Tag Archives: VPK

Nyet Means “Not Yet”

Fleet Admiral of the Soviet Union Kuznetsov (photo: Denis Abramov)

Russian aircraft carrier lobbyists — admirals and shipbuilders — define persistence.  To them, nyet means “not yet” or “keep trying.”

Izvestiya’s Denis Telmanov reported this week on future plans to build two new nuclear-powered aircraft carriers by 2027 — one for the Pacific Fleet and one for the Northern Fleet — along with 15-ship battle groups to surround them.

After years of arguing, the admirals reportedly decided they need carriers (not just nuclear subs and cruisers) to “broaden the Russian Navy’s zone of influence in the Pacific Ocean and North Atlantic.”

The Navy is reportedly completing the “technical tasks” for a new carrier, with a first design due next year, and the final one by 2017.  The first hull is supposed to be launched in 2023.  According to Izvestiya, sections and components will be built in several shipyards, but final assembly will be at Sevmash to save resources instead of building a new yard large enough to put a carrier together.

The article might be as much about where carriers would be built as if they will be.  There has been talk that the nascent New-Admiralty Wharves could get this work.

Izvestiya says land-based carrier trainers at Yeysk and Saki (NITKA) in Crimea will be used.  The paper also notes the new carriers will need new support bases because the lack of them “killed” or complicated the service lives of Soviet “heavy aircraft-carrying cruisers,” including the Kuznetsov.

One surmises that Russia’s coming experience with building, basing, and operating Mistrals will affect all this too.

But let’s rewind a bit . . . Navy CINC, Admiral Vysotskiy said in early 2010 that Russia plans to launch a carrier by 2020.  Defense Minister Serdyukov, however, has said twice in the last year that Russia has no plans to build carriers in the near future [by 2020].  On July 1, he emphasized that the Genshtab and Navy will decide on the need for an aircraft carrier after a “preliminary design” is complete.

No matter how much some say “Russia must have aircraft carriers,” it ain’t necessarily so. 

It ain’t so because (1) Russia may have more important requirements to fill with its limited resources, and (2) the people talking about carriers ain’t the same people who ultimately decide which requirements get met. 

Telmanov’s article is full of this:

“Strategists insist . . . .  The Navy has decided . . . .  The admirals have selected . . . .  In the military’s opinion . . . .  A Navy Main Staff representative explained . . . .  The military is deciding . . . .”

Not this:

“The president has decided . . . .  The government has selected . . . .  The VPK insists . . . .  The defense minister explained . . . .  In the General Staff’s opinion . . . .”

When we read that these types of people have decided to build carriers, it might really happen.

Bulava Success

Interfaks and ITAR-TASS report Borey-class SSBN Yuriy Dolgorukiy successfully launched its third Bulava SLBM today, that’s the 17th overall test and the 10th success (including five in a row).

The earlier-reported launch window was missed due to bad weather, according to Flotprom.ru.

ITAR-TASS quoted the VPK this week regarding Borey unit 2 Aleksandr Nevskiy.  The VPK says Nevskiy won’t fire a Bulava before the summer of 2012.  After finishing its factory underway testing (ZKhI or ЗХИ) and several successful single Bulava launches, Nevskiy might be accepted into service by the end of 2012, according to the VPK.

Nevskiy’s now on a two-week phase of ZKhI and will be back in Severodvinsk by early December to rectify any problems identified.  ITAR-TASS says underway testing will continue as the weather permits.

Rossiyskaya gazeta Wednesday also noted that Nevskiy’s schedule has moved to the right, and it can’t be accepted until 2012.  RG covered how the first two Boreys used unused proyekt 971 Akula components, but some are talking about Borey unit three Vladimir Monomakh as a “modernized variant” and its builders will no longer be forced to stuff their “new contents” into a “different” hull.  Others have cited the lack of leftover parts as a problem that will increase the cost and difficulty of building the third new SSBN.

The paper says Nevskiy’s crew trained at Obninsk, and also aboard Dolgorukiy.  Like Dolgorukiy, Nevskiy will head for the Pacific Fleet, according to RG.  OSK and the Defense Ministry remain in difficult negotiations over the Borey’s reported 23-billion-ruble price tag.

