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. Last Updated: 07/27/2016

Billions Pledged For Roads, Homes

Sounding a populist note in his last year as president, Vladimir Putin on Thursday called on the government and private investors to spend hundreds of billions of dollars on new power stations, roads and waterways over the next 12 years.

Putin ordered the Cabinet to transfer 300 billion rubles ($11.7 billion) from the stabilization fund to three government investment agencies this year to begin funding those projects.

He also told the Cabinet to increase budget spending by 100 billion rubles this year to pay for building and maintaining federal and city roads.

Combined with other spending proposals to relocate people from poor housing and improve housing maintenance, total federal spending will increase by 650 billion rubles, or 12 percent, this year.

"It is inadmissible for a country with such reserves accumulated from its oil and gas revenues to be at peace with the fact that millions of its citizens live in slums," Putin said in his state-of-the-nation address.

Arkady Dvorkovich, Putin's economic adviser, said afterward that the extra cash would not pose an inflationary threat because only about 40 billion rubles would materialize in actual spending this year.

Russia next year plans to split the stabilization fund, which soaks up oil and gas export revenues and reached $108.1 billion in March, into a reserve fund and a national welfare fund, Putin said. The reserve fund will supply some of its money to the federal budget, while the welfare fund will lend money to the three investment agencies, the Development Bank, the Investment Fund and the Russian Venture Co.

The national welfare fund will also finance an increase in pensions and cover any possible deficit in the State Pension Fund, which is expected to start running short in 2012.

Putin ordered that pensions be increased by 65 percent by 2010, by far beating inflation, but said retirement age should stay the same. It is 55 for women and 60 for men.

The welfare fund was initially to be called the fund for future generations, but Putin renamed it in his address before making his case about higher pensions.

The welfare fund will contribute to investment plans and pension raises from the interest that it will earn by placing its money on financial markets, Putin said.

"The fund's financial resources must be increased to a level that would make revenues from their efficient placement sufficient to meet these goals," Putin said. "I will not name concrete figures now. The government is afraid of my naming them, but they know this amount."

The fund will hold 471 billion rubles next year, Finance Minister Alexei Kudrin said after the address, Interfax reported. Kudrin appeared to be catching Putin's every word during the speech and could be seen taking notes. He previously has said the fund would yield an interest of 7 percent.

Putin also said that more than half of Russian homes need repair, and the government should allocate 250 billion rubles for a special fund that would relocate people or improve their homes over the next four to five years. The money could come from recovery of back taxes after the Yukos sale, better tax collection and state property privatization, he said.

The projects that the investment institutions will fund -- hopefully with private investors -- are "very big," and they should spur the economy by providing more electricity and better roads and technology, Putin said.

The country must produce two-thirds more electricity by 2020 to ensure sustainable economic growth, an effort that will require 12 trillion rubles in investment into existing and new stations, Putin said. Russia plans to build 26 new nuclear power reactors -- almost matching 30 reactors built in Soviet times -- and more hydro- and coal-powered stations as part of the effort, he said.

The country loses 3 percent of gross domestic product every year due to a lack of roads or their bad quality, Putin said, comparing the loss to the 2.7 percent of GDP that the country spends on defense.

Putin also called for more railways and waterways, better seaports and the creation of large airport hubs that would fall under federal control. Smaller airports should be private or run by regional governments, he said.

Speaking about diversification, he said the key industries were aircraft building and shipbuilding.

He ordered the upgrade of a canal connecting the Volga River with the Don River, and therefore with the Black Sea. The government should work to create an international consortium to build a second Volga-Don canal that would make Caspian states "maritime powers," he said.

The president lamented that oil companies burn 20 billion cubic meters of associated gas every year and called on the government to arrange for the use of this gas. He reiterated his support for higher export duties on logs, saying timber should be processed in Russia.