Transcript:
Dmitry Medvedev: Honestly, I thought that the best way to proceed would be to meet with you and talk things over, rather than making long speeches at the forum. I didn’t plan to talk much. The agenda is free, so I'm ready to talk with you and answer your questions. All our colleagues are here, so I think this is the best way to go. Mr Galushka (Alexander Galushka, Co-chairman of Delovaya Rossiya, managing partner at KeyPartner, chairman of the board of the Russian Board of Appraisers), I think I'll just turn it over to you. You’ll start, and then we’ll hear from our colleagues who have things to say... My only request for you is to refrain from making long presentations. Keep it short and to the point: state your complaints, questions and proposals.
Alexander Galushka: Thank you, Mr Medvedev. I’d like to start with the positive news, because we're following positive developments, and they are worth mentioning. If you look at the investment and business environment from the business perspective, you’ll see three main things: it is profitable, convenient and safe to invest and do business in Russia. I wanted to briefly update you on our view of the situation in my introductory remarks.
We’ve clearly made progress with regard to the safety aspect. The recent announcement of the amnesty is a big step forward. Not only this is good for the people who are currently in prison, but it’s also a strong signal to the system, including the judiciary and law enforcement, that we are finally abandoning the accusatorial nature of our judicial system and the presumption of guilt with regard to businessmen. Establishing the Office of the Ombudsman – an authorised presidential representative in charge of protecting the rights of entrepreneurs – is also a big step forward. In accordance with the presidential executive order, the Public Association of Entrepreneurs will have the right to sue in order to protect the interests of its members and the interests of the general public. As was noted at the St Petersburg forum, we now have many public ombudsmen in the form of influential public organisations in addition to the State Ombudsman.
Another factor related to security is the draft law on administrative proceedings that the State Duma has already adopted in the first reading. All these four factors are positive. As a business association, we consider them four big pluses that are supporting and enhancing each other. This is how a common policy is taking shape.
As for ease of doing business, you have endorsed nine roadmaps. We consider this to be a positive development as well. These roadmaps consist of about 500 individual measures. Now the main thing is to carry them out. The attention given to this issue by the Government and you personally is very important for their implementation. We see how this is being done at the medium rung of the bureaucracy. Such attention steps up the work and improves its results.
The regional standard on creating a comfortable investment climate in the regions is also making it easier to do business. These nine roadmaps plus the regional standard are major steps forward. Most important, they are assessed by the business community itself. We believe this is the key to success. We’ll make real progress rather than just receive progress reports from officials.
The third dimension of the investment climate is profit. Unfortunately, positives stop at this point. If we compare 2013 with 2007, the best pre-crisis year, we see that our market has returned to pre-crisis levels. But overheads (electricity and gas) and, more importantly, taxes have soared during this time. Profits depend on three major factors – taxes, utility charges and loans. Loans are obviously the prerogative of the Central Bank, which should provide the economy with long-term cheap money. The agreement we signed today with VTB in your presence provides for the elaboration of a mechanism for long-term funding of modernisation projects. This is also a step forward, but the leading role in creating long-term cheap money still belongs to the Central Bank.
As for taxes, we understand that the budget is currently strained. At the same time if we want Russian jurisdiction to be competitive in taxation, we must separate new investment and start-ups from already established production lines.
We’ve analysed this in Delovaya Rossiya with international experts and the picture that emerged was very interesting. We have summarised this information – it’s just one page showing what tax benefits accompany new investment in different countries. Just countries and taxes. It appears that Russia does not have a uniform system of tax benefits (primarily tax breaks) for new investment. The proposal on the Far East that is being carried out is a step in the right direction. But it would be good to offer tax benefits not only for the Far East but also for other areas, though on a smaller scale (we understand that we want to give the biggest boost to the development of the Far East). The criteria for decision-making here is the need to make Russian jurisdiction competitive in the world arena. We should not lag behind other countries in tax incentives for investors and start-ups.
Mr Medvedev, apart from this table we’ll give you a very detailed study on this. We have conducted a large study; the table just gives the gist.
I’d like to make one more point on taxes. We have an emergency – more than 600,000 self-employed entrepreneurs have shut down their businesses since the start of this year. If a draft law changing the procedures for calculating insurance premiums is not adopted during this session, it will become pointless. We’ll lose another 300,000-400,000 self-employed entrepreneurs and it will be pointless to do anything. It is very important to speed up the adoption of this draft law.
