Tag Archives: Boris Nakonechnyy

Declining Defense Orders

Smaller military budgets and delays in putting GPV 2018-2025 into place will apparently trickle down into reduced orders for Russia’s defense-industrial complex (OPK) in coming years.

According to TASS on June 15, Deputy Chief of the Main Armaments Directorate Boris Nakonechnyy said the MOD can’t fully “load” OPK enterprises with orders during the next GPV.  “As the primary customer for weapons and military equipment, the Defense Ministry can’t fully support the work of enterprises,” he told the news agency.

There may be some reduction in defense orders during the new arms program, Nakonechnyy said.  But he indicated the MOD would still support the scientific work (presumably the RDT&E) of Russian defense-industrial enterprises.

Nakonechnyy said the MOD doesn’t expect global military threats to decline, but it’s not possible to increase substantially the funding needed to counter them.  At the same time, he emphasized it’s important for Russia not to lose the current tempo of development in its OPK, and not to allow itself to lag behind world leaders in military technology.

Welding parts for BMP-3 at Kurganmashzavod

Welding parts for BMP-3 at Kurganmashzavod

TASS provided no context for Nakonechnyy’s comments.  Other media outlets ran the TASS story as is.  Utro.ru, however, provided its own interpretation of his remarks.

While perhaps somewhat alarmist, Utro writer Andrey Sherykhanov puts Nakonechnyy’s statements in the context of the continuing battle between the defense and finance ministries over future military spending.

Sherykhanov recalls the recent Vedomosti report putting likely appropriations for GPV 2018-2025 at 17 trillion rubles, three times less than the original MOD request.  The peak of defense orders, he concludes, is already past.  The military will have no orders for production enterprises, which will close and send their workers on indefinite furlough as they did in the 1990s, he writes.

But maybe, Sherykhanov opines, this won’t be necessary since President Putin has said the OPK’s potential should be harnessed to the needs of cutting-edge, science-intensive sectors like medicine, energy, aviation, space, and information technology.  Last year the Supreme CINC himself said 30 percent of OPK production has to be for the civilian market by 2025, and 50 percent by 2030.  Massive state defense-industrial holding company Rostekh has already announced that half of its output will be civilian by 2025.

Sherykhanov writes that there’s no real concern about this new program of conversion to civilian production at present:

“In the upper echelons of power, they spoke about it just a year and a half ago. There’s a gathering sense that the leaders of Russian defense enterprises aren’t beating their heads with this, concentrating as they are completely on military orders which OPK enterprises are provided until 2020.  That is, they act according to this scheme:  we’ll handle this, and then we’ll see.”

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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.