Updating a related story, ITAR-TASS says new Yasen-class SSN Severodvinsk is now in its second underway period.  Its first (September until early October) was deemed successful; 80 percent of tasks were completed and only minor problems identified.

Worth recalling here that two Boreys, Bulava, and one Yasen were all on President Medvedev’s list of weapons systems to be procured in GOZ-2010.

Serdyukov and Baranets

Anatoliy Serdyukov (photo: Vladimir Belengurin)

Komsomolskaya pravda’s Viktor Baranets got to prompt Defense Minister Anatoliy Serdyukov for a few statements on various topics in today’s paper.  It doesn’t seem like he really got to ask questions.

Serdyukov claims all but about 3% of GOZ-2011 has been placed, and 100% advances to the defense sector for 2012 will make for a smooth year of orders and production.  He “dodges the bullet” on not ordering Kalashnikovs.  He returns to the possibility of giving serving officers and contractees money to rent their own apartments, but this never worked well in the past.

Serdyukov says the first phase of military reform involved changing the Armed Forces’ org-shtat (TO&E) structure.  Now, he says, the second phase has begun, and it’s connected with rearming the troops.

On the state defense order (GOZ), Serdyukov says:

“During the formation of the Gosoboronzakaz, we had two issues with the defense sector — the price and quality of armaments.  We got them to open up their production “cost history.”  That is, they showed us everything transparently.  We needed to understand what they were getting and from where.  After long arguments, a compromise was found in the end.  We settled on quality criteria.  The Gosoboronzakaz is almost completely placed.  Of 580 billion rubles a little more than 20 billion was left ‘to settle.’  But we’ve also drawn conclusions from the lessons of this year.  Now the next Gosoboronzakaz will be formed in the Defense Ministry before December with such calculation that they will begin to fulfill it in January.  At the same time, we’re trying to make the Gosoboronzakaz 100% paid in advance to the defense sector.  Not another country in the world has such comfortable conditions for its VPK.”

Serdyukov says the Defense Ministry is still working on MPs, their regs, missions, training, structure, and size.  They’ll be responsible for discipline and order in garrisons and investigations.

The Defense Minister opines that Russia’s Israeli UAVs aren’t bad, but they are looking at Italian ones while domestic development continues.

Serdyukov confirmed that two new factories for producing the S-400 system will be built.  They are designed, and, he hopes, will begin production by 2015.

On tanks, the Defense Minister says they’ve taken the position that they can modernize T-72s to the level of a T-90 or better for 38 million rubles.  He believes it’s cost effective.

On the AK-74, Serdyukov claims they aren’t rejecting it, but they have depots overflowing with 17 million automatic rifles.  He says they’ll be used or modernized, some will be sold, and others transferred to other power ministries.

Serdyukov believes the draft military pay law now in the Duma will raise pensions by 50 or 60 percent.  Active military pay will be as advertised:  a lieutenant is supposed to get 50,000 or more rubles a month.  Contract enlisted will start at 25,000 or more depending on their duties.

Serdyukov hopes the problem of housing for retired servicemen will be concluded in 2013.  Then he can focus on service housing for contractees.  He proposes paying contractees to rent apartments while the Defense Ministry acquires or builds service housing.  “Apartment money” is a possibility but it has to be thought out.

The GOZ Last Week (Part II)

We looked at last week’s news.  What’s it mean?  There wasn’t a lot of commentary about it, but there were two very good pieces.

To backtrack a little, if it looks like Defense Minister Anatoliy Serdyukov might be (just might be)  getting an upper hand on forcing defense producers to his prices instead of vice versa, then the commentaries give insight into what is happening (or may happen) if Serdyukov succeeds in driving hard bargains with the OPK.

Moskovskiy komsomolets’ Olga Bozhyeva asked a general who worked on the GOZ to comment on this year’s situation:

“The Defense Ministry now lacks an organ with responsibility for contracting work, beginning with formation of initial prices and ending with accepting the results.  In the past, the chief of armament’s apparatus performed these functions, currently it’s been transformed into a department with unintelligible functions.  Tax organ officials who’ve come into the Defense Ministry’s key financial posts can’t connect the price of a product with the characteristics of the model being produced and its contribution to the country’s security.  In the Defense Ministry in recent years, three basic methods of calculating the cost of a product have been introduced, but not one of them factors in the substantive part of the work.  They are all built on the principle:  I have a certain amount of money, I want to give you this much of it.  But putting it to concrete use no longer interests anyone.  And it turns out that the methods of calculating prices in the Defense Ministry and in VPK enterprises are different.  The people speak different languages . . . .”

