Question: I have a question on the economic plan – the plan to encourage economic growth that the Government has submitted to the Kremlin. The plan includes two controversial issues. The first is the Central Bank’s role in speeding up economic growth – Mr Medvedev said there is a consensus to this effect – the Central Bank’s status will not be changed. What can you say on this score?
The second issue is about indicative interest rates. Should the Central Bank publish these rates as a guideline for banks that issue loans to the real economy? Is there a decision on this score? What do you think about this?
Igor Shuvalov: We have the following rule in the Government – if the Prime Minister has announced his position, no Government member can change it. That said, before a final decision is made, we certainly argue and even go to the President if necessary.
As for the Central Bank’s role (I want everything to be clear on this score), it will ultimately be determined by the law on a uniform regulator. Under the draft law the new powers will be transferred from the Government to the Bank of Russia. State Duma deputies want this uniform regulator to have more responsibility for employment and the quality of economic growth. I’d say that deputies have a tougher position than some Government members on this issue. It will be impossible to compel deputies to make a decision. It will have to be adopted after very serious debates. Deputies warned us beforehand, when we discussed the new status of the Central Bank in the Open Government, that we can expect a serious discussion on all new responsibilities of the uniform regulator, including the one on the quality of economic growth. We are ready for this discussion.
As for the plan we submitted to the President, I have asked him for another meeting to discuss issues that are disputable or ambiguous. There are many more such issues than the two you mentioned. Should we try to reach a consensus now, before a meeting with the President? I’ll be straight with you, and I’ve already said this to the Prime Minister – I think this would be wrong. If we try to diminish our differences we may again receive a version reached by extensive compromises, to which the Ministry of Finance agrees a bit, which is accepted somewhat by the Ministry of Economic Development and which does not contradict the position of the Central Bank in some respects. The result will be a blank document.
The Government’s position will affect the quality of economic growth. Should we try to achieve higher growth rates in 2013, 2014 and 2015 or should we agree to maintain rates that will be above the rather modest rates of global economic growth in the mid-term perspective – 10 or more years – and that the condition of our economy (both structural and in terms of value) will be entirely different in, say, five or six years?
What is more important? Of course, we can speed up economic growth rates with state expenditures but what price will we pay for this in three years? We don’t want to pay this price. We want to achieve quality growth. All these issues were presented in the report to the Prime Minister. Later on we discussed them in the Government and submitted them to the President. Now we are waiting for a meeting with the President at which we’ll subject them to serious discussion.
Question: Could you clarify? You said there were more than two.
Igor Shuvalov: I won’t say. You should know that either economic or financial departments have objections to the issues presented in the report. This time I didn’t try to get their signatures under different proposals. You know that by tradition the financial bloc, for instance, the Central Bank, is against the publication of indicative rates, and objects to lower interest rates on loans, and in general all steps that would make loans more affordable. The bank believes that the current practice of issuing loans conforms to our economic development level. But this idea is adamantly rejected by experts with whom we work in the Expert Council, the Higher School of Economics and the Academy of the National Economy. I’ll put it like this – the majority of people with whom we work do not agree with the objections of the Central Bank and the Ministry of Finance. Incidentally, the Ministry of Finance does not fully share the position of the Central Bank, which has a more flexible position. They believe that loans must be issued on other terms if we want to achieve quality growth at faster rates.
Question: Mr Shuvalov, representatives of a leading rating agency came to Russia the other day to either confirm or revise their forecast for Russia’s rating. What do you expect? Are you working with them? What are your forecasts?
Igor Shuvalov: All sorts of things can happen. But if you explore the foundations of our economy in earnest, the way the budget situation and budgetary performance are shaping up right now, we have no additional risks. To be frank, we are seeing certain shifts, but I wouldn’t like to predict anything because that wouldn’t be the right thing to do. We made very tough estimates of what was happening to the Russian economy early in the year, and we did this on purpose. We began issuing warnings, also on purpose, about possible negative consequences, that is, lower growth rates, and we started looking for incentives to encourage more active performance by business. But since we are thoroughly investigating practically every sector and all the factors that have an influence on growth, we can observe certain improvements in business performance, including how small business has responded to social insurance payments.
The situation is changing. I can’t say it has become much better, but we are seeing certain shifts. Let me repeat again: if we look at the foundations of our economy overall, at how the budget is shaping up and what signals we are getting from business, my impression is that the situation is slightly better.
