Tag Archives: Roskosmos

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.

Popovkin to Roskosmos?

Vladimir Popovkin (photo: Sobakidendy-news.ru)

Friday Marker.ru reported rumors from its sources saying First Deputy Defense Minister, and GPV 2011-2020 architect, Vladimir Popovkin will relieve Anatoliy Perminov as Director of Roskosmos.  This is interesting because it supposedly features a little tandem tension between President Medvedev and Prime Minister Putin.

Marker.ru’s Ivan Cheberko writes that Perminov will resign at “his own request,” and become a presidential adviser for space issues.  For his part, Popovkin had hoped to replace Sergey Ivanov as Deputy Prime Minister with responsibility for the defense-industrial sector.  But Medvedev and Putin couldn’t agree on Ivanov’s fate, according to Cheberko’s report, and they proposed that Popovkin should head Roskosmos.

A source close to Perminov told Cheberko the Popovkin decision was made last week:

“The president and prime minister couldn’t determine Ivanov’s future, and they proposed Popovkin to head Roskosmos.  The Defense Minister has already signed the corresponding paperwork.”

Cheberko’s two independent missile-space sector sources say there have been three candidates for the Roskosmos job — Popovkin, Popovkin ally and deputy General-Lieutenant Oleg Frolov, and Roskosmos Deputy Director Vitaliy Davydov.  Frolov reportedly would have gotten the job if Popovkin took Ivanov’s spot.  Roskosmos rank-and-file lobbied for Davydov in hopes of avoiding changes Popovkin would make.  His views diverge from those of the agency’s current leadership, and he’s expected to make many personnel and organizational changes.  Among other things, Cheberko highlights Popovkin’s strong support for a new liquid-fueled heavy ICBM versus missile designer Yuriy Solomonov’s vocal public opposition to such a plan.

Unfortunately, Mr. Cheberko only dug so deep.  There’s a bit more to this story.

On the eve of the 18 March expanded collegium, Sergey Ivanov told the Federation Council the Defense Ministry was to blame for late placement of the State Defense Order (Гособоронзаказ, ГОЗ, or GOZ) this year.  Even prior, he had lots of sharp public criticism for Perminov, Roskosmos, and their failures.  Of course, Ivanov himself has long suffered at Putin’s hands over GLONASS, so he’s just letting stuff roll downhill, so to speak.

In his collegium speech, President Medvedev railed about problems with the GOZ last year, and demanded a “post-flight debriefing” to identify which industry and state officials are to blame.

Prime Minister Putin followed the collegium with a March 21 government session on the defense order at the Votkinsk missile plant.  Ivanov and Perminov were there, and probably Popovkin too.  The latter was very much on the defensive afterwards, asserting that GOZ-2010 was fulfilled “on the whole.”  And he blamed last summer’s heat wave and forest fires for disrupting defense production.

So where’s it leave us?

As Marker.ru implies, it appears Popovkin’s position isn’t too strong, and he could be headed out of the Defense Ministry after only 8 months on the job.  This would take away one of the louder proponents of buying arms and equipment abroad if necessary.  It begs the question who replaces Popovkin, and what does it mean.  Possibly someone closer to Serdyukov.  Never known for his skill as a political infighter, Sergey Ivanov actually comes out of this looking like a semi-adept bureaucratic warrior.  It’s interesting to imagine Medvedev and Putin discussing Ivanov’s fate when he was once thought the frontrunner in Operation Successor 2008.

Symbol of How Things Work (or Don’t)

Is Perminov About to Surrender This Chair?

Your author couldn’t be accused of following military space issues and news too closely.  However, this piece from Ogonek [Огонёк] is pretty compelling stuff,  examining whether Anatoliy Perminov has been, or is about to be, “knocked out of orbit” as Chief of Roskosmos.

Ogonek is part of Kommersant, and has the same standards of quality and independence.  Much of what the article highlights is interesting and significant beyond the confines of space.  It is more widely illustrative of the way things work, or don’t, in Russia generally.  It makes Perminov sound somewhat symbolic of this.

Author Vladimir Tikhomirov begins by concluding the loss of four satellites recently isn’t the only reason for retiring Perminov, but Tikhomirov wants to look at the man and why he causes such controversy in the upper echelons of power.

As recently as 11 March, Perminov said his bosses will let him know when his time is up, but presumably they haven’t yet.  RIA Novosti also apparently published word from a “Kremlin source” who said Perminov’s contract won’t be renewed in April.  It’s said the 50th anniversary of Gagarin’s flight on 12 April might be celebrated with someone else heading Russia’s space agency.

Tikhomirov explores who Perminov is . . . a missile-general trained early to keep his mouth shut . . . to keep the dirt inside the RVSN or military izba . . . he doesn’t talk about extraneous or personal matters.  Born in Kirov Oblast in 1945, his father died early and he worked on a collective farm.  He was excited by Gagarin’s flight and practically his entire class went to military schools . . . he went to the Perm Higher Military Command-Engineering School.  He went from missile unit to missile unit with his wife and son.  The Soviet collapse found him finishing up at the General Staff Academy, and he became Chief of the Plesetsk Cosmodrome.  When Sergey Ivanov created Space Troops in 2001, Perminov became their first commander.  President Putin put him in charge of the entire space sector in 2004.