Bozhyeva concludes:

“In a market economy, you have to survive somehow.  Here is not America, where work for the Pentagon brings a good profit.  With us, it only allows you to survive.  And that is if they allow it.  But they don’t let everyone.”

“Here not long ago the Defense Minister got indignant, for example, that shipbuilders [Sevmash] had become so brazen that they also put the cost of kindergartens and other “social benefits” into the price of a missile-carrier [SSBN].”

“I’m not a taxman, evidently, since I don’t understand:  but where can they put it?  Let’s take Severodvinsk here.  It is completely dependent on “Sevmashpredpriyatiye.”  Like it or not, the kindergartens, schools, hospitals, clinics, housing – the factory has to maintain all of it.  And, naturally, they put the upkeep into their production cost.  How can it be otherwise?  If there aren’t kindergartens – there aren’t missile-carriers.”

Editorializing in Nezavisimaya gazeta, Viktor Litovkin writes:

“What are the causes of such an ‘inability to agree?’  In the fact, in my view, that it’s impossible to marry purely administrative approaches to the imposition of concrete military department prices on defense enterprises with largely market relationships which exist for the defense sector today.  With achieving that degree of Gosoboronzakaz profitability in which enterprises have the chance not just to survive, but also develop.  Several defense NII and factory directors, undoubtedly following the example of MIT General Designer Yuriy Solomonov, have already even stopped ‘fearing’ to publicize their disagreements with the Defense Ministry in front of journalists.  General Director of NII Instrument-building named for Tikhomirov, Yuriy Belyy told me ‘in the ordering structures of the military department people have come, who, to put it mildly, don’t understand anything about production and price formation’ (this, by the way, also means Anatoliy Serdyukov. – ‘NVO’ No. 25).  ‘Still they always demand the reduction of invoiced expenditures, reduction of profits, of labor input.  And often arbitrarily disregard prices on final goods.’  This, in his words, is happening all over the defense sector.”

“’If we had the GOZ alone, the enterprise would have died long ago,’ Yuriy Belyy told me.  ‘There are practically no resources remaining for development after GOZ fulfillment.  It isn’t understood that wages take according to some kind of averaging principle.  Invoicing expenses also.  So goes the practical strangulation of the defense sector.  In the country’s leadership they say that the OPK’s profitability is the locomotive of industry, should be not less than 15%, but in fact it’s not more than 5-7%.  And, the main thing, not understood, is with whom to talk in the Defense Ministry.  Completely incompetent people have arrived.  Their mission is not the development of industry, not increasing the country’s defense capability, their mission is to save money by any means.’”

“An enterprise producing a final product, like ‘Dolgorukiy,’ which buys metals, nuclear reactors, various components at market prices from the monopoly producers of these products, can’t give away the good created by its workers lower or a little, one-two percent, higher than its own cost, or lower than its profitability level.  It can’t buy new machine tools, technology, reequip its production line, train and select new highly-qualified personnel, provide them housing . . . .  It can’t not think about tomorrow.”

“And from the other side, if it’s possible to pay the French one and a half billion Euros for ‘Mistrals’ we need or don’t need, then why does ‘Sevmash’ have to give away a strategic submarine extremely essential to the Navy and Russia for free?!”

Latest on GOZ Woes (Part II)

To review this week . . . Prime Minister Putin’s current deadline for completing GOZ contracts is August 31, but it’s unlikely to be met, even by loyal Deputy PM and OSK Board Chairman Igor Sechin.  Deputy Finance Minister Siluanov said Defense Ministry contracts are being made on credits and government-backed financing rather than cash.  Putin said the price tag for GOZ-2011 is 750 billion rubles, but 30 percent of projected procurement still isn’t covered by contracts as the final third of the year begins.

How did the government, Defense Ministry, and OPK arrive at an August 31 deadline that’s unlikely to be met?

