ANNUAL ADDRESS OF THE GOVERNOR OF ST. PETERSBURG,
29 March 2006

Honourable Speaker,
Honourable Deputies of the Legislative Assembly,
Representatives of government agencies, academic, cultural, business circles, local government,
Citizens of St. Petersburg,

This is my third annual address in my term as Governor.

For two and a half years we have been working towards achieving a shared strategic yet specific and tangible objective: transforming St. Petersburg into a city with European standards of living, European level of economy and civic development.  

It is no accident that I used the word ‘shared’. Political stability has become a norm, a natural operating environment for all branches of the city government. Debates, criticism and disputes are both inevitable and necessary. They make our dialogue on legislative issues meaningful and honest. Mutual responsibility and readiness to listen to and comprehend each other underpin our relationship with the Legislative Assembly. For this, I thank the honourable Speaker and all the deputies. And, of course, it is hard to overestimate the support the city authorities receive in dealing with socio-economic and other crucial matters from the office of the Presidential Plenipotentiary Envoy in the North West Federal District.

In effective collaboration with the city’s law-makers we are continuing to lay the new legal groundwork for the 21st century St. Petersburg.  We are successfully implementing the earlier adopted Joint Legislative Plan. In 2005, I introduced into the Legislative Assembly more than 60 draft pieces of legislation; most of them were approved and signed into city laws. We made the decisions of strategic importance such as the Master Plan of St. Petersburg valid until 2025, Medium Term Programme for Socio-Economic Development, 17 laws on state incentives for investment activities, as well as a whole package of laws aimed at supporting war and labour veterans, pensioners, the disabled, and families with children, and at creating a system of benefits for city employees.

As in the case of last year, joint framing of the budget has again provided a glaring example of interaction between the branches of the city government. Once again the executive and the legislature acted as one team, with the outcome of the draft budget being praised by many experts as the best in St. Petersburg’s recent history. 

Our city is rightfully perceived as Russia’s European capital. The image of St. Petersburg is changing rapidly, regaining its original European features given by Peter the Great. The city’s influence is growing because we seek to avoid being just a beautiful stage set for protocol functions.  St. Petersburg is increasingly becoming the key centre of political, economic and legal decision-making.

The holding of the Group of Eight Summit this coming summer in our city, the anticipated relocation of the Constitutional Court to St. Petersburg, the launch of St. Petersburg Television’s federal broadcasting, the transfer of head offices of some Russia’s largest companies and the arrival of strategic investors from the West and East demonstrate the recognition of the important role acquired by St. Petersburg. 

The year 2005 saw sustainable economic development of St. Petersburg. By preliminary estimates, Gross Regional Product (GRP) grew 8.4 per cent. This rate is markedly higher than in 2004, and exceeds Russia’s national GDP growth in 2005 by two per cent.

This time, the accelerated GRP growth was supported by the rapid expansion of telecommunication services (15 per cent), and retail turnover (12.9 per cent), as well as by the steady increase in transportation services.

The Sea Port of St. Petersburg handled 57.5 million tons of export and import cargo, adding 12.3 per cent to last year’s figure. The number of unemployed in St. Petersburg remains among the lowest in Russia: 0.8 per cent of the working age population.

The city’s index of industrial production was slightly above Russia’s average and amounted to 4.2 per cent. Turnover in the manufacturing sector went up 9.1 per cent year-on-year.

However, it should be admitted that, in comparison with 2004, St. Petersburg industrial sector’s pace of recovery was somewhat modest.

Does that mean that industry is losing its clout as a driving force of St. Petersburg’s economic growth? Definitely not. St. Petersburg will continue to be one of Russia’s capitals of industry, a centre of industrial modernisation and a city generating innovation. The problems St. Petersburg industry is facing today primarily relate to restructuring activities and achieving greater competitiveness.

As in the rest of Russia, fast strengthening of the rouble against foreign currencies resulted in the positions of our companies at home and abroad being severely undermined. The strong ruble has become a factor which impeded our exports and led to reduced competitiveness of our products. Most noticeable was a slowdown in the food industry, where growth fell sharply to 2.3 per cent. Unfortunately, this is an objective process.

During the 1990s, the city’s food industry and, particularly, its brewing segment became the flagship sector in terms of technological modernisation and investments. Yet, by 2005, the sector’s development potential in St. Petersburg was virtually exhausted. The captains of industry have switched to other Russia’s regions, establishing new production facilities there.

Therefore, in 2005, the emphasis was made on the development of high technology knowledge-based manufacturing companies, and we have already achieved marked progress in certain spheres. Just a few examples. Machinery and equipment production rose 16.4 per cent on the 2004 figure. Manufacturing of hydraulic and steam turbines grew 23.4 and 12.4 per cent correspondingly. Production of ships, aircraft, spacecraft and motor vehicles increased by 7.2 per cent.    

The St. Petersburg Government worked hard to facilitate the conclusion of large contracts between the Russian Rail Roads, other monopolies, oil and defence companies, and St. Petersburg producers.

Our ideology of industrial restructuring is simple: increasing the share of high-tech products through radical modernisation of existing manufacturing facilities. We have no alternative. We cannot continue to expect explosive economic growth while trying to extract juice from an orange squeezed dry.

Revising our industrial policy, we kept on progressing fast in the investment area. You will remember that a 40 per cent FDI growth in 2004 was considered an investment boom. In 2005, we reached a new high: investment grew by 43.9 per cent. Total accumulated investments hit an absolute record of US$ 1,417 million.  

In 2005, international credit rating agencies raised St. Petersburg’s credit rating four times. Besides, the city was ranked first in the main nomination “For Lowest Investment Risk in 2004-2005” by Expert RA, the largest domestic rating agency. 

