Category Archives: Military Budget

The Most Modern Army

In mid-July, Sergey Shoygu declared the Russian Army to be the world’s most modern. Over eight or nine years, he said, the armed forces have cardinally changed their composition.

Most observers won’t confuse “modern” with adjectives like “good” or “best” and descriptions like “most capable” or “most effective.”

Such assessments depend on a multitude of other factors including manpower, training, employment, etc. They require a hard look at whether recently-procured systems are the right ones. The ones needed for the next war.

Modern also implies and necessitates serious investment in maintenance, upkeep, and more updating and modification down the road. A continuing commitment to stay modern.

But, when all is said and done, modern is better than the alternative.

Aleksandr Golts looks at how Russia’s Defense Ministry has gotten (or is getting) modern, what it means, and what it costs in a recent piece for Republic.ru (paywalled).

Golts notes that Shoygu could have claimed 120 percent modern and no one could dispute him given that only the MOD possesses the data. A good bit of Russia’s “modern” equipment, he writes, consists of venerable but modernized weapons systems like the Su-24 and T-72.

He asks why Russia’s OPK isn’t thriving while pumping out all these modern arms. Put simply the answer is the Putin regime’s unwillingness to pay what they really cost (like gold Golts says) and giving defense industries just enough financing and bailouts for them to limp along. He updates Yuriy Borisov’s previous statements about more than 2 trillion rubles ($27 billion) in total OPK debt.

Lastly, Golts explains the failure to launch new weapons like the Su-57 into series production is due to the inability to get multitudinous subsystems, components, and materials needed for final assembly at KnAAPO. Paying what those parts actually cost inevitably raises the MOD’s final purchase price.

It’s worth remembering that truly independent Russian military journalists of Golts’ caliber — not afraid to write and speak about issues that should make the regime uncomfortable — are an increasingly endangered species.

Below is a moderately cleaned up Google Translate translation.

How much Shoygu’s boasting costs.

“Modern weapons,” which the bosses are so proud of, cost the country as much as if they were made of gold

Russian Defense Minister Sergey Shoygu bragged about stuff. Speaking in Rostov-na-Donu before employees of [Russia’s] largest helicopter plant Rosvertol, the military department’s head said something sensational: “Today everyone – some angrily, some approvingly – understands and says the Russian Army has more than 70%, or if we put it precisely, almost 71% modern armaments and equipment. This is the highest percentage among all world armies.” With two months left until the Duma elections, and Shoygu in the federal “five” of the ruling party and, it can’t be excluded, planning to continue his career in some higher position, such boasting looks excusable. Before elections, they certainly lie no less than in war and in hunting.

Competing with yourself

But the statement that our army is not only one of the most advanced armies in the world (this has already been stated more than once), but that it even surpasses them, requires at a minimum clarifications. First of all, we note that Russia surely wins a competition with itself. Such a criterion as the percentage of modern weapons exists in the official documents of only the Russian military department. For the armed forces of the United States, like the armies of most other states, it would look meaningless at least. There, overseas, military equipment lives a full and very long period of time. Once put into service, the tank and aircraft consistently — stage by stage, cycle by cycle — undergo scheduled repairs and modernization, remaining in service for decades. Here you can recall the F-15 aircraft (adopted in 1976, will remain in the inventory until 2025), the F-16 (transferred to the armed forces in 1978, will serve until 2025), the Abrams tank (in service from 1980, there are no plans to replace it) and the Patriot air defense system (entered service in 1982, serves at the present time). If it had occurred to anyone to calculate the percentage of “modern” weapons in the American armed forces, it would most likely be steady.

Russia, on the other hand, introduced this indicator [“modern”] due to very specific circumstances. ⁠During 15–20 years (from the beginning of the 1990s to the mid-late 2000s), the Russian military’s armament inventory was not only not updated or modernized. The equipment was not even repaired or maintained in proper condition. In 2008, during the war with Georgia (the war that became the moment of truth for the Kremlin), almost half of the tanks and infantry fighting vehicles urgently taken from storage bases simply broke down and did not reach the border. It was already impossible to bring most of this equipment into operation. As a result, the concept of “modern equipment” was invented, which today safely includes both recently developed Su-57 fighters and Armata tanks, as well as the modernized Su-24 and T-72, which have been in service for almost half a century.

