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Before the meeting, the President viewed the exhibition Urban Transport: Prospects for the Future, where he was shown innovative models from Russian passenger transport manufacturers, including models of advanced electric vehicles and new Russian busses.

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President of Russia Vladimir Putin: Good afternoon, colleagues.

By tradition, we are holding the State Council Presidium meeting in the region whose head took charge of the working group on the issue in question. That is why we are here in Ulyanovsk today.

This State Council Presidium meeting will focus on the comprehensive development of passenger transportation in Russian regions. This matter is, without a doubt, highly important and concerns literally each and every person in our vast country. Without exaggeration, millions of people spend a significant amount of time commuting to work and back home by bus, trolleybus, metro and other modes of public transit. This is a major factor in the comfort and quality of life in cities and rural areas.

I would like to note that last year, passenger traffic across the entire country reached 18.7 billion. This means that every person in Russia uses public transit 130 times per year on average.

The popularity and social significance of public transport place high demands on passenger services. These demands include an extensive network of routes, reliability and, certainly, safety and high-quality customer service.

At the same time, to this day the regions have not yet developed a comprehensive approach to meeting these requirements. Every region addresses the issue of improving public transit based on its own resources and specifics. More often than not, actions of regional and municipal authorities, unfortunately, are at odds with each other.

As a result, some remote areas cannot even be reached by public transit, as there is no regular service. In other areas, services are duplicated or unlicensed business is thriving. This creates inconvenience for the public and lowers the efficiency of transport companies.

What I would like to draw attention to is that for decades, since Soviet times, we have not been able to get rid of the loss-making work of public transport. At the end of 2016, 63 percent of large and medium-sized organisations that provide regular bus service were unprofitable.

Obviously, we need common, systemic approaches to the comprehensive development of regional passenger transport, so that each village and every residential area in a region can be linked by permanent routes. We know that there are a lot of problems so far, and you can see this, as you tour your regions and understand what I am talking about.

We need to create modern, convenient infrastructure and remove bottlenecks that have existed for decades ‒ as we did by completing major bridge crossings and bridges, the construction of which was started back in the Soviet era and then was stopped and abandoned.

We completed 22 bridges; one of them is here in Ulyanovsk ‒ the biggest bridge, the longest one in Russia. Its length is 5,825 metres, and the total length of the bridge crossing is almost 13 kilometres. Construction began in 1985, but was then suspended, and in 1995, it was completely frozen. And only in 2006, we resumed construction and completed it in three years. The same goes for the other 21 bridges. We should never allow such things in the future.

I propose implementing integrated plans for public transport services in all Russian regions, which will allow us to better organise the regional transport system, prioritise the development of certain types of transport and improve the efficiency of budget expenditures for these purposes.

These plans should be based on an analysis of the current situation and calculations of the long-term demand for passenger transport, as well as on clear standards of service for all types of transport. I know that such standards have already been developed by the Ministry of Transport, but they are not binding so far. I propose making them the basis for the minimum set of parameters, to which passenger transport must correspond.

At the same time, I would like to stress once again: modern public transport should be safe and comfortable for passengers, should serve them at a convenient time and strictly on schedule. Stops should be within walking distance for most people who use public transit.

We certainly need a strategic vision of how passenger transport in our country should develop – for the medium and longer term. We need to know the trends – including global trends – emerging in this industry, which will determine the development of public transport for the next 10–15 years. First of all, I mean the development of more environmentally friendly and economically viable technologies, the use of new energy sources and the spread of driverless vehicles.

Today we have seen very good models; we certainly need more, so that they could be commercialised and people could use them.

I also suggest discussing the prospects for the development of so-called multimodal transport, where a passenger could buy one ticket using non-cash payment and reach the destination using two or more types of transport. I must say, this practice was widespread even in Soviet times ‒ I remember, I actually travelled this way. But with modern facilities and technologies, this could be done more efficiently, more conveniently for people.

It is extremely important here that connections are as convenient as possible, or, as experts say, “seamless,” within special interchange hubs. These innovative hubs should also be among the priorities for passenger transportation development. Relevant regulations need to be adopted, at the legislative level, as well as technical arrangements with the use of modern automated systems.

On the whole, digital technology should be more widely used in passenger transportation record keeping, planning, and operations oversight, in settling accounts with carriers and cracking down on illegal businesses that seriously damage this sector of the economy.

I would also like to note that modern technology makes it possible to conduct medical monitoring of drivers and technical monitoring of vehicles remotely.

Yesterday I visited Yandex (once again, congratulations on their anniversary). Their developers are working on very efficient modern software to operate unmanned vehicles and to monitor drivers’ physical condition.

I know that some regions have laid the groundwork in this area. We should study our colleagues’ successful experience and by all means replicate it.

