OREANDA-NEWS. March 04, 2010. Transcript of the beginning of the meeting: Vladimir Putin: Good afternoon. We have a very full agenda today. I would like to start with an issue that is not on the agenda, namely, progress of the pension reform. (Addressing Tatyana Golikova) In the past, pensions were usually raised in April. What about this year? What are our plans for the current year?

Tatyana Golikova: Mr Putin, colleagues. Valorisation of accumulated pensions for all age groups took place on January 1 in line with the decisions made at the time when amendments were introduced to pension legislation and the Pension Fund budget for 2010 was finalised. All these procedures have been completed. The payments that were due in January and February have also been made.

As regards indexation, initially, even before...

Vladimir Putin: What has been the average increase due to valorisation?

Tatyana Golikova: The average increase due to valorisation has been 1,039 roubles. That is the average for all population groups. Let me just remind you that when we announced our commitment to raise pensions, the budget message stipulated that pensions would grow by 46% during 2010.

Vladimir Putin: And what is it now in percentage terms?

Tatyana Golikova: As a result of valorisation, a little over 30 percent.

Vladimir Putin: I see. The problem is that the law on the pension reform has been passed and the Finance Ministry has some ideas on how to implement the law. Mr Kudrin, you have the floor.

Alexei Kudrin: Prime Minister, colleagues. This year a new edition of the law on retirement pensions in the Russian Federation has come into force.

The law combines the basic part of the pension and the insurance part. This year any revisions of the pension will apply to the whole pension, the consolidated pension, which is now called "insurance pension". It is the insurance-based pension and is connected with insurance contributions.

So we must make up our minds, and the government is to decide on the indexation of pensions this year. Another factor that may warrant a review and increase of pensions is if the Pension Fund incomes register an increase in the previous year. In that case pensions may be raised from the beginning of the year over and above the adjustment for inflation.

Mr Putin, today I can say that from the results of the previous year the revenues of the Pension Fund have not grown during the past year. This is of course due to the crisis, due to the fact that many enterprises across the country have had to cut wages and wage funds.

Wage funds across the board have not grown, and the incomes of the pension system have not grown to enable an additional indexation to be made early in the year in accordance with the growth of pension system incomes.

The other factor is adjustment for inflation. We believe that by the end of the year inflation will not exceed 7.5%. That is, it will not be 6% either on a quarterly basis or during six months. Inflation will reach 6% or slightly more only towards the end of the year.

I would like to remind you that our forecast for this year proceeds from a possible inflation of between 6.5% and 7.5%. So, the 6% level will be reached only towards the end of the year.

So far, that factor too does not warrant an indexation if we are to keep within the law. At the same time, when we prepared the budget for the Pension Fund and the Federal Budget for this year, we proposed that if events develop favourably, indexation should be made even though the law does not require it or does not provide grounds for increasing pensions.

The budget envisages a 6.3% indexation as of April 1. But the implementation of the budget this year in the first two months has shown that the Pension Fund income this year may be lower that we forecast for 2010. This is because inflation will be lower than we forecast last August and September and wage funds will not grow as much as we planned for 2011.

Therefore we may fall short even of the planned target for the pension system income. Preliminary analysis has shown that the deficit may amount to between 130 and 170 million roubles. That is roughly the amount we planned to spend on additional indexation of pensions over and above what is stipulated by the law. The situation today is that if we go ahead with the indexation, we will have to raise about 130-170 million roubles this year. That would require either an increase of the budget deficit or a cut of other programmes and spending for all the ministries and agencies.

So today we should decide whether we are in a position to additionally increase pensions, an increase that, I repeat, is not warranted by the law, but is warranted by our expectation of a higher growth of incomes, which so far has not been the case.

Vladimir Putin: We must arrive at a decision today so that if we are to have the indexation we can prepare for it properly.

The Ministry of Finance has outlined the shortfalls of the new legislation.

When the budget was debated in the State Duma, the deputies, primarily United Russia members, viewed this draft budget as a compromise.

This compromise was reached after United Russia agreed to our proposal to reduce expenditure on several budget items. It was done in order to balance the budget to address more effectively several acute problems in social services, including the reform of the pension system and raising the standards of living for pensioners.

This means that to get rid of certain items, social services in this case, without balancing other areas, would not be ethical.

Second, utility tariffs have been growing rapidly in several regions. We did not set a top limit for utilities, and the Federal Tariff Service is no longer even eligible to monitor this situation. I believe that the Federal Tariff Service must be given the right to do so. We must keep an eye on what is happening in this area. It is the second aspect that we must bear in mind. Increases in benefits must not be compromised by growing tariffs.

