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Rustem Khamitov's interview to the "Financial Times"

The Head of Bashkortostan, Rustem Khamitov has given an interview to Catherine Hill, the Head of the Financial Times' Moscow bureau.

Transcript of the interview:

- What influence do summits have on the Ufa development?

- The answer is obvious. Of course, the Ufa summits are a historical event for our Republic. It is clear that we carefully prepare for a long time. The Russian Federation presides this year both at the SCO and BRICS association, and in this case we represent Russia, the strong and powerful country. Of course, we want to show the advantages of our country, its diversity, regions and people by the example of the Republic. It may be one of the major aims we face during the summits.

Preparations for the summit take an important place in our work. We are preparing the infrastructure, buildings and facilities. We have finished a significant amount of work. I shall not list the numbers, how much resources we have used. I can say it was very few. The fact is that Ufa was ready to hold such large events from the very beginning. Certainly we had to build and renovate some facilities, but not so many. The main problem was the almost complete absence of accommodation infrastructure. Today, Hilton, Sheraton, Holiday Inn Hotels are already working in Ufa; and Marriott Hotel is planned to be built in Ufa. We created all conditions to hold major events in Ufa.

Ufa are mentioned in international news even for a small time. Of course, it will increase the fame of our region. It is no secret that our foreign colleagues know nothing about Russia, except something about Moscow, St. Petersburg, Siberia and, perhaps, the Urals and the Volga. Russia is strong due to its regions.

Our country has a lot of decent, large territories, which work well and form the economic power of the Russian Federation. One of these regions is Bashkortostan, and, of course, we want to make it well known. I hope, it will allow us to entice a significant number of investors and people who are interested in work with us. So it is already happening.

We intend to conduct inter-regional relations. During the preparation for the summit I hit upon the idea that they would strengthen the political structure both of the SCO and BRICS, because small and medium business can connect countries of these political groups. Small and medium business will give certain completeness the whole SCO and BRICS structure.

Of course, we are inspired by the example of our neighbors. Yekaterinburg gained economic strength after the SCO and BRIC summits in 2009. Sverdlovsk region became completely different; and today it is one of the centers of the Russian economy. We expect to get the same results in our Republic. We are in a competitive field as well as other subjects of the Russian Federation. We compete for investors, for the sitting of interest enterprises in our territories, and, that is more important, for people who might work with us, start a business and create new approaches to economic development.

- Tell us about the republican economy. Granting the difficult situation, where investors will be from?

- Historically, our economy became a market economy not so long ago. In the Soviet Union we knew about the rises and declines of the economy in the capitalist countries only from books, but we experienced it firsthand, when we started to use a market model. Of course, we understand that it is impossible to concentrate on the word "crisis" and "decline in production." The objective optimism helps to overcome this kind of difficulties arising in the economy.

For us this optimism really exists. Our Republic is among subjects with a stable diversified economy, and periods of decline in industrial production always had less negative effect on our Republic than on other regions. It is, of course, one of our advantages. The economy structure of the Republic is very balanced; we have the oil refining, petrochemistry, engineering, advanced agricultural industry, large mining and smelting enterprises. The range of products, produced by our enterprises, is one of the largest in Russia. It allows us to fend off risks: the volume of production reduces in some cases and increases in others. As for this part, today we are on quite firm ground.

In addition, our debt load is quite low. Publicly funded and bank loans, which we take, does not exceed 20 per cent of our budget. In the gross regional product our loans amount the tenths of a percent. Therefore, we understand we can borrow money at any moment. And we receive such offers, but do not accept them, because we prefer to live in accordance with their income.

We are also working on the increase of the republican economic indicators. It means the attraction of investments, increase of workforce productivity, modernization of agriculture, the discovery of new ways to act, for instance, radiotronics, information technology and pharm industry. We are working on the formation of the petrochemical cluster. Previously in the USSR refineries and petrochemical plants belonged to the same network. Then, after the privatization these companies were in different hands and lost the synergistic effect that had been achieved before. Now we are trying to create the similar system in terms of resources sharing, raw materials exchanging and production of final output. This does not mean that we have to unite these companies in a single one, but their interests should complement each other. Singapore has an island of Jurong, there was built a petrochemical cluster. Owners of enterprises are different, but they act in the same direction, focusing on the production of finished goods. Today we are trying to work in the same way on the spheres of oil refining, petrochemistry, chemistry in order that enterprises complement each other in production chains and show the highest productivity.

