News conference of Russia’s Finance Minister Alexei Kudrin

Moscow, February 11, 2006

Kudrin: It has been serious work. President Putin met with finance ministers and heads of international financial organizations in the Kremlin. His meeting with U.S. Treasury Secretary John Snow has just ended. I attended all of these meetings.

We have discussed a package of issues, including the results of the G8 conference, bilateral meetings and talks, including on WTO.

I would like to say that the G8 financial meeting in Moscow was a success. Other participants have said as much today.

I am assessing it as its chairman, a member of the G8 group of financial ministers, and the person who took part in preparing the meeting and the ministers’ statement.

As you know, statements are taken by consensus, which is why we thoroughly discussed each paragraphs before approving it. All of the ministers approve the statement.

However, many other issues have been addressed but set aside for future meetings to be held in 2006, specifically the financial ministers’ meeting in St. Petersburg in early June, which is to provide the groundwork for the summer meeting of G8 heads in St. Petersburg.

This was the first meeting of Russia’s G8 Presidency, but it was a good start. I know that my colleagues are speaking about this at their news conferences now.

We worked as a team, which was possible largely because my colleagues and I had had preliminary meetings before our conference today.

We have managed to discuss and approve coordinated decisions on the six agenda issues within a matter of four hours, or on seven issues if we take into account the conference with our colleagues from India, Brazil, China and South Africa held on the sidelines of the ministerial meeting.

Specifically, we discussed global economic performance, the situation on the oil and other energy markets, the results of the multilateral Hong Kong trade talks, aid to international development, and other issues.

The statement has been circulated, and so I will not elaborate on these issues.

What goals have we achieved?

Firstly, we think that we have given the right impetus to drafting and approving decisions on the block of questions that have been denoted as energy security.

While recognizing the unquestionable priority of market mechanisms, the finance ministers also intend to use their powers to spur the development of comprehensive dialogue between the producers and consumers of energy resources, as well as between energy companies. Of special importance is the role of the International Energy Agency.

We also touched on the issue of the Energy Charter. I will not go into details of our discussion now, but I must say that we thoroughly analyzed the task of formulating new or modernizing existing energy trade rules, investment into this sector, and data transparency.

Russia intends to continue monitoring these issues. In particular, according to one of Russia’s initiatives that has been supported, the time has come to think not only about a joint oil databank (the so-called JODI initiative) but to spread the initiative to the market of natural gas.

Secondly, we should discuss the creation of a global gas market for pipeline gas and liquefied natural gas. Joint work in this sphere done in the form of action plans could substantially extend the possibilities of this market, making it global. We will spend more time on this issue in the near future.

Moreover, everyone supported our intention to improve conditions for reliable and stable supply of Europe and the United States with one of the ecologically safest forms of energy – gas.

We also announced crucial gas projects, including the development of the Shtokman gas field where production is planned to begin in 2010 to put the field on stream with 70 billion to 90 billion cubic meters per year. This is going to become an additional reserve for the supply of main world energy markets.

There was a fruitful discussion on the role of energy in international development, including countries that are behind in their economic development.

Historically, donors have been increasing assistance in absolute numbers but largely overlooked infrastructure. Now we have Millennium Development Goals that include health, education, and sustainable development.

International financial donor institutions have overlooked energy aspects. Now we have added to this topic, to the ways in which we are going to achieve the Millennium Development Goals.

Of course it is clear that without sources of energy no health or education issues can be resolved.

We have also discussed many financial issues related to the concentration of donor efforts in key domains, honoring many earlier initiatives.

This is first of all the Multilateral Debt Relief Initiative designed for canceling the debts of the least developed countries to the World Bank’s International Development Association, to the International Monetary Fund, and to the African Development Bank. The program involves $37 billion to be paid off by the poor countries within 40 years.

Last year’s Gleneagles Initiative envisages that we, through an international effort, have to replenish or reimburse the capital of these international financial institutions to help them go on with their Millennium Goals projects and to ensure that the $37-billion write-off to countries that had received loans earlier does not implicate future programs.

Right now, the issue is to replenish the capital of these institutions. We have discussed further steps on this initiative, including Russia’s funding proposal.