It should also be noted that the existing system of secrecy and the monopolization of information by the military department excludes any possibility of verifying the victorious reports of General Shoygu. The only exception is strategic nuclear forces, data on the composition of which Moscow regularly provides, fulfilling its obligations under the START Treaty (there is a high rate of “modern weapons” — 83% — due to the fact that Russia spends, according to experts, over 20% of its entire military budget on nuclear weapons). As for the general-purpose forces, Sergey Shoygu can draw any indicator of the availability of modern weapons — at least 70, at least 120% — it is impossible to verify this.

OPK in debt

But if we take the minister’s words on faith, it turns out that the successes in the rearmament of the Russian army are much more significant than those of the U.S. armed forces (whose military budget is more than 10 times higher than the Russian one) and of the Chinese army (which spends at least four times more on military purposes than Russia). But if so the the military-industrial complex (OPK), which fulfills the state defense order so remarkably, should flourish. However, it’s never happened. In 2019, even before all the covid lockdowns and ensuing economic losses, Deputy Prime Minister for the defense sector Yuriy Borisov shocked the expert community, announcing that about 2 trillion rubles of debt was hanging over enterprises of the defense-industrial complex. Moreover, he confirmed “the main body of the credits will never be repaid.” In fact, he talked about the inability even to pay interest on loans. Defense enterprises spent about 200 billion rubles on interest payments, according to Borisov. “This figure beats with the planned profits of the defense industry enterprises, it turns out to be such a paradox. I cite an example from real life all the time: we boil water, drink and refill. That is, there is practically no opportunity to rely on internal sources, on the most effective sources, on our own funds,” Borisov complained. Previously, he compared the work of the military industry with exercising on a stationary bike: no matter how much you push on the pedals, you still won’t get anywhere.

According to media reports, more than 10% of defense industry enterprises (140 out of 1319) are approaching bankruptcy. The only thing that the state can offer is early repayment of loans at the expense of the budget. In 2016, 800 billion of budget rubles were spent on this, in 2017 – another 200 billion. At the same time, the debt burden did not decrease in a remarkable way, but grew. In 2020, Yuriy Borisov proposed to write off the debts of defense enterprises already by 600-700 billion rubles. And he managed to convince Putin of the need for this. According to Borisov, in 2020 “350 billion rubles of ‘toxic’ loans were written off through additional capitalization of enterprises. Another 260 billion rubles were restructured, and there is still a 150 billion ruble reserve.”

So the state twice (once through the allocation of funds for production, the second time through the write-off of loans) financed the manufacture of “modern weapons”, which Sergey Shoygu boasts. Do you think that after that there was finally financial prosperity? Not at all. At the end of last year, as reported by the Vedomosti newspaper, it was decided to again finance the implementation of the state defense order with bank loans, although initially it was proposed to do this through the federal treasury, that is, to transfer money directly from the state budget to the defense industry enterprises. Most likely, this is due to the fact that the state is resolutely unwilling to abandon ambitious rearmament programs, despite the fact that the necessary funds are no longer there. It is planned to attract 360 billion rubles of loans in three years to fulfill the state defense order. That is, there is a continuation of the vicious practice of the past decade, when enterprises disrupted production deadlines, and with them the deadlines for paying debts, and finally got entangled in the endless payment of interest.

Russian defense sector with Soviet problems

I’d venture that the source of the problem is the archaic system of the OPK. With the blessing of Vladimir Putin in the mid-2000s, Sergey Ivanov drove military-industrial enterprises into a dozen and a half vertically integrated industrial corporations, which were a caricature of the famous nine Soviet defense-industrial ministries. They quite successfully inherited all the vices of Soviet bureaucracy, endless approvals, corruption, and unwillingness to take responsibility. But, fortunately or unfortunately, they could no longer inherit the production system. Because of its absence. In the Soviet Union, only final assembly plants were considered defense. And numerous components (in the Su-27, for example, up to 1,500) were manufactured at civilian enterprises, each of which had a so-called mobilization task. It had nothing to do with the economy. The cost of producing military products [those components] was actually included in the cost of civilian goods, which was reflected in their quantity (remember the eternal Soviet deficit) and their quality. To create at least the appearance of profitability, the all-powerful Gosplan [State Planning Committee] artificially balanced the prices of civilian goods and weapons. It is no coincidence that now from OPK managers it’s possible to hear proposals for the revival of Gosplan.