We have one more proposal on taxes. You spoke about trust at the plenary session. The most complicated thing is to regain the trust of those people who have shut down their businesses. This can only be done through asymmetric measures. If I can make an analogy, it’s like folding a piece of paper, but we’ve folded it so many times that it’s impossible to restore it… so why must it be asymmetrical? Restoring trust is more difficult than destroying it, so this measure must be very effective. We believe newly registered self-employed entrepreneurs should enjoy full exemption from taxes in the first two years. This measure should not be viewed as a loss of budget revenues. It is an investment in the future and will increase the number of taxpayers in the future. After all we have already lost 600,000 entrepreneurs. This is what I wanted to say about taxes.
I’ll make my last point about tax administration – there is a very good roadmap drawn by the Strategic Initiatives Agency (ASI). We hope it will have a good future like other roadmaps. We appreciate it a lot – it is very good and progressive.
Some decisions on utility charges were voiced at the St Petersburg Economic Forum. Mr Medvedev, with your permission I’d like to give the floor to Delovaya Rossiya Vice President Alexander Osipov. He’ll speak on this issue.
Dmitry Medvedev: I think you are right – once you have folded a page, you cannot unfold it in a single movement. But what matters most is not to be folded over and over again.
Thank you for the kind words about the recent decisions that were voiced at the forum, statements by the President and actions of the Government. I’d like to express my view of the intensity of our joint work. You have mentioned four positive factors that should improve our ability to compete and the atmosphere in relations between the state and business. But these four factors may not work – all four.
You’ve mentioned amnesty but we understand what amnesty is about. It is a retrospective act in which the state adopts, at the initiative of the President or someone else, a special law that pardons people who serve terms for certain offenses. This is a good thing, on the one hand. But on the other, we understand that if the enforcement of the very same criminal law on certain trespasses that businesses are usually charged with does not change, we’ll have to announce another amnesty and this is no good at all. Therefore, I think we should go further and not simply make decisions regarding past actions, be these offenses or something else (this is a more complicated subject), but try to change the law itself. I wouldn’t want to see the end of the trend of improving criminal legislation and adapting it to the needs of a modern market economy. I’m talking about this here because all those present have a stake in this. The Government is interested in this and I believe Mr Titov (Boris Titov, Presidential Commissioner for Entrepreneurs’ Rights) can play an active role in this work.
We must continue to improve criminal legislation. It still has an aura of Soviet interpretation around it – even though the Criminal Code was adopted in the post-Soviet period – not to mention criminal law’s enforcement practice. This is why amnesties are necessary. This is the first point.
Second, it is very important for the business commissioner – Mr Titov holds this position now – to be competent and recognized for resolving issues that emerge in the business community. Of course, this also depends on Mr Titov himself. The attitude of the state to his activities is important as well, and I’d like to wish success to Mr Titov. I hope you will be adamant in defending the interests of your colleagues.
About lawsuits to protect the public. I’ve spoken on this subject already today. In principle, this is a good institution. Much will depend on the range of filings the state will choose to deal with, and the competences of the agencies that will be responsible for filing lawsuits to protect the public, on how the practice will be put into effect.
Finally, administrative proceedings. The idea is to develop them as well, but they should be simplified rather than made more complicated, especially in the context of the proposal to merge the judicial systems and establish a uniform court of law, at least a supreme court. I know that there are conflicting opinions on this, in the business community as well. What do I consider important? We must not lose what we have achieved in the past few years in the process of implementing this idea (it has been in the air for a long time and we have discussed it). What do I mean? I’m referring to modern proceedings in commercial courts and up-to-date approaches to settling economic disputes. We should not lose the gains that our commercial courts have made in the last few years. These systems may be different. We can have the same system as in the countries of continental Europe. They have civil and commercial (courts of arbitration in our terminology). Some countries have a uniform system of courts. Or maybe we should look at the American model, which also has its advantages. I’m talking about the need to combine all types of cases in one structure. But they have a different system of law abroad and we realise this. We’ll certainly continue the work on roadmaps, regional standards and the three positions you’ve mentioned – taxes, utility prices and loans. I’d like to say a few words about insurance premiums. It is indeed important for all decisions to be adopted. We’ll try to agree this with the State Duma. My colleagues are already working on this. You know what sums are suggested as a point of departure for calculating insurance premiums – up to 300,000 and one minimum monthly wage, and, correspondingly, over 300,000 and 1%.
The idea of complete exemption should be thoroughly analysed. Of course, this idea contains not only positive aspects but certain problems for the budget as well. But we will certainly analyse it.
And now, with your permission, I would like to allow your colleague to speak.
Alexander Osipov (Vice President of Delovaya Rossiya (Business Russia), Chairman of the Board of Directors at the Energosberezheniye Power Supply Company PLC): Thank you, Mr Medvedev.