For instance, Russia’s ability to repay its debt to the Paris Club ahead of time would create an extra source for contributing more resources to international organizations, and thereby implementing the initiative on debt relief. In this case Russia would be willing to increase its contribution to international financial organizations, and to close the so-called structural gap, which is associated with the commitments of different countries. This gap has not been closed for the time being. It is about nine percent.

Russia is ready to deal with part of this gap.

The ministers have focused on the implementation of other initiatives, including measures against infectious and other grave diseases, contribution to the funds to combat AIDS, TB, and malaria, additional measures to stop avian flu, and prevent poliomyelitis.

They have discussed the possibility of a pilot project against one of the most destructive diseases. In the next few years or months the financial G8 will decide together with the medical community which disease could be suppressed by concerted effort in order to considerably reduce its spread and the threat of pandemia.

We have discussed mechanisms for solving these problems, listened to reports, made several decisions, and spoken about future action.

I would like to draw your attention to the implementation of an initiative adopted by the finance ministers last September. It is about establishing an Exogenous Shocks Facility with a view to helping those countries, which have found themselves in a predicament as a result of a leap in prices on energy carriers, an earthquake or tsunami, or other events, which are difficult to overcome in a routine mode, and which require prompt interference by international community.

We have seen for ourselves that countries struck by tsunami and other disasters need prompt assistance. The Exogenous Shocks Facility is being set up with this aim in mind.

Today, a number of countries have already made their first contribution – 115 million SDR in corresponding currencies, which allows Russia to join the facility.

Today, Russia has announced its contribution of 30 million SDR, or about $43 million in value terms.

We have discussed a number of other initiatives, to which finance ministers can make a greater contribution than others by joint effort.

The same questions have been raised at the meeting of the finance ministers with President Putin. We have also discussed them in the context of the forthcoming summit in St. Petersburg, and exchanged opinions on key issues.

The list of questions is much longer, and has gone beyond our G8 financial agenda. The finance ministers have raised various questions both in politics and in energy strategy.

I think that we have had a very interesting dialog. President Putin has had two separate meetings with British Chancellor of the Exchequer Gordon Brown, and U.S. Secretary of the Treasury John Snow.

This is a brief account of the recent meetings.

I would like to thank my foreign colleagues once again for assistance in the preparation of papers, and for cooperation. I would also like to thank the International Monetary Fund and the World Bank for the materials they presented, and for their expert contribution to the solution of major global problems.

Thank you. I’m ready to answer your questions.

Question: Prime-TASS: Could you tell us whether the finance ministers discussed Gazprom’s gas export monopoly, what Russia’s position is on this issue, and whether Italy has announced its own position on energy security? I believe they were going to present their own plan.

Answer: Today there has been no discussion pertaining directly to Gazprom. But a significant part of my own speech was about gas supplies to the world market. I spoke not only on the development of a global liquefied natural gas market – we have certain plans for future work there, and we will probably air them as we take further decisions at future meetings – but also about a meaningful ways to increase gas production and create direct additional alternative routes of gas supplies to Europe to make sure that the stability and clarity of those supplies is never put in doubt, which has been the case in the past decade.

Of course we also discussed trading rules, first of all the rules of international trade. To repeat, Gazprom issues were not discussed directly. If your question was about Gazprom’s work in Russia – of course we are working to create technological conditions to ensure access to pipelines for all companies that produce natural gas in Russia and are going to compete in tenders for the development of new gas fields. We will create equal pipeline access conditions for Russian gas producers. Preparing that option is going to take time and a technological effort.

Question: (no translation)

Answer: Of course all discussions between ministers tend to be rather tense. This is a clash of different opinions. Often formal decisions are not made on national initiatives and are left for additional preparation. Of course each finance minister defends the interests of his country, interests of his community, and his own vision of common market interests; he always defends a certain position.

There was a meaningful discussion in the wake of the Hong Kong Round because not all issues had been resolved in Hong Kong. Most ministers made it clear there was a need to find a balanced solution after Hong Kong.

The decision to get rid of export agricultural subsidies starting from 2013 was important. But no less important was an acknowledgement that this is not enough. This should go hand in hand with similar progress on lowering protective tariffs and relevant progress in the services sector.

Emerging markets that could take the floor – especially agriculturally promising markets like India, China, and Brazil – stood for faster progress on reaching decisions that have not been made yet.