In the meantime, even under the threat of criminal punishment, the state has failed to force owners of private enterprises to make components for the OPK at a loss. Indeed, for the production of a limited number of particular parts, it is necessary to maintain separate production lines (the military has completely different requirements for quality and precision) and extra workers. As a result, the military industry is doomed to produce components at final assembly plants. Only this can explain the simply snail-like pace of armaments production which has been declared serial.

So, serial deliveries of the fifth generation Su-57 fighter were supposed to begin in 2016. In reality, the first aircraft was manufactured by the end of 2019, but it crashed during a test flight. After that, exactly one year passed before the next “serial” fighter was transferred to the Aerospace Forces. The head of the United Aircraft Building Company, Yuriy Slyusar, promised Vladimir Putin to deliver as many as four aircraft this year. The same story with serial production of the newest tank “Armata.” It was planned to produce more than two thousand tanks by 2020. Then they started talking about only a hundred tanks. Now they promise to start serial production in 2022, but they don’t specify the size of the series. It’s no secret that serial production is characterized by a sharp reduction in the cost of production. After all, the product, roughly speaking, is assembled from a set of standard assemblies and parts. Nothing needs to be “adjusted” and “customized” any longer. However, this isn’t seen at all in the production of “Armata” (and they specify clearly reduced prices for the Su-57). The approximate cost of the tank has increased from 250 million rubles to 450 million rubles per unit.

On July 20, the international air show MAKS-2021 will open in Zhukovskiy near Moscow. Vladimir Putin promised to attend. Probably, on this day we will hear a lot of praise about the successes of our OPK, including, of course, the rearmament of the army. However, one must remember: all these “modern weapons”, of which the authorities are so proud, cost the country like they were made of gold.

OPK Write-Off

President Vladimir Putin has apparently agreed to a major write-off of Russian defense industry debt. It’s a significant story not receiving much attention.

Putin with VTB chief Kostin in August 2019

Putin with VTB chief Kostin in August 2019

The decision came in a secret presidential ukaz at the end of 2019. VTB chief Andrey Kostin broke the news in a late January interview with Rossiya 24 television at the World Economic Forum in Davos. The most coherent rendering of what Kostin said came from Interfaks-AVN:

Everything’s decided. At the end of last year the President met with all interested parties, the President’s ukaz was received, it’s true it’s secret, therefore I wouldn’t begin to comment on it. [But then he does, at least generally.]

But on the whole the problem’s solved, there is active participation of the [federal] budget and preferential restructuring on the part of leading banks is also provided, but it is so feasible, it is reasonable, it really takes into account, of course, that risk the banks took, therefore on the whole we’re satisfied with this decision. I think the government is too. So the program is being effected. I believe we won’t return to this issue again.

According to Interfaks-AVN in late December, Deputy PM and arms tsar Yuriy Borisov said measures to improve the financial state of key OPK enterprises were worked out and there would be a clearing of loans amounting to 700 billion rubles [$11 billion]. The main troubles, he indicated, were at OAK, OSK, ODK, and Roskosmos.

In early December, Borisov proposed writing off 400-450 billion of the debt and restructuring the remaining 300-350 billion for 15 years with a five-year initial payment holiday and a preferential two percent interest rate, according to a report in Rbc.ru.

Borisov and Russian bankers other than Kostin haven’t commented.

Borisov’s proposal may be the plan contained in Putin’s ukaz, but we don’t know since it’s secret. And it’s most likely secret to keep normally docile Russian citizens from learning that the government is bailing out weapons makers, not them. Russian household debt has increased steadily in recent years with little or no economic growth.

In July, Borisov said Russian defense industry’s large debt load was forcing it to “live hand to mouth, servicing financial institutions that don’t produce anything,” Interfaks-AVN reported. He indicated then that 90 percent of the debt belonged to OAK, OSK, Uralvagonzavod, Almaz-Antey, and Precision Systems (Высокоточные комплексы).

He called for writing off all or part of the debt at that time. But the biggest OPK creditors Sberbank and VTB opposed it.

Yuriy Borisov

Yuriy Borisov

In September, Putin directed then PM Dmitriy Medvedev to investigate problems with the profitability of defense enterprises. This came after the Military-Industrial Commission session in Izhevsk at which Putin blamed “unused capacity during a reduction in order volumes and the requirement to finance development work, the costs of which aren’t included in planning documents.” The president didn’t say anything about contract prices being too low or funding lost to waste or corruption. 

Novaya gazeta reported in July that 700 billion rubles represents non-performing defense industry loans. Total OPK indebtedness, however, is 2.3 trillion rubles ($36 billion). A write-off of 700 billion rubles (or part of this amount) would be a significant hit to the working capital of major Russian banks (and OPK creditors).

