Annual report to the State Duma on government performance in 2010

Ladies and gentlemen,
Mr Speaker,

This report on the government’s performance in 2010 is to be delivered in accordance with the Constitution of the Russian Federation.

I think it is our common achievement that during the complicated period of the global economic crisis Russia successfully avoided serious shocks and risks that could weaken the country, undermine its economic and human potential, and lead to a critical decline of social standards.

As you remember, the financial crisis began in 2008 and soon after that problems on the stock market and in the banking sector provoked a structural setback in the global economy. This unbalanced public finances in several countries.

You have probably heard that two weeks ago Portugal asked the EU for emergency financial assistance. Such assistance was earlier requested by other countries, for example Greece. Iceland is still trying to deal with its difficulties.

Some of our European neighbours had to raise the pension age or freeze social benefits and pensions. In France, the government adopted a law on gradually raising the pension age from 60 to 62 years, for men and women alike. The Estonian government adopted a law on the gradual increase of the pension age to 65. The law will become fully effective in several years, but the decision of principle has been taken. During the acute stage of the crisis, some countries, in particular Greece, Poland and Latvia, were forced to freeze pensions.

The global economy is now gradually recovering; that is a fact. But the consequences of the crisis turned out to be so serious that they have provoked social tensions in many countries and whole regions of the world. Furthermore, the situation is becoming unstable in entire regions, which can lead to unpredictable consequences. You have probably heard that the outlook on the US government debt has been downgraded. Professionals say this is most likely an election move, in this case, by Republicans. One way or another, it will have a negative effect on the global economy.

The lesson all of us should learn is that economic and government weakness and susceptibility to external shocks inevitably threaten sovereignty. We all know very well that – let’s admit it openly – if you are weak, there will always be someone who will be eager to advise you on where to move, which policy to pursue and which development path to choose. These seemingly friendly and unobtrusive recommendations may look good, but in point of fact they camouflage diktat and gross interference in the affairs of sovereign states. We are perfectly aware of this.

I know that all our parliamentary parties have taken a consolidated stand on this issue. I truly appreciate this. (Applause)

I would like to reiterate that we must remain independent and strong. Most importantly, we must also pursue a policy in the interests of our people, who will in this case support all our initiatives.

In the past few years I have toured nearly all Russian regions, visiting enterprises, schools, universities and hospitals and talking to workers, servicemen, doctors, teachers, and residents of rural areas and single industry towns.

Naturally, the situation differs from region to region. People sometimes encountered serious problems, especially in 2009, and not everything was put right in 2010. Incomes cannot be described as high. The numerous difficulties many people encountered during the crisis included layoffs and problems with keeping one’s business afloat.

Everyone knows that the crisis came from abroad. While fighting it, we did not try to blame it on insurmountable objective circumstances, although there were enough risks and uncertainty factors, including some we could not influence. We mentioned them, but did not shirk responsibility for the situation in the country; in fact, we assumed responsibility for everything.

Russia is a social state by constitution, and we shall never ever go back on our social commitments, whatever happens, whatever the circumstances; the government can guarantee that.

Now let us look at what we have actually accomplished over this very difficult period. Having come through severe economic shocks with a budget deficit, over the past two years the country has nevertheless provided 250,000 apartments to military servicemen and WWII veterans free of charge. It has met its targets in repairing dilapidated and hazardous housing and re-housing residents in better accommodation. You know that we set these targets before the crisis hit, when the economy was experiencing peak growth. We did not abandon these plans, we fulfilled them, despite it all: touching, in one way or another, the lives of as many as 10 million Russians.

As you know, work pensions were increased by 45% in 2010. We organised the construction of 38 perinatal centres and other high-tech medical centres across Russia, and continued to pursue far-reaching demographic programmes. We have indexed all the benefits people received under these programmes, including maternity capital – as we promised we would when we formulated this programme.

Government spending on education increased 50% compared with pre-crisis 2007, and federal allocations for civilian science and research more than doubled. Economic growth resumed in July 2009; in 2010, the country’s GDP grew 4%, showing the highest growth rate of any G8 country.

This year, we expect 4.2% growth. By way of background, I can say that we have already seen 4.4% growth in the first quarter. This means that, by the start of 2012, the Russian economy should have compensated in full for the losses it suffered during the recession.

Earlier forecasts slated economic revival for 2013-2014. But we know we can do it sooner – this is not wishful thinking, but a well-founded assessment of the situation. Now we need to look ahead, concentrate all our resources on economic and infrastructure modernisation, build on each region’s strengths and help each of them develop their assets.

The government will approve, before the end of this year, long-term strategies for each of the country’s federal districts. These strategies should lend a forward momentum to regional development. We have established, jointly with Vnesheconombank, special development institutions for specific regions, for the North Caucasus for example. Also, a direct investment fund to support socio-economic projects in Russia’s Far East and the Baikal Territory will start operating this year.

We need to improve the quality of the economy and investment, reduce our dependence on commodities exports, and develop the banking sector. We must be effective in our support for businesses as we rein in corruption, which slows us down and erodes the moral fabric of society.

Russia needs to become a genuinely competitive country. This is a basic requirement for its government, businesses, and social institutions. If we look at labour productivity, in Russia it is much lower than in leading economies. At the very least, we have to double it over the next decade, perhaps even raising it threefold or fourfold in key industries. To increase the share of innovative production in total production from today’s 12% to 25% or 35%. Incidentally, labor productivity in the previous year, after all this is a 2010 report, rose by 210%. That is a fairly good showing.

Russia must become one of the world’s five leading economies in terms of GDP. And reach over $35,000 per person in per capita GDP. This is higher than the indices for countries like France or Italy. To be clear: this concerns today’s indices, because they do not stand still.

We should strengthen the trend towards stabilising the population numbers in the country, ensure that all people have access to high quality healthcare and education, guarantee a realistic pension, and form a massive middle class.

Now a large group of experts are putting the final touches on a strategy till 2020. It deals above all with the search for new growth reserves and the appropriate priorities. Modernisation, or in other words progressive and qualitative development, is, in our view, an investment in human resources, in their abilities and talents, in creating the conditions for self-fulfilment and initiative. It is investment in a quality of life for our people. I am absolutely convinced that this will ensure both high growth rates and real technological breakthroughs.

This country requires decades of steady, uninterrupted development. Without sudden radical changes in course or ill thought through experiments based so often in either unjustified economic liberalism, or, on the other hand, social demagogy. We need neither. Both will distract us from the general path of developing the country.

And, of course, we should maintain civic and inter-ethnic peace, and put a stop to any attempt to cause our society to split and quarrel among itself.

We are to find the kind of solutions that will give Russia the opportunity to go forward confidently and build a strong, innovative economy, and each year of this development must bring real and palpable improvement in the life of people, for the absolute majority of Russian families. This is the thrust of our policy.

Colleagues, when the year 2010 was just beginning, some predicted a heavy stagnation and even a second wave of crisis for us, and now there is still much talk concerning this subject. These gloomy forecasts have not come about so far, thank God, nothing of the sort has happened. And not because fate or business conditions were exceptionally favourable for us, although a nearly 30% growth in the prices for our basic exports: oil, gas, metals, chemicals, power generating equipment and some other commodities helped us a good deal. It was above all because the economy itself proved that it could develop under very rigid and sometimes extreme conditions.

Today I mentioned the annual GDP growth figures – 4%. Each percentage point of this growth was won by hard work and did not come for free. I want to emphasise this. It was all the result of our combined and timely efforts in the economy and in the social sphere.

In 2010, Russia’s recovery from the crisis continued amid major natural disasters and catastrophes, an unprecedented drought, and heatwave and wildfires. Think back to the 1930s, when the drought was less serious than last year’s but it produced devastation on a huge scale, including famine and enormous loss of life. We did not allow anything even remotely resembling those events to take place again.

Today, I would like to once again thank everyone without exception who had fought the calamity, including firefighters, pilots, military personnel and volunteers.

We have provided support for everyone affected by the disaster and those who had lost their homes and property. As had been promised, all wildfire victims received new homes or cash compensations by the start of winter. In all, 2,200 families have built new homes. I repeat, the rest either received cash compensations or bought flats. In addition to receiving new homes, they purchased furniture at a 40% discount. We established an entirely new infrastructure, roads, power transmission networks and gas pipelines were built, provided broadband Internet access. The people can now watch 150 television channels. The people have never lived in such conditions before.

We are now closely following the situation in Siberia and the Far East, where the fire safety situation is already deteriorating. We must do everything to minimise the chances that the devastating disasters happen again. Incidentally, grass-burning works in agriculture is already causing fires in the Far East. We must be extremely careful here.

As you know, a number of systemic decisions have been made, tougher fire safety regulations are being adopted, and the prerogatives of departments and government agencies are being clearly demarcated. A programme for re-equipping the Ministry of Civil Defence, Emergencies and Disaster Relief has been approved.

There are plans to buy fire engines and aircraft, as well as modern telecommunications and control systems by 2015. The entire programme will cost 43 billion roubles. Special agreements prioritising forest fire prevention and firefighting operations are being signed with regions.

This year, Russian regions will receive five billion roubles for purchasing fire engines and specialised equipment. An additional 3.5 billion-plus roubles will be spent on replanting forests, cleaning up burnt-out sectors and flooding peat bogs. Of course, this must be done on time. We must start the work now, especially in the Moscow Region.

I would also like to ask the deputies to expedite the adoption of the bill on volunteer fire brigades, all the more so as these ideas were largely put forward by our colleagues sitting here today.

Considering the lessons of 2010, we must start renovating vital infrastructure elements at social sector facilities nationwide. Some Russian hospitals still lack air-conditioned surgical wards. The Ministry of Healthcare and Social Development, the Ministry of Education and Science and other departments should plan this work on a par with the regions.

I would like to especially thank Russian farmers who did not lose heart in extremely difficult conditions and harvested 61 million tonnes of grain. Along with the grain reserves, this was sufficient to fully meet the domestic demand and guarantee Russia’s food security.

Last year, an additional 35 billion roubles in federal funding was allocated to the affected farms. We helped them with seeds and fertilisers for the sowing season, which is now getting underway. We have extended the terms of soft loans and leasing payments. The 2011 federal budget stipulates over 150 billion roubles for supporting the domestic agribusiness.

Moreover, Rosselkhozbank and Sberbank have especially reserved 100 billion and 50 billion roubles, respectively, to meet the agribusiness’ demand for loan resources. The discounts on oil, petroleum and lubricants have been preserved and will allow agricultural producers to save about 10 billion roubles. The 2010 discount was 5.5 billion roubles, and this year’s figure is even more impressive. If you have noted, we have retained November 2010 prices facilitating a substantial discount.

Please note that all enterprises will get government support – whether they are large complexes, farmers, small or medium-sized businesses in rural areas.

On top of that, we have drafted a number of additional measures, and will ask deputies to support changes to this year’s federal budget in order to plough another 13 billion roubles or so into developing and supporting rural communities. Since we plan to present you with our proposals before long, I shall avail myself of this opportunity to explain, briefly, what is at issue.

First, in April Rosagroleasing (the State Agro-Industrial Leasing Company) began selling agricultural equipment and farming vehicles at a 50% discount, thereby allowing farmers to acquire about 6,000 pieces of equipment. Yesterday I met with the head of Rosagroleasing. He said that they had 6,150 items of equipment on their books, and although some items are indeed currently unaccounted for, we will locate them. Or we will locate the funds, or find those who are responsible for mis-recording these missing items. In any case, we will ensure that agricultural producers receive their allotted equipment.

If need be, we would ask you to support earmarking additional funds so that we can deliver on our promise to these agricultural producers. Judging by the available figures, Rosagroleasing and other the agencies currently have a total outlay of 3.7 billion roubles.

Second, we shall use federal and regional budget resources to help farmers formalise land ownership. We are not talking big money here, but it is a significant issue that means a lot to farmers. It will require about 120 million roubles. We have ring-fenced these funds.

Third, a decision has been taken to inject up to 9 billion roubles of extra funds into the development of pig and poultry farms in 2011.

I would ask State Duma deputies to approve all the above amendments.

Today, our food producers supply three-quarters of meat products on the domestic market. Poultry farming, as you know, has shown the most dynamic growth. This phenomenon is without parallel anywhere in the global economy – production increased several times over. Five years ago we imported 1.3 million tonnes of poultry meat. Last year we said we would import 600 tonnes, however, the actual figure was just 300. We will scale it down further, as our domestic production is on the rise.

We are building effective modern complexes and implementing family farm programmes. Our task is to ensure that Russian farmers become the masters of their own food market. Unfortunately, food products currently account for a very large proportion of our price index: about 38%. Crop failure and rising global food prices have spurred inflation and people immediately felt this spike in prices. Incidentally, as for our neighbours, food products account for approximately 20% of their price pattern.

As you know, in order to provide the country with bread and also check prices, we have imposed a temporary ban on grain exports. At the same time, we have also cut or altogether scrapped import duties on some popular food products. We have used the Intervention Fund’s stocks and subsidised the rail transportation of grain from areas that had good harvests to those which were hit by drought.

In March and April this year inflation began to slow down and we expect that in 2011 the inflation rate will not exceed 6.5 to 7.5%. Much here will depend on the effectiveness of our measures to support the domestic agribusiness sector.

Incidentally, talking of inflation, which always bodes ill, just by way of background: in 2009 and 2010 inflation was running at 8.8%, which is Russia’s historical low.

Apart from the set of instruments to support agribusiness available today: loan rate subsidies, leasing, tax benefits, fuel and lubricant discounts, subsidies for fertilisers and so on, and I would like to remind you that in 2010 and 2011, as I have already said, a total of 320 billion roubles was allocated to these ends, we deem it feasible to detail one more measure – the scrappage of agricultural machinery. We are currently investigating this possibility and waiting for the Agricultural Ministry to supply us with appropriate instruments to translate this measure into practice, starting in 2012. We will continue with this work, we are determined to see this through and are ready to allocate funds. We have the necessary funds, we only lack mechanisms: competent and practicable proposals. Regretfully, we do not have such mechanisms as yet. Specialists are expected to put their proposals to us. We also plan to launch a project to support young farmers next year. We will be providing special grants for setting up farms using loan and leasing mechanisms, and will be helping farmers build durable and comfortable homes. Moreover, we will lift the ban on building housing on agricultural lands for farmers so that people can build themselves homes where they live and work.

I would like to outline our concerns for you. We must make sure that we do not allow just anyone to build what they want on agricultural lands. I was only referring to farmers and this needs to be clearly spelled out to so that ineligible persons do not get this right and no unlawful residential developments are built on farmland.

That is why we will need to carefully consider this mechanism together. For example, if we give farmers the right to build homes on agricultural land, perhaps this should only apply to the farmers who are listed in corresponding registers. There may be some other protection mechanisms, so let’s think about it.

