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Meeting with representatives of business organisations

May 24, 2012, Novo-Ogaryovo, Moscow Region

Vladimir Putin held a meeting with representatives of the Russian Union of Industrialists and Entrepreneurs, the Chamber of Commerce, Agency for Strategic Initiatives, national public associations Delovaya Rossiya and OPORA Russia.

The meeting participants discussed measures to support small and medium business, and current aspects of relations between the state and the business community.

The meeting took place in the run-up to the Day of Russian Entrepreneurship, which is celebrated on May 26.

* * *

President of Russia Vladimir Putin: Good afternoon, colleagues,

This meeting is being held in the run-up to the Day of Russian Entrepreneurship, which will be marked the day after tomorrow. I would like to congratulate you and the entire Russian business community and to express hope that we will continue actively working together, like we did in the past, and by “we” I mean government agencies and the business community.

In Russia, entrepreneurship has deep roots. Merchants have always enjoyed respect in our country, and the Russian merchant’s word of honour – as we often point out – always had great weight and was more valued than an official contract.

I want to note that in recent years, as I've already said on numerous occasions and want to emphasise once again since this becomes particularly apparent in times of crisis, entrepreneurs have shown themselves to be responsible professionals, aware of the social significance of the work to which they devoted their lives, mindful of the people and working in partnership with the state.

I hope that this tradition will continue and that to a large extent you will be responsible for formulating Russia’s business policy jointly with the Government and the Presidential Executive Office, and will set the tone for creating the best business environment in Russia. I am referring to the business initiative and the roadmap we discussed earlier.

I suggest that today, as agreed, we will have an informal conversation on the issues that you are concerned about. I think this is the best way to discuss business matters.

Mr Shokhin, please.

President of the Russian Union of Industrialists and Entrepreneurs Alexander Shokhin: First, I think every one of the leaders of business associations present here would like to thank you for the opportunity to discuss the key issues of interaction between the business community and the state on the eve of the Day of Russian Entrepreneurship.

”In recent years entrepreneurs have shown themselves to be responsible professionals, aware of the social significance of the work to which they devoted their lives, mindful of the people and working in partnership with the state.“

It is critical to reach an understanding now, at the start of the new Government’s work and in the context of the development of mechanisms and measures for the implementation of the executive orders issued by you on May 7, primarily, as I see it, regarding the technology of interaction between business and the state. Many of these technologies were developed in recent years and are quite effective. I will mention only the regulatory impact assessment, which involves all the leading business associations in a practical evaluation of draft laws.

In the last days of the previous Government a directive was issued on the extension of mechanisms similar to regulatory impact assessment to almost all legislation except the tax and customs laws. It is crucial that your executive order provides for a further development of such mechanisms, formal mechanisms for interaction with the business community. In particular, it stipulates the extension of regulatory impact assessment to customs and taxes and to the second reading of draft laws. This is what we have discussed at length recently, and I think it is very important for us that it has been formulated as a specific task with deadlines and specific instructions to the Government.

What issues do we think could be addressed in the near future, considering that we have been working at a good rate on the formation of interaction mechanisms between business and the state? First, we would like to be involved in the procedure of drafting, discussing and finalising the reports that are prepared by federal bodies of executive power on the President’s or the Prime Minister’s instructions.

The reason is that these reports set out not only the strategic development trends in a particular sector, but as a rule, they incorporate an action plan with a list of specific draft laws, draft Government resolutions, and so on. Naturally, it would be useful for the business community to take part in this work because if the ideology is being created without us, it becomes more difficult to adjust draft laws. It would certainly make sense to formalise the participation of business associations in the preparation of proposals that will be drafted on the execution of your executive orders of May 7.

In addition, it would be expedient to begin work on a number of agreements that have already been reached even before the deadlines set in your executive orders. In particular, if we talk about the inclusion of businesses in the discussion of draft laws prepared for the second reading, we would like to propose a mechanism that has already been tested by us with the Economic Development Ministry.

Each business association could name, say, five of the most sensitive draft laws for a particular association and business sectors; after that we would hold a vote and select several (for example, five again) draft laws that could go through the regulatory impact assessment procedure before the second reading.

Another issue that I think also needs to be agreed is the priority of institutional mechanisms of interaction between government and business. This doesn’t apply only to the business community; it probably concerns all civil society institutions. We have a number of venues and I must say that business is represented in different ways: in some cases as a combination of institutions of leading business associations, and in other cases prominent business figures are involved, who represent to a greater degree their own expert opinion.

It would, perhaps, be better to give priority to institutional mechanisms, especially since a number of venues will be established in the near future under the President, the Government and so on. It would be beneficial to preserve the current achievements in interaction that are linked with the involvement of the leading business associations.