Borisov said corporations and enterprises were making only interest payments on the most troubled loans, according to Novgaz. Experts told the paper that more than half of the OPK’s profits are going to debt service leaving most producers with net profits of only 3-4 percent or even losses. Defense enterprises say they are frequently paying 22-23 percent on loans accumulated over many years. Meanwhile, the Russian banking sector is earning record profits.

Based on the recent history of OPK debts, Novgaz concluded the most likely scenario is partial write-off, partial restructuring, and recapitalization of affected banks by the Finance Ministry. Promsvyazbank (PSB) — bankrupt and nationalized in early 2018 — is also being turned into a specialized bank for handling state defense orders and problem loans to the OPK. PSB might insulate healthy parts of the Russian banking sector from bad OPK debt, and possibly from U.S. economic sanctions.

Defense producers say price formation — agreement with the MOD on contract prices — remains a substantial problem, according to the Novgaz report. Its source said:

Everyone is right — both the customer can’t pay a lot, and the contractor can’t operate at a loss. But there’s no arbiter for a compromise, and the customer is always stronger.

This OPK debt write-off is pretty much like earlier ones. It may take care of the most immediate and acute symptoms but it won’t cure the causes of the ailment, including price formation, theft, and cumbersome rules about handling GOZ funds.

Shamanov Disputes Defense Spending

Shamanov addressing the Duma in 2018.PNG

Shamanov addressing the Duma in 2018

Former VDV commander General-Colonel Vladimir Shamanov’s Defense Committee has criticized the RF government in advance of the first Duma reading of the federal budget for 2020 (and plan for 2021-2022). The committee accused the government of steadfastly “ignoring the army’s needs” — pay for MOD civilians, military pensions, housing, and fuel specifically — in its spending proposals.

Russian media reported the committee’s complaints were spelled out in writing. The legislature will discuss the government budget on October 23.

Committee chairman Shamanov addressed the low wages of the MOD’s 900,000 civilian workers. 

Civilian workers of the MOD march for worthy pay in 2018.jpg

Civilian MOD workers march for “worthy” pay in 2018

As numerous as uniformed officers and soldiers, civilian defense employees are critical to Russia’s military but their pay only averages around 30,000 rubles ($470) per month against 46,000 rubles ($718) elsewhere in the economy, Gazeta.ru reported.

They received a three percent increase on October 1 but, coming so late in the year, it offset only a quarter of this year’s inflation (4%).

The Defense Committee claimed the current average military pension in 2020 will be 23,500 rubles ($368), and has declined 20 percent in recent years because it hasn’t always been adjusted for inflation, wrote Rossiyskaya gazeta.

[NB: Cumulative inflation for the period 2012-2018 in Russia was over 60 percent.]

The committee reminded the government that President Putin promised retirees in 2012 they would get inflation plus two percent to preserve their buying power. It asked for a 6.3 percent pension increase next year.

The MOD’s mortgage savings system for servicemen was lacking 92 billion rubles ($1.4 billion) at the start of this year, the committee said. The mortgage system depends on government contributions and won’t function without this financing.

The military budget also did not contain enough money for other servicemen and their families who depend on MOD rent subsidies.

According to Gazeta.ru, the committee proposed adding 145 billion rubles ($2.3 billion) to close the gaps in the provision of military housing in 2020. But the RF government did not include this funding in the budget bill.

The Defense Committee also reported the MOD owes 7 billion rubles ($110 million) for fuel this year, and the draft three-year budget contains money for only 1.57 million tons against the 2.1 million tons the military will need. Shamanov and company say the MOD will need an extra 20 billion rubles ($314 million) for this, according to Interfaks-AVN.

Speaking to Voyenno-promyshlennyy kuryer, conservative military commentator Konstantin Sivkov said:

It’s easy to find resources for these needs. Even if we don’t cut their pay, but just the bonuses of the top managers of state corporations, we’d find money for military pensions, and for medicine, and for housing subsidies. According to official data, they amounted to 67 billion rubles [$1 billion] for just the one year 2018.

Why Mr. Shamanov and his committee took on these particular issues isn’t clear. They didn’t tackle pay increases for active duty servicemen who are still several years behind the rate of inflation. They didn’t challenge spending on weapons systems, but then large parts of the defense budget are still secret.

