Leadership Looking at the OPK’s Problems

Since fall, Putin, Medvedev, and Serdyukov have focused on the problems of Russia’s defense-industrial complex (OPK) and whether it will be up to the job of rearming the armed forces by 2020.

At an OPK conference in Nizhniy Novgorod on 24 December, Serdyukov noted that the oblast has nearly 16 billion rubles worth of state contracts for arms and equipment.  Defense Ministry armaments chief Vladimir Popovkin said, however, that the region’s producers who fail to supply weapons on time will be subject to millions of rubles in fines.

Conference participants also discussed necessary measures to organize timely placement of tasks and financing with contractors.  In particular, the Defense and Finance Ministries are reportedly trying to make production advances available in January 2010 for next year’s contracts.

In Vremya novostey, some Nizhniy Novgorod producers gave their own views on their problems.  They call the state’s pricing policy one of their main problems.  Despite the government constant statements about an increasing State Defense Order (GOZ), defense enterprises are not being paid on time or fully.  The oblast’s production grew in 2009, but the Defense Ministry has not hurried to pay for it.  Advances range from 30-70 percent, but firms often wait a long time for the balance and may have to take out expensive loans in the interim.  The profitability of the region’s defense producers was low in 2009 in part because of higher prices for natural gas and electricity.  Enterprises shaved some personnel to improve their bottom lines.  They’ve asked for tenders in December, rather than in spring or summer for the 2010 GOZ, and for higher advance payments.  They say they cannot cut prices as the government has asked because they work within the real economy where inflation is a factor.

On 22 December, Putin discussed the 1.17 trillion ruble 2010 GOZ (8 percent higher than this year’s) with the government’s presidium.  He said the GOZ can’t “be limited only to modernization,” the forces need to receive “large shipments of modern equipment, not just individual samples.”  Putin noted the recent series of conferences on the OPK and said, “We’ll be seriously occupied with these problems.  However it’s already now obvious:  it’s necessary not simply to increase financing for the state defense order, that’s necessary itself, but it doesn’t solve all problems.  It’s necessary to seriously increase the demands for quality in production, reestablish effective cooperation links, to work on personnel support for the OPK.”  He also said long-term rearmament programs need to be formed and they need to be closely linked to the missions facing the armed forces.   Defense industry needs to make its technological development and modernization plans, conduct RDT&E and organize series production of equipment for the troops under these programs.  Putin promised to concentrate the work of the government’s Military-Industrial Commission (VPK), the Defense Ministry, and other core ministries on this in 2010.

On 18 December, Putin visited St. Petersburg to have a conference on shipbuilding.  He called for naval shipbuilding to develop a minimum 30-year plan of development.  He said there’s nothing wrong with buying foreign equipment if, in the future, Russian ships are built with 100 percent domestic materials and equipment.  He called on naval shipbuilding to have clear priorities and not shift between projects.  Writing in Nezavisimoye voyennoye obozreniye a week later, Vladimir Shcherbakov noted that Putin’s words don’t square with the government’s actions.  Shcherbakov doesn’t believe buying the French Mistral amphibious landing ship will do much to move Russian shipbuilding forward.  He contrasts the government’s willingness to send money to the Amur Shipbuilding Factory working on the Akula-class SSN Nerpa for lease to India and its inability to help save smaller shipyards like Avangard in Petrozavodsk from bankruptcy.  He suspects Mistral may be a special deal just for Mezhprombank’s United Industrial Corporation (OPK) and its shipyards.  Whereas Putin had praise for civilian shipbuilding, he criticized the quality of naval construction.  Putin called for military shipbuilding to reestablish its technological and production links among enterprises, but he didn’t say anything about the state’s United Shipbuilding Corporation (OSK) which is supposed to perform this function.  To Shcherbakov, the government, Defense Ministry, and Navy just aren’t prepared to provide proper financing and orders to shipbuilders.

On 12 December, TV Tsentr’s Postscriptum featured independent views on rearmament from Leonid Ivashov and Ruslan Pukhov.  They talked about the role of corruption in high prices for defense production.  Pukhov said, “Of course, there is monstrous corruption and ineffective management, which exists in an entire range of defense enterprises, and then this collusion between the purchasing authorities of the armed forces branches and services and military-industrial complex enterprises, when under the cover of secrecy a huge quantity of resources are doled out, and it is practically stolen.  In the opinion of many high officials and directors of the Defense Ministry, kickbacks often go up to 50 percent.”  Ivashov said, “There are many causes for high prices.  Which of them is first, I don’t know, however there is pervasive corruption, Putin recognized this, and Medvedev recognizes this, it exists and, it means a system of kickbacks exists.  And for a defense enterprise director or even a group of enterprises to receive a defense order, they openly demand a kickback, this raises the price.

On 9 December, Viktor Litovkin reviewed Putin’s recent activity on OPK issues, noting that his 8 December visit to Uralmashzavod and other Sverdlovsk Oblast enterprises was his third trip to OPK plants in two months.  He earlier visited missile producers in Kolomna, and liquid-fueled rocket engine maker Energomash in Khimki.  Litovkin noted that Russian tank production is now more important to India than Moscow.  In Nizhniy Tagil, Putin called for a unified plan of future design work for armored systems.  Putin said Uralvagonzavod would receive 10 billion rubles in early 2010 to establish and run armor “service centers” for the Defense Ministry, relieving troops of this noncore function.

In early December, Air Forces Commander-in-Chief indicated he is not happy with the development of Russia’s new S-500 air defense system.  He doesn’t want a continuation of the S-400, but a system to counter missiles in “near space.”  Sergey Ivanov once called for it to be a 5th generation anti-air, anti-missile or aerospace defense system.

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