21 march 2013

Government meeting


Dmitry Medvedev: Ladies and gentlemen. Today we’ll discuss the draft state programme on the socio-economic development of the Far East and the Baikal region. It took the experts a lot of time and effort to prepare this document. Let’s review it. The main goal of the programme is to ensure the steady development of this important part of our country, and at an accelerated rate.

In the last few years we have been working to improve the living standards of our people, paying particular attention to the Far East because life is difficult there and they went through some very complicated processes in the 1990s and have more than enough problems now. This is why the new Government started with establishing the Ministry on the Far East. Every national leader – the president, the prime minister and other ministers regularly make working trips to the region to see how it’s going there and how long term issues are being resolved.

A few very large investment projects now being implemented are allowing us to change things for the better. I’m referring to the construction of two stages of the Siberia-Pacific oil pipeline and the Chita-Khabarovsk Motorway. And the Vostochny cosmodrome is now under construction there. I’d like to mention our preparations for the APEC forum in this context. The ultimate goal was not to show that the Far East is beautiful and prosperous but to make it more comfortable for our people. I hope we have attained this goal, at least in part.

The state programme consists of two federal targeted programmes: on the economic and social development of the Far East and the Baikal region to 2018 and of the Kurile Islands to 2015, and 12 sub-programmes that cover the main areas of this development.

We must make investments into transport, energy and social infrastructures, and do it without distortion. We need in equal part roads, bridges, ports, school, hospitals, kindergartens and, of course, new jobs. We should obtain them by implementing the programme.

There were many arguments about funding. We are approaching a very high, unprecedented total of more than 10 trillion roubles. This is an enormous sum and it is made up of state funding, loans (they should be used as well) and, of course, private investment. Let me repeat that we will discuss this by all means later on and deal with all the necessary approvals.

As for the expenses on the federal targeted programmes, they should amount to at least about 250 billion roubles in 2014-2020. The majority of the financing will come from extra-budgetary funds or investment from companies. Therefore, the Fund for the Development of the Far East and the Baikal Region (and other development institutes) should provide serious support for these projects. Last year its capital was increased by 15 billion roubles. We must start using this resource.

Experts are working on amendments to the Tax Code to enhance the investment appeal of the Far East and the Baikal region. They provide for tax breaks for new projects and should be submitted to the State Duma in March.

I’d like to emphasise that the majority of tax breaks will start operating at the regional level. Obviously, the formation of a favourable business climate largely depends on the work of the governors and on constructive cooperation between entrepreneurs and regional authorities. That said, the Government should closely monitor the activities of the regional authorities and intervene in the situation if need be, adopt the right decisions and discuss existing problems.

The plans provide for upgrading transport routes, including the Trans-Siberian and Baikal-Amur railways, building and modernisation of motorways, airports and sea ports. This should allow us to switch part of the cargo traffic on the Asia-Europe-Asia route to Eastern regions and receive new sources of income.

One of the main goals of the programme is to improve the socio-demographic situation in the Far East. Whenever we come to the Far East we are stunned not only by its scale but, regrettably, by how few people live there. There have never been too many people there; the population density has always been low – this is one of the features of our country. But at any rate today we must understand that having 7.5% of the population on 45% of the territory is a real challenge. This should continuously encourage us to take different decisions, and not only economic ones. The programme should provide for medical aid, education, modern housing and opportunities to visit Central Russia. Eventually people in the Far East should feel improvement in the quality of their lives. This is the main priority.

I’d like to say a few words about the programme for the Kuril Islands. We must emphasise the competitive advantages of this territory, which abounds in bioresources and has a vast tourist potential. Business people from the Asia-Pacific Region have a stake in implementing joint projects. It is necessary to build new enterprises and fisheries there and develop uninterrupted links with the mainland. To sum up, people living there should be provided with normal jobs and normal living conditions.

We need to make modern technological and organisational decisions. I’d like to emphasise once again that the development of the Far East is a priority for the Government. After this meeting we will continue this work at the session of the state commission that I will hold in Yakutsk in early April. One of the region’s governors – Oleg Kozhemyako, governor of the Amur Region – has been invited to this meeting. I’ll give the floor to him later on.