The latest round of this year’s GOZ woes started in early July when MIT General Designer Yuriy Solomonov told Kommersant that GOZ-2011 was already broken, and Russia’s strategic missile inventory is not being renewed as necessary.  He said there’s no contract for the RS-24 / Yars ICBM, and the late arrival of money makes it impossible to salvage 2011.

President Dmitriy Medvedev responded by calling Defense Minister Anatoliy Serdyukov on the carpet.  According to RIA Novosti, he told him:

“Sort out the situation.  If there’s information that the state defense order is broken, it’s true, organizational conclusions are needed in connection with those who are responsible for this, regardless of position or rank.”

“If the situation is otherwise, we need to look into those who are sowing panic.  You know how according to law in wartime they dealt with panickers — they shot them.  I’m allowing you to dismiss them, do you hear me?”

RIA Novosti reported Serdyukov’s opinion on the “wild growth” in the price of military products, especially from MIT and Sevmash.  He said MIT is asking 3.9 billion and 5.6 billion rubles respectively for Topol-M and Yars ICBMs.  Serdyukov put GOZ-2011 at 581 billion rubles [different from Putin’s figure!], and added that only 108 billion, or 18.5 percent, was not yet under contract.  He said everything would be done in 10 days.

At virtually the same time, Deputy PM and VPK Chairman, Sergey Ivanov told ITAR-TASS 230 billion rubles were not yet contracted out.  OSK piled on Serdyukov, claiming contracts for 40 percent of the Navy’s share of the GOZ weren’t finalized.

In late July, it looked like Northern Wharf (which reportedly produces 75 percent of Russia’s surface ships, and is not part of OSK) might be made into an example for other “GOZ breakers.”  While prosecutors talked vaguely about the misuse of GOZ money, the shipbuilder’s representatives apparently mounted a vigorous defense, asserting that the enterprise has been right on time, even though it’s underfinanced by the Defense Ministry.

Main Military Prosecutor Sergey Fridinskiy said prosecutors uncovered 1,500 GOZ-related legal violations during the preceding 18 months.  He indicated there were 30 criminal convictions, and state losses amounted to millions of rubles in these cases.  The most egregious example  was the theft of over 260 million rubles given to OSK’s Zvezdochka shipyard to repair Kirov-class CGN Petr Velikiy.  Fridinskiy indicated the enterprise director and his close associates apparently had 40 million of the money in their own names.  Recall Fridinskiy earlier said 20 percent of defense procurement funding is stolen.

According to Rossiyskaya gazeta, Defense Minister Serdyukov claimed he was on the verge of signing contracts with MIT for Topol-M and Yars production.  Once again, he said all contracting would be finished in two weeks.

In mid-August, OSK enterprises Sevmash, Admiralty Wharves, and Zvezdochka said they would soon be forced to cease work unless the Defense Ministry signed contracts with them.  Putin, Sechin, and Serdyukov met and launched a special interdepartmental commission to set prices for the Navy’s remaining 40 billion rubles in GOZ contracts.  And, according to Kommersant, everyone was once again reassured that all contracts would be completed in two weeks.

And it’s not just all ICBMs, ships, and submarines . . . Kommersant wrote that the Defense Ministry eschewed contracts for 24 or more MiG-29K and more than 60 Yak-130 trainers at MAKS-2011.

So what does the mid-year GOZ picture look like? 

The president and prime minister have fumed and set a series of deadlines, not met thus far.  And the defense minister and deputy prime ministers have assured them they would meet each deadline in turn. 

More interesting, and somewhat unnoticed, is the fact that the prime minister and defense minister (among others) seem to be consistently working from different sets of numbers on the size of the GOZ, and how much has been placed under contract.  The GOZ hasn’t captured this kind of leadership attention at any time in the past 20 years.

Producers are being honest when they say late state contracts mean they can’t do anything (or at least what the Defense Ministry wants them to) in what remains of the year.

Picking up the pieces of GOZ-2011, and trying to put GOZ-2012 on a better footing will occupy the rest of this year.

Lost in everything is what will the Russian military get eventually by way of new hardware, and when will they get it?  And how good will it be?

Government Hour (Part II)

There was plenty of interesting media coverage of the Defense Minister’s meeting with the Duma on Wednesday, and plenty of criticism of what he said or didn’t say.  Plenty worth covering in a Part II, especially regarding Serdyukov’s effort to shift the blame for another failing GOZ.