Next. One of the major issues in passenger operations is the condition of vehicles, their wear and tear. Unfortunately, here the situation has not improved in the past years either. The situation is particularly acute in rural areas. I do not want to refer to statistics, but the figures are disappointing. The number of obsolete vehicles is only growing.

We must figure out how to stimulate the all-round upgrading of buses, trolleybuses, trams and other public transit. We need to find effective mechanisms of state support for fleet modernisation. However, regardless of state support, this sector of the economy must be commercial and self-sufficient. Clearly, we cannot leap into this self-sufficiency just like that. But we should make gradual steps towards it. This is very important. Otherwise, the entire industry will remain crippled, and people will still be riding clunkers.

These steps include, among others, long-term contracts with carriers, which will allow them to plan far ahead and invest in new vehicles. I expect to hear suggestions from the working group regarding this issue.

Now, let us get down to work.

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Vladimir Putin: Colleagues, thank you very much. Thank you to the working group.

We will by all means take into account all the proposals that have been made during this meeting and will do our best to follow through. But without cooperating with the heads of the regions, this work will not be successful. Therefore, please get involved in everything we have talked about today, everything that has been suggested by the working group, the State Council Presidium and that will be implemented by the Government. So, thank you to everyone for this part of the work, and I hope very shortly, we will continue to work together on solutions to these issues which are, again, extremely important for the country, the economy and the people.

Now, I would like to comment on the regions’ excessive loan burden, that Mr Gordeyev [Voronezh Region Governor] mentioned.

Mr Gordeyev recalled a meeting in which his colleagues from other regions, the heads of the regions, participated. This was not the only meeting. We met several times with the Government; the most recent meeting took place at the Kremlin. There are certain agreements. So, what are they?

First, the urgency of solving this problem stems from its serious nature. Thirty-one percent of the regions’ revenue is spent on paying off loans.

Despite the seriousness of the problem – I will talk about the proposed solution in a minute – the amount of debt is nevertheless decreasing because the regions’ own revenue is growing at a pretty good pace. Just now, Mr Kozak [Deputy Prime Minister] showed me the chart, according to which, as of January 1, 2017, the regions’ official debt totalled about 2,318 billion, which is lower than before. The percentage of total debt in revenue has dropped from 36.5 to 33.8 percent. So, the debt is indeed declining, even if at a slow rate.

What we need to do is to relieve regional finances so they can qualitatively become regional development budgets instead of loan-paying budgets.

Debt uses up over 50 percent of the revenue in 50 regions. In eight regions, the debt is higher than the revenue itself, which is a critical level.

I want to remind you that for the past three years we have worked to replace expensive commercial bank loans with publicly funded loans. These account for nearly half of the regions’ debts, or over 1 trillion rubles. It is clear that substantial funds that are being used to service and repay these loans could be invested in socioeconomic development.

With respect to this, we have agreed on the following with the Government. I must admit, and you know this anyway because you attended one of the meetings, that there was much debate about this, yet we have reached agreements and they are final. What are they? On January 1, 2018 – please, take note of the date, everyone, those who are here in Ulyanovsk and those who will see or hear this in the media. So, on January 1, 2018 we will launch a programme, which will last at least seven years, to restructure publicly funded loans.

This programme can be even softer for some regions – I will specify which ones later – because it can be extended to 12 years. Moreover, maximally easy conditions will be stipulated for the first two years of this programme, as I have asked the Government and we have agreed on this, and the Finance Ministry agreed too. In this period, the regions will pay only 5 percent of their debts annually. Under this schedule, the regions will be able to free up a total of 428 billion rubles in the next two years.

In other words, the difference between the current rules, the existing schedule for repaying publicly funded loans and the proposed debt restructuring programme will be 250.5 billion rubles in 2018 and 177.5 rubles in 2019.

I will explain this using examples of the regions whose heads are here.

For example, the difference for the Kaluga Region in 2018–2019 will be 15.7 billion rubles, which the region will be able to use; for the Smolensk Region 12 billion rubles, for the Krasnodar Territory 10.7 billion rubles, and for the Ulyanovsk Region 3.8 billion rubles.

This will actually be additional funds, a kind of additional federal budget assistance for the regions, which will get additional funds for dealing with their socioeconomic problems, for creating new jobs and improving the living standards of their residents, including transport services but also much more.

This is what I want you to remember: these additional funds must be invested in the financial rehabilitation of your regions. You must not squander this money, throwing it left and right indiscriminately so that you would have to ask banks or the federal budget for money again a few years later. These funds must be used for financial rehabilitation, for reducing the budget deficit, creditor or other indebtedness. I will speak about other kinds of indebtedness later on, although you surely know about them.