In addition, I would like to raise another set of questions, some significant themes, in particular, on promoting modernisation and innovative development. Your executive orders outline a number of areas and set the deadlines; however, it would be preferable for the mechanisms recommended by the Finance Ministry and Economic Development Ministry to be launched from January 1, 2013. I am primarily referring to the tax holiday and exemption of new projects and newly introduced equipment from a number of taxes.

Also, it would be possible to reduce the administrative burden on business from next year if the multiple forms of accountability are eliminated. In particular, we believe – and it is mentioned in your executive orders, — that it would be sufficient to let companies choose the form of tax returns they wish to use, based either on Russian accounting standards or on international standards. If a company is public and operates in international capital markets, it will choose IFRS, whereas if it operates in the Russian economic space it will prefer the Russian accounting standards.

”As for fuel and energy companies, they are certainly of particular value to our nation. In the current context, we can state today with full responsibility that these companies are undervalued. And we really wouldn’t want them to be privatised for pennies, then immediately resold for serious money.“

Unfortunately, there are certain inconsistencies at present. On the one hand, the right mechanisms are being introduced, such as the limitation of direct state control and the transition to such mechanisms as compulsory liability insurance. But at the same time, the old mechanisms of supervision and control not only remain but become more stringent. This is especially noticeable in the field of technical regulation and control of hazardous facilities, where all mechanisms are duplicated.

There is another issue that many members of the Russian Union of Industrialists and Entrepreneurs raise, as well as our colleagues in other business associations: the new Civil Code. It is a very important document, in fact, 25% of the Civil Code has been revised. It contains many provisions that are valid but relatively new and businesses need to assimilate them. We would like to conduct a public discussion of the new version of the Civil Code when it is prepared for a second reading, perhaps in the framework of the technology that I talked about earlier (the regulatory impact assessment before the second reading).

What are the most difficult aspects here? First, it introduces new concepts of property rights, which replace the existing ones: the right to rent and so on. In principle, this needs to be done, and we must move in that direction. But at the same time we believe that sufficiently long transition periods should be established for such complex issues that completely change the rules of the game and the legal environment for business. Thus, the new regulations shouldn’t be introduced from September 1 or January 1, but should be postponed for three to five years. That would be better than delaying the adoption of the Civil Code.

I would like to mention another topic, one that we have already discussed: the introduction of the Commissioner for Entrepreneurs’ Rights. We propose that a decision is prepared by December 1. We believe that it is already possible to start this work. In particular, if a Presidential Council was created to protect the rights of entrepreneurs and the Commissioner were made Chairman of that Council, then at least the content of the Commissioner’s work could be planned with the participation of the business community.

In addition, we believe that you were absolutely right to formulate this issue from the outset in terms of giving the Commissioner procedural powers. It should not be just an office to deal with complaints from businesses; it must have real procedural powers, standards for the Commissioner’s participation in assessing the current regulatory framework, which may fail occasionally. In principle, we could now begin to put these mechanisms in place, while the Commissioner and the Presidential Council would generate such ideas, especially if all the business associations take part in this work.

I do not want to take the bread out of my colleagues’ mouths, but since we are discussing current issues as well as the long-term, systemic ones, I would like to take the opportunity, Mr President, to ask a question on one of today’s key topics. Your executive order on privatisation contains instructions concerning non-commodity state companies, but at the same time, we know that an executive order is being prepared on the specific procedure for privatising the fuel and energy sector. Could I take this opportunity to find out what it is about – whether it is about liberalising privatisation programmesor, on the contrary, exempting those companies from the privatisation process?

Vladimir Putin: With regard to the Commissioner – a person who must defend the rights of entrepreneurs – I feel that all state agencies must defend the interests of all people, regardless of what they do, including entrepreneurs.

Of course, as we discussedearlier, there is a need for this kind of position – I am referring to the many violations in this area. You know, the suggestion has been made to create a Commissioner, this type of position, a presidential council for defending the rights of entrepreneurs, and there was also an idea to create corresponding structures within the Prosecutor General’s Office, the prosecutorial system overall…

Alexander Shokhin: One can never have too much of a good thing.

Vladimir Putin: You took the words right out of my mouth.

What’s the problem? While I agree with those who feel that simply having a Commissioner position is better than nothing, it would nevertheless seem somewhat ineffective, since this individual will have no instruments to work with, aside from filing complaints with higher-level authorities.

Thus, the idea is to implement both ideas, i.e., to create certain structures within the Prosecutor General’s Office that will do this type of work professionally, and introduce a Commissioner position to ensure direct communication between the government and the public structures.

