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President of Russia Vladimir Putin: Colleagues, as we agreed, we are meeting today to discuss matters concerning implementation of the Presidential Address to the Federal Assembly, delivered on December 3, 2015. Mr Shuvalov is the main speaker, and everyone else will have the chance to say a few words.

But I want to start with an update from the Energy Minister on the situation with power supply for Crimea.

Please, Mr Novak.

Energy Minister Alexander Novak: Mr President, colleagues,

The situation is stable at present in Crimea. The most difficult moment is behind us now, following the cutting off on November 22 of power supply from all four electricity supply lines linking Ukraine’s power system to the Crimean energy network. The regional authorities, Sevastopol city authorities and the Emergency Situations Ministry have the situation under control. Thankfully, last year, mobile gas turbines and diesel generators were installed at power stations and this has made it possible to get through this crisis period and ensure full energy supply for socially important facilities over this time, while ordinary customers received power supply at intervals.

Mr President, on December 2, you launched the first section of the energy bridge linking Crimea’s energy network to the unified Russian national grid. This has made it possible to send additional power of up to 260 MW to Crimea and ensure around 650 MW of own power generation and energy supply from Russia’s energy network to the Crimean Federal District.

Yesterday, on December 8, one of the four lines linking the Crimean and Ukrainian energy networks resumed operation. It was the smallest-capacity line that resumed operation. I remind you that there are three 330-Kv lines and one 220-Kv line. The line that resumed operation was the 220-Kv line. This has made it possible to transmit 160 MW of power supply and ensure partial electricity supply for the peninsula, including the northern and western regions.

Today, current total capacity, not counting the diesel generators, comes to around 800–850 MW. This can cover between 80–100 percent of demand depending on the time and operation regime.

Today, solar generating capacity has been put into operation too (up to 180 MW), and so we are now able to provide to Crimea total installed capacity of around 900 MW, thus covering 100 percent of demand. In other words, all customers now have power supply, but this is the case during the day. Power demand peaks in the evening and morning, when people switch on various household electrical appliances all at once. At these times, we have a deficit of around 200 MW, in other words, around 20 percent.

We have drawn up timetables of temporary cut-offs for this period. Work is proceeding according to schedule.

The next step, acting on your instruction, is to bring the next section of the energy bridge cable into operation. As you instructed during the launch of the first section, by December 15, we will be able to provide another 200 MW, approximately. The timetable originally scheduled December 20 as the deadline. This will make it possible to ensure full daytime power supply for Crimea and improve the situation. We will have around 96 percent of total power supply demand.

Mr President, the next step comes in May next year, when two further sections of the energy bridge linking Crimea to Russia’s unified energy system will be launched. This will give us another 400 MW and will bring our own total capacity, without the Ukrainian supply, to 1,300 MW, which will be enough to fully cover Crimea’s energy needs.

We need reserve capacity too, of course, to cover for situations when facilities are taken off line or undergo repairs. For this purpose, we are building capacity and will bring 940 MW of generating capacity into operation, 470 MW in September 2017, and another 470 MW in Crimea in March 2018.

As for the current situation, we are covering fuel supplies in full, as you instructed. We have up to 20 days fuel supply reserves. The diesel generators that were relocated and switched on to cover the crisis period are being taken out of operation now and are used only at peak hours, when necessary. We have also taken care of human resources needs. We have 66 brigades in place with a total 300 people and carry out the necessary work to monitor the situation and speed up the efforts to get the needed capacity on line.

Vladimir Putin: Good. When will the second section come on line?

Alexander Novak: The second section will go on line by December 15, as you instructed.

Vladimir Putin: Firstly, we need to resume coal supplies to Ukraine. They have switched only one line back on, but it is on, and so we need to resume coal supplies.

Secondly, once we are able to cover in full the energy supply that Crimea was receiving from Ukraine, and have all four sections in operation, we cannot have on-going contracts for energy supplies from Ukraine to Crimea if they are no longer needed. As far as I know, we have no such contracts, but we need to take a closer look so as not to put anyone in a difficult situation, and we need to give advance warning that from such and such a date, we will no longer need energy supplies. In principle, these supplies are not really needed now, if we use the mobile generating capacity, but our Ukrainian partners have resumed supply. So be it. If they have restored supply, we will take what they have restored. In response, we need to resume our coal supplies to Ukraine.

I have a question regarding our loan in this respect. The deadline has already come for payment of $3 billion. We know all that was involved in this matter. Everyone knows the proposals we made to our partners in the United States and Europe. We were ready to restructure the debt for a four-year period. We were willing to skip the 2015 payment and then those in 2016, 2017, and 2018, but under guarantees from those who were asking us to do this, of course. If they are confident that Ukraine is sufficiently solvent to pay all 3 billion next year, there is also the possibility of spreading the payment over four years, which is a much milder proposal. As you recall, we asked the United States, Europe, or one of the top-level international banks to share these risks with us, and we would be ready to support Ukraine in these conditions. What response has come from our partners? Has there been a response?

