Transcript of the beginning of the meeting:

Vladimir Putin: Good afternoon, Mr Dmitriyenko, feel free to start.

Dmitry Dmitriyenko: From my viewpoint, the situation is starting to improve. When I assumed office as the governor, manufacturing output was in decline. In mining, which is one of our backbone industries, the decline reached 40%, whereas it is only 16.1% today.

In May unemployment reached a high of 3.3% of the economically active population. It is now 2.7%, which is less than in Russia on average.

Vladimir Putin: You said unemployment was the highest in May?

Dmitry Dmitriyenko: Yes, from May through early July. In my opinion, our strongest achievement has been to maintain all of our commitments. We insured succession in office, fulfilling all social commitments.

There is one peculiarity in the Murmansk Region, connected with a seasonal factor: In May and June the budget is overloaded because of the need to pay holiday allowances. In northern regions this factor is crucial since people who haven't had enough summer activity will be unable to work at full strength and will be unhealthy the rest of the year.

Holidays are long with us, up to 70-80 days, which is why the burden on the budget is really heavy. However, we managed to avert delays in holiday allowance and salary payments. I made a pledge to the people; and in this sense, I can say that we fully implemented these tasks following your instructions.

We are now gradually resolving budget-related problems. The Murmansk Region's budget deficit is relatively high. We overhauled the budget, decreasing expenses by more than 1.5 billion (roubles). However, the budget deficit persists.

We are working on this problem with the federal Ministry of Finance. At the same time, considerable growth is envisioned in municipal budgets, specifically between 7% and 9%. This is because municipal governments mainly derive their revenues from personal income tax, property tax, and tax on motor vehicle ownership.

At the same time, I would like to once again emphasise that the situation with the region's budget has been pretty challenging. Nevertheless, we think that we'll manage to improve it, at least partly.

Vladimir Putin: What's the share of bailouts and subsidies in overall expenses?

Dmitry Dmitriyenko: Up to 20%.

Vladimir Putin: Is it federal support funds?

Dmitry Dmitriyenko: It is a total of all funds, with all federal allocations considered.

We certainly need to address regional budget related issues. We are working on these matters, interacting with businessmen. For example, we received forward contracts to construct a highway and to repair a runway. Before this year, the companies that carried out these contracts were registered in the regions where they won tenders. We took certain measures, and now all subcontractors that carry out these contracts will pay taxes to the Murmansk Region's budget. First, this is extra budget revenue. Second, it's a message to companies that we are eager to cooperate, but that we insist on spending the funds in our region.

Vladimir Putin: Are there wage arrears?

Dmitry Dmitriyenko: There are no wage arrears in state-owned companies and organisations, unlike in private companies, but we are working on this issue, with the arrears volume diminishing gradually. However, military-industrial companies, or, to be more precise, the newly created companies to service the defence industry, have encountered certain problems regarding salary payment. I will go into more detail later.

Vladimir Putin: All right.

Dmitry Dmitriyenko: We have been interacting with the Ministry of Defence and the Northern Fleet Command, and I think we'll find solutions to these problems by the end of this year.

Vladimir Putin: Fine. What about the development of the Murmansk transport hub?

Dmitry Dmitriyenko: We have full understanding with the Ministry of Transport. The Transport Minister visited the Murmansk Region in July. We held a shareholder meeting of the Murmansk transport hub managing company. At this point, practically all of the issues have been settled, including those with potential investors, who are still willing to invest in the construction of their facilities at the Murmansk transport hub.

The Ministry of Transport has announced a tender for the first phase of designing the federal property facilities. The terms of the tender were adjusted a little bit; its results will be announced shortly, and it will be clear how to proceed.

I would like to stress that there is an operating port in Murmansk, and we cannot allow the port to be affected by the construction of new facilities.

We have reached a preliminary agreement with the concerned parties that the Murmansk commercial port will operate in the new port, thus ensuring at least 2,000 jobs. This complies with the state's interests since the state owns 25% of the port's shares.

In this regard, I have a request for you. I would like to ask you to authorise the creation of a special port zone in Murmansk. I have two reasons to request this.

First, Economic Development Minister Elvira Nabiullina has already held talks with the concerned parties and said she will support this initiative unless federal budget allocations are required. I mean this should be an executive decision which will allow for saving both budget funds and private investments.

This is a two-stage project. The first stage calls for construction, with funds saved at the expense of customs registration expenses and the VAT. The second stage is exploitation. Some 15% of funds will be saved in the first stage, with another 10% saved in the second stage.

It can be carried out in the port area since its infrastructure development correlates with the port authorities' projects as part of developing the port's infrastructure under the ship and port facility security code.

I have held talks with the investors. They do not mind taking on site development jobs, given that they will be able to save funds when the special economic port zone begins operations.

There is one more encouraging thing: Apart from the planned terminals, the metals industry that are considering exporting iron-ore concentrate also appear interested in developing their own terminal, as part of the Murmansk transport hub development plan. It will improve their logistics, allowing them to penetrate new markets since they will be able to fulfil shipload lots of up to 300,000 tons.