OREANDA-NEWS. February 05, 2010. Transcript of the beginning of the meeting: Vladimir Putin: Good afternoon, ladies and gentlemen, let's start with the latest information. Mr Kudrin will speak about the implementation of the 2009 budget. Go ahead, please.

Alexei Kudrin: Mr Putin, today I would like to talk about the implementation of the consolidated budget in the Russian regions. Last time I reported on the implementation of the federal budget, and now I would like to report the latest data on the regional budgets.

Total budget revenues for all constituent entities were 5.923 trillion roubles, while total expenditures amounted to 6.254 trillion roubles.

Accordingly, the total deficit for all constituent entities came to 330 billion roubles. There was an increase in the deficit in 2009. Sixty-two regions ran a deficit in 2009, as opposed to 44 in 2008.

Half of this deficit is comprised of... or was settled through government loans that we issued at minimal interest rates as anti-recessionary support measures.

Vladimir Putin: Was that a slip of the tongue? Or do you really mean that 62 regions finished the year with a deficit?

Alexei Kudrin: Yes, 62 regions finished the year with a deficit.

Vladimir Putin: What did the overall deficit amount to?

Alexei Kudrin: Three hundred and thirty billion roubles. Also, the regions' revenues, including both tax and non-tax revenues, dropped by 14% last year. I would like to note that federal revenues fell by 20%.

Vladimir Putin: How much was allocated from the federal budget as a part of the support programmes?

Alexei Kudrin: One and a half trillion roubles. Funding was increased by 400 billion roubles in 2009.

Vladimir Putin: So, the deficit reached 330 billion roubles, and overall support from the federal budget was 1.5 trillion roubles?

Alexei Kudrin: Yes, one and a half trillion roubles. The deficit was offset thanks to support in the form of loans. In addition to the 1.5 trillion roubles that we allocated, a total of 330 billion roubles were allocated to them [the regions] through the credit market or as government loans.

Meanwhile, tax revenues fell by 14%. Again, I would like to point out that federal revenues fell by a fifth. So, the tax base of the regions appears more stable than that of the Russian Federation. Oil and gas revenues account for the larger share of federal revenues, and they are the most volatile.

When I speak about tax and non-tax revenues, I am not talking about our support, but instead the regions' permanent revenue bases, which they develop and maintain.

Corporate tax revenues fell by 39%, and personal income tax revenues remained at the same level as in 2008. Individual property tax revenues rose by 54%.

By the way, the process of registering and transferring property ownership rights is under way, which is contributing to the increase in the property tax base. Taxes on land increased by 18%. On the whole, the excise duties, which support regional budgets, increased by 30%, thanks to our initiative early last year to allow the regions to withhold 40% of all excise duties on petroleum, as an anti-crisis measure.

The main effect of our policies is that constituent entities' expenditures in 2009 remained at the same nominal level as in 2008. So there was no major drop-off in this area.

Speaking about municipalities inside regions, their revenues fell by only 4%, since the amount of revenue from property taxes, which municipal governments collect, grew last year.

Individual property taxes are also administered by the municipal governments, and they did not decrease at all. All in all, municipal governments lost only 4% of their revenues. Municipal budgets remained at last year's level; they did not diminish in nominal terms.

Naturally, regions and municipalities had to re-focus their expenses during the recession to factor in growing prices on specific commodities and services. Salaries and allowances grew by an average of 11% in Russia. Government-funded salaries increased in the regions and municipal entities.

Investment amounted to 363 billion roubles, decreasing by 22% in 2009. We expected a bigger drop. After the first six months of 2009, we predicted a decline of 40 to 50%.

Nevertheless, government support measures, the revenue base and anti-recessionary expense mechanisms - for example, we channelled some of our expenditures on automobiles, on completing construction projects - helped reduce this fall to 22%, which was less than predicted.

I would also like to report some numbers. The newly created North Caucasus Federal District increased investment expenditures by 12% last year. The Far Eastern Federal District did so by 25%. This is not only due to the construction of facilities for the APEC summit, which is taking place in the Primorye Territory. Nine out of ten Far Eastern regions increased their investment.

At some 34%, the decrease in the Central Federal District was the sharpest. The situation is similar here: Only seven regions out of 18 cut their investment expenditures, with the remaining 11 regions increasing them. Investment fell by 37% in the Urals Federal District. In the rest of the regions, investment fell by 12 to 15% on average.

