OREANDA-NEWS. April 13, 2010. Transcript of the beginning of the meeting: Vladimir Putin: Good afternoon, colleagues.

As you know, today is an official day of mourning for the victims of the plane crash in the Smolensk Region, which lead to the deaths of the Polish president and everyone accompanying him.

Poland plunged into seven days of mourning. We have also seen an outpouring of emotion here in Russia. People have brought flowers to the Polish Embassy and to the site of the tragedy. This support has been spontaneous; people are doing it of their own accord. As I have said before, we suffer and grieve together with the Polish people.

A state commission has been set up, and it goes without saying that we will do everything in our power to ensure that the investigation is objective and comprehensive. We will establish all the causes of that plane crash. Mr Ivanov (Deputy Prime Minister Sergei Ivanov), please report on the commission's progress.

Sergei Ivanov: I'd like to report that both the cockpit voice recorder and flight data recorder from the Tu-154 aircraft that crashed near Smolensk were opened yesterday at the Interstate Aviation Committee (IAC), in the presence of representatives from the Polish Public Prosecutor General's Office, Ministry of Foreign Affairs and aviation authorities. The Russian delegation included experts from the National Aviation Committee (NAC), IAC, Ministry of Defence and Investigation Committee.

Both the cockpit voice recorder and the flight data recorder are in satisfactory technical condition. This will allow us to decipher and analyse all flight information and the operation of the aircraft's equipment up until the moment of catastrophe.

Subsequent work to decipher and analyse the data from the two recorders will be carried out in close contact with Polish officials; we have reached a relevant agreement and started working. We will update you on its progress.

We can already draw two conclusions. First, the flight recorders were in working order and recorded all voice and flight data information until the moment when the plane hit the ground.

And second, we have reliably confirmed both that the ground services warned the crew about bad weather at Severny Airport in due time and recommended the aeroplane to fly to a reserve airport, and that the crew acknowledged receiving that information.

This is all I have to say at present. We will continue investigating the accident and, of course, will continue to work closely with Polish officials, as I have said before.

Vladimir Putin: Good. Let's move on to other issues. I'd like to tell you about the results of my visit to the Novosibirsk Region and remind you of some of the instructions formulated during that visit.

First, I ask the Ministry of Regional Development to finalise and submit to the government a draft of the development strategy for Siberia within a month. We have discussed a two-year development plan, but we must consider all programmes, plans and financing options, as well as prepare appropriate drafts. And we must also compile an official list of key projects to be implemented in the Siberian Federal District over the next two years.

Ms Nabiullina (Elvira Nabiullina, Minister of Economic Development), I also ask you to work as closely as possible with the Ministry of Regional Development to see this project through to the end.

Similar documents must also be prepared for the other federal districts.

Second, we have agreed that we must expand the role of the Ministry of Regional Development as the key administrator of these complex projects. Therefore, I ask that you promptly make relevant changes to the Ministry, including personnel changes if necessary, that is, the number of people working in this area.

Two more issues came up during my visit to Novosibirsk: discount air travel for people living in the Far East and some Siberian regions, and the situation on the pharmaceutical market.

Rules aimed at making government regulation of pharmaceutical prices more effective came into force on April 1, 2010.

The previous notification procedure has been replaced by the obligatory registration of ceiling prices for essential medicines.

Additional powers to monitor medicine prices have been given to the Federal Tariff Service and Federal Service for Supervision of Healthсare and Social Development.

A single formula should be used to calculate the cost of products sold in pharmacies: it should be the manufacturer's sale price plus the retail mark-up, which is separately set by Russia's regions. As the result, we have a price control system for essential medicines. Even though this refers to essential medicines, not all pharmaceutical products, it is a rather long list. Anyone found in breech of this pricing structure must be held to account.