Question: Do you mean that we can expect an improvement in the forecast and the rating?
Igor Shuvalov: I work in the practical sphere, I work in the Government. Working for the Government, you have to be aware that the ratings can remain unchanged but that they can also be lowered. So you should always have an extra string to your bow to be able to react to the situation as it develops. Right now there are no grounds for doing a revision. We have held negotiations with some of these agencies, but not in connection with Russia’s ratings. We were talking about the ratings of some companies with state participation.
Question: There are no grounds for an upgrade either, are there?
Igor Shuvalov: No.
Question: Mr Shuvalov, the Federal Service for State Statistics has noted a drop in industrial production at 0.9% in April and in March there was also a reduction. Do you expect the decline to continue? Does this mean that a recession is inevitable in 2013?
Igor Shuvalov: There will be no recession this year. That's the short answer. We’ll have no recession this year. You see, there was a high degree of dissatisfaction with how the situation was developing at the start of the year. All of us – the Minister of Economic Development, the Finance Minister, myself, and the Prime Minister – were saying as much publicly and discussing the problem in public. This does not mean that we were in a crisis. Neither does it mean that we are entering a period of recession. No, we don’t have a recession or a crisis! It's just that we are utterly dissatisfied with these growth rates, given the current oil prices.
Yesterday the Prime Minister and I discussed something I reported on to the President a few months ago. Economists predicted at an early stage of capitalism in this country that Russia would have to go through a very difficult period in its development when its per capita GDP equaled or exceeded $15,000. Today it is more than $15,000 per capita. We were actively discussing this situation precisely in relation to the surge in popular self-awareness in 2011. This can all be explained in economic terms.
Look at the statistics in other countries that have gone through difficult periods of economic transformation and you’ll see that we are not unique in this sense. We are growing; we have a situation where many people are losing the motivation for change upon reaching these limits, because they are well-off as it is. A third of the population consider themselves to belong to the middle class. There are many active people and average salaries are going up. There are presidential decrees on increasing the salaries of public sector employees. These decrees will definitely be implemented, but we need drivers and motives for ensuring completely different growth rates. That is why when we say: “We are dissatisfied with the growth rates,” we mean that we should motivate ourselves in a totally new way and evolve a totally new line of economic behaviour in order to arrive at real modernisation and a new quality of the economy. The Government of the Russian Federation regards GDP growth of 2 to 3% in the current global climate as insufficient. We must look for all possible ways to assure higher growth rates.
But, God forbid, no one uttered these words, and if someone did… well, they were either ignoramuses or they were whipping up panic on purpose. We are not moving towards a recession.
Question: You said there were some unsolved problems with regard to the Central Bank…
Igor Shuvalov: As I said, the final decision will be accepted and legalised by a federal law. The Central Bank, no matter what anyone says, is an institution which is totally independent of the Government and operates on the basis of the law. The Government has a position of its own vis-à-vis the Central Bank, and it is expressed in the draft law on the single regulator, but the Central Bank’s powers will be defined by law. Will the Government’s position be heard? Of course it will! But it will not be the sole position, that’s what I wanted to say. These powers will be defined in the course of a complex discussion involving the presidential staff, the Government and the legislature. The President cannot do it single-handedly.
Question: Will this arrangement start operating on August 1?
Igor Shuvalov: Yes, of course, we have to pass this decision. Everyone is aware of their responsibility to the country and the economy. This is not just the banking sector; it involves the financial sector as well, which means additional funds for our development. We will implement this roadmap, which was approved by the President.
Question: Dmitry Medvedev said in an interview not so long ago that the Government should face up to the threat of real recession rather than fight what he called a technical recession. How do you understand this?
Igor Shuvalov: Yes, absolutely; I support this entirely. It’s our common position and almost everyone in the Government shares this position. In general, it seems to me that the pursuit of short-term statistics can backfire on us and we will have very serious negative consequences in just two or three years’ time. In general, any short-term successes, particularly for a country and economy as complex as Russia… You should always sight the target a few times before you shoot. Therefore, of course, yes. I’ll repeat myself.
We need a different kind of growth – qualitative growth. We can by no means afford to slip into a technical recession. Of course, we must not allow that to happen. But we must also avoid chasing after short-term successes when it comes to growth. What we need is steady, qualitative growth.
