OREANDA-NEWS.  Dmitry Medvedev: Good afternoon. Let us begin by discussing how to make federal property management more efficient and then move on to discussing a relevant draft state programme. Like other state programmes, the draft was discussed by a number of experts and approved by the Government’s Expert Council on February 5 of this year. I know that many proposals on how to manage entire industries, spheres of the economy and major Russian companies have been taken into consideration. This also concerns natural resources as well as production and transport infrastructure facilities. In the modern world it is also extremely important to control intangible assets, including intellectual property rights. A real competitive environment cannot emerge unless we reduce the excessive presence of the state in the economy. It’s a trivial matter, but this is really the case, and everyone must remember this. We should also use public property efficiently by financial, social and ecological standards in view of the existing global trends. Let me mention several fundamental points.

First, privatisation itself. We have been consistently reducing the public sector for several years. No matter what some people say, the public sector is contracting. We should keep under federal ownership only those facilities that are necessary for securing this country’s strategic interests and for the attainment of its strategic goals.

Let me stress this once again: privatisation is not only a method for replenishing the federal and regional budgets, which is also important, of course. In the first place, we are interested in the coming of long-term investors or efficient proprietors, as they are usually called. I mean those who possess sufficient financial and technological capabilities as well as managerial acumen. And we must launch a post-privatisation monitoring system as soon as possible to watch how new owners carry out their commitments.

Second, the disposal of property in the course of privatisation should benefit the state. Naturally, we should take into account the special features of the facility to be privatised, the condition of the markets and investor demand. But this doesn’t mean that we should sit around letting the grass grow under our feet, and wait for a particularly favourable market situation to emerge. This may occur in 150 years, and we won’t be able to sell anything in this way.

Global experience shows that the best results are achieved by selling entire business units, not bits and scraps of property. Pre-sale preparations are a vital element; they include a professional evaluation of assets and consistent efforts to increase their market value and attractiveness for investors.

We must simplify access to tenders and the procedure for holding them. Information about every important transaction and its outcome must be made available to people, who are naturally interested in such transactions. This will help us to make privatisation more transparent from the very beginning and to reduce so-called administrative risks, if not eliminate them altogether. In accordance with the government programme, the reform of the sales system is to be completed by 2018, with the best practices analysed and their use encouraged across the country.

The third priority is to use a single system of federal property accounting and monitoring, which should be developed by 2015, to preserve and ensure the targeted use of such property. The registration of ownership rights must be completed where necessary, and relevant information must be added to the federal property register. To date, the situation is far from positive. I am referring to federally owned plots of land and other federally owned property.

I’d like to remind you that one of the Government’s priorities in the next five years will be to increase the volume of housing construction while reducing the cost of housing per square metre. We can achieve this goal only if we build economy class housing complete with infrastructure on federally owned land plots. We need to develop reliable mechanisms for the allocation of such land plots on preferential terms to ensure their effective use and the construction of infrastructure on them, and to prevent them from being turned into a source of corrupt dealings. And it is clear that we also need to strictly monitor the end prices of completed housing.

Fourth, we must improve the standards of corporate governance at companies with state capital. There is the perennial issue of attracting independent directors through tenders – we are only just developing this system, and it cannot be said yet that we have a sufficient corps of independent directors. This should be done with due regard for the opinion of the professional community and following international certification of these directors’ qualifications. In future, only professional directors should be offered positions on management boards, which should eventually have no civil servants.

We must approve the key efficiency targets and also medium- and long-term development programmes for such companies. The quality of their corporate governance must only be evaluated by independent assessors.

State-run companies must divest noncore assets more actively. Nearly all state companies, both big and small, have a lot of noncore assets. Some cannot sell such assets because there is no demand, whereas others refuse to divest them. But they must get rid of them to simplify the structure of corporate property and attract additional capital for funding development and technical upgrade programmes. We have set a deadline for this project: 2018. We will be discussing all these issues today. This meeting is being attended by Natalya Komarova, Governor of the Khanty-Mansi Autonomous Area. I will give her the floor after the report by the Minister of Economic Development.

