, it has to be fed. Therefore, when the budget is reviewed and adjusted in April, I suggest we consider the opportunities for additional funding, including for property registration and converting unitary enterprise into publicly owned companies. Before that, we think it necessary to issue an instruction at the current discussion or at a separate meeting, to develop proposals on improving the law to promote the conversion of unitary enterprises to the standards for joint stock companies helping to control deals that create a profit, the transparency and the evaluation of the divested property.        

The second proposal: we believe that it is necessary for the executive bodies to develop a standard for federal property management. On the 5th, we arrived at a common decision that the Ministry of Economic Development could develop such a standard and the latter could become a part of state programmes for other ministries and departments, because consistent and efficient property management by other ministries will be impossible without a uniform standard, without a relevant instruction and a governmental directive.

And the last point. Considering the public response and the significance of this programme, I believe that the Government should consider the possibility for annual discussion of the results of the implementation of this programme at Government meetings. To this end it is necessary to develop within two months the format and request for proposal for such an annual report. Thank you. 

Dmitry Medvedev: Thank you. Have you any more ideas? Please, go ahead.  

Vladimir Medinsky (Minister of Culture): Mr Medvedev, I heard the example of an effort to prevent the seizure of architectural landmarks. However the joint work we have been conducting with the Federal Agency for State Property Management has uncovered simpler and more basic schemes where state control over architectural landmarks is practically lost and the landmark falls into decay. In some cases a public company accumulates false debt and a bankruptcy procedure is opened. In other cases, the property owned by a state unitary enterprise is rented out absolutely non-transparently – that is a correct term – at a minimal price for life or is handed over gratuitously. All this is done under the alleged objective of landmark renovation, but the renovation never happens. After a careful six-month study of the situation with architectural landmarks, we can reach only one conclusion: the programme’s approach is correct – the less the state manages a landmark, the better. The state’s objective should be to ensure the observation of protection obligations. The management should be left to the private owner who acquires it on market terms or leases it on market terms, so I urge you to issue instructions to the Ministry of Economic Development and to us, the Culture Ministry, to speed up the preparation of the programme for optimum use and preservation of state property and for the preservation of cultural landmarks. Thank you.

Dmitry Medvedev: Thank you, Mr Medinsky. Would any government members like to speak?

Sergei Gavrilov (State Duma Deputy): May I? Thank you, Mr Medvedev. I would like to say that Andrei Belousov said everything except one thing. He forgot to mention that the programme was twice discussed by the Russian parliament, which is good, quite in the spirit of the meeting that you held at Gorki on January 22. I must say that the programme was unanimously supported; in fact all our remarks have been taken into account. I would like to single out two of them. First. Of course, it is unrealistic to expect the Federal Service for State Property Management and the Federal Service for State Registration, Cadastre and Cartography to effectively compile a single inventory database: we have 940,000 facilities and nobody knows how many have no registration and no normal financing. I would just like you to know that we are ready to do all we can to support the idea if the Finance Ministry and the Ministry of Economic Development make corresponding proposals.

Second. We have some good experience in bringing in investment consultants for presale preparation. Perhaps it would be useful to invite some competent, above all, domestic, investment advisors to work out strategies for companies with state participation and for monitoring their current activities pursuant to the main decisions. I would also like to say that I think it would be right, Mr Medvedev, if the supreme legislative body also took part in addressing the issues of transparency, efficiency and making major transactions more attractive and appealing to investors, like it is done in all the main parliaments in the world, with the income from privatisation going to the budget revenue, non-taxable part of the budget, with the exact statement of the sum. I think that would stimulate interest on the part of investors and make our process more attractive and transparent. Thank you.

Regarding the proposal made by the Ministry of Culture, we are ready to consider the law on the specifics of ownership of cultural landmarks in the near future.

Dmitry Medvedev: Thank you. Anybody else? No one? Let’s wrap it up.

Indeed the programme is important. I agree that on the whole it has been prepared rather well. It has been evaluated by the experts. I support the proposals made by the relevant minister, including on methodological recommendations: I would like to see them developed, for example, before September concerning the targeted use of the property owned by the state and, for example, by 2015, determine the function of the property on the balance books of the ministries and agencies. Did I understand you right? If after 2015 it is still not determined, then the property should be privatised without any further discussion. But something is telling me that our federal agencies will manage to determine the function of these properties before 2015. Because if the objective is to hold on to something, a function can always be found. So I would like to give you back your proposal and say that it is necessary to make an assessment and to separate normal functions from functions which are assigned merely as a cover to avoid privatisation.