Finance Minister Anton Siluanov: Yes, Mr President. We have received a response from our American partners, stating very clearly that they cannot give such guarantees.

The talks with our European partners are the same. There is no official response as yet, but they have stated unofficially that Russia will not receive guarantees on these obligations.

Mr President, in this situation, the only thing we can do is to make our preparations. We are drafting the proposals needed to ensure defence of our interests in the courts.

The issue prospectus that the Ukrainians issued, and which covered the funds invested from the National Welfare Fund, gives us the possibility of going to the international courts under British law. The payment deadline is December 20, but the issue prospectus sets a further 10-day period during which Ukraine can still make the payment. If the payment is not made, we will defend our interests in the courts.

Vladimir Putin: The Europeans have made no official response?

Anton Siluanov: There has been no official response, but in unofficial conversations, they have confirmed that they will probably not give guarantees.

Prime Minister Dmitry Medvedev: I wrote to Mr Juncker.

Vladimir Putin: You wrote to him?

Dmitry Medvedev: Yes, I addressed him directly as President of the [EU] Commission, but there has been no response yet.

Vladimir Putin: And the Americans have said directly that they will not give guarantees.

Anton Siluanov: Yes, we got a letter from their Secretary of the Treasury…

Vladimir Putin: With whom we had spoken?

Anton Siluanov: Yes, the letter said clearly that they will not give guarantees.

Vladimir Putin: That’s strange. If they are so confident that Ukraine will be solvent next year, they could take part in sharing the risks with us for these four years. It’s hard to understand. Well, so be it. Turn to the courts then, what else can we do?

Mr Nikiforov, what is the situation with mobile communications in Crimea?

Communications Minister Nikolai Nikiforov: Mr President, when the emergency with power supply began, after five hours, when the accumulator batteries at the base stations ran down, we stopped seeing around 65 percent of the mobile communications base stations. Emergency repair work has fully resolved this situation now. There are only around 30 base stations out of access at the moment, because of the temporary power cut-offs. This is only 2 percent of the total. We had to bring in around 170 generators, 6-kW low-capacity generators, and quite high-capacity ones. The biggest of them is 550 kW and powers the system’s central hub.

We now see 99.7 percent of all network users – 2.2 million people. There are still localised areas where the network is out of access temporarily when power goes off at intervals.

Overall, the mobile communications network requires 4.5 MW of electricity. Today, we can supply more than 70 percent in autonomous energy supply, nearly 3 MW. We will continue this work.

A large share of the generators came from the Emergency Situations Ministry, and we have had good coordination with our colleagues. The operators also acquired many generators themselves. We have mobilised additional people so as to have the brigades get all of this into service swiftly and ensure the fuel supplies. We were thus able to localise the problem very quickly.

Vladimir Putin: Good. I ask you to keep monitoring this situation and take measures if any breakdowns occur.

To finish with these problems, I met in Antalya with the German Chancellor and with Mr Juncker, the head of the European Commission, and we discussed our relations in the trilateral Russia-EU-Ukraine format in connection with the association agreement between Ukraine and the European Union, which essentially establishes a free market between Ukraine and the EU.

In this respect, we have already been discussing for some time now what can be done to address Russia’s concerns, given that Ukraine is also a member of the CIS free trade zone. I know that our partners sent us proposals from Brussels that would be difficult for us to fulfil. For those not aware of the details, I can tell you that one of the demands is that we change the CIS’ customs rules. It is laughable even to discuss the idea that we would unilaterally take on such an obligation without first holding consultations with all of the CIS countries. This is simply absurd.

Or we are supposed to commit ourselves to adopting the Europeans’ phytosanitary inspection information system, in other words, adopt the EU phytosanitary control system, which in principle might not be a bad idea, and perhaps we will eventually do this, but it would take time and a certain effort.

The same goes for technical standards. This document states that all goods sold on the Ukrainian market should comply with European technical standards. This means that practically none of our goods could be sold in Ukraine. This is the way it looks formally, at any rate.

We have spoken about all of these concerns with our partners and have been trying to reach agreement with them on all these points for the last year. We received this document just recently, met with our colleagues from Europe, discussed it, and once again, together with them, went through the concerns and problems that we propose resolving through talks.

After our meeting, Economic Development Minister, Mr Ulyukayev, flew directly from Paris to Brussels to continue this discussion with the colleagues. Mr Ulyukayev, how did that discussion end?

