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President Vladimir Putin: Good afternoon, dear colleagues.

We are here today to discuss the problems we encountered during the blackout in Moscow, Moscow Oblast and several other Russian regions on May 24, 25.

First of all, I would like to say that natural disasters have always taken place and, unfortunately, always will. As for man-made disasters, we are confronted with them more and more often in all different parts of the world. Scientific and technological progress, however, not only presents certain threats but also gives us hope for development and the chance to overcome these threats. It all depends on us, on our ability to use these achievements in order to counter the threats, foresee potential dangers and prevent them or at least minimise them as much as possible.

In this respect, I would like to note, above all, how well the federal authorities’ technical services worked, allowing the running of the country to continue smoothly despite the fact that the entire centre of Moscow was in effect cut off from the rest of the country.

I also want to note the well organised and professional work by the Armed Forces, the Defence Ministry and General Staff, who all ensured that there were absolutely no problems in commanding troops and ensuring the functioning of the national security systems and those of the Moscow region. I would like to thank all the Health Ministry employees, the transport services in Moscow, the Moscow Oblast and other regions of the country – everybody who showed courage and responsibility and helped to avoid potentially serious consequences.

But today we are here to analyse the actions of those whose duty it is to take effective action.

How did the energy sector and several other services work? The country’s energy sector employs thousands of people who are devoted to their job and are unquestionably competent professionals. But we are not talking about them today. We are talking about the people in whose hands the fate of the Russian energy sector has been placed.

Over recent years, RAO UES [Unified Energy Systems] has achieved a number of very positive results. These include the company’s financial recovery, the commissioning of a number of major energy facilities of vital importance for the country and other achievements.

At the same time, however, there have been increasingly frequent breakdowns in the electricity system of late – the documents are here on the table: we see that, just counting the most recent breakdowns, there have been problems in Krasnodar, Reutovo, Saratov, Sochi, and now we also have Moscow, Moscow Oblast, Tula and Ryazan. This all points to clear systemic management problems.

We did not stop RAO UES from appointing new people to key posts in the electric power industry. But recent practice shows that it is not enough to simply be a good economist, not enough to be good at managing financial flows, shares, corporate procedures and real estate in order to successfully manage as nationally important a sector as this. One needs to also be a professional in order to understand the importance of each little cog in the whole huge national energy system, understand just how important it is to pay timely attention to some cheap little transformer somewhere and realise what the consequences could be if it is not working properly or is not properly maintained.

I only ask you not to talk today about insufficient financing and lack of money. The data that I have – and this is data from RAO UES itself – shows that the company had net profit of around 55 billion roubles in 2004. This represents around $2 billion. Mosenergo had net profit of 4.5 billion roubles. The Mosenergo board of directors recommended paying almost 1 billion roubles in dividends for 2004 – almost 1.5 times more than in 2003. We need to also look into the real tax burden on RAO UES of late. Where is the money going from privatisation of so-called non-profile assets? How is it that major pieces of real estate, in Moscow, in the city centre, end up with owners on Cyprus? Where is the money being spent? I must say that the Ministry of Industry and Energy has not done all it could have to properly organise supervision of the company’s activities.

And what needed to be done — just to repair four transformers at a cost of 180,000 roubles. The question arises: did no one know that these repairs were of crucial necessity? No, they knew it had to be done and the money was allocated. Why then were the repairs not made on time?

Rostechnadzor also notes violations in the operation of equipment and several other problems.

Finally, I also want to draw your attention to structural changes. I have no doubt that these changes are necessary, but they are justified only if they improve the sector’s work, not make it worse.

As from April 1, 2005, Mosenergo has been divided into 14 different companies. The Chaginskaya substation where all the problems started is owned by one company but operated by another. I am not sure that this has proved the best way of dividing up responsibilities and effectively coordinating all the different activities. The Mosenergo dispatch arm has been divided into three separate parts. There is no unified management anymore.

One final point: what preliminary conclusions, publicly, at least, have the management of RAO UES and Mosenergo made? I was taken aback to hear what the management of Mosenergo says regarding this issue – they speak of the need for a several-fold increase in electricity prices, supposedly so as to avoid future energy crises.

In my view this is simply a form of blackmail designed to pursue group and corporate interests at the consumer’s expense – at the expense of the entire public.

I draw the Prime Minister’s attention to the cynicism and clear professional ineptitude of Mosenergo’s management. And let us proceed from here in more detail.