Russia currently has more than 200,000 farm holdings and small agricultural businesses, and individual farmers account for up to 50% of Russia’s agricultural production. And we will continue supporting them and working to improve living standards in rural areas, to provide central gas supply, build homes, roads and infrastructure, and create conditions to attract young people.

Over the past five years more than 67,000 young professionals and families in rural areas received housing. We intend to provide new housing for further 23,000 families in the period from 2011 until 2013 so that they can work, live, have children and forge a successful future for Russia’s rural communities.

Ladies and gentlemen, looking at key performance indicators for 2010 one can see that the crisis retreated almost in all sectors, including industry, banking, real estate and the labour market. Profits of Russian companies surged by more than 40% in 2010 and investment in fixed capital rose 6%. Russian stock markets have become world growth leaders and their capitalisation reached $1 trillion by the beginning of 2011 and increased by an additional $100 billion by April 1, 2011. Our stock markets showed the best yearly performance among all BRICS countries. The best yearly performance.

Banks are again stepping up loans for the real sector. Russia’s loan portfolio grew by 13% in 2010, which is a better performance than in most G20 states. Certainly, the growth in 2006 and 2007 was significantly higher. At the same time, the threats were also more serious, including the so-called bubbles. So, 13% is a fairly good performance, particularly in current conditions. In February 2010, the average interest rate for a commercial borrower with a good credit rating stood at 12.7% and fell to 8.7% by February 2011. There are different interest rates for different purposes, for different borrowers but I’m referring to the average rate.

This all is the best evidence that we were absolutely right to provide massive support for banks during the crisis.

I would like to emphasise once again that back then the government was protecting Russia’s fiscal and financial system rather than certain bankers or individuals so that the 1998 situation did not happen again. Back in 1998 the system collapsed and regular people, the bank account holders, had to pay for the government’s failed financial policy.

We believe that our decisions to support Russia’s fiscal and financial system were effective and timely. As a result, the government not only earned 200 billion roubles from this – I would like to emphasise that it earned the money – but also managed to carry out its anti-crisis measures, and with a profit of 200 billion roubles. Most of the funds provided have been paid back except for those that were issued as loans. This is supported by documents and these funds are now working in our economy. A major part of the funds received, 50 billion roubles, was spent on the support for mortgages. Thus, these funds enabled Vnesheconombank to set aside 50 billion roubles for mortgages, as I just said.

Russia’s industrial production grew by 8.2% in 2010 and processing industries experienced an even higher growth of almost 12%. Machine engineering sector took the lead with a 25% increase. Nearly half of the GDP growth in 2010 was due to the good performance of manufacturing, which is a high value-added industry. Labour productivity went up 3.1% last year, as I said citing available data, but the adjusted figure I received this morning is 3.4%. This means the structure of the economy is gradually changing, becoming more effective, and this process should be strengthened, of course.

It should be said that the current favourable situation in the commodities market, meaning hydrocarbons, does not mean we can relax. The oil boom we are now witnessing has only highlighted the need for accelerating the transition to a new model of economic development.

I’d like to remind you that before the crisis we could increase the export of commodities and attract affordable loans abroad. These sources once played a considerable role in our economic growth, but they have become considerably constrained now. Not that they have disappeared, although some say they have. No, they have not disappeared, but they have decreased; that is a fact. Therefore, we should now rely on the domestic market, the dynamic development of the non-commodity sectors, quality investment and high business activity. We should employ the momentum of recovery growth to ensure an innovative direction and to boost structural changes in the real economy and in the employment market.

At the height of the crisis we launched large-scale employment programmes, which included a total of 4 million people, no, even more than that, 4.8 million. Most of them retained their jobs or found new employment, and many upgraded their skills or opened their own small businesses.

As many as 326,000 people have started their own businesses in the past two years thanks to employment programmes and government assistance. When we created these programmes, they did not immediately look attractive, as you know because you visit regions. They included social work jobs, which are not highly paid, and skilled workers were not eager to take them. But at least we offered them subsistence.

Furthermore, we offered advanced training and other courses. As for helping those who lost their jobs start their own businesses, I did not think the idea would succeed. But 326,000 people have started their own businesses, which is a good indicator.

At the peak of the crisis, in February 2009, the number of unemployed reached 7.1 million people. In March 2011, the figure was 5.3 million. This is still too many of course, but the change points to positive momentum.

In 2011 we will allocate another 105 billion roubles in social support for the jobless and for employment programmes, which will not focus on providing jobs but on upgrading worker skills and creating conditions in which people will be able to receive new, higher paid jobs that are in demand.

The priority right to participation in these programmes is given to the people who objectively have problems with finding jobs, especially disabled people and the parents of children with disabilities. Young mothers who are on child-care leave until their kids turn three and women employed at hazardous enterprises will be able to train for a new profession under these programmes.

I’d like to say that this is the first time we are doing this. In point of fact, these are not anti-recession measures, but I think they are crucial for protecting women’s health and for encouraging them to resume work after giving birth. This measure can be seen as part of our demographic programme.

We are drafting comprehensive investment programmes for single industry towns. Overall, we plan to create at least 200,000 jobs in these towns and villages by 2015, to seriously improve their infrastructure and to launch general redevelopment.

Our employment policy is focused on creating modern, efficient and highly paid jobs, on stimulating new technology and through this reducing the percent of hazardous and dangerous jobs. We have reached serious conclusions after the tragic events at the Raspadskaya mine in Kuzbass. We have adopted a law on insuring dangerous facilities – thank you for working so rapidly on it – and also a law for the coal industry that introduces clear safety standards for mines. These standards will be approved by the government.

We will have at our disposal a set of administrative and economic tools for obliging employers to strictly comply with labour safety standards and to invest in the safety of their workers. We must raise the competitiveness and professional status of our workers and the prestige of the vocational trades.

We often criticise our media. I am not going to do so now, but still, I’d like to say it is not often that our national channels show honest, efficient, or even heroic workers, who bear the brunt of society.

And, of course, the economy should encourage demand for skilled workers and engineers. This brings up the question of the nature of our economic growth. I am confident that we should initiate a new wave of Russian industrial technological development and create an environment for attracting long-term “smart” investment and innovative technology to the country. This is the only option, the only alternative, if we want to ensure the competitiveness of our human resource potential and bolster the demand for it.

You must remember that the effects of the economic downturn were most visible at auto plants, which were halting their conveyors. That was really troubling because Russian automakers employ about 600,000 people, and another 3 million people work for related companies. Along with their families, you can imagine how many people that could affect. We certainly could not leave them without support.

During the recession, when automobile production in Russia slumped by 60%, the government provided unprecedented support to the industry. Throughout 2009 and 2010, the industry received a total of 170 billion roubles of federal funds under various programmes. As a result, the production of cars more than doubled in 2010; the production of trucks surged 74.5% and buses by 23.6%.

In the past twelve months – since April 2010 – Russia’s auto industry grew by a double-digit figure every month. Vehicles assembled in Russia accounted for 70% of all automobile sales on the domestic market.

I remember how I had to fight a host of protests and complaints against supporting Russian automakers. But who else should we support? Foreign producers? The industry is up and running now, introducing new technologies, and all international brands are here.

We have implemented a car-scrapping programme. It was introduced just in time to promote a faster revival of domestic demand, while half a million Russians were able to buy new cars with a discount. This was an anti-crisis policy, which supported the auto industry, as well as an important social programme.

I can tell you that we are allocating another 5 billion roubles for the car-scrapping programme this year. We will support Russian companies which have far-reaching development plans, and also help people buy new cars.

There is something else. Some dealerships inflate the prices of cars offered under this programme. I mean, the same model can be acquired at a cheaper price for cash. Clever people, these dealers. Yes, you get this one. The “scrapping” discount is eaten up by the price mark-up. This practice has to be eliminated. Law enforcement agencies will be monitoring the process. But I am also asking you, when you travel to the regions, please look out for these things and take some action as soon as possible.

We also need to set up a system to remove old, rusted cars from the streets and courtyards or areas outside the city boundaries.

As I said, nearly all the leading international automakers now have plants in Russia. They have become an integral part of the Russian auto industry. We have issued new requirements for their production and for the percentage of components that need to be produced locally. Although these negotiations aren’t always easy, our partners generally agree with these requirements; they understand our needs and agree to compromise. Locally produced parts now have to account for 60% or more of the total, and annual output should be around 300,000 vehicles, not 25,000 as it was before.

Why so many? This is not just about the number of cars. The idea is that, with high volumes of production, it becomes more efficient to manufacture whole units locally, such as engines and other major components.

Let me emphasise that a high percentage of locally produced parts is our policy in building investment and promoting technological cooperation. This does not apply only to the auto industry; the same is true for the energy sector, mechanical engineering, shipbuilding, pharmaceuticals and other industries.

For example, we place billion-rouble orders for medical equipment with foreign companies. I will talk about it in more detail later. I think it would be only natural for our partners to gradually relocate their production facilities to Russia.

The government will also channel over 120 billion roubles to modernise the national pharmaceutical and medical equipment industries and to build up technology reserves, under a new federal programme until 2020. The plan is to establish 17 research centres to develop new drugs and design medical equipment. In 2010 alone, Russian and foreign companies invested over 40 billion roubles to develop the production of pharmaceuticals and medical equipment.

In shipbuilding, we are establishing partnerships with leading European and South-East Asian manufacturers. We plan to open more shipyards and implement lucrative projects such as building icebreakers, high-tech vessels for various uses and drilling rigs. In 2010, Russia’s shipbuilding sector grew 8%.

Let me repeat, it is our goal to set up full production cycles inside the country, from R&D to manufacturing components and commercial production. This is a matter of principle, because it is the only way to create well-paid jobs, and maintain local technology, engineering, design and production at a high level.

Our experiences over the past few years have shown that we are capable of modernising and giving momentum to whole sectors. I think we have worked out an effective and flexible model that includes targeted state support, financing through Vnesheconombank, support of other development institutions, and setting up technological alliances with leading international manufacturers, if necessary.

As you know, a special fund to attract foreign investment into the Russian economy and form major joint ventures will be established. Sixty two billion roubles from additional budget revenues will be allocated to these ends and, since this area is an absolute priority, we propose to make it an exception and allocate it an additional 10 billion roubles from oil and gas revenues.

I will tackle this issue a little later, it must be treated very carefully, but since this fund is an absolute priority in restructuring the Russian economy, we propose to allocate 10 billion roubles from oil and gas revenues to it.

We anticipate that, apart from measures to improve the investment climate and remove the barriers to investment in strategic sectors, this will enable capital inflow into Russia to increase significantly.

In the near future, we have set ourselves the goal of reaching $60-70 billion a year in direct foreign investment, and of course, we will keep raising this bar. The inflow of direct investment into Russia was $40.5 billion in 2010.

We plan to improve and refine our customs policy so as to promote the development of high-tech production in Russia on the one hand, and, on the other, so as to avoid creating barriers to the import of unique equipment, which is not and will not be produced in Russia in the near future.

We need to correctly identify where our priorities lie. In some cases it may be more efficient to buy available licences and goods abroad: this could yield rapid results. If we have accumulated good ideas and can create our own breakthrough products, we need to invest in their development.

I know that members of parliament have been making similar proposals. Colleagues, we will be sure to take them into account as we continue our work.

The government will support our producers in all their innovative activity, co-finance the research and development costs that companies incur and subsidise the interest rates on loans towards production modernisation. Over 70 billion roubles were allocated for these purposes from the federal budget last year.

The public-private partnership model could also offer an effective solution, providing technological platforms pool the efforts of the government, scientific community and business in creating new technology and production. And of course we are counting on an increased return from special economic zones and technology parks. The government has already invested about 60 billion roubles in them. We will allocate another 17 billion this year.

Let me remind you that there are 24 special economic zones currently in operation in Russia. High technology parks are being developed in 12 regions. About 670 resident companies have already been registered in these innovative industrial clusters. The range of projects underway is vast – from molecular medicine to household appliances, from nanotechnology to construction materials. The planned volume of investment stands at about 300 billion roubles. I just wanted to draw your attention to this. We are not just focused on what is happening in Moscow. We are talking about the entire country.

And another thing, we need to move from one-off breakthroughs, individual successful projects or transactions to systemic support, en masse, for our high-tech companies, which want to be present on foreign markets. That’s why the Russian Export Credit and Investment Insurance Agency is being established.

Our new structure will shoulder part of the financial risk, and will help our exporters become more competitive. This year the agency will be able to guarantee export loans worth $1 billion, and by 2013 insurance support will be provided to 15% of all exported Russian cars, equipment and other forms of transport, worth a total of $14 billion.

We will exploit all the benefits of integration as we pursue our goal of furthering Russian industrial and economic development. Esteemed colleagues, 2010 was the year that saw the “birth” of the Customs Union of Russia, Belarus and Kazakhstan. The unified customs tariff and the joint Customs Code have both come into force. Incidentally, the business community has already assessed the new opportunities afforded it: mutual trade between Customs Union countries has grown 28%. And, overall, I consider this to be an historic event. This is the first time that a truly integrative union has been established anywhere in the post-Soviet space.

In 2012 the Customs Union will formulate a unified technical regulation system, which is to become the crucial element of industrial policy. By renewing these technical regulations, we will nudge business towards modernising production. We will take current best global practice and apply it broadly in developing these regulations; this includes the experience of our EU partners. The Customs Union will be our stepping stone to a common economic space. The common market, with harmonised legislation, free movement of capital, products, services and people will come into operation from January 1, 2012. And in the near future we will see economic policy coordination continue in key fields. This will indeed be an integration breakthrough, which will fundamentally change the economic and, perhaps even the geopolitical configuration of the entire Eurasian space.

I would like to stress that the Customs Union and the Common Economic Space are open to all of our partners in the CIS. I am also convinced that the idea we propose to our European partners of creating a harmonised economic community stretching from Lisbon to the Pacific Ocean will eventually be supported. I already know that the response has been mostly positive.

We propose negotiating close partnerships in technology and the economy, facilitating dialogue between the Common Economic Space and the European Union, creating free trade zones at some point, as well as introducing more advanced forms of economic integration. We have a lot to strive for because we can eventually end up with a common continental market worth trillions of euros. To start, we are calling on our European colleagues to implement projects that will help remove obstacles to our cooperation and to realise the idea of establishing a joint energy industry of a greater Europe.

The introduction of visa-free travel could serve as a starting point for the launch of real integration processes between Russia and the EU. We are actively discussing this, and we are ready for this.

Esteemed colleagues,

I would like to reflect on the situation in the defence sector and the national aircraft industry. First of all, I’ll discuss the latter, all the more so as I have received detailed inquiries from some members of parliament.