I would like to note that overall drug prices have stabilised. In January and February, there was a slight fall in price, of 1.38%. However, inspections by the Federal Service for the Supervision of Healthcare and Social Development revealed certain violations. The initial inspection revealed that prices for particular drugs were 5-8 times higher than the maximum level permitted. This does not mean that overall prices soared, but they have not decreased as they should have. The second inspection a week later showed that many violations had been corrected.

Yet, in some of Russia's regions the prices for certain pharmaceutical drugs still exceed the maximum permissible level by 17%-50%. For instance, there have been 408 such cases in the Stavropol Territory, with an average illegal overpricing of 17%. In the Moscow Region, 3,500 cases have been recorded, with the average price 17% above the accepted level. In 17 of Russia's regions and territories, local administrations have yet to follow requirements for each pharmacy to provide full information on costs and medicines sold. In particular, this includes the Altai Territory, as well as the Archangelsk, Bryansk, Volgograd and Penza Regions.

Those attending today's government session include the governors of the Stavropol Territory, the Moscow and Chelyabinsk Regions, as well as the Jewish Autonomous Area. I ask you to report back on the current situation and work undertaken on this issue. Mr Gromov, let us start with your report on the situation in the Moscow Region.

Boris Gromov: Prime Minster Vladimir Putin, meeting participants, I would like to report that, the Moscow Region has one of the highest numbers of pharmacies. Currently, the region has 3,205 pharmacies, with 500 state-owned, 108 municipal and the rest privately owned chemists.

In line with the decision made on March 10, 2009 by the government commission for the sustainable development of Russia's economy, we are making active efforts to control prices, with close assistance from the regional branch of the Federal Service for the Supervision of Healthcare and Social Development.

All inspections are being carried out jointly with the prosecutor's office in the Moscow Region. All pharmacies directors who allow overpricing to take place are fined, and to date fines paid total 10 million roubles.

In June 2009, the Moscow Region's administration issued a resolution cutting retail mark-ups for vital and essential pharmaceutical products. The resolution reduces the mark-up to 25% from 30% for wholesale traders, to 10% from 30% for counter asthma medication, and to 25% from 30% for other pharmaceuticals in retail trade. This has allowed a total average cut of 6.5% in medication prices.

In line with the August 2009 government resolution on improving state regulation of prices on vital medicines and in accordance with the calculation methods approved by the Federal Tariff Service last December, our region's government has, according to established procedure, adopted a resolution approving the limits on wholesale and retail mark-ups on medicines on the Essential Medicines List (EML).

As I have already said, we have organised joint inspections of pharmacies and revealed violations. In effect, these violations were quite serious for a period of time. They were immediately removed, including all those you spoke about at the United Russia congress. At the same time, the territorial department of the Federal Service for the Supervision of Healthcare and Social Development (the public health and social development watchdog) also revealed violations of price limits, more serious in some cities and less in others, during its inspections of pharmacies.

Inspections of pharmacies continue. At present, prices correspond to the limits registered in the Federal Service for the Supervision of Healthcare and Social Development in the majority of pharmacies. We have information on price limits for medicines accessible to customers. Unregistered medicines have been discontinued.

The results of this monitoring gives us an objective picture of the Moscow Region's pharmaceutical market. In January-February the prices for medicines decreased by 3.2% across the region.

Every month inspectors analyse data on the quality and range of medicine.

In line with the decision made at the videoconference on April 6, these results will be submitted to the Ministry of Healthcare and Social Development by the deadline already set.

The region's government has established price control departments in each municipal entity.

Regrettably, regional authorities do not have sufficient power to control private pharmacies, while the majority of pharmacies are indeed under private ownership.

Today, the executive authorities can carry out unscheduled inspections of pharmacies only if there is a complaint from a customer and with permission from the Prosecutor's Office.

Therefore, we always ask employees of the Prosecutor's Office to participate in such inspections. If at all possible, we would request that our rights and the rights of municipal entities in controlling price formation should be established in law.

