Those who are reluctant to feed their own army shall feed a foreign army
By Dmitriy Rogozin, Deputy Premier of the Government of the Russian Federation
Sometimes one can hear people claiming that appropriations of our budget for the needs of defence are excessive. Some people assert that our country has no enemies and that time has come to bury the tomahawks. Some other people cite the pitiful example from the time of the Soviet Union when “the country produced many tanks and combat aircraft, but people had to stand in a queue in order to buy rationed food”. In both cases these people have forgotten a simple truth that has reached us from olden times – if you wish for peace, prepare for war (Si vis pacem, para bellum). For example, the military expenditures of the United States of America amount to more than 700 billion dollars, and the weaponry piled up in the US arsenal probably surpasses the amount of weapons possessed by the rest of the world.
State defence procurement for 2013 amounts to more than 2 trillion roubles. Whether this sum is sufficient or insufficient is not the crux of the matter; rather more important is the question to what extent the military industrial complex is ready to tackle the tasks posed by the state defence procurement. Until recently this was a matter fraught with problems. There were years when by December the contracts actually signed made up a mere 70% of the stipulated amount, and this was considered to be a good result. The number of complaints regarding the quality of the goods produced by the defence industry had a tendency to grow, there were numerous cases when industrial enterprises failed to fulfil their contractual obligations. The state of the machine-tool base of the defence industry and of the process of pricing is also a matter of concern. Steps are being taken to solve these matters, but the present state of affairs is not satisfactory as yet.
As evidenced by the experience of the preceding years, signing a contract does not necessarily mean that it will be fulfilled. Nevertheless, the measures that have been put into effect recently, especially as far as the state defence contracts are concerned, may well signify a real breakthrough. In 2012 the state defence contracts for the Ministry of Defence of the Russian Federation were fulfilled to the extent of 99%, those for the law enforcement agencies and security agencies – to the extent of 99.9% and those for the needs of Rosatom (State Atomic Energy CorporationCorporation) – to the extent of 100%. As for 2013, from now on the Military-industrial commission will monitor the fulfilment of the state defence procurement contracts on a weekly basis. Beginning from 2013, both the enterprises engaged in fulfilling the state defence procurement contracts and the customers under these contracts must observe the legislation presently in force and strictly fulfil the stipulations of the government Resolutions defining the amount of weapon purchases. From now on a special automated system will deal with the placement and fulfilment of orders.
In 2013 the shaping of contracts for defence related products, the pricing, the actual funding, the monitoring of the manufacturing process and the acceptance procedures will undergo substantial changes. This is expected to make the work of the defence industry more transparent and more rhythmical in its pace.
January 2013 saw the entry into force of the law “On the state defence procurement” which makes it possible to create a more flexible system of concluding contracts between the State and the defence industry enterprises. The law envisages a large number of varying modes of interaction which take into account not only the complexity of the product to be manufactured, but the type of ownership of the enterprise in question as well. New serious and important stipulations have been introduced which guarantee the profitability of the enterprises. The law contains detailed stipulations on pricing which take into account the different modes for setting the price for a product. It is worth while to remind that exactly the question of pricing was the main stumbling block in the relations between the defence ministry and the industry. A novel and, possibly the most important aspect of the Federal law “On the state defence contracts” is the fact that for the first time it has proved possible to formulate a mechanism for price setting with regard to the defence related products. The law provides for the employment of three kinds of prices in the case of placing an order with a single supplier. The first price is a tentative price which can be corrected. The second price is a fixed price. The third price is a price which reimburses the production costs. This approach will make it possible to tackle the price-setting in a more flexible way depending on the type of a contract.
The strategic task with which our country’s defence industry is faced is to fulfil the state defence procurement contracts and to implement the provisions of the state weapons procurement programme covering the period up to 2020; concurrently, one must strive to achieve a stable level of production for the next several years on the basis of the state defence procurement. This will make it possible to use the sizeable military appropriations for the purpose of developing production facilities and improving the entire defence production complex. Deep down, this is tantamount to a new industrialisation of the country. We need a defence industry of such a kind that would become a locomotive pushing ahead the modernisation of Russia.
We all know that the fulfilment of the state defence procurement contracts in its very essence cannot proceed smoothly, without problems. One has to seek ways and means of a maximum optimisation of the whole process: from shaping the orders to their timely fulfilment with good quality. One must strive to eliminate all factors capable of affecting negatively the rhythmical pace of the work of enterprises.
Fulfilment of the state defence procurement contracts will be monitored on a permanent basis and in a very strict way. Beginning from February 2013, current management meetings will be held every week within the framework of the Military-industrial commission to evaluate the process of fulfilment of the state defence procurement programme for 2013; in addition, on the last Wednesday of every month the Military-industrial commission will hold plenary meetings, again, with the state defence procurement on the agenda.
