The briefing was held following a Russian Government meeting.
Igor Shuvalov: We won’t repeat what you’ve heard. Mr Medvedev already mentioned many aspects in his opening remarks, including macroeconomic indicators, social issues, and issues regarding regional development and family support. Let’s start with questions.
Question: I’d like to clarify some things we heard. Mr Medvedev said that the 2012 privatisation plan is to raise 300 billion roubles. When the Government was considering the plan in late October, Mr Belousov (Andrei Belousov - Minister of Economic Development) said the plan was to raise about 220 billion roubles. Why did the sum increase to 300 billion roubles?
And to continue the subject – has the Government decided on the privatisation of Novorossiysk Commercial Sea Port? There were plans to do this by the end of 2012. Is it known whether it will be sold to a strategic investor or will be sold on the market? The Government also planned to take a decision with respect to TransContainer by the end of 2012. Will it…
Igor Shuvalov: We have decided neither on TransContainer, nor on the Novorossiysk Shipping Company. We are working together – the transport bloc and the economic bloc – on privatisation. We are trying to find the optimal solution. As regards the Novorossiysk Commercial Sea Port, this will most likely be a deal with a strategic investor. Ms Dergunova (Olga Dergunova - Deputy Minister of Economic Development, Head of the Federal Agency for State Property Management) is working with potential investors. This will be an open process. We think that we could obtain a certain premium for selling the government stake to a strategic investor. Talks are under way. Ms Dergunova is in constant communication with the Government. The Minister of Transport, Arkady Dvorkovich, the deputy prime minister responsible for the transport bloc, and I are all monitoring the situation. The final decision has not been taken yet.
As regards TransContainer, the president of Russian Railways has his own viewpoint. I think it would be suitable for a Eurasian transport company. Judging from our current situation with the competitive shipping sector in Russia, I suggest selling TransContainer rather than incorporating it into a holding company owned by foreign investors. We must choose the optimal way to modernise our rail transport. We know that foreign states, for example Lithuania as they reported last week, will be involved. But we have not decided yet. We will hold discussions and report to the Prime Minister. Arkady Dvorkovich and I think that we should make the privatisation deal in Russia rather than create an international holding structure.
Now, as regards the privatisation plan: first, the year is not over yet. Our privatisation plan, as set by the budget law, is to raise 300 billion roubles. We have not made any changes to the law, so we will attempt to realise the plan. This is not a matter of a divergence in our plans.
We will do our best to sell some assets by the end of the year. It will not be a tragedy if we fail. We are not in a hurry. We will sell if we get a good price. By the way, a Megafon IPO was on TV and everywhere in the media yesterday. We follow private IPOs closely. I cannot say that all deals are easy: there is serious competition for global capital, and we should sell our assets professionally and at a high price.
Arkady Dvorkovich: If I may, I’ll just add a few words. The procedure on privatisation of the Vanino Port is underway, and this deal can pay quite decently. There is high competition between the participants of the process, various groups have their interests, and this creates possibilities for maximising budget revenue. In this case we do not view privatisation in a narrow legal sense, but a bit more broadly, because we sell companies that are on the balances of other regions, including the Central Bank in the case of selling Sberbank, and TransContainer, and Freight One (PGK) – all PGK shares have been sold and the income exceeded the initial targets (it had been on the Russian Railways balance). We include these companies in the concept of privatisation in broader sense.
I support Mr Shuvalov’s position on TransContainer. Thank you.
Question: Mr Dvorkovich, a question about grain exports. What volume are we planning in the 2012 and 2013 marketing years? What reserves will Russia take into 2013 and 2014? Is a grain shortage possible in the current circumstances, and as a result, grain imports? And concerning the winter crop situation: what are the chances of a bad harvest? Could you give us an update on the situation? Thank you very much.
Arkady Dvorkovich: First, our forecast for this year’s harvest has been confirmed. We will have the final figures in the coming days; anyway the figures that we had announced – over 70 million tonnes – have been confirmed. We have reached these indicators, they are even a bit higher than the latest indicator, but I repeat, the final figures will become known very soon.
Second, we are not planning grain exports: we do not have a planned economy. There are exporting companies and it is up to these companies to export, and they do so freely. Whatever figures are at stake, we will attain these figures. The interest in exports has significantly decreased after practical equalisation of prices on global markets and on the Russian market, taking into account transportation and other accompanying costs. So export is growing at a low rate. With support of subventions in Russia, we have managed to stabilise prices in the Asian part of Russia; the price growth rate has significantly slowed down in the European part of Russia, and I expect stabilisation in the coming weeks. Based on these forecasts, we have no fears of grain shortages. I think we will live normally in the coming months.
As for carry-over, it will be small, and this means a lot will depend on next year’s harvest. Different regions have different situations when in comes to winter crops. In some places the situation is a bit better; in other places it is slightly worse. The overall area under crops is larger than it was last year, and this is the foundation for the belief that we will have a decent harvest. Some regions have a complicated situation due to climate phenomena, primarily the Stavropol Territory and part of the Rostov Region.
