Transcript of  the opening  of the  meeting:

Vladimir Putin: Good afternoon, ladies and gentlemen. I know that you have travelled much this year. Let's talk about our trips and the interesting problems you encountered that are relevant in the context of present-day Russia.

Ms Mironyuk (RIA Novosti editor-in-chief) will open our meeting. Ms Mironyuk, you have the floor.

Svetlana Mironyuk: Thank you, Mr Prime Minister.

Ninety political scientists, experts and historians from Russia and sixteen other countries have taken part in the Club meeting this year. Ukraine and the Czech Republic are new participants. The theme of this year's meeting is "Russia: History and Future Development".

Prominent historians, such as Richard Pipes, Geoffrey Hosking and Dominic Lieven, have taken part in the Club meeting.

Our itinerary was not chosen at random.  We began in St Petersburg and continued on crossing Lake Ladoga into Lake Onega, past the Kizhi Islands. We wanted to visit Valaam Island but could not drop anchor there because of a storm. We visited the Alexander-Svirsky Monastery on the Svir River quite unexpectedly, and the discussions that took place there were extremely heated. The criticisms made by Russian speakers often seemed even more pointed than those of our Western colleagues.  This might be characteristic of Russian journalism.

This is the seventh time that Club members have gathered, and we think the Club has existed long enough to be able to present an objective account of current changes in Russia. This is why we want to introduce to you the new Valdai Index project to evaluate Russia's development. It is based on questionnaires circulated in the focus group of permanent Club members, and I think it fully reflects expert opinions on the dynamics of this country's development.

The Valdai Club also continues to develop new formats. As we told you last year, we introduced so-called mini Valdais - Middle Eastern, American and European - over the year. Problem reports have been added this year, and we want to pass one of them on to you. We are ready with it, and you might find it of interest. We are also planning a thematic Valdai meeting: We are actively discussing the opportunity for a meeting on military reform in Russia.

The new interesting Club projects include the establishment of a fund under the Valdai brand that would organise in-depth studies of various aspects of Russian life and make recommendations that might interest the national leadership.

Please allow me to ask my fellow Club member, Mr John Peet of The Economist, to say a few words about the index project that we have elaborated, and perhaps ask the first question.

John Peet (as translated): Thank you very much. Thank you, Svetlana. Thank you, Mr Prime Minister, for finding the time to meet with us.

As Ms Mironyuk said, this year our Club has discussed  the history and future development of Russia. I think it would be correct to say that the theme was presented rather vaguely, and in a darker light, by the Russian party. As for the question of the Valdai Development Index... We asked various experts and analysts what they thought about the changes happening in Russia, how Russia has changed in recent years, and I think it would be correct to say that conclusions from the index were rather negative. If you allow me, I will read three comments from the 2010 report.

First commentary: "The results draw attention to the trend of stagnation in Russia, which mainly manifests itself in economic, scientific, social and cultural development," and further on: "The group holds that modernisation remains more of a slogan than actual political trend." And again: "There is almost no real modernisation, restructuring or diversification. Oil and gas remain basic sources of income, there is nothing to curb corruption, and innovation is impeded." We conclude that this trend may persist for ten to fifteen years. My question is: Mr Prime Minister, you have been president and prime minister for eleven years. Since President Dmitry Medvedev published his article "Forward, Russia!" a year ago, to present a conceptual programme of reforms in Russia, the following conclusion can be made from the report: very few things have happened on the road to modernisation, and Russia has not achieved much. I would like you to tell us whether you think it is time to accelerate modernisation in Russia, demand more resolute reforms and possibly toughen the fight against corruption in Russia. Thank you very much.

Vladimir Putin: This is somehow not the Russian way to open a meeting. The conversation will evidently not be successful if I do not wish you a nice meal and you do not raise a glass of vodka. Let's start with this. Welcome to Sochi!

Voice: Thank you.

Vladimir Putin: Now, let's talk about modernisation, fighting corruption, and so on. Naturally, economic modernisation and diversification (diversifying the Russian economy to modernise its structure and make it an innovation-based economy) remains one of our most pressing goals.

