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President of Russia Vladimir Putin: Good afternoon, colleagues,

Today, we will discuss once again the coming period and prospects and look at the main parameters of our socioeconomic development and measures to boost economic growth in 2016–2018. This is not so far off, it is the medium term, but we need to start thinking about it now.

First though, as in the past, let’s discuss some matters of general interest for the Government and for other organisations too. I would like to hear from the Central Bank Governor, Ms Nabiullina, on the national payment system. How is this work going? Please, go ahead.

Governor of the Central Bank Elvira Nabiullina: Thank you.

The purpose of the national payment system, NPS for short, is to guarantee uninterrupted service of the international systems’ electronic cards. Our people must be able to buy goods and services at any time using cards of the international payment systems. Let me remind you that more than 215 million of these cards have been issued now and 90 percent of the transactions they are used for are domestic transactions here in Russia.

The need to establish our own national payment system was discussed over a number of years, but as you recall, the subject became particularly topical last year, when the clients of a number of Russian banks were unable to use their cards. This prompted our decision to speed up work on creating our own national payment system. I remind you too that many other countries have already set up similar systems.

This is definitely a complicated, large, multistage project. The first stage involved the creation of a technical platform and a processing centre in Russia to handle internal transactions using cards issued by the international payments systems.

As was planned, this centre was launched during the first quarter and processing of domestic operations has begun. Today, the NPS is processing domestic operations using MasterCard issued by all banks that are direct members of the international payments systems – 78 banks in all. Sberbank, our biggest bank, is making a smooth transition and will complete this process during the first half of April.

Visa has begun active cooperation with the NPS and the banks to transfer its internal Russian operations to the NPS. This work with Visa will be completed over the coming months. But let me say that in the meantime, while this work is underway, Visa will continue to provide full service to its Russian clients as normal and all internal Russian transactions will continue to be processed.

The main thing in this work for us, for the NPS, for the banks, and for the international payment systems is to make sure that the transition causes no worries for cardholders. We want to make it a practically imperceptible process. People should not even notice the change at all. Their cards will continue to work in the automatic teller machines, at sales points, and for online payment of services. The changeover already began in February and March and many people have not even noticed that their transactions are already being processed through the NPS. This is the first stage.

The next stage is to issue our own cards. We plan to begin issuing the cards at the end of this year, in December. The work is going to schedule.

The third stage, which will begin later, is to take our own payment card to the international level. We are looking at two possibilities here. The first would involve issuing a so-called ‘co-badged’ card, that is, a card that would operate as a national card within Russia and that would also work abroad in tandem with other systems.

We are also working actively with our partners from the Eurasian Economic Union – Armenia, Belarus, and Kazakhstan – to have our cards accepted throughout the Union. This is the next stage of our plans to develop the national payment system.

Vladimir Putin: You said the work is all going to plan.

Elvira Nabiullina: Yes, everything is keeping to schedule.

Vladimir Putin: Good.

Mr Shuvalov, we have decided to take part in the Asian Infrastructure Investment Bank. You were in Beijing recently and spoke with our colleagues there, including about this matter. Could you say a few words about it, please?

First deputy Prime Minister Igor Shuvalov: Mr President, colleagues,

The Boao Forum took place on March 28–29, the twelfth time now that China has organised this event. Delegations from around 50 countries – more than 1,500 people in all — took part in the forum. The leaders of Sweden, Austria, and the Netherlands were among the representatives from Europe, and there were large delegations from the Asia-Pacific region.

The forum discussed development roads for the Asian region, the complicated conflicts that are hampering the region’s economic development, prospects for joint cooperation and links with regional integration projects and possible compatibility with projects underway within the Eurasian partnership or in the Asia-Pacific region, such as ASEAN, for example. We discussed how we could develop an economic ‘Silk Road,’ working together through these forums.

Chinese President Xi Jinping gave this project particular attention during his remarks at the forum and stressed that it does not compete with other projects, does not try to impose cooperation of any sort, or undermine existing formats, but, on the contrary, aims to give added strength and create new opportunities for developing the existing integration projects.

With your approval, we announced that the Russian Federation would contribute to the Asian Infrastructure Investment Bank’s capital. We have already sent our formal application and the Foreign Ministry and Finance Ministry have done the necessary work. We will thus be among the bank’s founders. The number has not yet been officially announced, but there are some 40 countries involved, including European countries such as Germany, France, Italy and Britain. The Russian Federation has announced its participation too.

