Dramatic increase in energy efficiency: Key to new economic growth
Transcript:
Dmitry Medvedev: Good afternoon. Today we will continue to discuss Government programmes. I hope the discussion will be over some day and we will actually put the programmes into practice and be done with the chaos of the past.
Government meeting
Government meeting
Government meeting
Minister of Energy Alexander Novak reports at the Government meeting
Government meeting
Today we have two programmes on the agenda. One of them is Energy Efficiency and Energy Development. Why this is so important is something we are all very well aware of. The new model of economic growth – based on the transition to sustainable and balanced development, new technology and minimising adverse effects on the environment, conservation of non-renewable resources – requires much greater energy efficiency.
Last year, the Russian fuel industry performed really well. The total amount of investment was over three trillion roubles. All industries have seen a rise in production and energy output.
There are however a number of unresolved issues, mainly concerning energy efficiency. These are not only the responsibility of government agencies. That is why representatives of the expert community and regional officials are involved in the discussion of the draft Government programme. Apart from the usual report by the Minister of Energy, we will hear reports by our colleagues who are directly involved in the industry, each in their own position. They are President of Tatarstan Rustam Minnikhanov and Leonid Melamed, member of the Government Expert Council.
I know that debates on this issue were thorough and sometimes very fierce. We should continue this dialogue during the programme’s implementation. Our biggest problem is that our economy remains extremely thriftless: we are losing money in the energy sector, compared to both the industrialised countries and to the emerging economies. This means that we need to review our approach to energy. In addition to the goal of increasing energy efficiency, this government programme also stipulates measures to increase the depth of refining (the difference between crude input and marketable products output), which is an important goal, to use renewable energy sources more efficiently and to propel the energy sector towards an innovative development scenario.
The local tasks include the development of a nationwide information system for the fuel and energy sector to provide both regulators and experts with reliable information about the sector’s status.
A rational system for energy consumption, the introduction of modern technology and the modernisation of capacity should increase the accessibility of energy resources for all groups of consumers, including business and households.
A week ago, on March 1, we discussed a new model for the energy market. It should enhance the investment attractiveness of our electricity sector, help us to deal with the issues at hand, in particular cross-subsidising, and improve the overall situation [in the sector].
The next government programme we will be discussing today is designed to improve our foreign economic operation. The international trade, research and technological, and investment cooperation are major components of the balanced economic and social development of the country. Foreign economic revenue accounts for nearly 40% of the federal budget; it amounted to around 5 trillion roubles last year. This is how much we depend on foreign markets.
It is clear that government regulation in this sphere should ensure competitive conditions for our exporters and investors with due regard for the global integration processes and the development of new regional markets. We must use all available resources effectively, including the resources of the federal ministries and their foreign missions, of business communities and professional associations. We must also increase the amount of insurance and warranty support for export projects with due consideration for WTO rules and our agreements with our partners in the Common Economic Space, as well as improve the operation of development institutions.
All regions must work to enhance their foreign economic and investment capability. But our key task is to ensure the priority growth of Russian exports relative to the general pattern of international trade.
We should expand the range of the goods and of the areas to which they are supplied, and increase the exports of machinery, equipment, and other high-tech products in order to achieve a stable 10% annual growth rate for this group of products. This should be our goal.
Another important point is that the competitiveness of our companies often suffers due to lengthy and costly administrative and customs procedures. This is not a secret. These problems need to be resolved through simplifying customs regulations, creating appropriate border infrastructure, and introducing modern customs clearance technologies. Of course, we should also take into account the creation of a single customs territory with the members of the Customs Union. I am referring to the fact that a considerable portion of foreign trade regulation functions have been transferred to a supranational authority – the Eurasian Economic Commission.
We should also work with international economic organisations. We need to use the benefits of our WTO membership, and we’ll continue adapting our legislation to the OECD standards under the existing bilateral agreements. We also have to properly use the opportunities arising from the national programme to facilitate international development, build cooperation with foreign credit and export agencies, and fund projects in other countries.
Integration within the Single Economic Space remains our key priority. We need to complete the formation of a full-fledged single market with free movement of goods, services, and labour. Together with our partners from Belarus and Kazakhstan, we have to prepare legal and, of course, organisational conditions for transitioning to a new phase of our cooperation within the Eurasian Economic Union, which we are hoping to accomplish by January 1, 2015. These two programmes will be discussed today.
There is also one more issue that I want to mention. Today, we’ll be discussing the law On the Basics of Public-Private Partnership. Our goal is to expand the public-private cooperation opportunities and to create a favourable environment for investment in long-term infrastructure projects. There is a lot of discussion about the public-private partnership, but it often misses the point.
It is therefore important to introduce correct terminology, unified terminology, and to define the powers of Government agencies at all levels. We also need to establish specific requirements for the public parties of such partnership, that is, for all forms of Government agencies and for private parties, including the possibilities for funding, operation, and technical maintenance of facilities, and various forms of participation in the public-private partnership. This issue has long since required legal regulation.
There are currently local laws on public-private partnership in 60 regions. We want to introduce a unified set of rules and standards at the federal level. The new law has been supported in the regions. Hopefully, this law will launch public-private partnerships, not just on paper, but in reality, as this, in fact, is our future. However, there are some disagreements about the law, which we also discuss. We’ll talk about this today and will then decide on how to proceed.
The first issue on the agenda is the state programme Energy Efficiency. Mr Novak (Energy Minister), go ahead please.
Alexander Novak: Mr Medvedev, ladies and gentlemen. To begin with I’d like to recall a few figures characterising the fuel-and-energy sector in general. This is a key industry of our economy. It contributes about 30% of the GDP, 50% of the budget’s revenues and almost 70% of Russia’s exports. This is why efforts to develop the fuel-and-energy sector and make it more effective and reliable, directly influence the economy in general, individual industries and first and foremost, living standards.
Mr Medvedev, in late January you presented the policy priorities of the Government of the Russian Federation to 2018. Our draft programme reflects the key tasks you set for the energy industry. The programme determined the following key directions of developing the fuel-and-energy sector – to reduce the energy-output ratio of domestic industry and raise energy efficiency, speed up the modernisation of technical facilities, enhance the appeal of the energy industry, develop export potential, promote domestic competition and provide reliable energy supplies for all consumers – both industry and the public.
The programme consists of seven sub-programmes aimed at implementing these tasks. In fact, one programme embraces all branches of the industry. It provides for the development of the power generating industry, the oil-and-gas sector and the coal industry. So this is a large document. Let me describe the key points of the programme.
The first and, in my opinion, the most important goal is to save energy and raise energy efficiency. Of course, this goal is not limited to the power industry – it is interdepartmental and inter-branch and is part of all industrial and federal programmes. A key goal of this programme is to reduce the GDP energy-output ratio. As Mr Medvedev has already mentioned, Russia is 50-60% behind the leading countries—the United States, Japan and Canada in this indicator. However, I’d like to note that this indicator largely depends on the economic structure and peculiarities of nature and the climate. Thus, Russia is only 20% behind China and Canada in this indicator. That said, we see enormous energy-saving potential. We started actively saving energy in 2010 when energy efficiency was included in the five priorities of economic modernisation. Federal Law No. 261 and the relevant state programme were adopted at that time.
Having implemented this federal programme for the past two years, we have reduced the GDP energy-output ratio by more than 5.5% and actually reached the pre-crisis level. At present, all regions have adopted their own energy efficiency programmes that include projects on upgrading heat distribution systems, installing meters, modernising street lights and insulation in buildings.
