Prime Minister Vladimir Putin met with Deputy Prime Minister Sergei Ivanov, Defence Minister Anatoly Serdyukov, Sberbank CEO German Gref and Russian Technology Corporation CEO Sergei Chemezov.

Transcript of the beginning of the meeting:

Vladimir Putin: I suggest we return to our discussion on the defence industry's performance. This is a high-priority aspect of our work.

I would like to emphasise that, as I have already said, there is no need to alter our plans in the area of state defence contracts. Our plans for 2009 and the next two or three years will hinge on this concept. This primarily concerns the nuclear defence sector and advanced weapons systems.

At the same time, we must understand that the defence industry is a high-priority economic sector, albeit not the only one. The defence industry does not exist in a vacuum. It exists in real-life conditions, the same as the whole country and its economy. We must also think about optimising our efforts, sending a clear message to the industry and corporate managers to reduce outlays. We need to streamline our own work, which would eventually reduce end-product costs. It is my opinion that this can and must be accomplished in present-day conditions, taking advantage of reduced prices for components and some materials. Our work will be based on this.

However, the Government must provide timely and regular funding for all defence industry companies with the help of available financial instruments which have been used in the past, are being used today and must continue to be used in the future. First of all, I am talking about the potential of our banking system. For instance, loans issued by Sberbank form about 50% of the entire credit portfolio of our banks operating in the defence industry. Other financial institutions, including Vneshtorgbank, Gazprombank and some other banks, are also working actively in this sphere. I hope very much that this sphere of activity will not recede into the background but will remain a high-priority aspect of the national banking system in the context of their higher capitalisation and state support for the banking system.

Consequently, the Defence Ministry and all other departments, including the Finance Ministry, must disburse the required allocations among companies as soon as possible.

It is already mid-February. I regularly meet with the CEOs of companies and associations. All of them are eagerly waiting for our final decisions, which must be adopted as quickly as possible.

How long will it take to coordinate such decisions and to enable companies to start working normally?

Anatoly Serdyukov: I think we can coordinate all these parameters within a week and disburse allocations among all companies.

Sergei Ivanov: We must also start making advance payments. Speaking of complicated technical products, which require several years to make, we practice current-year advance payments and those for 2010-2011.

Vladimir Putin (addressing Mr Gref): How do you cooperate with the defence industry?

German Gref: Mr Putin, first of all, we issue weekly loans guaranteed by future state defence contracts to companies during this period when there are no budgetary allocations.

We maintain regular contacts with the Defence Ministry. After state defence contracts are approved, we finance companies working on those contracts. Our loans are guaranteed by future state defence contracts. Since January, we have financed several dozen companies and have decided to open credit lines. Since early 2009, we have been creating new mechanisms linked with state guarantees and the additional capitalisation of companies involved in fulfilling state defence contracts.

It may be a paradox at this time of crisis, but I think that the state defence industry can be overhauled with the help of Government-sponsored mechanisms. In this case, the banks become an instrument for boosting their cost-effective performance. By agreement with the Defence Industry Commission, we and defence companies sign credit agreements and agreements on reducing outlays.

Vladimir Putin: What is the interest rate for defence companies?

German Gref: We do not introduce bank-profitability margins for defence industry companies. I can tell you current credit rates for the state-owned MiG Aircraft Corporation, where you recently chaired a meeting. The average rouble loan rate is 10.5%.

Vladimir Putin: Please sort things out within a week and get down to work.