We must certainly pursue a sound, well thought-out and intelligent policy in social services and the economy. We can see what is happening in some countries, including European countries with well-developed market economies. For example, Greece is facing a budget deficit and had to freeze the payment of salaries to government-paid employees and pensioners. I am not going to comment on this issue now. I can only say that it was a forced measure.

We do have necessary funds. I am confident that the indexation will not distort macroeconomic parameters. We managed to reduce inflation last year and sustain this trend in the first months of this year, which shows that we will manage to meet the planned macroeconomic targets.

A responsible policy means, among other things, fulfilment of our obligations to our citizens. Therefore as of April 1, 2010, pensions in Russia are to be increased by 6.3 percent. Please make sure that they are.

Now let us move on to today's agenda and discuss the main subject of this meeting, the Development Strategy of the Automotive Industry. This strategy must define the objectives for the industry for a decade ahead.

The Russian automotive industry has been seriously affected by the downturn. In addition, the market demand for new vehicles remains low.

For your reference, in 2009 the production of cars, lorries and buses fell by 59.4%, 64% and 46%, respectively.

This is why the large-scale effort will be continued into 2010 to support the automotive industry. A total of 30 billion roubles will be allocated for government purchases of cars and municipal vehicles.

Banks will continue granting subsidised loans for buying Russian cars for a price of up to 600,000 roubles. And finally, as we agreed, a new programme of bonuses for recycling cars is already starting next week. Each car owner who trades in his or her car for recycling will get a discount of 50,000 roubles on the purchase of a new car assembled in Russia.

We anticipate that around 200,000 new cars will be bought through this programme. Funding for the programme stands at 11.5 billion roubles.

I would like to tell those who have been planning to buy a car in the near future: if you are really planning to do it, do it now, this year. This is not a purchase you should put off. Now is the time when you can get the best deal. You can get a 50,000-rouble discount and a loan at low, government-subsidised interest rate. It is not a given that these terms will remain next year.

I am convinced that both anti-crisis measures and the gradual recovery of economic growth will once again lead to increased demand for automotive equipment and therefore, we need to think about the long-term perspective now.

The era when cars were repaired by their owners is receding into the past. Of course, there are people who like to spend time under the bonnet, and such enthusiasts will remain in the future. But the quality of automotive equipment is coming to the fore now. Only those cars that are reliable, safe and that meet high environmental standards will be in demand on the market.

Accordingly, the Russian government and Russian automakers will have to resolve a number of fundamental issues. First, we need to introduce modern technical regulations setting requirements for automotive safety and reduction of polluting emissions.

By removing outdated equipment from the market, we will make the air in our cities cleaner and, most importantly, we will save thousands of lives that are lost today in road accidents. But we need to give credit to everyone involved in this issue: the number of road accidents in Russia has fallen significantly.

Second, getting back to the auto industry, we need to seriously increase the competitiveness of the Russian auto industry. In just a few years, we were able to attract all major automakers to Russia. We were able to convince them to open their assembly plants in Russia and now they are working in this country. Today, they have become an integral part of the Russian auto industry and are full-fledged representatives of Russian auto manufacturing.

But this alone is not enough; it is only the first step. Our end goal is to build a modern auto industry in Russia, including the entire production chain - from the steel sheet to the end product.

And then the next step must be establishing new companies that will produce car parts. Here we can also take full advantage of international cooperation.

I must say a few words about the problems of our largest automaker, AvtoVAZ. The company has already been provided with considerable financial, management and political support. We have helped it to service its liabilities to banks, to resolve social issues of the workforce and to build relations with strategic investors.

Remember that 37 billion roubles were allocated to service its debts. Another five billion were allocated to implement programmes to support and re-train workers. AvtoVAZ social facilities, which became a burden on the company's balance sheet, were transferred to municipal and federal ownership.

In late December last year, we made a critical decision: AvtoVAZ will receive 28 billion roubles of additional funding, and this money has already been transferred into the accounts of Rostekhnologii. We have also reserved another 10 billion for AvtoVAZ itself.

AvtoVAZ will receive these funds upon the successful implementation of a restructuring programme developed with and approved by shareholders. In essence, AvtoVAZ will change radically under the programme. It will master manufacturing of competitive products and find its place on the Russian and international automobile markets.

Third, issues of training engineering personnel and the company conducting its own research and development are of considerable importance and need to be addressed. Of course, we cannot hope for an instant result. But if promising potential is created, we may one day talk of establishing reputable Russian centres for the development of new automotive equipment and new concentrations of know-how.

Let's get down to work.