In addition, we are also working on the development of Republican petrochemical complex at the level of increase of physical quantities. For that we need additional raw materials, and Russia certainly has it. These petrochemical feedstocks are concentrated mostly in the northern regions like Yamalo-Nenets and Khanty-Mansiisk Autonomous Districts, in Eastern Siberia. Our Republic has very few stocks for Chemical Utilization of Natural Gas. We have associated gas, but its volume is not enough, while we need a high economical growth. It means we need to ensure the delivery of raw materials from the northern territories of Russia. With the help of a number of neighboring subjects, for instance, Tatarstan and Yamalo-Nenets Autonomous Districts, we prepare a techno-economic justification for the construction of a pipeline which would supply raw materials, so-called wet gases (natural gas liquids, NGL), to Tatarstan and Bashkortostan; thus it would create new opportunities for the growth of the gas chemistry. It is a global project; and of course, it requires additional calculations, grounds and figures. It is clear that it will be realized in the form of public-private partnership. But we are working on such large projects.

We understand that the Republic of Bashkortostan has unique competencies and, above all, growth prospects. We have very good universities. Our experts have a good knowledge in the field of oil production and refining, petrochemistry. We have research institutes, many eminent scientists work with us. All this facts provide the basis for a stable economy.

We apprehend economic downturns, but it is not a determinative factor for us. Today the budget system of the Republic is balanced. We understand how to develop further; we conduct a conservative policy regarding expenditure of budgetary resources.

It allows us to have high ratings, as well as among international rating agencies. Now we stopped working with the S&P Agency for various reasons, but we work with Moody's and Fitch Agencies.

- What do you mean when you talk about the cooperation of enterprises during creation of a petrochemical cluster? IsSingaporeamodelforyou?

- I want to say the government has a great role in building relations between the enterprises in Singapore, and we have the same situation. I mean the power structures, the Republican government. We often mediate in the negotiations between the companies. It happens that they cannot agree upon the delivery of raw materials, the price of raw materials or any other resources without our help. So we always try to help and to establish a dialogue. If there is no contact between the owners of companies, we explain them that cooperation is always beneficial, it allows to increase the outcome, due to cooperation we deal with social issues, create new jobs, the Republic receives more taxes. In other words, we are working as people who stand above the conflict show the necessity of the cooperation and concerted action.

In our society personalism is strong enough, and owners of enterprises cannot agree among themselves for various reasons. In such cases the government tries to solve this problem.

- This week the Republic received an equity position in the "Bashneft". Howthisstructurecanhelp?

- PJSOC Bashneft is the largest company in the Republic. About 20 percent of taxes and excise taxes come to the regional budget from Bashneft. It is a very large quantity. We are very grateful that the President of the Russian Federation accepted our proposal and gave us a part of block of shares. How does it help? Besides the opportunity to participate in the company management, we get dividend yield and charity support. It also helps us to solve many social problems. At that charity program of Bashneft is not so big, and we do not want to overload the company with such financial matters.

Bashneft should be developed as a public company, which produces a profit for its shareholders. The federal government has 50 percent + 1 share, the Republic has 25 percent + 1 share, and the minoritaries have about 25 percent of block of shares. All shareholders should be satisfied, including the minoritaries. It is possible only if Bashneft works really well, stable, modern and dynamic, showing the highest rates in workforce productivity. Bashneft is not a "cash cow" for us. We are very careful as shareholders; we understand that today's management is realized professionally, the company works effectively, gets big profit and has the authority with the oil market. We are showing very soft line concerning interference in the work of Bashneft. The same situation is in sport, for instance, football and hockey. The owner of team does not specify how players should play and what tactics to choose. The coach does it. But the team can bring income to the owner, and in this case, we do not refuse it, because we have so many social obligations to the people.

Today the question of Bashneft has become very plain. The state and the republican block of shares will be managed at one time. We also agreed upon it with the federal government. We will not undertake any independent attempts to sell these shares or its part, in order to plug any "holes" in the budget from time to time. We will work at one time and help each other with both management and the federal government.