We did not refuse to support the aircraft industry during the difficult crisis period. Over the period from 2009 to 2011, we will have invested over 270 billion roubles in the sector. Consequently, all projects defining the future of Russia’s civil and military aviation have already been launched. Work has been completed to consolidate the sector. This process was very complicated due to confusing legislation and numerous petty, mercenary and corporate interests. Unfortunately, we moved ahead very slowly.

All plants currently affiliated with integrated companies now have clear development prospects.

Serial production of the new Yakovlev Yak-130 combat trainer has been launched. The Voronezh Aircraft Plant has started manufacturing the Antonov An-148 airliner and specialised versions of it. We are studying the possibility of resuming production of the world’s largest strategic airlifter, the Antonov An-124. The Sukhoi Superjet 100 airliner has been certified, and its production is being launched. In all, orders have been received for 150 of these jet airliners to date. Aeroflot will lease ten such aircraft in 2011. The first Sukhoi Superjet 100 will be delivered to Aeroflot in mid-May.

You know, I was very happy to oversee this work. There was such a good international team. I came to the Far East and visited the plant. There, on one side I heard people speaking Italian, on the other side French, and further on it was Russian. All the members of that good, close-knit team were working together to achieve a common goal. This is the first Russian airliner to feature exclusively digital technology. This is a new step and a good event.

As you know, the first Sukhoi Superjet 100 landed successfully in Yerevan yesterday, and will now start flying with the Armenian civilian air fleet. It is symbolic that the airliner is named after national hero Yury Gagarin, honoured this year as part of the world’s 50th anniversary celebrations of his space flight.

Work is proceeding apace on the breakthrough MS-21 medium-haul airliner, featuring a new engine and new wings, made of composite materials. Two fifth-generation fighters are currently going through flight tests.

We are establishing the National Aircraft Engineering Centre in Zhukovsky as the Russian aircraft industry’s main innovation centre. A sound basis for R&D potential was developed there in previous decades, primarily during the Soviet period.

The Titanium Valley Project is being implemented in the Sverdlovsk Region. Unique aircraft materials, alloys, composite materials and components for new-generation planes will be manufactured there.

I believe that a rather substantial production base is being created for the national aircraft industry, that we will implement all these projects, no matter what, and that we will encourage national demand for civilian and military aircraft.

The re-equipment of the Russian Air Force and air defence systems will become a priority aspect of the Armed Forces’ short-term development. Air-defence brigades are already receiving new S-400 surface-to-air missile systems. Production of the S-500 surface-to-air missile system will begin in the future. This system can support air defence, missile defence and destroy targets in near-Earth space.

New strategic and short-range missile systems, including the Yars, the Bulava, and the Iskander-M, will be adopted. Production of strike missile systems is expected to double starting in 2013.

We will also upgrade our civilian launch vehicles. There are plans to conduct initial flight tests of light-weight and heavy-lift Angara rockets in 2013. The Rus-M launch vehicle, due to be developed by 2015, will lift off from the new Vostochny space centre. It will orbit manned spacecraft and cargo spacecraft. Large-scale construction work at the site of the space centre will begin as soon as this year. Incidentally, this will enable us to become completely self-sufficient in the field of space exploration. The only remaining national space centre in Plesetsk was converted for civilian programmes. We will build a space centre for our own civilian programmes, which is currently lacking.

Speaking of defence-related issues once again, I would like to note that a large funding of about five trillion roubles is being allocated for restoring and expanding the Navy for the first time in contemporary Russian history. This is the amount set out in the state arms procurement programme, which has now been adopted. In all, we plan to spend a staggering 20 trillion roubles on its implementation.

As compared to the previous programme, funding amounts are three times higher. As you know, this is not linked with our desire to formulate some military budget for the next few years. On the contrary, this is linked with the fact that numerous weapons systems are ageing and have to be replaced. Of course, new systems must feature advanced technology. Simultaneously, we drew up plans to modernise the defence industry, as new weapons systems can only be produced using new equipment. We are planning to allocate over three trillion roubles for these purposes over ten years. We intend to provide about 200 billion roubles annually for prospective research and development projects in the defence industry and develop dual-use technology based on these projects. In this respect, the increasing state defence order will serve as a major driving force for the modernisation of the defence industry and the economy as a whole.

Orders under the state rearmament programme should be placed promptly and, of course, on time, which also applies to the transfer of funds to defence industry companies. We are experiencing certain problems in this area, which have been rightfully mentioned by deputies.

I have read the questions you submitted prior to my address. We will monitor these areas thoroughly, and I urge you, too, to keep them under control.

Nevertheless, a great deal has already been accomplished. Output in the defence industry has increased by almost 50% compared to the pre-crisis level in 2007.

Here is another remarkable figure. In 2010, up to 75% of total investment in the defence industry was used to purchase new equipment. Just take notice of this figure: 75% of the total amount of investment was spent on new equipment. In other words, we are rapidly creating a basis for the production of next generation equipment.

Young people have been returning to the defence industry and we have managed to reverse the ageing trend in the industry. The average age of workers at defence industry companies, design bureaus and research centres is gradually decreasing. Currently, the average age in manufacturing is 45.6 years, and 48.1 years in science.

In 2011, we will have the first targeted intake of students for education in professions that are in demand in the defence industry. We have already started paying bonuses to the best performing young workers, engineers, and designers at defence companies. They have been paid bonuses since January 1, 2010, in addition to the salary of about 20,000 roubles per month.

I would like to emphasise a very important point here. In the coming decade, we will need to almost completely rearm and re-equip our armed forces. There has been a lot of speculation recently as to who is going to receive the state contracts worth trillions of roubles. I am absolutely convinced the modern weaponry for our army and navy can and must be supplied by the Russian defence industry.

Obviously, certain technology and weapons types can and probably should be purchased abroad. But we need to understand that nobody will sell us the most advanced and latest generation technology, just as we by no means export everything we have. This is standard international practice.

Secondly, we need to make every effort to achieve the leading positions in key areas of defence technology in major weapons systems.

And finally, the third, and probably the most important point is that the budget funds earmarked for defence projects should not go abroad. The bulk of these resources should be spent in Russia and fuel our industry and science to create new high-tech and high quality jobs. That is the way we intend to act, let there be no doubt about it.

I would like to emphasise once again that a strong defence industry, nuclear industry, rocket industry – these are our competitive advantages inherited from previous generations, for which we are very grateful to them. And we are determined to strengthen and further develop these sectors.

Ladies and gentlemen!

We need to depoliticise these issues. We inherited this from the Soviet Union and we are proud of it. A low bow to those who designed these systems. We will work on their further development.

Deputies,

I am convinced that in forging a new image of Russia’s army and navy, in reforming other security and law enforcement agencies, we need to focus on people and basic issues like the professional improvement of service members as well as providing stronger social security and decent pay.

We have been gradually moving to resolve these issues. If you remember, in 2007 we began creating an incentive payment system for service personnel in charge of particularly important missions and who serve in critical areas for Russia’s defence.

We are now about to take another step towards this goal and it will be a follow up on everything done so far. In January 2012, we will start introducing a new payment system for service personnel and law enforcement officers.

When one speaks with service people, let’s say in the air force, pilots say they are already receiving these significant bonuses while technicians don’t. And there has been some tension over this among service members. But starting in January 2012 all service members will see a significant pay increase. The amounts have been cited repeatedly.

For example, in the Interior Ministry system the base payment for a police lieutenant will be 33,000 roubles, and with all the incentives the salary will reach 40,000 roubles. In the Armed Forces, the base salary will be 50,000 roubles and will further be adjusted depending on the place of service, potential risks and other factors. So, a lieutenant’s salary could be even higher. Military pensions will be increased at least by a half starting this January.

Let’s now turn to housing issues.

The Ministry of Defence has provided about 100,000 flats for service personnel over the past two years alone. This is the largest number in years. In 2009, 45,600 flats were provided, and a further 51,900 flats were provided in 2010. But this did not completely resolve the housing issue for service personnel.

We intend to purchase about 77,000 additional flats for service members through 2013. In fact, this will eliminate housing waiting lists in Russia’s Armed Forces. After we deliver on all our promises as regards the provision of housing for servicemen, that is, pay all our previous debts, flats for military personnel will be provided in a routine manner. Hopefully, people will no longer have to wait for years to receive a flat they qualify for.

The accumulative mortgage system for the military is expected to come into full swing. It has already proved its worth for many young commissioned officers in purchasing homes. About 5,000 service members managed to buy a home using this system.

We will also correct the injustice done to those service people who retired from the Armed Forces in the mid 1990s when the government could not provide housing for them. They were simply put on municipal housing waiting lists which were pretty long. In fact, many of these service members did not receive anything and are still waiting. Retired service members who are on municipal waiting lists must and will receive housing. We have set aside 36 billion roubles for this purpose.

Esteemed colleagues,

The year 2011 should become a year of major construction projects and of the completion of large-scale transport and energy projects. In fact, we will have to lay the foundation for Russia’s new infrastructure in the next decade. We need to ensure a breakthrough in the fuel and energy sector, and it should be a quality breakthrough based on greater efficiency and the deep processing of raw materials.

The fuel and energy sector, infrastructure and transport industries will become key customers for cutting-edge technology and innovation. I will cite some quite impressive figures. For example, Russian energy, oil and natural gas producing companies intend to invest 8.5 trillion roubles in their own development, including 3.2 trillion roubles in new equipment, over the next three years alone. This is the source for innovation. And we will do our best to ensure that these orders land at Russian industries.

Naturally, Russian enterprises will have to prove themselves competitive. We cannot force the consumers of such products and services to purchase obsolete equipment. We will be building new energy production facilities and gradually decommissioning the old inefficient ones.

Last year the capacity of commissioned facilities reached 3.2GW. I would like to point out that this was the largest increase in power generating capacity in a decade. And this year we will more than double this figure to 6.5GW.

We need to bear in mind lessons of last winter and make sure that the massive blackouts affecting strategic facilities in cities, towns and villages are not repeated.

I would also like to emphasise that infrastructure upgrades should not be carried out at the expense of consumers – our economy and regular people. It is unacceptable to carry out development programmes at the expense of uncontrollably raising consumer tariffs. This is equally relevant for the housing and public utilities sector.

Reforms in this area require daily consistent and meticulous work. I would like to point out for regional and local authorities that this work should be carried out in a way that people can receive high-quality services at an adequate and economically justified price.

Let me now say a few words about our oil and natural gas sector. This sector is always in the spotlight and it is clear why – it is laying golden eggs for all of us. We have been accumulating profits from oil and natural gas for several years and when the crisis struck we took the money from those reserves to increase pensions.

New natural gas fields are being developed, including the Bovanenkovo, Chayandinskoye and Zapolarnoye fields. LNG projects are proceeding, including on the sea shelf. The production of natural gas rose by almost 12%. As for oil, for the first time in history we reached a production volume of 505 million tonnes per year.

This is first in the world in terms of production, a position we should hold on to for a fairly long time and which covers our domestic and export needs.

Please make a note of it: most of the increase in oil production was achieved due to the introduction of new major fields in Eastern Siberia, such as Vankorskoye, Talakanskoye and Verkhnechonskoye. Production has also started at the Korchagin field in the Caspian Sea, and, significantly, it is based on absolutely new technologies. I’ve been there and looked at it and almost everything I saw was a pleasure to observe. They use really advanced technologies involving satellite systems, etc.

You know one of the things that surprised and pleased me: One of our companies works round the clock because its operations cover a large area, the whole country in fact. They set up an engineering centre in Moscow which controls the drilling work in real time. A group of experts sits in Moscow and tells the drill workers via satellite in what direction to drill and how. And the guy at the other end just sits there and carries our orders from Moscow. It’s great, a unique technology. It’s interesting and pleasant.

It is also worth noting that the amount of domestic oil refining increased in 2010. We will continue to encourage the output of high-quality petroleum products that meet the highest environmental standards.

I should remind you that beginning in 2011 all our oil refineries switched over to the production of Euro-3 petrol. Russian energy companies are opening up new export routes and consolidating their positions in the foreign markets, especially in the Asia-Pacific region, an area which has a promising future. Thanks to the launch of the first section of the Eastern Siberia-Pacific Pipeline, we increased oil exports to Asian-Pacific countries by a whopping 45% in 2010.

The second stage of construction of the Eastern Siberia – Pacific Pipeline is to be completed in 2014. A total of 700 billion roubles will be invested in regions in the Far East as part of the ESPP project. We all understand that it is not only about the pipeline system. The 700 billion roubles invested in the territory means new jobs, new townships, new kindergartens and so on. This is real development. This is not the only area of growth in our eastern territories. But still we are talking about a lot of real money.

You remember how much talk, and how much doubt, there was about other strategic infrastructure projects. I can say without exaggeration there have even been international scandals, for example, over the most important and most publicized Nord Stream project. A year ago, speaking before the State Duma from this very podium, dear colleagues, I announced that the building of the offshore part of the Nord Stream had begun. Today I am reporting that it will be completed in July, service gas will be pumped in July and the supply of gas to consumers in Europe will begin in October-November.

The work is almost finished. I am sure that we will succeed in other areas as well. That would further strengthen the country’s energy security.

Peter I cut out a “window to Europe” in his time. What was his aim? Above all to promote economic activity and trade. In terms of access to external markets, they have closed the vents on us. It has become difficult to pass through transit countries. It is vital for us to have direct access to the market for our traditional goods. This is our strategic choice and we will move forward. We are not going to infringe on the interests of the transit states.

However, considering what is happening in Europe in the wake of the Fukushima-1 disaster, the need for energy will keep growing.

You may have heard that the German government, for example, has decided to phase out nuclear power plants. Similar trends are evident in other European countries. The demand for energy and energy resources will grow. I am sure there will be a need for infrastructure projects, too. We will pursue them. There are many options, but I won’t take your time to spell each one out, but there are many options. We will use the maximum number of options in order to diversify our opportunities.

Colleagues,

Last year I had a chance to drive along the Amur Highway. I am sure you have seen and heard about it. The road of course needs to be further developed and modernised. But the main thing has been accomplished – a transport corridor to the Far East has been built. That means a significant change in the quality of life there, different horizons for the development of various parts of the Far East.

I would like you to note that for the first time in the history of Russia, all of its vast territory from the western borders to the Pacific has been linked by highways. That is a milestone in the country’s history.

There was a time before the war with Japan, in 1903, I think, when they built the Trans-Siberian Railway. And that was all. The BAM (Baikal –Amur Mainline) was built in Soviet times, but its performance was middling. By the way, it is time to develop it. We have been proved right. Up until now there had been no connecting roads. It is mind-boggling, but the Russian territories were not linked by roads. This happened for the first time in our history.