I can say that the decision to write off $37 billion in [poor countries’] debt is being implemented slower than we would like to see. There are national commitments but not all of them are written in governmental or parliamentary acts, which impedes the initiative. Nonetheless, we have agreed to take more active steps in this direction and make sure that we have enough government decisions – as early as this summer – to enable the initiative to become effective. Politically, I reiterate, we have received support for this initiative but important procedures should be completed first, and these procedures tend to take time and effort.

I have already talked about market rules and an energy charter. We have discussed the charter and we will continue to do it in the future. Of course we will further discuss alternative sources of energy, as there is always a dilemma between nuclear power, environment, and other issues. We have discussed the proportions and ways to diversify energy markets, which sometimes requires some extra spending. There was a serious and insightful talk with figures and analysis made by key nations and international organizations.

Question (Nezavisimaya Gazeta): Could you please clarify Paragraph 9 in the Statement on the Russian initiative to promote research on aspects of good governance in public finance.

Answer: Russia launched and all other participants supported the proposal to put best practices research on national governance of public finance on the agenda of our next St. Petersburg meeting. This is because many countries have either completed or launched fundamental reforms of finance, and first of all fiscal systems. They involve taxes, expenses, long-term planning, and work on liabilities that are still hidden but will emerge in the future – these primarily pertain to demographic problems and a need to build up retirement funds in order to avoid deficit of retirement money in the long term. Our budget systems have to be ready to face this challenge.

There are other issues associated with insufficient fiscal discipline in many countries. As a result, higher deficits [in those countries] are compensated at the expense of surpluses on emerging markets.  Imbalances grow, and we have to acknowledge that right now the imbalances in world economy and capital flows are growing.

We need to diminish these risks for the global financial system. The practices of the Maastricht Treaty have a certain history here. What we could do is consider those practices to see which limits and fiscal rules have been successful, and to see the line between country-specific fiscal solutions and general rules that can be formulated – to be implemented first of all in countries where this stage of fiscal development has not yet been completed or in countries that could have reduced international financial risks. 

Russia proposed and all the ministers supported the concept that this proposition was objective, necessary, and urgent.

We are going to set up a working group with ministers and international financial institutions. We are receiving assistance from the International Monetary Funs and World Bank in working and making decisions on this problem at our future meetings.

 I don’t think we will do that in half a year, though first decisions might come. This is a longer-term job, and we are committed to it.     

Question: Do you think China is an important financial partner? What is your attitude to the exchange rate of the yuan?

Answer: We think it was important to invite the ministers of China, India, Brazil and South Africa to today’s meeting that was held on the sidelines of the G8 conference.

It was done on Russia’s suggestion. I repeat, it was held as a separate meeting on the sidelines of the G8 conference.

We have heard the opinion of China, Brazil, India and South Africa today, which is very important. Decisions bearing on global policy should be made with due regard for the interests of these major countries. I think it was a good decision and has benefited the G8. Similar meetings have been held before, and we believe it is a necessary component of the conference.

Regarding yuan, the decision should be made by the government of China or its Central Bank. As to the influence of its exchange rate on the global economy, a tight link of yuan to the dollar is increasing the imbalance potential of the global economy, especially in that region.

To be able to compete with Chinese commodities, neighboring countries have to adopt a more restrained or a fixed exchange rate, which some of them find difficult to do. This is creating additional imbalances in these countries, as well as in global trade, which may come to the fore if China suddenly decides to revise its exchange rate.

Personally, I advocate a more flexible and controllable exchange rate, and Russia is now following this policy. It is a restrained rate that is not fully free. The global economy would benefit from a more flexible exchange rate of the yuan, but this is for the Chinese government to decide, and we have to adjust to it.

Question: Can you report any concrete results of the talks with the United States on Russia’s WTO accession? And another question: what are Russia’s prospects of becoming a full member of the G8?

Answer: We have made some progress in the course of the talks with the U.S. on Russia’s entry to the WTO.

We have formulated our positions, which have been put on the negotiating table. It will take some time to make decisions on them. We have clarified our stands aimed at bringing our positions closer together, and have taken a pause in order to determine our final approach.

