OREANDA-NEWS.   On the state and prospects for the development of Russia’s mineral resources and raw materials.

Dmitry Medvedev’s introductory remarks:

Ladies and gentlemen, before we start discussing the agenda items, I would like to say a few words about some key issues in today’s Government meeting. I’d like to note two of them.

One issue deals with the state and prospects for the development of Russia’s mineral resources and raw materials. This is a large, complex and very important subject. We’re talking about sustaining the Russian economy with these resources for the next 15 to 20 years. The mining industry employs over one million people. Severance tax, export duties and fees for the use of mineral deposits account for about 50% of our federal budget revenues and for most of our export duty revenue. This is, obviously, a very important part of Russia’s national development.

Russia has unique mineral resource and raw materials potential as virtually all types of mineral deposits lie within our borders. Of course, this is a huge competitive advantage, and it’s important that we use this advantage in the most cost-effective and environmentally friendly manner. So far, we lag behind other industrial economies in terms of these parameters. This can be explained by our obsolete extraction, production and processing technologies.

Dmitry Medvedev: "The mining industry employs over one million people. Severance tax, export duties and fees for the use of mineral deposits account for about 50% of our federal budget revenues and for most of our export duty revenue."
The deteriorating quality of mineral deposits, infrastructure restrictions and administrative costs limit the profitability of production facilities at many mining industry companies and in the entire sector. So they’re less popular with investors.

Last year, over 32 billion roubles were allocated from the federal budget for geological prospecting. This year, about 35 billion roubles will be allocated for this purpose.

Dmitry Medvedev: "The Government plans to spend no less than 320 billion roubles on exploration and reserve replacement before 2020."
Since 2005, the annual increase in proven oil and gas reserves has exceeded the volume of exploration. The objective is to reach indices similar to other natural resources.

The Government plans to spend no less than 320 billion roubles on exploration and reserve replacement before 2020. This is a very significant amount of money and we are hoping for a return on this money, in particular, by concentrating geological prospecting in the most promising areas. The search is being conducted mainly in areas where resources have previously been found, but surprises are also possible.

It is obvious that the era of cheap and easily accessible resources is over: the country has been developing natural resources for centuries. We have started developing resources which have always been considered hard to access and thus not profitable, especially with regard to the equipment that was used, say, 100 or even 50 years ago. That is why investment and the technology used in the extraction industry are constantly improving. As a result, more effort and money are needed to maintain current volumes.

Certainly, these things should be taken into consideration. We need to create special conditions for investment in prospecting and mining remote and hard to access mineral deposits. We should also spend a lot on the environmental and transport infrastructure and improve the tax system. We need to simplify the authorisation and control procedures in order to reduce investor expenses during prospecting operations and initial extraction.

We should assess the efficiency of our current exemptions and benefits as well as the various setbacks in this area, and we should see what is needed to expedite prospecting projects in new regions, to create incentives for the use of new technology and equipment and to make this area of activity more interesting not only for big business but also for medium-sized businesses.

I hope that the minister will report on all this, and that he will make specific proposals on additional incentives for geological prospecting projects. And I hope that our colleagues, including the experts who are in attendance here, will also offer their comments.

I’d like to outline one more subject now. On one hand, this is a purely technical issue, but on the other hand, it’s very important in the context of the current budget situation and the attention we attach to it. I’m talking about the allocation of subsidies to the regional budgets. The regions should be reimbursed for part of their additional expenses to raise public sector salaries (I’ve repeatedly chaired meetings on this issue, and the Finance Ministry has addressed it in great detail) and to partially compensate for regional budget revenue shortfalls because of the reduction of profit tax revenue, including the creation of the so-called consolidated group of taxpayers, as repeatedly mentioned by our governors. We examined these issues in May and June and relevant instructions were issued.

The federal budget stipulated 120 billion roubles to raise the salaries of regional public sector employees. Of this amount, 100 billion roubles were distributed during the budget approval process. Today, we’ll allocate the remaining 20 billion roubles and additional 50 billion roubles being set aside for this purpose. I hope that these substantial assets will help the regions cope with their problems.

So, let’s start with this issue. I suggest we first review item No 12 on the agenda or item numbers 11 and 12, to be exact. Mr Siluanov (addressing Finance Minister Anton Siluanov), please report on these two issues.