The government is using subsidies to attract funding from regional budgets and extra-budget sources. I can cite several figures. In 2011, 5.2 billion roubles from the federal budget attracted about 30 billion roubles from regional budgets and extra-budget sources; in 2012 this figure tripled to 90 billion roubles. We think the development potential is very high. The key goal set by presidential directive of June 4, 2008 was to reduce the GDP energy-output ratio by 40%. We think this can be reached if the government continues to pursue an aggressive policy in energy efficiency. The parameters of this policy are determined in the programme. It is aimed at enhancing market incentives to introduce energy efficient equipment and technology; using mechanisms that proved effective in other countries, such as targeted agreements with large industrial consumers on reducing the production energy-output ratio; and banning the use of inefficient technology, to name a few. The experts believe that by reaching the goals on reducing the energy-output ratio we will be able to increase GDP growth rates to 2% per year.
The second important direction of the state programme is to modernise and develop electric power technology, including generation based on renewable energy sources. Our programme is aimed at enhancing the competitiveness and investment appeal of the industry by introducing new technology, reducing the wear and tear of basic assets and increasing the reliability and efficiency of the electric power industry and energy distribution for consumers.
To accomplish these tasks it is necessary to resolve the systemic problems in this sector, to improve payment discipline, to abolish cross-subsidies in the sector, to resolve the problems of the last mile, to improve the efficiency of grid operation, as the Prime Minister said, to continue to establish the aim and models of the electricity wholesale and retail market, develop heating supply systems and embrace priority usage of the combined production of electrical and thermal power.
The programme envisages modernisation and construction of new generating capacities and grid facilities, construction of electricity equipment test centres, and holding events on improving the accessibility of power infrastructure for consumers. We want to achieve the following results by 2020: considerable growth of the share of high efficiency gas generation based on domestic advanced power technology, reduction of the levels of fuel use per kW/hr, and an almost 25% reduction of power loss in grids. The number of accidents in grids and power generation will be reduced by one third, the period for linking up to grids will be reduced from the current 281 days to 40 days, and we will reach this indicator soon – it will already be 45 days by 2015. And the number of linking stages will be reduced from 10 to 5 stages. To this end, we will develop power generation based on renewable energy sources. In our view, this technology is also justified in Russia, as in those countries where they actively use this technology. This is primarilly due to isolated power systems in Siberia and the Far East, where it will be possible to reduce fuel and lubricant transportation from the north and create infrastructure for the comprehensive development of those territories.
In terms of the unified energy system, the introduction of renewable energy sources will help us to embrace a new technological basis using carbonless technology.
The goal of the subprogramme is to introduce generating facilities of renewable energy sources with a total capacity of 6,200 megawatts. This will make it possible to increase the share of power production based on renewable energy sources in the current energy balance from 0.8% up to 2.5%; and importantly, a new high technology industrial sector making power equipment of renewable energy sources will be created.
The next area is the development of the oil and gas sector. The importance of this area is due to such challenges as reducing dependence on imports on major North American markets of hydrocarbons, strengthening inter-fuel competition, including large-scale gas substitution for coal in the European energy sector and significantly increasing the role of gas as motor fuel; and thirdly, accelerating growth of the demand for energy sources in the Asia-Pacific region and globalisation of the gas market by increasing the share of liquefied natural gas.
We are closely following the relevant changes on the global energy market, including changes in the energy balance, infrastructure, supply routes and technological development of the sector. Our programme includes solutions enabling the Russian energy sector to maintain its leading positions on the global oil and gas market. The resolution of such tasks will make it possible for us not only to support budget revenue, but in accordance with foreign experience, to launch the mechanisms of innovative and high technology growth of both the oil and gas sector and related sectors.
Under the programme, our priorities in the oil and gas sector are as follows. We must incentivise the use of modern methods to increase the oil production rate, thus making it possible to rationally use our resource potential, including on existing fields in Western Siberia. We are planning to increase the coefficient of oil production from the current level of 39% up to 47%; meanwhile the efficiency level of using associated gas is to reach 95% by 2015.
Second, we must create an incentivising system for launching new oil and gas projects in regions with difficult access and undeveloped infrastructure, and a priority region for launching such projects is Eastern Siberia.
Third, we must create economic conditions to begin industrial extraction of difficult to extract oil with the use of modern technology.
Fourth, we must modernise oil refining capacities to meet the domestic market demand and our national needs for oil products on a guaranteed basis. Under the programme, 33 large oil processing plants will be modernised with the use of new technology by 2020 – this will improve oil refining efficiency up to 85% or higher and improve the quality of products.
And the fifth and last point is the forward investment in the infrastructure in order to gain access to rapidly growing Asia-Pacific markets for oil and gas export.
The state, for its part, is already implementing some major initiatives to incentivise the aforementioned areas with the most sensitive structural challenges; however we will have to make a number of principled decisions. They are related to such issues as incentivising the exports of liquefied natural gas and developing the technology of the gas engine fuel market.
There are no plans to attract state funds to the programme for the oil and gas sector; this programme will be funded from non-budgetary sources.
And, finally, the fourth area is related to the development of the coal industry. Here the sub-programme is aimed at sustainable coal and coal processing product supply to the domestic market; it is also aimed at developing the export potential of the sector. In 2012, Russia produced 354 million tonnes of coal, the 2020 target is 380 million tonnes and the 2030 target is 430 million tonnes. To this end, in our view, it is necessary to ensure the development of the production potential of the coal production and processing facilities. And the second important area is developing coal production markets.
To this end, the programme envisages modernisation of enterprises based on innovative technology, boosting the share of production capacities with the use of progressive technology from 8% up to 40%. Open-pit coal mining will increase, the mines will replace their equipment and longwall mining technology will be adopted.
The programme envisages the creation of clusters on comprehensive, high-level coal processing and developing methane extraction and use. The share of the power generating coal enrichment will grow from 33% up to 55%. In addition, new coal production centres in eastern regions will be created in the Republic of Yakutia, the Republic of Tyva and in Trans-Baikal area. Special attention will be paid to issues of industrial safety and labour protection. And a separate area is the completion of coal industry restructuring. This work has been conducted since 1994, and we have to complete this work.
In conclusion I’d like to mention the funding for the programme. On the whole, the funding is based on non-budgetary sources. The planned state budget funding up to 2020 will amount to 105 billion roubles, regional budgets will provide 562 billion roubles and non-budgetary sources will provide 28 trillion roubles.
We will need to have the budgetary funds in order to be able to cover the implementation of energy efficiency programmes (about 7 billion roubles a year, as in previous years) and complete the restructuring of the coal industry. Notably, the current programme provides funding only for 2013. No funds have been set aside for 2014 and beyond. We have included a solution to cope with this lack of funding in our additional restructuring proposals in the amount of 22 billion roubles.
Colleagues, the draft state programme has been agreed with the appropriate federal authorities. It was discussed twice with the working groups of the Russian Government’s Expert Council. I would like to thank the experts and all the participants in the discussion. We have received many constructive proposals with regard to changing and supplementing this programme. They can be arranged in four key groups. First, according to experts, the programme should be supplemented with the Government decision on developing an advanced targeted model for the electricity and heat supply market that will be adopted in the first half of 2013. Mr Medvedev mentioned it too. We have our working groups working on it. The programme should incorporate steps to expand the energy market in the Russian Far East which are still being discussed as part of the state programme, Socioeconomic Development of the Russian Far East and the Trans-Baikal Territory, and have not yet been included in this programme. Third, the Energy Efficiency section should include new incentives to promote energy efficiency and energy conservation. So far, this section has been left out of the applicable regulatory legal documents. Fourth, we also have proposals with regard to specifying innovative techniques for growing the fuel and energy sector and listing these techniques in a separate section.
