OREANDA-NEWS. August 13, 2010. During the meeting, the prime minister announced that he has signed a government resolution authorising an additional 10 billion roubles to finance the second stage of the used car scrappage programme.

Transcript of the beginning of the meeting:

Vladimir Putin: Mr Khristenko, I've signed a government resolution that finalises our preparation of the documents required to allocate an additional 10 billion roubles for the second stage of the used car scrappage programme, which I will now turn over to you. Could you please describe how you propose to organise this work, although I understand that it is basically on track. Nevertheless, the second stage will also make a difference. I would like to hear your assessment of the state of the automobile industry in Russia as a whole over the past seven months.

Viktor Khristenko: Thank you for the document. It is a very important and timely document. As for the last seven months, the market has been recovering gradually. In the last seven months, 964,000 cars and light commercial vehicles have been sold, which is 9% more than in 2009. Nine percent may not be a very impressive figure, but since April we've seen double-digit growth: 20% in April, 45% in June and 48% in July year on year. That is a good trend. That being said, even in July we sold 28.6% fewer cars than in the successful pre-crisis year 2008. Nevertheless, market demand is gradually picking up, and the trend is definitely positive.

Another aspect I'd like to discuss is production on Russian territory, which has been growing at an even higher rate during this period - production has increased by over 60% compared with the same period of 2009.

Of course, this is partly due to the low starting point in 2009. But 60% is a very high growth rate. As a result, the Russian auto industry - our traditional brands and foreign brands produced in Russia - has emerged as the leading player in the market. Its share in the first half of 2008 was 32%. In 2009, it was close to 50%, and it currently exceeds 60%. That is a significant achievement, which needs to be consolidated, and that calls for a concerted effort. At present, nine of the ten top-selling brands are produced in Russia. These are pluses. These two processes would have been impossible without government support measures that were timely, effective and adequate.

Among the measures that shored up private demand were preferential loans and the car scrappage programme. We introduced preferential loans last year and issued 72,000 such loans last year. This year we have received 200,000 applications for preferential loans and have issued more than 90,000 so far. We already exceeded last year's total in the first seven months.

Regarding the car scrappage programme, during the initial phase 200,000 certificates or credits were issued. More than 190,000 of those have led to contracts, meaning these people know what new car they will be getting and when. More than 130,000 cars have been delivered already. We have launched the second phase, for which you have just signed off on 10 billion in financing. Already 60,000 preliminary buy-sell contracts have been signed.

Vladimir Putin: But in total 200,000 cars will be sold under the programme's second stage?

Viktor Khristenko: That will be an additional 200,000 cars. What makes this measure important at this juncture is that it creates a transparent, reliable and solid foundation for our carmakers to draw up production plans not only for this year, but also for the first month of the next year, making the difficult transition from year to year somewhat smoother.

Significantly, this measure helps shore up the recovery of natural market demand. It is very necessary and timely. It was also important that the used car scrappage programme was launched not at the beginning of the crisis but a little later on. We have drawn some criticism for this because the measure didn't stimulate the sale of stocks, like in Europe, but rather it accompanied the normal process of ordering cars.

Vladimir Putin: New production.

Viktor Khristenko: Exactly. So every buyer has a chance to place an order ... yes, wait some time, as usual ... but still order a car and get the car he or she wants, not whatever happens to be in stock or what the dealer wants to get rid of. We consider this to be very important.

Another process, which is extremely important and which gives a sense of the state of the car industry, is investment. The last massive investments in the Russian car industry were made in the 1970s. A new investment cycle is long overdue, needless to say. The basic industrial policy guidelines for the industry were laid down in 2005. The new cycle effectively began in 2006. Between 2006 and the start of the crisis, over USD 5 billion was invested in the automobile industry. I put the figure in dollars because a large chunk of these investments came from foreign companies. Investors have continued the process, investing more than USD 1 billion even in the most difficult year thanks to the government support measures and the coherent national strategy that we adopted. At many enterprises, the process was even accelerated due to an understanding that the opportunities that would open up after the crisis could be seized by other players and investors who have come here. That is why, in spite of the crisis, we have got new brands, which were included in the government support programme: they are Volkswagen, Peugeot Citroen and Hyundai, which are finalizing their investments. Almost no one has pulled out. This is very important. However, more than USD 10 billion in investments are still needed to finish modernising the industry by 2016. Of course, investors need to be confident if the investment cycle is to continue, and the measures we are now taking and are projecting for 2011 to support the industry are critical.

This will be crucial for the success of our measures to boost demand and investments in the second half of 2010 and 2011. I am absolutely convinced than the latest decision is very important and could not have come at a better time. We will now be able to execute the preliminary contracts and the process, which is already moving along rapidly, will become still more intensive.

Vladimir Putin: How is budgeting going in the real sector of the economy - the automobile industry, aviation, rocket technology and other areas - compared with 2009?

Viktor Khristenko: Some anti-crisis programmes are being curtailed, as they should be. But strategic areas that are critical for economic development remain priorities, and some are even moving up on the list of priorities. For example, the programme for civil aircraft construction for 2011, 2012 and 2013, far from being downgraded, will get additional resources in 2012 and 2013, as we have agreed. This is because we understand that we have to add new helicopters and engines to our range of products. We have maintained our positions in civil shipbuilding under the federal targeted programme and we have increased support for the automobile industry with an eye toward further development.

We are also launching new programmes: a programme for the pharmaceutical and medical devices industry will start next year. This is probably one of the most important and interesting programmes in terms of innovation and advanced technology and in terms of our long-term prospects. What is particularly important is that it is connected with our long-term, clearly articulated government healthcare policy. The government has indicated how it will work in this market and regulate it in the long term as well as how much money it is prepared to make available. That opens up huge opportunities, which we as an industry must not miss. The programme will facilitate this. We are launching a new programme in the tool-making industry. It is not large, but it is critical in the spheres where we are not even regarded as prospective buyers, only as partners. It is very important for us that such measures are being taken despite the odds.

And of course, there is the new defence industry programme, which will be correlated with the new armaments programme.

Vladimir Putin: As for the machine-tool industry, we are aware that it is the foundation for the development of our entire economy, along with electronics. What measures are being taken on electronics?

Viktor Khristenko: The programme to advance the production of electronics equipment and components has lost nothing in 2011. It will be provided 13 billion roubles in funding, as planned. We are carrying out our plans and increasing our capacity to develop the domestic market, whether for industrial or household goods. We are doing our utmost to enable Russian industry to take part in the implementation of the GLONASS programme.