I reiterate that the measures that were undertaken allowed us to keep expenditures at 2008 levels, ensuring the stable performance of all agencies funded by the budget and allowing us to make all our social payments. As we can see, there was no drastic decrease in investment, which allowed us to continue construction on all major facilities.

Vladimir Putin: Thank you. We slightly altered our policies for subsidising defence companies that are carrying out high-tech and innovation programmes. I would like Mr Sergei Ivanov to speak on this issue.

Sergei Ivanov: Mr Putin, ladies and gentlemen. At the meeting of the Government Commission on High Technologies and Innovations last November, the Ministry of Industry and Trade put forward an initiative to alter the policies for subsidising defence companies, which would encourage innovative and high-tech production.

Vladimir Putin: Including in civilian industries?

Sergei Ivanov: Yes. Previously, if a defence company received government support in any form, for example export support, which is often the case in the defence industry, it was deprived of the right to receive another subsidy for manufacturing innovative products or launching high-tech projects.

The new draft resolution, which was submitted for your approval, allows these companies to receive various types of support simultaneously.

I would like to remind you that a total of 1.5 billion roubles are appropriated for these purposes in 2010.

Second, the new regulations call for new subsidy rates. Earlier subsidies covered two thirds of the refinance rate of the Central Bank, but since the Central Bank has gradually been reducing the interest rate, subsidies can now cover three fourths.

Most importantly, the new regulations will allow defence companies to adjust existing and even future technical re-equipment programmes for the production of complex military equipment to development plans for innovative production in civilian industries.

This will allow companies to combine two plans. On the one hand, it will ensure that state defence contracts are met as a part of the government armament programme. On the other hand, it will allow funds to be allocated for technical re-equipment to manufacture new, innovative, civilian products.

In addition, I believe that this measure will have a financial effect, increasing companies' capitalisation and attracting government lending agencies and even private investors, which is another positive factor.

Vladimir Putin: Good. Now, a few words about the performance of the Housing and Utilities Reform Fund in 2009 and the plans for it in 2010. Please.

Dmitry Kozak: Yes, Mr Putin, just a few words about the Fund. We have compiled an interim analysis of the Fund's performance. This is not a final report, since data are still being collected. Nevertheless, the available data are very comprehensive, and allow us to see how well the Fund did in 2009, how the allocated funds were used in the constituent entities and whether the terms of the subsidies were met.

As of February 4, 81 constituent entities, with the exception of the Chechen Republic and Moscow, have been involved in the housing and utilities reform, which suggests major housing repairs and the relocation of residents in all constituent entities with the exception of the Chechen Republic and Moscow. There are still no municipal entities in the Chechen Republic for well-known reasons, and the local government system is not strong enough in that region. Moscow is reluctant to accept the new regulations stipulated by the housing and utilities reform.

The programmes under the Fund, whose statute was set by federal law, address two objectives. The first is improving social services, including carrying out major repairs, improving housing quality and relocating people out of dilapidated housing. The second objective is fundamentally reforming housing and utilities in Russia in general.

As for the programmes to improve the quality of social services, a total of 224 billion roubles have been allotted for major repairs and relocation of people out of dilapidated housing, with federal budget allocations accounting for 166 billion roubles of this amount. A total of 81,000 blocks of flats underwent major repairs; and 10.3 million people have seen an improvement in the quality of their housing.

A total of 54 billion roubles have been allotted for relocation, including 30 billion roubles through the anti-recessionary measures designed to support the construction industry last year.

A total of 149,000 people will be relocated out of dilapidated housing. Some 130,000 people have already been relocated or are finalising the necessary documents. Unlike the major repairs programme, relocation is being carried out a bit slower. This is primarily because of the complicated procedure for registering the property rights to the flats we provide to people instead of their dilapidated flats. This is how this programme helps improve the situation in social services.

As for the programme's economic effect, all 81 regional governments that participate in the Fund's programme adhere to all terms on which the subsidies are granted. These terms require concrete projects to reform housing and utilities.

Associations of homeowners have been set up in 12.2% of blocks of flats in the municipal entities where the Fund's programmes are being carried out. The number is about 3.5% of blocks of flats in Russia on average.

Almost 67% of blocks of flats in these municipal entities are administered by management companies, and the share of utilities facilities with involvement from management companies is 70%.

This is an important priority for the housing and utilities reform, which will increase the reform's effectiveness. I believe that the adoption of the housing and utilities reform programme, which we are going to supplement with programmes developed by the Fund, will allow us to increase effectiveness in this critical sector of our economy.