The year of 2005 saw a qualitative change in investment patterns: investors are now no longer frightened of operating in the real sector of the economy while in the past they were involved in the commercial property market only. In 2005, 67.3 per cent of all investments went to manufacturing.

In my last year’s Address I referred to more than a dozen investment projects to be carried out by our foreign partners. Today I am able to state that each and every of those projects is currently being implemented. We held ground-breaking ceremonies marking the start of construction of manufacturing plants by Toyota, Russky Standart, Bosch und Siemens, Knauf and Alcan Packaging. We have inaugurated an Elcoteq plant and are well ahead in building the Izhorsky pipe production facility. To the city’s labour market will be added about 5,000 new well-paid jobs.

Prioritised investment into innovative manufacturing is a niche for St. Petersburg, which perfectly suits our city. We should expand it by creating more attractive conditions for investors and by strengthening our competitive advantages. We must be fast and mobile in responding to international market trends because major investment projects in the city involve the introduction of 21st century technologies, efficient and competitive production facilities, new jobs and highly skilled personnel with a new working culture.

In a nationwide contest, St. Petersburg won the right to establish a special technical innovation economic zone thereby giving a strong impetus to the development of high-tech industry and the IT sector. This will help consolidate St. Petersburg’s position as Russia’s capital of innovation.

One of the key commitments I made in 2003 was doubling city budget revenues. The target was reached and even exceeded taking into account the 2006 budget amendments we have passed.

While in 2003 budget revenues and expenditure amounted to some RUR 75 billion, last year saw revenues at RUR 140.4 billion and expenditure at RUR 134 billion. Actual results for 2005 surpassed all expectations. Instead of a projected budget deficit of RUR 7.5 billion we achieved a surplus of RUR 6 billion. Over the last year, the city’s debt was reduced by RUR 2 billion. You will have noted that this outcome was attained without raising taxes, which means without impeding corporate competitiveness. Projected expenditure in 2006, as amended, will amount to RUR 173 billion.

The activities of companies linked to such majors as LUKoil, Rosneft and Transneft, the re-registration of the headquarters of Vneshtorgbank to St. Petersburg, and the expansion of operations by the local Severstal branch, all added more than RUR 6 billion in taxes to the 2005 budget. Russian business continues to show growing interest in our city. Newly arrived local taxpayers include Transnefteproduct, SIBUR Holding and Transaero. This year, Sovcomflot will start paying their taxes in St. Petersburg.

Indeed, we pursue an aggressive yet flexible policy, advertising the advantages of St. Petersburg to the largest companies. The arrival of such companies leads not just to growing budget revenues. Top brands are equally vital for the economy and culture. The size of companies coming to the city is sending an important signal to big business. Frankly speaking, the present-day business status of St. Petersburg is comparable to the one of a capital city.

Thus, we have reached our targets ahead of time and are not projecting any surge in revenue soon. Our key principle of budgetary policy is boosting the competitiveness of St. Petersburg and finding new sources of revenue.

As for budget expenditure, our approach is based on goal-oriented planning, targeting and efficiency. Rich is the one who does not allow himself to be wasteful. We are already rich enough to understand this wisdom. For example, the reform of the city procurement system has resulted in RUR 3.6 billion in budget savings last year.

The city’s economic and social policy allowed us to raise living standards of the population and make real progress towards poverty alleviation. In 2005, the average monthly salary in the public sector was RUR 8,600, up 25 per cent on the 2004 figure.

St. Petersburg is the first constituent entity of the Russian Federation which introduced radical changes to municipal employees’ pay terms. We dropped the “unified tariff net,” or the policy of equality of salaries. The new incentive remuneration system based on expertise, job seniority and performance will increase salaries of the majority of municipal workers by 15-20 per cent on average. Pay rises for some categories of employees authorised in the framework of national policy will make municipal salaries generally correspond to the average salary level in the city.

And, of course, one must admit that the problem of poverty is primarily the problem of pensions. In 2005, pensioners aged over 65 received extra monthly grants from the city budget to keep their earnings above the subsistence minimum. As of 1 January 2006, extra grants were extended to cover additionally citizens aged over 60. By the end of 2005, the average pension in St. Petersburg was RUR 2,864, up 25.6 per cent on the 2004 figure. This amount exceeds the calculated subsistence minimum for pensioners by RUR 450.

Real earnings of the population grew 14.4 per cent over the last year (Russia’s average being 8.8 per cent), and the nominal per capita monthly salary reached RUR 10,800 against RUR 8,500 in Russia as a whole.

In 2005, we achieved an all-time high in terms of residential construction: 2,273,000 square meters of new housing were added. Over 400 buildings for trade, cultural, educational and communal purposes, as well as administrative and office premises, business and car service centres totaling 1,260,000 square meters were completed.

For the first time in recent years we made a breakthrough in city-funded construction projects. Almost RUR 5.8 billion was allocated for the building and reconstruction of housing and social infrastructure. We continue to fast track resettling citizens from unfit and dilapidated dwellings. Almost 900 apartments will be procured to accommodate people resettled from the areas adjacent to the Ring Motorway.

To put it simply, through these investments the city makes the life of citizens from all walks of life, no matter how thick their wallets, more comfortable and civilised. We are trying to create a sense of social well-being – by building new schools and kindergartens, cinemas and theatres, gyms and sports grounds, old age homes and rehabilitation centres for the disabled.

In 2005, for the first time after the end of the Soviet Union, the city’s budgetary policy prioritised investment into construction of social infrastructure. For example, just in the health care sector alone our successful projects include: completion of a new surgery complex at Pokrovskaya Hospital and a new wing of Semashko Hospital in the town of Pushkin; reconstruction of a prosthodontic outpatient clinic in Kronshtadt; well underway are the projects of reconstruction of a specialist cancer centre in Kirovsky District and the Mariinsky Hospital. Besides, we are continuing civil works at other major sites such as an oncological hospital in Pesochny, and a new adult outpatient clinic in Vyborgsky District.

