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Among the issues discussed were organising the transport system’s operation in Crimea and reforming the pension system there. Financing for hi-tech federal medical centres was discussed as a separate item at the meeting.

Industry and Trade Minister Denis Manturov presented a report on the ministry’s work and plans over the 2013–2018 period.

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President of Russia Vladimir Putin: Good afternoon, colleagues,

We are holding the latest in our regular meetings today, but before turning to the main item on our agenda, the Ministry of Industry and Trade’s 2013–2018 action plan (we have looked at it several times already, I know, and the Government made quite a thorough effort on putting it together), I just want to clarify a few current matters first.

First, on organising the transport system’s operation in the Republic of Crimea, Mr Sokolov, what are the proposals?

Transport Minister Maxim Sokolov: Mr President,

All types of transport are currently used to ensure communication with Crimea, and with Ukraine in general, without any interruption or restriction. The Transport Ministry, subordinate agencies, and the major transport companies have established contacts and are engaged in constructive dialogue with our colleagues in Crimea and Sevastopol and with the transport companies working there.

Railway traffic, both freight and passenger, with Ukraine, and transit links from Ukraine to Crimea are all running to schedule. Today, these include seven passenger trains. At peak periods we can put up to 29 passenger trains into service on this route. The average number of passengers on the Russia-Crimea route is around 1,000 people a day.

There are three flights a day between Moscow and Crimea at the moment. These flights are operated by Aeroflot and Globus and take around 400–600 people a day in each direction. Flights will go over to the summer schedule starting on March 29. The final schedule has not been completed yet, but we already have confirmation that the airlines want 14 flights a day.

Air traffic control is carried out through the Simferopol control centre. Aeroflot’s planes are currently flying in transit via Ukrainian territory without any restrictions. Of course, we have alternative air corridors that we can use, via Rostov-on-Don.

The Port Krym – Port Kavkaz line providing railway and car ferry crossing via the Kerch Strait is also running in fully normal regime. Depending on the weather and the cargo load on the ships, this crossing can transport around 250 railway wagons a day, making around 10 crossings, and the car ferries can make 30–33 crossings a day. I also want to say that the Government resolution on procedures for carrying out a feasibility study for construction of a bridge across the Kerch Strait has been published now.

Crimea’s other cargo ports – Feodosia, Yalta, Sevastopol and Yevpatoria, and the vessel traffic control system are all running normally. The Transport Ministry has set up a unified transport control subdivision and approved a detailed action plan to ensure the Crimean transport system’s integration and uninterrupted freight and passenger transport links.

We see that the existing transport infrastructure, primarily the ports and airports, has reserve potential that can be put to use. We can thus be confident of being able to cover the tourism sector’s transport needs during the summer season.

Vladimir Putin: Thank you.

Can the potential traffic volume be increased during the summer season compared to what it is now?

Maxim Sokolov: The number of flights between Russia and Crimea can be increased by organising flights not only from Moscow but from other Russian cities too. We can also increase sea traffic. We have the needed infrastructure for this at Anapa, and there are also the high-speed catamarans Sochi-1 and Sochi-2, each of which can carry 350 people. Thus we will be able to handle the tourist traffic using different means of transport. 

Vladimir Putin: Good, thank you.

Regarding the bridge, you said the government resolution has already been approved? How is the situation likely to develop with regard to this project, in your view?

Maxim Sokolov: We will conduct design and survey works in the Kerch Strait this year. The geological and hydrological conditions there are quite difficult. Several proposed options will be ready by the end of the year, and we will choose the optimum option from among them for further work.

We will then need some time for the project work before actually beginning construction. We will carry out as much of all of this different work in parallel and as rapidly as possible in order to reach the construction phase without delay.

Vladimir Putin: There needs to be a railway bridge and a road bridge built there.

Maxim Sokolov: Yes, Mr President. The feasibility study covers all options of course, and a combined road-rail bridge in any case, and we will also examine the possibility of building a tunnel under the Kerch Strait.

Vladimir Putin: Thank you.

Mr Topilin, can you please brief us on the proposals for reforming Crimea’s pension system.

Labour and Social Protection Minister Maxim Topilin: Mr President, colleagues,

According to the information we have at present, there is a total of 677,000 pensioners in Crimea and Sevastopol. Of these, 559,000 live in Crimea and 117,000 in Sevastopol.

The average pension at the moment comes to 5,570 rubles in Crimea, and slightly more, 6,200 rubles in Sevastopol. This is considerably less than in the Russian Federation, where pensions come to more than 10,000 rubles. There is a 1.8–1.9-fold difference.

Vladimir Putin: Practically a two-fold difference.

Maxim Topilin: Yes, nearly two-fold.

