OREANDA-NEWS. July 27, 2011. Transcript of the beginning of the meeting:

Vladimir Putin: Good afternoon, colleagues,

Today we are discussing defence procurement for this year. We are facing large-scale objectives for the re-equipment of the army and navy with modern weapons.

In 2011, we allocated an unprecedented amount of funding towards the purchase and modernisation of equipment, arms, research and development in defence. In modern Russia, we have never set aside this kind of money before: 750 billion roubles in one year! This is not a matter of an increase of a few percentage points, it is one and a half times more than in 2010! And of course, we must use this money efficiently.

The government expects that this huge sum will be used efficiently in order to improve the performance of organisations involved in the defence industry and state procurement.

At the same time, over 30% of defence procurement contracts have not yet been signed (at least according to the information that I have). We are going to discuss whether this figure is accurate, and how many contracts have actually not been closed. I do know that wherever I go, I hear complaints against the Ministry of Defence regarding the issue. Please excuse me for my impropriety, but when I meet with leadership from Ministry of Defence, our colleagues make similar complaints about the (defence) industry. Prices are soaring and it is hard for me not to agree with the military – not only the Ministry of Defence but other law enforcement agencies as well. The Ministry of Civil Defence, Emergencies and Disaster Relief, for instance, has reported that helicopters are becoming exceedingly expensive. What is the inflation rate this year?

Remark: The accumulated inflation is around 5%.

Vladimir Putin: Around 5%. And the estimated value?

Remark: Between 7% and 7.5% this year.

Vladimir Putin: So the accumulated inflation is 5% while the prices on some of the models are not 5 or 7 or 8% more expensive, but several times more expensive. This simply will not do. Today we must directly address how we can correct this. I ask all of our colleagues to coordinate their activities and close the remaining state contracts as soon as possible. The relevant reports must be submitted to the Government by August 31 of this year.

Firstly, I would like to focus on a discussion of equipment with long production cycles, such as space and missile equipment, aviation and naval equipment, that are the defining features of the army and navy.

Secondly, this year we have applied a new funding scheme to attract additional funds for defence procurement. I'm referring to credit allocation. We have planned a significant share of loans, 168 billion roubles secured by government guarantees. These resources are also part of the state procurement. Only loans and guarantees up to 18.5 billion [roubles] have been officially documented so far. August is already upon us, and six months have passed. It is a modest figure: 11% of the total amount.

Let's also discuss what we need in order to raise this issue to the proper level. Last year, when we were drafting the order, after a long debate, we agreed that it is a realisable form of collaboration that is beneficial both for customers and contractors, with government support in the form of government guarantees, of course. Where has all this gone?

Thirdly, domestic production is a distinct priority in the supply of weapons to the Russian armed forces. At the same time, this equipment must be cutting edge, advanced and affordable. I would like to stress that it must be affordable for the customer and for the Ministry of Defence, which means it must be affordable for the government.

Today we will also talk about the improvement of the contracting procedure for defence procurement. We did not set up the agency Rosoboronpostavka randomly. So let's talk about how this agency operates.

In short, there are many issues on the agenda, so let's get to work.