We kept on dealing with the backlog in metro construction, which threatened us with enormous problems. In 2005, Komendantsky Prospect station was opened, intensive work at a new metro line in Frunzensky district was resumed, and 59 new railway cars were purchased. Comprehensive modernisation of the Nevsko-Vasileostrovskaya metro line is now in progress.

In 2005, we were gradually expanding access to the Ring Motorway. Five large sets of off-ramps and interchanges were built. Reconstruction of Prospect Engelsa was completed; 2.5 million square meters of roads underwent repairs.

Without a doubt, 2005 was a benchmark year for the St. Petersburg power sector. The City Government passed concepts for General Schemes of electricity supply, heat supply, water supply and sewerage discharge, and gas supply. St. Petersburg today has a well-elaborated strategy for development of utility systems for the period to 2010, and with the plans to 2025. This is a basis without which we cannot develop the city, in the same way that it is impossible to build a house without foundations. Simultaneously, the number of utility lines repaired last year increased significantly.

Implementation of a project of reconstruction of the heat supply system in Petrogradsky District funded by Gazprom has resulted in the commissioning of 20 new automatically controlled modular boiler plants (another 38 plants will be built in the course of this year), and in the rebuilding of nearly 30 kilometers of the heating network.

Forty-one kilometers of gas pipelines were laid to supply the St. Petersburg suburbs within the framework of the relevant programme. Well underway is the implementation of the investment project for the construction of a heating pipeline to link the North West Thermal Plant with a boiler plant in Primorsky District. For the first time in 15 years, the City Government and the Federal Grid Company started building new high-capacity power distribution centres to underpin St. Petersburg’s development.

Completion of South West Wastewater Treatment Plant became an event of European importance. For the first time in our history, we are breaking new ground by committing ourselves to 21st century environmental standards.

In my last year’s Address I pointed out that St. Petersburg had launched a genuine, not just formal, reform of the housing and utilities sector. Today I shall emphasize that reforms always turn out to be more complex than reformers believe. We had no opportunity to learn from the follies of others because we were the pioneer region in transforming this non-flexible and conservative sector into a market-based mechanism. Moreover, we did it when the condition of the housing stock and utility lines had dropped to emergency levels. We were the trailblazers. Such a large-scale reform breaks stereotypes both in the management and in the mind. Including the mind of citizens whom we are urging to take a responsible approach to the upkeep of their homes and courtyards. It would be naïve to expect an immediate effect. But the first convincing results of the reform are evident now. So far, over 18 million square meters of housing is managed by companies which won their work by tender. An additional RUR 300 million was invested by private entities into major repairs of the city-owned housing stock. In older city areas, 900 housing associations were established. Over 25 per cent of all housing in St. Petersburg is managed through housing associations. Nearly 6,000 staircases were refurbished and over 920,000 square meters of roofs renewed – for the first time in the aftermath of the collapse of the Soviet Union.

2005 saw a growing number of mortgage loans provided in the city. 4,500 loans were issued, nine times more than two years ago. The city has signed agreements on mortgage facility development with more than 30 banks. As a result, many banks reduced the first required down-payment from 30 to 10 per cent, and extended the terms of loans from five to 15-20 years. The evident surge of demand for mortgage loans is convincing proof of St. Petersburgers’ departure from paternalism and their readiness to work harder and earn more to invest into their own housing. During our recent visit to the US, we held talks with major financial corporations on their possible participation in mortgage programmes in St. Petersburg. As a city authority, we shall continue to do everything we can to encourage the development of mortgage schemes. International experience shows that availability of mortgages is a growth-promoting vitamin for the middle class.

We used city budget funds to provide housing for state and city employees. A first-ever housing programme targeting city employees was adopted. RUR 237 million was allocated for the acquisition of housing for WW2 veterans, including those disabled in combat. We honoured them during the celebrations of the 60th Anniversary of the Great Victory. Jointly with the business community, we resolved many of the social problems facing war veterans and siege survivors. But the most important thing was the city-wide atmosphere of esteem and appreciation of our honourable veterans in those anniversary days.

Last year, elections to the Charter Court of St. Petersburg were held. I am convinced that the unbiased and impartial execution of their responsibilities by the judges will ensure compliance of all municipal decisions with the city’s Constitution. I said it before and I wish to reiterate: no legal nihilism will be allowed in the city. The Charter Court is an important institution of civic society. We have always abided and shall continue to abide by its decisions.
 