On the Silk Road economic project, we said that Russia will continue pursuing and developing its main Eurasian project, the partnership that we have within the Eurasian Union, but we are ready at the same time for full-fledged cooperation with China so as to give both the Silk Road project and the Eurasian Union the chance to work together to create new opportunities for the prosperity of these countries’ peoples.

A programme for economic cooperation with the countries that will develop this project was published today. One of the project’s major stages, as was announced today (in the Chinese press), is that the Chinese are proposing serious discussions with Russia on building a high-speed railway from Beijing to Moscow.

My colleagues in the Government and I are preparing for your summit meeting on May 8, including as regards this matter. In other words, we are working on the Asian Infrastructure Investment Bank, and the Silk Road project – all of the projects that we are preparing for discussion at the summit meeting.

We are now discussing projects with our Eurasian Union partners, with Armenia, Kazakhstan, and with Kyrgyzstan. Kyrgyzstan is actively developing its own trade dialogue with China at the moment. They are preparing to sign a separate agreement. It is in everyone’s interest that along with bilateral economic ties we are all developing with China, we also have a separate track between the Eurasian Union as a whole and China. We are developing this project and we have all the possibilities we need here.

Vladimir Putin: Good, thank you.

Starting from today, April 1, Russia holds the presidency of the  Background information BRICS BRICS group, which brings together Brazil, Russia, India, China, and South Africa. Mr Siluanov, could you say a few words about the Russian presidency’s priorities.

Finance Minister Anton Siluanov: Yes, Mr President, Russia begins its term as president of the BRICS group today. More than 80 different events at ministerial and agency level will take place during our presidency. We will also host the BRICS summit in Ufa in July.

As for our main tasks, we see a need to launch mechanisms for financial and economic cooperation and we have discussed this subject over the last years. This year however, during our presidency, decisions are expected on a number of big projects.

The first is the establishment and start of work of the New Development Bank set up by the BRICS countries. The aim is to finance infrastructure and development projects, primarily in the BRICS countries. The Silk Road project and its development could be one of the areas for the bank’s investment.

This bank could become one of the biggest multilateral development banks. Its authorised capital comes to $100 billion and its paid-up capital comes to $10 billion. Each country has an equal stake of 20 percent in the bank’s capital.

I want to note that the Russian Federation’s representative will be the first chair of the bank’s board. During our time as chair of the bank’s board, we can start to set the bank’s policy, including investment policy.

Budget provisions have been made for this year and the following year for covering our contribution to the bank’s capital. But we are counting on the effect from the investment the bank raises and a return to Russia of investment greater in volume than our participation in the bank’s capital. We have also completed all necessary procedures on our side for ratifying the bank’s establishment and are waiting for our colleagues to do the same.

The second big decision, Mr President, is on the creation of a Contingent Reserve Arrangement. The idea here is that the arrangement would be used if the BRICS countries encounter liquidity problems. The arrangement would support them, ensuring mutual assistance through transfer of funds subject to repayment and other payment and deadline conditions. This is another of the major initiatives that will be carried out during our presidency.

A third major area is the development and adoption of an economic cooperation and partnership strategy for the BRICS countries. This is about cooperation in areas such as energy, agriculture, science, technology and innovation. We expect to sign a number of cooperation agreements between our countries.

Vladimir Putin: We have discussed this subject many times, including during the last summit in Brazil. This is something we should develop more actively.

Before we turn to the future, to 2016–2018, let’s hear a few words first about the current situation. The Government has drafted a list of the major companies in their sectors, 199 companies in all, the combined profits of which account for around 70 percent of our total GDP.

Mr Ulyukayev, could you please say a few words about the support measures for the real sector of the economy.

Economic Development Minister Alexei Ulyukayev: Mr President,

Yes, the companies on this list form the backbone of Russia’s industry and between them employ 20 percent of the workforce. We are carrying out thorough monitoring to identify the risks that could arise due to limited demand, exchange rate fluctuations, inflation, and so on.

We have the instruments we need to support these companies if necessary, budget guarantees above all. The budget law, which the Duma is currently examining, earmarks 300 billion rubles for these purposes. If the sum involved is less than 5 billion rubles, the sub-commission makes the decision, and in cases where the sum involved is higher than five billion rubles, the commission that Mr Shuvalov heads makes the decision.

In our work, we have concentrated on the following risk zones – primarily these are transport engineering, the automotive industry, car building, production of rolling stock for the railways, the construction sector, and airlines.

Overall, the dynamic in these and other economic sectors is better than we thought, and better than the investment analysts thought at the end of last year. This is probably partly the result of the anti-crisis programme we have adopted and partly thanks to some general stabilisation in the inflation and exchange rates and other market economy areas.

