Answers of Russian President Vladimir Putin to questions during a news conference with Russian and foreign journalists (excerpts)

- Vladimir Vladimirovich, please tell us what has Russia's leadership chosen as its priority directions for the upcoming G8 summit? What are the topics? What answer would you give sceptics who say that Russia does not belong in the G8.

- We chose the topics based on the themes that are being put forward for discussion at the G8 summit this summer in St Petersburg. The problems and challenges that are literally facing humanity. This the first thing.

The second. When choosing certain themes, we deliberately tried to choose those in which Russia could actively and effectively take part in finding a solution to the problem.

For this reason it was natural to make our choice during consultations with our partners, and we regularly work with our partners from the G8, both during the Sherpa meetings and at the highest political level. I am very thankful to our partners for the help and support they gave us both before choosing the themes and during the preparation which is now underway. So for this reason it was natural for us.  We first chose energy security in the world, second the fight against infectious diseases, and third problems concerning education. In addition, all of these themes are constantly being discussed in the G8 in one or another form, style or amount. We are suggesting them as core topics. All of our partners have agreed to this.

Regarding those adversaries you mentioned who say that Russia does not belong in the G8, I know that our country has such adversaries. They are stuck in the previous century, all these Sovietologists. Despite the fact that the Soviet Union has ceased to exist, they are still there because they do not have another occupation. What can we say to them? I know the mood of the G8 leaders. No one is against Russia being included and actively participating in this club because nobody wants the G8 to become a meeting between fat cats, especially since differences and inequalities in the world are increasing. The difference between the quality of life for the so-called golden billion and the poorest countries of the world is growing. On one hand, Russia acts as an excellent example due to its economic and financial growth. Let me remind you that we have a surplus budget and a trade surplus. The relationship between our external debt and GDP is 30 percent, in 2000 it was 80 percent, and today this is one of the best such indicators in the world. Everything bears witness to the fact that Russia is pursuing a correct measured economic policy. But at the same time, unfortunately, we cannot brag so long as our population is not rich. A great deal of our population is poor. This is our misfortune and our main task: diminishing the number of poor people in our country. And in this sense, as a country with a developing economy and social sector that is better than any other, then maybe in the G8 we can understand the problems of developing countries. For this reason Russia's participation in the G8 is absolutely natural.

In addition, the G8 is a club which addresses global problems and, first and foremost, security problems. Can someone in this hall imagine resolving, shall we say, problems concerning global nuclear security without the participation of the largest nuclear power in the world, the Russian Federation? Of course not. So everyone who talks about this, whether Russia belongs there or not, can just talk. It is their job. The dog barks, the caravan rolls on.

- In the enterprises and cities associated with the Federal Atomic Energy Agency, and I represent one of these cities, there is a great deal of interest in the global initiative that you talked about last week. You said that during the G8 summit of the Russian presidency you shall propose creating international centres that perform certain functions in the nuclear fuel cycle, in particular, enriching uranium for the countries who are not members of the nuclear club.

Please tell us why Russia needs this?  What does it mean in practice? And what tasks for the Federal Atomic Energy Agency does this imply?

- We all know perfectly well how tense the world energy situation is becoming. Many countries of the world including the Russian Federation, the United States, and Europe are actively studying the possibility of alternative sources of energy: hydrogen, thermal energy, wind energy, biological resources and so on. Now people are saying that it is possible to use certain materials from the moon. Right under our feet we have opportunities in nuclear energy that are not being taken advantage of. And of course many members of the international community are interested in developing nuclear energy for peaceful means. Along with this many issues and problems linked with the proliferation of nuclear weapons arise during the implementation of these plans. Because there are a minimum of two problems which  cause concern: they are enriching uranium and working with radioactive fuel. Because both can be used to create fuel for nuclear weapons and nuclear weapons themselves. How can we find a solution which will allow us to support those who wish to develop their nuclear energy and at the same time ensure global nuclear security? One of these propositions was made in St Petersburg during the meeting of the Eurasian Economic Community. We suggest creating a network of centres that deal with that part of the nuclear fuel cycle concerning enriching uranium. These centres would be equally accessible to all those who want to participate in developing atomic energy together, there would be no discrimination. This also includes our Iranian partners. You know that the Russian Federation already made this proposal to Iran quite a long time ago. At a meeting in St Petersburg my colleagues, the heads of Uzbekistan and Kazakhstan, did not rule out participating in this project.