Look at the national development programme through 2020, and you will see that it presents the main principles and sets the basic goals in sufficient detail. Today's agenda is a step in the development of the 2020 programme. What President Medvedev formulated in the agenda which he proposed is still absolutely relevant now and in the near future. It is nothing extraordinary, of course. The situation that the world economy, including the Russian economy, found itself in - I mean the global financial and economic crisis - changed our tactics some way or other. We have to redirect resources to anti-crisis measures. But, keep in mind that, even when we do so, we still act in such a way that does not conflict with modernisation but rather promotes it.

What's this all about? Rhetoric aside, what specific steps should these decisions involve? Among other things, we're set to scrap customs fees on technological equipment for sectors that we see as pivotal for the development of the national economy. And many of our companies are already benefiting from this privilege. Here's an example I cited earlier (I often go to other regions in the country and visit major enterprises there): A group of companies in the chemical industry have dramatically cut down on their consumption of water, heat and electricity. How have they managed to do this? Thanks to innovative technological equipment, which they imported duty free after the customs fee had been scrapped.

That's a specific example of modernisation in action. But what's the idea behind it? It's quite simple: Until recently, we could get by [without taking the trouble to modernise our economy], whereas now that the world economy is in crisis, it's no longer possible to survive and be competitive without modernisation. So, speaking of concrete steps toward that goal, this is just one such step, but there're many other examples.

And, of course, we'd like to advance that movement, make it more productive. However, our objective is not to make an impression, but to set forth conditions that would enable the country to move forward smoothly, without any major fluctuations. We wouldn't want it to have any ups and downs, swinging back and forth. We had too many such disturbances and changes in our recent history. What we need now is a stable, calm environment that would ensure incremental development. And I believe we'll make this happen. You know, the main indicator of our performance - or one of the principal indicators, anyway - is public sentiment, which has a direct impact on demographic conditions.

Only recently, it was commonly believed that Russia would not be able to get out of its demographic deadlock. In the past few years, however, we've seen some unexpected positive shifts take place, with the birth rate rising and the death rate decreasing. Sure, there's still a long way to go. But already, over the last four years, we've seen life expectancy extended by five years, which is quite a leap, really. Last year, for the first time in many years, we saw no population decline. And for the first time in the past decade and a half, we've the birth rate steadily growing.  All this goes to show that despite the economic downturn, many of Russia's families now have a sense of stability, which lets them expand their family planning horizons.

Let me emphasise once again: We've had to divert some of our resources. Nonetheless, even in the current crisis period, we've taken steps we didn't take in more favourable conditions. Thus, we've begun setting up institutions to support high-tech exports. We had very few, if any, such institutions before. Now we've started to redirect resources to areas like this one.

There're many other steps we are taking. Again, our latest achievements are quite satisfactory, although they may not look particularly spectacular. After all, what we're seeking is not to make an impression, but to pave the way for incremental economic development.

Please go ahead with your questions.

Alexander Rahr: Mr Putin, a traditional question from Germany. Germany is Russia's very close business partner. I've been wondering therefore how appealing your proposed privatisation of Russia's industrial structure could be to foreign investors, without whom the country's modernisation will be hard to follow through, I think. I've no idea how you see it, but, in my view, you're offering them the role of some minor partner in those public-sector holdings slashed for privatisation. I hear talk in Germany that the European business community has big ambitions and that it would like to make large investments in the Russian economy and be able to manage it, at least in operations that don't belong to Russia's top-tier strategic business. Will Russian legislation be modified accordingly and are you going to continue attracting investors from Europe in particular? Thank you.

Vladimir Putin: Any economy is interested in attracting direct investment. Curiously, in Russia it's been growing despite the crisis - by 21 billion in the first half of the year. I may have the statistics wrong, but that's an approximate figure.  We've decided to reduce our list of the so-called strategic operations, as you may know.

In just about any country, there're certain sectors and companies of which the state takes particular care and where it has to impose restrictions on foreign investors' activity. That's not to say they have no access whatsoever. It's just that the state keeps such operations under closer scrutiny than others.