Before the end of 2011, the Ministry of Communications and mass media and cell phone operators must provide the Chita-Khabarovsk Highway with mobile communications. That will help form a complete infrastructure around the road, including emergency response to road accidents.

Beginning in 2008 we introduced a series of measures that reduced deaths on the roads by 12%. That work must continue, including in the framework of the National Health Programme, we will improve the emergency medical assistance system on all federal roads.

I would like to say that in the coming years we intend to increase the scale of road construction dramatically, we will move on from major individual projects such as the Chita-Khabarovsk Highway to the widespread development of roads throughout the Russian Federation. Expenditures on road construction in 2011 will exceed 700 billion roubles, an increase of 40% on 2010.

Over the next five years we plan to build about 10,000 kilometres of new federal and regional roads and to modernise all the federal highways by 2020. The creation of regional road funds – and that was the decision we made – will make substantial resources available for the improvement of urban and rural roads.

We also decided to finance directly out of the federal budget the capital repair of roads and the landscaping of neighbourhood courtyards in all the centres of the republics, territories and regions of Russia. We have allocated 50 billion roubles for these purposes.

I’d like to emphasize to the regional leaders that we have adopted the legal documents to implement these projects and have transferred the funds. You need to be sure this work is done to the highest standards and in good weather conditions – from May to October. The cost of the project must not be inflated, and its quality should meet the most rigid standards. Our roads should serve people for a long time. I’d like to ask State Duma deputies and your colleagues in the regional assemblies to ensure control over the implementation of this vital project. The government will permanently keep an eye on this as well.

National airports are also a priority issue because our country is huge. We will channel more than 300 billion roubles into the airport system before 2015. These funds will be used, among other things, to upgrade 121 runways and put in perfect order our backbone airport network that includes 117 airports.

We will build large hubs, such as the Moscow air terminal. There are proposals from Siberia to integrate them with other modes of transportation, such as motorways and high-speed rail. The government will also provide support for regional and local air flights, primarily in the Far East, the Far North and other arctic regions. Regrettably, all these achievements were wasted in Soviet times and now we’ll have to restore everything on a new administrative and technological basis.

Railway access to our most dynamically developing Baltic port – Ust-Luga – was completed in 2010. This year investment in the national railway infrastructure will be about 350 billion roubles. The construction of the new Kuznetsovsky tunnel will continue in the Far East; the elimination of bottlenecks on the Trans-Siberian Railway and on the Baikal-Amur Mainline will make it possible to lift restrictions on cargo transport to the terminals of Vanino, Sovetskaya Gavan (Soviet Harbour), Kozmino and other national Far Eastern ports. The freight volume has already exceeded even Soviet volumes.

We will develop high-speed rail transport. We have fast trains on three routes – Moscow-St. Petersburg, Moscow-Nizhny Novgorod and St. Petersburg-Helsinki. I think we must consider what else needs to be done with the construction of fast trains, especially in preparation for the World Cup in 2018.

Incidentally, we won the right to host the FIFA World Cup in a difficult and honest struggle. This was a real victory for this country that can achieve the most ambitious goals.

We will start designing and building the infrastructure for the cup now, without any delays. A lot of work lies ahead; the construction sector will be busy. It will do a huge amount of work.

In the next few months we will also open key facilities for the upcoming APEC (Asia-Pacific Economic Cooperation) summit in Vladivostok. Speaking of APEC, we want everything to look beautiful but we have to build a lot – a new university campus, a huge bridge, new roads, and a brand new airport that we will have “to grow into.” The plan provides for substantial development in the region. I won’t even mention the Student Games in Kazan or the Olympics in Sochi. The amount of work can be seen in both cities. Last February Sochi hosted the first test competition – the Alpine Ski European Cup.

Preparations for the Olympics, the Kazan Student Games and the World Football Cup are powerful motivation for the construction of new training grounds, stadiums, hotels, tourist centres and service facilities.

It goes without saying that we must use major sports forums to promote the values of a healthy life style and to develop sports all through Russia.

The number of people who regularly play sports has increased by more than two million compared with 2008. Now over 26 million people regularly visit gyms and stadiums in this country. This is a lot but not yet enough. We are planning to exceed 42 million people by 2015 and we’ll achieve this goal if we continue to develop sports related programmes at the current pace. Eventually, we should try to match many European countries where about 70% of the entire population goes in for sports.

In 2010 almost 300 new sport facilities were commissioned with federal budget funds alone and I’d like to emphasize this. These facilities include football fields, physical training and health-improvement grounds, and a training centre for our national teams.

Needless to say, we still have a lot to do and this is an absolute priority for us. Let me mention in this context that this year sports related expenses have become a separate budget item for the first time. All in all, we are planning to channel about 100 billion roubles into sports in the next three years.

In the last two years we have invested about one trillion roubles in the construction industry and housing programmes – one trillion roubles because the construction sector as well as our automakers found themselves in a very difficult position during the crisis. This investment helped us resolve many housing problems for the people and prevented a critical drop in the construction industry. There is still a decline there. When this industry was at its peak we built 63 million square metres and now we do 59 million, but we are still going up.

Now we are in a position to increase the rate of housing construction again. This year we must commission the same 63 million square metres, which is a gain of about five million over last year. By 2016 we must almost double housing construction and produce 100 million square metres per year. As I said, we have the right conditions for this.

There is a general revival of the demand in the housing market. The number of mortgages grew 2.5 times last year. The average interest rate is dropping. In 2009 it was 14.3% in roubles, and last year it dropped to 13.1%. Today you can get a loan at 12.5%. The rate depends on the creditor and the various terms and sometimes it is lower but the average is still 12.5%, which is still too high. It is still an expensive loan for the time being. This is why we have decided to make a mortgage more accessible.

In 2010, we made the decision to allocate 250 billion roubles to support mortgage lending. Vnesheconombank joined with partner banks to launch a mortgage refinancing programme, which will allow banks to issue loans at a rate of 11% per annum for the purchase of housing in new buildings. The programme will reach its peak in 2011-2012. All necessary funding for its implementation has been set aside in Vnesheconombank.

According to our estimates, about 540-580 billion roubles in mortgages will be issued in 2011, and we will be able to exceed the pre-crisis level of 650 billion roubles in 2012. To be sure, in order to change the price of mortgages, we will also have to continue to combat inflation and to create favourable macroeconomic conditions. It is hard to achieve this goal by some special means. We must continue our work to bring mortgage interest rates down to 5-6% per annum.

It should be noted that many Russian regions have been implementing programmes to provide social support for public sector employees, doctors, teachers, and other categories of people. We will certainly support such programmes. By 2015, no less than one third of Russian families – it is currently at about 12% – are expected to have the opportunity to buy housing using either their own funds or borrowed funds, received as mortgages or social subsidies, or maternity capital.

Let me remind you that in 2011, the amount of maternity capital was re-indexed, this time up to 365,700 roubles. As of early April, about 2.7 billion maternity capital certificates were issued. Thanks to this maternity capital, about 381,000 families paid off their mortgages partially or in full – a total of 117 billion roubles. Another 1.647 million people took advantage of the opportunity to receive a lump sum of 12,000 roubles in financial assistance to cover their current needs.

We will continue to support young families and to work with the regions to provide them with subsidies so they can participate in mortgage programmes. We expect over 170,000 young families to upgrade to better housing with the help of the state in the next five years. And, of course, we will solve the housing problems of veterans and other categories of people to whom the government has commitments. These categories of people include residents of the Far North, forced migrants and Chernobyl survivors.

By May 2010, all veterans of the Great Patriotic War who had signed up on the housing waiting list before March 1, 2005, received housing – 28,500 veterans in total. Let me remind you that we cancelled all restrictions on participation in the programme. We had 28,500 veterans apply for housing upgrades, and another 180,000 veterans have submitted applications since. This is six times greater than the number of applicants on the waiting list as of March 1, 2005. Again, six times. Over 125,000 of the newly registered veterans have already received housing. So, about 55,000 are still on the waiting list. Around 10 billion roubles were earmarked in the 2010 budget to resolve their housing problems. To speed up this work, and in view of the more ambitious targets we are attempting to achieve, we will provide an additional 13.7 billion roubles for this purpose. We will do this as part of the upcoming budget corrections. I ask you to support this proposal.

I’d like to say a few more things on this point. As soon as we started working on the issue of housing for veterans, we realised the extent of the challenge we were facing. Initially it was difficult to even calculate what needed to be done. We encountered the same situation with housing for military personnel, major renovation work on blocks of flats and many other issues.

I would like to add that we will continue to create incentives for the regional authorities to address the problems of defrauded real estate investors and will do everything to resolve this issue by the end of next year.

Ladies and gentlemen,

Let me now say a few words about issues that traditionally concern everyone – about finances and the budget, about how much we expect to spend and on what particular goals, as well as how much we plan to save, and above all what new social projects we intend to implement.

I would like to remind you that we were accumulating reserves in the years before the global crisis – I already mentioned this. Sometimes we heard criticism over withholding these funds instead of spending them on current needs. But our approach has been proved right over time. Russia faced the global crisis with a significant margin of safety, a so-called safety net.

Moreover, we did not have any serious problems stemming from a burdensome government debt as some countries did. Currently, even after the difficult crisis, our overall government debt is slightly over 10% of GDP, with domestic debt accounting for a large share of it. This is a fairly acceptable and safe amount and one of the lowest ones in the world. For example, in Italy the government debt reaches 110% of its GDP, in Japan – 225% of GDP, other G8 states have it between 60% and 80%.

Russia’s national currency exchange rate is predictable. We have a solid and positive trade balance. Russia closed 2010 with a trade surplus of $151 billion. Foreign reserves began increasing in April 2010 and rose by $55 billion to surpass the $500 billion point. Economic recovery and favourable conditions enable us to speed up the resolution of the budget deficit issue. This is very important, colleagues. A budget deficit poses a serious risk for an economy that still depends on global commodity prices. Moreover, taking care of the deficit requires funds and borrowings, which diverts resources from a number of other challenges and development goals. We intend to bring the deficit down to between 1% and 1.5% of GDP this year. Next year we will be pursuing a deficit-free budget.

According to our estimates, the increase in prices on hydrocarbons will bring an additional 1,138 billion roubles to the federal treasury. I believe it would be unwise to waste these funds brought in by favourable conditions by spending them on current needs. Such spending can boost inflation, undermine the incentives for government bodies to work and spend budget funds more efficiently and result in a price surge. And this will have a direct impact on our people’s welfare and real incomes.

At the same time, using extra oil and gas revenues wisely will help us efficiently attain two goals. First, we will be able to cut down foreign loans, replacing these funds with those of our own. And second, I believe it’s time we started building up and reinforcing our reserves once again.

This is why I suggest putting most of our extra oil and gas revenues into the reserve fund, increasing it to about 1,430 billion roubles by the end of the year. This will demonstrate the strength of our economy and create favourable conditions for development.

As for the National Welfare Fund, it more than tripled over the past two and a half years and currently stands at 2,609 billion roubles. I would like to point out that this fund is the main source for making up for the Pension Fund deficit. This is very important. It will ensure stability while the pension system undergoes reforms.

This policy will create some room for us to manoeuvre, give us financial independence, serious leverage to respond to various risks and many other good things. Naturally, it will also help us deliver on all of our obligations to Russian citizens.

Colleagues, we will soon be devising a new budget. And the temptation is there for all of us. We have been working together for many years. Energy prices are high and Russia is taking in huge extra revenues, I have just cited the figures. By no means should we increase spending based on these extra revenues raining down on us. Otherwise, what will we be doing and how will we be delivering on all our social commitments when hydrocarbon prices go down? This is a very dangerous path. I ask you to be very careful.

I have mentioned already that non-oil and gas sectors of Russia’s economy are actively recovering. This is a very positive sign for our economy. Industries not related to oil and natural gas production will bring an additional 320 billion roubles to the Russian budget. This is very good; these are so-called non-oil and gas revenues.

Budget efficiency will help us save almost 55 billion roubles, including decreased spending on servicing government debt, which I already mentioned. We will be using these funds to address top-priority tasks and development goals.

I have already cited additional support measures for the automotive industry, agriculture and housing programmes. These all will be funded with the increasing non-oil and gas budget revenues.

In addition, we plan to carry out a number of crucial programmes which I will speak about in detail. It is worth mentioning that real wages in Russia increased by 4.6% in 2010 despite inflation. People’s real incomes rose by 4.1%, largely thanks to the pension increase and adjustments of social benefits, including those for children.

But let’s be honest. Not all social development programmes were carried out the way and to the extent we wanted them to be, and the way they should have been done. Now, as our economy recovers we need to revisit these issues and support our people where we can.

We have increased labour pensions by 8.8% from February 1, 2011. They grew 45% last year. And let me remind you about one of last year’s major achievements: we valorised pension rights that citizens accrued in the Soviet era. And as I said, we have raised labour pensions by 8.8% from February 1, 2011.

We have also made provision for the indexation of social pensions: this was to be phased, taking place in April and June this year. We decided to accelerate the process and this indexation took place at once, in April. From April 1, social pensions were given a 10.3% increase. This measure meant that the pensions of about four million individuals increased.

As has already been mentioned, if inflation exceeds 6% in the first six months of 2011, then we will further raise pensions from August 1, 2011. We will need 75 billion roubles for this, esteemed deputies, and we propose that this sum is set aside and drawn from additional budget revenues.

In most cases pensions are senior citizens’ primary source of funds. We did not let their incomes fall during the economic downturn, and, moreover, we must not let that happen now.

We provide support for Russian students: this is the next issue. The student stipend fund will be increased by 20% from September 1 this year, and student stipends will be indexed by no less than 9% rather than earlier planned 6.5%. This decision will enable universities to offer greater support to students in need, and it will also incentivise our educational high-achievers.

Now I would like to tackle quite an acute issue: public sector employees. The sharp, 30% increase in their wage fund in late 2008 helped get through 2009 quite smoothly, but in 2010 there was barely any tangible effect from previous rounds of indexation. We need to address this issue now.

The year 2010 was very difficult in terms of overcoming the effects of the crisis. But we need to resolve this issue now. From June 1, 2011, we will adjust public sector employees’ wages for inflation by 6.5%, and the minimum wage will also be increased by 6.5% from June 1. However, we understand that this will not be enough. That is why we are considering additional measures, weighing the potential scenarios for the budget and the economy and we will definitely return to the issue in early autumn.

I would like to remind you that a law changing the mechanism for financing publicly funded institutions has already been adopted. There will be a transition period from January 1, 2011 to July 1, 2012 to cushion the move to this new model.

I would like to reiterate that these reforms of publicly funded institutions have nothing to do with the various myths circulating about the privatisation of the public sector, dismissal of excess staff or the overall introduction of paid services. I would like to stress once again that the government will finance educational, healthcare and cultural institutions in precise accordance with the state order governing the provision of these services, with its clear description as to the extent and quality of services to be rendered, detailed requirements and terms.