In general, the ministry is supportive of these proposals. They’ve been included in the draft decision of the meeting. I’d like you to second this motion. Thank you.
Dmitry Medvedev: Thank you. Does anyone have anything to add to this?
Rustam Minnikhanov (President of the Republic of Tatarstan): Mr Medvedev, colleagues, allow me to briefly update you on the current situation in the area as it applies to Tatarstan.
Energy efficiency is high on our list of priorities. We began working on it 15 years ago. The law On Energy Conservation became effective in the Republic of Tatarstan in 1998. It was amended in 2012. What have we achieved? Power consumption as it relates to our gross regional product is down by 42% as compared with 2000 and by 19% as compared with 2007. However, the programme is scheduled to last until 2020, so we still have things to do under this programme.
What did we do to get these results? In accordance with the current federal government programme, Energy Conservation and Energy Efficiency to 2020, we have conducted energy audits at all large and medium-sized enterprises, as well as at all 6,500 state-financed institutions in Tatarstan. We have developed and approved corporate energy conservation programmes at enterprises that are using innovative energy-efficient production processes. A lot has been accomplished as part of our energy conservation effort. Water metres have been installed in blocks of flats, and government and municipal institutions across Tatarstan. The transition to two-loop heating and hot water supply in residential buildings and private houses was very effective in reaching our goals. Over 34,000 households have switched to this system since 2005. Each year, 3,500 households are being switched to this system. This helped us cut household heating and hot water bills by 33.4%. We are upgrading small power generation stations by introducing energy efficient modular boilers and mini-CHPs to keep a lid on tariffs. For example, we are installing 24 MW gas-piston machines in Almetyevsk and other urban areas.
We focus separately on expanding major power generation stations. Projects like the Kama cluster, the Alabuga special zone, Innopolis, Smart City, and the forthcoming 2018 World Cup are very energy-intensive, so we need to be pro-active and introduce new power generation stations in advance. To prevent energy shortages in Kazan, we plan to build the following combined cycle power stations by 2018: a 110 MW station at CHP-1 in Kazan and a 220 MW station at CHP-2, also in Kazan. We have plans to upgrade Kazan CHP-3. At Nizhnekamsk CHP, we will use the low-grade steam process, which will give us an additional 210 MW of power. This project will be launched in the near future.
The oil industry is the mainstay of our economy. As much as 3.15 billion tonnes of oil have been produced in Tatarstan since 1943. Even though our key oil fields are fairly mature, we managed to stop the decline in output in 1995. In the 1970s, annual oil production in Tatarstan topped 100 million tonnes. Today, we are producing anywhere from 30 to 32 million tonnes. Most importantly, the volume of production has been equal to the volume of reserve growth over the past five year. This is important.
More than 44% of the currently produced oil is recovered using advanced techniques, such as fracturing and horizontal drilling, to name a few.
TatNIPIneft (Tatar Research and Design Institute of Petroleum) is our key research think tank which was established at Tatneft’s scientific and technological centre in Skolkovo. We believe that their work will make a difference in this business.
Our oil industry focuses on developing fields with hard-to-recover and heavy oil reserves as a way to expand its upstream operations. Experts estimate that Tatarstan has anywhere from 2 to 7 billion tonnes of such reserves. Tatneft has been involved in pilot operations since 2006. As of late 2012, the production of bituminous oil based on thermal oil recovery methods amounted to 73,000 tonnes. In all, 260 million tonnes of heavy oil from 32 fields went to state reserves.
The Ashalchinsky field pilot project is estimated to produce 2 million tonnes of heavy oil by 2020. I would like to thank the Russian Government for providing easy tax terms to heavy oil field developers.
A project to promote energy conservation and efficient processing of associated gas is an example of an oil industry project to improve resource and energy efficiency. Today, Tatneft utilises 95% of associated gas. Small oil companies are putting Capstone gas turbines in service to process sour associated gas. The utilisation rate in small companies currently stands at 89%. This year, we will bring it in line with the target 95%.
Last year, Tatarstan’s plants refined 15.6 million tonnes of oil. Mr Medvedev, TANECO, which you and I launched a while ago, has reached its design capacity, and our current goal is to achieve a degree of conversion equal to 98%.
Using energy efficient production processes is important. In a collaborative effort with Vnesheconombank, our republic is implementing the Ammonia Project to build a plant to produce ammonia, methanol, and granular urea. This is going to be an innovative high-tech production facility for deep processing of natural gas. Most importantly, it will decrease specific energy consumption rates by 50% and even (according to calculations) by 70% as compared with existing ones.
Nizhnekamskneftekhim, an innovative ethylene production facility with a design capacity of 1 million tonnes of ethylene per year, is our next project that we are launching in the third quarter. The technology behind it will cut energy consumption by 55% as compared to similar industries.
We have an exciting project on track. We are now negotiating an agreement with Gazprom to expand the use of natural gas fuel. We want to convert all our public transport, and a portion of the municipal and agricultural equipment to natural gas in the next three to five years. This will cut fuel costs in half.
I’d be remiss not to mention the raw material supplies to petrochemical enterprises. Primarily, I’m referring to petrochemical complexes in Tatarstan and Bashkortostan. Huge amounts of LPG are transported by rail. We need to consider restoring the product pipeline. This initiative byTatarstan, Bashkortostan, and the Yamal-Nenets Autonomous Area needs your support.
In anticipation of the World Student Games in Kazan, we have performed an enormous amount of work to get our energy system ready for this event and improve the reliability of the Kazan power engineering system. I’d like to take this opportunity and thank the Ministry of Energy and the Federal Grid Company for their support in resolving these issues.
Mr Medvedev, colleagues, in closing I would like to say that we support the draft state programme in general and are ready to join in this work.
Dmitry Medvedev: Thank you, Mr Minnikhanov. It looks like you have made everything clear in your report and there are no questions from your colleagues. Still, let’s turn it over to the person sitting next to you. Mr Melamed (Leonid Melamed, Director General of the Kompozit Holding Company, member of the Government Expert Council), what does the expert community think about this programme?
Leonid Melamed: Mr Medvedev, Government members, colleagues. Over 60 energy sector experts, as well as major producers, consumers, marketers, and researchers took part in the public discussions of this programme held at several Open Government think tanks. There were separate meetings with development institutions in charge of the high-tech industry. On behalf of the experts, I would like to thank the ministerial team for doing a great job working with disgruntled people who had a lot of things to tell them. In the end, the expert community supported the programme as is, but some of its provisions will need to be further improved over the next six months.
Mr Novak has already named these provisions, so there’s no need to go over them again. However, I would like to expand on two of them.
First, the experts believe that the current level of GDP energy consumption presents a significant threat to the competitiveness of Russia’s economy. The experts are critical of the effectiveness of current state policies and practices in this area. They deemed it necessary to develop a road map in order to achieve the desired level of detail in the programme. It will list officials in charge of it and offer a much more versatile toolkit to promote energy conservation. However, the experts believe that weak competition in the economy and the social sphere is the main reason behind the low energy efficiency levels. Therefore, I believe we need to have you issue an instruction to make sure that this and all subsequent state programmes include a chapter on measures to promote competition.
