Transcript of the beginning of the meeting:

Vladimir Putin: What is the current outlook in the region?

Oleg Bogomolov: Things are gradually improving, Mr Putin. All is not straightforward, but we are trying to keep the situation under control, while we work on key areas, namely, industry, agriculture and defence. Industry in the first quarter worked at 83.3%, and agriculture matched last year's levels at 100%. Investment, trade, services, and housing, all of these sectors exceeded last year's levels.

Unemployment, regrettably, has risen by 7,019 people during the past 4 months. 458 people are already involved in programmes we are implementing. The first tranches have already been received.

Vladimir Putin: How much is that?

Oleg Bogomolov: We have received 44 million out of 111 million roubles. Today we are working in this area. We are helping people not just through employment centres, but also in production itself. We talk to those business owners needing to make redundancies about what possibilities there are for relocating people within their firms. At the beginning of the year we had 12,300 people, and by the end of the year it should be approximately 12,500.

Vladimir Putin: And what about state defence orders?

Oleg Bogomolov: At Kurganmashzavod the situation is quite good, and is deemed normal at Kurganpribor. KZKT, the Kurgan Wheeled Tractor Factory, has almost no state defence contracts today. You took the decision to step up work on wheeled vehicles, on the Kamaz, and this is precisely what I would like to discuss with you at this meeting. I am concerned about this factory's workload. Orders from the gas and oil sectors have fallen...

Vladimir Putin: They buy fewer?

Oleg Bogomolov: Practically speaking, they buy nothing at all. Last year, ten cars were produces for civilian use. What does that mean? Ten cars? It's less than a month's work. This plant has been in dire straits for a long time now, but we managed to chase up our investors, pay debts, and honour our wage obligations. Unfortunately, we were not able to keep the factory running on defence orders, and so we have now divided it into two businesses - one that makes vehicles, and the other engaged in press forging production. Press forging has now been launched and hopefully will be up and running. There are some issues which need to be finalised. Re-orienting the business to a different kind of production, without state defence contracts, is unrealistic. For this reason, I have drawn up some proposals, and I hope we will be able to discuss them today.

Vladimir Putin: Very good. And what is the situation in the social sector?

Oleg Bogomolov: We are not faced with any particular social problems. Progress is being made on all measures that were finalised as part of national projects. There are no wage arrears despite the fact that we have tightened the budget. We allocate 62% on social expenditures. For years now, for the past decade, we have made sure that we provide no less than 60% on social support for the population. That is why education, healthcare, and funding for obligatory medical insurance are running smoothly. So expenditure is provides in full according to those parameters which have been previously set out.

We planned to increase social spending by 6.8% - that is the indicator stipulated in the original budget. We will not decrease the volume of funding. We will adopt the final version of the budget at the end of April; we are now finalising details in the committees, and it will go to the Duma on the 28th of April. Compared to last year, our budgetary growth will be about 1.5%.

Vladimir Putin: You mean your expenditures?

Oleg Bogomolov: I mean both revenues and expenditures. We came to the end of last year with expenditures amounting to 23.8 billion roubles, while we are planning to spend 24.1 billion roubles this year. The consolidated budget spending will amount to 26 billion roubles, with a budget deficit of 1.8 billion roubles. To cover the deficit, we have taken bond loans worth 500 million roubles and we are going to redeem them by the end of the year.

Vladimir Putin: So, you have taken bond loans to finance your budget...

Oleg Bogomolov: Yes, we have taken bond loans to finance the budget and the Ministry of Finance has permitted us to go ahead with this. We are working with the bank at 9% annual interest, which suits us. Moreover, we are servicing our debt properly, and we have enough funds to repay it. We recently discussed this issue at the Finance Ministry; the Ministry has given its support and promises an additional 500 million roubles to repay the bond loan. Regarding last year's government loan of 300 million roubles issued in December, I know that a decision is being prepared on its prolongation. We still require one billion roubles [to cover the deficit]. There is another issue at hand: we have analysed our tax revenues over the first four months and...

Vladimir Putin: Do you mean arrears of taxes?

Oleg Bogomolov: I have the latest information on the budget as of April 17: municipal taxes at 104% of the last year's figure; rural taxes (mostly land tax, property tax and part of the income tax) at 40%, municipal districts at a proper level. The regional budget received only 81% in tax revenues against the last year's figure, with profit tax receipts at 42%. The property tax, income tax and other tax revenues are at a proper level; only the profit tax is a problematic area. However, we are not making a tragedy of it, though the first three months of the year were difficult for us. Some enterprises, such as Kurganstalmost [a specialised enterprise manufacturing steel structures for bridges], largely depend on the regional budget. The orders are coming now for bridges and bridge structures. The budget has actually been adopted. An auction will be held soon and we will take part in it. Our two major companies will help to increase profit tax receipts.

Vladimir Putin: Budget financing will be more active now.

Oleg Bogomolov: We depend on it and on our oil and gas complex. As you know, we have companies, such as Korvet and Khimmash, producing taps and pipes for oil and gas fields. The decision on their investment component has not been taken yet, but progress will be made along this line, too.

Vladimir Putin: Are you participating in the programme of moving people from dilapidated housing?

Oleg Bogomolov: Yes, indeed.

Vladimir Putin: How much will you spend on this programme this year?

Oleg Bogomolov: About 450 million roubles.

Vladimir Putin: Will you co-finance the programme?

Oleg Bogomolov: Yes, we are giving about 60 million for it.

Vladimir Putin: How many families are you planning to move this year?

Oleg Bogomolov: About 400.

Vladimir Putin: A fair number.

Oleg Bogomolov: Yes, but we have a particular problem in this regard. People should be given the same housing area they used to occupy. For instance, we are moving people from a barrack, with rooms of 12 sq m, so we must give them the same size of accommodation. We are not improving their housing conditions - we are merely giving them new housing.

Vladimir Putin: But the quality of housing is different.

Oleg Bogomolov: The quality is different, yes. In six months we have prepared a project of the so-called ‘social house.' It fits our parameters. We have built apartments - with a kitchen, a bathroom, or a shower room.

Vladimir Putin: So, you will move 400 families?

Oleg Bogomolov: About 300 families in Kurgan and 400 in the region as a whole.

Vladimir Putin: Good.