Tag Archives: Gosoboronzakaz

Defense Policy Reset?

RF President Vladimir Putin last week held the first meeting of his third term to discuss military priorities with senior uniformed officers.

President Putin

He looked less impressive, and less in command of his brief in the video of his introductory remarks than on similar past occasions.

But he clearly laid out his main concerns for Russia’s top Armed Forces leaders:  training, Aerospace Defense Troops, rearmament, contract manning, pay, and housing.

He seemed confounded by the Defense Ministry’s failure to pay new, higher military salaries on time, and by the continuing lag in providing housing to servicemen.  He said his Control Directorate is investigating both situations.

Taking it from the top, Putin said the state of military training and exercises today is completely changed from past years when the Armed Forces were rarely active.  The president twice emphasized conducting joint exercises with Russia’s allies in the CSTO, CIS, and SCO.

His second priority is developing the newly created and reformed Aerospace Defense Troops.

His third is rearmament.  He repeated the familiar goal of replacing 30 percent of weapons and equipment with new generation systems over the next three years (2015), and 70, or in some cases 100, percent five years after that (2020).  And he added:

“I ask you to report promptly about all instances of breakdowns or incomplete deliveries, if you identify them.  Everyone participating in Gosoboronzakaz work must bear personal responsibility.”

The fourth priority is manning, and the earlier announced effort to increase professional soldiers in the ranks to 425,000.  This, he says, would increase their numbers two and a half times, reportedly from 170,000 today.  Putin made the customary comments about carefully screening and selecting enlisted troops, and giving them incentives to serve well.

Fifth and finally, Putin emphasized efforts to provide better social support for servicemen, specifically, this year’s increase raising military pay by up to three times, and his attempt to provide all military men permanent housing in 2013 and service housing by 2014.  He said:

“Sufficient resources have been allocated for this, the necessary amount has been reserved.”

“But I have to note that, to this point, there are many problems in the provision of housing and calculation of pay, unacceptable breakdowns and procrastination, open professional negligence by officials.  And even if on paper and in reports everything is normal, in fact in real life servicemen and their families at times encounter various kinds of bureaucratic procrastination, often with a formalistic indifferent approach.”

“I’ve directed the Russian Federation President’s Control Directorate to conduct a corresponding check in all these areas.  Unacceptable facts are being encountered, already in the first stages of this check this is clear:  this is both delays in the transmission of pay, and the impossibility of normally finalizing the paperwork for an apartment.  Fitting conclusions will be drawn according to the results of the check, and instructions will be formulated.  But today already I’m asking Defense Ministry representatives to report what measures are being adopted to correct the situation.  May is ending, and normal work with pay still hasn’t been smoothed out.  We already talked about these issues more than once.”

Where are outside observers left?

  • Training and exercises have increased as a function of more budget and fuel, but this didn’t happen until the late 2000s.
  • Aerospace Defense Troops are another structural reorganization, potentially a good one, not unlike other reorganizations since the 1990s.
  • Rearmament is a serious downfall.  Despite the Putin factor, nothing really happened on this score until late 2009.  It’s complicated by the difficulties of fixing a dilapidated OPK.  And, although there may be some favorable signs, success here remains to be seen.
  • Contract service is a second serious downfall.  Putin’s first effort to professionalize the army started in 2002.  The General Staff Chief declared it a dismal failure eight years later.  The Defense Minister revived it on an enlarged scale one year after that.  Demographic reality and draft problems leave Moscow no other choice.
  • Low military pay is a downfall.  It became more of a realistic priority with Serdyukov’s arrival in the Defense Ministry, but it was still five long years before the new, higher pay system was implemented.  And Putin admits how poorly it’s functioning.
  • Housing is also a downfall.  Despite progress since Putin first really addressed the issue in 2005, it’s still problematic.  And the president publicly moved back his timetable for a solution.

The downfall areas are problems requiring a long-term, sustained commitment to resolve.  Putin 2.0 is wrestling with the same military issues he identified back in 2000.  It’s still far from certain he can or will bring them to a successful conclusion.

This author believes there’s been progress on Russia’s military issues during the 12 years of Putin’s time as national leader.  But future economic or political challenges could derail progress toward rebuilding the country as a full-scope military power.