They challenged the government (an easy target) rather than President Putin (a dangerous one). Shamanov and the majority of his committee are members of the party of Putin — United Russia.

Kind of a curious moment for the Russian legislature to offer some checks and balances to Russia’s executive branch.

Sleight of Hand

The Russian MOD is performing some financial sleight of hand on military pay. Having announced indexation of military pay and pensions over several years beginning in early 2018, the MOD has now adjusted the schedule so that any rational Russian officer or NCO has to question the MOD’s real intentions.

The MOD increased pay and pensions by 4 percent on January 1, 2018 and promised similar raises in 2019 and 2020. Russian military personnel likely anticipated 4 percent on January 1, 2019.

However, on October 22, Deputy Defense Minister Tatyana Shevtsova told Krasnaya zvezda the MOD will now raise pay and pensions on October 1, 2019, October 1, 2020, and October 1, 2021 by 4.3, 3.8, and 4.0 percent respectively.

Шевцова Татьяна Викторовна

Survivor Shevtsova will reach 9 years in the MOD next May

So instead of 12 months, it becomes 22 months between raises. Then presumably they will become annual (and the military even gets a bonus year in 2021). But likely no one is holding his breath for that.

Ms. Shevtsova didn’t have as much joy for the MOD’s roughly 900,000 civilian workers. She said certain categories of civilians in military-scientific institutions are making 95,000 or 84,000-86,000 rubles per month. The pay schedule for the lowest-earning MOD civilians has been increased four times during the past three years, she said. But it must be so insignificant that she didn’t deign to illustrate with examples of how pay for those workers has been raised.

Northern Fleet civilians ask for respectable wages

Recall, until January 1, no indexation for inflation had been provided since the Russian military salary structure was revamped and increased in 2012. Cumulative inflation in the interval has amounted to 50 percent. While tame right now, annual inflation for 2018 is still running at 2.5 percent which eats some of this year’s pay increase.

Kremlin Raising Military Pay

Deputy Defense Minister Tatyana Shevtsova told journalists on Friday that military pay and pensions will increase four percent per annum in 2018, 2019, and 2020. RIA Novosti reported that the defense budget will include 18, 22.6, and 41.2 billion rubles each year for that purpose.

Kremlin Raising Military Pay

Shevtsova said a lieutenant serving as a platoon commander will make 66,100 rubles on average this month. That’s roughly 2,500 rubles more than he earned each month in 2017. A lieutenant colonel battalion commander will add 3,400 rubles making his pay 88,700 per month.

It’s sounds like four percent is being applied to the entire pay package — to rank and duty pay and to supplements [надбавки] that not all serviceman get. If this is the case, four percent won’t have the same monthly impact for officers and contractees not receiving supplemental pay. Past pay increases have typically applied only to rank and duty pay.

Shevtsova’s 18 billion would provide an extra 30,000 rubles a year for 600,000 officers and contractees, but 41.2 billion in 2020 won’t cover that year’s bill. A lieutenant might get an extra 8,000 per month or 96,000 in 2020. Multiply that times 600,000 and the MOD will need 57.6 billion rubles.

Shevtsova says a retired battalion commander will receive an extra 947, 1,932, and 2,956 rubles in his pension every month in 2018, 2019, and 2020. That means the pension for that lieutenant colonel is 23,675 rubles at present. The increase reportedly will go to 2.6 million military pensioners, according to RIA Novosti.

As NVO noted, in June 2017, Russian Federation President Vladimir Putin addressed military pay publicly for the first time since 2012. It hasn’t been indexed for inflation once during the interval according to NVO.

But Putin said he wants to improve the “material stimulus” for the MOD, MVD, FSB, and SVR. With another presidential election looming, he wanted to show he’s still concerned about men in uniform.

This isn’t easy when the federal budgets scarcely have money for it and economic recovery is weak.

Still four percent raises will be welcome. But they won’t make up for the eroded purchasing power of military pay. The CPI in Russia has increased more than 50 percent since May 2012. 

Military men are doing reasonably well in the Russian economic context now.

Shevtsova claimed the average monthly military salary in 2014 was 62,000 rubles, roughly the same as in 2017. She said that was 10 percent more than average pay in Russia’s oil and gas sector, according to RIA Novosti. It also appears to exceed what’s paid to the average worker in defense industries.

As long as that pay arrives on time, their housing needs are met, and their work is the focus of national resources and attention, servicemen should be satisfied with their lot. So it’s interesting that Putin still felt a military pay increase was needed in an election year. But, as some say, campaign promises are made to be broken.