In this way it could be designed from a long-term perspective with the participation of countries that have important reserves of raw uranium. But there need not only be one such centre. The Russian Federation is a natural partner for resolving such tasks, because of the highly developed level of nuclear power in the country, the presence of schools, experts, human resources, and the development of nuclear energy infrastructure.  Such centres could be created in other states of the nuclear club and, I repeat, along with ensuring the provision of non-discriminatory access to all those who want to use them.

As to the Russian Federation, I draw your attention to the fact that approximately 16 to 17 percent of the energy we generate is derived from nuclear power. In some countries, including the European Union, in France for example, nuclear energy accounts for almost 80 percent. If in 20 or 30 years we attain 25 percent then this is already quite good. Nuclear energy for peaceful means is now concentrated in the European part of Russia, particularly in the Urals, and we have many northern territories which need additional energy resources. Of course, we must do this in conformity with modern security requirements. There are the so-called fast reactors which in practice are very safe. I have already spoken about this more than once and experts know what to do in this sector. We very much expect effective cooperation from the part of the nuclear club and all those who want to take part in this joint effort.

- Vladimir Vladimirovich the new year started with a new low point in our relations. This is linked with the energy or gas wars, if I can call them by that name. And our relations already depend a little bit on the weather. In your opinion, how is the situation developing? And the question I have been asking for a number of years: when will there be a thaw in our relations?

Thank you.

- It seems to me that this is not linked to the weather but rather to the ability of different Georgian politicians to correctly evaluate the situation concerning mutual relations with Russia.

There was an unfortunate incident, and yes, deliveries were suspended. Our experts worked around the clock in the mountains in minus 30 degree weather to restore Georgia's power supply.

What have we heard and seen from the Georgian leadership? Some were simply spitting at us. And the citizens of Georgia must understand that such policies vis-a-vis Russia will not improve the situation of the ordinary Georgian. The responsibility for this lies with the Georgian authorities.

As for our intentions, we consider the Georgian people one of the very closest peoples to the Russian people, both with respect to history and culture. You know how many Georgians lived and live in Russia and what an enormous contribution the many citizens of the Russian Federation and the former Soviet Union have made towards developing and strengthening Russia. We very highly value this and never forget about it. We hope that it constitutes a good bridge for strengthening friendly relations in almost all directions. We are ready for this.

- Vladimir Vladimirovich I would like to return to economic issues and to probably the most important sector, Russia's oil and gas sector. What are its prospects for development and along which lines shall it develop? Towards deprivatization, nationalization and strengthening the monopolies that already exist or towards expanding the private sector in this branch as well? Thank you.

- I draw your attention to the fact that major multinational companies dominate the world energy market. If you look at any of them, any major American company, any European one, then these are large, powerful and, as a rule, multinational companies. We must develop in this same way. In some countries, not only in the OPEC countries, but in European countries such as Norway, the oil and gas sector is practically a complete state monopoly. Statoil and the second largest company are also state companies. We are not going to do things that way. Yes, today Gazprom is a state-controlled company but we talked about this and made announcements to this effect several years ago, saying that the state will once again control Gazprom, Russia's major energy company. We did this and did it openly but we also liberalized Gazprom's market shares and now investors have the possibility to enter the market as shareholders. In addition to this, we chose a strategic partner. You know how many German companies are present here – 10 percent. In essence, this is an international company. Rosneft is going to develop along these same lines. As you know, Rosneft's experts are now getting ready to issue shares on one of the world's stock exchanges. In other words, it shall also be an international company.

We have about ten quite large private oil companies such as LUKOIL, TNK BP, Surgutneftegaz and others – there are a great deal of them. Nobody is going to nationalize them, nobody is going to interfere with their activities. They are going to develop according to market conditions like private companies. I think that such a balance is better for the Russian economy today, and this includes active participation from our foreign partners and shareholders. Shall we look at TNK BP which, as you know, is 50 percent a Russian company and 50 percent owned by British Petroleum. I regularly meet with shareholders. Our British colleagues have told me that they are happy with working in the Russian market.

In my opinion, already one third of BP's total extraction takes place in Russian territory. One third or rather one quarter, I would not want to exaggerate. More precisely, one quarter. This is a huge volume. And the positive side to this is that BP's reserves in Russia are growing. And the Russian government goes on allowing this company to control more and more energy resources. And this is also a contribution towards stabilizing the international economy and international energy situation.

We shall continue further along this path.