Is Putin resetting or rebooting defense policy?  Yes, at least jumpstarting it on key issues.  But a restarted or jumpstarted computer, car, or policy usually works (or doesn’t work) the same way it did before it stalled.  So this isn’t necessarily the path to a successful finish.  But no one ever said making and implementing policy was easy.

A Fuller Picture of the GOZ

Yars ICBM (photo: RIA Novosti / Ilya Pitalev)

It’s been customary for some time to get press information on what the Russian military expects to acquire each year.  Rare, however, are occasions when we receive a report on what they procured to compare with the plan from the year before.

This year is one of those occasions.

Why is anybody’s guess.  But the release of this information — which came from the new armaments tsar First Deputy Defense Minister Aleksandr Sukhorukov — could be a Defense Ministry weapon in its running skirmish with the OPK.  Information on how the defense sector performed could bolster the ministry’s somewhat beleaguered position on what it buys, from whom, and for how much.

RIA Novosti covered Sukhorukov’s remarks on GOZ-2011 yesterday.

According to him, in 2011, the military received 30 Topol-M and Yars ICBMs, two special designation satellites, 21 aircraft, 82 helicopters, one proyekt 22380 Steregushchiy-class corvette, and 8,500 KamAZ and Ural vehicles.

The price for GOZ-2011 was about 550 billion rubles.

Now, for comparison, in mid-March, Lenta.ru recapped Defense Minister Serdyukov’s statement to RIA Novosti on 2011 procurement plans.  He said the military planned to obtain 36 ballistic missiles, two SSBNs, 20 strategic ALCMs, five satellites, 35 aircraft, 109 helicopters, three SSNs, one surface ship, and 21 SAM systems.  The media outlet itself noted the submarine plans sounded garbled since two SSBNs and an SSN were more likely.

So what was acquired very roughly approximates what was anticipated.  And these are just high-profile systems rather than an exhaustive list.  As indicated at the outset, it’s a fuller picture not a full one.  There could be an official assessment later of what percentage of GOZ-2011 was completed.   

Sukhorukov also said late last year a contract for Bulava SLBM production out to 2020 was signed, but no acceptance date for the missile or the first Borey-class SSBN was established.

He added that 84 contracts worth 42 billion (8 percent of the money) were not fulfilled, and the Yasen-class SSN schedule was not met.  And defect claims reached 7,100, up from 6,800 in 2010.

Barabanov’s Top 20

Defense commentator Mikhail Barabanov published his annotated list of the top 20 military stories of 2011 in yesterday’s Voyenno-promyshlennyy kuryer.

Some we’ll just note, but Barabanov’s provided interesting details for others.

1.  The continuation of military reform.  The start of the next phase of reforming the Air Forces and Navy.

Barabanov says Air Forces’ reform included the formation of VVKO and the enlargement of Russian air bases.  The reform of the Navy started December 1 and it will soon be restructured into a “new profile.”

2.  Establishment of VVKO.

He comments, “The given construct essentially looks fundamentally like a return to Soviet Voyska PVO Strany (National Air Defense Troops) in the form of a separate service [well, branch] of the Armed Forces.”

3.  The new pay system effective this year.

4.  GPV 2011-2020.

5.  The increase in the Gosoboronzakaz.

Barabanov puts GOZ-2011 at 460 billion rubles, 570 if RDT&E is added.  This was 20 percent more than GOZ-2010, and allowed for the series production of weapons and equipment.

6.  The war between industry and the Defense Ministry.

7.  Development of the PAK FA.

8.  Large helicopter procurement.

Apparently a post-Soviet record.  About 100 new helos, including Mi-28N, Ka-52, Mi-26, and Mi-24 (Mi-35M), were expected to reach the troops.

9.  Bulava began to fly.

10.  OSK “megacontracts” for submarines.

About 280 billion rubles for modernized proyekt 885 and 955.

11.  Ending serial procurement of many ground systems and equipment.

The Defense Ministry said it didn’t need the T-90, BMP-3, or BMD-4 (!?).  Development of an entire spectrum of new armored vehicle platforms began for procurement after 2015.

12.  Domestic space sector failures.

They evidenced the decline of the OPK’s production capability in the space sector.

13.  “Tsentr-2011” exercises.

They checked the “new profile,” and the greatly enlarged military districts.