I’d like to mention one more issue. We will discuss the draft federal law on the foundations of social services for the population. This is a sensitive and important issue. It has been discussed for a fairly long time. Every year social services are rendered to more than 34 million of our people – elderly people, people with disabilities and families with many children. To this day, the social sphere is regulated by a law passed in 1995. It is ridden with problems. Old people still have to wait for social services at home or in residential homes. There are tens of thousands of them on the waiting list. There are plenty of grievances about the quality of these services. Their current model does not suit our people.

One of the Government Priorities to 2018 is to substantially improve the quality of social institutions. The draft law imposes uniform requirements and creates a foundation for the development of the sector. It has passed expert discussion on various platforms – on the Ministry of Labour internet portal, in the Open Government, in regions and in the Public Chamber. Most proposals are reflected in the draft law. It is important to monitor the application of this law. 

Before starting our work, let’s wish Mr Lavrov a happy birthday. Despite the fact that it is his birthday, he has come to this Government meeting and is sitting quietly. Happy birthday, Mr Lavrov, we wish you health and success!

Sergei Lavrov (Minister of Foreign Affairs): Thank you very much. I wasn't aware that you can skip meetings on your birthday.

Dmitry Medvedev: You should have asked.

Mr Ishayev, go ahead please. 

Viktor Ishayev (Minister for the Development of Russia’s Far East and Presidential Plenipotentiary Envoy to the Far Eastern Federal District): Mr Medvedev, colleagues. Following Presidential executive orders and directives, the statutes of the President's message to the Federal Assembly, Governmental decisions and directives on boosting the development of Russia’s Far East and Baikal Region, we have prepared and submitted a draft state programme.  

The development of the programme was first mentioned in 2009. We received a directive for its development on November 29, 2012. Two months later, its first draft was submitted for discussion by the commissions, ministries and departments. The programme must become a fundamental instrument for the development of the macro-region. We believe that this programme is aimed not only at developing the region but also at creating conditions for the development of the Russian economy. This programme will create a new growth point, or rather an eastern vector of Russia's economic development. The priority of the eastern vector in Russia's economic development is consistent with the global economic situation at this stage. The ongoing systemic crisis in Europe is forcing Russia, while maintaining its positions in Europe, to more actively develop its cooperation with Asia-Pacific countries, which represent the most successfully developing region. That said, Russia’s Far East should not act as a buffer zone, but rather a contact zone. The Far East should become a key link of integration processes and should become the face of Russia in the Asia-Pacific Region. However it is necessary to radically modify the model of socioeconomic development of the macro-region.    

The main feature of the modern socioeconomic situation in Russia’s Far East and the Baikal Region is the incompatibility of the region’s potential with the present level of its development. Some progress has been made in recent years. State investment in the region under development programmes has borne fruit. The transport, energy and social infrastructure created with the help of these programmes have contributed to a higher growth rate of the macro-region even under conditions of the global crisis. Our growth rate has never fallen below zero. In recent years the economic growth rate of the Far East has been higher than the average economic growth rate throughout Russia; however its main economic indicators and indicators of living standards are considerably inferior to the average indicators across Russia (Slides 2-3). 

The gap in value added growth rate continues in the Far East. In 2008, the gap increased up to 37 percentage points. The huge investment of recent years has helped reduce this gap to 13.1 percentage points. But if there is a reduction in investment, the gap in the development levels will grow.  

The main hindrances to regional growth are the development conditions formed in previous decades – in particular, underdeveloped production, transport, logistical and social infrastructures, where the main factor is the high level of the tariff component in the production cycle, and as a result, higher prime cost and lower  competitiveness of production. 

Population outflow continues due to low living standards and low quality of life. The primitive economic structure of the region remains unchanged, consolidating its subservient position as an exporter of raw-materials to nations with dynamic economies. 

In different historic periods (see slide 5) the state adopted a number of regulatory documents outlining the macro-regional development programme. However you can see on the slide that these programmes have been implemented only partially. That is why we have such backwardness in the region. 

The submitted draft state programme has been developed on a scientific foundation. Specialists from the Centre of Strategic Developments foundation and the Russian Academy of Sciences have participated in the preparation of the programme. Scenarios, targets, and indicators of development by industry, region and sub-region have been calculated by the Institute of Economic Forecasting at the Russian Academy of Sciences. Regional authorities and our colleagues from other departments and agencies have contributed greatly to the creation of the programme.