- Since the start of this year, Russia has taken a firm line in applying market prices to sales of energy resources to our neighbours. A lot has already been said on this subject but I wanted to know, do you not think that the political opportunities lost as a result of this policy might in the long run prove more important than the extra revenue made today?

- I don’t think that the revenue received through introducing market prices for our closest neighbours will damage our policy in the post-Soviet area. Moreover, I am convinced that, on the contrary, it will help us to achieve our foreign policy goals and objectives.

I would like to point out that we did not suddenly decide to switch over to market prices with our neighbours, as some claim. After all, non-market pricing methods – which essentially amounted to subsidising the economies of the former Soviet republics at the expense of Russian consumers, Russian citizens – were in place for 15 years. Subsidies for the Ukrainian economy alone cost Russian citizens $3 billion-$5 billion every year. Every year! By way of comparison, if I recall correctly, U.S. aid to Ukraine came to a total of $174 million last year, while here we are talking about $3 billion-$5 billion every year.

The Federal Republic of Germany, you know, puts enormous amounts of money into economic recovery in its eastern regions, but it is paying for the reunification of the nation, and what are we paying for? That is the first point I wanted to make.

Second, these subsidies, this help from our side over the last 15 years, no one has even noticed it, as if this is just the way things ought to be. But this is not the case. We have our own economy, our own country and our own citizens, our own pensioners, military servicemen, medical workers and teachers and other public sector workers who need our support. And we have long been talking about a transition to market prices. This did not just happen overnight at the end of 2005. I would remind you that we have been discussing this issue with Ukraine for several years now, and we also discussed it at the beginning of 2005. We have also discussed it with our other partners and are discussing it today.

Finally, none of our decisions regarding the transition to market prices are in any way an attempt on our part to simply dictate our will. Previously, we concluded an agreement with Ukraine every year that set out the conditions for our gas supplies to Ukraine. This same agreement also set out the conditions for our gas supplies to Europe. Over all those years Europe was dependent on our agreements with Ukraine. At that time political considerations and unclear agreements really did dictate the price of Russian gas supplies to Ukraine. Today Russia and Ukraine have made a transition to a clear pricing formula. Pardon the vulgar expression, but we did not just pick our noses to get this price. There is a formula that is pegged to world prices for oil and for oil products, gasoline and heating fuel. This is all quoted on world markets. It is just a mathematical formula and does not depend on us. We apply this formula to all the western European countries, and this price, you could say, is determined by the world market independently of the Russian government’s will. Such is the situation regarding Ukraine.

Regarding our supplies to western Europe, we have signed not one contract, as was previously the case, but two contracts – one on supplies to Ukraine and the other on transit to Europe. It is this that that will enable us to guarantee stable supplies to our customers in western Europe.

I think that this marks a huge step forward – a step taken by Ukraine and Russia towards ensuring stability on the European energy market.

- I will ask my question in French, if I may. Channel One.

Many journalists in Europe, and also some European leaders, think that Russia is using gas and energy supplies as a weapon to achieve its political aims. Could we say that the gas pipelines of today’s Russia have replaced the missiles of the Soviet era?

Thank you. 

- For a start, we still have ample missiles. What’s more, we are developing our nuclear deterrent force. As you know, we recently tested a new ballistic missile system. The year before last we successfully tested a new missile system that as yet has no equivalent anywhere else in the world. I showed the President of France the principles of how this system works in all trust when he visited one of our military space facilities. President Chirac knows what I am talking about. This is an important new missile system that is not a response to ABM systems, because it does not matter to these missiles whether there is an ABM system in place or not, for, as I have said, they operate at hypersonic speed and can change their trajectory both in terms of course and altitude. ABM systems, meanwhile, are designed to provide defence against ballistic missiles that follow a ballistic trajectory to reach their targets. We are talking about a completely different system. But this is a missile that can deliver a nuclear warhead.

Regarding energy, I already explained just now when answering the question raised by your Russian colleague that we are switching to the same pricing system with our partners that we already use with Germany, France, Bulgaria and Romania. This pricing system is based on a formula. I can outline it for you – it isn’t complicated. You take the average base price from last year, add 0.5, multiply it by the average base price for gasoline, add 0.5, and multiply it by the average base price for heating fuel. This does not depend on us. It does not depend on the will of the Russian government. Whatever price the market sets for oil and oil products, such is the price we will use with our partners. This is the fairest and most transparent pricing method. We have been using it for decades now in Europe. If we can use it with the Germans, why should we not be able to use it with Ukraine?