Second, 28 trillion roubles under this government programme will be spent by 2020. Most of this money will go to state-owned companies or natural monopolies that operate in a lax competitive environment. Therefore, in order to mitigate the risk of inefficient use of resources, we should promote public awareness and public oversight of their work. Also on behalf of the experts, I would like you to issue an instruction to have this and subsequent programmes supplemented with a chapter on measures to promote public awareness and public oversight. That's all I have to say. Thank you.
Dmitry Medvedev: Thank you, Mr Melamed. I will take this under advisement, too. Does anyone have any comments or ideas about the programme? Please go ahead, Mr Dvorkovich.
Arkady Dvorkovich (Deputy Prime Minister): I just wanted to emphasise again that the programme is ready to be adopted, but there are several areas that still need our attention. However, this shouldn’t stand in the way of adopting this programme. The minister mentioned these areas. They include the electricity and heat market models, a programme to develop the Russian Far East, additional measures to promote energy efficiency and competition, which will help us to achieve the programme goals. All the basics are already in this programme, but we have yet to take a decision on them, which will come in the next three months or so. After that, we will be able to make all these tools part of the programme.
Dmitry Medvedev: Thank you. Are there any other comments? No? Then let's adopt the programme and start working on it.
Agreed?
The next programme is Promoting Foreign Economic Activity as it was announced. Mr Belousov, go ahead, please.
Andrei Belousov (Minister of Economic Development): Mr Medvedev, colleagues. Before focusing on the state programme I’d like to briefly outline the overall situation in the foreign economic activity. We can describe the current state of the Russian economy as open. Last year, exports of commodities and services amounted to almost $600 billion, or 30% of the GDP; and imports amounted to almost $440 billion, or about 22% of the GDP. Thus, the total foreign turnover of commodities and services exceeds half of the GDP. This indicator is significantly higher than the corresponding 30% indicator in the United States and Japan and is approximately equal to Chinese and Indian indicators.
Meanwhile the transparency level of the Russian economy is 1.5-2 times lower than in European countries, such as Germany, the United Kingdom and so on. In major European economies, the trade in commodities and services stands at 60-100% of the GDP.
However, volume indicators alone are not sufficient to describe the overall situation. Export markets are critically important for a number of industries. The oil and gas sector exports about half of its production, mining sectors export about 25% of their output and about 10% of machine-building production is exported.
However people often fail to take into consideration one important point. Russian high technology sectors, such as aircraft engineering, electronics, nuclear industry and other sectors can develop only in the format of global markets. They cannot grow in principle within a national market, if only because the breakeven point of production in these sectors far exceeds the domestic demand.
At the same time, imports are a key tool for meeting domestic demand. The proportion of imported commodities in domestic markets is about 24%. Meanwhile, the proportion of imports in retail trade amounts to 44%, and the proportion of imports in the investment equipment market amounts to 75%. Direct foreign investment in the national economic development is significant: in 2012 foreign investment accounted for $46 billion, or 12% of investment in fixed assets; and the accumulated level, $362 billion amounts to 18% of the GDP.
Now I’d like to highlight a number of system-wide issues which we will address in our discussion of the state programme today. The first systemic problem is generic and could be described as an insufficient use of the existing foreign economic potential for maintaining an accelerated growth in the global markets and for targeting innovation. Two of the six subprogrammes are aimed at resolving this problem.
What measures does the programme stipulate? First, to revise the agenda of bilateral economic cooperation (this work has already started), that is, to focus more on projects and investment. In fact, the current action plans of some countries include major foreign economic projects in cooperation with Russian companies and regions.
To date the Ministry has concluded 23 agreements on foreign economic cooperation with major Russian companies including Rosatom, Russian Technologies, United Aircraft Corporation (UAC), AvtoVaz, KamAz, Russian Railways, Inter RAO UES, Russian Helicopters, Renova, Mechel, Power Machines and other companies. Under these agreements, 40 projects have been launched abroad following the roadmaps of major Russian companies covering over 30 countries. The central apparatus, the Ministry and the trade missions are reformatting their work to provide support for these projects. Importantly, the companies themselves assess the work of the central apparatus and trade missions; a new mechanism for motivating and improving the professionalism of foreign economic agencies’ personnel has been created through the system of assessments. These foreign economic agencies implement their functions aimed at the final result.
So today we have begun to shape a new system, including the system of foreign apparatus and trade missions of a new, client-centred type which is motivated and meets modern standards of management. This work will develop stage by stage and will take about four years. It is already evident that the geography of trade missions should be optimised to meet the interests of Russian participants of the foreign economic activity. At present, 19 out of 53 trade missions are located in Europe, and we do not need that many in this region. On the other hand, we have only nine trade missions in Asia, five in North and South America, only one trade mission in Africa, while the main regions of Russian companies’ foreign economic activity are currently in Africa.
Regions and business associations are involved in this work in a similar way. To date we have signed 18 agreements with the regions, some 20 agreements with regions are in the works and 20 projects are ready for signing. We have signed four agreements with business associations, that is, with all four major business associations. Here we are actively launching (we intend to do this in the coming four years) a new tool, the so-called foreign business missions which are being very actively used by our rivals, the developed countries including the United States, Canada and some other nations. The first business missions and the first experience of business travel to organise specific projects and contacts have already taken place in Brazil, Kazakhstan, France, Germany and India, and they have produced good results. In 2013, we are planning 41 business missions to 25 countries to be set up under the auspices of the Ministry of Economic Development.
We want to transform business missions into an effective mechanism for finding potential partners while focusing on the preparation stage with all participants sharing the responsibility for the final result, followed by support for the contracts and projects for at least six months. This is very important to prevent these missions from turning into business travel agencies.
The second area of effort is using the opportunities provided by multilateral cooperation, including in the WTO. We have prepared a list of concrete systemic issues where we could use WTO mechanisms, including dispute resolution on issues that have a system-wide importance for the Russian economy. The agenda has some ten points. An example of discrimination that could be remedied with WTO instruments is the energy corrections used by the EU, when the European Commission artificially corrects the production cost, overrates the production cost of Russian commodities and thus significantly raises antidumping duties on Russian commodities.
The third area involves the potential of integration processes in the post-Soviet space seeking a further development of the unified economic space. In his opening remarks, Mr Medvedev has mentioned this area. I’d like to add that within the unified economic space, Russia, Kazakhstan and Belarus are creating conditions for structural reconstruction of their economies on the basis of optimised labour differentiation and expanded opportunities for a unified market. This has already produced results. According to the Eurasian Economic Commission data, trade between the Customs Union states increased by almost 9% last year, which exceeds the growth of trade with third countries by 200%. We see a considerable growth of mutual trade within the Customs Union. In the future, we must resolve a number of problems here including the final cleanup and elimination of grey zones in the Customs Union’s activities, primarily on the outer borders of the Customs Union. We also need to ensure the enforcement of the Unified Economic Space agreements by supporting them with concrete effective tools. The main task is to establish the Eurasian economic union. The agreement on the Eurasian economic union is due to be signed and come into effect from January 1, 2015. This task is based on an enormous work on concluding the formation of the unified market of commodities, services, capitals and workforce.