We must put an end to the situation whereby free services are guaranteed on paper, but in reality people have to pay, be it at schools, hospitals or social institutions. Citizens must have free access to these guaranteed services, and the government should of course duly reimburse the publicly funded institutions for the high-quality services they provide. And then we will be able to make the institutions shoulder responsibility for the quality of their work.

At the same time the institutions themselves will be more independent in deciding how to allocate the resources they receive, they will also be able to allocate additional funds to incentivise their finest professionals. Where this is being trialled, this is exactly what it taking place.

Millions of people work in the public sector. The work they do benefits the entire population, and of course, we must support them and we will certainly continue to do so. About 5.3 million children were born in Russia over the last three years. And the annual rise in the number of births was 35,000 children, on average.

The growth in life expectancy is a very important indicator. In fact, it is perhaps the best telling indicator there is. Life expectancy today is 69 years on average. This figure was 65 years in 2005, thus from 2005 to 2010 it has increased by four years. This is a very good indicator. At the same time, the results of the population census showed how unstable and fragile our demographic balance is, how many problems we still face in this sphere. But it is quite apparent to us that we need to keep pursuing an active demographic policy: to maintain the Russian population. We will definitely continue it, whatever it takes. We will use every opportunity we get to strengthen these positive demographic trends and to support families with children. All aspects are important here: creating new jobs, having a flexible tax policy, resolving housing problems, and further developing the healthcare and education systems. For instance, the government has introduced a proposal on increasing tax rebates for large families. We are working on the issue of providing land plots to families with three and more children.

I would like to touch on the president’s 2010 state of the nation address. It is hardly surprising that the address prioritised family, childhood, motherhood and demographic issues. In effect, this is an extension of our common policy to support demographic processes and to preserve the peoples of the Russian Federation.

We have started implementing the second stage of the 2011-2015 demographic policy concept. Our preliminary estimates show that approximately 1.5 trillion roubles will be invested in demographic projects during this period.

What key results do we expect to achieve by 2015?

First, average life expectancy, an important indicator, is to reach 71 years.

Second, birth rates are to increase by 25-30% from 2006 levels, and mortality rates are also expected to decline.

Judging by current trends, these results are attainable. Most importantly, we must not lose momentum. In essence, demographic issues are a reflection of quality of life, the moral climate in a society and the state of vital social sectors.

Last week, the National Congress of Doctors discussed plans to develop the national healthcare system in great detail. This involves regional modernisation programmes, first and foremost, which are due to receive 460 billion roubles over two years. The healthcare system will receive an additional 500 billion roubles or so before 2013 under the priority national project "Healthcare." In all, the sector is to get a trillion roubles, not to mention current funding.

I can tell you today that agreements on implementing regional programmes have been signed with most regions. As of April 19, 19 programmes remain to be signed. I will not mention those regions which have still failed to do this. But I want to warn them that we will redistribute these allocations to other regions which are ready to implement such programmes, if this situation persists.

Thank you, esteemed colleagues, for passing amendments to the legislation in a timely manner. These amendments are intended to create a clear and understandable mechanism for purchasing medical equipment, including equipment for state needs. I would like to add here that we will continue to improve mechanisms for awarding state contracts. Notably, we will improve the federal contract system in a way that takes into account the specifics of awarding contracts for innovation products, as well as R&D contracts. The relevant bill has already been submitted this year.

We have a lot of work to do in the sphere of regional healthcare programmes. Suffice it to say that the healthcare system will receive over 100,000 pieces of modern medical equipment. Over 40% of state and municipal hospitals and clinics require repairs. All facilities near the end of the construction cycle must be completed.

I would like to emphasise the fact that raising the wages and salaries of medical personnel is a key objective of regional healthcare modernisation programmes. The relevant wage fund will grow by 30-35% in the next two years. All repairs will be completed and new equipment installed by 2013. After that, all deductions to the Mandatory Medical Insurance Fund will be spent entirely on funding medical treatment, including the wages and salaries of medical personnel. This should result in an increase in their wages and salaries.

Stipends received by interns and resident physicians was raised as a serious issue during my April 13 meeting with medical specialists. These stipends total 2,700 and 2,900 roubles, respectively. It would probably be unfair to equate these people with students. These are adults who have completed their education and have been working hard to become specialists.

The modernisation programme will address their concerns. But, considering the acute nature of this problem, I propose that we more than double their stipends beginning on June 1, 2011, raising them to meet the average nationwide subsistence minimum. This will bring stipends to about 6,367 roubles. Although this sum is not very impressive either, the stipends will be doubled in one go.

Esteemed colleagues,

I would like to remind you that we unveiled the regional medical programmes project at the State Duma exactly a year ago. You actively supported it at the time. I would like to thank you for this once again.

That decision was not easy, especially for the business community, which was only starting to recover from the crisis. We have essentially removed 460 billion roubles from the economy for these programmes.

I agree that enterprises and companies should be able to keep additional resources for expansion. Increasing the tax burden on the economy is not at all the best solution. But money for social programmes must come from somewhere. We will seek out way to reduce the fiscal burden of insurance premiums. At the same time, we should avoid simple linear decisions. Nor should we shift the burden from the business community onto ordinary Russians. We must not and will not deviate from social standards. And we cannot follow the lead of some nations which have done this only to create extremely difficult problems for themselves.

The modernisation of healthcare cannot be postponed. We have discussed certain accomplishments today. But look how short the average life expectancy is, unfortunately. We were saying an upward trend is a good result – indeed we raised it from 65 to 69 in four years. I know that’s good; but it’s not much. It is still 8-10 years below developed countries. The death toll for vascular diseases is four to five times greater than in Western Europe, and the infant mortality rate is 50%-100% higher.

Over 30% of Russian hospitals do not have hot water. Thirty percent! Over 8% have no running water at all, and 9% have no sewage system. A quarter of all medical centres require an overhaul, not to mention their obsolete equipment.

Given the importance of these challenges, I would like to ask you to help supervise these programmes. They involve substantial funds; we must be certain that the money will be used effectively and for the intended purposes. We should make every effort to ensure the efficient use of our healthcare allocations, as well as the tangible improvement of the quality and accessibility of services. We must boost the prestige of medical professions. This is our common task, and you could certainly influence the implementation of this programme in the regions.

Ladies and gentlemen, we are planning a pay rise for the armed forces, the Ministry of the Interior, and higher salaries in the healthcare sector. And there is someone else who should not be forgotten. I am referring to people working in education.

We discussed in 2009 the need to implement a major pension reform; I have already mentioned valorisation, which means recalculating pensions earned during Soviet times. Last year we discussed a programme to modernise national healthcare. Now I would like to talk about the problems in schools and discuss some proposals for improvement.

At the end of this year, the average monthly salary in Russia will reach 23,500 roubles, up from the current 21,010 roubles, I think. I hope it will grow as planned. Next year, it is expected to rise to 26,500 roubles. But teachers’ incomes have remained the same as in 2009 standing at the 13,500-14,000 rouble level. This is the average salary, including in Moscow and St Petersburg where salaries are higher than elsewhere in Russia. The estimated average salary across other regions, excluding Moscow and St Petersburg, does not exceed 8,500-10,000 roubles.

Something has to be done about this. What?

This year, we must start a far-reaching project to support Russian schools. The federal government is going to spend 120 billion roubles for this purpose over the next two academic years, and the regions are expected to contribute 60 billion roubles as co-financing. The federal money is to be spent on purchasing equipment and other improvements of physical conditions at schools. This is important, especially in rural schools, which serve small numbers of students.

The money will also go to buy school buses, to develop new educational technologies, distance learning opportunities, equipment for school gyms, school desks, as well as retraining and professional development for teachers.

But the key goal of this project is to raise teachers’ incomes. The additional funds supplied by the regions, and other funds that are freed up will be spent on that.

An agreement will be signed with each Russian region, no later than August 1, 2011, stipulating the criteria for evaluating their modernisation programmes – how effective they are. We did the same with healthcare. It will take time to work this out. But I think, if we start right now, we’re in mid-April, right, it gives us May, June, July and August. The draft agreements will have to be ready by then. The key criterion would be a 30% pay rise for teachers starting from September 1, 2011. Then, within two years we need to ensure that the average teacher’s salary is equal to the average salary in the respective region’s economy. Of course, there should be no across-the-board leveling of wages. A teacher’s qualifications, professionalism and attitude to work should be taken into account when increasing the salary. We should support the best professionals. The regions should include education among their priority areas.

We expect that the implementation of these programmes will result in the modernisation and strengthening of the national educational standard.

What exactly is being offered? Let me take a minute to explain it in my own words.

We will allocate 60 billion roubles per year for repairs, equipment, and off-site management systems. The resources saved by the regions as a result will be spent on salary increases.

As a result, we will help strengthen and modernise the national educational system and create basic educational facilities with their affiliate institutions.

At the same time, we will maintain, where possible, small schools, as the regions will not need to fund them at the same level due to savings on overhead expenses; increase the quality of education by introducing modern teaching methodologies provided by the base institution; and consequently strengthen and modernise all of education in the country.

We will directly influence the increase of teachers’ salaries. However, we will not do it mechanically, but by involving trade unions and through raising teachers’ qualifications. This way, we will try to improve the quality of education in our schools. Since it is such a multifaceted issue, we will need to stipulate it in the agreements with the regions, which I mentioned earlier.

We are currently investing significant federal resources to modernise all levels of education. This year, we have increased spending for these purposes by 100 billion roubles, raising it to about 500 billion roubles. In February of this year, we approved the targeted federal programme The Development of Education for 2011 through 2015. We have allocated a total of 140 billion roubles for building the technical and material capacity of educational institutions.

In addition, we are forming the nucleus of our system of higher education, which includes eight federal universities and 29 national research universities. We have approved the development programmes for Moscow and St Petersburg universities. A total of 70 billion roubles have been allocated to support the country’s leading universities in 2010-2012.

We are planning to invite world-renowned specialists to Russian universities. To this end, we have launched a grants programme. The first 40 recipients have already been identified. Some of them are Russian citizens working in our country and abroad, as well as foreign specialists and instructors. The second phase of the programme, in which an additional 40 grants will be awarded, is currently underway.

We have also allocated 19 billion roubles for high-tech projects to be implemented jointly by business and academic communities. This seems to be a promising project, and I believe it will produce good results.

Russian companies will benefit from the research and development projects and will have an opportunity to market new products and technology. We will provide funds to private companies so that they can place orders with universities and create joint products. And the companies will be required to market the products.

Naturally, the companies involved will need to co-finance this work. The project will allow the universities to upgrade their research base and provide their students, faculty, and staff with interesting and promising work.

Our science and education centres have been granted the right to set up small and medium-sized innovative companies. We took this decision together with you, and I’m sure you remember that this issue, whether to allow them to engage in commercial activity at all, caused much debate. But I believe we made the right decision. So far, over 800 such businesses have been started in Russia.

I would also like to touch on several related issues of major importance, first of all, the adoption of a new generation of federal education standards. This is a very complex and exacting process. As time goes by, it is becoming increasingly clear that education, as well as other institutions, needs to be overhauled and reformed. New ideas and solutions are needed. Clearly, this challenge must be approached with utmost caution.

We must preserve the unquestioned traditional advantages of Russian education, notably its fundamentality, and a very meticulous approach to teaching, which makes it possible to instill broad views and encyclopedic knowledge in students.

So far, we have developed and adopted a set of standards for primary and secondary general schools, as well as for all professional qualifications, on which we cooperated with the academic and research community, employers, and business. Currently, we are completing the development of standards for higher education.

And finally, in February we released education standards for high schools, which prompted fierce debates in parliament and in society in general. They were met with a very mixed and critical response from the public, teachers, and parents, whose opinion we certainly should heed.

I believe that the proposed regulations need to be improved, and I am asking you to thoroughly discuss all proposals and complaints received from the public, and incorporate the most sound ideas and suggestions in the final draft.

Again, education is of critical importance for our nation, since it sets the stage for the future of each person and, consequently, of the state as a whole. Each decision on education must be thoroughly worked out, absolutely clear and supported by the general public.

I believe that we need to pay special attention to vocational education. It should be geared towards the current needs of manufacturing industries and the economy in general. This year we are going to extensively adopt the best practices developed through the pilot project for bachelor degrees in vocational education, which suggests that a student does a two-year general course and then a one or two-year course for a particular profession.

Another promising initiative is affiliating vocational schools and colleges with universities so that they can share infrastructure and teaching staff. This will certainly enhance the reputation of these education centres.

We would like the regions to get involved and address the challenges of vocational colleges, and to budget adequate funds for them.

There is one more issue of great importance I need to highlight. Currently, some 1.7 million children are on the kindergarten waiting list. We keep returning to this issue, since this problem is really acute and important. Clearly, it falls under the purview of regional authorities, but we are eager to provide the necessary support, especially to those regions that make the greatest effort on this issue. I suggest increasing the federal allocations to the regions for preschool education by 100%, to one billion roubles.

We will introduce pertinent amendments to the budget, which, hopefully, you will support.

Ladies and gentlemen,

While drafting this report, I held consultations with the leaders of almost all State Duma parties, with whom I raised the questions that we have tried to answer today. By us I mean the government of the Russian Federation.

There is one issue I would like to discuss with you separately. I’m sure it cannot leave anyone indifferent. We have discussed various support measures for culture on more than one occasion. And I think we should revisit this issue today. We cannot procrastinate with it too long. This would be unfair to the people employed in this important sector, and negligent towards our cultural and spiritual heritage, our historical legacy, and consequently, the future of our nation. The wages of the staff of libraries and museums are lower than anywhere else in the public sector.

Their collections are stored in poor conditions and are rarely expanded. Only 16% of libraries have access to the internet. Thank God, more children are being born now, but at the same time, unfortunately, the number of children’s libraries is declining. This was also the case with kindergartens, which I have just mentioned. Many buildings of libraries are leased to unrelated companies.

Our libraries must become modern information, consulting, educational, and entertainment centres, and children’s libraries should give students every opportunity to expand their knowledge of the subjects they study at school.

I believe we should increase funding for the repair and maintenance of museums and libraries starting in 2012, and naturally, we should do our best to strengthen Russian culture in general. I have no doubt we will find the required funds and develop an effective plan for the industry together with you. Overall, I suggest that we develop and adopt a comprehensive state programme called Russian Culture.

Naturally, we expect that this project will be joined by regional authorities, municipalities, public organisations, Russian business, and our countrymen living abroad – everyone who feels that they are apart of our common cultural landscape.