I would like to emphasise the positive effect of the decisions adopted by the government and then finalised legislatively last year. These measures toughened penalties for regional governments for misusing the Fund's allocations and failing to meet the conditions these allocations were based on.

A new clause was introduced into the legislation whereby regional governments would have to repay the money from the federal government in case of failure to meet the terms on which allocations were provided from the Fund. This measure also proved effective. The Fund also observes this clause. Funding was suspended in four constituent entities, which is not very many, after the progress in these programmes was reviewed.

This was done because these four constituent entities received subsidies from the Fund, adopted all necessary legislation to enact the housing and utilities reform, and then abolished this legislation shortly after receiving the funds.

This decision has been made already, and I think we will be implementing it step by step. This tool for increasing the responsibility of regional governments for using federal support funds has proved very effective. This mechanism must be applied consistently to all subsidies provided from the federal budget. There are about 80 such subsidies.

We always grant them on specific terms, which are not always met. No sanctions have been imposed for failure to fulfil these requirements until recently. In my opinion, rectifying this situation is a major political objective.

As for plans for the future, a total of 87 billion roubles have been budgeted for these purposes in 2010, and the remaining 20 billion roubles will be allotted in 2011. This will allow for repairs of another 40,000 blocks of flats, move people out of over one million square metres of dilapidated housing and relocate another 70,000 people from dilapidated housing or housing beyond repair.

A total of 273 billion roubles will be allocated for these purposes. We decided to set the Fund's authorised capital at 240 billion roubles, but the utilisation of unused capital proved very effective in bringing another 23 billion roubles in revenues. We conducted a comparative analysis, and all procedures were very transparent. The Ministry of Finance is reviewing this practice of utilising temporarily unused capital to apply this method in future.

This is where things stand. In my opinion, your decision to extend the Fund's operation for another year was correct. Last year was marked by downturn and we lost some time. We wasted a year reforming housing and utilities. These terms must be toughened, and responsibility increased.

Vladimir Putin: Thank you. Now a few words about the schedule for issuing and distributing government housing certificates. This programme was designed mainly for servicemen who are going to retire from the Army or have already retired, as well as for people affected by the Chernobyl disaster and several other groups of the population. Usually the government adopts this sort of decision by the middle of the year or even in the second half of the year. I asked the Ministry of Regional Development to accelerate this process.

I can report that I signed a relevant resolution allocating 35.2 billion roubles. A total of 18,500 people are expected to participate in this programme.  Mr Basargin, how are you going to carry out this programme? You are welcome to take the floor.

Viktor Basargin: Mr Putin, in accordance with your instructions from the meeting in St Petersburg on providing housing to military personnel, we have prepared an appropriate executive order together with the Ministry of Defence. We are planning to issue 18,500 certificates worth a total of 35.2 billion roubles this year.

The certificates will be issued for two categories of military personnel: retiring servicemen and retired servicemen. The former include approximately 9,000 servicemen and the latter approximately 4,500. With regard to the retired servicemen, our goal was to provide them with housing by January 2012. This year alone, by issuing these certificates, we will fulfil 80% of our obligations to servicemen from this category who are registered with the municipal governments to receive housing.

I would like to stress that for the first time in the six years since the programme began, the certificates will be issued in February. A certificate is valid for nine months and can be cashed in within that period. This will allow us to fully implement the programme within one calendar year.

In the event a certificate is not cashed in and is returned, we will have an opportunity to redistribute the certificates within the same category of recipients, whether they are servicemen, Chernobyl or Baikonur veterans, or those relocated from the Far North. We evaluated this option with Mr Serdyukov last year. In other words, it will be possible to use these certificates twice during one calendar year.

Secondly, I believe the facts that Mr Kozak presented about the Fund indicate that this programme proved to be one of the most effective anti-crisis measures of the year. And the early issue of the housing certificates also serves as a stimulus of sorts for the housing market.

We estimate that at present approximately 60% to 70% of the housing certificates are used on the primary market, unlike in previous years when most certificates were used on the secondary market. We discussed this with the Defence Ministry yesterday. We believe the programme sends a serious signal to the market, and we intend to continue it.

Vladimir Putin: Very good, thank you. I would only like to comment that it was not an "early issue," but rather a timely issue.

Viktor Basargin: Indeed, a timely one.