In the provinces, this monitoring process has already been launched. In particular, the management of the State Corporation “Rostec” has conducted a thorough financial inspection of all its enterprises. As a result, two General Directors were discharged, six General Directors were reprimanded; senior officials of four enterprises were deprived of their yearly bonus. This was a response to the unsatisfactory organisation of the fulfilment of the state defence procurement programme for 2012.
Changes have been introduced into the penal code on administrative offences; they will make it possible to impose fines for the failure to fulfil state defence contracts, the fines amounting to 25 thousand roubles for natural persons and to one million roubles for juridical persons. In all, in 2012 ten enterprises subordinated to the Ministry of Industry and Trade failed to fulfil state defence contracts and at nearly 80 enterprises the state defence procurement contracts had to be revised; this shows that harsh measures are fully justified.
In 2013 the situation with the state defence procurement looks better than in the past. We have done all we could to ensure that our dialogue with enterprises proceeds in a business-like professional manner; to achieve this, we placed state defence orders earlier than in the preceding years. The basic problem is connected not with the timing and size of advance payments, but with the gap between the target figures of the programme and the actual results of the fulfilment of the state defence contract programme at the end of the year.
The size of the state defence contract programme is not the only thing of importance; just as importantly, all expenditure items must be thoroughly well-founded. In the past there were cases when the Ministry of Defence tried to save money in the wrong places, for example, in the North Caucasus where the money is allocated for combating the threat of terrorism. This year, with a view to avoiding this kind of “money saving”, we have subordinated the Federal Service for Defence Contracts (Rosoboronzakaz) directly to the Government and set up an interdepartmental working group headed by the Chief of President’s Administration which will take decisions on the personal responsibility for a failure to fulfil obligations under state defence contracts.
The year of 2013 shall see a veritable scientific and technical revolution in the defence industry complex of the Russian Federation. This revolution will be connected not only with the approaching introduction of new technologies, but also with the testing of a system which is entirely new for our country, namely – the automated State Defence Contracts System. This system has been developed entirely as a result of our own effort; it will make it possible promptly to spot all deficiencies in the defence potential of the state and just as promptly to formulate the state defence order for a specific product. The automated system will also make it possible to monitor in a real time mode all the enterprises – both state-owned and privately owned - engaged in fulfilling state defence procurement contracts, with regard to the process of fulfilling these contracts.
One will conduct on a permanent basis an objective appraisal of financial and technical risks and of the production facilities and technological potential of enterprises belonging to the defence industry complex. The system will be distributed on a territorial basis.
Naturally, the entire work of the GAS-GOZ (Russian abbreviation for the Automated State Defence Procurement System) will follow special procedures. Provision has been made for a definite segment that will be open for those private enterprises which had been cleared for work associated with defence; this will enable these enterprises to define the needs of the ministries dealing with defence, security and law enforcement as regards products of different kinds.
The work on the GAS-GOZ has been organised by two customers – the Federal Protective Service and the Ministry of Industry and Trade. The main executor will be the Management Systems JSC. A fully automated State Defence Procurement System must be put into operation in 2014.
Nowadays many of the defence industry enterprises are technologically antiquated and are not capable of manufacturing high-tech products. Increasing the share of innovative products in the overall output presupposes the acquisition of the necessary scientific and technical knowledge; consequently, it is necessary to provide funding for scientific research. There is a need for research and development work in the fields of unmanned reconnaissance and strike vehicles, robotic devices, high-precision strategic weapons, for seeking the means of overcoming the enemy’s missile defence and for creating weapons based on new physical principles.
To eliminate our long-standing lagging behind in electronic components, space communications, ELINT and electronic warfare, as well as in automated means of the Network Centric control system, high-precision weapons and other modern technologies, it is not sufficient to recognise their importance and to declare them as an object of priority. It is necessary to ensure on a state level a concentration of financial, technological, intellectual forces and means for the solution of these top priority tasks, the way it was done after the Great Patriotic War as regards the creation of jet-powered aircraft and nuclear missiles.
There is one more problem which hampers the development of the defence industry complex. It is the shortage of skilled labour. We are desperately short of technical specialists, especially those with a high level of competence. Not infrequently technical documentation which serves as a basis for the manufacture of various products for military use contains so many errors that one has, in fact, to redraft these documents completely. The question of personnel is very acute, but it must be solved by all means. In 2013 we wish to achieve a breakthrough as regards the situation with the training of personnel. Talented schoolchildren must enter technical institutions of higher learning and acquire professions which contribute to the country’s defence potential.