Economic Development Minister Alexei Ulyukayev: Mr President, it has not yet ended. This is a sluggish and lengthy matter. Nevertheless, during the meeting in Brussels on Tuesday, December 1, we made our suggestion, which, indeed, was not new for our partners, because this is the fourth time we are proposing this document. The only difference between this version and the previous ones is that we are willing to compromise even more. We offered even more, as an expression of good will on our part.

Our approach is very simple. If we take on the responsibility of maintaining a preferential customs tariff regime for Ukraine, a zero tariff within the CIS free trade zone, then we expect our partners to take on obligations within the framework of this free trade zone (because there is a large number of agreements there that regulate technical standards, veterinary and phytosanitary standards, and so on) and support these obligations (at least during the transition periods that would allow businesses to maintain normal trade relations), maintaining the same operating conditions. And here, we are talking about maintaining the same veterinary certificates that are in effect, so that producers can sell agricultural products, and maintaining compliance certificates for industrial producers.

And what we suggested was a transition period of no more than ten years for a limited number of trade sectors with gradual lowering of this requirement threshold. We were making advances everywhere. Only seven sectors remain.

And our suggestion was that in order for the preferential zero tariff regime to be in effect for Ukrainian goods, rather than goods from third nations, which would pass through this large free trade zone into out customs territory, we should organise a three-way information exchange between customs agencies, so that we get electronic information about the movement of goods and corresponding transportation.

This suggestion was taken into account, and our partners said that they would be ready to discuss it soon at the expert level and respond to our concerns in written form.

On Saturday, December 5, we received from them… To our astonishment, this was not a response to our draft, but a new version of their draft: two previous versions that you have seen and known, with just some cosmetic changes. Some of the wording was more polite and comfortable, but the essence remained as follows: we cannot apply our veterinary certificates, and must accept European ones, which means that we are being pushed us out of the Ukrainian market, freeing it for the European food products.

With regard to transition periods, they can be established only in the course of the agreement on a free trade zone between Ukraine and the EU. In other words, we would need to turn to specially created working groups, and they might look at our suggestions and maybe introduce these transition periods – or maybe not.

And finally, with regard to exchanging information, that it can only be bilateral between Russia and Ukraine, that the European side does not take on such obligations. Which means that we… you know what this means, in terms of…

Vladimir Putin: Customs information exchange?

Alexei Ulyukayev: The exchange of information between the three sides’ customs agencies, which is an absolute requirement for us to give preferential status to Ukrainian goods. Otherwise, we would need to implement front-end customs control. This is really done in the interests of businesses, so that information exchange allows for the identification of risk zones where we would actually carry out checks. So we wouldn’t open every truck, just one out of 100, for example.

Vladimir Putin: Determining the country of origin.

Alexei Ulyukayev: Exactly. Otherwise, we would need to do this on the front end, and naturally, that is an impossible burden for businesses.

When we understood that they are again putting forward the same suggestions, we analysed them once again and again formulated what we consider to be a reasonable version, the contents of which I just explained. And yesterday, another expert meeting was held (we had five meetings at the ministerial level, and more than ten expert meetings). There, we saw even less willingness to compromise, even less willingness to respond to our concerns than we saw at the ministerial level. We were told that this is impossible in customs regulation, that information exchange is impossible under the European rules. Although studying the European Union’s Customs Code shows that these prohibitions do not exist. Transition periods are also possible only in implementing the agreement, and before that, the sides are not ready to take on these obligations.

We said that in this case, we cannot reach an agreement. We know the consequences that implementing this agreement without taking into account our concerns would have on January 1. We are not closing the door, we are ready for discussion. But the chances are getting slim.

Vladimir Putin: I see. As far as I understand, the Europeans agreed to transition periods for individual sectors for only one area: high-speed rail links. That is the sector where we are working very actively with German companies. This is very noble on their part, apparently very good, but as I understand from our Minister, this is not enough for us.

Alexei Ulyukayev: It is absolutely not enough for us. And, Mr President, we are not asking to introduce our standards; we are talking about the parallel use of two technical regulation systems.

Vladimir Putin: I see.

Alexei Ulyukayev: In other words, a Ukrainian company can choose to use European standards or CIS standards in this situation. And this practice exists in the European Union, since it allows for parallel use of the European standard and international standards, and this practice has not hurt anyone. But for some reason, in case of Russia and Ukraine, this practice is deemed unacceptable.

Vladimir Putin: All right. In spite of all these complications, I will ask you to nevertheless continue this discussion with the hope of reaching some sort of agreement before January 1, 2016.

Alexei Ulyukayev: Mr President, we will continue. Thank you.

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