We understand the complicated nature of the situation and our responsibility. Mr Putin, I'd like to say in conclusion that the measures and other steps I have mentioned would allow us to prevent the sort of violations revealed during recent inspections. This concludes my report.

Vladimir Putin: Thank you. Please, Mr Gaevsky, tell us about the Stavropol Territory.

Valery Gayevsky: Mr Putin, first of all I'd like to say that we are meting out severe punishment to all price violators on the regional market. Since the start of April, specifically following the videoconference conducted by Mr Zhukov, we have toughened our inspections and discussed in detail why violations occurred. We have to work quickly. The register of manufacturers' price limits was still being completed right up to the end of March. Now there are 5,947 entries on it. More than a thousand of them were entered on March 31, one day before April 1. This required our quick response but apparently not every pharmacy adjusted its prices to meet the requirements. This is not any kind of excuse, of course, but it is a reason. I think that rigorous inspections will wake everyone up and force them all to speed up this process. The second reason is poor and faulty accounting paperwork. We learned that furosemide is on sale for 84 roubles in our region whereas its real price is 11 roubles. When gathering data monitoring this situation, Shabanov, a businessman from the Yessentukskaya village, confused it with its alternative lasix that retails for 84 roubles. I personally visited his pharmacy to listen to his explanations. He said he was working late yesterday and made a mistake. This is why the price was so much higher. We saw another glaring violation at a home pharmacy on Baksanskaya Street in Pyatigorsk. The local pharmacists put the price of the whole pack: 2,413 roubles, instead of that of one ampoule: 243 roubles, on the Tiogamma solution for diabetics. This is a 720% price violation. There were no sales at that price. We have double-checked that. Leftovers are another problem. Chemists should either discontinue medicines bought three to four months ago, if the prices were lower, or adjust the prices to the new requirements. But not all of them have displayed sufficient responsibility. Some thought that April 1 is for new acquisitions only and that they could sell remaining stock at their current prices. They made a mistake here and we corrected them. I see only one way out: to tighten control.

Vladimir Putin: They did not make a mistake. They simply do not want to reduce prices. That's all.

Valery Gayevsky: But we have corrected them.

Vladimir Putin: They are always making mistakes in their favour, not in their customers' favour. These mistakes must be corrected.

Valery Gayevsky: A week after the videoconference held by Mr Zhukov, we reviewed all remarks. We conducted additional inspections in 200 pharmacies. I visited a dozen of them myself. Just yesterday and the day before yesterday I was taking part in these inspections. In total we have been through a quarter of all our pharmacies with a fine tooth comb.

Let me assure you that the pharmaceutical market is returning to normal. This has been confirmed by the most recent inspection carried out by the Federal Service for the Supervision of Healthcare and Social Development on Saturday, April 10.

We have set up a special sector in our regional tariff commission on price control for medicines. Several chemists have already been fined for 50,000 roubles each. Plus we have compiled five protocols on violations of license requirements and our regional branch of the Federal Service for the Supervision of Healthcare and Social Development submitted them to court. We will show no mercy in fining the violators.

We adopted a document on mark-up limits as early as February 27. Before, mark-ups were sometimes as high as 35% but now they range from 16% to 29%, depending on costs. The Stavropol Territory looks quite moderate in the combined table which is now on the site of the Ministry of Healthcare and Social Development. Prices in the outpatient sector are falling. In other words, prices on medicines are falling. The retail mark-up was 22% in the first quarter, as compared with the Russian national average of 24%. 

Every pharmacy has a mandatory list of prices with the maximum prices, this is available to every customer. The full list of prices is displayed on our regional health ministry's website. Telephone hot-lines are prominently located in pharmacies to enable customers to report violations. Regrettably, we have not yet received any written complaints, and this is why it is difficult for us to carry out inspections.

We support Mr Gromov. Considering the social importance of the subject we would like the Prosecutor's Office to allow us to conduct a large-scale monitoring campaign at least during the beginning of state price regulation.