In addition, we want Bashneft to deal with the development of chemical industry more actively. The production of fuel, oils and coke only is not enough for such large company. Today it is evident that Ufaorgsintez JSC, which is part of Bashneft, should increase the overall production by means of the increment of chemical at least twice to 2020 (from 30 billion to 60-80 billion rubles. We have a number of interesting projects; all of them are in demand and will play an important role in import substitution.

The problem of import substitution is one of priority for us, because the country was cut off from the product supply from the Occident for various reasons. I think that we will cope successfully with the task of import substitution, although we realize that the international division of labor is and was.

Of course, it is impossible to produce everything within one country. But as for strategic positions from which the life of the country fairly depends on, we will produce it independently, including Bashneft products.

- Was the weakening ruble helpful? Isitgoodnow?

- There is no doubt that the current exchange-value of ruble is a good quantity for industrial production. Now exporters feel themselves quite confident. Another thing is that now we need to think about wage increase and how to cut foreign exchange losses in comparison with December. Wage increase will be accompanied by the rise in labor productivity at our enterprises. Only then we can be truly competitive, as well as in relation to the Western companies.

The fact that the dollar rate comes to 53-55 rubles now is very good for our export companies by any definition. And we already feel it in the republican budget. Today tax revenue has increased 7-8 percent in comparing to the same period in 2014. In fact our budget has risen in rubles. Besides, we understand that there was no sharp drop in industrial output. We have a small increase in the oil refining, petrochemical and chemical industries in comparison to the previous year. There is a slight drop in output of light industry. Engineering work well in general; agriculture is at the level of last year. The industrial production index in the last five months is 101.5 percent. It's not bad. We hope that we will finish this year with positive meaning.

Our country is strong, we have the internal resources. When Western partners start to do certain act to us, the country and its people show their character. And the potentialities of both the Republic and the country are not exhausted; we can do much more.

I want to say that we carried out the preparation for the summits mainly by our own forces. We have built good facilities, upgraded a number of social institutions, got the city in order and built the roads; we have done it all by our own resources; neither Western nor Eastern partners help us. We convinced people that it should be done. People have improved their work and showed the good performance. At that they really like that the result of their efforts is good, quality, beautiful streets, landscapes, buildings. I say it once again: the potential of our country is very high, and they are far from being exhausted.

- What kind of cooperation do you expect from the BRICS/SCO partners and from the Chinese partners?

- Two years ago we joined the Volga-Yangtze Project. It includes the Volga Federal District on the one hand and several provinces located on the Yangtze River on the other hand. We signed an agreement in the presence of Vladimir Putin, the President of the country, and Xi Jinping, the President of the P. R. China. We started the exchange of delegations, business missions and etc.

Nowadays we have about 10 projects, which we want to realize with China. I understand that we cannot realize all of them, but three, four or five projects we need to. The first one is the construction of the metallurgical plant; the second one is the construction of sugar beet plant; the third one is the construction of a large shopping mall, the fourth one is the construction of a Bashkortostan and Jiangxi House; we are friends with this Province. The other projects are plants of rape processing, dairy factories.

In short, we have a lot of plans, and they are connected not only with China. Brazilian company Marcopolo manufactures buses for our Republic. Bell Company of South Africa began to produce dumpers in the Republic. India buys aircraft engines from us. It is expected that India will realize the Russian helicopter assembly, which components are manufactured in our enterprise in Kumertau. It is the results of our work over the last three or four years. The cooperation with China, Brazil and South Africa has been started not so long ago; we have worked with India since Soviet times. In the SCO we cooperate with Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan. I want to say once again that we need not only large projects, but also thousands of small one in the field of trade, economic activity, consulting activity, tourism, two-way travel and etc. Nowadays we have hundreds of such projects; our people build these relationships by themselves. If we will help, we will have thousands of projects.

I do not share the pessimistic view of some circles in our country and in the Republic, which concerns cooperation with the Orient. Today I have met with a representative of the Korean company, we had a good conversation. In addition, we are constantly working with companies from Japan and Vietnam. Business with the Orient is doing very well.