Question: VTB Bank had an SPO yesterday, which eroded the government block from 75…
Igor Shuvalov: Not eroded, merely decreased.
Question: …decreased from 75.5% to 61%. Could you first comment on the results of the offering? And should we expect the government share to fall below a controlling stake next year?
Igor Shuvalov: There’s nothing new here. Everything is going as planned. We promised second public offering from VTB as soon as the market situation allowed for it. It was announced well beforehand, and the Moscow Stock Exchange was named as one of the platforms. VTB managers worked very diligently on it.
I don’t think it can be deemed a success until I look at everything formally and get proof that the deal has been concluded. Meanwhile all the information I have comes from the media and from managers’ reports. What we need to see is a legally sound deal.
The global situation is very complicated. Everyone wants to hold on to their money, no one is eager to spend. However, we have promising investors from all different classes. This shows confidence in the Russian economy and interest in VTB, so I think the transaction will be a success.
As for when we can sell new VTB shares, I don’t think they should be sold at the expense of older shares. The Government asked us not to make a decision on follow-up offers for a year after the present offer. We think we should keep this promise for the sake of market stability and to make VTB shares reliable. So we definitely won’t sell any new shares for 12-18 months. The deal was made solely in the interests of VTB – Russia will not gain a penny from its privatisation. I hope that the next transaction will bring revenue to the national budget.
Question: What privatisation deals with government-held stock do you expect within the year, considering the current market situation? And when will the government’s stake in the Vanino merchant seaport be sold?
Igor Shuvalov: We will sell it as soon as the market is ready. But we are always willing to sell shares.
The way the Federal Property Management Agency has arranged these transactions, the formal procedures are up to us to complete, and we are on schedule. As soon as they are completed, negotiations will follow – with specific bidders, or depending on the market situation, for example an IPO or SPO. As for the Vanino port, it is in a very peculiar situation. We were told at first that this is not very attractive stock, and there were middling bids. Then expectations heated up and many bidders appeared, so we think we will sell the stock at a good price.
I think it will be sold within the year. However, we make it a point to avoid rushing decisions. If the market gives us a price that would be considered fair not just by Russian standards but also by world standards, that would be acceptable to us. But then, all the deals we mentioned are only planned. We have not taken anything off the privatisation agenda or reduced the offers. We will announce our terms when bidders appear who are ready to pay good money.
Question: Is an SPO ruled out when…?
Igor Shuvalov: I have had many meetings on this problem. There are no final reasons now for the Government to make an SPO. Possibly, we will decide on it toward the end of summer. To be frank, I think a sale deadline should be set for the Novorossiysk port – possibly the end of August or the beginning of September. But we shouldn’t rush. We should consider everything, without ruling out any option. If the SPO shows that we understand what kind of investors to expect, if the stockholder structure becomes ever more favourable to the emitter, and the corporate management improves with new investors and we get a top price – then why not?
We have no reason to do so yet. No one has given us a reason, and we have no idea what the deal will look on the whole. We would like not only to get the highest possible price but also to know who our strategic partners are. We don’t want to deal with speculators. We need serious stockholders who want to upgrade Russia’s vital infrastructure. We also don’t want to get a low price from someone who will sell the stock later for a higher price on the world market.
Question: Is the privatisation plan for Sheremetyevo ready? When can we expect a final decision on pooling the government stock of the Sheremetyevo and Vnukovo airports?
Igor Shuvalov: We employ a consulting expert for the Moscow air hub. He will attend a working group meeting next week, during which we will ask questions and discuss what to do next. We are preparing to make a report at a meeting to be chaired by the President in early July. The problem will be discussed here.
All assets of the Sheremetyevo and Vnukovo airports are being assessed. You know what distinguishes the ownership form of Sheremetyevo and Vnukovo from that of Domodedovo, which is a consolidated business. The Federal Property Management Agency has the difficult job of consolidating it or leading it to the demonstration of the real title of ownership of all its assets (I think that’s an accurate way to put it) because many private holders appeared there in recent years.