14.  Importing arms.

Mistral, Rheinmetall’s training ground in Mulino, foreign sniper rifles, and Israeli UAVs.

15.  Continued growth in Russian arms sales.

$11 billion as opposed to 2010’s $10 billion.  This despite the revolutions in the Arab world.  Rosoboroneksport’s order portfolio is $36 billion.

16.  Arab revolutions.

17.  NATO intervention in Libya.

18.  Military actions in Afghanistan, American troops leave Iraq.

19.  Deadend in missile defense negotiations.

20.  Start of reduced U.S. military spending.

Death of Mikoyan

On October 21, the labor union of the Engineering Center of the Experimental-Design Bureau (OKB) named for A. I. Mikoyan went public with its claim that  well-known aircraft maker RSK MiG is in a catastrophic state.  Metronews.ru published part of the union’s open appeal as well as MiG’s official reaction.  The union’s letter is addressed to the president, prime minister, and heads of political parties, and dated October 11.

Union chairman Yuriy Malakhov says:

“The situation taking shape in our engineering center forced me to write this letter.  We’ve always been the brain of the company, it’s right here that new aircraft models were developed.  For a long time, we’ve had no new orders.  In the past five years, six general directors have been replaced, they all come from the Sukhoy company, and the impression’s created that they are strangling us, they want to close our company.  All the best orders go there [Sukhoy].  For example, we aren’t even allowed to participate in developing unmanned aerial vehicles.  Sukhoy is working on them, but this aircraft company doesn’t have our experience.  They focused on heavy fighters.  The pay of our colleagues is lower than in the trolleybus yard next door.  Lead engineers get 8-10 thousand rubles [per month].  Sometimes with occasional bonuses they get 30 thousand.  Talented young specialists leave for other firms, for example, Boeing, where they get two-three times more.  Now 10 percent of orders come from Russia, the rest from abroad.  In the course of several years we tried to get a response from our leadership, but no one wanted to start negotiations with us.  And the engineering center’s director decided to meet with employees only after this letter.  We are very much hoping for this meeting.  We expect new orders and increased wages.”

 MiG’s press-secretary offered this response:

“The absence of the Gosoboronzakaz in the 1990s was a serious blow to the country’s defense industry, including to RSK MiG.  Only those companies that had large export contracts could develop successfully, for example in that period the Sukhoy company managed to conclude contracts with India and China.  At that moment, MiG had only a contract with Malaysia.  In recent years, RSK MiG’s been headed by directors from Sukhoy corporation – Nikitin, Fedorov, Pogosyan, Korotkov.  From outside this could look like a raider’s seizure of MiG.  But who needs to seize debts and problems?  A positive dynamic began precisely with the arrival of these people – large foreign contracts were signed, the contract with the Defense Ministry to supply MiG-SMT.  Aircraft were supplied against this contract and they’re being successfully employed in the RF VVS.  Presently, a contract with the Defense Ministry to supply the MiG-29K is being discussed.”

“Today RSK MiG’s order portfolio is more than $4 billion, serial production of new aircraft is unfolding. There is a positive dynamic, maybe it’s not as quick and wages not as high as all of us would like.  Some young specialists come and stay, some leave.  But on the whole the company has good prospects.”

A couple points on these claims.  We know raiders take and sell what’s good, and leave “debts and problems” behind.  The Defense Ministry’s acceptance of the Algerian MiG-SMTs was more a financial bailout for the company and face-saving maneuver for Russia writ large than a real contract.  Not mentioned is Aleksandr Sukhorukov’s October 11 statement that MiG-29K procurement won’t come until 2013-2015.

The text of the union’s letter says MiG is simply dying.  It cites many problems and complaints, including a 48-billion-ruble debt, losses and delays in contracts, moving engineers to Zhukovskiy, closing MAPO, etc.  It says crucial pay bonuses can’t always be paid, and MiG is just supplying skilled people to Sukhoy and Irkut.  The letter calls OAK an incomprehensible middle layer blocking competition, but allowing personal lobbying.  Finally, it blames Mikhail Pogosyan for closing MiG’s promising future projects.

Scanning other recent MiG headlines – the Indian tender wasn’t the only blow to the MiG-35, its chances with the Russian Air Forces didn’t look too rosy anyway, and the early September MiG-31 crash indicated again what dire straits that old airframe is in.