Radio Svoboda quoted KPRF deputy Vladimir Ulas putting all the blame for the army’s current state right at Anatoliy Serdyukov’s feet:

“The public clearly understands that the situation in the Armed Forces is far from favorable.  Constant scandals which rock this department, the morale-psychological situation in which personnel, first and foremost, the officer corps, find themselves, both the material condition, and the lack of modern armaments – all these problems are completely real.  I also hoped to hear answers to questions, how the Defense Ministry intends to solve them, from the minister.  But, to my greatest regret, the biggest, in my view, problem of today’s Armed Forces is the absolutely dense incompetence of the military leadership.  With people like Serdyukov still heading our Armed Forces, and he, unfortunately, is far from the only one, hoping for some kind of positive shifts is absolutely senseless.”

There was plenty more to be said about problems with the GOZ, the OPK, and the VPK and Defense Ministry blaming each other for what looks like a failing GOZ-2011.

KPRF deputy Anatoliy Lokot told Nakanune.ru:

“I have the impression that these sessions are ‘closed’ to hide the bitterness of the questions and negative results of the work of Military-Industrial Commission (VPK) and Defense Ministry leaders.”

United Russia’s Igor Barinov reiterated what he said he told President Medvedev a year ago:

“I noted then that the lack of competition and incomprehensible system of price formation in the VPK is a deadend path.  We’re reaping the fruits of this now.  Judge yourself:  one, well, a maximum of two enterprises produce this or that type of our armament or military equipment.  Meanwhile, enterprises getting money from the federal budget dispose of it as they wish.  Prices simply come from the ceiling.  No one bears any responsibility for quality.  No one invests money in improving types of military equipment, in the end it goes that even in infantry weapons we’ve fallen behind.  Our legendary automatic weapon Kalashnikov, the value of which everyone recognized before, now lags the best Western types in tactical-technical characteristics.  And so it is in almost every area, with rare exceptions in the areas of missiles and some aircraft.”

“The Defense Ministry announced it won’t buy airborne combat vehicles [BMDs] and infantry combat vehicles [BMPs] from ‘Kurganmashzavod.’  This enterprise was one of the guilty in breaking the Gosoboronzakaz.  And here’s the thing in this.  ‘Kurganmashzavod’ is part of the United ‘Tractor Plants’ Corporation.  Budget money is shared out with ‘Kurganmashzavod’ in a targeted way for the purchase of equipment, but the corporation’s directors dispose of it according to their discretion, and, naturally, BMP and BMD production is the last thing of concern for the owners of this holding company.”

“If they understand that they can be deprived of budget resources, then this enterprise will be forced to invest in quality, and in cutting defects, and in the improvement of product types.  In addition, strict supervision is needed.  Money was allocated but no one asked anyone about this money, and the result was zero.”

The KPRF’s Lokot also dwelled on the GOZ:

“It’s obvious that if the Gosoboronzakaz isn’t formed in the first half of the year, then nothing will be accomplished in the remaining part of the time since money will only begin coming in at the end of the year.  Serdyukov acknowledged that today 13.4% of all contracts in the plan have been formed.  Some time ago, Sergey Ivanov gave us other numbers.  But I think that this number juggling was caused by competition between the Defense Minister and the Military-Industrial Commission.  Ivanov lumps all the blame on the Defense Ministry, Serdyukov – on the defense-industrial complex.  He even began his [Duma] speech with this, saying that the military-industrial complex is guilty of everything.  They have poor qualifications, technology losses, poor production and so forth.  But really at a minimum the Defense Ministry itself bears 50% percent of the responsibility for such a situation.”

“I have given the example of Novosibirsk proving the obvious guilt of the Defense Ministry in breaking the order.  One of the enterprises – the Lenin Factory, which puts out very important products for infantry weapons, became a victim of Defense Ministry officials.  In January this year, Serdyukov opened a state order tender with his signature, but closed it in March.  Now half the year is gone, and there are no results.  The enterprise isn’t working, products aren’t coming out, 211 million rubles spent on reequipping won’t bring any returns, and now they’re generally talking about cutting part of the work force.