As you know, on June 1 we will index the wages in the public sector by 6.5%. I suggest increasing the wages of the lowest-paid personnel, the staff of libraries and museums, even higher, at least to the average wage in the sector.

Many have criticised Russian bureaucrats, and I believe that this criticism is often justified. We must substantially improve the quality of public administration and orient the state apparatus to the interests of the people. Needless to say, we must counter corruption, increase the responsibility of officials, and eradicate the very conditions for illegal conduct and bribery.

It goes without saying that we must remove the grounds for corruption by ridding our legislative and administrative procedures of loopholes and vague wording. Thus, the adoption of a new law on licensing will cut the number of licensed activities almost in half, and their duration will become indefinite.

Starting in 2012, a considerable part of licensed procedures will be converted to an electronic format. For businesses, this will eliminate the need for tiresome visits to all kinds of offices.

Now I’d like to say a few words about certifications. This is also a very important issue. It seems to be routine, but this is the root of all evil. Quite recently, up to 78% of commodities and services had to be certified, whereas now the figure has dropped to a mere 46%. We will continue to lower it.

In all other cases, the producers themselves will have to declare that their goods meet requirements of safety and quality. In this context, it is very important to enhance their responsibility in order to guarantee the interests of consumers.

I’d like to note that more than 600,000 small and medium businesses have launched operations in Russia in the last two years. This is quite an impressive growth rate for a crisis period.

I think that the assessment of the support of business by regional and municipal authorities should be left open. This is why we have suggested compiling public ratings of investment appeal in the regions every year.

Despite the budget deficit and post-crisis problems, we have envisaged benefits for small companies in the real economy, high technology and information, the agricultural sector, and social services.

We are actively using the potential of developmental institutions. Thus, VEB’s (Vnesheconombank) support for small companies has already reached 130 billion roubles. We will continue working in this direction.

In the near future we must complete the conversion to an electronic format of government and municipal services – a uniform portal for government services, information and service sites, and integrated communication channels of departmental and regional databases.

Starting on July 1, 2011, government bodies will have to carry out all the necessary accommodations and inquiries themselves without dragging people through the process of collecting documents, as was the case before.

I’d like to mention that those who prefer to receive government services in the traditional format can still do so, but this procedure must be convenient and not burdensome. This is why we are expanding the programme on establishing multi-functional centres operating under the one-stop principle. The first such centres were set up in 2007. There are 170 such centres now, and there will be 800 in the next two years. These centres are very convenient for the public; and, on a smaller scale, every municipality should have one.

In addition, before July 1, 2012, we will complete the delineation of clear-cut and comprehensible administrative procedures for government and municipal services. The Tax Code and the government-endorsed list of paid services will be the only documents used for levying payments and fees. The demands of any additional money from businesses and people will be illegal.

As the author of the majority of the legislative initiatives, the government intends to propose a new format for the drafting of legal codes in the near future. We want our citizens to participate directly in the process, and I’d like to consult you on this issue.

We consider it important to envisage mechanisms of public discussion for all socially important government draft laws. The procedure of public discussion should involve a broad range of experts and citizens. It is possible to achieve this by using modern information technology.

I’ve just spoken about our plans for healthcare. It seems to me that we’ve been talking a lot about them, but when I met with medical workers, it turned out that they haven’t heard much. They don’t know about our initiatives and often raise concerns that have already been addressed in a draft law. This is why we suggest not only putting draft laws on the Internet but also creating the opportunity to select the most meaningful and realistic proposals through electronic voting. Let participants in the discussion decide themselves which proposals are the best.

Incidentally, industrialised nations are increasingly using the concept of an "open government" based on the involvement of people in the work of government institutions. We must follow this example and encourage active civil work by considering the proposals, advice, and recommendations of so-called independent grass-roots experts. It will be more difficult to work in this manner, and we’ll lose the pace in some cases, but the quality of our efforts may be improved.

Dear colleagues,

In conclusion I’d like to say the following. We presented the programme of the new government to you in this hall practically three years ago. We had a more difficult time than we had expected. We had to promote development and fight against the crisis at the same time by protecting the economy and the welfare of our people. We had to uphold everything that had been done in the social sphere, education, and healthcare and restore and strengthen the potential for growth step by step.

Now we have every reason to say that the national economy has made a post-crisis breakthrough. This is the foundation on which we have formed our modernisation agenda and drafted large-scale plans for economic and social progress.

The government will do everything in its power to allow the economy to continue its steady upsurge and will likewise continue to work for the growth of the prosperity of Russian families. In doing so, we have been invariably guided by a fundamental principle: to listen to the people and work in their interests. And we will not forego it.

Our steadfast support for the people has always helped us adopt the most complicated and responsible decisions. We will do everything we can to justify their trust in us.

I’m grateful for your patience and attention.

Thank you.

* * *

Vladimir Putin answers questions of the representatives of the State Duma factions

Sergei Reshulsky (CPRF): Mr Putin, during a similar report two years ago, we asked you about the prospects for the development of Russian aviation. Unfortunately, since then, the situation has not improved, and on some scores – aircraft building and carriage, for instance – it has become even worse. We cited an example in our written questions to you. But you would agree that Russia cannot live without transport and communications. We have been receiving more and more complaints from the regions about the deteriorating situation in commuter train traffic: there are fewer trains, inconvenient changes in timetables, and, worst of all, the fares are rising.

We saw the same problems in last year’s report. I would like to hear your assessment: what is the government doing about it, and what are the specific deadlines for addressing this vital issue?

Thank you.

Vladimir Putin: First of all, I fully agree with you that the development of aviation and the air transport system are very important for us. I apologise for a very long report that was perhaps oversaturated, but the government wanted to brief you on the key areas of our activities, and you understand that we have to do it together. I’ve been making cuts and crossing out what I thought was unimportant, but I agree with you that the development of aviation and of the network of airfields is of vital importance.

I have told you our plans for airfields and the amount of proposed funding. Unfortunately, in the aviation industry, owing to the complexities of asset consolidation, things are not moving ahead as swiftly as we would like. Though, the quantity of aircraft has doubled since 2005. The absolute figures are still modest, but, nonetheless, we have preserved the status quo. That is very important because we might have simply lost everything. We have instead preserved it, consolidated it, and are shedding unnecessary parts and concentrating our resources in promising areas. We have doubled the production of planes and more than doubled the production of helicopters. Retrofitting and technical modernisation are required. We will do so through the use of federal funds and attracting investors, but we will tread warily. There are some problems that are related to the interests of carriers, and therefore passengers, and we are under constant pressure to issue various permits for the acquisition of ever newer, imported aircraft, while at the same time, we have to safeguard the domestic market. We will move forward in this direction. I cannot see Russia’s future without aviation. That was the first thing I wanted to say.

Now for commuter trains. The problem is real. I would like you to bear in mind that setting railway tariffs is within the jurisdiction of the regional authorities, but we understand that we cannot abandon them to face these problems alone. These are common problems. This year’s budget allocates 25 billion roubles in subsidies to the regions in order to cope with the problem of growing rail fares.

If that is not enough, we will seek your counsel and perhaps add more money. But the regions must be responsible to their own spheres of authority. And we also have growing inflation. Growth should be economically justified and should not be excessive. I fully agree with you there. Let’s monitor this together, and we can then respond by granting subsidies, but there are certain standards that have already been worked out at the federal level.

If you have additional proposals on how these standards can be modernised, you are welcome to submit them.

Sergei Ivanov (LDPR): Mr Putin, The LDPR is interested in rising energy tariffs. You have said in your report that power generation has increased by 3.2 gigawatts over the past year. This year, it will increase by 6.5 gigawatts. In all countries, the price goes down as the supply grows. But we see that in some regions, the tariffs went through the roof. So much for the successful reform of RAO UES and the energy sector.

The consumer loses money because of rising tariffs, and, to make matters worse, there is the notorious Government Resolution No. 7, which spells out the method for calculating utilities rates. It applies not only to power but also to water and central heating. Ordinary consumers who pay with individual meters have to compensate for those who do not pay, and for the cost of transmission. The water and gas supply situation is similar.

The LDPR in the Duma is petitioning you to revise this resolution. People should pay only for what they have consumed according to their meters. If shortfalls are revealed in payments, then increases can be made. But the way things stand now, this is just dishonest.

Vladimir Putin: Let us take another look at the matter. I promise you to issue instructions to this effect today.

There is one thing, though, that we must keep in mind. I think you will agree with me. Say there is a block of flats and there are owners of individual flats within it. But in addition to the flats, there are common spaces – say, basements, garrets, corridors, entrances, and the space around the house. They, too, consume energy for the benefit of the owners, the consumers. There is common equipment – for example, the lifts, boiler rooms, and so on. All that is common property. All these costs must, of course, be included in the tariff.

Everything unrelated to consumers themselves, and I agree with you there, must be separated and included in the losses of management companies if they have failed to organise their work properly; and, by the same token, the municipal authorities must pitch in where they have failed to create the proper conditions for such functional organisation.

Let us speak about it later, but consumption should be measured regardless. Otherwise, no one will save anything. We all understand that. Let us take another look at the methodology.

Nikolai Gerasimenko (United Russia): Mr Putin, I am a doctor, and before I was elected to the Duma, I rose from the level of an ordinary surgeon to the regional health supervisor. My colleagues and I see a dramatic increase in recent years – a qualitative leap – in state support for the healthcare system. This is not just our opinion; it is an objective assessment made by our colleagues at the National Medical Forum. Only a blind man does not see it. The modernisation of the healthcare system has begun, and 460 billion roubles have been allocated towards it. A further 800 billion roubles will be disbursed before 2013 under the national “Health” project.

This is my question. The outlook for the next two years is clear. But what then? How do you see our strategy for the sector’s development and in what ways can we enhance the prestige of medical professionals?

Vladimir Putin: Thank you very much. I have already mentioned that we have started elaborating a state programme for healthcare development, and some of its elements have already been formulated. We will adopt it and develop it further, and beginning in 2013, the law on mandatory health insurance will come into effect. It envisages the payment of the full tariff and one-channel funding systems.

I am convinced that if we manage to put these decisions into practice, the prestige of the medical profession will rise, salaries will be increased, and, most importantly, we will achieve qualitative improvement in the delivery of medical services.

Alexander Chetverikov (A Just Russia): What are your plans for improving the social sphere and rural living standards? The rapid globalisation of agrarian production in recent years and the budget system have practically deprived rural territories of much of their revenue.

We are also worried about growing food prices, which have risen 14% and are expected to rise further still. That hits hard at most Russians. What is going to be done to curb the growth of prices on foodstuffs? Their quality has also deteriorated sharply, which affects the health of the nation. The technical regulations are not being met. Is it not time to toughen state control over the quality of food products?

My last question is about the prospects of our accession to the WTO. To what extent are the interests of Russian farmers taken into account in the WTO negotiations?

Thank you.

Vladimir Putin: As for curbing price growth, as I have said, this is about support for the agro-industrial complex and eliminating imports on certain foodstuffs in order to keep the domestic market in balance.

But our top priority is the development of the real agro-industrial complex. The rest is derivative.

I have mentioned this before, but I will repeat that the funding will amount to some 270 to 280 billion roubles, 150 billion of which will come from the federal budget and 150 billion of which will come in loans from our leading financial institutions – 50 billion from Sberbank and 100 billion from Rosselkhozbank.

What else are we doing? Listen, today I asked you to adopt an amendment for an additional 9 billion in subsidies to the producers of poultry and pork. This year, we will help farmers save 10 billion roubles overall at the expense of keeping relatively low prices on fuel and lubricants. Last year, we helped them save 5.5 billion, and this year due to this measure the agricultural producers will save 10 billion roubles.

We have earmarked 5.5 billion roubles to subsidise the cost of chemical fertilisers and 1.5 billion to subsidise the spring sowing season. That adds up to an additional 7 billion roubles. We will help expedite the paperwork for acquiring plots of land. We have allocated a further 5 billion roubles in support of cattle farms. That is a whole range of measures in support of agricultural producers. We will see what else can be done.

As for the quality of foodstuffs, it should be constantly monitored. It is probably not quite correct to say that the quality of domestically produced food is deteriorating. Our producers deliver high quality products.

I don’t mind disclosing a little secret. Viktor Zubkov regularly supplies me with dairy products from our domestic farms. Just yesterday he sent me some cream, yogurt, and cottage cheese. Wonderful stuff. And I must tell you that these are not some sort of luxury goods. Honestly, they are not exclusive products. I’m talking about serially produced foodstuffs that go right into the retail network.

Ask Viktor, and he will send you some for a very small remuneration.

Now for the WTO. It is a very important and sensitive issue. I understand your concern. The food market in the WTO countries, especially our European partners, is clearly oversaturated. Their subsidies per hectare of land and in certain sectors of agriculture are very large and incomparable to those we provide to Russian agriculture. All that is true.

So, in the course of our negotiations, we secured the terms and amounts of subsidies that we do not even apply today. That gives us colossal leeway. I don’t know if we will ever manage to match the level of subsidies we negotiated during these talks with the WTO.

Secondly, we have agreed with our partners, and we told them directly that we will apply various restrictive measures only if we become full-fledged WTO members. In the meantime, the negotiations have been dragging on for 17 years, and nothing has happened. But we will not neglect agriculture. Don’t worry.

Nikolai Kharitonov (Communist Party of Russia): Mr Putin, highly qualified professionals are necessary to resolve one of the most crucial issues for Russia – ensuring food security and independence from foreign markets. And this raises the question of where future highly qualified professionals are expected to get practical knowledge of the most advanced technology and where they will be learning how to operate the most effective equipment and infrastructure for agricultural work, including farming and animal husbandry, if the last 33 educational and experimental farms are soon to become private, i.e. they will no longer be overseen by the Ministry of Agriculture and thus will be sold out?

Regardless of your reply, Mr Putin, I would like to ask you to hold a meeting with me and Konstantin Pershilin, chairman of the board of directors of Russian educational farms and the director of the educational farm at the Novosibirsk State Agrarian University, on this issue. By the way, Mr Pershilin was awarded the Order of Merit to the Fatherland, three classes, two of which you awarded him personally when you were president.

Vladimir Putin: As far as I understand, it is the question that matters, not the answer. But I realise that you’re not asking this question out of mere curiosity. Let’s look into this, have a meeting with you and experts to see what plans are justified. You know, I don’t want it to sound unsubstantiated, but we are monitoring the situations and see that sometimes somebody owns the land and other real estate and than starts using it for unrelated purposes or starts selling the land, cutting off a plot of land at a time and re-designating it, for example, to build a community of cottages. This is what it’s all about.

But I understand your concern and I don’t want to turn my back on your question. Let’s look into this issue, let’s meet and analyse the process. If necessary, we will make certain adjustments.