U.S. Treasury Secretary John Snow confirmed his wish to complete the talks as soon as possible during his meeting with Russian President Vladimir Putin.

As to Russia becoming a full member of the G8 Financial Club, we did not focus on this issue. We have not discussed it today.

I think this will happen, but let it take place in a natural way, so that nobody questions Russia’s right to become a fully-fledged member of the political G8, given Russia’s role in tackling international problems in the Middle East, Asia, or the Far East, where it is taking part in key negotiations in the multilateral format.

Russia will prove that it has become a full member not only by its military and economic capability, but also by taking part in multilateral development programs, including aid to the least developed countries, and other projects.

Russia’s efforts have been noticed, and our work (today) has shown that the G8 meeting was very productive.

Some finance ministers have expressed an opinion that Russia is ready to join the Financial Club. The Finance Minister of Germany and several other ministers have said this, but I am not going to talk for them.

I think that we will achieve this goal step by the step in the near future.

Question (Financial Times): Russia is expected to grant access to the export gas pipeline to Europe to its independent gas producers. Could you specify how Russia is going to guarantee this?

Answer: I have already answered this question today; it was one of the first. Russia is working to create conditions for all gas producers in Russia and future winners of tenders for gas licenses to have equal access to the export pipeline. We are working on this issue; it is part of the work to improve the infrastructure and export rules.

Question: (no translation)

Answer: There is a so-called Stockman deposit on the Barents Sea shelf, which is tentatively estimated to have 3.2 trillion cu m of gas. This deposit is being developed. The plan is to start supplying gas from this deposit in 2010, and to bring it to the annual level of 70 to 90 billion cu m in several years. Leading world companies, such as Conoco Phillips, Total, and Exxon, if I remember correctly, have become involved in the project.

An international consortium will take part in this effort.

The North European Gas Pipeline (NEGP) is under construction for additional gas supplies to Europe via the Baltic Sea: there will be two legs 1,200 km each with the annual capacity of 55 billion cu m of gas.

These are just two examples of projects with the participation of our international partners. I would like to point out that the NEGP is a joint venture with Germany. German companies will receive gas production facilities, while Gazprom will get a share of the European gas distribution business.

Today, we are setting up joint projects, based on a system of checks and balances, designed to enhance the reliability of supplies to Europe.

Recently, irregularities in gas supplies to Europe in January and February have moved to the fore as a major issue. They are still felt in some countries.

In this context we should think about additional guarantees of gas deliveries to Europe. The projects I have referred to should provide these guarantees.

Since the start of the year, after we signed an agreement with Ukraine, specifying all terms for gas supplies, Ukraine initially siphoned off 35 million cu m of gas, on top of the contract. Under the circumstances, Gazprom increased its gas supplies to Europe by 35 million cu m in order to honor its contracts, and make up for the gas taken by Ukraine without any authorization.

Ukraine siphoned off another 35 million cu m of gas, or a total of 70 million cu m.

Needless to say, this affected our European consumers.

We will continue making efforts to secure gas supplies to Europe, even if it means delivering additional gas. The weather is going to get warmer, and, hopefully, Ukraine will not need to siphon off any more gas. But, nonetheless, this is a problem we are facing today.

We have spoken about this issue at the finance ministers’ meeting, and my colleagues told me to describe the situation at the news conference. Many were ignorant of these facts, and did not know that Russia was not to blame for any delays.

Talks on the price of gas are often quoted as the reason for these delays, that they were generated by Russia’s decision to raise prices.

I would like to quote one more fact, which we discussed at the meeting earlier today. In its relations with Ukraine, Russia has adopted a price formula, which has been working in relation to European gas consumers. This price is determined by the formula, which depends on the market situation. The price is calculated on the basis of the previous year’s average, and supplemented by a number of coefficients.

Thus, once this formula has been established, the price is no longer set by Russia, and is now determined under the same terms as for European consumers. This fact is not widely known.

Finance ministers asked me: “Why don’t you explain this to the media? We consider this an absolutely logical and correct price application.”

I will quote one more fact: until 2006 the volume of transit for Ukraine, or, to be more exact, the volume of gas supplies to Ukraine, was determined in the same contract that specified the price for gas transit via Ukraine. These were interrelated issues. In other words, Ukraine was a factor, which influenced all deliveries of gas to Europe.