To give a few examples, the analysts thought – as we did – that we would see a drop in air service by 20 percent. In reality, air service has dropped by 10 percent overall, though international traffic has been hit harder, with an 18-percent drop, and there has even been a 10-percent increase in domestic traffic.

The situation is a bit better in the automotive industry. We forecasted a drop in demand of 38 percent, but the actual reduction has been 33 percent. The drop in production comes to 23 percent. Of course, these are serious figures, but they are nonetheless quite a bit better than what we were expecting three months ago.

The commission examines companies’ requests for provision of guarantees and looks at the general situation in these companies. We have already worked out the scale of the problems at two big companies, GAZ carmaker and UTair airline.

Looking at the situation, we have identified the possible total guarantees that will be accorded: around 16 billion rubles for GAZ Group and around 19 billion rubles for UTair. I think we will have this work completed very soon.

The companies will probably be ready to report on the measures they have taken next week. They have to ensure that their accounts are transparent and they will need to sign agreements with the creditors. Most important, the owners must take on obligations under the financial recovery plans. Within this month, the guarantees will be accorded in order to resolve these companies’ problems.

We are also examining several other applications at the moment. We will be looking at them the day after tomorrow. They come from Urals Airlines, Altaivagon, Sukhoi Civil Aircraft, the SU-155 construction company, and LSR Group and amount to a total of around 40 billion rubles. I think that these measures will make it possible to support our key economic sectors and reduce the risks I mentioned.

Vladimir Putin: Good, thank you.

You no doubt noted that I met with the general director of Aeroflot yesterday. Aeroflot is going to try to substantially reduce its ticket fares on key destinations, especially during the summer season. This concerns the Far East, Kaliningrad, and Crimea. Please give them your support.

Alexei Ulyukayev: We will definitely do this.

Vladimir Putin: I say this because it is nice to be able to put part of the profits into budget revenue, and I understand this, but if the company is able to bring down prices for passenger traffic, especially during the summer period, it should do so.

Alexei Ulyukayev: Mr President, we will do this, including to the detriment of the budget’s interests, reducing VAT on air traffic. The Government has already sent just such a decision to the State Duma. This should support the airlines, including Aeroflot.

Vladimir Putin: Thank you.

There are also some routine matters related to the need to raise discipline, including discipline in paying for energy and electricity. The debts are growing and I simply want to draw the ministers’ attention to this.

I ask you to work with the relevant companies in due fashion, keeping in mind that debts are growing above all among the so-called customers we cannot switch off from the power supply. I would like to hear from you on this situation and in any case draw your attention to the matter.

Energy Minister Alexander Novak: Mr President, colleagues,

Yes, along with the need to make the electricity sector’s work more effective, one of the tasks before us is to raise payment discipline between the suppliers and the consumers of utilities’ services and electricity supply, because this has a direct impact on the reliability and quality of energy supplies for our consumers.

Mr President, over the last two years, we have taken a number of measures that have considerably improved the situation in this area. We introduced a guarantee mechanism on the wholesale market and a mechanism to revoke the status of guaranteed suppliers. This enabled us to reduce debt on the wholesale market in 2013–2014.

What we see today, as you rightly noted, is an increase in retail market debt over the last six months and a drop in collection of payments. Before, the payment collection rate was 98–99 percent, but now it is around 80–90 percent.

There are a number of problems here. We analysed them together with our colleagues and the federal executive authorities and have prepared a draft law to resolve this problem.

(The Minister went on to describe the specific measures and proposed legislative amendments to resolve the electricity payments problem).

Mr President, we think these measures will enable us to resolve the problem. The adoption of this law will improve the situation with payments arrears, increase the reliability and quality of electricity supply and improve conditions for preparing for the winter period and carrying out the investment programmes that are part of our electricity sector development plans.

Vladimir Putin: Do not delay with these decisions. We need to maintain economic discipline in general, and all the more so financial discipline. This is essential in the economy and in the housing and utilities sector. Otherwise, the slackness will spread through the whole system and cause real damage for the energy sector companies.

Let’s turn now to the main item on our agenda and discuss the near future. But first, I want to remind you that in my Presidential Address last December, I outlined some of the main targets for economic growth, the inflation rate, and labour productivity growth. I will not repeat those figures now.

Seen from where we stand now, these look to be targets that are difficult to attain, but we should nevertheless keep them in view as we work to overcome today’s difficulties caused by market volatility and the destructive measures our international partners have taken in the economy. In the medium term at least, we should reach the parameters that I outlined at the end of last year.

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