Transcript of the beginning of the meeting:

Vladimir Putin: Good afternoon. Earlier I talked about the importance of adjusting the monetary allowance for military personnel and those in law enforcement agencies in connection with inflation. Today I signed a Government resolution on the adjustment of the monetary allowance for those in the military and in law enforcement agencies, raising it by 8.5% from August 1 this year.

This involves increasing position- and rank-based wages, the wages of military personnel on contract service, and the wages for the equivalent civilian grades. That is the first point.

Second, today I signed a resolution raising the insurance component of an old-age retirement pension by 7.5%

I will ask Sergei Ivanov to comment on the first decision. Increasing the level at which military pay is adjusted also has consequences in terms of raising the income for those receiving military pensions.

Please, go ahead.

Sergei Ivanov: Mr Putin, you have referred to the figure of 8.5%. Increasing the remuneration for military personnel affects not only those serving in the Ministry of Defence and Interior Ministry troops, but also extends to civilian positions of equal rank, payments to personnel serving in special ranks with the internal affairs agencies, the Federal Penitentiary Service, the national fire brigade, Federal Service for Drug Control, and those in charge at the federal courier and communication service of the Russian Federation.

All these categories of military, and associated personnel must receive their August wages at the increased level. This is in compliance with those commitments we assumed in considering the budget for 2009. And in spite of all the well-known financial difficulties, this decision is being implemented.

In addition, this decision is also directed at recalculating all military pensions to the same level of 8.5%

Vladimir Putin: Recalculating pensions?

Sergei Ivanov: Yes, pensions will also be recalculated and increased by 8.5%.

Vladimir Putin: Ms Golikova (turning to Tatyana Golikova), please, comment on age-old retirement pensions as well.

Tatyana Golikova: The increase specified in the resolution you signed, is related to the fact that there is a regulation in the pension legislation that says that when consumer prices grow by more than 6%, the insurance part of the pension is to be adjusted accordingly.

Factoring in the data from the Federal Service for State Statistics on the first half of 2009, we can index the insurance component of the pension at 7.5%, that is raise it by 7.5%. We are already undertaking the necessary preparation. This increase will affect 36 million pensioners. A total of 40.9 billion roubles from the Pension Fund will be spent on this. These resources are available in the budget because we planned this inflation-related adjustment in April, and the relevant amendments to the law on the budget of the Pension Fund for 2009 were introduced.

I must also say that regarding the law that was signed recently, from August 1 we will start to carry out automatic corrections to labour pension sums for pensioners who continue to work, taking into account the size of insurance premiums paid by their employers. This used to be a very slow process, only implemented upon request of the individual concerned. Now, from August 1, this will be done automatically, and will depend on the amount of those insurance premiums paid by the employers on the pensioners' behalf.

Vladimir Puitn: Good, thank you.

We also continue to implement measures to support the defence industry enterprises. I signed a resolution on providing financial support to three companies: two located in the Murmansk Region will receive 576 and 623 million roubles, respectively, and the Bryansk Chemical Plant will get 393 million roubles.

Mr Khristenko, could you please comment on that?

Viktor Khristenko: Mr Putin, two Defence Ministry ship repair yards are to merge with United Ship-Building Corporation in accordance with the shipbuilding industry reorganisation concept.

Both ship repair yards, numbers 10 and 82, are facing serious financial difficulties. The executive order you signed is directed at financial recovery of these enterprises. This will allow the repayment of wage arrears and budget debts. In other words, we have to provide basic conditions for the consolidation of these assets within United Ship-Building Corporation.

The Bryansk Chemical Plant, which produces fuel for the defence industry vehicles, is also facing difficulties. In order to settle all its debts on wages, loans and other accounts payable, the executive order was worked out and signed by you. I hope we will reach agreements with these enterprises and transfer funds to help them solve all their problems as soon as possible.

Vladimir Putin: Will the money go through the Defence Ministry?

Viktor Khristenko: No. This money will go through the Ministry of Industry and Trade, and we will sign the agreements with these companies.

Vladimir Putin: All right.
Ms Skrynnik, how's the progress in harvesting this year? Also, please tell us a few words about the situation in the regions hit by the drought.

Yelena Skrynnik: Mr Prime Minister, a total of 25 million tonnes of grain has been harvested so far. Harvesting is under way in the Southern, Volga and Central Federal Districts.

The rate of work is high, exceeding last year's. But, unfortunately, the drought damaged crops on 3.3 million hectares, which accounts for 7% of all cultivated lands. Seven constituent entities have been affected, namely the Samara, Saratov, Orenburg Regions, the Republics of Bashkiria, Tatarstan, as well as the Ulyanovsk and Volgograd Regions.

A state of emergency has been declared in these regions, with an emergency response centre set up following your directive. We also approved an action plan. The damage is currently being estimated. These measures are designed to render aid to every agricultural producer.