In order to accomplish the task set by the President to ensure the accelerated development of the Russian Far East, the state programme includes a macro scenario of accelerated development of the region and the basic goals of the state programme. You've mentioned them, Mr Medvedev, but I'll discuss them in more detail.

First, create the conditions for the accelerated development of the Russian Far East, making it a competitive region with a diversified economy whose structure is dominated by high-tech manufacturing with high added value. As we form conditions for the accelerated development of the Far East, we should create additional opportunities for the development of the Russian economy.

Second, significantly improve the socio-demographic situation in the Russian Far East and the Baikal region, create conditions to keep the population from leaving, ensure migration growth primarily through skilled specialists and create European living standards in the macro-region.

The proposed version of the state programme ensures the implementation of the presidential directives and the Government decisions on the development of the Russian Far East and the Baikal region and will also ensure its rapid development.

The draft state programme consists of two federal programmes – Socioeconomic Development of the Russian Far East and the Baikal Region to 2018 and Socioeconomic Development of the Kuril Islands and the Sakhalin Region to 2015, and 12 subprogrammes. We haven’t yet adopted the federal targeted programme to 2018. I would like to have changed amounts of funding entered in the decision.

Also, the Trans-Siberian Railway modernisation, the construction of the second line of the Baikal-Amur Railway and a number of energy projects didn’t make it into the project. I would like to ask you to issue a directive to that effect, so that we could begin work in this area. It’d be nice if we could start working on these projects in 2014.

Allocations of the federal budget in the context of subprogrammes are shown on Slide 8. In this case, 88% of federal spending under the state programme will go to the development of infrastructure, including 49% in transport, 19% in energy, 13% in social, and 7% in public utilities infrastructure and environmental safety. Sources of funding are as follows: 36% come from the federal budget, 61% from extrabudgetary funds, and 3% from the consolidated budget of the Russian regions.

The draft state programme is structured in two ways – industry-specific and territorial – and treats the macro-region as a single economic complex. The territorial approach makes it possible to form large, integrated investment projects and create points of growth in the macro-region. At the same time, the integrated investment projects consist of facilities grouped in subprogrammes based on the industry-specific principle. We plan to implement 23 integrated investment projects in the Russian Far East and the Baikal region, which will boost the regional GRP by more than one third. These integrated investment projects will be the main points of the region's economic growth. The cumulative budgetary effect of their implementation by 2025 will be over 5 trillion roubles, which is 30% more budget investments than we need, which already secures the repayment of the investments.

Also notable is the fact that many integrated investment projects have a significant investment cycle and their fiscal benefits will go beyond 2025. Implementing such projects creates a significant multiplier effect in the economy. In particular, infrastructure development will allow us to make fuller use of the mineral base and attract 2.3 trillion extrabudgetary roubles within the cluster of natural resources alone.

These investment projects alone will create about 200,000 new high-performance jobs. Given the multiplier effect, we will need an additional 500,000 jobs in services and related industries. The share of skilled workers in the macro-economy of the region is expected to grow by 10% to reach 40.7% by 2025.

If the state programme is implemented successfully, then we’ll see the following by 2025 as compared with 2011: the GRP will grow by 2.2 times in the region, the share of the macro-region in the GDP will rise to 8.8%, the share of manufacturing will increase to 8.3%, the share of the macro-region in the consolidated revenues of the Russian budget will grow to 4% from today’s 3.7% in 2025. We expect life expectancy to increase by almost six years. The population of the macro-region is expected to grow by 1.1 million to reach 11.9 million people. Wages will be up by 25% as compared with the average in Russia.

In closing, I would like to reiterate that the implementation of the state programme, Socioeconomic Development of the Russian Far East and the Baikal Region, will not only create the conditions for the accelerated development of the macro-region and improve living standards, but also create a strong platform for Russia’s economic growth. We have crunched the numbers and realised that the additional growth of GDP will amount to 0.3 percentage points yearly and by 2025 it will increase by 2.3%, or 20.6 trillion roubles more.

