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President Vladimir Putin: Viktor Borisovich [Khristenko], we’ll start with the automotive industry. According to your figures, just over 1,600,000 cars were sold last year. This is still a serious figure for Russia. What is the current state of the automotive industry? What plans do we have? There were many arguments last year and the year before about the development strategies for the automotive industry. What is the current state of affairs and what is the government planning in the near future?

Viktor Khristenko: You are absolutely correct to say that the car market is growing rapidly. If sales hit 1,600,000 last year, then we expect about 1,800,000 cars will be sold this year. If the Russian car market was worth about $16 billion last year, this year it will increase to $19 billion. According to our calculations, the market will be worth about $31 billion with 2.6–2.8 million cars by 2010. Of course, these are very serious growth rates. The most alarming feature of this market today is the growing number of imported cars, and not so much new vehicles as second hand ones. Out of the 1,600,000 cars last year about 550,000 were imported, and the proportions of new and second hand cars were about the same.

The Russian automotive industry still makes most of the cars, but is beginning to lose its share. It manufactures about 900,000 cars on the market today, and the market share of foreign plants on Russian soil, such as Ford and Chevrolet-Niva, is growing. Last year, 128,000 cars were assembled in Russia and this year we expect about 180,000.

Vladimir Putin: Does this figure include cars that we produced at firms with 100% foreign capital?

Viktor Khristenko: Both plants with 100% foreign capital and mixed capital such as Avtovaz Company.

What steps are we planning to take today? What have we already done and what results are we expecting?

This is a very good chance that simple car imports will turn into investment in the Russian automotive industry and in the opening of plants in Russia. In late March, the government made a decision to introduce preferential duties on parts imported for car assembly. We shall confirm the final procedure for implementing projects in industrial assembly in the coming days.

What do we have to begin with? We have about 10 major projects today. They cover the entire range of global carmakers: Japan, South Korea, North America, Germany and all Russian carmakers that work as investors independently, attracting either licences or minority foreign partners. These ten projects mean, using industrial assembly, that car production levels in Russia can be increased significantly. In other words, this system means we can suggest that in 2010, the current level of 180,000 cars made in Russian plants will rise to 800,000–900,000 cars.

What will this provide to Russian industry in general? The procedure for industrial assembly means gradually increasing the volume of car parts made in Russia.

Vladimir Putin: Localisation?

Viktor Khristenko: Yes, exactly localisation, when an investor assumes a commitment under an industrial assembly agreement. The first stage, about eighteen months, is spent on concluding work to introduce a welding line, painting the bodies and assembly, in other words an assembly conveyor belt, a normal large-scale conveyor belt for car making. And advanced agreement is reached that the plant will produce no fewer than 25,000 cars a year. The timeframes may be somewhat longer for firms that arrive and have to build on a green-field site and not develop an existing plant. This is the first stage.

The second stage is the localisation of producing individual parts and units. In 42 months, the investor will have to localise production to up to 10% of the remaining equipment in Russia, by the 60th a further 10% and the 72nd another 10%. Therefore, a many of the parts will be made in Russia. We believe that final agreement of this procedure will give clear reasons and incentives, obviously, to car part producers. This is a huge machine-building army. And this is not all. It gives a clear incentive to metallurgy, to chemists to ensure their products are in demand on the market and available in the levels that investors need to work under an industrial assembly agreement.

Therefore, this is one of the key parameters that will allow Russia’s traditional manufacturers to maintain their market share – about a million cars a year – and to increase the number of foreign cars made in Russia to about a million by 2010 and keep imports at an acceptable level. This will largely concern elite expensive cars, which are difficult to put on the assembly line here simply because there is limited demand. Importantly, this scheme concerns not only cars, but also individual major units such as engines and gearboxes. Projects include projects that you saw in Hannover, and a project to manufacture gearboxes that KAMAZ is now implementing. These will also be industrial assembly projects that have every chance of being implemented in Russia. Talks are now proactively being conducted with both Russian and foreign investors. We shall finish this work in the coming days.