We have also decided that additional benefits will be given to the regions where the growth of the tax base and non-tax budget revenues is not below the inflation rate at the least in 2018 and 2019. I said this before, but I want to repeat it: this additional benefit will amount to the programme’s being extended up to 12 years. However, you will have to show high quality work in the first two years, and those who do so will receive the additional benefit in the form of having their loan repayment period extended.

I ask the Finance Ministry not to create additional problems for the regions. I know about your ideas for additional conditions and additional efficiency criteria, but let us limit ourselves to the above. If the region’s tax base grows commensurately with inflation in the first two years, this should be enough for receiving the additional benefit in the form of the programme’s being extended up to 12 years.

These regions will have to repay only 5 percent of the debt in 2020, and their subsequent annual payments will amount to 10 percent until 2029, when the remaining debt will have to be repaid. Our calculations show that the remainder will be only 5 percent by 2029, when the regions will have to repay it.

I ask the Government – please, take note of this, for this is important – to include the part of the regions’ tax base that is tax exempt thanks to regional incentives in the growth of the tax base. This is very important, because the regions should continue to enhance their investment attractiveness, including through the use of tax incentives.

I will explain. Under the current system of subsidies, decisions on subsidies do not take into account the regions’ shortfall in revenue due to the provision of regional benefits. For example, the regional budget receives 70 rubles in taxes instead of 100 rubles because of a tax incentive. In the past, the Finance Ministry’s decision on subsidies was based on the assumption that the regional budget received 100 rubles in full.

We have agreed with the Finance Ministry that from now on it will take into account actual tax payments to the budget, less the funds you have provided to your investors in the form of incentives.

I would like to point out the following: I ask the Ministry of Finance and the Government to promptly develop a method for assessing the effectiveness of granting benefits. The criteria are more or less clear, they only need to be defined and this should be done as soon as possible, and it is probably obvious why: benefits can be granted to anyone and in any way, to “our people,” while they should be granted to those who work efficiently in the region’s economic sector. This efficiency should be determined through a method that needs to be properly developed.

I ask the Government to thoroughly consider all aspects of restructuring publicly funded loans by the end of October and to work with each region of the Federation. I would like to emphasise that the region’s involvement in the restructuring programme will be voluntary. I think everyone will be willing to take part in this programme, but no one will impose it.

We will have to adjust the corresponding agreements on granting publicly funded loans. I ask you to envisage not only new terms but also the conditions for loan repayment, and make them realistic for everyone, not just on paper, but in practice.

Further on, along with the issue of debt on publicly funded loans in the regions, and despite our efforts to replace commercial loans with publicly funded, the issue of debts to commercial banks is still acute. These loans make up about 30 percent of the regional public debt, and in some regions this debt is enormous, also due to objective reasons. I have mentioned eight regions whose debt burden is higher than their revenue.

In this regard, we have arranged with the Government and the Ministry of Finance to consider the situation in these regions separately from the others and develop a special approach for them. In certain regions – and I have no knowledge of whether those present here have done so or not – top officials meddled in the future years’ tax revenues, that is, this year they have collected from tax payers what the tax payers should pay in the next and subsequent years. But how will they survive next year? This approach is questionable and traps the region in a financial corner. These things have to be reviewed. I will not go into detail now, Mr Siluanov [Minister of Finance] and I have had a comprehensive talk about this, he knows each and every one of these regions, and there are specific proposals concerning them as well.

Besides, in several regions budgetary institutions have accumulated large debts. Colleagues, this issue must be addressed specifically, in order to determine how the debt was accumulated, how quickly and why. Of course, I will receive a list of objective reasons which I already know, but I am not really so sure these reasons are always objective. The regional heads must pay more attention to such things. Who else will do it? We cannot oversee this from Moscow. This is your responsibility.

Certainly, this debt undermines the state of regional finance in general and the quality of public services.

I would like to ask the Government and the regional heads to determine the precise amount of budgetary institutions’ debt that is overdue. This is a big job but it must be done. Please analyse the reasons behind it in each case and suggest an efficient method for reducing these debts as well as for reducing your debt to commercial banks, of course.

Speaking of which, the debt to commercial banks is a separate issue to be resolved. Of course, you can always refer to the fact that, objectively, there is not enough funding, the Finance Ministry will not allocate the money and you have to turn to commercial banks. Is this so? Is this measure always justified?

I spoke to Sberbank management, they made a decision to reduce the interest rate on commercial loans from, say, 14 to 8.5 percent. But not everybody is applying for this reduced interest rate, so the question is why? Perhaps there is an advantage in paying a higher interest rate for some regional authorities? Who benefits from this? Why do they do this? I will consider these examples carefully.

By the end of this year we must sort out all these issues. As concerns the programme, I gave you a basic outline and it will be approved within a few days.

Thank you very much and good luck.