We will also discuss the bill aimed at improving the system of civil registration. This bill extends the list of government agencies to which corresponding information must be provided. For example, all data about newborns will be forwarded to the territorial agencies of the Federal Migration Service, the Pension Fund and the Mandatory Medical Insurance Fund. This will help us to improve the quality of monitoring the demographic situation in the regions, to make the registration system more user-friendly and also to develop a statistical database according to international requirements.

There is another important issue I’d like to discuss. Several State Duma deputies have proposed reverting to and maintaining winter time throughout the year or reviving the system of transitioning to and from daylight saving time. I’d like to remind you that the decision to switch to daylight saving time and to maintain it throughout the year was made in 2011 after a serious analysis of all the possible consequences for the people and the economy. The project was implemented by the Ministry of Industry and Trade, along with other agencies. The decision was made within the Government’s competence.

Following several surveys conducted recently by the Government, we have come to the following conclusion: the number of those who call for reintroducing the winter/summer time scheme and of those who propose maintaining winter time throughout the year is roughly equal. Or more precisely, the number of those who don’t want to change anything is slightly larger. Polls show that opinions are divided, and so the Government has decided that it would be inexpedient to change anything now.

On the other hand, this decision is not a dogma. I have looked up statistics prepared by the Ministry of Industry and Trade and the Government for the past 100 years and can tell you that the procedure for determining the time has been changed seven times in Russia, if I remember correctly. So let’s leave everything as it is for now and continue to monitor the situation and analyse the arguments of experts, doctors and people. We will consider all pros and cons if there is a change of opinion, but let’s keep the time as it is until then.

Let’s start discussing the issues on our agenda.

The first issue has to do with the government programme. The speaker, as I have said, is the Economic Development Minister. Mr Belousov, please proceed.

Andrei Belousov: Mr Prime Minister, colleagues. The draft of the government programme which we are going to discuss consists of three main parts. The first part includes a new concept of federal property management, which should replace the concept that was approved in 1999.

The second part is the series of measures to implement this concept, the relevant key effectiveness-assessment indicators and the budget of the programme. A sub-programme for managing the state materials reserve is the third part.

Before describing the various tasks and projects, I would like to say a few words about the current management inventory and the state property management system. What does the management inventory include? As of February 1, 2013, the Federal Agency for State Property Management oversaw 2,325 shareholding companies with state-owned capital, including 66 shareholding companies that are part of the so-called special list. In all, this includes 1795 federal state unitary enterprises, over 20,000 agencies, almost 250,000 state-owned facilities and 238,000 land plots with a total area of more than 553 million hectares. Our preliminary estimates show that the current total face value of all these registered facilities, which are listed in the federal property register, is about 12 trillion roubles. But this total has, certainly, been understated, and is actually ten times larger. As preliminary estimates show, the market value of these assets exceeds 100 trillion roubles or perhaps even more.

The federal property management system includes three main elements – basic regulatory documents, an organisational mechanism, and resources. The basic regulatory documents include the Property Management Concept, which, as I have already said, was passed by the Government in 1999, and a number of key federal laws and regulatory Government acts, including the law On State and Unitary Enterprises, the law On Privatisation and some other laws. I would like to say that a new management concept is currently being proposed in line with the draft state programme. And there are also plans to draft a number of laws. In all, the programme calls for over 25 regulatory documents to be passed over the next five years, including amendments to the federal law on the privatisation of state municipal property, the federal law on the state registration of real-estate property rights and real-estate transactions and the law on state and municipal unitary enterprises.

The organisational mechanism primarily consists of the federal property management system of the Federal Agency for State Property Management. This mechanism currently includes 83 territorial divisions with a permanent staff of 4,203 specialists. Their average monthly wages, including all kinds of bonuses and incentives, are about 25,000 roubles. It is common knowledge that, apart from the Federal Agency for State Property Management, the Defence Ministry and the Administrative Directorate of the President of the Russian Federation also have the right to manage federal property. State academies of sciences, as well as some other state agencies and organisations, exercise some authority over affiliated enterprises. Some federal property was transferred to state corporations, such as Rosatom and Russian Technologies. I would like to note that all those involved in the property management process essentially completely fail to coordinate their actions nowadays. And we believe that the new concept is a step towards building a federal property management system based on joint principles and concepts.