“Right in Novosibirsk at the Comintern Factory the S-400 surface-to-air missile system is being produced on the enterprise’s own money, and not with government resources.  Serdyukov says:  ‘I don’t see anything terrible in this, let the enterprise do it on its own money.’  But where does it get its capital resources?  What world is Serdyukov living in?”

Vedomosti talked to a former Defense Ministry official who basically said the threat of arms purchases abroad really didn’t scare anyone.  And, according to him, although Serdyukov considers defense industry leaders lazy and prone to stealing, everyone understands imports can never replace domestic production.  Finally, a source close to the PA told the business daily that Serdyukov himself opposes the Mistral acquisition because of the large expenditures required to build its base infrastructure.

Kicking the Defense Ministry and OPK

President's Meeting on the OPK

President Medvedev is irritated as ever that the Defense Ministry and OPK aren’t moving out smartly to rearm and reequip the Armed Forces.  He’s trying to kick them into gear, but can he get results where his predecessors either didn’t care or simply failed?

According to Kremlin.ru, Medvedev met this afternoon in Gorki with a host of government officials and industrial chiefs.  They included, inter alia, Sergey Ivanov, Anatoliy Serdyukov, Vladimir Popovkin, Nikolay Makarov, Denis Manturov, Yuriy Borisov, Sergey Chemezov, Sergey Nikulin, Mikhail Pogosyan, and Roman Trotsenko.

Medvedev’s opening monologue enumerated what’s been done for defense industry — providing a full state defense order and financial support, creating integrated development and production structures [OSK, OAK], etc..

Then the President says:

“However, despite all adopted measures, the state of defense production cannot be called good, all attending understand this.  There are objective reasons:  the deterioration of enterprises’ basic capital is nearly 70 percent (on average), in some enterprises it’s all much worse.  We still have not even managed to establish effective mechanisms to attract innovation and off-budget resources to the defense-industrial complex.”

Medvedev goes on to say that all relevant documents, including the GPV 2011-2020, have been signed, but the assembled group still needs to think about how to implement the GPV.  He reviews how he talked at the Defense Ministry Collegium in March about balancing producer and buyer interests, about justifiable and understandable prices.

But in many areas, says Medvedev, this has already become moot, and he intends to increase responsibility for the fulfillment of these obligations.

First, he wants a Federal Goal Program for OPK Development in 2011-2020.  Its focus is to be “real readiness” of the OPK to produce actual weapons and equipment.

Second, he wants the Defense Ministry to finish placing GOZ-2011 completely by the end of May, and advance payments issued to producers in accordance with the 2011 and 2012-2013 plans.

Work to date, he says, is going poorly and slowly.  He reminds the assembled that he told them about the failure of previous state armament programs:

“Today I want to hear from all present why this happened:  both from government leaders, and from industry leaders, who was punished for this and how.  Report proposals to me, if they still aren’t implemented, with positions, with the types of responsibility, completely concretely.  If such  proposals aren’t reported, it means [industrial] sector leaders and government leaders have to answer for it.”

It’s unacceptable, he says, that high-level decisions have been made, money allocated, but a product isn’t supplied.  He recalls his late 2009 Poslaniye in which he said 30 land- and sea-based ballistic missiles, 5 Iskander missile systems, nearly 300 armored vehicles, 30 helicopters, 28 combat aircraft, 3 nuclear submarines, one corvette, and 11 satellites would be delivered in 2010.  

Everyone here, says Medvedev, agreed with this, so why wasn’t it done.  He is, he says, waiting for an answer, and:

“. . . we have to answer for the duties we’ve taken on ourselves, we look simply in this sense absolutely unacceptable.”

Medvedev finishes by saying he knows military production is profitable, and it’s possible to attract strategic investors.  He says he wants to talk about how to stimulate investment.  The goal for the day is concrete reports on what’s been done on the level of those responsible for organizing work and correcting the situation in defense industry.

Where’s this leave things?

Not exactly throwing down the gauntlet, just another warning that he’s getting serious.  But it’s doubtful the government or defense industry will take Medvedev seriously until he fires a minister, other high-ranking official, or an important enterprise director.  And it’ll probably take more than a couple dismissals to get anyone’s attention.  Medvedev is running out of time on this account (as well as others).  Those he’d like to make responsible or punish will just take the tongue-lashings and wait him out.