Aside from anything else, as a representative of the western European press, you should know that bargain basement prices for the former Soviet republics create problems for the development of major industrial sectors in western Europe. If you have the Ukrainian steel industry, for example, receiving $50 per 1,000 cubic metres and benefiting what’s more from a very cheap labour force, this creates conditions for dumping on the world metals markets, and the same goes for the petrochemicals market, or the market for fertilisers. This lowers development prospects for industry in western Europe and jeopardises jobs in Europe. Is that not clear?

We are not discriminating against customers in the former Soviet republics but are simply applying equal conditions to all, and we think that this is a fair move. It is therefore absolutely unjustified, in my view, to speak of us using a new ‘energy weapon’.  

- Mr President, in your Address to the Federal Assembly last year, you referred to the bureaucracy as a ‘haughty caste’ and you have said on many occasions that the state should withdraw from sectors of the economy where its presence is not justified. But last year alone private companies in the oil and gas sector were acquired by two major companies that are controlled by the state and have senior civil servants acting as chairmen of their boards of directors.

PUTIN: What did they acquire?

QUESTION: They acquired stakes in these private companies. My question is: does this process of what is essentially de-privatisation not contradict your plans to fight bureaucracy and corruption? Thank you.

- These acquisitions are not in contradiction with my plans because, for a start, they took place on the market, on the basis of market principles. Second, regarding these companies you referred to, and I assume you are referring to Gazprom and Rosneft, Gazprom is already a joint-stock company with foreign capital, and we have liberalised the market for its shares, and Rosneft is preparing, as I have mentioned, to issue its securities on one of the world stock exchanges and will also attract a considerable number of foreign investors. This is a conscious choice on our part. These two companies will remain under state control in the sense that the state will still be the main shareholder, but they are working under market conditions. When I spoke about the unjustified presence of the state in some sectors of the economy, I had in mind purely state-owned enterprises linked, it seemed earlier, to important infrastructure or to the defence industry, but in reality not having anything to do with either sector today.

Regarding the oil and gas sector, I have already said that no nationalisation will take place in our economy, unlike, say, in Norway or in some of the OPEC countries. The overwhelming majority of companies in our oil and gas sector are either absolutely private or have mixed capital, and we will continue to maintain this balance. 

- I have a question concerning Russian-Ukrainian relations in the gas sector.

It seems that everything had been resolved at the beginning of this year, that you agreed on everything. You met personally with Yushchenko. Everything seemed normal.

Now, as is well-known, Ukraine is once again starting to take gas outright and Gazprom is constantly increasing deliveries to Europe.

What is your impression of this situation?

- First of all I consider very positive the fact that we were able to agree with Ukrainian leadership on a common approach towards supplying Ukraine with Russian energy. It is positive both for our bilateral relations and for the energy situation in Europe and in the world.

And I consider that Ukrainian leadership took a courageous and correct step when it accepted these agreements. These agreements were a compromise and each party is satisfied with them. Along with this, you are correct. We agreed on everything, signed everything regarding prices, fixing prices, the volumes of deliveries. And despite all of these agreements and without any conflicts, we were faced with the situation in which a large amount of Russian gas is being siphoned off from the pipelines through which it is exported to Europe. During a cold period in Ukraine this amounted to 34-35 million cubic metres of gas per day. Gazprom wanted to remake these losses for western European consumers and unilaterally increased daily deliveries by 35 million. What happened next? Our Ukrainian partners continued to take 35 million daily in addition to the supplementary amount that Gazprom was delivering, that is 70 million cubic metres a day.

And now I would like to ask a question to those sceptics who didn't believe it was necessary to construct the Northern European Gas Pipeline under the Baltic Sea. Is this pipeline necessary to ensure a stable gas supply to western Europe or not? Whoever talks about this theme in the future must reflect on whose interests they have at heart, the interests of their own population or other interests that are difficult to justify. 

We expect that we shall be able to find an equilibrium in our relations with our Ukrainian partners. I am happy about the fact that, in contrast to previous years, our Ukrainian partners said straight out that they were taking this gas, there was no tentative to cover up, nor to distort the fact. It is important to us that we are paid for this gas according to the prices we agreed on. This can be done either at the end of February or in another way, seeing as the quantity of gas delivered to Ukraine, the quantity of Russian gas, is limited to 17 billion cubic metres a year. This means that at one point the total volume shall be determined and then we must agree on the new volume. But it is important that this is not hidden but discussed openly. I hope that these discussions will lead to a positive result.

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