The second systemic problem is the weak use of export capital of the Russian economy, primarily its non-oil and gas sectors. In recent years, Russia has seen a rapid slowdown of the direct export growth contribution to the economic growth. Back in 1999-2004, exports provided over half of the economic growth and a 3.6 percentage points of GDP growth; in 2005-2008, this contribution was halved to 1.8 percentage points of GDP growth; and over the last two years it has practically come to a standstill with only 0.3 percentage point. This is a direct consequence of the poor diversification of the Russian exports. Non-commodity exports are only 8% of all exports and engineering is about 5%. We aim to increase the share of non-oil exports by 2018 to 12%, which is 150%, including engineering to 7%-8%. How do we achieve this? First of all, by establishing an effective and competitive system of export support for consumers.
Today, despite the fact that formally we have a large set of tools to support exports, only isolated export projects have received Government financial support. During the period from 2005 to 2012, the Russian Federation issued 24 state guarantees to Roseximbank for a total commitment of $2 billion. By comparison, in 2011, the Export-Import Bank of the United States provided 178 export guarantees, which supported the export of US companies in excess of $16.5 billion, and Export-Import Bank of India, for example, has issued guarantees worth more than $ 7 billion, and so on. But there is really only one tool for consumers today – export loan insurance provided by EXIAR (Export Insurance Agency of Russia), and that this tool has only been in existence for a year.
The third sub-programme’s activities are aimed at developing a system of insurance, credit and guarantee support for exports of highly processed products, the expansion of the range of tools in line with WTO rules and regulations, and radically increasing the accessibility of these tools to exporters. It is expected that through the implementation of these measures, we will not only reverse the decline in the share of exports of engineering products and get a 10% annual increase in supply, as mentioned by Mr Medvedev in his opening remarks, but also double the number of exporting organisations to at least one exporting organisation for every 100 registered organisations.
The third systemic problem involves the administrative barriers to foreign trade and attracting foreign investment, which now really reduce the competitiveness of Russian companies on the domestic market and internationally. Today, according to surveys of Russian companies conducted by the World Bank, a Russian exporter takes an average of 21 days to complete export-import procedures. By comparison, it takes five days in Singapore, up to seven days in Korea and Germany, 13 days in Brazil and six days in the United States. The number of documents required for export in Russia is eight; in Singapore, the US and Germany, it is four and in Korea, it is three. In other words, the difference is several-fold.
Measures to improve state regulation of foreign trade and cross-border trade infrastructure are implemented in the fourth and fifth sub-programmes outlined by the Federal Customs Service and the Russian Border Services Agency.
The main measures affect the whole sphere of customs activity, including a full-scale transition to electronic interdepartmental communication, avoiding duplication of electronic paper documents for declaration forms, the reduction of customs operations at the checkpoints and qualitative improvement of risk management systems. As a result, we should meet the best international performance figures by 2018, reducing the number of documents by 50%-67%, as well as the waiting periods and business expenditures related to foreign economic activity.
Let me talk briefly about funding for the state programme. Financial resources from the federal budget allocated for the implementation of the state programme for the period from 2013 to 2018 will amount to 422 billion roubles, of which about half is to be provided by 2015, with about 88% of this amount to be spent on customs operations.
Additional funding for the state programme to be provided from the federal budget if funding becomes available will total 75 billion roubles, 26.5 billion of which has been allocated for 2013-2015: financial support for exports of high-tech products (about 8 billion roubles), the implementation of international technical assistance projects (6.5 billion roubles), and export and investment co-operation in the framework of exhibition and trade fair activity (a little over 9 billion roubles).
This is also currently the only bone of contention with the Finance Ministry; there is an additional need for a sovereign guarantee for the EXIAR obligations in insurance contracts in amounts of 200 billion roubles in 2013, 150 billion in 2014, and 150 billion in 2015. I also want to emphasise that these are not expenditures from the federal budget, but is the value of Government guarantees linked to specific plans to expand the EXIAR insurance portfolio.
Extensive discussion with experts and the business community was conducted while drafting the programme. The Economic Development Ministry’s Council on Foreign Economic Affairs, which is an expert advisory body, reviewed the draft Government programme. The Russian Union of Industrialists and Entrepreneurs, the Chamber of Commerce and Industry, Business Russia and Opora Russia also reviewed it and the proposals received from these organisations have been fully taken into account.
The draft was posted on the Economic Development Ministry’s official website, resulting in a response of about 500 proposals, most of which were also taken into account. The draft programme was co-ordinated with the Industry Ministry, the Federal Customs Service, Russian Border Services Agency and the Finance Ministry based on the comments on the additional need for resourcing activities in the provision of state guarantees for EXIAR. I ask you to support this.
Dmitry Medvedev: Thank you, Mr Belousov. Colleagues, what are your views on foreign trade? Mr Siluanov, if you please.
Anton Siluanov (Minister of Finance): Thank you, Mr Medvedev.
What are our thoughts regarding EXIAR? We capitalised EXIAR with $1 billion in direct funds, and we have a scope of about 300 billion roubles in terms of the agency’s insurance activities. So far only $23 million of these funds have been spent. Therefore, it is currently inappropriate to talk about including an additional 500 billion roubles in guarantees in the programme, since there is significant room for manoeuvre within the means that the agency already has. Therefore, we believe that, if we see active EXIAR operations, if we see that there is not enough funding for the agency, then we will actually raise the issue of increasing the amount of state guarantees provided to this agency. I think it is just too early to talk about an additional increase in Government guarantees. Anyway, Mr Medvedev, we have created a number of state institutions which can issue guarantees on their own. As it happens, a state institution requires additional Government guarantees. In our opinion, in principle, these agencies should provide their own guarantees and become more self-sufficient. That's why we were opposed to the programme including a clause increasing the provision of Government guarantees. Thank you.
Dmitry Medvedev: Thank you. You will have an opportunity to sum up later. Please, Mr Rogozin(addressing Dmitry Rogozin).
Dmitry Rogozin (Deputy Prime Minister): Thank you. Mr Medvedev, colleagues.
The issue I would like to raise is an old one but I cannot find a way to resolve it, despite the fact that I spent four years abroad as Russia's envoy to NATO. It is a matter of functionality and role of trade missions, and it is especially relevant in view of what Mr Belousov said earlier.
The Foreign Ministry coordinates the work of ministries and agencies abroad and is in charge of it but quite often ambassadors know little about the activities of our trade missions abroad. Coordination in this matter leaves much to be desired. Brussels is probably the only positive example: the Russian Permanent Mission to the European Union (EU) is based at the Russian trade mission to Belgium. That is also the main office of our envoy to the EU.
The functions of trade missions in the current market conditions are unclear. Why couldn’t we transfer these functions to the economic departments of our embassies, which exist anyway because our ambassadors have to coordinate the foreign economic activities of our major companies abroad? I’d like to receive an answer to this question.
Dmitry Medvedev: Are there any questions or comments? Please go ahead. And then I will give the floor to Mr Belousov. Of course, Mr Shuvalov, go ahead please.
Igor Shuvalov (First Deputy Prime Minister): Mr Medvedev, colleagues.
The Export Insurance Agency of Russia (EXIAR) is just beginning its operation. It is working in important areas, such as high technology, which is difficult to sell abroad. In particular, it is promoting the Sukhoi Superjet project in the Asia-Pacific Region. The agency is a VEB subsidiary. Mr Medvedev, the main deals will pass through VEB Supervisory Board, which you head. The agency’s most complicated and important projects are reviewed by the Supervisory Board.