Question: A question for Ms Golodets. Please tell me, did the Government approve the programme of social support of the population today? And can you highlight its key aspects? Thank you.
Olga Golodets: The programme of social support of the population was basically approved. There were two major divergences – on extending the programme of maternity capital and on support of summer recreation for children. According to the programme, these two positions are continuing. However the Government took a time-out to take a decision on what scale these programmes will be continued if we want to continue them at all. They had a certain deadline. Thus, the maternity capital programme was planned for 10 years under the current law. That ten-year period is now coming to a close and we must decide once and for all whether to continue this programme or not. This decision will be in addition to the adopted budget but within the framework of the state programme we have discussed today. Obviously, our position, the position of the social bloc is to support this programme because it is essential for demographic reasons and as a major element of social policy. We will discuss this problem on the instructions of the Prime Minister and take the final decision.
Question: We have been told what the unemployment rate is and in general it does not sound too bad. However, the gap between the actual unemployment that is calculated according to ILO standards and the official figure is still huge and this is a source of concern. Now that the powers will be transferred to the regions, do you plan to step up efforts to at least prevent a cut to the number of employment centres in the Russian Federation?
Olga Golodets: Yes, we are aware of the problem you mentioned. But it does not cause serious concern yet because in this country the number of jobs available per unemployed person is much higher than the number of jobless individuals as calculated by any set of statistics. Moreover, the number of these jobs, that is the demand for labour, is steadily growing. This is the period of economic development we are now in...
We have very serious problems with structural unemployment and structural imbalance. Enterprises and the economy as a whole require highly skilled personnel and this is why all the steps the Government is now taking are aimed at upgrading qualifications. The first draft law that was submitted for discussion by the social bloc is on professional standards and I think this is an important result of the past half a year. The draft has already passed three readings in the State Duma. We hope it will be signed in the next few days. All in all, in the next two years we are planning to elaborate some 800 standards to cover all fields of employment in the Russian Federation. I hope that this law will produce a substantial change in qualifications, requirements and educational programmes that our society needs today.
Question: Ms Golodets, I have a question to you, or rather two questions. Here’s the first one: The Ministry of Labour announced before that the strategy for the development of the pension system will be polished up and submitted to the Government before 1 December. Do you know what finishing touches have been made and whether it will be submitted on time? My second question is about guest workers. They have given rise to many questions of late. Thus, some suggest they should not be allowed to sign a labour contract unless they present a medical insurance policy. Don’t you think this requirement may increase the illegal market of labour migrants?
Olga Golodets: As for the Labour Ministry, the final version of the strategy is now being coordinated between ministries and departments. The following changes have been made: the requirement for the service record has been reduced from 40 to 35 years; the endowment parameters have been reduced from 21 to 19 years and their future pattern has been changed as well. Some amendments have been made to the strategy on the self-employed (the relevant tariffs have been changed as well as the rates for making them part of the market economy). Some provisions on the self-employed have been removed. A grace period has been introduced for mothers with children and conscripts in the Armed Forces. Some amendments have been made on the funded component of pensions. We hope this strategy will be submitted to the Government before 15 December.
Question: Could you comment on capital drain? In November both the Central Bank and the Ministry of Economic Development revised upward their forecast of capital outflow. And the second question – is Russia planning to increase its share of reserves in the Australian dollar?
Igor Shuvalov: As for the Australian dollar, I think…
Arkady Dvorkovich: This is a matter for the Central Bank…
Igor Shuvalov: …Yes, the Central Bank, so it’s better to ask them. As for capital drain, this issue is discussed openly and there are some things that worry us in this regard. However, capital drain represents a small part of these huge figures on the outflow of capital. Everything else has to do with either accounting issues or investment in foreign assets. On the one hand, this shows that some companies do not have enough investment opportunities in this country, but on the other hand we have encouraged their expansionist ambitions and persuaded them to buy foreign assets. Incidentally, if the deal on the purchase of TNK-BP is completed next year, the enormous figures that… We don’t know where their capital will move, what the future owners will do with these funds… This can formally affect the figures on the outflow of capital. We should bear in mind that (and we are even working on this) that nobody can limit capital outflow by administrative means. In this case, our currency legislation is absolutely liberal. We will not take any administrative or legal measures to restrict it. But we know what is counted as capital outflow and realise that such big transactions may considerably change the related figures.
Arkady Dvorkovich: I’ll add just a few words. We are seeing capital outflow largely because our investment climate is not yet accommodating enough. All experts agree that this is the main factor. That said, we have already adopted a number of decisions and will adopt more to improve this climate. In particular, yesterday the Commission on Strategic Foreign Investment approved in general the bill on simplifying procedures governing investments in such companies. We need several more days to finalise this bill which will then be submitted to the Duma.
