Transcript of the beginning of the meeting:

Vladimir Putin: Mr Governor, first I would like to once again say that I am satisfied with infrastructure development in your region. I think it is proceeding quite well, and you have good plans. Of course, there are problems with funding: what can be done to implement your construction plans? Let us begin with the main infrastructure project, the Coastal Ring Road (Primorskoye Koltso).

Georgy Boos: Mr Putin, we have a good relationship with the Transport Ministry. We know that we must complete the project, because it will create an atmosphere that will boost the region's tourism and small business. This is why we focused on that project. The investment will be recouped faster than any other project, and will create budget revenues.

We have an idea regarding financing. We propose that the sea highway project be turned over to the state company set up at the Transport Ministry for completion. There is no other way, because we need exactly the ring road and not the access roads. Ring road costs must be recouped, and so it should be a toll road, so we will have enough funds to maintain it. That's it, we will need to pay off the investment, and still have money for the maintenance of the ring road.
In this connection, the region is prepared actually to turn over part of our revenues from the transport tax to this project, reducing the tax for individuals or not raising it as high as we planned in order to compensate people's spending on the use of the toll ring road. This seems like an acceptable solution.
There are many toll roads in Europe, with fees collected to repay investment and finance maintenance. In our case, we will need the revenue for road maintenance, as the Transport Ministry believes it can find the money for completing the construction.

Vladimir Putin: Still, it means the road will be built with federal funds, no?

Georgy Boos: Yes. In principle, we have been offered a choice between this option and a federal budget loan, but it is federal money in either case.

Vladimir Putin: Well, we will consider the issue. I think the project must not be abandoned; we will search for funds to continue it.

Georgy Boos: Thank you very much.

Vladimir Putin: Not at all.

Georgy Boos: Mr Putin, I have several other questions. I would like to begin with sports.

Vladimir Putin: No, Mr Boos, first tell me about the situation with your ailing enterprises.

Georgy Boos: Our primary ailing enterprise is air carrier KD Avia. In fact, we have started bankruptcy proceedings. The company is not earning anything and is only accumulating wage arrears. This debt has been growing since March.

Vladimir Putin: How much does it owe the workers?

Georgy Boos: More than 300 million roubles ($10.3 million) now, but we estimate this debt will grow to 400 or 500 million roubles by the time it is declared bankrupt. So, let's say it will owe them 450 million roubles.

Vladimir Putin: How much does the company owe?

Georgy Boos: Its accounts payable have reached 13 billion roubles ($448 million).

Vladimir Putin: 13 billion?!

Georgy Boos: Yes.

Vladimir Putin: Is this all?

Georgy Boos: Yes, this is their total debt, including the loan portfolio and interest. We have received 4 billion roubles ($138 million) in state support thanks to your decision and personal assistance.

Vladimir Putin: It was last spring, right?

Georgy Boos: Yes, the decision was taken last spring, and we received state support in July under several conditions. First, we were to divide the airport services business and the actual carriage business to satisfy the requirements of federal legislation. KD Avia was the only company that failed to comply with these requirements. Second, the carrier was to issue additional shares to a specified amount, to which we planned to contribute 4 billion roubles.

When we started discussing the potential value of the issue, we decided that it should amount to 7 billion roubles ($241.2 million). Three billion roubles was to be distributed among creditors, who would thus become the company's shareholders, and 4 billion roubles was to be used to buy shares, giving us a controlling stake in the company, which would nevertheless not become a state company.

However, we did not implement that plan for a number of subjective and objective reasons. The company fell into bankruptcy before completing the required legal actions.

Vladimir Putin: For objective reasons?

Georgy Boos: For objective reasons.

Vladimir Putin: On whose initiative?

Georgy Boos: On the initiative of the company.

Vladimir Putin: That is, the company filed for bankruptcy?

Georgy Boos: Yes, the company filed for bankruptcy.

Vladimir Putin: Well, well. This is a separate and purely economic issue. But what can we do about its wage arrears?

Georgy Boos: By now, we have issued state guarantees for 500 million roubles ($17.2 million) to the company from state allocations, in accordance with the decisions we took directly thanks to your assistance. The company used them to take out a bridge loan in late April, which ensured its operation until recently.

Vladimir Putin: I know. You did it before the bankruptcy procedure was initiated, and now the law does not allow you to provide direct financial assistance to the company from the regional budget.

Georgy Boos: Yes, but we have an idea, which we have formulated as a legislative initiative of the United Russia party and have discussed it with members of Parliament.
We propose assigning claims with regard to the company's wage arrears to us, so that we will be able to repay its debts.
The law has been submitted by United Russia, prepared for a hearing in the State Duma, discussed in the house's committees, and may soon be adopted. The hearing has been set for December 3. It is a simple law; the text is only one paragraph.

Vladimir Putin: This is what I would like you to do. We gave you 4 billion roubles to rehabilitate the company, for supporting it in July. The plan was not implemented for objective reasons. You spent part of the allocation to support the company, but the move turned out to be ineffective and the company filed for bankruptcy. So, the bulk of the money remained on the accounts.
The key social problem now is wage arrears, which we believe may amount to 400-450 million roubles. I would like to point out that you still have the federal allocations.

I want you and the local legislature to take a decision - you can do it in accordance with the current legislation; we need not change anything, or amend federal laws - you should give the employees assistance that will fully cover wage arrears. Just give financial assistance to those left in a fix.

As for liquidating the company's hard assets, you can decide that later. I am afraid there will be nothing left to sell if the company's debt amounts to 13 billion roubles. So, you will most likely have nothing to sell even if you get the right to dispose of its assets.
I think you should do as I say as soon as possible. Just extend direct financial assistance to the employees in the amount of the wage arrears. You have the money for this; you received it from the federal fund.

We will discuss the details of changing or not changing the federal law, selling or not selling the bankruptcy assets, or letting the people pick up the remaining assets, if any, later.
So, let us give them direct assistance now.

Georgy Boos: Alright.