Business activity is directly linked with profitability. To date, there are virtually no national businesses or production facilities that do not use at least electricity. Most of them also use gas, handle freight traffic, etc. At our workshop meeting today we assessed the situation down to the smallest detail and we discovered that current national electricity, gas and railway tariffs have either exceeded US or that Russian tariffss have approached their US equivalents, and that they will probably exceed them as part of the current trend.
Firstly, it is our opinion that this depends on stereotypes of state policy. The United States limits gas exports and therefore increases domestic supply. As far as Russia is concerned, we abide by certain equal-profitability stereotypes or equal tariffs with non-energy countries, and we thereby considerably aggravate the situation for the national industry. So here is our first request. All of you work very hard and you adopt numerous decisions every day. Either these decisions will be guided by the following logic: “We achieve equal tariffs and equal profitability.” This situation would aggravate the competitive environment of Russian industry. Or we create favourable conditions for Russian industry to make it competitive. In this c ase we need a different logic, including in tariff policy.The second important aspect is this: in terms of their relations with clients Russia’s infrastructure companies mostly rather create barriers than act as partners. We have jointly drafted a “roadmap” for the electric power industry. And when we started drafting this roadmap, we already had certain non-discriminatory regulations, rules on information disclosure, etc. The situation is much worse in other sectors. Today, if we simply compare the websites of various infrastructure companies, then we will see that some of them have no information for their consumers to enable them to plan their activities. So we have a lot of work to do in this area.
What do we consider to be very important? Each time we draft various documents but they turn out to be inadequate because the consumer, a key participant, has been excluded from the regulation process. The regulatory process has specific sources. If not all viewpoints are equally represented, they are either ignored completely or disregarded.
And finally I would like to point out that we are implementing independent energy sales projects. This is a specific example of ensuring competition inside an infrastructure sector. There are two segments: guaranteeing suppliers/monopolists and independent energy supply companies. I would like to mention a specific example. The regulatory process for the power industry includes a multitude of chunky documents that deal with wholesale and retail regulations, various procedures, resolutions etc. As for guaranteeing suppliers … How do they differ from us in terms of their economic essence? It appears that they are supposed to cooperate with those companies which are rejected by the market and to supply them with electricity. In reality, all these bulky documents eventually set out entirely different requirements for us as an independent energy supply company (and of course these requirements are being overstated), compared to those intended for guaranteeing suppliers. Why am I saying all this? In our opinion, we would like to act in line with precisely this logic in drafting the roadmap so that it encourages competition inside infrastructure sectors, including the power industry. We would like to even out requirements for all participants so that there are no differing requirements. That is the first point.
And secondly, energy sale operations have started being transferred from guaranteeing suppliers to the electricity network sector. This is more or less what is happening today. We consider this situation to be extremely alarming, controversial and harmful.
Dmitry Medvedev: Thank you. I would simply like to underscore two aspects, so that we do not forget them. You mentioned equal profitability. As you know, I was chairman of the board of directors of a “small” company for eight years, and this company spent a lot of time fighting for this equal profitability. Here is what I would like to say: Some time ago, the equal profitability slogan was absolutely correct because we faced colossal disproportions between real gas prices on the market and gas prices for clients on the domestic market. But at a certain moment we really have to stop and try to understand to what extent this direct equal profitability can be called an optimal method for working on the national market, because we also need certain competitive advantages. This is because we live in Russia, and because Russia is the largest supplier of energy resources. And we will still have to define this balance. I would simply like to say that efforts to set out equal requirements for all participants, which you mentioned, are on the whole completely justified, and we must proceed from this.
Alexander Galushka: Thank you very much, Mr Medvedev. I would like to make a small clarification. When I talked about tax holidays for entrepreneurs, I had in mind a one-time tax holiday for a period of two years. Every entrepreneur should receive one personal tax holiday for the first time. It is impossible to exercise this right a second time, and it is therefore impossible to abuse it.
Dmitry Medvedev: Speaking of this model, how will we decide whether this is for the first or the second time? How will we classify entrepreneurs? Does this only apply to self-employed businesspeople?
Alexander Galushka: Yes.
Dmitry Medvedev: Any specific individual? Not a company that has been established?
Alexander Galushka: No, only … Just the first time and one time, no more.
Dmitry Medvedev: I see. Let’s continue.