The Federal Tariff Service and the Ministry of Justice reported at the meeting with Igor Shuvalov today that two important methodologies had been officially registered. The first concerns connection to power grids. Regions should use them as guidelines in their work. The cost of connection to grids is estimated to drop by about 30%. This is important. As a matter of fact, it is part of the National Business Initiative’s road map that the Prime Minister mentioned today.
The second set of guidelines that were registered with the Ministry of Justice today concern the regulation of extra charges for households in the power supply industry for sales companies. This will balance the current situation. The Government made several decisions this spring, and the market lost its balance as a result of these decisions. These guidelines will help level out the profitability of sales organisations and create proper stimuli for the market, especially the guaranteed supply companies. We do not expect to see a significant growth in extra sales charges as a result: they may grow or drop a little. Overall, the market situation will remain unchanged. The guidelines provide specific caps on increasing sales markups, so there should be no surprises here. In addition, this document will improve the investment climate in this area. Thank you.
Remark: About labour migrants…
Olga Golodets: Our colleagues asked me two questions, I've only had time to answer one of them. As you may recall, the question was about migrant workers and the need for medical insurance certificates for them. There are different categories of migrants, and each category has different liabilities with regard to health care. Since all persons are entitled to health care services while in Russia, even emergency medical care, we should have a clear understanding of who is paying for it. That’s where the question of medical insurance for migrants who come to Russia even for a short stay comes from. This issue will be addressed. We will sort things out and find appropriate sources of funding for providing healthcare services to these categories of patients. No one should be left without medical insurance.
Question: Mr Dvorkovich, a few questions for you. Earlier, it was reported that ALROSA is expected to place 14% of its shares on the MICEX-RTS exchange before the end of 2012. Are these plans still on? When will this happen?
Arkady Dvorkovich: A portion of ALROSA’s shares of stock will indeed be privatised. The timeframe hasn’t yet been defined. As soon as ALROSA is ready to go, the Federal Agency for State Property Management will submit this information to the Government, which will then proceed to make the decision. I cannot confirm now that this will happen before the end of 2012.
Question: One more question about the energy industry, if I may. Previously, it was said that a ban on Euro-2 fuel may be postponed from January 1 to a later date. Is this true? Do these plans exist? Will this actually happen?
Arkady Dvorkovich: The Government has no such plans. I know that a number of agencies want this to happen, but the Ministry of Energy believes that this is not necessary. I’m sticking with the Ministry of Energy’s position.
Question: So, it will be banned beginning January 1?
Arkady Dvorkovich: That’s the only decision that we have so far.
Question: When will the Government consider giving private companies access to shelf projects?
Arkady Dvorkovich: The Prime Minister will hold a meeting on the development of the shelf in December. The access of companies other than the ones that are currently working on the shelf will be discussed at this meeting. But there will be many other issues on the agenda as well.
Question: Are there any specific arrangements?
Arkady Dvorkovich: Several versions are being proposed, including one by the Ministry of Natural Resources and Environment. But there are other options, too. The Ministry of Energy has a different approach. There are many proposals with regard to what stage of development of a shelf operation other operators can participate in. Therefore, we will discuss this with the Prime Minister and then make decisions.
Question: I would like to ask Ms Golodets to clarify some aspects of the pension strategy. How long will the pension reform take to carry out? You mentioned the legal retirement age. Are there plans to increase the age of retirement? And my next question is about the decision to pay pensions to people with higher-than-average incomes. When will the decision be made? How are things going with the pension formula?
Olga Golodets: With regard to implementing the strategy, I understand that this issue is on everyone's mind: when are we going to move from point A to point B. This will depend on the pension formula, and it will take time to complete, because the pension reform is based on win-win arrangements. We can go from point A to point B only by increasing pension amounts, so the transition period will last at least ten years. We don’t have a plan now, because the plan will come directly from the formula. The formula should be ready by July. We have several approaches to building a formula and even these approaches are being debated. There are even mathematical differences, depending on whose pension system formula we are looking at: German or American. The difference is quite significant. We need to weigh everything and see which one will serve our system best. Our main goal is to make our pension system and the use of tax payments effective for each retired worker in Russia.
The next issue is about the minimum length of service. The minimum length of service today is five years. We want to increase this to ten years. Ten years should be the minimum length of service entitling a worker to a retirement pension. There are social pensions available as well that are paid without such requirements.
The next issue, about people with higher-than-average incomes, was raised during a public discussion and is now being publicly debated. The proposed cut-off point was set at 100,000 roubles a month. We are still looking into this and are trying to assess the effectiveness of this step and identify ways to monitor compliance, because none are known yet. Of course, there are arguments concerning people with higher-than-average incomes to the effect that such people have earned their pension rights. There are two opposing legal positions: some say that people have earned their pensions and are entitled to receive them, whereas others argue that the pension replaces income that is no longer available, and since these people receive salaries, denying them pensions is a logical thing to do. We will take out time to discuss this issue and take an informed decision, with the participation of civil society.
That’s all I have to say in response to your question about the pension formula, and your other questions.