Vladimir Putin: Do regional authorities plan to apply for state support? What's the progress in preparing the required documents to justify the volume of requested funds?

Yelena Skrynnik: Yes, they are going to apply for state support. Each regional government prepares documents with photos, submitting them to our unitary enterprise. Our analysts estimate the damages at each agricultural company on-site.

I certainly hope the regional governments submit these documents quickly to reduce the state support response time.

Vladimir Putin: I believe it would be rational to set a deadline, since everyone interprets the words "as soon as possible" in their own way. Please discuss this issue at a meeting at the emergency response centre. Invite all the officials in charge of this task; hold such a meeting and determine a deadline to submit these documents, and work out the document format.

Yelena Skrynnik: All right, we'll certainly do it.

Vladimir Putin: Fine.
Mr Levitin, please tell us a few words about the M10 Moscow-St Petersburg highway.

Igor Levitin: Mr Prime Minister, next week we will sign a concession agreement with the selected European companies to construct the first sector of the M10 toll highway.

Environmental impact will be monitored along the right-of-way, with environmental monitoring stations planned for the corridor.

Construction is due to start next year, with required funds to be drawn from the Investment Fund. Some 8,000 people are expected to be employed in this project, with new road construction technology applied.

This is the second concession agreement. The first was concluded with the contractor for the M1 Moscow-Minsk toll highway. Under these two concession agreements we are going to test mechanisms to draw funds from alternative sources, other than the federal budget. Following your directive, the commission headed by Deputy Prime Minister Ivanov considered these mechanisms, including allocations from the Pension Fund, issuing bonds and, if necessary, taking out loans from international banks with risk and currency exchange rate insurance. We have worked out everything else as you directed.

Vladimir Putin: Are you referring to the actual routes?

Igor Levitin: Yes, I am. The first segment is a 43-kilometre route to Zelenograd that bypasses the existing M10 highway and the town of Khimki, which is difficult to drive through. The second segment is the M1 highway bypassing Odintsovo. The first segment is 43 kilometres long, and the second is 18 kilometres long. Preparations for construction at other locations along the routes have been launched already, relocating pipelines, for a new stretch to reach the second ring road. But this is the next stage.

Vladimir Putin: Thank you.

(To Viktor Zubkov) You head the commission for preventing an epidemic of swine influenza (the H1N1 virus). The situation is not improving worldwide, and there are ever more cases in Russia. What can you say?

Viktor Zubkov: Yes, Mr Putin, the commission has been established on your order to prevent the spread of swine influenza.

It held one of its regular meetings this week, where regions were also represented. I chaired the meeting. The agenda focussed on world and national swine influenza statistics. Twelve cases have been confirmed officially in Russia so far, against 110,000 in 120 countries, according to WHO global statistics.

Russia remains epidemic-free-I mean without a single instance of infection. All the 12 patients contacted the flu abroad on holidays or business trips, mostly in the countries where the epidemic has reached its peak.

Though there is no way to ban tourism and other foreign travel, the Rospotrebnadzor sanitary inspector publishes regular lists of the countries that have been most affected by the flu. To sum up, we have 12 patients now.

We carry on early warning, prevention and information measures introduced at airports and elsewhere to spot patients and carriers, and start treatment in time to prevent fatalities. What the Health Ministry is doing is sufficient for now.

We pay great attention to regional anti-epidemic work to have the whole country ready for a tentative contagion peak in autumn, when people return home from holidays en masse, and the school year starts in September. There is another essential aspect of anti-epidemic work-active vaccine research. Test samples are expected in September.

Vladimir Putin: You mean Russian vaccine?

Viktor Zubkov: Yes.

Vladimir Putin: Is the work based in St Petersburg?

Viktor Zubkov: Yes, it is. Research grants have been earmarked and approved by federal ministries and agencies. We will submit a relevant draft Government resolution within a few days.

The Health and Social Development Ministry has funds for mass production of the vaccine, and the job is being closely monitored.

The WHO has recommended every country to make independent decisions on whether to suspend lessons at school. We have not even discussed the option-the situation in Russia is safe and does not require such harsh measures.

Vladimir Putin: All right. I have signed a resolution on Russian partnership in a German project for a new generation X-ray laser, earmarking relevant allocations. Could you say a few words about that, Mr Ivanov?

Sergei Ivanov: Yes, Mr Putin, the project for a European free electron X-ray laser is being launched in Hamburg following a recent political agreement between all leading European Union countries and Russia.

The new centre will engage in fundamental research and applied studies-in particular, of organic matter. Partners in the project expect to invent new medicines proceeding from those studies.

A new international centre is emerging. It is an expensive project, so all partners have agreed on distributing financial and other responsibilities with free access to the centre's achievements.

In compliance with the resolution you have signed, Russia is contributing 250 million euros, to be paid by Rosnanotech Corp. on condition that the Finance Ministry will reimburse the sum in 2009-2016.