OSK Cries Poor on Knyaz Oleg

A Borey-class SSBN (photo Sevmash Press-Service)

A Borey-class SSBN (photo: Sevmash Press-Service)

Russia’s United Shipbuilding Corporation (USC or OSK) is reportedly experiencing a shortage of funding for Borey-class SSBN Knyaz Oleg. OSK President Aleksey Rakhmanov told RIA Novosti on November 16, “Everything depends on issues of the shortage of financing which has somehow formed for us. We hope that [the launch of Knyaz Oleg] will be on schedule.”

Rakhmanov reportedly told the official news agency that the schedule for launching Knyaz Oleg has been pushed back several times.

Knyaz Oleg is the fifth Borey SSBN overall, and the second Borey-A boat. Like the first three Borey ballistic missile submarines, the Borey-A is expected to carry 16 Bulava SLBMs.

First-of-class Yuriy Dolgorukiy is assigned to the Northern Fleet. Aleksandr Nevskiy and Vladimir Monomakh are part of the Pacific Fleet.

Like Knyaz Oleg, unit four — Knyaz Vladimir — the first Borey-A is also destined to reinforce the Russian Pacific Fleet’s strategic nuclear force.

Rakhmanov’s public cry for more money is somewhat unusual and harks back to 2011 when OSK railed at the MOD for adequate financing to produce modern nuclear submarines.

Russia planned to have eight Borey boats in its order-of-battle by 2020. But with Sevmash taking six, seven, or eight years to lay down, launch, and commission them, Knyaz Oleg might be the last to reach the navy this decade. And Rakhmanov pretty clearly linked money to sticking to his SSBN production schedule.

Slicing the GPV

Soon something like a final draft State Program of Armaments (GPV) 2018-2025 will go to Russian President Vladimir Putin. He’ll almost certainly affix his official approval prior to the end of 2017.

Many observers bet the new GPV will contain 17 trillion rubles for the MOD to procure weapons and other military equipment. GPV 2011-2020 was a little higher at 19.1 trillion. But the new GPV will disburse its rubles over fewer years. However, Russia’s high inflation rate (e.g. 11% in 2014, 13% in 2015) means a trillion rubles in 2011 bought more guns than it does today.

Last week, Deputy Editor Vladimir Gundarov published a pithy piece in NVO describing how the new funds might be distributed among Russia’s armed services. He sees a shift in favor of the Ground Troops and VDV which will force the Navy to “curb its appetite.” 

It happened already in GPV 2011-2020, writes Gundarov. It originally envisaged 4.7 trillion for the Navy, but this was reportedly cut to 2.6, while the army and airborne went from 2.6 to 4.2 trillion.

The rationale, he says, is multifold. The Ground Troops face the expensive prospect of fielding new generation armored vehicles on the Armata chassis. Given its involvement in wars in Ukraine and Syria, Russia faces a “complex situation” in the southwestern strategic direction requiring more attention to the army’s modernization.

But the main reason for rewickering MOD procurement is economic. GPV 2011-2020 was formulated with oil at $100 per barrel; it’s now half as much.

Gundarov concludes that Russia:

“. . . can’t spend money to buy arms and military equipment in the previous amount, particularly for such expensive systems as those for the Navy. So only the budget for strategic nuclear systems will be preserved whatever the price of oil.”

He doesn’t say where he got his numbers for this article, but it sounds like he based it on some expert opinion and off-the-record comments.

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.”

The State of the State Armaments Program

From the “better late than never” file…

On January 11, Aleksey Nikolskiy published an article on the next GPV for Vedomosti.  He laid out the state of the battle over state armaments program 2018-2025.

What Will They Spend?

According to Nikolskiy, the new GPV will be only half of what Russia’s Defense Ministry wants, if the Finance Ministry gets its way.

The GPV covers ten years, but the Russian government adopts one every five years. So the new program was due to be adopted and implemented last year.

The next GPV was being prepared in 2014-2015.  But with the poor economic forecast, Western sanctions, and the need for import substitution, the Kremlin elected to delay launching the new arms program until the first half of 2017, a former MOD official told Nikolskiy.

The new arms program is also late because industry’s initial promises on import substitution for Western as well as for Ukrainian products turned out to be too rosy, CAST director Ruslan Pukhov tells Nikolskiy.  But, he adds, it’s impossible to drag this out longer because industry needs to know the fiscal parameters of its work in the long-term.