Alexander Galushka: Thank you, Mr Medvedev. By the way, I would like to make some positive remarks about tariffs. The latest decisions, which have been made public, including the indexation of tariffs in line with inflation levels, are of course a major plus, a big step forwards. And the creation of the council of consumers at Regional Energy Commissions, at the Federal Tariff Service and at infrastructure monopolies …
Dmitry Medvedev: If only you knew what discussions the Government has conducted on this issue, and if only you knew the stance of my colleagues who are responsible for specific sectors, then I can say for sure that the situation here could hardly be called boring. Nevertheless, this decision has been made. We have submitted our proposals to the President who has supported us in this respect. I believe that this is correct in such conditions. However, we will have to wipe the tears off the eyes of small companies, our infrastructure monopolies because they have immediately raised the issue of investment, and they say they don’t have enough money. All right, let’s continue.
Anton Danilov-Danilyan (Co-Chair of Delovaya Rossiya, Chairman of the Board of Directors of Rodex Group PLC): Mr Medvedev, “We Mean Business” is the motto of Delovaya Rossiya. This is manifested in the fact that we regularly submit various initiatives to the Government and various ministries and departments. To be honest, everyone gathered here is an entrepreneur and a real business person backed by specific employees, workforces and plants. We have even recently published the first volume of a book entitled “The Plants of Delovaya Rossiya.” And other editions will subsequently be published. This is what we have managed to accomplish over the past two to three years. We are showing that we, from below - no one has forced us to do this from above - can either upgrade decrepit Soviet-era enterprises or build new enterprises from scratch. And we can see that it is possible to create so-called clusters around numerous industrial facilities evolving around our plants. And this is a form of attracting investment into the regions. Multi-level co-production arrangements involving small, medium-sized and large businesses evolve around any specific cluster and its central idea. These co-production arrangements process various products and ensure their marketability. Clusters possess numerous advantages, including higher labour productivity than elsewhere, reduced risks, opportunities for innovation and energy-saving programmes. And this synergy is manifested here in full measure. In principle we have launched this work and we have already selected about 40 cluster initiatives. We have drafted a programme setting out state support for clusters and submitted it to the Ministry of Economic Development. Moreover, we have even coordinated five to six initiatives well in advance.
What do we expect from the state so that this doesn't become entangled in red tape and other so-called traditional approaches towards state administration? We need a public procedures centre which would be approved by Vnesheconombank and Delovaya Rossiya in line with our proposal. This is a form of public-private partnership that would accompany every cluster initiative. At the same time, these cluster initiatives, just like those dealing with our plants, are voiced from below rather than from above. That is, we personally generate what we see, and market interests evolve into something truly positive which could generate major synergy.
It is very important to ensure weekly control by the Government and Delovaya Rossiya over efforts to prepare the required infrastructure for every such cluster. And any setback caused by some government agency or representative of a municipal agency or natural monopoly must, of course, be quickly resolved. It is one thing to build a plant. Although we have gained substantial experience in this area despite numerous setbacks, we understand everything in this sphere. On the other hand, it is much harder to create a much more complicated thing – a cluster. Therefore it would hardly be possible to accomplish these objectives quickly without this clear will.
When we try to achieve similar objectives in Europe, we can obtain all the required permits in just 100 days. In Europe and other countries there are even shorter deadlines, ready-made facilities are sometimes available and we don’t even have to do anything. But Russia has a lot of its own specific features which have to be overcome using certain specifics of state administration. So, if possible, may I ask you to issue the relevant instruction so that we can set up this public procedures centre? Please support our initiative, we need at least five or six pilot clusters. We will show that we can do this and as a result we will spread this practice throughout the country. Our calculations, which can be submitted separately, and we have already submitted them to the Government Executive Office, show that we can make major changes from a commodity-oriented economy to an innovation industrial economy using these mechanisms. This is very important for the new industrialisation programme and for creating 25 million new jobs.
Dmitry Medvedev: Thank you. Mr Danilov-Danilyan, can you tell me what needs to be done in order to help you? I have heard about the public procedures centre and about control. What practical support do you need?
Anton Danilov-Danilyan: This centre will have a certain administrative potential making it possible to remove the barriers that appear all the time. These barriers are linked with the activity of those who ensure the operation of the infrastructure sector, and so on, rather than with our own activity.
Dmitry Medvedev: Where should this centre be located? And what are its principles of operation?
Anton Danilov-Danilyan: The public procedures centre could be located in Moscow, it could be any convenient investment-legal form …
Dmitry Medvedev: Who should establish this centre?
Anton Danilov-Danilyan: Vnesheconombank and Delovaya Rossiya. Maybe other public associations will take part, but we are absolutely confident that Delovaya Rossiya will be involved.
Dmitry Medvedev: So let’s do it this way. For well-known reasons I am also responsible for Vnesheconombank. Please draft the relevant proposal and I will see how it works in practice. Please submit a document to me.
Anton Danilov-Danilyan: Thank you very much.
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