Mr Putin, this conversation will provide additional serious momentum further intensifying our work. I think I'll need another ten days to put everything in order. Thank you.

Vladimir Putin: Okay. The governor of the Chelyabinsk Region, please go ahead.

Evgeny Redin (Deputy Governor of Chelyabinsk Region): Mr Putin, members of the Presidium of the Government of the Russian Federation, the pharmaceutical market in the Chelyabinsk Region operates on a competitive basis. As of April 1, 2010 there were 1,012 pharmacies: 68% are privately owned, 27 are state-owned, and five are municipal property.

The monitoring of drug prices carried out by the Federal Service for the Supervision of Healthcare and Social Development since last year shows average prices in the region throughout that period to be lower than the average prices nationwide. Pursuant to the Government Resolution No. 654 On Improving State Regulation of Prices for Essential Medicines of August 2009 and in accordance with the methodology developed by the Federal Tariff Service in the Chelyabinsk Region in February, a government resolution was passed setting limits on retail and wholesale mark-ups on factory prices of drugs included in the list of vital drugs. Different levels of retail mark-up have been set depending on the cost of the drug: the more expensive the drug the lower the mark-up. This resolution has been publicised in the media and placed on the site of the Ministry of Healthcare of the Chelyabinsk Region.

By April 1 this year, when the ban was imposed on the sale of drugs whose prices have not been registered by the producer, the regional Healthcare Ministry calculated the maximum wholesale and retail mark-ups. This data has been passed to the pharmacies and they have prepared reports on the maximum retail prices for the drugs. Where drug prices exceeded the maximum retail price, prices have been revised. Drugs which have not been re-evaluated have been put in "quarantine".

I think I should mention that in preparing its reports one of the state unitary enterprises in the region, a dominant force on the pharmaceutical market in the Chelyabinsk Region, misreported inventory data on their balance books, not exclusively regarding products cleared for sale from April 1. As a result it was rightly pointed out that the price exceeded the allowed maximum, but in reality all the overpriced goods are being re-evaluated and are in "quarantine".

We have registered no complaints about the lack of essential medicines or excessive retail prices. The Healthcare Ministry of the Chelyabinsk Region is monitoring prices. In 2009, 306 inspections were carried out and with the exception of one private pharmacy, retail mark-ups did not exceed the level set.

To monitor the supply of drugs in the region we continue to keep track of the pharmacy price for drugs in the range of goods agreed with the regional branch of the Federal Service for the Supervision of Healthcare and Social Development. On April 15 we will hold a joint meeting of the Healthcare Ministry of the Chelyabinsk Region and the regional branch of the Federal Service for the Supervision of Healthcare and Social Development on the results of the inspections.

On Saturday repeat checks were carried out in the wake of the meeting held in the Chelyabinsk Region on April 6. No excess retail prices for the goods referred to were recorded. We will not tolerate it in the future. Thank you.

Vladimir Putin: Thank you, be seated. Alexander Vinnikov, Governor of the Jewish Autonomous Region.

Alexander Vinnikov: Prime Minister, members of the Presidium. Retail mark-ups in the Jewish Autonomous Area have been set both for those drugs on the list of essential drugs and for drugs not included in the list. The trade mark-up is based on the manufacturer's factory price.

Until March 31 this year Government Resolution No. 85 of June 18, 2002 On Trade Mark-ups for Drugs and Medical Goods was in force across the region. It set the retail mark-up at 40% of the factory price.

Since then pricing has never exceeded the limits set. Price monitoring has shown that the average retail mark-up in the region was no more than 33%.

I would like to stress that the Jewish Area is one of the few Russian regions which regulates the trade mark-up on goods that are not on the list of essential drugs. Nevertheless the inspections carried out between April 1 and 3 did reveal price irregularities at four pharmacies. Prices were exceeded on 176 items.