Financing for pension payments is stable at the moment and pensions are being paid. A total of 60 percent of March pension payments have been made, and as of today, financing is available for 80 percent of payments. These are the funds that came through the old system. 

Our specialists have already drawn up the necessary payment documents in order to ensure that system keeps running without interruption in March and over the following months. A system for receiving pensions through post offices has been organised and people are being informed about this.

The lists for the remainder of March (the remaining approximately 20 percent of payments still to be made) have been put together. The Pension Fund will open the necessary accounts today or tomorrow. In other words, we can guarantee the system’s uninterrupted operation.

As for the future, we propose converting the pension system to bring it into line with Russian legislation. This will require us to implement a special law that we are drafting right now. If we work under the current legislation, we will end up in a situation when we cannot take into account insurance contributions for residents of Crimea and Sevastopol for the 2002–2014 period, and so we will need to change the law and pass a special law in this area. 

Our aim is to — over the course of a transition period — bring the pension level there up to the Russian level. In other words, as you said, there will be a two-fold increase.

Vladimir Putin: Listen, Mr Topilin, the purely technical and legal side of the whole thing is not of such interest to the public. What matters to them is that all citizens of Russia (and the people of Crimea will soon be citizens of Russia – the legal procedures will be completed soon) must have equal conditions. How you actually carry out the work is your affair. Examine it with the State Duma deputies and make sure it gets done. And don’t delay; get it done as quickly as possible.

Maxim Topilin: Yes, of course.

Vladimir Putin: Good.

There was an issue that we discussed with the Healthcare Ministry and Finance Ministry on funding for high-tech medical centres. What was the outcome of the discussions between these two ministries?

Healthcare Minister Veronika Skvortsova: Thank you very much, Mr President.

Our ministry came to a common position with the Finance Ministry. The optimisation measures currently underway in the sector concern above all making hospitals more efficient and developing technology that will enable us to replace in-patient care and develop high-tech medical treatment to cover approximately an extra 40,000 people. Next year, capacity will expand from 542,000 to 650,000 people, and will be up to 750,000 people in another year, which is in line with the target you set in the Federal Address.

The optimisation measures have enabled us to free up financial resources for other needs. Finances are balanced for 2014 and 2015. We will increase funding for high-tech medicine by 10 percent this year, and by more than 23 percent next year.

We did have a substantial deficit forecast for 2016, but the optimisation measures have enabled us to cut this by more than half. We still have a small deficit, but we are currently working on measures that will make it possible to eliminate it entirely.

Going through federal organisations, we have put together mechanisms that will bring the level of additional resources up to at least what it was in 2013 by using funds from the Mandatory Medical Insurance Fund’s insurance reserves. The draft government resolution is ready, the Finance Ministry is looking at it, and it will soon be submitted to the Government. We plan to raise the level of additional funding based on the results of the first half of 2014. 

Vladimir Putin: This has been agreed with the Finance Ministry?

Finance Minister Anton Siluanov: Yes, Mr President, everything has been approved. We still need to clearly define the tasks and role of these federal medical centres, which should above all be engaged in scientific research. The full amount of funding for their work has been earmarked in the budget. 

We need to channel to the federal centres some of the funds from the Mandatory Medical Insurance Fund into medical services that are provided under the mandatory medical insurance system. We have worked this out and approved it with the Healthcare Ministry, and will act accordingly.

I fully agree with the Healthcare Ministry’s position on high-tech medical treatment. The more such medical assistance we have (and we do have the resources for it), the more it will be possible to free up other resources and raise labour productivity. This will create new opportunities for optimising the sector and raising labour productivity and quality in the sector.

Vladimir Putin: Thank you.

Please, Mr Manturov, tell us about the Industry and Trade Ministry’s plans.

Trade and Industry Minister Denis Manturov: Mr President,

We have achieved the targets for most indicators within the framework of implementing the Ministry’s action plan aimed at fulfilling the May 2012 executive orders; the rest were surpassed.

As for the year’s results in industrial sectors, production volume dynamics were mixed; many sectors experienced growth of more than 10%. The electronics industry saw increases of 14%, the military industrial complex grew by 10.5%, aircraft engineering grew by 15%, pharmaceutical production of Russian medicine grew by over 11% and reached the planned indicator for the list of vitally important and essential pharmaceuticals. Now, 65% of the items on the list are produced entirely in our nation.

With the timely launch of a subsidised car loan programme, we have levelled the negative trend in the automotive industry for the light and light commercial vehicle segment, which was at negative 17% in May, to negative 1.5% at the end of last year. But overall, the industrial production index in this sector has grown by nearly 6% thanks to an increase in the output of car accessories and spare parts in industrial assembly conditions.

We are seeing a positive growth of 5% in the textile and garment sectors in light industry, as well as the chemical industry.