As for financing the property management system, the Federal Agency for State Property Management annually receives about 6.5 billion roubles from the budget. Additional requirements, which I will discuss a bit later, total about three billion roubles annually. At the same time, the total volume of property management revenues in 2012 reached 433.6 billion roubles, including 201.5 billion roubles in revenue from privatisation and 212.6 billion roubles in dividends.

Colleagues, I would like to focus on four main problems which, in our view, are characteristic of the public property management system, and on possible methods of solving these problems within the framework of the draft state programme we are proposing.

The first key problem is the lack of knowledge about the target designation of a given public property unit, be it shares, a land plot, or real estate. This leads to the state being encumbered by excessive assets, corruption, or direct public overspending on the upkeep of facilities no one needs. Let me give you some statistics to illustrate my point. As of today, there are 1,795 federal state unitary enterprises, of which 148 pursue no financial or business activities, 271 are in the process of being liquidated, and 264 have sued for bankruptcy. This adds up to 683, or more than one-third of all businesses. The programme of privatization for the last three years included a mere 284 businesses for the purpose of their conversion to joint-stock operation, 70% of which are converted into joint-stock ventures.

During the drafting of a privatisation programme, the federal agencies would at first justify the expediency of retaining businesses under their jurisdiction, but when these businesses become bankrupt and cease operations, they hand them over to the Federal Agency for State Property Management (Rosimushchestvo). A recent case in point is the Zelenogorskoye farm, controlled by one of the federal agencies. This farm has been brought to a pre-bankruptcy state and now it is suggested that it should be transferred to Rosimushchestvo. We think that a target function should be defined and ascribed to each federal property facility, and that a presumption of unconditional property alienation should be introduced for cases where the target function is not defined. Please, enter into the minutes of today’s Government meeting the following proposal: the Ministry of Economic Development is instructed to develop and approve, before September 1, 2013, methodological recommendations on how to define the target designation of property under the jurisdiction of federal bodies of state power and other organisations; the federal executive agencies are instructed to define, before January 1, 2015, the target function of assets under their jurisdiction on the basis of the said methodological recommendations. We suggest that property, the target functions of which the bodies of state power are unable to define, should be included, after January 1, 2015, in the privatisation programme automatically, without coordination with the federal agencies.

The second problem is the inefficient management of property sale alienation. Last year, during the auction-assisted privatisation of small assets, the selling price exceeded the trigger price by less than 10% in 75% of cases. In 45% of cases, the property was auctioned off at the trigger price. Major deals, however, which were brokered with the help of investment consultants, averaged twice as much per share as the trigger price. These figures bear witness to as yet inadequate pre-sale preparation in instances of mass-scale privatisation, to weak information support of sales, and to low investment attractiveness of privatised assets.

The key steps in this area are as follows. First, transitioning from the sale of businesses as sets of property facilities to the sale of business units (as Mr Medvedev said in his opening remarks). We suggest using a differentiated approach to sales, taking into account a preliminary analysis of the investment opportunities market, the demand, and the regulatory environment. Second, introducing post-privatisation monitoring and oversight, including both a supervision of post-privatisation development of the now private companies and the signing of agreements with investors, particularly where the businesses in question perform an important social function. A recent example is the signing of an agreement of this kind with regard to the Arkhangelsk trawler fleet. The third step, or rather a number of steps, concerns securing greater transparency of privatisation deals. Basically, we believe that every lawsuit against privatisation procedures is an indication of a deal’s insufficient openness and transparency. Fourth, land privatisation. This is a separate subject.