This draft state programme was discussed by the public council of the Ministry of the Development for the Russian Far East and posted for public access on the website of Open Ministry. The project has been coordinated with all stakeholders in the macro-region and the majority of involved ministries. We have also sent it to different organisations and received several positive reviews from the Russian Academy of Sciences signed by RAS President Yury Osipov, the Russian Far East Institute of the Academy of Sciences, the Institute of Oil and Gas, the Rosneft oil company signed by its president Mr Sechin, the Russian Union of Industrialists and Entrepreneurs signed by its president Alexander Shokhin, RUSNANO signed by its general director Mr Chubais, the Russian Academy of National Economy and Public Service under the Russian President, the World Bank, Nomura Research Institute (Japan), China Development Bank, and the Gaidar Economic Policy Institute. This doesn’t include all reviews, but they are all positive, and some of them have very interesting comments that we will work on.

I want to emphasise that the programme is not only an economic but also a political document representing a plan of action in eastern Russia. Our potential investors and partners follow our work on the programme and make their conclusions about the investment attractiveness of the macro-region.

That concludes my presentation on the project. We need you to support it. Thank you.

Dmitry Medvedev: Thank you, Mr Ishayev.

Colleagues, who would like to add to this? Let’s begin, as usual, with the Ministry of Finance, then the Ministry of Economic Development and then others.

Anton Siluanov (Minister of Finance): Thank you. Mr Medvedev, colleagues, we failed to agree the programme, since we believe that it still needs more work. First of all, it’s about resources. The federal budget will provide 3.8 trillion roubles, which is about 14 times higher than we have in the draft long-term budget. In addition, the programme provides for a fairly low level of extrabudgetary funding. Out of the 1.668 trillion roubles allocated for the development of transport infrastructure, 21 billion, or 1.3%, come from extrabudgetary sources. Even in agriculture, there are 3.5 times more extrabudgetary sources than in transport infrastructure; 1.5 times more extrabudgetary sources will be used to develop the fishing industry. That is, the transport infrastructure does not seem to be a priority and there are no projects in which business could take part. That of course is not the case.

Besides, we have calculated that the cost of the Far East-Baikal Region programme must be taken into account, above all in the sectoral state programmes. Yes, it is true that the majority of such state programmes have already been approved, but these programmes have undistributed resources, and on the other hand, we believe that such a priority should be grounds for revising the adopted state programmes because we think that is really a development priority for this territory.

Another remark that we have made concerns the proposals on tax preferences. They are much greater than those we had agreed here in Government, and at the meeting on the Far East chaired by the President. They have to do with additional preferences concerning value-added tax, the amortization tax and levies policy which go beyond our agreements, and also with preferences concerning the tax on greenfield projects profits, tax on the property of greenfield land, in other words, we still have substantial disagreements over these matters.

In addition, Mr Medvedev, the programme envisages significant state guarantees in accordance with the principles which in our opinion will result in non-compliance with obligations and will force the federal budget to deliver on these state guarantees. In our view, the system of state guarantees may be used, but only when it shores up the implementation of projects if there is insufficient collateral when financing commercial bank loans, etc. The state guarantee cannot replace budget financing. Unfortunately here, in this format, guarantees are envisaged, therefore we still have a dissenting opinion and some remarks on that.

I agree of course that the main task is the development of the transport infrastructure, in the first place the Trans-Siberian Railway and the Baikal-Amur Railway. The main resources of that programme should be concentrated in this area. We believe that the first thing to do is to eliminate the bottlenecks that are preventing the necessary transport communications because we all know that the current problems are impeding trade turnover and transport links between the East and West. We should begin by eliminating the bottlenecks, direct the resources there, some of which should be provided by private investors because a number of sections of the transport infrastructure can pay for themselves (this is evidenced by the practice of implementing such projects) and of course, by the budget. We believe that as part of the programme for the development of the transport system resources should be earmarked for financing such a significant element of the programme for the development of the Far East and the Baikal Region. Of course, these resources should come from the development institutions, but I repeat, some of the money should come from the budget. Therefore, Mr Medvedev, we believe that we should proceed from the realities on the ground and take another look at the programme and work on it some more. Thank you.

Dmitry Medvedev: Thank you. Mr Belousov, please.  

Andrei Belousov (Minister of Economic Development): Thank you, Mr Medvedev, distinguished colleagues. While I have sympathy with Mr Siluanov’s pessimism, I would still like to say that the programme is unique, not only in terms of the volume of financing, but also in terms of the scale of the tasks it tackles, the timeframe, the geographical coverage and so on. Given such starting data, the programme cannot be anything but a framework programme. We support the programme on condition that in September, as stipulated by the draft decision, we will revisit this programme and adjust it in terms of the volume of resources.