Six pharmacies took part in monitoring drug prices across our region. I would like to report that as of April 8 all irregularities had been rectified.

The region's health authorities jointly with the Federal Service for the Supervision of Healthcare and Social Development branch in the Jewish Autonomous Area have formed a commission to prevent future price violations. Inspections into compliance with the licence terms and requirements continue to involve everyone on the pharmaceutical market with a focus on compliance with the drug pricing rules and requirements for the minimum range of drugs on sale.

Medicine availability across the Jewish Autonomous Region is stable.

Administrative proceedings have been launched with regard to those who have violated pricing rules.

Thank you.

Vladimir Putin: OK. Mr Zhukov, what can you say about the inspections and how they were organised. And one question about penalties: what penalties can be imposed for violations in accordance with the decisions made?

Alexander Zhukov: Mr Putin, in accordance with your instructions, inspections were carried out in all the entities of the Russian Federation between April 1 and 3. Over 3,000 pharmacies were inspected.

Vladimir Putin: I mean the request made by the governors and heads of regions about how the inspections should be organised, and their scope of authority in the course of these inspections.

Alexander Zhukov: Their scope is fairly broad. First of all, the process of licensing and monitoring compliance with license agreements confers such rights on regional and local authorities.

Secondly, I would like to stress that in some regions most of the violations occur at government municipal pharmacies. There are no extra rights there: these pharmacies are owned by regional and local authorities.

As for any additional inspection rights: we will consider it. But we should be careful not to overdo it because we have set a certain procedure of scheduled and unscheduled inspections. But an inspection should be carried out immediately even if there is a single complaint about a particular pharmacy.

As for penalties, penalties may range from fining pharmacy officials to recalling the license, this latter being the most serious penalty for a violation. That is, when a pharmacy is aware of the violation and yet continues to allow it.

But I have to say that during the past week, between the first inspection on April 1-3 and the inspections of April 8-10 the situation changed dramatically in many entities of the Russian Federation. Most violations have been rectified.

Vladimir Putin: That is clear. As for the penalties, we can see that they are sufficient and really important. In this regard, I'd like to point out the following: license withdrawal is, of course, an extreme measure, one that should only be taken when there are sufficient grounds for it, and when the decisions made have been grossly violated or have not been executed at all. At the same time I also would like to focus the attention of all the regional heads present here, and those who will hear us. When you decide to withdraw a license, you should naturally make decision on replacing the institution with another pharmacy, to ensure there is no reduction in service provision. That's the first point.

Secondly, everyone who spoke said that in fact residents were not complaining. But we don't have to wait for them to complain. We see these violations, we should see them.

As for the average mark-ups. Average mark-ups are good, but we need to refer to the detail, because we know what the term average means. A colleague of ours said that all violations had been detected and terminated. But how many violations remain undetected?

All I want to say is that we need to carry out this work across the entire country. It should be done gradually, calmly and without any panic. And when we get down to it, we get it done, as I am ready to demonstrate with concrete figures.

Let's take the Moscow Region for example. On April 1 this year, the day when new regulations on selling essential medicines, some of them, not all of them, but some of them, was to be implemented, the retail price for a drug stood at 168.6 roubles, but in practice it sold for a much higher price, the drug's maximum retail price exceeded the price set by 851%. 851% The set price for another drug was exceeded by 617%, on another occasion by 416%, and by 380%, or 360% for others.

The Chelyabinsk Region saw the set prices for some drugs exceeded by 141%, 149%, 144% and 138%. The price for one drug in the Stavropol Territory was exceeded by 726%, by 627% for another one, by 368%, 329% for another and so on. The Jewish Autonomous Area saw prices being exceeded by 294%, 219%, 148%, 138% and so on.

And you say no complaints? How could there be any complaints here? We should have got everything done on time.

What response have we seen since I brought up this issue in Novosibirsk? There was still a difference as late as April 1, wasn't there? All drug prices in the Moscow Region, which had been as high as 800% of the official maximum price, were brought into compliance with the law by April 8.