Summarising the results of 2005, let me stress something I consider essential: we managed to not just maintain momentum of, but accelerate modernisation in all key branches of the city economy, the city public sector and the social sphere. Looking back, one might say that in our first year in office we faced the choice between radical breakthrough and unavoidable stagnation. We had to urgently launch reforms and make up for lost opportunities. It required the highest pace from the outset. Many believed, obviously, that the tempo of reform will inevitably drop in 2005. But the results of the year proved such concerns wrong. Let me put it this way. We got to the marathon, but continued to run at a sprinter’s pace. 
An innovative style of city management was a deliberate choice we made. The course we are steering implies an aggressive approach, pragmatism, target-based performance, and the use of St. Petersburg’s geostrategic, intellectual, economic, cultural and historical advantages to raise its profile and competitiveness. Adhering to this course in 2006, we are set to achieve new tangible results in all spheres, which determine the quality of life of St. Petersburgers.
The 2006 budget allocates RUR 27.9 billion for the targeted investment programme, up 34 (!) per cent on the 2005 figure. The health care sector will receive RUR 28.7 billion (up 22 per cent year-on-year). RUR 20 billion will be spent on social policy (up 28 per cent). Safety and security, including law enforcement, will get RUR 4.3 billion (up 17 per cent).
A stronger budget allows us to beef up the 2007 budgetary priorities, namely: 
- expanding targeted investment programme by focusing on the construction of new housing, utility networks, roads and social infrastructure;
- increasing funds for capital repairs and the reconstruction of housing and utilities, and the improvement of the physical environment;
- strengthening the social component of the budget towards poverty alleviation and targeted social assistance;
- raising allocations for health care;
- raising allocations for the improvement of living conditions of WW2 veterans, residents of Leningrad under siege, the disabled, and city employees;
- raising significantly child support expenditure.
We are shifting from emergency support measures for the poor to a systemic social policy. In 2006, draft framework legislation entitled “Social Code of St. Petersburg” – a genuine “social constitution” for our city - is to be finalised. In the same year, we plan to adopt the concept for development of a St. Petersburg social security system for 2006-2010. It will set out standards, norms and requirement criteria for the social services, an optimal structure of social agencies, and a social services funding mechanism.
In the near future, the City Government will introduce into the Legislative Assembly a draft law “On Social Taxis in St. Petersburg.” A pilot project setting up the social taxi service for the disabled and the elderly, which runs in Kolpino District, has shown that through this programme people with limited abilities are getting real access to a wider environment, opening up a new “window to the world.”
Absolutely efficient was the jobs quota system for the disabled implemented in St. Petersburg: in 2005 it provided jobs for more than 17,000 people. In 2006, this figure will reach 20,000.
In my last year’s Address, I announced the target of opening St. Petersburg’s first, and the country’s most advanced Centre for social rehabilitation of disabled persons aged 16 and over. The construction of the Centre in Pushkin is almost finished. Its facilities will include a swimming pool, a gym, workshops, and a comfortable residential compound as well as training apartments for teaching the disabled independent living skills.
As in my previous Addresses, I have to again refer to the demographic crisis as St. Petersburg’s greatest challenge. Urho Kekkonen said years ago: the future of a nation depends not on the number of motor vehicles, but on the number of baby prams. He had a point. The number of permanent residents in St. Petersburg decreased by 20,000 last year. The birth rate did not change significantly. The positive trends worth mentioning are the following: infant mortality dropped 14 per cent, marriages increased five per cent, and divorces went down eight per cent. 109,000 families are receiving child grants. The total of one-off birth grants paid by the city in 2005 reached RUR 301 million.
I am convinced that there is an immediate need for action in drawing up and adopting the city law on the provision of housing for large families. We must act quickly. Centres for social assistance to families and children must be set up in every District, as well as District-based specialist agencies for minors in need of social rehabilitation. We have to increase allowances to school age children. Today the City is paying these allowances to 61,500 children from the poor families.
I am absolutely sure that we are prepared to set for ourselves big, ambitious, strategic goals not only in the fields of the economy, and urban and innovative development, but also in the social sphere. As we regain St. Petersburg’s European face and its original status of the capital, we have to finally tell ourselves: Russia’s European capital should be an orphanage-free city. Is there anybody who was not deeply moved by Channel 5’s famous project, “Real Hero,” dedicated to abandoned kids? This TV programme touched the souls of veterans and teenagers, men and women, deputies and civil servants. So let us ask ourselves: why can’t 5,000 orphans find adoptive families among St. Petersburgers? Why can’t we overcome this painful legacy, which spoils the moral image of the city?
More adoptive families have emerged and even more will do so due to the three-fold rise in payments to adoptive parents which we introduced last year. The decision was timely but insufficient. I believe that we are ready for more drastic measures of support for those citizens who adopt orphans. Even the kindest and most noble people will abstain from adopting children if the City fails to create proper conditions to enable them to bring up a child. It is imperative that we develop and pass St. Petersburg’s law on adoptive families and earmark the necessary funds in the 2007 budget. At the same time, local government should be more active in fulfilling its own direct duty of developing the system of child care and guardianship. Society is entitled to ask local government - what exactly was done to facilitate the transfer of orphans to families in their area, and how many kids found adoptive parents? Unfortunately, no clear and convincing answer has been received so far.
The demographic problem has exacerbated over the decades and now has no simple remedy. The response will depend on how fast we progress along the path of comprehensive city modernisation.
I am absolutely convinced that the results of our new budgetary policy and other reforms will be soon felt by St. Petersburgers in their everyday private lives. Yet the growth of income does not automatically mean an improved quality of life. An average St. Petersburger is rapidly upgrading his living conditions: higher earnings allow him to eat and dress better, and to spend more on housing, children’s education and family vacations.
We cannot say that our urban environment – roads, outpatient clinics, kindergartens and schools, courtyards and front entrances, social agencies and recreation facilities - is being modernised as fast. There can be no comfortable living in a city with queues in outpatient clinics, shortage of sports grounds, leaking roofs, flooded basements, traffic jams, lack of parking lots and bad ecology. Here, every detail matters, be it distance to amenities, or the time spent waiting for the bus.
The citizens of St. Petersburg are expecting a radical speedup in the modernisation of the urban environment. With this end in mind, we have started up and are continuing to implement a series of large-scale innovative projects, which create perfectly new opportunities for urban development and an improved quality of life.
The Russian Government has adopted quite a number of regulations and instructions with regard to key strategic projects in St. Petersburg. These include the construction of the Passenger Marine Terminal on Vasilievsky Island, the Western Expressway, a new stadium to replace the Kirov stadium, and the restructuring of Pulkovo Aviation Enterprise. The Russian Government has also decided on an issue of extreme importance for us, namely, on the transfer of powers to manage federal property located within St. Petersburg’s boundaries to the City government.
We highly appreciate the President’s constant support of all our major projects and the city’s development in general. On behalf of all St. Petersburg residents, allow me to express our most sincere gratitude to Vladimir Putin for his attention to St. Petersburg, for the present and the future of the Northern Capital.
This year, federal appropriations for St. Petersburg-based projects amount to RUR 23.3 billion. The Ring Motorway (RM) project’s second phase of construction (Eastern semi-circle) is well under way. The RM gave a tangible impulse to the acceleration of works at the Western Expressway. Commissioning of the RM and the Western Expressway will create the first-ever integrated system of expressways thereby resolving the problem of congestion, which plagued the city for years. Under the agreement with OAO Russian Railroads, reconstruction of the American bridges over the Obvodny canal as well as the construction of the Alexandrovskaya Ferma flyover will be started in 2006.
This year, we are launching the long-awaited construction of the Orlovsky tunnel under the River Neva. The linking of the Neva’s two banks between Piskarevsky Prospect and Orlovskaya Street will allow traffic to flow 24 hours per day (particularly vital during the navigation period), and unclog the city’s traffic arteries and bridges.
In the second part of the year we shall issue an invitation to tender for the creation of an elevated railway system. As in the case of the Orlovsky tunnel, it symbolises our commitment to new, genuinely European standards in the modernisation of urban environment.
In 2006, we shall start the reconstruction of Prospect Bolshevikov, and the construction of Mitrofanyevskoye Shosse (the backup for Moskovsky Prospect), as well as provide traffic access to the developing economic zones in the South West, Krasnoye Selo and Shushary. We shall start repair works to Lieutenant Schmidt Bridge after the completion of a temporary bridge next to it.