Today, this contract has been split into two agreements. Deliveries to Europe are based on one formula, and do not depend on the volume of supplies to Ukraine. Finance ministers said to me: “But this is the right approach! Why don’t you talk about it? Why do so few people know about it?”

We have spoken about this problem. But quite often it is ignored in a situation where other factors attract more attention.

Finance ministers have asked me to talk about it, and this is what I am doing today.

Question: (no translation)

Answer: I have known Brazilian Finance Minister Antonio Palocci for a long time and have great respect for him. He attended today’s unofficial meeting of the G8 finance ministers with our colleagues from China, India, Brazil and South Africa. We discussed, in particular, global economy and trade. The Finance Minister of Brazil made a very good report, and we appreciate his contribution. I also had a bilateral meeting with the minister. We discussed some forms of fiscal policies used in Russia and Brazil, and learned many interesting facts from each other.

Today, Brazil’s payments balance is growing too, which is causing inflation problems. But Brazil is controlling these inflation trends. I think it is pursuing a correct policy. We discussed various elements and strategies.

Mr. Palocci told me: “Don’t let inflation grow to 11%, when it becomes much more difficult to control. You should bring it down to below 4%, but this is extremely difficult. But when inflation is allowed to grow to 11%, there is a risk of losing control.”

Today Russia has approached the line where it can lose control of inflation again. This is why it was so important for me to find out what Brazil was doing.

As to Brazil’s admission to the G8, I cannot tell you anything now.

Question: You said you told the other G8 members about the reasons for problems with gas deliveries in early January. In what context did this happen? Did anyone say anything on the issue? Had the other G8 members criticized Russia’s stand in the talks with Ukraine and the situation at the beginning of the year, or did you simply decide to clarify Russia’s stand?

Answer: It happened partly yesterday and partly today, after the G8 meeting. Nobody raised the issue of Ukraine at the meeting, and we did not discuss problems with gas deliveries at all. We mostly spoke about trade rules and additional guarantees.

In some cases delays in gas deliveries to Europe were mentioned. When I explained the reasons, they were accepted as “completely logical.” Why didn’t you make the explanations public, the ministers asked. Why don’t the media know about them? At least three finance ministers asked this. They had not known the reasons behind the delays either.

Question (Reuters): Do the G8 partners support Russia’s intention to repay its debts to the Paris Club ahead of schedule? The issue was discussed in detail. After all, it concerns $12 billion, which may be paid this year to compensate for the cancellation of debts of the least developed countries.

And the second question: What did President Putin mean by the instability of the global financial architecture, which he said you would discuss?

Answer: Yes, we aired the issue of Russia’s early debt repayment to the Paris Club. The discussion did not last long, because our initiative was supported by everyone, including the German minister. Germany supported the repayment of the part of Russia’s debt that was not connected with the ARIES bonds. It was mentioned in today’s statement.

I think we made a major step toward submitting a formal proposal to the Paris Club and expect a quick decision. Prepayment conditions were not discussed; I think they will not change from last year.

We certainly discussed additional methods of using this resource. The issue concerns the technical possibilities of budgets and registration of such prepaid revenues in the budgets. We have agreed to continue the discussion at subsequent meetings.

In other words, the idea of early debt repayment has been approved, but we will continue discussions of the use of these resources that have not been stipulated in these countries’ budgets. The priority will be given to national legislation and rules, but political will has a part to play too, of course.

As to financial architecture, this question bears primarily on the growing imbalances in the global economy, the movement of capital, and the need for a more restrained policy regarding spending, the accumulating deficit, and the financing of deficit at the expense of other countries, sources, and other countries’ revenues. This is what he meant.

Question (Zhizn): You said you had discussed energy prices. What do your counterparts and you think about gasoline prices? Could you give a forecast and your opinion on gasoline prices in Russia?

Answer: This is a very serious question. I reiterate that making forecasts is not our business, there are special – and stronger – analytical organizations who do that. We analyze price changes, factors that influence the prices, global economy scenarios at various prices, and how governments will respond to these possible scenarios.

Many ministers protested against price-curbing policies, and we discussed various options – how to control prices, how to stabilize them, which measures should be used. The priority is doubtless to promote long-term market stability. I am referring to access of investments, of technologies to reserves – especially in countries where foreign investments are restricted, which implies limited use of modern enhanced recovery technologies.