Same in the Chelyabinsk Region. Everything's in compliance. And Stavropol. Everything's in compliance.

There is one violation found in the Jewish Autonomous Area that has not been corrected, but the difference is minor, so it's easy to do. We just have to fix it.

But all of this only concerns the violations that have been identified. Ladies and gentlemen, I ask you continue to identify violations for all the products on the list of essential drugs, as you have done over the past two days. This request is directed to all Russian regional leaders. We assume that this work is only the beginning.

As for the prosecutors' offices, I will certainly talk to the Prosecutor General and ask him to be involved in this work. I am sure he will respond quickly.

Let us turn now to air transport. Last year we began subsidising airfare, paying for half the cost of plane tickets for people in the Russian Far East. More than 163,000 people under 23 and above 60 years old have taken advantage of the reduced fares.

This year, even more preferential regulations will help people travel from the Russian Far East to European Russia. Seasonal fare reductions are valid as of April 1 and not May 15, as was the case last year.

Moreover, the number of subsidised air routes has increased from 18 to 26. The list of subsidised routes now includes flights from Komsomolsk-on-Amur to Moscow and from Khabarovsk to Sochi, as well as four routes within the Russian Far East: from Petropavlovsk-Kamchatsky, Magadan, Yakutsk and Anadyr to Vladivostok. The list also includes routes to and from Kyzyl and Norilsk, which are only accessible year-round by air. Mr Levitin, how has this all been set up?

Igor Levitin: Mr Putin, ladies and gentlemen,

As of April 1, 55,000 air tickets were booked, worth a total of 400 million roubles. This demonstrates the enormous popularity of these routes. And we expect air traffic to increase. In fact, we anticipate that it will double as compared to last year.

I would also like to note that we are giving preference to Russian-made aircraft, in accordance with your order. Traffic along the routes I mentioned will double compared with last year, and approximately 20% of these new flights will be on Russian aircraft.

Moreover, I am pleased to report that we are implementing the programme to support the airfield network in the Yakutia, Kamchatka and Chukotka Regions, as you instructed. A government-run company has been established in Yakutia, and similar ones will soon appear in Kamchatka and the Chukotka Peninsula, as stipulated by the presidential decree. In fact, the entire airfield network for these three regions will be funded federally, because there are no other means of transport. The regions also have signed an agreement with us to subsidise domestic routes. I can say that air traffic is increasing in the Republic of Sakha (Yakutia), as are subsidies.

In compliance with your order regarding Novosibirsk, we will soon announce our ideas on the feasibility of this programme. Thank you.

Vladimir Putin: I would also like to inform you that I have signed the executive order of the Government of the Russian Federation today providing lump sum payments to veterans of World War II, persons disabled due to World War II, widows from the war and underage prisoners of Nazi concentration camps. A lump sum of 5,000 roubles per capita will be issued in honour of the approaching anniversary of the Victory in World War II. Individuals involved in the war effort on the home front and adult inmates of Nazi concentration camps will receive a thousand roubles each. I call on the Ministry of Finance to comply with this order and issue relevant allocations on time.

Mr Kudrin, you also have information about the execution of the budget. Please.

Alexei Kudrin: Mr Putin, ladies and gentlemen, we have the preliminary data from the federal budget for the fourth quarter. Budget revenues amounted to one trillion, 953.3 billion roubles, or 20.1% of gross domestic product, which is the lowest amount in six years. However, that is 28.1% of the projected revenues for the year, which is good.

Budget expenditures reached two trillion, 260.9 billion roubles, or 23.3% of GDP, which is the highest in six years due to several regulations adopted over time, the majority before the year began.

All allocations were determined before the beginning of the year, and all ministries and agencies were working according to plan, in accordance with all indicators. That is why the first quarter saw the largest expenditures, both as far as percentage of GDP and percentage of total expenditures. In fact, first quarter expenditures accounted for 22.9% of total budget expenditures.