The job must be completed this year. If a decision is made to merge, we will certainly have a transparent property structure everywhere. If the airports don’t unite, each will develop independently. Be that as it may, we must see whether we are ready to develop the Moscow air hub ad infinitum or set limits on the passenger flow. The traffic is enormous even now. If I am not mistaken, the total number of passengers in the Moscow airports was slightly below 65 million by the end of last year. However, our consultants say that the potential of the Moscow air hub is between 170 and 300 million. That’s a debatable estimate, but don’t come down on the experts and the Government if the figures appear in the press. I have no idea what the forecast is based on. We must analyse it. If the hub services only 179 or even 170 million passengers, it still has to be a huge facility. We must see whether Moscow needs this facility at all for so many transit passengers.
I seriously doubt whether it’s worthwhile. After all, there is St Petersburg and other sites for such major logistical systems. Our experts say – and the Ministry of Transport agrees with them – that the Moscow air hub can service 143 million passengers according to the new, more liberal air traffic regulations, which have just been approved. This is really a dramatic increase compared to the current 64 million. That is why I think it is wiser to use the maximum potential within the limits of the decisions passed already, and develop the potential of St Petersburg and other cities. However, if Moscow needs additional resolutions, I think we should evaluate the prospects of building new airports or upgrading dual-purpose airfields available in the city, the Moscow Region, and the neighbouring areas – for instance, on the border of the Kaluga and Tver regions. There are other options, too.
That’s why we are being so active now. What matters most is that we are in dialogue with everyone – private holders and the government managers of our assets. Investments are being made in all the three airports, and upgrades are underway. We are aware of our responsibility to the nation and Moscow, especially in the context of the 2018 World Cup. What we need is an up-to-date Moscow transport hub, which will include all the airports of the Moscow air hub. We are also preparing to report to the President in early July.
Question: It has been reported that you may privatise a 19% stake in Rosneft this year. What can you say about this deal?
Igor Shuvalov: There is nothing new about the Rosneft deal. I can only confirm our previous plans. We believe that it would be correct and appropriate to reduce the state’s stake in Rosneft. The President and the Government will decide separately on how this can be accomplished. If it is possible to establish powerful and reliable partnerships with other major investors in this market, when other investors buy into Rosneft, and when Rosneft receives access to other major projects, then I believe that this will be the best option for privatising the company. If not, we will always be able to enter the market and receive a good price. This company will only become more expensive in the future.
Question: What state-company dividends is the Government inclined to pay? Will these be 25% or 35% dividends? And how does this meet International Financial Reporting Standards and Russian Accounting Standards?
Igor Shuvalov: Yes, we should sort things out here. As you know, we have already announced 25% dividends. And when it comes down to payments, representatives of all these companies visit ministries and their respective Deputy Prime Ministers, and they bring their large-scale investment programmes and plans in order to obtain permission to pay lower dividends. I believe that we need to set dividend payments such that they account for 25% of profits, with no exceptions for anyone. But if there are any exceptions, then these exceptions must be made as transparently as possible, that is, through reports to the Prime Minister and probably during Government meetings, including public explanations. Currently, we have received several such requests together with documents from various ministries and departments. They are asking permission to reduce dividends on several shareholding companies with state capital, and they are explaining this by specific investment plans.
Under the previous procedure, the concerned Deputy Prime Minister could issue a relevant directive in order to resolve a specific issue. Currently, we have elevated this procedure to the level of reports to the Prime Minister. In particular, the latest report was made yesterday. Arkady Dvorkovich, Olga Golodets and I discussed a certain situation together. We have already discussed this issue twice, and the Prime Minister has not yet decided on making an exception from this standard procedure. This is our first objective.
Second, we must make a decision on International Financial Reporting Standards. As for more substantial dividends payments, I believe that the Ministry of Finance has acted correctly in raising the issue. The Ministry of Finance must always urge us on and encourage us. To be honest, I believe that this is highly unrealistic during the current conditions or in 2013-2014, that is, during this two-year period. Is it possible to implement these plans in 2015, for example? Yes, this is quite possible under conditions of a stable economic situation, and if we post substantial growth rates. We can attain 25% dividends under International Financial Reporting Standards, and maybe even more for some, if not all, shareholding companies. I believe that this is distinctly possible.
However, we must proceed calmly, without making any abrupt movements and without scaring anyone because, in the long run, all these shareholding companies will now… Current Russian corporate governance can hardly be called the most transparent or the best in the world. Of course, this corporate governance has to be improved. They will now quickly hide everything for the next year, and they will tell us that 25% and 35% dividends can be paid without any problems.