We have talked about and emphasized the importance of statistical data on reserves, sales, and reserve depletion in those countries.

Artificial price-curbing short-term measures are often used but rarely effective. This leads to a question of how to use world reserves: whether to use them when there is a shortage of resources; tap them when there is a significant price growth; or whether to use the accumulated reserves to bring prices down. Those practices have not proven effective enough.

We discussed various steps in these fields, but my position is that decentralization in production and supplies to the world market is a better way to avoid cartel pricing and bring down prices in the longer term through competition and access to new reserves.

Production limitations and control, on the other hand, will mean higher prices at the end of the day. When you have power to control the price and when several countries – primarily producing countries - have power to agree on price control, they have less interest in attracting investment, resources, and technologies because the price they get is comfortable in any case, and they have little incentive to increase investment and improve technology. 

Decentralization is a way to promote competition; in the long term, it leads to a more stable price trend. Many ministers share this position, but a big question remains here, and it is about a dividing line between short- and long-term objectives which all our governments depend upon.

We have to think about gasoline prices for our countries. This is important for Russia in the midterm, and of course we are working on this.

Question (Japanese TV network): Did you discuss freedom of oil supplies and political risks, especially those surrounding Iran? Did you see understanding of your counterparts – other ministers – on the Ukrainian issue?

Answer: Iran was not discussed at the ministerial meeting. We discussed risks on the world oil market but did not talk about the situation and how it was unfolding.

On Ukraine, I reiterate that this issue was discussed on the sidelines. I saw full understanding as I discussed it with the ministers, who acknowledged that the decisions made by Russia had been absolutely logical, fair, and right.

Question (Itogi): The French finance minister told a news conference that there was some Polish initiative on energy security – to use such an organization as NATO to provide it. Cold you clarify what exactly he was referring to?

Answer: I am not aware of this initiative; it was not discussed at the finance ministers’ meeting; and the French finance minister did not talk about it. So, I am not ready to comment on this.

Question (Trud): In one of your previous answers, you said many governments saw little effect in forced price curbing policies. Did you discuss a related issue, bridging the gap between Russian domestic and world energy prices?

Answer: The G8 finance ministers’ meeting did not discuss the issue of bringing Russian internal energy prices closer to world prices. I can answer this question, but outside the G8 framework.

Step by step, Russia will bring its domestic energy prices closer to world prices, which is a necessary structural move because selling resources in Russia at a very low price does not motivate our companies to save energy.

In some countries, including in the CIS, higher energy prices led to significant progress on energy efficiency. At high prices, energy efficiency investment pays off. At low prices, it does not. So we understand that if we are talking the efficiency language, we must gradually raise domestic prices.

We have discussed it with the European Union and with the U.S., including as part of our World Trade Organization accession talks. Our European partners and the United States have recognized Russia’s strategy in this domain as sufficient and satisfactory. At first, this issue was on the agenda of our WTO accession. Now it has been withdrawn.

We have a WTO commitment to a minimal domestic price for each year, at which we are going to sell energy at home. It has been agreed with the European Union and there are no objections. This plan is totally acceptable for Russia, for our industries, and for the adaptation to new conditions.

Structural overhaul is moving ahead. Just look at last year: gas prices rose by 23% while inflation was around 11%. We are going to move further in the near future, changing gas prices by 11% in 2006 and by 9% in 2007 against 8.5% to 9% and 7% to 7.5% inflation respectively. The price growth is going to overtake the inflation a little.

Another factor which will also bring the domestic price closer to the world price is strengthening the ruble. It means that the dollar-denominated domestic price is going to rise.

Question: Did you mean export or domestic networks when you said there would be equal access to energy pipelines? If you meant export pipelines, does that mean Gazprom might lose its monopoly power in natural gas exports?

Answer: In the future, access to export pipelines will be equal. I am not ready to speak about exact timing but we are preparing for that. At home, there is equal access to pipelines though the rules also have room for improvement.

Question: (Voprosy Strakhovaniya, an insurance journal): Did the meeting discuss access for foreign insurers’ branches to the Russian market as part of Russia’s WTO accession? What is Russia’s position on this, and are we going to see it changed?