In keeping with our effective laws, we don't bar foreign investors from such operations. But there's a formal procedure to undergo - all related decisions have to get the go-ahead from a government commission. It holds regular sessions to consider decisions submitted and, as far as I'm aware, it hasn't flatly rejected a single one so far. There have been decisions we put on hold at the request of the concerned agencies, but, sooner or later, we get back to them, and this process has continued quite smoothly, by and large. There're certain restrictions for enterprises in the defence sector, of course -- which is only natural; there's nothing wrong with this.

Moreover, when we see that foreign investors' involvement is obstructed in companies whose development we see as a priority, we may make an exception. Like it's been done for our Italian partners in the aviation industry. And this isn't the only positive example we have.

Generally, I don't think Russian law is more conservative than the law of any other European country or the United States from the standpoint of foreign investor access to strategic projects.

We remember the controversy around the opportunity to use Arab capital for infrastructure projects in the United States and what decisions its port and other infrastructure authorities made. We know that a special commission has been established, where secret services are represented, and so on.

In this sense, I think that our law is even more liberal than in some other countries. We will follow this road and will not create any barriers to investment.

On the whole - I have cited these examples already - the oil and gas sector, which was mentioned, is the chicken that lays us golden eggs. It is a great part of the Russian economy. We admit everyone there. Many global companies are working in Russia. I am not sure that all the other countries of the world are as liberal in admitting foreign investors to such pivotal sectors. However, we are doing this, and we will do it later because we think that it promotes the interests of the Russian Federation.

Please take the floor. Speak up please.

Andreas Rinke (as translated): Mr Prime Minister, I would like to continue on the energy theme. I have a strategic question to ask. Western Europe talked last year about energy and supply security. This year, we are talking about prices. Even German companies try to obtain long-term contracts, lower prices and new supply chains. Are you not afraid that new suppliers - Shell Gas, for instance - might undermine the Russian state's income base because, possibly, you will no longer be able to sell natural gas at previous prices?

Svetlana Mironyuk: Please introduce yourselves, colleagues.

Andreas Rinke: Andreas Rinke.

Vladimir Putin: I know the discussion and I know the claims certain experts make about some of our oil and gas companies, including Gazprom, due to an inflexible attitude toward price formulation, as some experts allege. This is a matter for expert evaluation. What's more profitable for a company - to be more flexible and make concessions to retain its full market share or be tougher, don't give in and take a loss in market share?

The people working at Gazprom aren't Gazprom's enemies. They have a policy to strictly observe the terms of the existing long-term contracts because they think it's best for them. I will keep my personal feelings to myself. It is their policy; they know what they're doing and are take full responsibility for it. So they should given the opportunity to walk their own way.

As you can see, the gas market is generally in revival. The US shale gas development plans are a sensitive issue for us. It will certainly increase competition for the Russian product on international markets. But this is a complicated issue, also from an environmental prospective. Shale gas deposits require flooding. It is complicated. Production costs need to be estimated, as well as potential production volumes, and how and where it will be distributed.

Qatar is a rival gas supplier, and Russia had to deal with competition in Europe last year. They had to switch to Europe because their American partners restricted their traditional market. What does this mean? It means that Russian producers must be more efficient, that's all. We do not see a catastrophe here. Their revenue may decrease, but the loss could be compensated for in a different market. And with global energy consumption steadily growing, I do not see any problem at all.

You must also know that global energy experts predict a steady growth in consumption. However, the structure of consumption will remain practically unchanged. There may be a very insignificant change despite all the efforts to develop alternative fuels. You can't convert large power plants to wind generators, although the idea is certainly tempting. You won't be able to do that for several decades because it's impossible. Impossible!

Mr Rahr from Germany, who has just asked some questions, must know that the German government has decided against closing nuclear power plants. Why? Because there is no alternative, that's why, because nuclear power generation is the only available alternative to oil and gas today. These projects exist. They are viable alternatives. All other ideas are just for fun now.

What you said about Gazprom's losses due to the economic downturn, and its hard line position in talks with its partners - well, we know all that. But we do not interfere with the daily management at Gazprom. Let us not forget that while the government controls 51% of Gazprom, it does not fully own it. Foreign shareholders have large stakes there too, and Gazprom management has the right to make its own decisions.

Let us go over to that side. Speak up please.