I should add that the budget ran a deficit of 307.6 billion roubles, or 3.2% of GDP. This is somewhat lower than expected, though the numbers from the second, third and fourth quarters will be of more importance.

I also want to say that 99.8% of all allocations to ministries and agencies have reached them, and so they have the funds at their disposal. This means that ministries and agencies have received the bulk of their funding in the first and second quarters. Not a single ministry can complain that it received its funding in December or November. The money is available now, in the first quarter.

However, the ministries and agencies themselves have distributed only 59% of funding allocated to their sub-agencies, which means that 40% of the funds have not been distributed yet, including allocations for federal targeted programmes.

Vladimir Putin: Does everyone understand what Mr Kudrin is saying? He constantly takes flak (excuse me for this colloquialism) for delaying funds. He is alleged to keep them till the end of the year on purpose. But here he is, telling you all that the funds have been transferred and are at your disposal. You have no one to shift the blame to anymore, so keep to your schedule.

I think he is right. Relevant contracts should be signed and tenders held early, so as not to put everything off to the second half of the year. Please.

Alexei Kudrin: The figures for the first quarter show that ministries and agencies spend quickly.

Vladimir Putin: True, but only for 40%.

Alexei Kudrin: The allocations for the second, third and fourth quarters have not been transferred yet, so it means that tenders have to be put off.

All told, it took 107 government regulations to execute the budget 100%. Ninety-seven have been passed by now, and the other ten are still to come. They were scheduled for a few days after January 1. We need to adopt them now. On some matters, we simply adopt decisions throughout the year. This point mainly concerns the anti-crisis fund, which is why I bring it up

There are some problems. Take the Federal Agency for Education, which has been eliminated and its responsibilities shifted to the Ministry of Education and Science. Both have many subordinate agencies, so it takes quite some time to distribute allocations to those agencies. The biggest problems are with funding for federal targeted programmes. I ask the Ministry of Education and Science to pay attention to this issue.

Furthermore, the value of the Reserve Fund has fallen by 277.2 billion roubles. All told, 107.7 billion of this is because we are keeping the bulk of the fund in foreign currencies and exchange rates have fluctuated, and 169.5 billion roubles were used to cover the deficit. The value of the National Welfare Fund decreased by 138.8 billion roubles, which was entirely due to changes in exchange rates; not a kopeck of the fund has been spent. And so, as of April 1, the Reserve Fund is worth one trillion, 553.3 billion roubles and the National Welfare Fund two trillion 630.3 billion roubles.

These are brief, preliminary numbers. Every ministry has this information, and so every ministry is aware of the figures that affect it.

Vladimir Putin: Good, thank you. Mr Khloponin, you recently came back from Chechnya. Plans are being drawn up for the development of the entire North Caucasus. How is the work going? Please.

Alexander Khloponin: Mr Putin, we visited housing projects in Grozny and Gudermes funded through the federal targeted programme for the development of Chechnya.

We met many residents of the Republic, particularly at the Grozny and Islamic universities, where we spoke with students and faculty about youth policy and higher education issues. We also met with the Muftis of Chechnya.

In Grozny we met with members of the republican government to discuss economic and social problems and prepare the strategy for social and economic development, which we are scheduled to submit to you in late June.

A council of experts has been established to prepare the strategy. Several ministries and agencies have been actively consulted on the issue, including the Ministry of Regional Development, the project's chief executor. The work is fully coordinated.

I would like to note that the government of the Chechen Republic is sufficiently involved in this project. It has suggested its own projects and solutions. We will have no clear understanding of the situation until we bring all these projects together for the expert team, which we are doing now. I think some of the projects will necessarily be part of the strategy for regional development.