Answer: The G8 meeting did not discuss this. We discussed it during meetings with the U.S. Treasury Secretary with whom there are differences on it. We shared our new closer positions and were discussing how to move ahead on this.

The Russian president has said we were not ready to admit direct branches of foreign banks in Russia. I know what foreign businesses say, that they are comfortable with working here today as 100% subsidiaries. This does not impede the development of foreign banks or 100%-foreign-owned banks in Russia. I think this is a serious argument, an argument our partners listen to.

Insurance is a different business. On the insurance market we were mainly focused on limiting the share in the capital of an insurance company and access of foreign players to obligatory and life insurance. We did discuss that but these topics are still at a confidential stage, so I am not ready to air any results.

As you know, the procedure of WTO accession is as follows: we have agreements with each country but these agreements are not opened to other countries, and later all of them come on the same day to the WTO secretariat. The secretariat opens them and comes to a single standard according to which the country is going to work with all other members. This standard represents the best conditions obtained by any country during the talks. Accordingly, we do not disclose any results of our talks with other countries.

Question (Nezavisimaya Gazeta): Did you discuss Gazprom’s access to end users of gas with the finance ministers of Italy and Britain? The European countries and the U.S. have announced their intention to reduce oil and gas consumption and increase the share of alternative and nuclear energy, while Russia is increasing oil and gas deliveries. Isn’t this a risky policy?

Answer: I did not discuss access to gas distribution with Italy and Britain. But I can answer your question regarding possible differentiation of energy deliveries in Europe and possible overproduction of energy resources.

All of our forecasts, even the most pessimistic ones, do not point to a possible reduction in (Russian energy) consumption in the next 50 years. In other words, the Russian oil and gas market is growing the fastest in the world and will continue growing in the coming decades.

According to the Energy Information Administration of the U.S. Department of Energy, which is independent of Russia, the gas market (meaning the demand for gas) will grow at a priority rate, 2.5% a year faster than the oil market. In view of the creation of a global gas market, Russia will benefit from increased gas market and consumption throughout the world and not only in the countries where the pipeline is built.

We are sure that in the next 30 to 50 years all resources of the main deposits will be in demand. I think it will not be the completion of the extension process but a stable consumption of energy.

Question (Banker): Will you comment on the recent merger of Raiffeisenbank with a Russian bank?

Answer: Subsidiaries fully owned by foreign companies are a fact of life in Russia; they extend their operation without any hindrance on our market. The transaction signed by Raiffeisenbank is a normal occurrence. As Russia continues sustainable economic growth, the investment market will grow alongside the demand for banking services and a substantial increase in the number of these financial tools.

This business is becoming attractive, including to Western companies. I welcome the flow of foreign capital into Russian banks in the form of foreign subsidiaries operating in line with the Russian legislation and submitting their financial reports to their regulator, the Central Bank of Russia.

Question: When will the ruble become fully convertible and in which countries could it become a reserve currency?

Answer: According to the existing laws, Russia will lift all restrictions on the movement of capital on January 1, 2007. This may happen even sooner because both the Central Bank and the government have the right to do this. They cannot enforce the restrictions after January 1 (2007) but either can do this independently until that day. Lifting limits on the movement of capital (and there are no financial limits on trade) would mean that the ruble will become convertible in the generally accepted meaning of this word.

This means that any day businessmen in Russia, both foreign and Russian, will be able to move their revenues abroad, convert them and place on an account with any bank outside Russia. In some cases they would be obliged to notify the tax police, but nobody will be able to force any limits on them whatever the form of transfers. The most they can be asked to do is pay a tax, just as this is done in other countries.

Russian businessmen will not be limited in operation with owner equity, the re-export of profits and resources, or investment. This amounts to a full convertibility of the ruble, which means that the ruble will become a settlement currency under international contracts.

The attractiveness of the ruble, which keeps growing stronger, will increase if Russia consistently pursues a responsible financial policy. We can hear soon, possibly this year, that the ruble has become a reserve currency in some countries. The volumes may be small, but the possibility is here.

Thank you for attending this news conference and asking your questions. I would like to use this opportunity to invite you all to attend the June meeting of the G8 Finance Ministers in St. Petersburg.