As for metro lines expansion, we are going to concentrate resources on the new line in Frunzensky District. Parnasskaya metro station will be commissioned this year. Over 30 new railway cars were purchased and over 20 escalators rebuilt.
We shall continue implementing major construction projects started last year: the Baltic Pearl multifunctional complex with the highest ever volume of foreign investment, and the Passenger Marine Terminal to be built on 477 hectares created by land reclamation (civil works will start in 2006).
The proposed new stadium meeting FIFA and UEFA requirements has passed its concept review and will be erected on Krestovsky island. Construction of a modern multifunctional complex was approved on a vacant land plot adjacent to Ligovsky Prospect, which was formerly allotted to a now-bankrupt developer.
After a century-long break we are reviving the original St. Petersburg tradition of building and renovating cultural venues according to the designs of the top international architects. The second stage of the Mariinsky Theatre designed by Dominique Perrault and funded from the federal budget will be completed by 2009.
The winner of the international architectural contest for the reconstruction of New Holland island is about to start works under a project by the world-renowned architect, Norman Foster. It would not be an exaggeration to say that the return of New Holland, a genuine pearl of St. Petersburg, to the city, is an issue of historical significance.
We shall continue the implementation of the Façades of St. Petersburg programme. It is financed both from the city budget and by charities (St. Petersburg Development Fund).
A record RUR 8 billion was allocated this year for the construction of social housing and infrastructure. May I stress once again: we shall never go back to our near past, when a new school, a kindergarten, or an outpatient clinic, were just illusory ideas, likewise new apartments for those who live in rundown houses. The budget-funded construction target in the current year was increased to 150,000 square meters.
By the end of this year, we shall have to account before the citizens for the completion of two outpatient clinics, two schools and a kindergarten in Primorsky District, a school for children with orthopedic injuries in Admiralteisky District, a special old age home for lonely pensioners in Vasileostrovsky District, and the start of construction of a long-awaited bath house in Frunzensky District.
It is crucial that all social facilities are being designed in line with present-day standards and virtually all kindergartens have swimming pools.
The high pace of construction necessitates the development of new vacant areas, including idle or undeveloped urban land. This important resource of growth was sidelined since Soviet times. Life challenges us to rapidly make up for what was neglected in the past. This year, we shall begin the reconstruction of the Shkapina - Rozenshteina quarter, find approaches to the comprehensive development of the 540 hectare Northern Valley residential district, and the Moskovskaya – Tovarnaya zone. In 2007, we shall focus on the South Western (Primorskaya) part of the city. 300 hectares of land in the city centre will be rid of warehouses.
All the projects we are pursuing, both big and small, are adequate to the needs of a megalopolis. Because everything, from huge expressways, to comfortable courtyards, to convenient social agency offices, to refurbished basements, are the signs of the new quality of life for St. Petersburgers. 
Last year, we set up “The Courtyards of St. Petersburg” Programme. This year, some RUR 2 billion will be allocated for the improvement of courtyard areas. By year-end, 17 per cent of all city courtyard areas will be renewed. One year into the reform of the housing and utilities sphere, we record a reduced number of complaints from citizens with regard to the quality of services. Polls have already confirmed this positive trend. However, we are far from self-delusion: the state of the housing stock, especially in the city’s historical part, is extremely complex. An amount of money equal to two annual city budgets is required to be invested in the housing and utilities sector, and we cannot find all the money at once unless we live in a fairy tale. We cannot do miracles. But we can, on the one hand, build up the market orientedness or investment potential of reform, and, on the other, spend budget funds with maximum efficiency.
By the end of 2006, we shall have transferred all housing maintenance services in St. Petersburg to private entities, except for apartment blocks where residents decide in favour of some other form of management. There are no other ways to attract large investment into the housing and utilities sector and to break the system’s resistance. The only solution here is the market, competition, converting residents from users without rights to homeowners. We shall be more active in providing incentives for setting up housing associations by making repair subsidies available for communities run by the established associations in the first place.
The 2006 budget earmarks RUR 5.6 billion for major repairs to the housing stock, up 20 per cent on the 2005 figure. We have at last approached our annual roofing maintenance target. I think we should focus on this issue now so that next year we complete all roofing repairs and put an end to this problem. We should also significantly enhance repairs to basements and elevators. Indeed, this is a very costly programme. But only through major steps ahead we can reach results clearly visible to St. Petersburgers. The results are speaking for themselves.
No serious breakdowns took place during the past cold winter. But it is alarming that minor heat and power disruptions kept the city under heavy pressure. Obviously, we cannot keep on mercilessly exploiting dilapidated utility networks built many years back in Soviet times. The city has undertaken to dramatically raise budget allocations for the reconstruction and technical upgrade of the utility infrastructure. Gazprom will continue to revamp the heat supply system in Petrogradsky District. Private sector investment has been secured to start building a new substation and a RUR 1.5 billion boiler plant in Rzhevka, as well as the South West Thermal Power Plant. Gazprom’s funding for the development of St. Petersburg suburbs’ gas infrastructure in 2006 amounts to RUR 500 million.
Meanwhile I wish to remind you that modernisation does not mean wastefulness. Resources are not going to get cheaper. That is why everybody – social service workers and citizens alike – will have to learn how to save electricity, heat, water and gas.
Raising our competitiveness and the quality of life depends to a large extent on the revival of small business. This is a flexible and dynamic sector well endowed with talented individuals. It employs 33 per cent of people working at St. Petersburg enterprises. Small firms already account for 29 per cent of total turnover. Their number grew 15 per cent over the last year, with 70 per cent of the employees in this sector working in manufacturing, services, transport, construction, science and education.