I would like to support Mr Ishayev, first of all because I agree that there must be a nucleus from which to start. There is no doubt that infrastructure, including energy facilities, provides such a nucleus. We support Mr Ishayev in that it is necessary to adopt the federal targeted programme as soon as possible because today it is, as I said, the operational nucleus of the state programme. Yes, it is costly – about 100 billion roubles a year until 2018 – but it has been thoroughly planned and it has specific projects and all the feasibility studies have been made.

In principle we have every opportunity and prerequisites to be able to write down in our decision today that this programme should be adopted and to specify the necessary amount of funding in the draft 2014-2016 budget, which we are already drafting. I fully agree with Mr Siluanov that financing should be envisaged for the development of the Baikal-Amur and Trans-Siberian Railways. Today the capacity of the Baikal-Amur Railway, according to experts, is about 7 times less than the amount of cargo it could carry if there were no bottlenecks. Potentially the railway’s capacity is, if I am not mistaken, about 100 million tones a year. Without eliminating that bottleneck we will be unable to implement major commodity projects that underpin the economic development strategy of this region. It is a fairly costly project. The Transport Ministry has made the calculations and they have been submitted to our Ministry, among others. But we think that financing of the development of project and estimate documents should be started as early as this year to synchronise the development of the Baikal-Amur and Trans-Siberian Railways with the tasks set in the state programme and to fit in with the 2014-2018 plans not only in terms of expenditure, but also in terms of the results. Thank you.

Dmitry Medvedev: Thank you. Mr Manturov, please (addressing Denis Manturov, Minister of Industry and Trade).

Denis Manturov: Mr Medvedev, we think it is a very important and necessary programme. Without the development of industrial and trade projects it is impossible to develop the Far East and East Siberia, but because of some oversight we have not been included among those executing this programme, so the remarks that we have should be taken into account in finalising the documents… I would ask you to include our Ministry among the executors in point 2 of today’s protocol decision. On the whole we back the programme. Thank you.

Dmitry Medvedev: Thank you. Mr Sokolov, please.

Maxim Sokolov (Transport Minister): Mr Medvedev, distinguished colleagues. We agree that the programme must be adopted as soon as possible. I have to say that we do not completely see eye-to-eye on all the transport infrastructure projects, but we will definitely achieve full mutual understanding as we adjust the programme in the autumn. I would like to support Mr Ishayev and Mr Belousov, who say that it is necessary to start financing the design and project work of the key transport facilities, in the first place the Baikal-Amur Railway and the Trans-Siberian Railway, the reconstruction of some sections that are the biggest hindrance to the movement of cargo, and financing should start this year.

As for the draft protocol decision, I also support it. I would just like to introduce a clarification in item two, the second paragraph, which mentions the Trans-Siberian Railway and the Baikal-Amur Railway as well as the construction and repair of some roads, the programme mentions the Khabarovsk-Vladivostok-Ussuri motorway. We have verified the information and this road is fully provided with financing to the tune of more than 80 billion roubles under our state transport development programme, in fact the transport system development projects, costing more than 1 trillion roubles, are mentioned in the analytical part of the programme. So, all we are asking is for the reference to this road to be included in the analytical part because  financing for it is provided for.

Dmitry Medvedev: Very well. Would anyone else like to speak? Yes, of course, Mr Shuvalov.

Igor Shuvalov (First Deputy Prime Minister): Mr Medvedev, distinguished colleagues. After you chaired a meeting where we discussed the materials prepared by the Ministry for the Development of the Far East we continued arguing over the amounts of financing and the projects that should be included in this programme. Because the Finance Ministry today made the same observations as at the meeting that you chaired, Mr Medvedev, we have studied these remarks closely and we had a discussion about them.