Richard Beeston: Thank you Prime Minister. Richard Beeston, The Times, London. Last week we talked about the past, about Russian history and especially about the turbulent 20th century which was fatal for many Russians. I am amazed that with seven years to the centenary of the Bolshevik Revolution, Vladimir Lenin is still lying on display in the Mausoleum in Red Square, with guards standing around him. Don't you think its a good idea to finally bury him before this event, to help Russia turn a new page? Thank you.

Vladimir Putin: Are you from Great Britain?

Richard Beeston: Yes.

Vladimir Putin: Then I have a question for you. Was Cromwell better or worse than Stalin?

Richard Beeston: Probably just as bad. But he is not displayed on Trafalgar Square, but somewhere in Westminster, at the back.

Vladimir Putin: But there are monuments to him all over Britain, everything in its season. When time comes, the Russian people will decide what to do. History is something that avoids hassle. Next question please.

Samuel Charap: Center for American Progress, Washington. Mr Putin, suppose you sit down with President Medvedev at the end of 2011 to decide which of you will run next, as you said last year, and decide that it should be you. Suppose you win the majority of the vote. If that happens, do you see any potential harm for the Russian political system's development? Thank you.

Vladimir Putin: US President Franklin D. Roosevelt was elected for four terms running. Four terms running! That was not in conflict with the US Constitution. Neither I nor President Medvedev will ever do anything which would be against the Constitution of the Russian Federation, the country's main law.

This constitution was approved through a democratic process, and I do not believe any action within that process or within the constitutional framework could harm the country's democratic development.

Both President Medvedev and I have mentioned what we will do in 2011 and early 2012 on a lot of occasions. We will take our decisions based on the situation in the country, on the progress we have made, and on public sentiment. It is too early to decide now. What we should do now is our job, which each of us is doing. I believe we are quite effective as a team, and that's what's important.

Good. Next question, please. Go ahead.

Sheng Shiliang: Mr Prime Minister, first of all, I would like to thank you and thank the builders for their work on the East Siberia-Pacific Ocean pipeline. I wouldn't have believed that the two sections of the pipeline would be connected so soon had it not been for such talented professionals. Here is my question: after your trip to Russia's Far East, will the government have new ideas on how to diversify the region's economic structure, or the national economy as a whole to emphasize cooperation with Asian countries, not only China? Thank you.

Vladimir Putin: The development of the Far East and East Siberia is a priority in our regional policy. These are vast but scarcely populated territories with huge potential. Of course, developing their raw materials would be the easiest solution, but even this will not be simple given the lack of infrastructure.

However, we think that high-tech sectors can be developed in Russia's eastern territories. Most importantly, prerequisites have been created for this. I am referring to aircraft production. As you know, they produce Sukhoi, the world's best, or one of the world's best combat aircraft - I don't mean to offend anyone.

We have also begun building a new modern civilian aircraft there with our French partners, the Superjet 100. French companies are involved in building engines for it, Italians are supplying avionics, and other European partners are also involved. We plan to market this new plane jointly with Americans.

There are also good possibilities and prospects for cooperation in shipbuilding with some Asian countries - Japan and South Korea. We are near to an agreement to build two new shipyards. We think Russia has its own niche in this market; we are not going to compete with South Korea in building large vessels. It has shipyards in Busan and other places and we don't need to compete with that.

As for specialised sea-worthy commercial ships, this is something to consider; Russia could be quite competitive in this sector, notably fishing vessels, ships for geological exploration, oil and LNG transportation, and other specialised ships. The prospects are good for us.

There are other things we can focus on. You know that the 2012 APEC summit will be held in Vladivostok. We are not just preparing for the summit, but are actually building a new city there. After the summit, it will be used for the new State Federal University, which I hope will actively cooperate with its partners in China and other Asia-Pacific countries.

We have broken ground for a new space centre nearby, in the Amur Region, and will allocate considerable funds for it. The programme has been estimated at about 170 billion roubles.

Construction is to start in 2011 with the first launches planned for 2014 or 2015, most likely 2015. The second stage of the project is to be commissioned in 2018, when we will be able to launch cargo spacecraft from the spaceport. In 2020 we intend to make first manned flights from the space centre.

