Tag Archives: ГОЗ

The Defense Sector’s Systemic Failure

In today’s Nezavisimaya gazeta, Vladimir Mukhin concludes the OPK’s “systemic failure” has left the military without new weapons.  His article also says a lot about the base upon which the Kremlin intends to build a modernized economy.  But perhaps the OPK is in worse shape than other sectors . . .

Defense Minister Serdyukov apparently sent President Medvedev a report explaining why some very important armaments and military equipment were not delivered in 2010.

According to Boris Nakonechnyy, Deputy Chief of the Directorate of State Defense Order Formation in the Defense Ministry’s Armaments Department, Serdyukov proposes that the Supreme CINC use “measures of administrative effect against enterprise directors who have violated the timeframe for fulfilling the Gosoboronzakaz.”  He doesn’t say if this means fines, arrest, etc.  Specifically, Nakonechnyy said, in 2010, a proyekt 20380 corvette, two proyekt 955 submarines, one proyekt 885 submarine, 3 of 9 planned Yak-130 trainers, and 73 of 151 expected BMP-3s  were not delivered.

Mukhin calls this an obvious failure, and estimates at least 30 percent of the 2010 GOZ wasn’t realized.  He contrasts this with President Medvedev’s Poslaniye, in which he said he was sure defense expenditures in the 2011-2013 budgets would allow the Armed Forces to buy the new armaments they need.

Speaking to defense enterprise directors in Sverdlovsk Oblast, Nakonechnyy said the cause of failure in the Gosoboronzakaz is poorly organized work by enterprises and designers:

“Signing contracts . . .  an enterprise director assumes quite serious obligations.  And, signing such a state contract, he is correspondingly bound to meet these obligations.”

But, he says, in a number of OPK enterprises, this isn’t happening.

Mukhin turns to the directors’ side of the story.

Military plant directors in the Urals unanimously announced that “contracts are concluded in such a way that we will always be in extremis.”  They say they’ve made proposals about contracts, but none of them are considered.  They also point to the Defense Ministry’s significant indebtedness to enterprises for completed work.  This supposedly amounts to 228 million rubles in the Urals.  Most of all, managers worry about uncertainty in this year’s GOZ, and about the Defense Ministry’s intention to pay 2009 prices this year.

The head of the Sverdlovsk producers’ group says:

“To this point, there are no agreements, no money.  All this pushes us toward emergency work in the future.  The pricing policy is driving us into a corner.”

Another general director complains of low profitability in the OPK.  Only 6-7 percent, according to him.  The Defense Ministry is allowing growth in materials costs of not more than 1 percent this year, and this will erode profitability further.

Military analyst Vladimir Dvorkin says a third of defense enterprises are really bankrupt.  Investment in R&D is ten times lower than in developed countries.  Investment in basic capital and personnel training is five times lower.  He continues:

“Fixed capital assets at OPK enterprises are two-three times, and labor productivity five-ten times lower than in developed countries.  More than 70% of technologies supporting production demands are worn-out or obsolete.  More than half the machine tool inventory is 100% worn-out.  The average age of OPK workers is more than 50, in defense NII [scientific-research institutes] it approaches 60.”

Dvorkin thinks the Armed Forces can’t be brought to the level of the world’s leading armies without extraordinary efforts.  Priorities need to be set for the armaments development system in order to concentrate efforts on a limited list of systems.

Mukhin thinks it might be too late since Medvedev’s already signed GPV 2011-2020.  But whether its priorities will be met is another thing.  So far in post-Soviet history, not one GPV has been fulfilled, Russia’s defense industry continues to decline, and global restructuring in military production still hasn’t been noticed in Russia.

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Military-Theft Forces

Prosecutors Rate the Most Corrupt Service Branches

40-50 Percent of State Defense Order Simply Stolen in Recent Years . . . no wonder large-scale procurement hasn’t happened.  Serdyukov supporter Korotchenko tries to paint opponents of military reforms as people trying to protect their corrupt schemes.  This surely goes on, but there also have to be people opposing them for reasons other than greed.  Finally, it’s at least conceivable that, if Serdyukov doesn’t make progress against corruption, it could cost him his job (if he stays that long, he is approaching the four-year mark).  Thus endeth the precis for this post . . .

This week Profil investigates military corruption.  The magazine notes the number and scale of Defense Ministry corruption cases is growing by leaps and bounds, reaching losses of 2.2 billion rubles for the first ten months of 2010.  It concludes, despite a significant cut in the officer corps and Defense Minister Anatoliy Serdyukov’s battle against “thieves in broad stripes [generals],” the number of corruption crimes is not only not declining, but has substantially increased.  Profil obtained an analytical report compiled by the Main Military Prosecutor (GVP) showing who has stolen how much this year.