Our country is big as well as our market and our opportunities. No one can say that we have no difficulties. Of course, we have like any other country. But nowadays we are trying to rethink the situation. With the market economy country received also some negative moments. First of all, it concerned the weakening of the morale of the country, the introduction of alien ideology and monopolization of some industries by transnational corporations. Our citizens did not like it all.

I came from the Soviet Union. We lived our own lives. We had another vision of world. Now we need time to readjust. It is wrong to require the steady observance of the western canons from us. We have our own great, quite successfully country with its own history, ideology and philosophy. And we should be taken such as we are. It is obvious that we can and we need to find common ground, for that we need just to listen and to hear each other. We are ready for such cooperation. At the level of subjects of the Russian Federation we are working with Western partners. They come, build factories and do business; we perfectly understand each other on the economic level,

It is impossible to make someone do something. The force is not an argument; it is a demonstration of weakness.

The Western world, which has a thousand-year history, should act from a position of common sense in the situation concerning our country. I think that this way would be quite successful.

- Do you entice any Western investors in the last 12 months?

- We have several enterprises which are built and operated by Western companies. None of them stopped activity, they are working now. Moreover, they plan the expansion of production. The construction of Kronospan, a large woodworking integrated plant of Austrian company, comes to an end, and they're going to build a few more plants and invest quite a lot of money. And this investor has no fear.

At the last St. Petersburg International Economic Forum, I met with representatives of several western companies. We agreed to continue the dialogue. Recently we are not interested in purchasing any household goods, even complex. We offer to start the production on the territory of Bashkortostan.

- Many refugees from Ukraine have come to the Republic. Do you have any figures?

That was several thousand.

In Ufa?

- They live throughout the Republic. We have formed about 60 refugee centers in each municipality and urban district. We receive refugees both from Refugee Organisations and those, who are alone. We give moral and material support to them, try to help in buying home, provide work and offer them the opportunity to integrate into our society. Many of them stay here.

I can say that even 120 years ago immigrants from Ukraine came to us. Until now, the descendants of those immigrants live here. We have Ukrainian small and big villages. These people preserve the traditions of Ukrainian culture, sing Ukrainian songs and cook Ukrainian food. I have been in such village last year; we had a really good time.

- Can we discuss the issue of an Islamic state? Is there any threat to the Republic? Can Russia help to solve this crisis?

- Our Republic is Moslem. Islam on our territory has always been very tolerant, calm and is never used as an instrument of conflict. After the fall of the Soviet Union people professing other branches of Islam came to our territory; they are more conflict and aimed at confrontation. Our people react to it very negative and do not support those who bring elements of Salafism and other alien trends.

People let us know if preachers of another Islam branch come in their village. They make their own decisions to alienate these people of the mosques and spiritual offices. In other word, society regulates the situation by itself.

But it is inevitable that some people, even young people, hear the sermons of these extremists. Some of them start to profess extreme Islam, behave themselves incontinently and go to war in Syria, Afghanistan or other countries in the Middle East. But we are talking about a few dozen people only. This phenomenon is not widespread. We see it, we consider it as a danger to our society, and counteract accordingly.

There were no religious and ethnic wars on the territory of our Republic. Even if there were any revolts or confrontations, they occurred on the basis of the unfair land distribution, the unfair use of resources and infringement of civil rights of local communities. Therefore, the model of calm and measured relationships was generated in the course of centuries.

- One question of people who have chosen an extremist way. Do you cooperate with the heads of the other republics, which also have this problem?

-There are about 20 million Muslims in the Russian Federation; it is a large figure. And of course, we cooperate with the heads of the other republics. Quite often we meet and share information. We do not underestimate the danger; we understand that it is a risk. Therefore, we act in the interests of the state.

- The question of The Chechen Republic. We know less than the Russians. It seems that Kadyrov and Chechnya have a special status. Is it true?

- I believe that Kadyrov has no special status. Chechnya lives by the same laws as the Russian Federation and has its own identity, its own customs, rituals and traditions like any other national republics. These traditions are natural for the people living in Chechnya, but sometimes they can be incomprehensible to others.

Speaking to people sometimes we say sometimes: look at Chechens. They help each other, they live serried, they try to protect and defend their interests together. Chechens highly respect their elders. There is no strays, no orphan homes in Chechnya. All this is merits of the Chechen people.

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