The current program for 2011-2020 was approved in late 2010.  It contained 19.1 trillion rubles for the MOD.  That was more than $630 billion at the exchange rate of the day.  But, according to Nikolskiy, not more than 40 percent of this amount had been spent by the start of 2017.

Forty percent is 7.6 trillion, or roughly 1.3 trillion per year for the first six years of a ten-year program.  Leaving so much backloaded implies that Russian defense industry was unable to absorb and use more money, at least without massive graft and waste. So the new arms program might continue a similar annual rate of investment in acquisition.

Nikolskiy notes that every arms program the Defense Ministry requests is several times more than the Finance Ministry believes it can allocate.  In 2015, the former reportedly reduced its initial request for 2018-2025 from 55 to 30 trillion rubles while the latter was ready to agree to an amount not greater than 12 trillion.

Kommersant’s Ivan Safronov reported that Defense Minister Sergey Shoygu and Finance Minister Anton Siluanov spoke in “elevated tones” during a September 9 Kremlin meeting on the GPV.  With President Vladimir Putin chairing the session, the ministers reportedly argued over the necessity and feasibility of 22 vs. 12 trillion rubles for arms procurement.

This is the customary kabuki.  In 2010, the MOD came in similarly high — 36 trillion. The Finance Ministry responded with 13 trillion. Ultimately, they compromised at a figure closer to the latter’s preference — 19.1 trillion rubles.  In retrospect, it wasn’t surprising given that even Putin expressed his qualms at spending so much. 

What Will They Buy?

According to a defense industry manager who spoke with Nikolskiy, armaments tsar Deputy Defense Minister Borisov already announced the emphasis in the near term will be placed to a greater degree on the purchase of well-assimilated systems – for example, Su-30SM fighters or Improved Kilo-class (proyekt 636) submarines – and on modernized equipment which is significantly cheaper than new.

Meanwhile, the acceptance of fundamentally new types of armaments is passing into the more distant future.  They include important platforms like the T-14 / Armata tank and T-50 / PAK FA fighter, and even some strategic weapons, writes Nikolskiy.

This would represent some retrenchment from Moscow’s ambitions in comparison with what it originally wanted from the current arms program.

Additional Perspective

U.S. defense acquisition is still probably three times the $50 billion or less Russia might spend on an annual basis.  Russian procurement of arms attracts more attention and causes more concern than its volume alone warrants.

What Russia actually receives for the money it spends makes an interesting comparison with China.  Beijing clearly lags Moscow in high-tech weapons, but it seems to get greater industrial bang for its buck when bending metal.

For example, Chinese shipbuilding.  In ten years, China put 22 Type 054A frigates to sea. The Russian Navy received three or four frigates during the same years.  China is set to build its third aircraft carrier.  Russia’s lone Kuznetsov carrier will soon enter the shipyard to begin a three-year (probably longer) modernization effort.

Perhaps China hands will tell us if naval construction is a happy aberration for Beijing or if it enjoys the same kind of productivity in ground and air systems.

Conclusion

Rearmament is something that has gone Moscow’s way in recent years.  It has restored Russia’s image as a formidable power.  Rearming — even over-arming — has created and fueled a siege mentality at home.  That mentality keeps the Russian Federation distant from the Western community of nations, and its people remote from the kinds of socioeconomic demands Westerners place on their political leaders.  So the arms program has been part of Putin’s strategy for that reason if no other.

Moscow will want to maintain the momentum rearmament has generated since 2011.  Too much of a break in funding would slow defense industry, which had difficulty finding traction.

But Russia’s economic situation is harder now than 2010.

Best Guess:  GPV 2018-2025 will be announced with a nominal budget between 15 and 17 trillion rubles.

The Ministry of Finance will still groan at this amount, but will be secretly pleased at having kept arms spending at a reasonable level.

What money is actually disbursed, as we’ve seen, will be less than the full amount as the years go by.

Putin Launches GPV 2016-2025

Putin Addresses Session on GPV 2016-2025 (photo:  Kremlin.ru)

Putin Addresses Session on GPV 2016-2025 (photo: Kremlin.ru)

On 10 September, Kremlin.ru posted President Putin’s opening remarks to a session on developing the draft State Program of Armaments (GPV) 2016-2025.

Putin’s speech can be divided into several themes:  financing, the arms race, threats, particular weapons systems, and other tidbits.