I have been to practically all the republics of the North Caucasian Federal District, so I can make comparisons. To be sure, the amount of federal allocations to Chechnya and the scope of construction there are beyond comparison. The republic is literally rising from the ruins. Construction has been very rapid. It is difficult to recognise Grozny if you have seen the photos taken in the aftermath of the military action.

I wanted to know what the people I met with think about those projects. People genuinely feel differently in Chechnya now. Their gratitude to the government is tremendous.

However, I tried to focus not on improvements but on current problems. I can say that a large number of the questions asked in the government concern the 30% cut in funding for the federal targeted programme for Chechnya, as well as for other programmes. But local people are open to objective arguments. They see that the situation is the same throughout the country and they should cut their coat according to their cloth.

However, I would like to take an opportunity to analyse these cuts with the government and the Ministries of Finance and the Ministry of Regional Development. Not to discuss the 30% cut, but to discuss what we are cutting. Because if we build a huge amount of housing, we will need to build utilities infrastructure-piping and much else. If we cut these expenditures, people will be unable to move in, even if the flats are ready. We should simply look at how to redistribute the funds in the republic itself. All this can be done in the normal course of business; it does not require any special resolutions, just a revision.

Another critical issues we have raised concerns the development of the financial and banking system. Regrettably, we still work in Chechnya with the help of Gosbank field offices. The entire banking system in Chechnya is in need of reorganisation. The problem must be addressed very carefully. When I spoke with Mr Kudrin, we agreed to adjust the issue gradually. We will see what we can do to improve the situation, because Chechnya has no real banks that can finance small and medium businesses and any projects in the area. The republic has no such agencies yet.

On the whole, I can say that the republic is developing very quickly. As for specific major projects, I think I will present a detailed report on them at the end of June, when I will discuss the specific projects that are part of the strategy for the region.

Vladimir Putin: Okay, thank you. As for banking institutions, we have been discussing them for quite some time. We need to look at the needs of the republic: these institutions should not simply pop up like mushrooms, but be created based on the needs of the economy. We should weigh everything before we make decisions. At present, there are no real restrictions.

Ms Skrynnik, please tell us about import substitution.

Elena Skrynnik: Mr Putin, in accordance with your directive to encourage the substitution of imports, we have set before ourselves the goal of increasing the amount of sugar produced using Russian-grown beets. Last year the percentage was 65%, which is twice what it was five years ago.

A programme has been launched this year to develop the sugar-beet industry. This includes systematic measures to increase yields and processing, with an emphasis on expanding the amount of land farmed for sugar beets. Sugar-beet farms will expand by 24% this year, to exceed more than million hectares.

I would like to mention Stavropol and Krasnodar Territories specifically, where sugar-beet farms have grown by 50%.

Secondly, the programme subsidises 80% of the interest rate on loans for the construction of new sugar refineries and upgrading existing ones.

Thirdly, our main objective is to put an end to our dependence on the imports of foreign-bred seeds. At present, we can only regret that imports make up 90% of seed sown in Russia. We will start with opening a seed farm in the Lipetsk Region in July. We will also use customs regulation through a commission headed by Mr Viktor Zubkov. We have already introduced a variable scale for customs duties to stabilise sugar market prices.

As the result, the profitability of sugar beet agriculture and processing was roughly 25% last year. This is a powerful incentive for investment and the further development of this agricultural sector. This is one way we can work towards the goal of substituting imports.

Vladimir Putin: What are our present relations with our main partners in this area? I am asking it because there relations have always been strained.

Elena Skrynnik: First, we are involved in investment projects. At present there are 17, so our investors are willing to finance relevant companies due to the measures we are taking.

Then there is seed import substitution ...

Vladimir Putin: I mean our relations with our foreign suppliers of sugar. Is everything good in this department?

Elena Skrynnik: Yes.
Vladimir Putin: Is everything as it should be?
Elena Skrynnik: Yes, the commission headed by ...
Vladimir Putin: Are there contracts?
Elena Skrynnik: Yes, of course.
Vladimir Putin: Okay.