Our policy aimed at supporting small business remains unchanged. Up to 200 new enterprises are registered daily thanks to the recently introduced principle of “one window.”  Over the last year, the Unified Tax on Imputed Income Act of St. Petersburg was amended three times, resulting in a RUR 370 million tax cut for small business. This year, the tax in question was further lowered by RUR 80 million for retail businesses. Small companies have a one third share in city procurement, exceeding the quota set by federal legislation twofold.
Access to resources – that is what small business is in need of in the first place. Why did the state-run programme aimed at facilitating lending to small companies fail to perform? Why did just 11 firms apply for loans? Let us be frank in answering these questions: small business is still deep in the gray market, which is, by some estimates, seven times bigger in volume than the official market. Our objective is to bring this sector “out of the shadows” through well-planned and sustained measures taken in co-operation with the relevant associations of entrepreneurs. At the end of the day, it meets the interests of both businesspeople and their employees. I believe that the legalisation of proceeds is possible through bringing down the fiscal burden on the company as it increases its tax payments. I consider the development of such a mechanism a matter of urgency.
The City Public Council for Small Business has called for simplifying the procedure for the transfer of residential premises to the non-residential category. We have also approached the State Duma with the legislative proposal of introducing the right for small businesses to purchase leased premises by installments over three years. To this end, I think it is necessary to ensure that small businesses be given access to installment credit on favourable terms.
The current year’s budget sets aside RUR 50 million for supporting small business. In 2007, this amount should be significantly increased and, possibly, doubled. Meanwhile, we have to be very precise in planning our expenditure. What will be the most effective way to spend this money? Is it the training of small entrepreneurs, or their participation in international exhibitions, or activities of the venture fund? Small business itself, through public councils, should indicate the preferred form of support they expect from us.
Without delay, we should lower administrative barriers for small enterprises, and remove all excessive bureaucratic obstacles capable of killing any private initiative.
Small business support activities are gradually becoming district-based. We have opened 16 business development centres to provide technical assistance for entrepreneurs. Public councils on small business were established in all city Districts. There is a lot of work to be done. For example, the opening of small retail outlets and convenience stores, especially, in the densely populated residential districts. It is a market niche which can be promptly penetrated by small businesses in their own interests and in the interests of citizens.
This year, we undertook to achieve radical improvement in passenger transport services. After the fist half of the year we are going to announce the results of the initial phase of transport reform. We were the first in the country to launch this reform in order to reach a specific goal of attracting private investment in transport. Some 700 new buses will be introduced on social routes. All in all, the rolling stock will be expanded by 24 per cent. On 42 per cent of the routes buses will run every 10 to 20 minutes, on about 20 routes – every five to 10 minutes. Let me repeat: this is just the initial phase of the reform, so do not expect revolutionary changes or miracles. But the people should feel and see for themselves that the transport situation is getting better.
And of course, first results of the implementation of the prioritised national projects in St. Petersburg must be visible and tangible.
St. Petersburg is the top region among the regions. It is a matter of honour for us to make sure that the country is given a model of how to efficiently run national projects to raise citizens’ quality of life.
Right from the start of the “Affordable Housing” project our city has already got a solid foundation to build on. We boast record high volumes of housing construction, investment into the utility infrastructure in the new areas under development, growing mortgage loan schemes, and the resettlement of households from unfit housing. Over the last year, 160 land plots were put to open tender. RUR 374 million was appropriated in the framework of the programme “Housing for city employees,” and RUR 258 million allocated to provide non-repayable housing subsidies for some categories of benefit recipients.
However, the federal centre has not yet offered any specific assistance to the regions. National construction policy remains unclear: regions act according to their own regulations and standards, and federal laws (in particular, laws on shared financing of construction) are often “the remedy, which is worse than the disease,” not to mention excessive reporting requirements. Putting it frankly, the city is left face to face with its achievements and problems. Major remaining problems include the connection of newly built housing to the electricity grid, and the high costs of a package of construction permits introduced at federal level.
Modernisation of the St. Petersburg health care system is a key factor in our quest for an improved quality of life. Last year, we changed our budget policy priorities to place emphasis on repairing, building and equipping hospitals and outpatient clinics. This and next year alike, we shall go further, combining our budget resources with the potential of the national project.
As of July 2006, additional payouts will be introduced for ambulance staff. These bonuses already cover primary care physicians, pediatricians, general practitioners and nurses. 1,600 medical doctors and 2,500 nurses will undergo re-training during this year. The immunisation and vaccination of 985,000 city residents will take place. We are creating a register of patients in need of expensive and highly specialised medical aid. RUR 120 million will be spent for computerising medical institutions, and RUR 600 million for buying new equipment. The city will provide medicines for the treatment of 1,500 HIV-positive citizens. The HIV/Aids Centre will open a counselling and support service for its patients.  Starting this year, all newly born children will be tested for serious hereditary diseases. We have introduced birth certificates. This year, the city will receive an additional RUR 2 billion from the national budget in the framework of the “Health Care” project. Yet we insist that the federal centre reintroduce discounted medicines for people with severe diseases. 