I’d like to say that today we have an organisational mechanism of privatisation, and the commission headed by Mr Shuvalov (Igor Shuvalov, First Deputy Prime Minister) has received the relevant powers. But we don’t yet have a legal mechanism that would allow us to withdraw unused lands from federal state unitary enterprises prior to a court ruling. A relevant document must be signed and adopted by the Duma (where it is now) in the first quarter of this year.

The third problem is poor management of the available property. I’m primarily referring to the management of shares of economic entities and federal property. Much has been done to improve it in the last two years but still more remains to be done. In the last few years we carried out a policy of attracting professional directors to run joint-stock companies with state capital. In 2011 some 1,500 professional directors, including 362 independent directors and 1,143 professional attorneys, were invited to run about 700 joint-stock companies, including those on the special list.

However, despite the introduction of these innovations, the performance of joint-stock companies remains poor. Of the 2,325 joint-stock companies registered in the federal property register, 144 are not engaged in any financial or economic activities and another 264 are undergoing bankruptcy procedures. The majority of strategic companies have not endorsed key performance indicators (KPI) that would be linked with remuneration of top managers. Of the 66 joint-stock companies included on the special list (decisions on key issues of their management are made on the basis of Government directives), only 20 have endorsed provisions on remuneration of top managers, and 18 have approved KPI  in connection with these provisions. What do we propose?

First, it is necessary to encourage the practice of attracting professional directors to state-run companies, including subsidiaries and affiliates of vertically integrated holding companies and defence industry enterprises. Counting auditing commissions, we have 65% of state officials in the management of state-run companies. By the beginning of 2015 we plan to reduce this figure by more than twice – to 30%. The majority of them will work in auditing commissions.

Second, we must endorse a long-term development programme for each state-run company without exception. Such programmes should be tailored to the goals set by the state and society and the development strategy of the relevant industry. Out of the 66 companies on the special list, only 42 have committees on strategy and just 31 have endorsed their programmes. We are planning to complete this process and make sure that all listed companies, primarily strategic ones, have relevant long-term development programmes by January 1, 2016.

Third, as I’ve already mentioned, it is essential to endorse clear-cut KPI, which should be linked with the remuneration system for top managers and indicators of financial and economic performance. Strategic companies must complete this process by the beginning of 2016.

Fourth, and this is extremely important, it is necessary to guarantee reliable management and maintenance of federal property, including dangerous facilities, such as suspended gas wells and arrested vessels. We think that the funding of federal property is absolutely inadequate. As a result, socially important facilities that are on federal property are chronically in critical condition. The Federal Agency for State Property Management has earmarked 181 million roubles from the budget for 90,000 facilities in 2012, or about 2,000 roubles for one.

The next problem is inefficiency of the top-down structure of federal property management. It is very important that this issue be resolved. It is no secret that employees of the Federal Agency for State Property Management have committed numerous violations in their work. In 10 out of its 83 territorial departments criminal proceedings have been launched against their heads or deputy heads. In other words, these departments have been decimated. Ineffective management of federal property and unethical practices of third parties and employees of the agency leads to the loss of this property. As a result, the agency has to take cases to court after the offences are already committed in order to litigate illegal transactions and return federal property.

The agency’s central administrative office (20 employees of the judicial bureau) and its territorial departments (another 100 employees for the entire country) work to protect the property and other legal interests of the state. The number of lawsuits involving the agency runs into about 20,000 a year. So, one employee has to attend to 150 lawsuits a year. One of the high-profile cases illustrating property interests of the Russian Federation concerns cultural heritage buildings in central Moscow. Officials of the agency’s Moscow territorial department regularly transferred to enterprises the right of economic management of different buildings, including those of historical and cultural heritage as well as those of federal importance. State-run enterprises acted as a guarantor before a bank on million-rouble loans; loans were not repaid and the parties took cases to court – the court of private arbitration at the Themis Law Society. The court passed a judgment on loan recovery from the guarantor. As a result, the property was sold virtually at an auction and transferred to a good-faith acquirer, usually an offshore company, and the state lost it without any reimbursement.