Vladimir Putin: In this regard, I would like to stress that this year one of our social priorities is the provision of permanent housing to servicemen. We have discussed this on numerous occasions, but I would like to bring it up one more time. I also spoke about this with the Defence Minister yesterday. Currently, we are allocating big additional resources for this programme. 

The Ministry will be issuing appropriate tenders, which will be for large amounts. As far as the certificates are concerned, they are also one of the aspects of the programme. If we did not introduce them, we would have failed to meet our commitments. The certificates are the first step toward fulfilling our obligations. Therefore, please ensure that the work is well organised and meets the highest organisational requirements.

Speaking of auto loans. Last year, approximately 70,000 people took advantage of the subsidies granted for purchasing individual vehicles. This means that 70,000 cars were purchased. We have decided to continue the programme this year.  

Today, I have signed a government resolution prepared by the Ministry of Industry and Trade allocating an additional one billion roubles to subsidise interest rates, or to be more precise, to compensate credit institutions for lost income due to subsidising interest rates on auto loans in the amount of two thirds of the Central Bank refinancing rate.

This programme primarily applies to individuals. I hope that the Ministry of Industry and Trade, which is in charge of it, will continue it at the appropriate level in 2010. Mr Khristenko, what can you tell us about this?

Viktor Khristenko: Last year 71,631 people received this benefit. Let me remind you that it really got underway in late July, when it was amended, adjusting it to the market.

We hope that this year this support for domestic automotive industry will enable people to buy more than 100,000 cars. And 71,000 cars were sold for over 30 billion roubles, the money that went back into the market and to car makers for   implementing their programmes.

I would like to emphasise again that since effective, amended terms were in place for 2009, this decision today fully extends these terms for 2010. The pattern will remain the same: the car can cost up to 600,000 roubles, a three-year-loan on easy terms, two thirds of the Central Bank's refinancing rate, and 15% of the initial contribution. That is the usual pattern.

Since this measure was discussed at the end of last year in conjunction with discussions about the overall package of anti-crisis measures, many of the banks which signed up to this, are continuing to implement these measures this year.

Therefore, we believe that the final legal adoption of this decision will allow us to roll this programme out. When we started it last year only a small number of major banks responded and wanted to get involved, but by the end of the year there were over 90 interested banks.

In that sense this measure is of interest to the automotive industry, banks and individuals. I'm confident that we will lend it effective support...

Vladimir Putin: Last year we had only just started subsidising interest rates on car loans, it was a new programme and we did not hit the ground running. However, today it is up and running, and we can expect more people to benefit from this measure.

Let's move on to the agenda of our current meeting. It includes a draft law designed to expand opportunities for charity and other socially important activities. I'm referring to the right of educational, medical, religious and other non-profit organisations to attract donations consisting of free work and services.

We must welcome the input of companies and individuals involved in carrying out repairs on hospitals, schools, museums and churches at their own expense.

It would be even better if people, especially young people, want to volunteer, that is, offer free help in major national events. Their selfless work and readiness to help must be used both towards achieving minor goals under specific environmental, educational or other social programmes and in nationwide events, such as the World Student Games (Universiade) in Kazan or the Olympics in Sochi in 2014.

The government should encourage all useful and socially responsible activities, including through tax breaks.

I would like to recall in relation to this, that a number of draft laws on additional charity incentives have already been submitted to the State Duma. We hope that the Duma deputies will review them promptly, and lend them their support.

We will also discuss two drafts of technical regulations. This effort to update standards in industry is gaining momentum. At first sight this work seems dull and routine but organising it correctly, establishing the required parameters will to a great extent determine whether we will be successful in developing and modernising our economy. Not much has been done on this, at least much less than we had hoped for.

So I hope that the new programme for drafting technical regulations prepared by the Ministry of Industry and Trade will contain an exhaustive list of the documents, which we must adopt in 2010 and 2011 if we are to, finally, draw a line under this. The real economy should be given an opportunity to produce goods under modern standards and rules, which should encourage its development, not be a burden to it.

And the last point. We had complicated and lengthy but constructive talks with our Belarusian partners about crude oil supplies to the republic. We have reached a mutually acceptable decision. Russian oil will be supplied to Belarus duty-free to fully meet its domestic demand.  

However, duties will be levied for all additional supplies, processed and exported to third countries. Needless to say, our guiding thought is the principle of integration. We will continue developing along these lines, up to and including the creation of a common economic space, and will formulate our domestic legislation accordingly. However, this is a goal for the future. We have agreed that the common economic space will come into force from January 1, 2012. It goes without saying that Russia will move in this direction.