The GVP presented its report to a closed session of the Duma Defense Committee.  It says its analysis shows “efforts to counteract corruption in the troops are insufficiently effective.”

Profil’s first graphic . . .

Growth of Corruption Crimes in the Army (First 10 Months of 2010)

Troops/Military District/Fleet                     2009       2010       Growth (%)

North Caucasus MD                                             184          311                 69

Moscow MD                                                              94           152                61.7

Air-Assault Troops (VDV)                                 34            119                250

Siberian MD                                                             76            117                 54

Strategic Missile Troops (RVSN)                  59              93                 57.6       

Northern Fleet                                                      50              59                 18

Space Troops                                                        27              44                 63

Caspian Flotilla                                                      5                  7                 40

Black Sea Fleet                                                      2                  6                 200

Profil suggests the recent wave of military retirements signed off by President Dmitriy Medvedev could have been sparked by corruption charges.  While possible, there’s no evidence to support this thesis. 

A Profil source in the Defense Ministry says, not surprisingly, officials responsible for the State Defense Order (GOZ or ГОЗ), capital construction, and the disposition of military property (first and foremost real estate) inflict the greatest losses on the budget.  The article quotes Igor Korotchenko:

“In the course of recent years, 40-50% of resources allocated for the State Defense Order were simply stolen.  This happened, for example, when money was directed at the fulfillment of some concrete work, but there were no real results.  Write-offs appeared in the end or a weapons system was developed that simply didn’t meet its technical requirements.”

Profil suggests that many officers are rushing to get one last bite of military money before Serdyukov’s reforms completely derail their schemes.  It cites Ruslan Pukhov offering two different explanations for rising military corruption:

“Feeling an impending dismissal, officials are probably trying to take the maximum from their positions.  However, it can’t be ruled out that the prosecutor has really reinforced his work in different areas.  Corruption is an acute issue for the prosecutor.”

Pukhov thinks that, although the percentage increase in corruption looks really bad for the VDV, “corruption in the armed forces is spread equally and the growth in corruption crimes in separate branches or districts is connected only with where they are being investigated.”

A very good point, Mr. Pukhov.  Yes, the results of this little anticorruption experiment are very much influenced by where and how it is being conducted.  One should also pay much more attention to the absolute numbers of corruption cases than the percentage changes, and nothing has been said about the relative size of the various parts of the armed forces . . . no per capita figures are provided.  Are 44 crimes in the relatively small Space Troops more significant than 152 in the larger Moscow MD?

Korotchenko, a fairly strong Serdyukov proponent, says the Defense Minister and his tax service colleagues are beginning to break existing corrupt ties, institute financial transparency, and deprive the generals of the right to conclude any contracts.  Dividing the Ministry into military and civilian halves will keep military men out of financial expenditures, and this “process of shifting generals out of the feeding trough” will continue until 2012.  The generals will provide requirements, and civilians will allocate the financing.

A second graphic with some absolute figures on losses due to corruption . . .

Growth of Corruption Crimes in the Army (First 10 Months of 2010)

Troops                                                                  Loss Amount                      Annual Growth

                                                                           (millions of rubles)                        (times)

Strategic Missile Troops (RVSN)                      59.8                                            15          

Air-Assault Troops (VDV)                                   57.5                                            12.2

Space Troops                                                            47.6                                              2.2

Korotchenko claims:

“The campaign against Serdyukov is mainly heated up by those people who’ve been deprived of the feeding trough.  So, the director of a large defense enterprise has for many years sawed off rubles by the billion every year in the transfer of money that comes to fulfill the Gosoboronzakaz.  When Serdyukov deprived this director of such a trough, he began to finance any actions directed at discrediting and, possibly, even removing the Defense Minister.”

So, Korotchenko asserts most conflicts over army reform are banal conflicts of interest for those who can’t steal like they used to.  But didn’t the GVP just say they’re doing a better job of stealing than ever before?

Korotchenko continues:

“Of course, Serdyukov is not an angel, and many of his actions on the military reform plane call forth questions, but it’s another thing that before he arrived, corruption in the Defense Ministry had achieved such a level that he was forced to cut to the bone.  Many scandals proceed only because their financial-economic interests were affected:  the meetings of the airborne guys is just one in this series.”

Then Profil turns to Vitaliy Shlykov, who says:

“Broad publicity for corruption scandals in the Defense Ministry cannot but affect the minister.”