As for the requested additional guarantees, I fully support the position of the Ministry of Economic Development. This position is justified. We have a number of achievements but I don’t think we should look at them in detail at the current meeting. This is probably a subject for discussion at the VEB Supervisory Board. We are ready to report on what we have done by now: we have formed a team and it is actively working abroad in cooperation with other insurance agencies, such as SACE S.p.A and Euler Hermes, to name a few. This is a very serious subject and it is probably not worth going into our dispute on guarantees now… Mr Medvedev, we are ready to continue this conversation at the Supervisory Board. Just to repeat, I support the position of the Ministry of Economic Development. It is well-grounded.
As for the role of trade missions, there are many questions here. The Ministry of Economic Development held an expanded board meeting that was attended by representatives of the Foreign Ministry and other agencies. Indeed, many questions were asked. There was much criticism to the effect that trade missions often do not use their resources appropriately and have excessive staff. The minister suggested a new concept of support and development in some new areas, such as projects. Their staff will be reduced, some of the employees will be transferred or relocated, and we agreed that we will try to work in this new configuration. I hope we will achieve tangible results. If not, we will revisit the idea of putting the Foreign Ministry in charge of this work. But Mr Belousov asked about an opportunity to work on projects with our biggest producers and promote our goods in the foreign markets. I think he should be supported in this.
Dmitry Medvedev: Thank you. Any other ideas?
Mr Lavrov, do we need trade missions or not? Can the Foreign Ministry do the job?
Sergey Lavrov (Foreign Minister): Mr Medvedev, this is a question of political choice.
Dmitry Medvedev: But what is the view of the Foreign Minister?
Sergey Lavrov: Mr Rogozin and me… I hope he will confirm that I did not provoke this discussion. This is a very old subject. I remember the position of the Ministry of Economic Development has changed three times…
Dmitry Medvedev: I recall this as well.
Sergey Lavrov: …sometimes it came from one and the same minister but not in this Government. As Mr Shuvalov said, there was a board meeting after which we specified some points regarding the new role of trade missions and agreed on the concept. We believe this concept should be carried out.
Dmitry Medvedev: All right, fine. Mr Belousov, sum up the results please.
Andrei Belousov: I’ll start with the trade missions. Almost all countries have trade missions. In some countries, for instance in China, they are called economic departments of embassies. But de facto they are assigned to a relevant economic body and are independent agencies that employ their own personnel, draft their budgets etc. Their main role is to aggressively promote goods produced by large companies in the world markets and help small and medium businesses to sell their products. In our case they are also supposed to help large regions.
I think this is easy to understand. Mr Rogozin, I’m just answering your question. I think it is very easy to see that large companies, for instance KamAZ or United Aircraft Corporation (UAC) have their own interests in India, Indonesia, Nicaragua and other countries. The role of trade missions is to actively promote their products. In many cases embassies cannot do this job because of their status. When we discussed this subject (with the Foreign Ministry among others) and agreed that if trade missions only engage in economic diplomacy, mostly analysis, they should be eliminated and merged with the embassy staff. But there are many countries where this cannot be done because it is necessary to promote companies’ products on a daily basis – to establish contacts and help them take part in tenders and so on. This is their daily routine. And, regrettably, this is not in Europe. Go to Uzbekistan, for one. This is a country where 100% of Russian business can only function under the wing of a trade mission. There are many other countries where trade missions fulfil the same function. Of course, it is easy to do away with this system. Braking is not making – we went through this in the 1990s. But once we destroy it we may have to build it from scratch once again.
As for EXIAR, this is very simple. There are countries where EXIAR does not need state guarantees because there are reinsurance contracts with major insurance companies, such as COFACE, SACE and Hermes. Everything is taken care of there. But an important feature of our exports, primarily high-tech, such as civilian aircraft and helicopters, is that we sell them to countries with very high risks and without reinsurance contracts. In such cases the only possibility of reducing EXIAR’s risks is to obtain the guarantees.
Today EXIAR’s portfolio of insurance deals fully corresponds to the figures it presents.
These calculations were submitted to the Ministry of Finance, so it is in the know. So, what Mr Shuvalov said is absolutely true and we support him. Please, leave this item – probably with a note for additional consideration. Let EXIAR’s request remain in the state programme. Thank you.
Dmitry Medvedev: Thank you. So, there are two things to discuss. The first one is the need to preserve the mechanisms of additional guarantees. Although they are not very actively used in this country, I’d still sooner support what Mr Belousov said because, regrettably, the situation in our economy is such that special protection is required. We do not yet have our own Hermes. When we are properly insured and promoted like in other countries we will not need additional state guarantees. We will not have to pay much attention to this issue at all. The experience of many rapidly developing economies shows that the state still does not fully leave this sphere (in China and some other countries). It is still closely involved in it.
As for trade missions, this is indeed a very old subject. Many ministers have changed but these missions are still there. After our Government was formed, I asked Mr Belousov what he is planning to do with the trade missions. I must give credit to Mr Belousov for saying without any hesitation that trade missions have an excessively complicated structure but must be preserved wherever necessary. Today their existence is unjustified in many places. Sometimes they are duplicating embassy functions. In some cases it is simply unclear what they are doing. They should have a presence in those countries where they can help promote our products and support our businesses.
Let’s see how this work develops. We will look at the structure of trade missions again and see whether it has been upgraded. Then we will make the final decision on what to do with trade missions. Agreed? Thank you.
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Following the Government meeting, Minister of Economic Development Andrei Belousov and Deputy Minister of Economic Development Sergei Belyakov answer journalists’ questions
Andrei Belousov: Today there was a sensation. It will have a very large impact in the regions. It is long-expected news. I am referring to the draft law On Public-Private Partnership, which is being discussed in the Government. The problem is that this law is so badly needed that 60 regions… Is that right, Mr Belyakov?
Sergei Belyakov: Sixty nine regions.
Andrei Belousov: Sixty nine regions have already adopted their laws; and the Prosecutor’s Office is urging them to abolish many of these laws – nobody has enough budget funds, and it is impossible to attract private funds for building schools, hospitals and utilities infrastructure because an adequate law does not exist; or rather it is possible but it is very difficult. Some six months ago, when I came and began to look into details, the state of this law was rather difficult, because it contained a lot of contradictions. It came up against contention from the Ministry of Finance and the Federal Antimonopoly Service, as well as a whole range of differences with the Ministry of Justice. Why? In fact this law abolishes some provisions of federal law No 94, of the law on land, introduces different tender procedures. But the President held a meeting where the participants discussed this law in detail, as it is very important for supporting investment activity in this country over the next few years. The President issued a relevant instruction, First Deputy Prime Minister Igor Shuvalov took an active part in this work and remedied a significant number of contradictions. And, surprisingly for me, today we arrived at the finals on the Government platform. The draft law still has to pass the State Duma and the Federation Council – however I believe that the longest part of the road is behind us. I just ask you to pay attention to this draft law.
Sergei Belyakov: I can add something, and I’m ready to respond to questions. We have a unique situation in the sphere of public-private partnership – on the one hand, some companies are eager to implement such projects and participate in such agreements. Practically all regions are eager to implement such projects because they provide a good opportunity to build some facility quickly and launch its operation, thus extending quality services to the population. Budget funding: federal, regional and municipal funding is either insufficient or simply lacking. Unfortunately, there is no law, no tool supporting two partners, a public partner and a private partner, if they wish to conclude such agreements. The law on public-private partnership is restricted by the law on concession agreements. But the specifics of concession are such that this mechanism does not work for all projects; and many investors could not participate in these projects based on concession agreements.