I would like to note that the text is there, and up until the last moment hardly any changes have been made to it, it is a solid programme document. All the programmes we have been adopting up until now…  We in Government assumed that at present a state programme is not grounds for budgetary outlays. This is a temporary situation and I hope that the Finance Ministry will complete this work during 2013 so that the state programme, together with the federal targeted programme, can provide grounds for budgetary allocations. In the meantime we are introducing measures in the state programmes for which allocations are envisaged under our financial budget plan or for which they are not, and we have these disputed “asterisks,” meaning that we will incur these costs if the economy generates additional revenue. So, in its present shape it is one of the best programmes because it draws on what other sectoral programmes adopted by the Government envisage and also includes measures that are contained in the text only of this programme. We agreed on this approach at a meeting with you, Mr Medvedev. You said that this is not simply a compilation based on other sectoral programmes but a series of measures. It should be a programme that answers the questions and the tasks of the development of this macro-region. I would like to report to you that in the opinion of the experts and the Government members who took part in this work, the programme meets these goals.

Regarding the funding. The sums declared are really large. The two draft federal targeted programmes you mentioned, including the programme to develop the Kuril Islands, do not at present envisage funding for transport projects, the Trans-Siberian and Baikal-Amur Railways. Andrei Belousov said that we need about 100 billion roubles a year. The Finance Ministry has not yet approved these numbers, but we cannot fulfil other parts of the programme without incurring the costs required to complete the Baikal-Amur and Trans-Siberian Railways in 2016. We should also envisage the financing of precisely these FTPs so that these problems are solved by 2016 and the transport infrastructure, including Vladivostok-Nakhodka, Khabarovsk-Vladivostok and the Trans-Siberian and Baikal-Amur Railways, is fully operational. We have to solve these issues by 2016.

Mr Medvedev, I ask you to support the Ministry and approve the programme as a whole now so that by April 2 (or on the date when you chair the State Commission meeting) we have a final discussion and can finalise the elements of the programme and determine the sources of financing of individual elements. And then, after the State Commission meeting, you could sign a Government decision. But I ask you to approve the Ministry’s approach and the materials submitted today.

Dmitry Medvedev: Thank you, Mr Shuvalov.

Well. Yes, I remember that we need to hear from Government members because we usually quarrel not with the governors, but among ourselves. Actually, I think that is normal. Over to you, please (addressing Oleg Kozhemyako): 

Oleg Kozhemyako (Governor of the Amur Region): Mr Medvedev, distinguished participants. We have studied the draft state programme being developed by the Ministry for the Development of the Far East. It fully reflects the main priorities in the development of the Far East concerning the modernisation of infrastructure, and the improvement of the investment climate and the quality of life. The draft state programme has been discussed at the interregional association The Far East and Trans-Baikal Area and has been agreed with all the governors, with some adjustments made in the process to specific projects.

I absolutely agree with you, Mr Medvedev, that if we want to see accelerated development of the Far East and the Baikal Area there have to be massive investments from the federal budget and private investments that would be precisely targeted at growth points indicated in the state programme as comprehensive investment projects for the development of territories. However, direct state support must be reinforced by new institutional measures. I am referring to tax breaks and the availability of long-term loans.

What do we have now? We all know that the Investment Fund has been operating since 2006 with a volume of 1.2 trillion roubles, implementing 52 projects, of which only three are in the Far East. The Fund for the Development of the Far East and the Baikal Area was established 18 months ago. In spite of additional capitalisation from 500 million roubles to 15 billion it has not become a development institution. It operates mainly in the segment of small commercial projects that are capable of meeting the fund’s main requirements, i.e. a high rate of profit, a short payback period, and have a double, financial and property, collateral. Just to recoup the investments, the fund needs the project to turn over more than 10% profit and, considering the interests of investors, 30-40%. Of course, such projects in the Far East are few and far between.

Pursuant to the Government’s instructions the relevant ministry has prepared amendments to the Tax Code that would give profit tax breaks to investment projects. However, in our opinion the draft law contains many restrictions that prevent investors from benefiting from the tax breaks. For example, an investment project must only be a greenfield project, but such projects are typically capital-intensive and take a long time to build, as distinct from brownfield projects, i.e. the building of additional capacity on existing sites.