Now concerning what those present have talked about. Regarding post-privatisation monitoring, I agree. And Mr Belousov also said this, and of course, regarding the transparency of the procedures (we were just talking about it), and the need to monitor the proceeds from privatisation. All this is extremely important just as observing the target indicators. Of course, it depends on the market, but we nevertheless have to determine some benchmarks. Regarding the suggestion that there be annual reports on privatisation deals under the programme and on the fulfillment of the programme in general, I think this is a reasonable idea because it is an important indicator of the direction in which our economy is moving. This proposal is worth supporting.

On cultural landmarks and what the Minister of Culture said: we should indeed sort out where the activities to protect the look of this or that architectural or cultural landmark end, and the use of a corresponding building which might be in an atrocious condition begins. That is a problem for a vast number of our regions, especially for big regions where there are historical landmarks. I don’t know if there should be a programme or some regulatory act, a law or something else, like some here have suggested. Let’s think about it, but of course, we should seek to achieve the kind of situation that exists in most modern countries when private individuals donate money for the maintenance of buildings and the state sees to it that their architectural look and their original cultural function are preserved as much as possible. If that’s impossible, at least the appearance and some elements of the interior should be preserved. Otherwise we will end up with a lot of ageing crumbling museum buildings, especially in such cities as St Petersburg and Moscow, that nobody would want to acquire. Even now they are being acquired with reluctance. It’s time we met the buyers half-way, otherwise we may simply lose everything.

As for professional directors, I am in favour of developing that institution further. I said in my opening remarks that the ratio is still in favour of civil servants. They may not be the most significant figures, but they are civil servants all the same. That ratio should be reversed: let civil servants mainly sit on auditing commissions where their presence is justified as supervisors while of course the people who make key corporate decisions should be a) unencumbered by state duties and b) professionally competent, but when necessary acting in line with government instructions, i.e. the directives approved by the representatives of the state. And of course, they have no right to shirk that responsibility.

And the final thing. We have had a campaign to nominate candidates for the board of directors. I can’t say I am entirely pleased with the way it took place because it took too much time to get all the approvals. I think the discussion of candidatures for the board of directors should be more open and more productive both within the government and between the Government and the Executive Office. We must work more speedily and not engage in a tug-of-war. This is an internal remark, but I hope it will be heard.      


 * * *

Following the Government meeting, Minister of Industry and Trade Denis Manturov answered journalists’ questions

Denis Manturov: Good afternoon, everyone! Colleagues, today you heard that the Prime Minister made a decision regarding the preservation of the present time format. He instructed the Ministry of Industry and Trade, which is responsible for maintaining precise time in Russia and monitoring and analysing the advantages of winter and summer time, or making a seasonal time shift. Today, though, Mr Medvedev stated clearly that those polled do not share a common position. The number of supporters and opponents is equal. Thus, it is advisable to preserve the present time format – summer time. According to Mr Medvedev, this is not a dogma... We can still choose other options. We will continue monitoring this issue and proceed knowing that we can continue to use the summer time format.   

Question: Mr Manturov, will you clarify a point. Mr Medvedev said that it is not advisable to return to this issue at the moment. However, we are due to enter summer time very soon…

Denis Manturov: We are in summer time now.

Remark: Yes. Should we change to summer time, we would enter summer time regardless.

Denis Manturov: We are not changing anything yet.

Question: Does this mean that we will resume discussing the issue closer to autumn? This is the first question. And second – has the Ministry of Industry and Trade reported its position on this issue to the President?

Denis Manturov: As far as autumn is concerned, we are not considering these options – discussing it in autumn or winter, next summer or next spring... We need to live up to this point, monitor the situation, and grasp the current or the future consequences of the decision that was made earlier. You can see this even by looking at the poll. For example, ask your friends – who is opting for winter time and who is opting for summer time, or who is opting for changing time twice a year. When you take a plane to Europe, you seriously feel the time difference. If you take a plane to the Middle East, there is no time difference at all. South-East Asia and some nearby countries do not practice time shifts at all. Everything is individual…  

Do you know the history of the time shift? The idea was borne by Benjamin Franklin in 1784 when he was the US ambassador to France. He published a letter addressed to Parisians, urging them to save candles and to get up earlier. But we no longer use candles, so we have no need… We have polled everyone – not only the public, but also all of the departments, such as the Ministry of Energy, which said that this will not produce serious power-saving effects… If we look at the experiences of the Soviet Union or Russia – Mr Medvedev was right to say that Russia, the Soviet Union, and then the new Russia changed its attitude towards marking time seven times...