This is not unique to the Russian Federation. This is not a problem with the Russian law on concessions. This is a universal problem. This is why the majority of countries that structure this form of cooperation as private-public partnerships are elaborating separate laws apart from legislation on concessions.
The second thing we must do is improve concession agreements. This does not replace the need to adopt the law we are discussing now. So we hope above all that the State Duma will adopt this law in the future... I hope it will be adopted promptly, hopefully during the spring session. Well, I’m an optimist and I want to think positive. The primary hope is that once the law is adopted we will launch specific agreements and projects. There is demand for them and investors are ready to carry them out because the draft law creates the instruments to guarantee them profits and stable investment terms in such projects. It also allows the regions of the Russian Federation to adopt their own laws, establishing minimal mandatory requirements for such laws at the federal level, and gives them the tools to regulate such agreements.
Question: This is probably a question to both speakers. Mr Belousov, you said this was a surprise. But there were fairly serious disagreements over this draft law. Now it has been approved by the Government. Have the ministries concerned and the Federal Antimonopoly Service (FAS) overcome these disagreements?
The second question: Will it cover the housing and utilities sector? I understand there were different opinions on this matter.
Sergei Belyakov: I’d like to answer this question if I may. Yes, this law will cover housing and utilities. The only exemption from this law applies to facilities (specifically, the possibility that they will be built), the use of which is limited or the sale of which is prohibited or restricted by Russian law. Naturally, this does not apply to housing and utilities. That said, there are no details on investment in housing and utilities because if necessary such details may be discussed by the State Duma. For the time being we consider housing and utilities to be in the same category as any other facilities and there is no point in setting some special requirements on them.
In addition, now the law on concession agreements is subject to amendments regarding the unique features of investing in housing and utilities. These two areas of work should be synchronised to make sure that while making amendments to certain legal norms we do not deviate towards changing or suggesting a new draft law on public-private partnership. But, of course, this draft law provides for private investment in housing and utilities.
Now I’d like to say a few words about the position of the Federal Antimonopoly Service. We had disagreements with our colleagues which boiled down to this: they expressed concern that the implementation of agreements under this law will invalidate some norms of antimonopoly legislation, primarily the 94th law and the law on protecting competition. We listened to their concerns and made some amendments to preclude such risks, but it is very important to understand that this does not mean replacing one form (say, state purchases) with another. This is an entirely different form of relations between private and public partners. Under the draft law, the public partner safeguards the opportunity to sign a private-public partnership agreement. It also explains why it is necessary to follow this arrangement rather than carry out a deal as a state purchase. This will have to be substantiated, including an explanation of why this particular arrangement is economically better. There are no contradictions here.
Another important issue: We may say that we have legislation on private-public partnership and that our municipalities (or regions or any other public entities) are in no way limited in signing agreements with private companies, but the fact remains that such agreements do not exist. Regrettably, they do not exist in practical terms. Meanwhile, we do need them and this shows that the legislation is imperfect. Adopting this law is not just our initiative – this is rather a response to the challenge we are facing. The form that is described in the draft law is a response to how municipalities and regions interested in such projects are structuring these agreements as well as to the terms of businesses that want these agreements to be profitable and attractive. And a very thorough analysis of both the Russian experience (of those constituent entities where regional legislation was adopted, though they are contested, indeed, by the procurator’s offices), and the international practices of those countries where private-public partnership legislation is much more advanced than in Russia and where the projects are being implemented as a result. Therefore it is not a substitute, a surrogate, nor an attempt to iron out difficulties for business or for public organisations regarding the part which is regulated by state contracting legislation and competition protection legislation, it’s just another area of interaction between the private sector and public sector entities.
Question: Mr. Belousov, let me ask a question about the foreign economic activities programme, everything concerning EKSAR (Russian Agency for Export Credit and Investment Insurance). You said new projects need state guarantees. Can you give just a few examples of what the agency needs those funds for?
Andrei Belousov: EXIAR has been pursuing quite a large number of such projects including, for instance, sales of the Sukhoi Superjet to a number of countries (the relevant contracts have not been signed yet but work on them is progressing): Indonesia, Laos, some other countries; it entails the implementation of projects with the participation of Silovye Mashiny in a number of Latin American countries as well as some other projects. I don’t feel like going into further details but if you need examples, here they are. It also includes KAMAZ, by the way, also the implementation and construction of servicing centers, and selling the civilian products of Russian Helicopters.
Question: An off-topic question, if I may. Several days ago Reuters wired that the Presidential Administration had sent a letter to the Ministry of Economic Development and the Russian Property Management Agency Rosimuschestvo with an instruction to convene the board of directors and to cancel the contract with the current CEO of RusHydro Yevgeny Dod. Is that the case?
Andrei Belousov: I have not seen such a letter yet.
Question: A discussion is currently unfolding about the future of the Russian trade delegations. Will you please say, Mr. Belousov, how many trade delegations do we have at present, how many of them may be cut and in which countries? And how economically justified is this all?
Andrei Belousov: We currently have 53 trade delegations, and what makes their distribution unique is that most of them are in the CIS and European countries. As to the CIS countries, I feel there should be a trade delegation in each country whereas in Europe there are too many of them. At the same time we don't have trade delegations in southeast Asia and have a severe shortage in Africa. If we look at North Africa, we really only have one representation there. And now there’s talk about opening a trade delegation in the South African Republic, things are underway there.
Actually, the existence of trade delegations is justified in those areas where Russian companies, primarily large companies but also medium-sized ones, have interests, and where those interests are being implemented as specific projects. Because trade delegations are designed to promote Russian exports first and foremost. They are company projects, they are projects by small and medium-sized businesses realised through the existing business councils and through our four leading organisations – the Russian Union of Industrialists and Entrepreneurs, the Chamber of Commerce, Business Russia, and Opora. The Ministry has concluded agreements with all those organisations. Within those agreements the Ministry is obliged to assist in promoting particular projects. The projects are presented as roadmaps which outline the key events that must happen, for example, participating in a tender, concluding an agreement, signing a memorandum or receiving comfort letters and so on. And trade delegations get involved in the realisation of that roadmap. Moreover, a trade delegation and its performance are evaluated depending on how the company itself assesses the performance. We already have examples, and I have looked into this myself, of companies giving a negative assessment of the performance of the trade delegation. This entailed quite serious consequences for the delegation, including staffing decisions. But while there are some examples of this nature, there are many more positive examples where companies say to us: Yes, the trade delegations have been really helpful. The trade delegation in Brazil is a recent example, there are a number of other countries where such activities have been launched. But we are aware that we are at the starting point of the journey and we need… We have signed agreements, as I said, and started working on the contracts with companies today, we are also concluding such agreements with Russian regions now and we are also designing roadmaps which should be followed by a change in the number of our internal directives and regulations which govern the activities of the trade delegations. This should be followed by new KPIs, establishing a new motivating mechanism. We are planning to complete the work before the summer. We have an internal ministry project for the period up to 2015 with a detailed monthly and yearly schedule, every person in charge named, every specific activity described, every task etc. If I encounter no interference, I shall try to complete the reorganisation of the trade delegations by 2015, i.e. we should also reach an understanding of where we have to have trade delegations and where they should not be.
Question: Does that mean that you are unable to give any specific numbers as yet? There might even be no cuts? Could it ultimately result in new trade delegations being set up?