In the conditions of Russia the relations between the Armed Forces and the defence industry cannot be based on the simplified market economy formula “manufacturer-consumer (customer)”. One has to evolve mechanisms and incentives for mutual interest in creating truly modern weaponry and military hardware for the armed forces and law enforcement agencies. The Ministry [of Defence] must play a predominant role in these matters.
Technical re-equipment and development of the defence industry enterprises must be a matter of prime attention for local authorities. As an example I will cite the Samara region which boasts a broad spectrum of defence industry enterprises. These include TsKB-Progres (the Progress State Research and Production Space Centre), Aviakor Aviation Plant, JSC “KUZNETSOV” and a number of others. Here the question of technical re-equipment of the enterprises of the cluster and of training young personnel for them is very acute. Development of space industry and aero engine manufacture corresponds to the interest not only of the Samara region, but also of the country as a whole. Therefore it is extremely important for us to enhance the industrial potential of the region.
Modernisation of the defence industry complex is of great importance for the Urals Federal District in which more than 100 enterprises of the defence industry are situated. Most of them are equipped with outdated machine-tools. According to the information supplied by Rostekhnadzor (Federal Service for Ecological, Technological and Nuclear Supervision), depreciation of this equipment at military plants exceeds 70%.
In 2011 defence enterprises of the Sverdlovsk region (housing nearly half of all the defence-related plants in the Urals as a whole) spent some 19 milliard roubles of their own resources for the purpose of modernisation. Plans for 2012 envisaged the investment of more than 27 milliard roubles. In the opinion of an expert, it is the Uralvagonzavod Corporation (UVZ, Urals Railroad Car Manufacturing Plant) that can boast the most successful implementation of a modernisation programme (UVZ is the biggest manufacturer of tanks and armoured vehicles). In 2012 the development budget of UVZ exceeded 3 milliard roubles. A part of these funds was used for the development of more than 60 projects involving, in particular, modernisation of production facilities, technical re-equipment, the conduct of scientific research intended to help develop new products and new technologies, and social programmes. In 2013 UVZ intends to show in prototype form the new Armata tanks featuring an armoured capsule for the crew, an unmanned turret and a telescopic cannon barrel. By 2015 the factory intends to start series manufacture of this tank. Furthermore, in the nearest time the factory intends to change the entire range of its tank models and to create a versatile combat platform which will be shared by all kinds of combat vehicles.
A large-scale modernisation has taken place at Uraltransmash (the Urals Transport Engineering Plant) which is a subsidiary of the UVZ Corporation. In this case the technical re-equipment was conducted in the course of two years and was funded by allocations in the framework of a Federal special-purpose programme, as well as by the plant’s own means and by credits. Accelerated modernisation of the plant will make it possible to preserve the industrial potential of the region, especially as far as the defence-related industry is concerned. Within a short period the factory’s machine-tool complement was renewed almost completely; acquisition of computer numerically controlled (CNC) machine-tools reduced the required workforce by 200-300 persons and made it possible to process both small-size and large-size parts and units with the highest precision and several times quicker than before. At present, thanks to the modernisation of production facilities, Uraltransmash is capable of starting the second stage of upgrading the Msta-S self-propelled gun to the level of the 2S19M1 model. As a result, the Msta-S will acquire an increased range of fire, a more reliable system of gun laying, greater rate of fire and more comfortable accommodation for the crew.
A serious programme of technical re-equipment is being put into effect by the Urals Optical and Mechanical Plant (UOMZ). In the spring of 2012 the factory put into operation a new production line for the manufacture of large-size parts of electro-optical systems for military aircraft and helicopters. Furthermore, a new automated machining workshop is being built at the factory. The backlog of orders ensures a production run for the nearest five years. A thriving business is the manufacture of instruments for civil use. UOMZ plans an increase of production of articles for civil purposes (neonatal medical equipment, traffic lights and illumination engineering articles, railway articles etc.) by 20% per year.
One cannot solve the problems of the military-industrial complex without an effective partnership between the state and the private-owned industry. It is impossible to achieve radical changes in the development and production of a new generation of weapons, military and special hardware without a real partnership between the state and private business in this sphere. Businessmen have a knack for making efficient investments, for calculating the risks involved and for creating promising innovative products. Moreover, innovations in the sphere of the military-industrial complex must be competitive –both at home and on the world market.
One can already cite examples of such efficient partnership between the state and the private business. For example, the machine-building industrial group Tractor Plants Concern has invested about 2,000 million roubles of own financial means into the development of the upgraded BMD-4 air-portable armoured personnel carrier; the work was conducted at the Special Machine-building Design Bureau (SKBM JSC) and at the Kurgan Machine-building Factory (Kurganmashzavod JSC), both enterprises belonging to the holding company. The Tractor Plants Concern is funding the innovative projects of NII Stali (Scientific Research Institute for Steel) which occupies predominant position in Russia in the sphere of materials and devices intended for the protection of arms and military hardware; it and develops unique comprehensive solutions designed to enhance the protection of various installations and offers innovative methods for individual protection for military and civil purposes.