Izvestiya’s Ilya Kramnik published recently on the MiG-29’s fate.  He wrote that (unlike the Su-27 or Su-24) the Defense Ministry doesn’t plan to modernize the MiG-29.  His military source says replacement of these worn-out aircraft in the future is deemed more cost-effective.

Kramnik’s source describes production of the generation “4+++” (?!) MiG-35 as an unavoidable but not yet decided step.  He sees the MiG-29 variant line ending since it’s outclassed by updated Su-27s.

Kramnik’s OPK source sees 20 or 24 MiG-35s being produced each year, for about 25 billion, to replace 150 or 160 MiG-29s in Russia’s inventory.

He cites Konstantin Makiyenko who sees the MiG-35 as important not just as a MiG-29 replacement, but also to keep Russia in the light- to medium-, $60-million-range fighter export market and not leave this industry segment to China and its J-10.

But Konstantin Bogdanov tells Kramnik he thinks the MiG-35’s loss in the Indian tender hurt its chances at home because it raises questions about MiG’s ability to support a production program for the Russian Air Forces.

One also wonders how much MiG-35 and MiG-29 will be needed with T-50 / PAK FA, with Su-35, and with Su-27 upgrades out there.

It’s hard to see the MiG story as anything but another chapter in the painful and necessary process of post-Cold War industrial downsizing and restructuring.  After all, the U.S. is down basically to Boeing and Lockheed Martin.  In MiG’s case, one can question whether the selection is really natural and the fittest are truly surviving.  The answer is probably yes.  However they managed it, Sukhoy and Irkut played their post-Soviet hand better, and it shows today.  The Russian aviation sector will be better off with further consolidation.  Still it doesn’t need Sukhoy to be a monopolist.  Managing that outcome will be tricky.

Suit, Countersuit Over GOZ

Kurganmashzavod (photo: Nakanune.ru)

This story should be of particular interest to those following the VDV, Ground Troops, and their combat vehicles.  The specific problems of KMZ illustrate general dilemmas of the GOZ.  The GOZ money trail is slippery.  And it explains why modern, or at least new, weapons and equipment aren’t produced or delivered, and the GOZ is only partially fulfilled. 

RIA Novosti (via Vedomosti) reports the Defense Ministry filed suits against Kurganmashzavod (KMZ), of “Tractor Plants” Concern, for breaking GOZ contracts.  KMZ, in turn, entered three countersuits seeking 1.5 billion rubles from the Defense Ministry for violating its contracts.

KMZ claims the Defense Ministry stopped accepting its products in fall 2010, causing the factory to fail to meet its obligations.  RIA Novosti reports First Deputy Defense Minister Aleksandr Sukhorukov said KMZ would be fined 3 billion rubles for breaking its 2010 contract to produce the BMP-3.  Two billion has also been cited.  The first hearing will be next week.

Nakanune.ru indicates KMZ had no GOZ contracts for 2011, during which the plant counted on 12 billion rubles worth of production.  Instead, it produced only 4.7 billion worth for the first eight months of the year.

In May, Main Military Prosecutor Sergey Fridinskiy pointed to KMZ as a prototypical failure of the GOZ.  The factory got an advance of 350 million rubles but, instead of sending money to its sub-contractors, it used it on internal needs.

Academy of Military Sciences Professor and PIR-Center Conventional Arms Program Director Vadim Kozyulin says:

“I understand that the enterprise’s leadership could have its own reasons.  The plant has many problems which could look more important and pressing from a local viewpoint.  But some way or other the resources to fill the order for the supply of armored equipment for the VDV came in, but went for something else.”

Kozyulin says they have the same problem in other enterprises, “but ‘Kurganmashzavod’ fell right under the chop.”  He says it won’t go well for KMZ, and the Defense Ministry may refuse to give the factory future orders. 

Nakanune also cites CAST analyst Dmitriy Vasiliyev who agrees this isn’t just KMZ’s problem, but a problem of the Gosoboronzakaz as a whole.  Igor Korotchenko suggests KMZ has little chance of winning its case, and needs to seek an out-of-court settlement.  But perhaps it’s too late already. 

It may be that KMZ is being made into a convenient example because others want to take it over.  It is an area of the OPK that could stand some consolidation.