Andrei Belousov: No, I believe new trade delegations will be set up instead of the existing ones. We should not at present overinflate the size of our personnel abroad, which is over 1,000 people, 1,028 to be exact. We should not expand funding. And the key issue – we have reserves. There are countries where trade delegations should not be touched even today. I gave the example of Uzbekistan at a Government meeting. Our business there, practically all business, conducts operations through the trade delegation. Currently the trade delegations in Germany, Italy and Brazil are working very actively, I can name many countries. I do not understand why we should have so many delegations in northern Europe, we have one in each of the countries there. They might be needed but let’s look at it this way: if there is no demand for a trade delegation, if just does analysis and serves various kinds of meetings, contacts etc, then I absolutely agree with those who say “Let us shift it under the Foreign Ministry’s umbrella, under the embassies.”
But I’d like to say one more thing. It has been said today that (Mr Rogozin said it) ambassadors are not always aware of the trade delegations’ activities. So I am requesting that the trade delegation heads should have good relations with the ambassadors. If the head of a trade delegation is not getting along with the ambassador (there used to be such cases), I think this signals his professional incompetence.
Question: Mr. Belousov, can we sidetrack with the question? The first question is about Eurobonds. How is the issuing process going on? When can we expect it?
Andrei Belousov: This question should be addressed to the Finance Ministry.
Question: Are there any disagreements now with the Finance Ministry regarding this question?
Andrei Belousov: No, absolutely no disagreements. We are keeping in close contact but the issue is being dealt with by Mr. Storchak, Deputy Finance Minister, so he is the right person to get first-hand information from.
Question: And one more small question. Do you still think it reasonable to cut the key interest rate given the rise in inflation?
Andrei Belousov: Yes I do. First, there is no rise in inflation. Secondly, I believe it is not so much about the key interest rate as about making use of the full arsenal for lowering banking system risks, i.e. the Central Bank takes some of the banking system risks, and that forms the basis for cutting interest rates. We consider the current market interest rates should be around 7.5%, or 7.5 to 8%. Because today the interest rate rises which we saw in the second half of the year have become a real factor impeding investment activity, which is what we in fact witnessed in the second half of the year – a 100% correlation between the dynamics of interest rates, loans issued to non-financial enterprises and investment trends. We showed these graphs to Mr Ignatyev (Sergei Ignatyev, Chairman of the Central Bank of Russia), there is hardly any room for objections there. Simply raising interest rates brings about changes in the parameters of investment projects. Interest rate rises could turn everything around in instances where those parameters were positive and the investment project was efficient. This is what is happening in reality, and that is why companies are rolling down their investment activities following a rise in interest rates.
Question: Mr Belousov, first a clarification question. It is not quite clear: was the programme approved or not? Was it approved overall, or just without modifications to follow? For us to have an idea where it sits now.
Andrei Belousov: It has been approved.
Question: Just approved by the Government?
This is the first clarification question. Then in your report you said that we have approximately ….
Andrei Belousov: I can only say that, to be honest, it is crucial for me that the Prime Minister supported the EKSAR (Russian Agency for Export Credit and Investment Insurance) topic. Because it used to be a stumbling block with the Finance Ministry, it has been voiced at today’s meeting of the Government, so I am not going to hide anything here. I think this is a momentous point.
As to the discussion regarding trade delegations, I think it has been effective. It’s a different matter that we had already had another round of the discussion at a meeting of the Board in the expanded format, and had prepared a strategy for reforming the trade delegations. The strategy has been agreed with the Foreign Ministry and is currently with the Government Executive Office. And we hope it is going to be approved by the Prime Minister, and we'll work on it. But in fact we are already operating in accordance with it anyway.
Question: Regarding the WTO, you said, in particular, that you already have a list of about 10 complaints to our WTO partners. You mentioned, specifically, energy corrections when conducting anti-dumping studies which helps them to raise our costs. Can you give us any other examples?
Andrei Belousov: I feel reluctant to voice them for understandable reasons.
Question: Then I shall ask the following question: is the third energy package that exists in Europe among those 10 complaints? Has work begun on it yet? What are the complaints in terms of the third energy package and the WTO?
Andrei Belousov: The third energy package is not an obvious part of the legal relations governed by the WTO even though there is such a view. But regarding the third energy package, we believe it just contradicts a number of agreements between Russia and the European Union, including the basic agreement. It contains a clause stating investment conditions may not be worsened, whereas the adoption of the third energy package actually did worsen the investment conditions for Gazprom, if Gazprom goes to distribution networks. And, in fact, it appears illegitimate, it means the efficiency of those investments plummets. This is a clear violation, in our view, of the agreement.
As to the other areas, energy corrections, in my view, are a completely evident and obvious matter that we can see. I put that question to European Commissioner de Gucht (Karel De Gucht, European Commissioner for Trade). The point is that our colleagues form the European Commission claim that we do not have market gas prices, that they are kept low in the domestic market, so therefore the competitiveness of our products (this mainly involves metals and mineral fertilisers) is artificially raised, which serves as a reason for introducing protective measures against Russia, primarily anti-dumping tariffs which are widely used by Europeans.
Today, a whole range of products, metals, are covered by anti-dumping from Europeans. So I asked Mr. De Gucht…Our domestic gas prices are around 100 dollars per 1,000 cubic meters, slightly higher. This is the same as US prices. And I asked when they were going to use energy corrections on the United States following this logic, this simple logic. I don’t even mention here the basic principles under the General Agreement on Tariffs and Trade and the World Trade Organisation, such as most favoured nation status. But so far, we have not received a response. This in fact is a direct violation of the most favoured nation principle, which of course is the prerogative of the WTO. We think we have the ability…
Question: Has this been discussed already to get an idea of how it is going? Should we file a suit against them or…
Andrei Belousov: We have discussed this. I’ve just mentioned this as an example. Certainly, to forward it to the Dispute Settlement Body, a more thorough analysis is required, as well as an assessment of legal prospect to find how much it will cost and so on. We have this ability. In fact, there is a whole range of capabilities, such as those related to the Kaliningrad transit issue, for instance. We think this issue also falls within the WTO, there are a number of points there.
Question: Can you specify with respect to the 7.5% rate? The previous question was not quite clear. Do you think the refinancing rate should be at 7.5% now?
Andrei Belousov: No, this should be the final rate for end-use borrowers on newly issued loans granted for a period of up to one year – this is what we think would be normal to support investment activities given the current inflation rate. This is a rough estimate, and it should be about 7.5-8%, not 10-11%.
Question: Mr Belousov, could you please clarify with respect to the WTO. You have specified ten prospective issues…
Andrei Belousov: About ten.
Question: About ten prospective issues. What are your further plans regarding them? Will legal action be taken? Another question concerns interest rates. You have mentioned that the Central Bank should assume some of the commercial banks’ risks, right? What did you mean by that?
Andrei Belousov: The Central Bank is actually assuming some of the risks, but only an insignificant amount. In fact, any refinancing operation involves assuming these risks. We believe the Central Bank should expand this practice. This would include some easing of demands on collateral put up when refinancing, and extending the period of allowable repayment with the use of a three-year loan to commercial banks as part of refinancing, and so on.
As regards our activities, I’ve said that I mentioned this Government meeting as an example. I wouldn’t like to take any obligations now by saying we are going to petition the Dispute Settlement Body or something else, as this is a very important question that requires thorough consideration, and with related departments as well. Most claims of violations of Russia’s rights here come from the business community, and they relate violating businesses’ rights on markets – and it is only natural that they raise these issues.