Question: So, you do not have a plan regarding when we should return to this issue? You don’t have a timeframe, for example, such as before the Olympic Games? European fans will probably watch our competitions in the morning.

Denis Manturov: You know, we also watch such competitions at night…

Remark: We are suffering!

Denis Manturov: We are suffering. This is the situation for us. This is the situation for us, so we will be guided by the Government's decisions.

You asked whether anyone reported…

Remark: Yes, has anyone briefed the President on this issue?

Denis Manturov: Our Ministry has not briefed the President on this issue. It is up to the Government to report to the President. As far as I know, Mr Medvedev briefed the President on this issue and agreed on this issue with him.

Question: Dmitry Kozak said that the International Olympic Committee had asked to resolve this issue by a certain date. 

Denis Manturov: Today the Government made a decision and the International Olympic Committee will be informed in this regard. The Prime Minister made a decision on this issue today. So, we will officially inform everyone. This is first issue. Second, should we shift time, we should inform the Ministry of Industry and Trade and the Federal Agency for Technical Regulation and Metrology, which are responsible for maintaining precise time, under the established procedure. Since we are keeping the former summer time format that was adopted a year ago, we are not informing anyone about anything... If we receive an official request, then we will send the same answer. Is everything clear?

Thank you.

* * *

Briefing for journalists by Minister of Economic Development Andrei Belousov and Deputy Minister of Economic Development – Head of the Federal Agency for Management of State Property Olga Dergunova

Question: Mr Belousov, much has been said during the current discussion and while this programme was being drafted about the need to make the privatisation procedure as transparent and open as possible. How, in your opinion, does one of the latest privatisation deals, the purchase of the Vanino seaport by Mechel and the subsequent sale of this seaport to three offshore companies correlate with the principles of open privatisation procedures? Is there some contradiction here? Don’t you think that it will be necessary to pass legislation in the future if these transactions fail to completely meet the principles of transparency? Moreover, the President has said that it is necessary to “de-offshore” the economy. But a diametrically opposite situation is taking shape here. That is the first question.

And I would also like to ask a question about the Novorossiysk Merchant Seaport. This is one of the most long-awaited transactions in early 2013. Has any decision been made? Should the port be sold to a strategic investor, or should 20% of the port’s value be sold at a secondary public offering (SPO)? If the Government decides to sell the port to a strategic investor, won’t this enable some unknown offshore zones to seize control of the facility? That is the second question. And if I may, I would like to ask a third question. Apart from selling a 50-60% BP stake to Rosneft under a bilateral transaction, are there any other plans to privatise Rosneft this year? Thank you. 

Andrei Belousov: First, let’s discuss the transparency issue and the Vanino deal. We have two different issues here. The first issue deals with the creation of equitable criteria for selecting bidders. Currently, this is probably one of the most sensitive issues for bidders. In effect, most privatisation misgivings are linked with the fact that the criteria were not entirely correct. And we would like this issue and the bidding procedures to become as transparent as possible.

As for the subsequent use of assets which have already been privatised, we would like to introduce post-privatisation controls. In some cases, we will sign the relevant formal agreements with the investors. The Arkhangelsk trawler fleet, including the large fleet infrastructure, is an example of this kind of agreement. It is very important that this fleet remains in Arkhangelsk because it has great social significance.

As for offshore zones, it is bad when offshore zones exist. None of us likes this very much. But, frankly speaking, nothing terrible, nothing catastrophic has happened. Judging by the press reports, it appears that we have virtually lost control over the Vanino seaport, that the port has been resold to some obscure owners, etc. None of this has in fact happened.

Question: And do you know who is behind these offshore zones? Does the Government know who is behind them?

Andrei Belousov: Yes.

Question: But are they Russian citizens?

Andrei Belousov: Let’s not discuss this issue for the time being. Excuse me, but you also wanted to ask a question before you asked about the Novorossiysk port …

Question: Theoretically speaking, do any legislative amendments need to be made?

Andrei Belousov: Yes, they do.

Question: You said a few words about post-privatisation controls. How will these controls be organised? Will this amount to some kind of legislative amendments?