An unprecedented investment into the health sector should directly lead to an improved quality of health services. We launched this reform by raising salaries and the social status of health workers. But that is not the end of the reform. In its turn, society has the right to demand new standards of medical services from health care institutions. We must once and for all eradicate queues in outpatient clinics, red tape in issuing a necessary prescription, and problems with appointments with medical specialists.
While implementing national projects, we must avoid a temptation to concentrate completely on the improvement of official figures. This applies fully to education. Switching to the principle of economic independence of schools will only be productive if the entire teachers’ corps adapts to new conditions.
Teachers do not just teach, they shape personality. Winston Churchill, a famous master of aphorism, once said that a school teacher has the power that the prime minister can only dream of. The national project and the city’s programme for modernisation of education pre-suppose that teachers, school principals and deputy principals keep pace. By 2007, all educational institutions in St. Petersburg will not only be equipped with computers according to European standards, but also connected to the broadband Internet.
The Government of St. Petersburg has established 100 regional “Best Teacher” and “Best Supervising Instructor” awards each worth RUR 20,000. We are strengthening the national project’s system of financial incentives. St. Petersburg schools will be able to apply for grants totalling RUR 1 million. 58 secondary schools - contest winners - will be granted state support. We are urging the Federal Government to extend the national project’s scope so as to involve pre-school, primary and vocational institutions as well. 
One of two major business schools in Russia will be set up at the Faculty of Management of St. Petersburg State University in the framework of the national project. The potential of St. Petersburg education is inexhaustible. We have to achieve just one goal: integrating the intellectual capacity of our secondary and high schools into European standards of educational management. This is the essence of the sector’s modernisation, where St. Petersburg cannot but take the lead.
The unquestionable leadership of St. Petersburg as one of the world’s cultural metropolitan cities makes it an imperative that we formulate, by 2007, a comprehensive, ambitious and timely cultural strategy for years ahead. I think that we have already closely approached this goal by having done a lot in 2005 to strengthen our culture’s material base.
A new complex of buildings of the Russian State Historic Archive was opened. The next phase envisages the transfer of all data to electronic media, which will create unique opportunities for researchers. After three years of restoration, the concert hall of the State Academic Capella was re-opened. Renovation of the Alexandrinsky Theatre will be completed in August. The Children’s Theatre’s renovation will be continued, and the Youth Theatre will undergo repairs. We are finishing the restructuring of the cinema network, and embarking on the comprehensive modernisation of public libraries.
Besides, our city is consolidating its leading position in world-class sports. Seven medals won by St. Petersburg sportsmen at the Winter Olympics in Torino, four of them gold, are the best way to promote physical education. The number of St. Petersburgers engaged in physical exercises and sports increased by 110,000 people over the last year. But in total, citizens involved in sports account just for 12 per cent of the population.
Here comes the conclusion: resources must be focused on recreational and sport-related activities in the communities. By repairing and purchasing sporting equipment and accessories we have already bettered, in the current year, conditions for the training of 15,000 children and teenagers in 35 sports. In three years, each District will get its own sport and recreation centre capable of serving 300,000 people annually.
Back in 2005, we put in working order almost 900 summer sports grounds and 800 winter sports grounds situated in inner courtyards and on the school premises. 415 gyms underwent repairs and 220 schools received new sporting equipment (for the first time after many years). During this year, we are set to complete a universal sports complex with a swimming pool in Kalininsky District, and finish reconstruction of a sport school for the youth in Kirovsky District and the Ice Stadium in Moskovsky district, as well as the long-awaited Figure Skating Academy. We are also planning to repair 40 stadiums each serving a cluster of schools.
In 2005, the City Government adopted a five-year programme aimed at developing St. Petersburg as a centre of tourism. Over one year, budget subsidies to the tourism industry went up twentyfold. Eight new hotels were opened and 19 more are currently under construction. We strongly believe that by 2010 the city will be annually receiving up to five million foreign tourists, which will significantly increase budget revenues from this sector. May I emphasize that we are quite confident that the projected figure will be reached because the potential of St. Petersburg as a travel destination is obvious. It is important to quickly and substantially improve the quality of services, to ensure comfort and safety for tourists and, above all, to reduce costs of services to the average European level.
The improving quality of life is not compatible with people’s concerns over their personal safety. We acknowledge that these concerns remain strong. And although the crime rate in St. Petersburg is significantly lower than Russia’s average, street crime is growing alarmingly fast. In part, it is a result of better collated crime statistics. But everyone would agree that the situation is grave indeed. Drug-related crime is still severe. Road accidents are on the rise, although last year saw a decrease in accidents causing death and child injuries.
I have to stress that the city authorities are doing a lot of work in this regard. We are allocating more money from the city budget to support the police. RUR 2.8 billion was spent in 2005 for safety and law enforcement. In 2006, we are earmarking RUR 3.3 billion for this purpose. Monthly extra payouts were established for officers of the Juvenile Offenders Inspectorate equal to 30 to 100 per cent of their basic salaries. There are four centres for prevention of drug addiction operating in the city. Construction of a new rehabilitation centre in Kalininsky District was completed. Without delays, the city provides premises for community police posts. To prevent terrorist acts, especially in pubic areas, we have developed and have begun installation of a CCTV-based security information system.