And another requirement stipulated is that the plots of land for the implementation of an investment project must be contiguous, which is unacceptable given the size of our territories because the raw materials may be in one place and the infrastructure and the human resources 100 km away from it. Besides, the draft law speaks of one investor, one investment project, without a co-investor, while investment projects in agricultural produce processing are not eligible for tax benefits at all. One has to be aware that if such amendments to the Tax Code are adopted the Far East will never get a major and financially credible investor. Even now, when we talk to investors, they are telling us: “Are we supposed to sell our enterprises, leave and then get registered again in order to be eligible for these tax breaks?” Tax breaks need to be introduced above all for those who are already working in the Far East, know the local conditions, have a workforce of engineers, to finance expansion of capacity, modernisation of production while the existing tax base is preserved. Our neighbours can be an example. Tax benefits and availability of loans have made it possible to quickly restore the old industrial base in the North-Eastern province of China, where the cost of credit resources was 0.5%, so that 28 free economic zones were created in the neighbouring province of Heilongjiang alone.

As a result, a powerful industrial belt has been created along the Russian-Chinese border oriented towards processing Russian raw materials and supplying high added value products to Russia. These mechanisms have the support of state institutions, which ensures China’s economic security. I think we should be mindful of this and borrow this experience.

As you said, Mr Medvedev, if we want to see the population staying in the Far East the two main tasks to be solved are jobs and housing. Incidentally, in recent years the programme of relocation from decrepit housing unfit for habitation has gotten underway and the Fund for Housing and Utilities is providing extensive assistance to the Far East. That programme must continue, but there are also other instruments and mechanisms.

To provide housing in the Far East we propose to set up a Far Eastern Federal Mortgage Agency with its authorised capital paid in by the federal budget. It is necessary to implement mortgage lending programmes for families with many children, for new families, for public sector workers, to reduce interest on loans and down payments and increase the term of the loan. This mechanism must be introduced by all means.

Another question that calls for a decision in principle is the financial contribution of the regions to the federal targeted programmes. As you know, the budgets of Far Eastern regions rely more on subsidies and we often do not have the wherewithal to co-finance federal targeted programmes. As a result, programmes are not fulfilled, the federal money is not put to use and the projects are stalled. We propose that the size of co-financing for the Far East regions be cut to 0.5% over the next 5-10 years as part of the implementation of the state programme for the development of the Far East. That would enable us to take part in the programmes and to fulfil the financial executive orders of the President. All these mechanisms must become the driving force of our programme, and unfortunately without these mechanisms the programme will be operating at half speed and the tasks set by the President and the Government for the development of the Far East may remain unfulfilled. Thank you.

Dmitry Medvedev: Thank you, Mr Kozhemyako. I would take issue with the last point: the tasks set by the President and the Government for the development of the Far East cannot remain unfulfilled, so it is time to put a period to the discussion of that programme. I am aware of the difficulties we are facing, I understand the Finance Ministry’s reasons, which are valid to a large extent, I am aware of the derelictions that have occurred. But if we do not complete the work on the basic parameters of the state programme now, we won’t be able to do anything. Mr Kozhemyako rightly said that at present not a single institution is working normally towards the development of the Far East. This Fund has yet to become such an institution. There is some money, the amount has increased, something is being done, but we do not see fully-fledged development.

So, more money is needed and the institution must work precisely as a development institution. If this is impossible to accomplish within the framework, for example, of Vnesheconombank, let’s reassign its status, for example to a non-commercial organisation or the like, but it must work.

Another topic the Governor has raised is tax benefits. We are in the process of creating a framework to attract investors here. That is a must. We cannot afford to offer tax breaks on all taxes, but the benefits must be real, that’s for sure. If these benefits have been introduced simply to “tick a box” and to report that we have offered some opportunities to entrepreneurs who want to start their business (for instance a greenfield project), but nothing real comes out of it, we would be better off not messing up each other’s heads. The benefits must be real.

The whole world is discussing Cyprus, whether it is an offshore zone or not… Sooner or later these things will be sorted out, and I hope the solution will not be confiscation-based, but will be reasonable and modern. But since such passions are raging there – perhaps we should see if we could create some kind of zone in the Russian Far East. We have many feasible places: Sakhalin, the Kurils… By the way, perhaps some of our money that is in Cyprus and, for some reason, in other offshore zones that are not mentioned for understandable reasons, such as the British Virgin Islands, the Bahamas and so on – would move to us. There are of course risks because we will register everything there, but that’s simply a technical legality. In any case we need new tools for the development of the Far East. I would ask all Government members to think about this.