One of them (the public structure) would incitethe government agency to take concrete actions, while the other would respond accordingly based on its professional duties. I think this makes sense. I suggest that we consider it.

Now, with regard to the Executive Order you mentioned. It was issued yesterday, I believe. I would like to stress that it does not change anything in terms of our privatisation plans, but in a way, it reflects the reality of today’s situation. What does that reality entail?

First of all, I would like to return tomy article, the pre-election article on economic development. What does it say on this matter? It says, and I quote, that “I believe it is possible by the year 2016 to reduce the government’s share in certain raw material companies and complete the withdrawal from the capital of major non-commodity companies.” The first part indicates the kind of companies we are talking about: Rostekhnologii, the United Aircraft Corporation, the United Shipbuilding Corporation, Rosavtodor and several others.

”The fuel and energy companies require additional financing for their development. Privatisation is a way to attract capital. I think that all of us (both the government and the business community) are interested in proceeding carefully in this area.“

As for fuel and energy companies, they are certainly of particular value to our nation. In the current context, we can state today with full responsibilitythat these companies are undervalued. And we really wouldn’t want them to be privatised for pennies, then immediately resold for serious money.

I am fully aware of the two approaches to these processes. The first would be to sell at any price, even for pennies, with the goal of institutional changes, based on the idea that private companies work more efficiently than state corporations. That is often the case, but certainly not always. We are also familiar with these examples. Ultimately, if we are to sell them, I want them to be sold for a solid sum of money, with the state receiving a good income. Furthermore, institutional challenges should be resolved by restructuring the economy.

The article also states “through 2016,” and the Executive Order that you mentioned says that these processes should be carried out in 2013–2015. In other words, there are no contradictions.

And finally, we are working on the premise thatthe fuel and energy companies in question require additional financing for their development. Privatisation is a way to attract capital. That is precisely why it is suggested that Rosneftgaz should have a share in these companies’ capital, since Rosneftegaz possesses considerable but non-budgetary – and I want to stress it –financial resources. And it can certainly participate in their decapitalisation with the goal of resolving the companies’ current managerialproblems.

I repeat again, from 2013 through 2015, we will take the same steps I spoke about earlier. This absolutely does not mean that we can already take steps this year aimed at privatising these companies, if the business climate changes significantly for the better.

I would like to draw your attention to another point. I think that all of us (both the government and the business community) are interested in proceeding carefully in this area. Why? We took measures to privatise the power industry. I do not believe all the participants in the market were happy with the result. We still have relatively low rates for the public, but the rates for business customers are somewhat higher. Thus, we must act very carefully with regard to certain types of raw materials and electricity, in the interest of all the participants in this process.

What else did I want to say? We will discuss these issues together with you, and will take your opinions into account.

And finally, the Executive Order you spoke about concerns a limited number of companies, companies that could be counted on fingers, while the government holds shares in over 2,500 companies. There are 2,500 various state unitary enterprises under our direct ownership which are probably doing their work correctly, but unfortunately, they are receiving a great deal of scrutiny from the public, the government, and the business community because some of these companies are ineffective.

We have 440 million hectares of land and 1.12 billion hectares of forests. This is greater than the entire territory of the European Union. I would like to assure you we understand which direction we must follow and we will follow it. In this regard, nothing has fundamentallychanged.

Alexander Shokhin: In doing this work, it is also important to take into account levelling access for state and private companies to those same strategic projects and so on. This work has begun; you recently held a meeting on this topic. Nevertheless, many issues would be resolved if those same private fuel and energy companies had the opportunity to work on the shelf. Right now, this is restricted in accordance with the law.

Vladimir Putin: You see, Mr Shokhin, nobody is prohibited from going to work on the shelf. After all, our rule is that state companies, ones in which the government holds a controlling stake, work there, but they can engage anyone they want. Right now, they are bringing in foreign partners, including Exxon Mobil, Statoil and Total. All these companies have taken on direct legal commitments to invest money into risky projects – geological studies, rough drilling and so on. And these things cost billions – I emphasise, billions of dollars.

If any of our private companies is ready now to undertake the same kind of work and take the same risks, then the door is open to all companies, and I want to state this officially. The only thing we would not want is for private companies to assume the rights to these stretches of the shelf and then resell those rights to foreign companies like Exxon, Chevron, or somebody else. That would be the only problem. These are large sums of money and a high level of risk.

When I was Prime Minister, I told this to my colleagues, and I would like to say it again: if any of our companies are ready to work this way – to take the risks and to invest significant money – the doors are open to everyone.


May 24, 2012, Novo-Ogaryovo, Moscow Region