Acting within the framework of the state defence procurement programme, enterprises of the machine-building and general industry group undertake upgrades of various articles. For example, the Lipetsk-based caterpillar tractor factory conducts upgrade work on the self-propelled caterpillar chassis for the S-300V surface-to-air missiles; the Volgograd Machine-building Company is upgrading the BMD-1 air-portable armoured personnel carrier to the level of the BMD-2. The Kurgan-based Special machine-building design bureau is developing a prospective caterpillar combat vehicle and its derivatives for auxiliary purposes in the framework of the design and development work bearing the designation Kurganets-25.
At present the defence industry complex comprises more than 1150 enterprises and organisations located in 64 constituent territories of the Russian Federation. Their workforce numbers more than 2 million persons; of these, 1.3 million persons work in eight defence industry branches.
The defence industry complex is approaching a completion of its structural reshaping aimed at a greater concentration of resources. In 2012 the defence industry included 55 integrated structures which accounted for the bulk of the country’s military-industrial potential. In accordance with the Federal special-purpose programme, by 2020 the military-industrial complex must assume a new, truly competitive aspect; it will comprise some 40 large companies capable of development on the basis of their own resources and of efficient work.
Measures that have been implemented by the state recently have resulted in an increase of the share of military products in the overall volume of production of this branch.
One can observe a tendency towards a steady rise of investments into the modernisation of the defence industry. The growth of investments into this branch amounted to 116 percent as compared with the level of the preceding year. In all, in the course of three years between 2012 and 2014 the flow of investments into the branch will reach 354 milliard roubles, which is roughly three times as much as the amount for the period between 2008 and 2011.The financial means will be used for the acquisition of new equipment, modernisation of the testing infrastructure, creation o new production facilities. Notably, the rate of increase of the output in the defence industry exceeds this rate in other industry branches; the level of labour productivity is also growing. The situation emerging by now justifies an optimistic conclusion: the state of affairs in the industry is improving.
As for the Armed Forces, the main task for the next two years is the rearmament of units and formations of the army and law enforcement agencies. This rearmament has already started in the Air Force. In 2013, within the framework of the state defence procurement programme, the Russian Air Force will receive 12 Su-35S multifunctional fighters. Series manufacture of these aircraft shows a tendency towards a growth of the output of new machines from year to year. The Sukhoi Company delivered to the Russian Air Force two Su-35Ss in 2011 and six new combat machines in 2012; in 2013 twice as many of these fighters will be manufactured. In the period up to 2020 the Ministry of Defence plans to purchase some 90 of these most up-to-date fighters. Deliveries of the Su-34 tactical bombers will also be increased. In 2011 six machines were manufactured; this figure rose to ten in 2012, and plans for 2013 envisage the delivery of 14 Su-34s to the Air Force. This work has already been launched. On 24th January 2013 the technical personnel and flight crews of the Voronezh Air Base (Western Military District) performed flights on the new Su-34 bombers and completed thereby the procedures of acceptance of the aircraft delivered by the manufacturer.
Two years ago, on 12th December 2010, the T-50 fifth-generation fighter performed its maiden flight in Komsomolsk-on-Amur. At present it is undergoing flight tests at LII (Gromov Flight Research Institute). On 17th January 2013 the T-50-4, the fourth flying prototype, arrived at LII. The aircraft is expected to enter squadron services and to be cleared for sales on the international market in 2015.
Despite gloomy predictions about dwindling exports of military hardware, we are witnessing an increase of deliveries to foreign customers. As of the late 2012, the export segment of the state defence contracts programme reached 4.4 milliard dollars. According to preliminary figures, in 2012 the volume of foreign currency revenue from the export of military products amounted to 15.16 milliard dollars. At present the backlog of orders for Russian-made items of military hardware amounts to 46 milliard dollars. In 2012 Russia reached a record level of weapons export. Deliveries are made to 65 countries. Rosoboronexport JSC is responsible for 80% of the sales of Russian-made products for military use. As for the list of products, aircraft occupy leading positions. This is understandable. Bearing in mind the character of modern warfare, its centre of gravity and main effort is shifted to aerospace. Leading countries of the world are staking on the winning of air superiority and on conducting pinpoint aerospace strikes at the very beginning of a war for the purpose of suppressing vital centres, anti-aircraft defences and communications centres of the enemy.
We shall do all that is necessary to retain and expand the positions we hold at present, and to ensure that Russia’s defence industry complex delivers products enabling it to compete and occupy leading positions on the world market.