I have mentioned these projects because I am thinking about them, but there are other growth points in the region. We will certainly highlight the development of an innovation economy there.

Of course, our partners are interested in the mineral resources of East Siberia and the Russian Far East, including oil, natural gas, gold and coal. For example, China is interested in the huge coal deposits, including coking coal, located in the regions adjacent to China. You know that such deposits, for example in Tyva, are among the world's largest deposits. The same is true of oil and gas.

You mentioned the construction of a branch oil pipeline to China. We are building a trunk pipeline from East Siberia to the Pacific Coast with branches to Asian-Pacific markets. The project implies more than building a branch to China. We have invited our Chinese partners to participate in oil production in Russia, while Russian companies have been allowed to become shareholders of oil refineries in China and the distribution system, including filling stations. This is not just selling oil; this is general cooperation in crucial hydrocarbon development.

We hope very much that our relations with China and our other Asian partners will also develop in the other spheres I mentioned.

Questions, please.

Sinan Ogan: Thank you. I am Sinan Ogan, the head of the Centre of International Relations and Strategic Analysis, Turksam.

In the 1990s, Russia and Turkey competed in the energy sphere, but now we enjoy bilateral cooperation. Do you think South Stream and Nabucco are rival projects? Mr Erdogan and Mr Berlusconi say they are not rivals.

I remember that you said during your visit to Turkey that these two gas pipelines are competing projects. Have you changed your view? And what do you think about the future of the Samsun-Ceyhan oil pipeline? Thank you.

Vladimir Putin: Nabucco's biggest problem is lack of guaranteed gas supply. The pipeline does not have guaranteed gas sources, and I don't know if it can find any. Russia will not provide anything [for the pipeline], and Iran has not yet developed the related deposits. The other possible supplier is Azerbaijan, but they are only producing small amounts of natural gas and, besides, they have signed a gas supply contract with Russia. There is Turkmenistan, but it is unclear how much gas it can supply because a gas pipeline has been built from Turkmenistan to China with a capacity of 30 billion cu m. It is not clear if Turkmenistan will be able to supply gas for Nabucco.

There is one more problem in the region - the territorial dispute between Turkmenistan and Azerbaijan over the delimitation of the Caspian Sea.

In my opinion, building a pipeline under these circumstances, this unsettled dispute, will be difficult, to put it mildly, if not impossible.

These problems may prevent the implementation of the Nabucco project, although theoretically it is possible to build that pipeline, provided the concerned companies invest billions of dollars in it without signing preliminary contract. Good luck and Godspeed to them; I see nothing dramatic in that possibility.

I'd like to tell you that we have started building a pipeline along the bottom of the Baltic Sea despite the initial problems. It will start pumping gas next year. We are working fast. By the end of next year, in November 2011, this gas is to be delivered to consumers in Germany.

We also acted quickly in the case of South Stream, and we hope for full-scale cooperation with Turkey. We have good relations with the Turkish government led by Mr Erdogan (Recep Tayyip Erdogan, the Prime Minister of Turkey) and with President Gul (Abdullah Gul, the President of Turkey). It should be said that this is a major factor in improving interstate relations with Turkey, and that we believe they are reliable partners.

The situation with gas transport to Turkey is currently unfavourable because of terrorist attacks and explosions on the pipeline from Iran. I'd like to tell you that we have responded to the appeals of our partners and friends and are supplying it with the required volume of gas.

We are also considering building a Blue Stream II pipeline across the Black Sea to Turkey. The decision will depend on the consumer market in Cyprus and other countries. Israel is unlikely to import our gas, so we should consider other consumers. We are discussing these options with our Turkish friends.

Sinan Ogan: But what about the Samsun-Ceyhan oil pipeline?

Vladimir Putin: Oh yes, Samsun-Ceyhan. We promised Mr Erdogan that we would take part in the project, and we will. We will fulfil our promise.

Our task now is to ensure the supply of oil for that pipeline. We are in talks with Russian companies and our Kazakh partners and friends, who are ready to supply Caspian oil for that pipeline.

I think this project can be implemented, and I have reason to believe that we will do it jointly with Turkey.

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