As for the directives concerning the Trans-Siberian Railway and the Baikal-Amur Railway, they must be included in the protocol, and we should take another look at the whole thing. During the meeting that I chaired, we proceeded on the basis that this is a new programme, a new document, and not a compilation from some patchwork source. It should be published as such; therefore I suggest that we approve the programme as a whole, get the necessary approvals prior to April 2 when I hope we’ll have a meeting of the State Commission for the Development of the Russian Far East, determine the sources of funding and the parameters (if you run into difficulties, come to me) and take all the decisions immediately after the meeting of the State Commission. Agreed? Adopted.

The next item is the law on the basic principles of public services. Maxim Topilin please.

Maxim Topilin (Minister of Labour and Social Security): Mr Medvedev, members of the Government. The Ministry has drafted a law pursuant to the instructions issued after the meeting of the Presidium of the State Council on October 25, 2010. It was in preparation for a fairly long time. Why was it necessary to have a new law? First, the practice that existed in the regions since the 1990s had jelled and it was necessary to summarize it and use it as a basis for new approaches to legislation in the social services sphere. Second, the 1995 laws On the Basic Principles of Social Services in the Russian Federation and On the Basic Principles of Social Services for Elderly and Disabled Citizens no longer reflect the recent changes in Russian legislation. These have to do with the distribution of authority between the levels of government and the regulation of state services, the issues connected with the development of non-commercial organisations and so on. The draft law would coordinate legislation in the social services sphere and update it.

I would like to stress that the draft law does not touch on the issues of social benefits; it merely regulates the grounds and procedures for providing social services which are rendered to 34 million citizens a year on average. The main concepts included in the draft law are: social services, providers and recipients of social services, the very term “social services” and the concept of a “distressed life situation.” A totally new concept is “social service standards” which would be introduced at the level of constituent entities, because it is within their frame of reference, standardisation and procedures of the delivery of various social services to the public. Another fundamentally new concept is “a citizen’s individual need for social services” which will make it possible, after a certain transition period, to deliver targeted social services to citizens.

During the public discussion that lasted a fairly long time and involved a large number of experts, some new principles were included in the draft law along with the traditional principles used in providing social services. They are social support for the recipient of social services, the principle of maximum extension of the time a recipient of social services stays in a favourable social environment so that placing in an institution would be the exception rather than the rule. We assume that most services can be provided in regular circumstances at home. Prevention of distressed life situations is also described in the draft law. The draft law also envisions individual programmes for the delivery of social services that are not in the current law. This will ensure the targeted and specific provision of services to citizens.

A key novel feature of the draft law is that the social services system includes not only state institutions, but non-governmental organisations (NGOs), socially-oriented non-commercial organisations that provide social services, individual entrepreneurs, charities and volunteers, something that is not in the current legislation of course. The draft law anticipates compensation for the cost of delivering social services to a person to enable him/her to choose institutions of various legal statuses. We believe that in future it will make it possible to develop the non-government sector, which is very important for the social services sphere. The draft law regulates the standards that are not in current legislation and the regions will need to pass corresponding normative acts before 2015. These have to do with individual needs tests, the development of individual social services programmes and also the introduction of information systems that do not exist at present. This will help to form registers of providers of social services, and registers of recipients of social services which will make this sphere more transparent and understandable for the public.

The draft law envisions the fixing of per capita standards of social service financing, which will improve the quality of services delivered.

The draft law has gone through three public discussions, as you mentioned, Mr Medvedev, it has been discussed on the websites of the Ministry of Labour and the Government. We have held a discussion and received favourable reviews from the Government Expert Council. Most of the critical remarks have been taken into account, and we have agreed with the Expert Council that they will be involved after the law is adopted in preparing the regulatory acts flowing from the law both in the regions and in the Russian Federation as a whole. The draft law has been approved at a meeting of the Tripartite Commission and takes into account the remarks made by the State Legal Directorate. The Finance Ministry had some remarks that were discussed at a reconciliation conference chaired by the corresponding deputy prime minister. We believe that the adoption of the law would bring the legal framework in the regions on social services issues to a common denominator, include all the standards and procedures of delivering services, determine the interaction between various agencies and organisations, make these services accessible and transparent and go some way, as I have said, towards delivering non-state services in this sector and ensure independent evaluation of the quality of services and in general, improve the quality of services available to the Russian people. I ask you to support this draft law.

Dmitry Medvedev: Thank you.