In this way the state could have lost 28 monuments of architecture in central Moscow, including 18 buildings of the Rogozhskaya settlement of the 19th century on Shkolnaya Street, the chambers of the 17th and 18 centuries on Kozhevnicheskaya Street, the House of the Dolgorykovs of the mid-18th century on Kolpachny Pereulok and the Snegiryov Mansion of the first quarter of the 19th century on Plyushchikha Street, to name a few.

Even churches were involved in these transactions, for example the Church of St Peter and St Paul in Yasenevo.

Dmitry Medvedev: What happened to their participants?

Andrei Belousov: I will tell you: they are being investigated in a case involving the head of the Moscow territorial department. Most of these federal sites, these monuments of history and culture, have been returned to federal ownership, and the fate of others is being decided in courts. In this respect, we propose the following. First, we propose ensuring end-to-end recording and monitoring of all governance processes and procedures based on information technology at all stages and levels, including in territorial agencies.

Second, we must ensure the information transparency of the Rosimushchestvo property regulator by giving people access to information about federal property.

We plan to complete an inventory of federal property this year to create the basis for forming comprehensive and reliable databases of management facilities and, something very important, for highlighting grey zones in the system of federal property registration, including failure to register such facilities or distortion of data.

Third, each employee at Rosimushchestvo must be assigned a personal area of responsibility. We don’t have such a system now, while we believe that this could enable us to move over from dealing with mistakes that lead to criminal cases to preventing them without delay.

And fourth, we must establish a special internal control sector at Rosimushchestvo, which can be described as an internal security department, that will monitor the introduction of control systems for implementing the approved regulations, processes and procedures. One of the key aspects of the programme in this respect is transition to digitalised handling of nearly all information, including legal documents, by 2018. This will enable us to ensure the necessary level of transparency and controllability of all processes.

In conclusion, I’d like to say a few words about the provision of resources for this programme. Federal budget allocations for the programme have been approved at 33 billion roubles from 2013 to 2018, of which 16 billion roubles is to be provided by 2015. Additional funding, which is stipulated in the programme in a positive budgetary situation, will total 19 billion roubles, including 9.4 billion roubles to be provided in 2013-2015.

The main measures that require additional funding are the dismantling of hazardous federal properties and allocations for the maintenance of federal properties (6 billion roubles and 6.9 billion roubles, respectively, in 2013-2018), as well as registration of technical inventory documents, proprietary rights and the documents of the cadastral registration of land plots (891 million roubles in 2013-2018, including about half of this sum in 2013-2015). Without these latter allocations, we will be unable to transform federal state unitary enterprises into joint stock companies, simply because property rights were not properly registered.

While preparing the concept of the state programme, the drafts were widely discussed with the expert and business communities, and government authorities. The draft state programme was discussed in the Open Government. The discussion was rather heated. It mostly concerned four issues – the possibilities of fulfilling presidential and governmental orders and the necessary conditions for doing so as regards the withdrawal of the state from companies of the non-oil-and-gas sector by 2016, decriminalisation of processes of disposal and management of federal property, management and accounting of intangible assets and the necessity to establish a unified system for state property management.

Regarding the first two issues, the state programme provides a substantial explanation. Concerning the management and accounting of intangible assets, we agreed to further cooperate with the Federal Service for Intellectual Property, Patents and Trademarks (Rospatent). We find it unreasonable to establish a unified organisational system of federal property management. First, we should figure out what is going on in the Federal Agency for State Property Management, work out standards, and probably later, when we make some decisions, apply them to other agencies with similar functions.

The draft was supported by 25 federal bodies of state authority, including the Presidential Property Management Directorate, the Defence Ministry, the Ministry of Industry and Trade, the Ministry of Culture, and others. The draft state programme was coordinated with the Ministries of Finance, Transport, and of Industry and Trade. We ask for your support.

Dmitry Medvedev: Mr Belousov, thank you. Please, let's first give the floor to Natalya Komarova (Governor of the Khanty-Mansi Autonomous Area), as we have agreed, and then start the discussion. Ms Komarova, please.