A number of felonies have been fully investigated by law enforcement agencies in a prompt and effective manner, which is indicative of the professionalism of detectives and investigators. The number of murders and crimes committed with firearms has dropped. The police act effectively in combating terror threats. Against this background, the sharp hike in street crime clearly disharmonises the general picture. It points to the lack of preventative measures employed by law enforcement agencies, and the inefficient work of many precinct officers. It is easier to prevent than investigate attacks by gangs of scum-like youth against lonely passers-by taking place in dark inner courtyards with no witnesses. Those who prey on other people’s wallets and cellphones can only be stopped by bumping into a police patrol. Precinct inspectors must be able to identify by name anyone who is capable of going on the prowl, especially at night.
But it is also high time for citizens to realise that the business of curbing crime is not exclusively that of the police, the prosecutor’s office and the courts. Here residents cannot just look on and criticise the authorities. The number of Voluntary Civilian Patrol units is growing slowly but surely. The current 3,000-strong VCP membership is like a drop in the ocean for a megacity with five million residents. Local government is still passive in applying legal tools at their disposal. The fight against crime must be supported on the ground by local government structures, District administrations and civic society.  
The above is also relevant with regard to hate crimes. May I assure you that the investigation of all such crimes is kept under my personal control. The St. Petersburg Government is taking all the necessary measures to promptly and efficiently investigate them. For law enforcement agencies, this is a question of professional competence. Not wishing to intervene into judicial affairs, let me express my personal opinion: those who commit such crimes must face the maximum penalty! Impunity is fuelling crime. Criminals infringe upon the very foundations of our life, upon St. Petersburg’s traditional values - tolerance, openness to the world, and respect for human life. It is no accident that attacks by extremists, which account for only 0.1 per cent of total crime in the city, get into the spotlight of public opinion and provoke angry reaction by society. I know how offensive it is to St. Petersburgers when attempts are made to use these facts to stick various labels on the city.
Law enforcement agencies continue to carry responsibility for what is happening. But only through joint effort can we create a climate of social solidarity, tolerance and humanism. In 2006, the City Government will adopt a Programme for fighting xenophobia and promoting tolerance in St. Petersburg communities. This Programme is intended to provide detailed guidelines for action by the authorities, schools, universities, and public, youth and religious associations. It should be addressed to each and everyone.
We are making real steps towards strengthening those authorities which are closest to the people. Parts of the City Government’s responsibilities and its funds are being transferred to Districts and the local level. This should be done without haste and disruption to city life. Importantly, we must ensure that all tiers of power and governance are working as a united team.
Boards of District administrations are now working in a more productive manner. We are enlarging the skill pool by attracting young professionals to City management. All District-based institutions of education, culture, health care and social security have gained financial and operational independence. Simultaneously, we are auditing the activities of various panels, commissions and working groups. Citizens need results, not paperwork. It is particularly relevant with regard to local government. St. Petersburg’s Local Government Act has conferred upon the municipalities primary powers in matters relating to the establishment of housing associations, community safety, improvement of physical infrastructure, support for small business, guardianship and patronage. However, so far the people do not see any leadership demonstrated by local government. One can draw this conclusion after reading citizens’ letters to City Hall.
In 2005, City Hall received 166,000 written enquiries. A growing number of people are coming to the studio of the “Dialogue With The City” TV programme with their questions, criticism and concrete proposals. I consider a frank dialogue with St. Petersburgers on air a necessary part of the Governor’s work. I am sure that the programme strengthens discipline within the entire structure of the executive branch of the City Government. Every question from among the thousands received from citizens, no matter whether they were broadcast or not, is dealt with by the relevant department. All members of the City Government bear a personal responsibility for resolving citizens’ problems. Not a single city employee is allowed to give citizens formal replies which lack in substance. 
I have said it on many occasions and I wish to reiterate that civic initiative is not confined to requests, complaints and criticism. It is the self-organisation of citizens in the first place. I am referring to the energy of the activists setting up housing associations. I am referring to the boards of trustees of educational institutions. Organisations of young activists trying to find their place in society. Charities, helping people without making much noise and self-adverts. Associations of entrepreneurs. Cultural associations of national minorities consolidating tolerance and cohesion. Government is open for this society. We are open for dialogue. Only with extremists we have nothing to discuss.
In conclusion, I would like to traditionally appeal to St. Petersburgers. For two and a half years we have been working together in order to tap the potential of St. Petersburg, and to make life in the city more prosperous, interesting, dynamic and comfortable. We do not come up with fantasies, we are far from juggling with unfeasible projects. We are simply regaining what has always belonged to St. Petersburg.
We are regaining the city’s rightful place in Russia, in Europe and in the world. We have left behind – forever - the state of neglect and provincialism in which the forgotten city was forcefully kept for decades. We did not miss the historic opportunity St. Petersburg was given at the beginning of the twenty-first century. The projects we started one or two years back are now producing visible effects. Last year, we launched new, even more ambitious projects with one aim in mind – raising the quality of life for St. Petesburgers. But we shall never get the result for nothing. We have to prepare ourselves  for even harder joint work to reap the harvest from the seeds of opportunity we have sown.
There is a short, but very important item in the long list of outcomes for 2005. According to the polls, the number of optimists in the city went up 12 per cent over the year. Optimists usually emerge in a vibrant environment where people are getting fresh opportunities for self-fulfillment, planning their future and reaching personal success. This means we are steering the right course.
I thank you.