At the same time, production volume decreased in several areas within the metals and engineering sectors. These are the negative consequences of the economy-wide drop in investment demand.

Naturally, providing a high level of support in all sectors is quite difficult. So we suggest organising further industrial development, focusing on increasing the investment appeal of industrial production. It is imperative to implement this approach now, since growth in the Russian economy and industrial production has slowed significantly starting from a low base of 2009.

On the one hand, companies are experiencing a shortage of freely available monetary resources that could be invested in production development. On the other hand, investment growth is hindered by high loan interest rates. The problem is being partially resolved by subsidising interest, but this is clearly not enough.

It is imperative to ensure a flow of investments into the processing industry in particular; its share in the overall investment volume in the economy has been decreasing in recent years and is currently at 1998 levels. So we need a new mechanism that would allow industrial enterprises to borrow at rates that are comparable to those in foreign nations.

The financial sector cannot sharply decrease loan interest, so we suggest creating an industrial development fund. The main idea of this fund is to supplement direct government funding of economically profitable projects with repayable funding. In essence, the fund will become a special loan programme from Bank for Development and Foreign Economic Affairs and the Industry and Trade Ministry.

The Bank for Development and Foreign Economic Affairs will examine investment project applications and carry out such projects’ appraisal, also engaging in additional financial resources mobilization and ensuring they reach their recipients. Creating a fund will allow enterprises to obtain long-term financing at competitive rates, unlike those that are currently available, i.e., no more than 5% per annum, which means they would be able to launch new factories and create new jobs.

Long-term tax benefits for new businesses could serve as another catalyst for investment growth. This would significantly increase the industrial projects’ investment appeal, since the current level of profitability in manufacturing industries does not exceed 10% on average.

We also propose zeroing the federal portion of income tax, leaving it for the constituent entities to decide whether they want to lower the regional portion of that tax to 5% and zero the property tax. Tax preferences here are lower than what we currently propose for projects in the Far East. As a result, the shortfall in income will be offset by an increase in other taxes, and the regions’ future tax base will increase thanks to the new businesses.

A wider range of statutory tax preferences may be available as part of the new mechanism: a special investment contract. This is an agreement between the investor and federal and regional authorities. Here, the investor undertakes certain socioeconomic commitments: creating a new business, high-tech jobs, and setting up production of innovative goods.

In turn, the authorities guarantee that the investor will enjoy stable business climate and ensure support in the form of privileged allocation of state property, sector-specific benefits, and the tax breaks I spoke about. Currently, together with the Bank of Russia, we are also analysing the possibility of easing other requirements with regard to loans extended to such investors.

A very important element in the development of production base in the regions is the creation of industrial parks as the basis for modern industrial infrastructure. Most industrially developed nations have already been implementing these support measures for several decades. In China in particular, these measures account for more than 40 million jobs, nearly 60% of export, 46% of foreign investments and 20% of GDP.

In seven years, we have created 49 full-fledged industrial parks, and another 40 are currently being developed. At the same time, the minimum that the Russian economy will need in the next five years is more then 200 such parks. But the costs associated with their creation are two or three times higher than in other nations, and this is a heavy burden for investors. Although regional authorities provide assistance by allocating land and offering minor tax benefits, this is still not enough.

One of the support measures we suggested for the industrial park sub-programme, which will be considered by the Government in the near future, is subsidising interest on loans used to create these parks. Plus, in accordance with your instructions on implementing your Presidential Address, the sub-programme proposes compensating the regions’ expenditures to support industrial parks.

Developing a network of industrial parks will allow for the creation of about 250,000 high-tech jobs at the companies based there. There will be an additional gain in production over the period of 2014–2020 of nearly 1.4 trillion rubles [about $39 billion]. And every ruble of budget funds invested in industrial parks will attract about 7 rubles of private investments.

To avoid any excess capacity in oversaturated industrial sectors in the future, we propose creating an integrated national information system for the industry. It will allow us to monitor changes in sectorial and territorial production balances and increase the efficiency of state support measures.

While the industrial parks get new hi-tech capacities right form the start, the modernisation of existing companies should follow the best available technology principle. This imposes serious requirements with regard to increasing industrial environmental compatibility, resource and energy efficiency. Thus, the measures I mentioned for stimulating production should serve as an additional stimulus for companies to change over to the best available technology.

We have prepared and agreed upon a comprehensive plan to implement the best available technology, which will allow incorporating the requirements into the corresponding draft federal law; it will be signed by the Prime Minister in just a few days.

All the mechanisms I described have been developed within the framework of preparing the draft law on industrial policy, which we are now refining with participation by legislative and executive authorities, regional leaders, business communities and the public, and expect to submit this draft law to the State Duma in the first half of this year. We hope these suggestions will gain support.

Thank you for your attention.

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