Such is our new endeavour.

Vladimir Putin: Good.

Mr Kudrin and I met with the managers of the largest Russian financial agencies yesterday. Mr Kudrin, would you tell us about the measures to enhance bank capitalisation?

Alexei Kudrin: The State Duma and the Federation Council have adopted a package on improving the performance and capitalisation of commercial banks on Government initiative.

The first law stipulates the use of Russian government securities to enhance bank capitalisation. It envisages the issue of federal securities the Government will exchange for privileged stock of pivotal banks, if they so wish, to buttress their capital in a situation that necessitates extending the term of loans to the industry. A part of loans might be never repaid to the detriment of banking capital, but capitalisation according to the new law will make a basis for further industrial crediting.

Characteristics of such securities will be set in budget laws, including an amendment to the Budget Law for 2009. We will propose to earmark at least 150 million roubles for their issue as early as September. We will weigh initiatives and participate in capitalisation depending on bankers' appeals and situation.

This privileged stock may be transformed into ordinary in 10 years while the Government will have a share in the companies and corporations it concerns.

Another law, on extra measures to enhance financial stability, was passed when the crisis had just begun. It envisaged subordinated credits to banks with a 10-year term and buttressed banking capital.

New amendments introduce a second stage of banking capitalisation through subordinated credits in which state credit resources exceed holders' by three times, so we can support the capital of involved banks with another several hundred billion for a long term of 10 years. Bankers will have a reliable basis for long-term industrial loans.

Such loans are made on condition that industry will receive credits equal to those at the Central Bank refinancing rate plus 3%-which presently means no more than 14%. That is a way to promote crediting industry.

The third law concerns investment of the accumulated part of labour pensions. As the law has it, accumulated pensions at the disposal of the Vnesheconombank state management company can be invested not only in government securities but also in corporate bonds. Industry will receive another source of money.

In the midterm, we expect the increase of value or quotation of corporate bonds as industry is overcoming the crisis. Invested in such bonds, pensions will increase steadily for the next three years, as we expect, to add another opportunity of strengthening the basis of pension accumulation and encourage it.

Such were the three basic laws adopted in July, which have been signed and come into operation now.

Vladimir Putin: All right, thank you.

I would like to say a few words on today's agenda now.

We are going to make a number of essential decisions on removing excessive administrative obstacles to enterprise. Many of them were introduced almost 20 years ago, and may have been appropriate for the transition economy. Now, they are inhibiting it and so should give way to modern regulatory tools.

This fully concerns the proposed replacement of mandatory product certification by declaration of conformity-the manufacturer will pledge to comply with safety standards and will bear the entire responsibility for damage done by their violation.

At the same time, the demand of certifying merchandise by state-authorised agencies will be abrogated to allow manufacturers to reduce costs and be more flexible in responding to consumer demands.

We will certainly not abolish mandatory certification in full-it will be retained for actually or potentially hazardous commodities.

However, I recommend to my colleagues to preserve only the indispensable minimum of certification.

I would like to emphasise several other items on the agenda.

Every time I visited a coal-mining area, demands were made to differentiate mining tax rates, whether I talked to employees or employers, proprietors and managers.

The present tax rates do not take into account different geological conditions. As the result, many coalfields are working at a loss.

That is why we propose to shift to fixed mineral extraction tax rates for coal, and envisage the pattern of their annual adjustment to market prices. To reduce the accident rate, a tax rebate will be introduced to increase labour safety expenditures.

The new fiscal pattern might cut budget revenues, but mining safety and stability should come first.

We will continue developing new gas- and oilfields, in particular, through tax breaks. We know full well that oil and gas sales are shrinking and prices are plummeting. However, we should be ready for the changes in the economic situation and to overcome the crisis.

MET zero rates have been established for mining areas in East Siberia, the Nenets Autonomous Area, the Yamal Peninsula, the continental shelf, the Caspian Sea and the Sea of Azov. Many oil and gas fields in those regions are exploited on an industrial scale already, thanks to which oil yield stabilised last year, and compensated, to an extent, the shrinking capacity of established oilfields.

Now the time has come to promote oilfield development in the Sea of Okhotsk and the Black Sea.

We will also analyse proposals concerning the distribution of grants for balancing regional budgets out. 193.4 billion roubles has been earmarked for this purpose in 2009, including 150 billion roubles of extra allocations in the anti-crisis programme.

More than 58 billion out of this amount will be transferred to 54 regions on calculations made on a unified method considering that the regions' revenues have been shrinking because of the crisis. Another 11.8 billion roubles will be allocated to dealing with urgent problems in the regions.

As we have agreed, the tripartite ad hoc team on interbudgetary relations, which represents the Government, the State Duma and the Federation Council, has made preliminary approval of distribution initiatives.

Let us start work.