A critical question is how will funding for a new GPV compare with the approximately 20 trillion rubles laid out or earmarked for GPV 2011-2020. But Putin took pains to stress only that financing for the new GPV will be based on the government’s macroeconomic forecasts.  He noted:

“The government has prepared two variants [not good and possibly worse?] of such a preliminary macroeconomic development forecast, and today, we will hear about it in a meeting with the government, and talk more about this.  We will proceed exclusively from realities, from our possibilities, and we will not inflate our military expenditures.”

“I ask you to choose and present the most balanced variant of resource support for the new state program of armaments before the end of October 2014.  It must fully account for missions in the area of military organizational development and still be realistic, and proceed, as I already said, from the country’s financial-economic possibilities.  But I am sure we can find a variant acceptable both according to financial support and to the quality of those weapons systems which we will discuss more today.”

This seems consonant with his statement last December that the OPK and military should not expect future procurement budgets to match what was laid out in recent years.

In this September 10 session, Putin eschewed interest in a new arms race, but stressed that Moscow has no choice but to take “countermeasures” against U.S. and NATO threats.  A few examples:

“[modernizing the armed forces and defense industry] is not connected to any kind of arms race . . . .”

“And we already many times said and warned that we will be forced — exactly forced — to take adequate countermeasures to guarantee our security.”

“We have spoken many times, and very much hope that there will not be excessive hysteria [from the U.S. and NATO?] when these decisions [about the GPV?] are finally made and begin to be realized.  I want to note that everything we are doing are only countermeasures.”

“Sometimes the impression is created, I just talked about this, that someone wants to launch a new arms race.  We will not, of course, be dragged into this race, it is simply absolutely excluded . . . .”

The Russian president also laid out at length his view of the threats requiring countermeasures:

  • U.S. missile defense;
  • U.S. Prompt Global Strike;
  • Militarization of space [?];
  • Conventional strategic weapons;
  • Prospective build-up of NATO forces in Eastern Europe.

He restated the official Kremlin narrative explaining why that alleged NATO build-up will happen:

“The crisis in Ukraine, which was actually provoked and created by some of our Western partners, is now being used to reanimate this military bloc.”

A regime that wants to prevent a Maydan on Red Square pretty much has to declare that the revolutionary impetus came from outside.  It also has to overlook that it was the seizure of Crimea and the start of Moscow’s war in eastern Ukraine that awakened NATO.

Look for a more detailed exposition of Moscow’s new threat assessment when the updated Military Doctrine appears in December.

What did Putin say about what will be purchased under the new GPV?  In short, not too much new:

“. . . our fundamental systems:  both of a defensive nature and strike systems have simply already reached or are reaching the end of their service lives.  And if we need to replace them, then replace them, of course, with prospective, modern ones having a future of long use.”

“I note that for the draft GPV-2025 there is already a unified system of preliminary data which confirmed the basic directions of arms and equipment development for the period to 2030 and formed a list of types determining the future profile of weapons systems.”

“Most of all we are talking about the creation of a rational list of strike means, including the guaranteed resolution of nuclear deterrence missions, about rearming strategic and long-range aviation, and continuing formation of an aerospace defense [VKO] system.”

“Further.  In coming years, it is already essential to support the breakthrough development of all components of precision weapons, to create unified types of general purpose arms and equipment, and for the Navy — new ship projects, standardized in armament, command and control systems, and communications.”

Overall, continuing the course and priorities — such as they are — of the current GPV.

Now, the tidbits . . . .

Putin seemed to say the 2015 goal of more than 30 percent modern arms and equipment has already been reached.

According to the president, more than 3,600 items of “fundamental weapons” (68% of the contracted quantity) have already reached the troops this year, along with 241,000 other items [presumably procurement not part of a major weapons system].

Putin gave only the briefest acknowledgement that, with looming sanctions, defense industry must be ready to manufacture its own critically important equipment, components, and materials.  Industry, he said, should also be looking to produce important civilian machinery in the future.

He only slightly criticized work on past GPVs, saying:

“It goes without saying we must carefully analyze the experience of realizing the previous programs, including the problems and oversights which led to delays in placing and fulfilling orders, and at times even to tasks not being completed.”

However, Putin also took the chairmanship of the Military-Industrial Commission (VPK) on himself, indicating that he thinks the GPV could use some “manual control.”

That’s about 950 words describing what Putin said in roughly 1,200.  One hopes his speech has been deconstructed and reconstructed in such a way that it illuminates more than the original.