Igor Lebedev (Liberal Democratic Party of Russia): Mr Putin, my question is about the internet. Recent political events in this country and abroad have confirmed that the internet plays a significant role in mobilising people. The internet provides an opportunity for informal at yet free communication. Until recently, users could feel absolutely free to say what they thought. However, screws may be tightened in the run-up to the parliamentary and presidential elections. And a recent statement by Russian security services about the possibility that access to certain web pages may be blocked is more evidence of that.

The Liberal Democratic Party of Russia believes that such measures are unacceptable. We do not want to travel back in time to 1937, and we are convinced that such measures will only fan discontent on the internet and agitate the situation in the country as a whole. As a result, this measure will only provoke what it is meant to counteract.

In this respect, I would like to ask you to state the government’s and, if possible, your personal opinion on introducing censorship on the internet. Thank you.

Vladimir Putin: I can’t recall the internet existing in 1937.

You know, there was a joke that the difference between the Communist Party Central Committee, or Tseka, and the much-feared secret police, the Cheka, was that the former can only hush at you, or ‘tsykat’ in Russian, while the latter can slash you, or ‘chikat’.

So, we are not going to slash anything. The internet is only a tool in addressing topical economic and social issues. It provides the opportunity for people to communicate and express themselves. It is a tool to improve people’s living standards and society’s access to information.

Indeed, many major resources are located abroad rather than in this country, to be more exact, they are overseas. And this fact causes concern of some Russian security services because these web resources can be used for purposes that run counter to the interests of our society and government. But I would like to emphasise that these are only the security services’ concerns.

As for my personal opinion, which you asked for, I don’t consider such restrictions necessary.

Andrei Isaev (United Russia): Mr Putin, in the State Duma I represent not only the interests of the voters of my region but also the interests of trade unions. The cooperation agreement between the United Russia parliamentary party, the majority party, and the Federation of Independent Trade Unions of Russia has been in effect for two convocations. Issues of social protection for citizens are extremely important to us. We are grateful to the government for its latest, honest social policy. We are grateful that the government, on your initiative, valorised pensions in 2010 despite the economic downturn, that pensions for most of our pensioners were raised by more than 45%, and that you held fast against increasing the retirement age in Russia for the foreseeable future.

Labour relations are a major subject of public discussions today. Some members of the business community propose that we emerge from the crisis and go over to modernisation by – let’s be honest – exploiting workers more and reducing the size of their social guarantees, including those stipulated by labour legislation. Unfortunately, we hear very few proposals from them about strengthening labour safety, reducing the number of hazardous and dangerous types of production, and improving workforce’s skills, which, in our view, is both a way to modernise and a catalyst of modernisation.

Vladimir Putin: You know, the issues you are working on are exactly what the main state and public structures – the government, employers and trade unions – are working on. I don’t know of any striking examples of employers proposing to increase spending on, for example, labour safety and so forth. Again, I don’t want to offend anybody, but there haven’t been many such examples in practice. In international practice, yes, not only in Russia. And this is the task of trade unions, with the government acting as intermediary.

And when we encounter terrible and tragic events, like what happened at the Raspadskaya coal mine, then it’s the government’s direct duty to put things in order when it comes to safety, in this case jointly with the trade unions.

Of course, I have always been against and I will always be against extending the working week and other absolutely groundless methods of generating profit now or during the modernisation of the economy. This is absolutely inadmissible, and it can have the opposite effect of what was intended.

We – I don’t remember whether I raised this or not, yes, I think I did – together with you have adopted a number of laws. We have adopted a law on coal and amended the insurance legislation. Next we shall amend – I don’t remember whether we already amended Article 246 of the labour legislation, which deals with ensuring safe working conditions, but if we didn’t, we will amend it in the immediate future. We will also make additional amendments to the insurance legislation. We will by all means do all of this.

You know, when I was president, I knew that there was a Trilateral Commission, but, to be honest, I didn’t know that it did so much work. Not only does this commission gather every month in a large format, the representatives of the government, employers and trade unions examine decisions that we propose at the government or legislative level every week and sometimes every day. A good working relationship has been established with trade unions. And they work hard, indeed, discussing things, quarrelling, unable to come to terms sometimes. Then they meet again and try to reach a compromise because of the great sense of responsibility they feel.

I hope that this form, this method and this style of work will continue in the future, including here in the State Duma.

Oleg Shein (A Just Russia): Mr Putin, the Audit Chamber has uncovered the unlawful diversion of billions of roubles allocated to the Federal Agency for Fishery for the construction of special vessels. It concluded contracts with companies that lacked any production capacity, labour resources, or work experience. As a result, no vessels have been built, and the money has been rotating through banks. But the agency has been more successful in commercial fishing bids. Fishermen say that 60% of Tatarstan’s water area was leased for two million roubles, as was the entire Kola Peninsular for the sum of 124,000 roubles and for a term of 25 years.

A Just Russia was the only party in the Duma to vote against commercial fishing. In March, protests took place all over the country, but, regrettably, the decisions made on commercial fishing have not been rescinded, and people are compelled to pay.

Here are my questions. Do people in Russia have a chance to see fish on their own tables? Will they be able to fish for free in Russian rivers, lakes, and seas? Second, will these bids be repealed? And, third, what responsibility will be borne by those leaders in the agency who stand behind these decisions? Thank you.

Vladimir Putin: As for responsibility, don’t worry. After completing any undertaking, those who have stood aside and done nothing are usually rewarded here, while those who are innocent are punished.

As for the Federal Agency for Fishery and the contracts for the construction of vessels, we must look into this matter attentively. It goes without saying that if there are elements of manipulation, those responsible will be identified and taken to task. But it is important to approach this with caution after a serious review of the facts.

Indeed, we must see who ordered the vessels and when and why these deals led to such consequences. Let me repeat that we will find out. We have no reason to cover up for anyone. They will be held accountable in full measure.

Now I’ll turn to commercial fishing. I’ve already expressed my opinion on this matter. I fully share your concern. There probably are people who’d like to receive an exclusive service, go to some lake and fish at a price with all the amenities. But the overwhelming majority of people – almost 100% of amateur fishermen – want to come to their traditional fishing holes and fish for free as they did for decades. They do not want to pay a thousand or fifteen hundred roubles for some voucher or license. As I’ve said before, they will be better off if they bring along some beer for 200-300 roubles and have a relaxing day.

Therefore, I suggested – and we must all think about this – giving permits for commercial fishing on two, three, four, or five percent of the water area, or even less. Traditional fishing holes must be left alone once and for all, and people should be allowed to fish where they want without any problems. It goes without saying we will revise all this.

Anatoly Lokot (Communist Party): Mr Putin, you’ve said with good reason that well orchestrated and state-guaranteed defence orders are a mainstay of the domestic production of modern military hardware. This requires a coordinated effort of the Defence Ministry and our military industrial sector, but regrettably, this is not the case.

For instance, the second quarter will soon be over, but many of our enterprises, indeed the majority of enterprises, have not yet received an order from the government for 2011. Last year, the Defence Ministry eliminated six ordering departments and a number of other units. As a result, the old procedure for the formation of defence orders was dismantled and a new one has not been drafted. As a result, directors or representatives of plants have to go personally to army units to form this defence order.

I’m sorry, but this has nothing to do with high technology. It is like regressing by centuries. In this context, I’d like to ask for your help in receiving a state defence order this year. Second, it is obvious that we must have a mediator between the Defence Ministry and the defence industry. Regrettably, the commission of the military industrial sector, though it has enough power…

And, Mr Putin, since the press is criticising our domestic equipment…

Vladimir Putin: Do you want me to drive a T-90? Why doesn’t the Kalina suit you? It is a mass-produced car. I’m glad I drove it. I’ve tried many things, including submarines and aircraft – not for fun but to demonstrate that we have effective and reliable equipment for modern combat. I drove tanks as well. I was inside a tank.

You’ve raised a very important issue. Indeed, we must modernise the formation of state-guaranteed defence orders. This is true. It is also true that last year we paid special attention to it. I personally held meetings on all branches of the military-industrial sector. There were no exceptions. We had good, comprehensive discussions. We analysed all branches of the defence industry: missile construction, air defence, artillery, small arms, communications and intelligence, aviation, space, and the navy. We reviewed practically all available options and, on this basis, we discussed the formation of a new state-guaranteed defence order for several years to come – up to 2020 – with a huge budget of 20 trillion roubles.

As for the current state of affairs, we have an apparatus in place. You’ve mentioned the commission of the military-industrial sector. The Defence Ministry sends its applications to this commission; it reviews them and distributes contracts among different industries based on their potential and capability.

I agree that there must be some mishaps in this procedure, and we are ready to look at it again. Where do we stand today? This year, we have transferred 570 billion roubles to the state-guaranteed defence order, or to be more precise, 571.5 billion roubles. This is the state-guaranteed defence order for this year.

Contracts worth 300 billion roubles have been already signed as of today and the relevant enterprises have received 170 billion roubles. All contracts must be signed by the end of May and the government must pay off about 80% of this year’s state defence order. The Defence Ministry has deliberately left 20% for the latter half of the year as an incentive for contracted enterprises.

There are some problems, of course. By the way, some enterprises will receive 100% of the funds up front. There are some problems linked with the continuous dispute between the enterprises of the military-industrial sector and the Defence Ministry on what to buy and in what amount. We understand that their main task is to ensure Russia’s defence capability. In order to do so, we must have state-of-the-art technological equipment.

I’ll make it simple – our weapons must be superior to the world’s best in their range of fire and precision. I’d like you to listen to what I’ve just said – in range of fire, precision, and combat power.

These are our three main parameters, and we must make sure that our industry is producing such equipment. Needless to say, the Defence Ministry demands this quality of equipment and the dialogue is often severe. We must consider how we can support some enterprises – for instance, those producing small arms. The Defence Ministry has several times more small arms than it needs. As for explosives, they must be discarded in droves – several dozen of them. At the same time, we must support the manufacturing enterprises and consider what they can do. This is a very involved question. We are thinking it over, and we will help them. We will certainly review the procedure for state-guaranteed defence orders. I understand that this is a problem.

Maxim Rokhmistrov (Liberal Democratic Party): Mr Putin, the recent wave of revolutions, unrest and riots that have rocked the Arab world – the Muslim world – has surely affected the global economy. The question is how the government has adjusted to this situation. It is no secret that we have signed important contracts with these countries and that our major companies were doing businesses there.

Also, the ongoing changes in the migration pattern and the direction of migration routes to the European Union are threatening its very existence, while parties on the far right are gaining political power in many countries and there are plans to re-establish borders between EU member countries. What measures is the government taking to ease the impact on Russia of the changes resulting from the current revolutions or those that will happen in the near future?

Vladimir Putin: The main safeguard against various social disturbances is a social and economic policy that is in the interests of the Russian people. The results of our joint efforts must be positive. If people see that we are working to defend their interests and we achieve positive results – their living standards and well-being are improving – then I can assure you that there will be no problems with maintaining civic peace and public order in this country.

Of course, there will always be certain elements that seek to destabilise the situation. This is similar to an outwardly healthy human body, which is nevertheless always inhabited by some harmful bacteria; however, if the immune system is strong, they remain in check. Should the immune system weaken, we would immediately catch the flu. If we maintain the country’s high level of social and economic immunity, no quasi-political flu is going to make itself felt.

As for our economic losses in the course of the turbulent processes in North Africa and other countries, I admit, this is a problem. Our multi-billion contracts in the military-industrial sphere as well as in the transport and energy sectors have been suspended, of course.

Work that has already been done and services rendered in some countries remain uncompensated. All of this, of course, is up in the air. As for our major projects to supply armaments to certain regions, we shall have to address these specific issues together.

Let’s say that plants have manufactured armaments for export under contract, but now nobody can accept the goods. What can the plants do? What will they do with this military hardware which our army does not need, as it did not place orders for it? What shall we do with it? Resources were used and the hardware was manufactured – now we’ll have to address this issue and, most likely, provide support to these plants. No doubt, we will think of something to do with it, but this will require additional funds from the budget. This is not a pleasant thing to do, but it is not lethal for us. We will cope with these problems.

Irina Yarovaya (United Russia member): Mr Prime Minister, to be honest, unlike the sceptics and theorists, we fully support the government’s efforts. We appreciate that Russia was one of the first countries to offer help to Japan shortly after the accident at the Fukushima nuclear power plant. We also believe the government is doing the right thing on monitoring radiation in the Far East.

But as a representative of the Kamchatka Territory, I would like to report to you that our fishermen are concerned over rumours circulating about the imminent contamination of our offshore waters and biological resources, which clearly could affect the economy of the Far East. It is very important that radiation monitoring reports include evaluations of the safety of marine resources and that they be made available to the general public in Russia and abroad.

Mr Prime Minister, how would you assess the radiation and economic safety of the Far East in connection with the recent developments in Japan?

Vladimir Putin: As a resident of the Far East, you should know that in 2010 the federal and regional governments set up 50 new earthquake and tsunami warning stations, and this system proved very effective during the recent disaster in Japan. I am glad that this money was not spent in vain. The system performed very well and promptly, distributing alerts within 10 minutes. Thanks to this, people relocated from dangerous areas on the coast in a timely manner.

Over the next three years, the Federal Service for Hydrometeorology will be implementing a programme to repair and upgrade 1,300 monitoring stations, and to build another 300. We have budgeted 14 billion roubles for these purposes; the programme is already well underway.

As for radiation monitoring, all the stations, of which there are 1,300 as well, work around the clock. Radiation is measured every hour across every part of Russia, from the northwest to the Far East. The entire territory, every hour… Reports are submitted from all over the country. Radiation levels in Russia, including in Kamchatka and the Far East, are four to six times lower than the normal safe level.

In addition, the Russian Geographic Society is sending an expedition to the Sea of Japan. To my knowledge, Mr Artur Chilingarov is going on this expedition. So he will report to you directly. There he is, by the way, sitting over there. I’m sure he’ll tell you that everything is fine. But should a threat arise, we will respond immediately, and will make all the information publicly available.

As you know, I recently toured the Far East and Sakhalin to see for myself how the system operates. You know, I liked it. I liked how the Hydrometeorology Service, the Emergencies Ministry, the border troops, and the navy coordinate their activities in real time, and keep the situation under control.

We are proceeding from the assumption that Rosatom’s prognosis is correct and we are not facing any threats, at least for now. We expect radiation levels to remain stable.

Alexander Lomakin-Rumyantsev (Just Russia member): Mr Prime Minister, as we know, the government pays a lot of attention to the problems faced by people with disabilities. We hope many critical issues will be resolved through the Friendly Environment programme. But it will take time. Right now, people with disabilities are facing several urgent problems. I will mention just two of them.