Andrei Belousov: We will monitor the situation. Obviously, an optimal scenario would entail some truly strategic asset and a situation where the state considerably reduces its stake. By the way, this does not only concern the biggest transactions. Today, we discussed a secondary, although typical, issue, the transfer of the federal-owned Pskov airport into municipal ownership. Mr Medvedev instructed us to oversee the use of this airport, to find out whether an investor will be selected and how quickly, and how this investment will be used. This is a typical situation: The purchaser, or the person who acquires this regional asset, will have to implement a specific programme. Purchasers are involved in privatisation deals. We subsequently oversee the implementation of this programme. As for Pskov airport, we have instructed the relevant officials to create a system for monitoring the situation and to stipulate various mechanisms for reinstating it back into federal ownership if the airport is not used effectively. We have created a model of such post-privatisation control. This definitely doesn't need to be done in all cases, it is a real burden on the investor. This control is justified in some cases, and in some cases it is not justified. We have to sort things out in this area, but some legislative amendments will definitely be required.

As for the Novorossiysk port, you realise that this is a strategic asset, this is our main port, which handles strategically important freight traffic, including grain exports. Consequently, of course, we would very much be interested in cooperating with a strategic investor. We are currently assessing these issues, and all this takes time. Ms Dergunova (Olga Dergunova) will probably add something.    

Question: Are you currently looking for a strategic investor?

Andrei Belousov: We are looking into this issue …

Olga Dergunova: May I answer this question. The transparency principle being discussed by us means that we inform the public about every stage of privatisation deals. An agent was selected, and we looked into a possible deal, an exchange distribution. The agent was also told to develop a model in case strategic investors became interested in this project. The task has been set and the agent is working to accomplish it. As we have already said, over 30 potential investors who might be interested and who might finance this asset were profiled in late 2012. We are now specifying and analysing our potential next moves and the structure of the transaction before we announce the next stage to the public. As soon as we adopt the relevant decision, we will post it on the agent’s website, and all the required procedures will be conducted. All this will be published in advance, the way we did while working on all six transactions in 2012. In this sense, we completely control the transparency and predictability of this process, and you will always be able to see where we are headed. 

Andrei Belousov: You know, I would like to preempt any other questions because I did not give an introductory speech, and I would simply like to draw your attention to the following aspect. When we say Federal Agency for State Property Management (Rosimushchestvo), most people associate this agency with privatisation. Indeed, we face major problems in the field of management, etc. But this is a sufficiently well-studied subject, it has some highly important aspects and details in every specific case, as well as substantial funding, etc. To be honest, as head of the ministry which oversees this agency, I believe that, as my deputy Ms Dergunova sees this property management as probably the most sensitive issue, including thefts and embezzlement, which take place in this area, as well as mismanagement. I would simply like you to pay attention to this aspect.

You see, when they steal a whole street lined with mansions in broad daylight and I say this advisedly, although a trial has not yet been held so I should be using the word “steal” in quotation marks. Just imagine, in the very centre of Moscow. How come? Compared with the Novorossiysk port. Who will be the investor there, a strategic investor or will it be an SPO… You see what I mean? Something is happening to land in the Moscow Region, to federal land. All these issues… They were discussed today and indeed the concept and the state programme… Why did Mr Abyzov say today that there are 8,000 amendments. Why? Because these are vital and very real problems.

Olga Dergunova: We are preparing information on the volumes for each of the companies and the speed at which we will move on the government’s instructions: it will be available by April 1 for some companies and by June 1 for the rest of the companies. This is what we call the development of roadmaps. We were given this task when the Minister met with the Prime Minister in November-December of last year, so we will provide an answer for each of the companies by April 1… At present we are working out a detailed roadmap with every company. These maps are being discussed with experts and with the companies and also at the level of deputy prime ministers and we are proceeding in accordance with the Magnitogorsk agreements, which make it mandatory to inform the Presidential Administration about certain transactions. So this discussion will be finished before April 1 and all the companies together with us will come and show the results, including Rosneft.

Question: Can you explain more clearly and in more detail what the main measures against stealing and mismanagement are?

A.Belousov: Theft occurs most of all at territorial directorates because of course there are some things that can be stolen at the central office, but not much, with the connivance of certain staff members apparently. But basically territorial directorates are the root of all evil. First, an information system has to be put in place to ensure that 100% of all property transactions at all stages everywhere, at all the directorates are registered and are monitored. That is an expensive exercise, but it has to be done because until it has been done we will not see a system. Second. As soon as we have done that, or rather in parallel, as we are doing, it should be made transparent. For all their high qualifications and so on the central apparatus (the Ministry, the department and the central staff) cannot keep track of everything. So the public must be brought in, citizens’ groups,  the information system must be generally accessible, with the exception of special property and special facilities which are not all that numerous in actual fact. That’s point two.