But he believes the Kremlin knows no one can fight corruption like Serdyukov, therefore the GVP report isn’t a real blow to him.

Profil concludes, so far, Serdyukov hasn’t squandered the trust placed in him, but the struggle against corruption only strengthens him as long as it’s a success.  If corruption keeps growing, it’s possible the Defense Minister himself could wind up on the “shot list.”

Emblem of Procurement Problems

On Friday, amidst Krasnaya zvezda’s usual fare, there was interesting coverage of a high-level meeting to review the military’s UAV (BPLA or БПЛА) procurement program.

Technically, it was a session of the collegium of the Federal Service for the Defense Order (Rosoboronzakaz or Рособоронзаказ) with the agenda item “Results of Inspecting the Placement and Fulfillment of the State Defense Order (GOZ) in the Area of Development and Supply of Unmanned Aerial Vehicles.”

Rosoboronzakaz Director Aleksandr Sukhorukov, a former Serdyukov tax service deputy, conducted the session.  Also participating were newly-minted Deputy Defense Minister Tatyana Shevtsova, also a former Serdyukov tax service deputy, and Director of the Federal Agency for Supplies of Armaments, Military and Special Equipment, and Material Resources (Rosoboronpostavka), Nadezhda Sinikova, another of the Defense Minister’s long-time proteges.

The military paper noted that representatives of the government, ministries, and other federal executive organs, state customers from the Defense Ministry, FSB, FSO, MVD, and MChS, representatives of the Main Military Prosecutor, and OPK officials also attended.

One Yu. Stolyarov gave the main report.  He’s Chief of the Directorate of Oversight of the State Defense Order in the Area of General Armaments and Military Equipment, Aviation Equipment, Aerospace Defense Means and Armaments, Ships, and Naval Armaments and Military Equipment.  Quite a broad portfolio.  Krasnaya zvezda didn’t elaborate on what Mr. Stolyarov said, however.

Ground Troops CINC, General-Colonel Aleksandr Postnikov, VDV Chief of Staff and First Deputy Commander, General-Lieutenant Nikolay Ignatov, an OAO Tupolev deputy chief designer, and OAO ‘Vega’ Radiobuilding Concern General Director, V. Verba also spoke at the session.  Their remarks weren’t reported either.

Krasnaya zvezda reported that all presentations were thorough and constructive, and the collegium adopted some draft directive, but we don’t know what it said.  The paper, however, says the main theme of all presentations was the same:

“. . . in their TTKh (ТТХ – tactical-technical characteristics) domestic UAVs must not lag behind foreign ones and it’s essential to do everything to achieve this.  State money has to be spent with maximum effectiveness.  Troops and power structures need to be supplied with those UAVs that will be most effective on the battlefield, and in conducting special operations.”

What should we conclude from this?  Firstly, the meeting highlighted Shevtsova’s new oversight and auditing role in procurement.

Secondly, the Defense Ministry’s leaving the door open for domestic UAV producers, and so this seems to amount to just another warning to them.  It doesn’t seem to be anything like a decision to include Russian firms or exclude foreign ones, or vice versa.

It’s not surprising the Defense Ministry highlighted this particular program review.  Few procurement issues have caused Russia as much angst recently as UAVs. 

Georgia’s Israeli-supplied UAV capabilities, and Russia’s relative lack of them, highlighted this issue in 2008.  Moscow had to risk manned aircraft instead of employing unmanned ones on reconnaissance missions.  What’s worse, two years after the five-day war, there’s still no fix to the UAV problem.  And it will become more acute should unmanned aircraft become the backbone of future air power for the world’s leading militaries.  Russia’s clearly behind on UAVs, and questions remain about whether it should catch up, and whether it can.

The Russian defense establishment has spent months debating buying from foreign manufacturers, purchasing sample quantities abroad, or producing jointly to jumpstart or pressure domestic producers.  In late 2009, Air Forces CINC, General-Colonel Zelin flatly stated it would be ‘criminal’ to accept inferior Russian UAVs into the arms inventory.  The FSB reportedly said it would buy Israeli UAVs.  In March, Defense Minister Serdyukov admitted domestic UAVs ‘seriously lag’ behind world standards, and, in April, then Armaments Chief, now First Deputy Defense Minister Popovkin reported that Russia had spent 5 billion rubles on UAVs without result.

So UAVs joined the list of other systems – helicopter carriers, soldier systems, light armored vehicles, etc. – that could be bought abroad, but it doesn’t look like Moscow is ready to rely, at least entirely, on foreign producers for any of them.