First, a really acute and painful issue, the provision of discounted drugs for people with disabilities, notably those with diabetes and cancer… How will the government address this critical problem?

And the second question, Federal Law No. 122 revoked their right to free accessible vehicles. But such vehicles are essential for many people with disabilities since they help them be integrated into society. As we know, the government is implementing a support programme for the auto industry. Perhaps it could address this critical social problem through this programme and restore the right of people with disabilities to free vehicles?

Thank you.

Vladimir Putin: As far as the first question goes, we will certainly review this issue thoroughly to find current shortcomings, and will do everything in our power to eliminate them. First and foremost, this applies to the provision of drugs for people with disabilities. Today I will give a directive to the Ministry of Healthcare and Social Development to check which regions are facing shortages, and in what drugs. I would like to reassure you that we will continue to address this problem.

We have just discussed the possibility of purchasing vehicles for people with disabilities. The government will soon introduce a programme to meet the need in special vehicles for people in wheelchairs. We’ll also see what we can do through the support programme for the auto industry. I don’t think this will require major funding. But I don’t want to talk about something that hasn’t been decided yet. We need to calculate it first. But in any case, you will be the first to learn about our decision.

* * *

Vladimir Putin answers journalists’ questions following his report to the State Duma on the government’s performance in 2010

Q: Mr. Putin, I have two questions. First, what are your general impressions of today’s meeting with the deputies, which was the longest ever? Second, you focused a great deal on energy issues today. Will the government help sort out the issues between Rosneft and TNK-BP? Thank you.

Vladimir Putin: Let’s start with the specific question. The government does not interfere in the business of commercial entities. When I spoke with our British colleagues about future cooperation with Rosneft, I told them that we will support it. However, no one has ever told me, or Rosneft for that matter, about any mutual obligations existing between TNK and BP. We were unaware of them. If there are indeed certain unresolved issues involving mutual obligations, they should be settled in court. It’s as simple as that. As for the opportunity to work with such a respectable company as BP, we welcome it, and would like not only TNK, but also Rosneft and other major Russian companies to work together with BP. That’s my first point.

Now, about today’s discussion. I believe that the government’s report to the parliament is more than just fulfilling a constitutional requirement; it’s a tool for managing the democratic beginnings of the Russian political system. The dialogue between the government and the parliament is necessary not only as a way for the government to report its results for the year, but also as a way to make sure that we are on the same page with the deputies regarding the priorities of the national economy and social sphere.

Today, we had a detailed and positive discussion. Although certain deputies from opposition factions were critical in their speeches, I believe that overall we had a meaningful and, I’ll repeat, a positive exchange of opinions. We listened to each other and will continue to do so, and we will adjust our positions. I believe the opposition parties will do the same. I think there is a great deal of consensus on key areas of the country’s development. This is very important. Our approaches and our proposals for achieving our goals may differ, but all the Duma factions are working to ensure the development of Russia’s economy and social sphere. Let me use this opportunity to once again thank all the deputies for this joint effort. Thank you very much.

* * *

Vladimir Putin’s final remarks:

Ladies and gentlemen,

I would like to make a brief response to the group leaders’ addresses, and then say a few words in conclusion.

I will reply to each speaker successively, starting with Mr Zyuganov.

I certainly will not be able to comment on every point – and I don’t think it is necessary, for that matter. I do not think the speakers expected a response to everything they said. However, I would like to talk about some of the issues raised that I consider most important.

Mr Zyuganov mentioned problems in education, healthcare and social issues in various fields. These are the areas we are tackling together as our top priorities. That was why we earmarked 460 billion roubles to modernise healthcare. Considering other allocations, it makes a total trillion roubles.

This is just why we talk about the vital importance of introducing innovation in university education and adopting new educational standards both for at schools and universities. We are setting new objectives for schools, which I spoke about earlier today.

Let us go on to vocational training now.

Esteemed colleagues, Mr Zyuganov, no one intends to destroy the vocational training system established in the Soviet years. At that time, it met the demands of the employment market, though it was far from perfect. It does not meet them any longer. To fund it further the way it is means to squander money because there is no demand for workers trained in this outdated system. What we need is training that will meet the current demands of the employment market. Tuition should go hand in hand with practical work at manufacturing companies. Plants should be closely involved in the vocational training system and have an impact on the curricula for present and future industries to really need its students.

Vocational training is among the critical sectors of our education. It should be improved, and its prestige bolstered. That is the objective of introducing the applied baccalaureate I spoke about. We should also affiliate vocational and technical schools to universities, wherever possible.

Such work is underway already. We have been conducting an experiment that has proven to be very effective. It raises the prestige of vocational training very quickly. Say a young man enters not a vocational school, with all its negative connotations, but a university. Yes, he follows a different curriculum but he is taught by university professors on a par with teachers who were on the vocational school staff before. So tuition improves dramatically. Professionals from manufacturing industries will certainly teach on these programmes, too.

Now, as for alleged demands of the World Trade Organisation not to fund research, not to fund agriculture and to increase fuel prices. It seems Mr Zyuganov got somewhat carried away by the argument. In fact, there have been no such demands from anyone. But then, I agree with Mr Zyuganov that there is a potential trap somewhere here. We should be on our guard during the process of joining the WTO. Mr Zyuganov is right here. And that is just what we are doing, I assure you. Every point is thoroughly debated. It is not for nothing that the talks have been on for 17 years.

If we had made concessions like some of our neighbouring countries and, say, slashed to zero our positions in aircraft and aviation equipment imports, it would have been impossible to talk about the revival of our aircraft industry today. Same about the automobile industry – if we had zeroed the lorry manufacturing, for example, there would have been no hope of reviving the automobile industry now. If we had retreated in agriculture, there would have been no farmers to support today.

But we did not do so. Our customs protection is double that of Ukraine’s, for example. Customs protection of the Customs Union countries is 10.5% against 5.5% in Ukraine. That is the result of our efforts in this field, Mr Zyuganov.

As for oil and petrochemical products, which are several times cheaper in some oil and gas producing countries [than in Russia], Mr Zyuganov is right here. That much is true. I wonder whether it benefits the oil and gas industry in Iran and other countries mentioned here.

We have the greatest possible respect for our Iranian colleagues, friends and partners. It would not be appropriate to issue criticism from this rostrum, but it is true that Iranians maintain low prices. However, they were recently forced to raise them, as I am sure you know because it was becoming impossible to keep one of their essential industries afloat – it was dying with no money for development and new production. Our policy, on the contrary, is far more reasonable.

Moreover, I would like to draw your attention to the fact that it is downright dangerous to keep the price of gas or any other utility below threshold prices because in this situation there would be no incentive to switch to alternative fuels. If gas always remains the cheapest utility, we will never make anyone switch to coal to the detriment of our coal industry, which employs many thousands. Besides, we should not make the entire national economy depend on gas alone. It would also be wrong from the security perspective because gas facilities are extremely vulnerable to terrorist attacks. A single click – and a huge region is left without gas. What we need is an energy balance both from the economic and security perspectives.

As for our colleagues in the United States who are doing so well, we all realise that this is not so – look at their trade balance, budget deficit and national debt. Things are quite different in Russia, and I hope they will remain so. The Americans have a simple way out, through emission and government bond purchases. Now, what are government bonds about? It is a way to finance the government by printing more money. Then this money spreads throughout the dollar zone, that is, the whole world.

We have no opportunity to take such shortcuts, and will have none in the near future. But I hope we will strengthen our national currency and the rouble will become the reserve currency for our region. At any rate, the rouble is steadily getting stronger and evolving into the reserve currency throughout the post-Soviet area. Our Ukrainian partners have asked us to switch to the rouble in energy transactions, and close on 90% of our settlements with Belarus are made in roubles. That is how Russia is becoming a financial centre, of which the government and the president are talking. This is not just wishful thinking – we are making progress and achieving practical results. Please mark that our progress may be slow but it is steady.

Let us now talk about GLONASS and have a hard look at the issues Mr Zyuganov raised. They deserve our attention. Certainly, we should use sensitive technology of Russian design and manufacture as much as possible. This is especially true of dual-purpose technology. Mr Zyuganov is right here, and I fully agree with him. But there are industries in which we cannot withstand competition, and in which we are forced to cooperate with other states, where this is our conscious choice. This refers to GLONASS, as well.

I am pleased to say that we take great pride in it. There is a number of problems, especially where the ground-based infrastructure is concerned. About five years ago, I called on our European colleagues to join this space programme, but nothing came of this initiative in the end.

At present, they have two satellites, if I am not mistaken, while we have 23 – a satellite fleet. Another six will be orbited this year. We are clearly in the lead. This is one of the few high-tech industries that Russia is leading after a simultaneous start.

Europe has certain competitive advantages, mainly its ground-based infrastructure, research and cutting-edge technology. They will catch up and compete with us unless we build up our space effort. But then, we also have our competitive edge because we are the first. We were the first after the United States with a satellite navigation system. Usually China starts something and Europe tries to catch up. Here, it was different: we immediately followed America. No other country has anything like that. We can take pride in it. The system will be sustainable with a good margin if we launch another six satellites this year.

I will now turn to Mr Zhirinovsky’s remarks. Housing is certainly a critical field, Mr Zhirinovsky. You and I discussed it in great detail during consultations preceding my report. Our talk went on for a long time and continued even after the media left. I remember you raised the issue then. But please bear in mind how much we have done to support the construction industry. We will have another series of meetings quite soon to see what else we can do for it.

More than that, it is no exaggeration to say that the construction industry, just as the automotive industry, survived solely due to government contracts, with the mammoth scope of housing construction for the military, veterans and other population groups. Ambitious projects for the APEC summit, the Sochi Olympics and the Student Games in Kazan also help the industry to keep afloat. Our investments have rescued it. We will certainly build up our efforts, but now we will support market-oriented projects instead of making allocations from the budget.

Concerning birth and mortality rates, I think Mr Zhirinovsky is mistaken: mortality is decreasing in all critical fields. There is a large decrease for cardiovascular diseases, though it is smaller for cancer, slightly over 4%, if I am not mistaken. The rate of fatal traffic accidents fell by 25%. We are implementing wide range of methods to reduce mortality, and will continue to implement them. That is why life expectancy is growing in Russia.

As for unemployment, we have not merely reduced it but created new jobs and restored lost ones to a total exceeding two million, according to statistics. I’ll look up the figures once again. I assure you, they concern not only a fall in unemployment but also the increasing rates of creating new jobs.

Concerning retail chains, I cannot but agree with Mr Zhirinovsky. It is a critical issue, and he is right a thousand times over however much he may enjoy shocking his audiences. The issue demands the utmost attention.

The law on trade we have adopted cuts fees for starting new retail businesses, prohibits the removal of commodities from the shelves to make customers’ access to them more difficult, bans shouldering the expenses for unsold goods onto farmers, etc. Most importantly, we have undertaken steps to demonopolise retail chains through imposing a barrier which they cannot overstep in a given region. When they want to expand, they can go to other regions. It might not be enough but, at any rate, we must guarantee retailers’ preference for Russian-manufactured goods. We are ready to join hands in this effort with Liberal Democratic and other members of parliament, as well as United Russia.

Concerning May Day, it is certainly celebrated as the Labour and Solidarity Day. If we represent labour, we could also get together somewhere and celebrate.

Mr Gryzlov raised the issue of shipments from and to the Far East. I would like to remind you what we have done in this area. The result was interesting. Just recently we witnessed public dissatisfaction over our decision to cut the imports of used cars. As far as I know, out of 400,000 such cars brought to the Russian Far East, only 15% stayed there while the rest were sold to other parts of the country.

The decision was made in the middle of the global economic crisis and an acute crisis in the auto industry. We had no choice but to limit the number of used car imports, which gave a new lease of life to an industry that employed 600,000 people plus three million in related companies, as I said in my address.

It was not our objective to ruin second-hand car importers, and I apoligise if we damaged their businesses but we really had no choice because we had to support our car manufacturers. Many warned then that the people of the Far East would not buy Russian-manufactured cars because they had developed certain market preferences.

What did we do then? First, we helped to establish new auto plants in the Russian Far East. The initial steps to this goal have been made already. I hope that further, and more ambitious, steps will be made for local car manufacturing.

Though we are subsidising shipments from the European part of Russia to the Far East, manufacturers who took root there complain that the market is too small, and if they develop production, they will have to transport their cars for sale to European Russia. So we did what no one expected us to do: we introduced subsidised shipments from the Far East to the European part of the country to allow manufacturers sell cars at normal prices without limiting their market to the Far East. What do you think happened? Russian-manufactured vehicles now lead public demand in the Far East, which was an unprecedented trend. Such vehicles deserve to be popular. These are very high quality cars – just think how many foreign manufacturing companies are working there. We will follow this policy consistently.

Mr Gryzlov also proposed to improve firefighting services and upgrade their equipment. I think he is right. Judging by the present situation in the Far East, we should review relevant decisions.

I would also like to say a few words about Mr Nikolai Levichev’s address. As far as I understand, many of today’s addresses were made in the context of the nearest State Duma election, due in December. However, if we leave out this political component, I would like to respond to what he said about experts, whom he compared to a set of well-used playing cards though he amply complimented some of our researchers and professors. But then, they are all here, in the same deck of cards.

However, Mr Levichev was right in something that demands our attention. We will not argue now who was the first and the most active in promoting, say, the ideas of the school reform. Indicatively, the president said the same in his State of the Nation Address.

We will not say now who was the first, second or tenth. This is a critical issue. We all took notice of it, and we will address it all together. Mr Levichev was right to say that we must guarantee that the funding is not squandered and reaches the end receiver.

That was why I asked you to pay the utmost attention to this issue when I informed you about our plans today. I also called on you to closely monitor all our projects in your constituencies.

As for the terminology, I don’t think it is the most important matter. As far as student grants are concerned, advisers are advisers, and it is their job to give advice, say, on abolishing such grants. But even here, I don’t think we should consider any issues out of context. They should be analysed as part of all proposals. In practice, we are not proposing to abolish anything. On the contrary, we intend to increase student grants. A 6.5% increase was proposed and I said that we would raise them by 9% or more, and even double them for interns. We will do it in June, without waiting for September.

Colleagues, I would like to say the following in conclusion. We have come through a difficult time, as I said in my report. The fact that we came through it with relative ease ­– relative ease, I stress – is mainly the merit of our people, who accepted all our steps with patience and trust.

That is also the result of our teamwork, and largely the merit of parliament because their prompt efforts enabled us to propose and implement relevant decisions to ensure relative stability and efficiency during the crisis.

There were many dangers and challenges that demanded prompt decision-making. We were successful, and I want to thank you for it.

We heard many criticisms here today. That is normal – this is the way it should be in parliament. Despite all those criticisms, I want to wish you all success at the State Duma elections in December.

Thank you very much.