Therefore we must do this without scaring them. There is nothing worse than scaring representatives of the business community, including companies with state capital. We must consistently convince all of them, and ourselves as well, that these profits must be posted in line with corporate transparency principles and corporate governance. And we must gradually agree on specific profit-division methods. The position is very simple: 25% in line with Russian Accounting Standards and 25% under International Financial Reporting Standards. After that, we will select the leaders who can pay more.
Question: Will 25% dividends under International Financial Reporting Standards be stipulated after 2015?
Igor Shuvalov: As you know, the Ministry of Finance currently stipulates the relevant standards under its own methodology. By the way, some local companies are paying 25% dividends already this year under International Financial Reporting Standards, and some pay dividends in line with Russian Accounting Standards. This is why I am telling you that we need to establish the required methodology, so that next year’s dividends, for example, would be paid under International Financial Reporting Standards, and so on.
Question: Mr Shuvalov, you addressed the Russia forum this April. Investors and representatives of various funds voiced their concerns on the situation around TNK-BP and minority shareholders. Here is my question: Have you discussed the situation with TNK-BP minority shareholders with Mr Igor Sechin, or do you plan to discuss this situation? And secondly, what do you think about Rosneft buying TNK-BP minority stakes?
Igor Shuvalov: I will not speculate on the purchase of minority stakes. I don’t know about this subject, and I did not discuss it. As for minority shareholders’ concerns, which have emerged in the company during the purchase of TNK-BP by Rosneft, I have discussed it with Mr Igor Sechin. Mr Sechin has held specific talks, and I was satisfied with his assurances and explanations. If everything is done the way I have been told it will be, then I believe that the interests of minority shareholders will also be guaranteed.
Question: And can you say when these talks were held?
Igor Shuvalov: I believe that these talks were held several weeks ago. Incidentally, I subsequently received information from several funds that are TNK-BP shareholders. The assessments are quite different, and, of course, one can hardly be completely satisfied. But, in any case, I get the impression that the current work being conducted by the Rosneft CEO and his opinion of his responsibility, which he comprehends in the same way as the Government does, and he intends to and will promote greater Rosneft transparency and better corporate governance. The company will become more transparent, it will establish more and more partnerships with major investors in this market. And, of course, negative emotions of any shareholder of the parent company and at lower levels are not in the interests of Rosneft and Mr Sechin. Therefore I believe that you will be able to ask these questions directly. But we are working. Mr Dvorkovich (Deputy Prime Minister Arkady Dvorkovich), Mr Novak (Minister of Energy Alexander Novak) and I are all working on this.
Yes, it is important that you should let us know if there are any signals or anything else. We are ready.
Question: Insurance companies are saying that their operations are currently becoming unprofitable. They are threatening shutdowns, if insurance premiums are not raised. What does the Government think about this issue? And one more question: There were rumours that you submitted your resignation together with Mr Vladislav Surkov. Is this true?
Igor Shuvalov: Don’t listen to this nonsense. I didn’t write anything and I’m not going to. Maybe someone really wants me to resign, but I’m not going to do that. Moreover, Mr Medvedev once said in an interview that everyone must decide on their own course of action in terms of choosing to resign. I can explain my opinion about this to you because I've said many times that you can and should resign if you don't enjoy the trust of your superiors or if there are certain extraordinary circumstances, such as your or your family members' health. If, thank God, you are strong and in a good health you should work while you can. But if you can’t work you shouldn’t agree to take up a high-level post. I’m not fainthearted and I’m not going to write any resignation notices under any pressure of any circumstances, with the exception of those that I've mentioned.
Speaking of my colleagues who have also been mentioned as “writing their notices,” I can assure you that is absolute nonsense. Nobody has written any notices. Whatever was published yesterday is a hoax.
As far as insurance companies are concerned, I can tell you we see it as well-planned and elaborate pressure on the Government and the State Duma. However, we should not yield to this pressure. We must calculate everything precisely and see how much profit compulsory third-party liability car insurance transactions bring, whether there is risk and whether there would be any extra loss as a result of the proposals submitted to the State Duma by Deputy Finance Minister Moiseyev. Once everything has been calculated we can make a final decision. I think this wasn’t a successful attempt to exert pressure on the Government and the State Duma. It was more like amateur blackmailing. And it's wrong. Blackmail is pointless. It's more appropriate to speak in figures so that we can calculate everything. But the data that the Government has is slightly different from that which the insurance companies are talking about.
Thank you.