Kozyulin suggests troubled KMZ should merge with Uralvagonzavod (UVZ).  UVZ and Russian Machines are apparently after KMZ parent “Tractor Plants” Concern.  They’ve approached Vnezhekonombank, which owns 100 percent of its shares, about managing “Tractor Plants” Concern, but the choice of a managing firm has been put off until 2012.

It certainly sounds like KMZ is headed downhill.  The dueling law suits, the untangling of KMZ’s management, and, at some point, the reorganization and restoration of its production capability will take time.  This means possibly years of delays in filling armored vehicle orders for the VDV and Ground Troops.

You may recall United Russia member Igor Barinov excoriated KMZ earlier this year for its poor handling of GOZ funds.  VDV Commander, General-Lieutenant Vladimir Shamanov also blamed KMZ for delays in getting the first BMD-4Ms for his troops. 

MER and SP Doubt GOZ Prospects

Andrey Klepach

Yesterday the Ministry of Economic Development (MER) and the Audit Chamber (SP) expressed serious doubt about the government’s ability to fulfill the state defense order in 2011 and 2012.  Speaking to a Duma hearing on the draft budget for 2012-2014 covered by RIA Novosti, Deputy Minister Andrey Klepach said:

“Our Gosoboronzakaz won’t be substantially fulfilled this year and it’s highly probable it won’t be fulfilled next year.”

Deputy SP Chairman Valeriy Goreglyad also told the parliamentarians that expenditures on the army and national defense are:

“. . . not only the least transparent, but also the least effective from the point of view of using state resources, particularly those connected with the Gosoboronzakaz.”

“Therefore, in the first place, a different system of contracting is needed in this area, like in no other [area], a transfer to a federal contracting system where the entire technological cycle [planning to contract fulfillment] is supported.”

Other media outlets largely repeated RIA Novosti while adding a little background.  They reviewed President Medvedev’s comments on the failure of GOZ-2010, and on GOZ problems this spring, as well as repeated government and industry failure to meet Prime Minister Putin’s deadlines for completing all GOZ-2011 contracts.

These outlets also mishandled Defense Minister Serdyukov’s statement from last week about having only 20 billion of 581 billion rubles in GOZ-2011 funds remaining to obligate.  Several news sources inaccurately called it GOZ-2012 money.  As ARMS-TASS reports, the government’s Military-Industrial Commission won’t start reviewing the draft GOZ-2012 until mid-November, and no contracts for next year have been negotiated or placed.

To make things just a bit worse for the government, ex-Finance Minister Aleksey Kudrin repeated his budget priorities to a U.N. Millennium Development Goals conference yesterday in Moscow.  According to Utro.ru, Kudrin said:

“I already expressed my position that the increase in military expenditures in Russia is creating a threat to increasing and supporting programs in the area of health and education.  I would give less of an increase in money now for military needs than for health.”

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 This Week

Putin at the Conference (photo: RIA Novosti / Aleksey Nikolskiy)

At United Russia’s interregional conference in Cherepovets on Monday, Prime Minister Putin reported on the Defense Ministry’s failure to conclude all its GOZ contracts by his most recent September 1 deadline.  Putin said, despite Defense Minister Serdyukov’s assurances that only OSK contracts need to be finished, agreements with MIT and OAK are still not finalized.

According to RIA Novosti and the stenogram, Putin told the United Russia audience:

“Unfortunately, full agreement between the Defense Ministry and producers by 1 September didn’t happen, as we arranged.  Disagreements continue there in several areas.”

“I want to direct the attention of all sides to this process:  firstly, we have a colossal amount of money being allocated for strengthening the country’s defense capability.  We’ve generally never allocated such money, well, in Soviet times, when they threw everything at the defense sector, there were comparable figures, but in recent history never, — 20 trillion to 2020.  We are constrained in other places – very many – either to stop or cut our expenditures, but we need to do this to guarantee our defense capability.  But we don’t need to absorb these billions and trillions, we need to provide items quantitatively and qualitatively.”

“At the same time, of course, the profitability of enterprises should also be guaranteed.  The obvious fact is a minimum of 15 percent.  It’s necessary to get this profitability so there are resources for development, for worthy wages for the workers.  I hope that soon, in the course of a week, this process will be concluded in shipbuilding, in missiles, and in aviation.”