Natalya Komarova: Good afternoon, colleagues, Mr Medvedev, Government members. Thank you for this opportunity to take part in the discussion of this issue. These best practices, which are effective and required in the regions, have been generated by federal government agencies. The programme we are discussing today is aimed at improving performance in many critical areas. It also provides for the mechanisms of implementing the concept on federal property management that is now being drafted. We are waiting for it to elaborate our own property management models.

I’d like to draw your attention to the part of the programme that concerns the development of federal branch databases. This part is very important for the regions because mechanisms for interaction between these data bases must be very substantial and effective. I’ll cite one example that I think confirms this expediency. In our area we have a portfolio of infrastructure institutional projects, including those on the construction of two bridges across the Ob River. These two projects require an investment of 46 billion roubles. In promoting these projects it is very important to give a potential investor a full picture of the region’s infrastructure facilities that may be involved in their implementation regardless of their ownership. This would be possible if we had a continuously updated register of all property in the autonomous area.

Right now we don’t have one because federal, regional and municipal properties are managed separately. We have experience synchronising branch and municipal databases on real estate development in one project, the Yugra Territorial Information System (TIS). As the programme reads, this system may be very useful for forming new channels of interaction between federal property, potential investors and the public by developing a common and accessible federal property management resource.

In our system, we are already actively developing the public segment, which is giving potential investors, private companies and the public a full picture of the real estate subject to privatisation, free or occupied plots of land and so on.

In the future, this system could become the backbone for a detailed regional investment map that will be part of the national map that was mentioned by President Vladimir Putin in his address to the Federal Assembly. In addition, our system makes it technically possible to establish systemic interaction with the public and the professional community. Using the technology of crowdsourcing we can gather the best proposals and practices of public oversight. I suggest that our area and our TIS, primarily its open segment, be used as a pilot project for cooperation in creating and adjusting federal and regional databases. I think we should work on the formats of this systemic matching of databases now that we are launching the government programme. In this way we will not create artificial information barriers between the federal and regional levels. Otherwise we will have to spend more time and money overcoming such barriers later on.

In conclusion, I’d like to say that as of the beginning of this year, the value of the property in our autonomous area exceeds 310 billion roubles. We have significantly changed the way this property is categorised recently, primarily through privatisation. Last year we sold 14.5 billion roubles worth of state property and received another 1.2 billion roubles in rent. Naturally, we are interested in the effective implementation of the ideas set forth in the programme presented by the minister. Thank you.

Dmitry Medvedev: Thank you, Ms Komarova. This shows that privatisation is not just the concern of federal bodies. This is our common concern, all the more so since eventually the benefits will be enjoyed by the people in the regions. Who would like to comment on the report and make some suggestions? Mr Dvorkovich, please, go ahead.

Arkady Dvorkovich (Deputy Prime Minister): Thank you. I support the submitted draft of the state programme and want to draw your attention to only two issues. First, in developing the system for forming boards of directors or supervisory councils in companies in which the state is a shareholder, it is necessary to work with the personnel reserve that is also the pool for recruiting candidates on a permanent basis, not only during a campaign but throughout the year in order to find people with the best skills for doing the jobs of independent directors or attorneys on behalf of the state. Second, it is essential to work with boards of directors and supervisory councils while they are performing their duties. When government officials or executives are removed from the board of directors, a vacuum often forms in interactions between companies and government agencies. The existence of a form of permanent interaction – regular meetings and consultation on elaborating positions – is very important for effective management.

The second issue concerns cooperation between the federal authorities and the regions. Some of our branches transfer federal property to the regions. This involves airports and some other facilities. And sometimes this does not improve the quality of federal property management but is a way of avoiding privatisation. I think in making decisions on such transactions it is necessary to determine from the start what is the goal of managing this property, including for assets of federal property. We must be absolutely clear on the final result – will this property be privatised? Will it remain regional property because of its strategic nature or will it be managed in some other way? Thank you.