The third point. It is necessary to clearly define the responsibility of every member of staff (today an average territorial directorate has a staff of about 40), determine who is responsible for what so that not only should irregularities in a transaction be registered but we should know exactly who is behind it and who has to answer for it.

And the fourth point. I believe (Ms Dergunova and I were explaining it) that Rosimushchestvo should create an internal control system, similar to the internal security service whose members are entitled to bonuses on the basis of how many cases of abuse they uncover. The more cases you uncover the bigger your bonus and the faster you move up the career ladder. Such an example…

If I have omitted anything perhaps you could fill in the gaps (addressing Olga Dergunova).

Olga Dergunova: Let me add that another method if we want the information system to work is the business process, when the job description of every staff member is clear-cut, to rule out ambivalent situations when it is left to a particular member of the staff to interpret the law. Things go wrong at the point where somebody takes such decisions to the detriment of the interests of the Russian Federation. In the absence of a business process, of proper supervision and records we may discover certain things years after they happened. And the consequences unfortunately lead to high-profile cases…

Question: A follow-up question on stealing in Moscow and other territorial divisions of Rosimushchestvo. You have said that criminal cases have been opened in 10% of territorial directorates. Does that mean that the problem has been solved for now? What is your assessment? Or can we expect more criminal cases? Let's face it, everybody understands that when it is a street in the centre of Moscow the amount of money involved is such that it may lead to people being killed and bonuses won’t be of much use in such cases. I think it is dangerous. How do you intend to proceed in the future?

Olga Dergunova: The difference between a business process and an individual decision is that the business process does not depend on the person who works within it. If you have no opportunity to take an individual decision (think of Griboyedov’s “helping someone close to you”) then it doesn’t matter who specifically is the decision-maker because the business process makes for uniform decisions. And what we are trying to do together with the territorial directorates which also are unhappy that the words “Rosimushchestvo” and “territorial directorate” evoke a negative reaction… There are some very active territorial directorates which are seeking to restore order by building up business processes and we hope that the number of criminal cases will go down. Rosimushchestvo and the Ministry of Economic Development are not law enforcement bodies, so it would not be proper for us to reveal whether or not we are expecting more criminal cases. We pray that there will not be any but we also understand the flaws in the business process. It will take several years, it cannot be solved within one day or by replacing a specific individual.  To bring things in order a multi-pronged approach is needed: the business process, information systems, the consistent introduction of these systems, statistics that measure deviations from the standard process, putting things right when we see that certain violations recur, and forming a new qualified body of Rosimushchestvo workers who are ready to work in such an environment and in business processes. It is no secret that many people who have worked at Rosimushchestvo have sought not just to avoid building these business processes, but to destroy them.

Question: Thank you. I have a question for Mr Belousov: the privatisation plans, the proposals of the Ministry for Economic Development would see the state withdraw from 75% of major joint stock companies by 2018. Do you have an idea about which joint stock companies will constitute the 25% of the companies from which the state should definitely not withdraw?

Andrei Belousov: We have a rough idea.

Olga Dergunova: It is the presidential executive order.

Andrei Belousov: Yes, the presidential executive order. But we are talking about a specific list of companies. It exists, but we will go on working on that theme. The interim picture will emerge by 2015 because this theme is closely linked with determining the target function. At present with regard to half of the cases neither we nor the federal executive bodies have a clear idea why a certain asset is needed, what it is doing other than it is being leased and is bringing in money…

You see whether or not we need a manager there, or an official and how many, the basic principle is that independent directors and professional supervisors should sit on boards of directors – where it is necessary to have and maintain management through directives. Civil servants should be mainly concerned with oversight and watchdog committees.

Question: I have a question to Ms Dergunova. Two weeks ago the Ministry of Economic Development posted a draft program on its website which set allocations until 2018 at 103 billion roubles, while now we see a figure of 33 billion. Could you explain the change? Perhaps this is due to some technical issues?

Olga Dergunova: We used parameters that are specific to Rosimushchestvo related to its management. There is also a second sub-programme which is not related to Rosimushchestvo. 

Andrei Belousov: Honestly, I do not believe it is central to our plans, most likely…

Olga Dergunova: Not only that. There were some updates.

Andrei Belousov: We need to take a look. The current figures are the right figures because they have been updated. It is an organic process, we had a look, cut something back and factored something out.

Olga Dergunova: May I wind up? Follow our news. We have started a selection of agents at ALROSA. You must have read about it, and the extent of our transparency shows you that this is a question that no longer needs to be asked.

Andrei Belousov: Thank you.

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