“In 2012, orders, advances and other payments should be sent in full measure to enterprises not later than March.  I’m counting on this very much.”

Vedomosti’s source close to the Defense Ministry admitted a week won’t be enough to close contracts worth 500 billion rubles with Sevmash and tens of billions with MIT.

Kommersant’s source familiar with the course of negotiations with MIT confirmed that the process isn’t complete.  Another source said a contract for Yak-130 trainers is almost complete, but one for MiG-29K fighters isn’t.  Konstantin Makiyenko told Vedomosti the MiG-29K doesn’t matter since the Kuznetsov aircraft carrier is headed for repairs.

Most striking is Putin’s call, a plea almost, not to “absorb” the GPV’s 20 trillion rubles without supplying the new weapons and equipment the army needs.  He’s well aware the situation could be like water in sand.

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?!”

Serdyukov’s New First Deputy

Aleksandr Sukhorukov

As rumored in mid-summer, President Medvedev announced today former KGB and FSB officer Aleksandr Sukhorukov, most recently Director of the Federal Service for the Defense Order (Rosoboronzakaz), will be First Deputy Minister of Defense.

According to ITAR-TASS, Defense Minister Serdyukov introduced the 55-year-old Sukhorukov during a working meeting with Medvedev in Stavropol.

Medvedev and Serdyukov noted Sukhorukov will be responsible for arms procurement and the beleaguered state defense order.

He’ll be sitting in the hot seat right away.  Medvedev told him:

“. . . this is a very delicate process:  on one side, you need to understand the realm of the Armed Forces, the field of modern military technology, on the other, you need to build relationships with suppliers correctly.  But it’s not always simple to do, the current history of concluding contracts shows this.” 

RIA Novosti elaborated:

“Last night, RF Prime Minister Vladimir Putin’s deadline for concluding all Gosoboronzakaz-2011 contracts expired.  On Thursday, the media reported that this task was not completed.”

Sukhorukov takes the post vacated by Vladimir Popovkin, who took over the Russian space agency Roskosmos.

Sukhorukov was with Serdyukov at the Federal Tax Service.  He followed the Serdyukov team to the Defense Ministry, becoming Deputy Director of Rosoboronzakaz in mid-2008, and Director a year later.  But he kept a low public profile at that agency.

He was born November 11, 1955 in Kasli, Chelyabinsk Oblast.  He graduated from the Chelyabinsk Higher Tank Command School in 1977, and later a KGB Higher School.  He apparently worked for the KGB in the Armed Forces, retiring as an FSB lieutenant colonel in 1996.   

From 1996 to 2004, he was deputy director, then director for the Finance Ministry’s northwest regional center for hard currency and export control.  He was a deputy director and director of a territorial directorate (probably northwest again) of the Federal Service for Finance-Budget Oversight in 2004-2006. 

In 2006-2007, he worked for then-Federal Tax Service Director Anatoliy Serdyukov as Chief of the Organizational-Inspectors Directorate.

In 2007, Sukhorukov followed Serdyukov to the Defense Ministry as an advisor.  He became Chief (not surprisingly) of its Organizational-Inspectors Directorate.  Serdyukov made reference to this directorate in his 2010 year-ender when he described how he checks on implementation of his policies. 

But, in late 2007, Sukhorukov jumped ship to the government, becoming assistant to then-Prime Minister (and Serdyukov’s father-in-law) Viktor Zubkov, and then Director, Department for Control and Verification of Fulfillment of RF Government Decisions.

In mid-2008, he arrived at Rosoboronzakaz.

You can find bio data here, here, and here.

In the Russian context, Sukhorukov seems like someone who knows how to find out if people are getting things done, and presumably what to do to them if they’re not (shoot them, send them to work in the fresh air, or fire them).  He seems very much a Putin man, an archetypal silovik.

He doesn’t, however, seem like someone who can help people figure out how to get things done.  Perhaps the Defense Ministry could have used someone with not just investigative, accounting, or legal experience, but maybe with an engineering, industrial, scientific, or technical background in the OPK.

It’d be interesting to know what Sukhorukov did in the army / KGB / FSB . . . he might have been a run-of-the-mill osobist, a “special section” guy monitoring some unit’s reliability and loyalty, or helping secure its secrets.  But he might have served in a defense plant, or been detailed to work in anti-corruption efforts.