Then Tikhomirov talks about Roskosmos and Perminov’s predecessor.  In 1992, President Yeltsin civilianized a lot of the space industry, and he put Yuriy Koptev — a missile and rocket builder — in charge.  Koptev held his seat for 12 years until Putin became dissatisfied that Russia hadn’t built a single new satellite in 10 years (1994-2004).  Putin was upset when Roskosmos couldn’t support ground operations in Chechnya, and also when plans for the Angara rocket (that was supposed to free Russia from depending on Baykonur) didn’t pan out.

Perminov studied Koptev’s failures, and he pushed through a Federal Targeted Program (FTsP) on Space, 2006-2015.  A steady military hand was supposed to right things messed by civilians like Koptev, and others like RKK Energiya Director Nikolay Sevastyanov who reportedly dreamed of space shuttles, moon bases, and “air launching” rockets from An-124s.  Space research was pushed to the back.  It wasn’t Perminov’s style to risk such things.

Tikhomirov looks at Perminov’s record on fulfilling the Space FTsP.  Eleven of 13 planned fixed comms and broadcasting satellites are in orbit.  Under him, Roskosmos pretty much fulfilled its plan for mobile comms and satellite search-and-rescue, but various scientific launches were pushed off.  Tikhomirov gives him credit for making successful space launch deals for the Europeans and Americans.  Using Soyuz to ferry astronauts to the ISS brought in $753 million.

Then Tikhomirov points out the obvious.  Perminov’s other difficulties and failings are minor compared with GLONASS, which he’s described as Russian cosmonautics’ main achievement over the past 30 years.  Tikhomirov says the constellation has 22 functioning satellites with four in technical reserve and the last 3 launched at the bottom of the Pacific along with the Proton launch vehicle that carried them.  The Proton failure, says Tikhomirov, was especially embarrassing; it broke President Medvedev’s Poslaniye promise to have a fully functioning GLONASS grouping before the end of 2010.  And that’s when the rumors of Perminov’s imminent retirement started.

This wasn’t the first time for this rumor.  There was talk of his retirement in 2006 when there were launch failures and an out-of-order satellite cut central TV broadcasting to the Russian Far East.  These were losses costing billions of dollars.  But the Kremlin cut off the rumors; Perminov was needed.  Today, however, Tikhomirov says the Kremlin is sending different signals.

He says Medvedev’s assistant Sergey Prikhodko basically accused Perminov of failing to appreciate the gravity of the recent space failures.  A Perminov deputy and a chief designer at RKK Energiya were both fired.  Perminov himself got a reprimand.  Medvedev also instructed prosecutors to investigate the state of affairs, and the accounting books, at Roskosmos.

Tikhomirov says Roskosmos blames new products which weren’t tested sufficiently, but some employees say the agency tried to save by using Taiwanese microchips not intended for use in space.

Other interesting things turned up.  As reported elsewhere, Tikhomirov says sons of Roskosmos deputy chiefs are in the business of insuring its satellite launches.  GLONASS’ main designer has sent 40 percent of its state financing to various “pocket” firms.

Tikhomirov says Perminov might have survived all this, but the loss of dual-use Geo-IK-2 may have been the last straw.  And Medvedev recently talked with scientists about their thoughts on outer space research, something Tikhomirov views as a blow to Perminov and the military space priorities he represents.

So who would be the replacement?

Tikhomirov thinks the Kremlin must have a list of candidates . . . some people think First Deputy Defense Minister Vladimir Popovkin, who’s in charge of procuring armaments, he was also Space Troops Commander in his time.  Others say RKK Energiya General Director Vitaliy Lopota.  Still others say none other than Nikolay Sevastyanov — now heading Gazprom Space Systems.  Tikhomirov concludes:

“But all this devolves into one thing:  the new Chief of Roskosmos could be either military or a highly-skilled designer.  But to put the space sector in order, a new Korolev is needed.  Just where can one be gotten?”

Nikolskiy on GOZ-2010 Failures

On Tuesday, Vedomosti’s Aleksey Nikolskiy wrote about breakdowns in last year’s State Defense Order (GOZ).  He notes that concern about failures started with Roskosmos, but it isn’t limited to that part of the defense sector.

Nikolskiy recounts Deputy Prime Minister Sergey Ivanov’s session with the Roskosmos collegium.  The space industry only produced five of 11 satellites specified in GOZ-2010, and 6 civilian launches were postponed.  The three GLONASS satellites lost to a “childish mistake” [in filling the rocket’s tanks] cost 2.5 billion rubles.  But we’ll return to Russia’s space woes another day. 

A Defense Ministry source tells Nikolskiy GOZ failures are constant. 

Bulava SLBM delays kept Yuriy Dolgorukiy from entering service [remember the new SSBN itself had to return to Sevmash for work while it awaits the next Bulava test].  Introduction of the new Severodvinsk SSN has been put off until much later because of construction defects.  A United Shipbuilding Corporation (OSK) source tells Nikolskiy the Defense Ministry has stopped financing completion of a proyekt 677 diesel-electric sub, and work on two others laid down at Admiralty Wharves is in question.

Nikolskiy says the Air Forces’ assimilation of Yak-130 trainers is delayed by last March’s crash.  And there’s a serious delay in the testing of the Su-35 fighter, according to a Defense Ministry officer [Sukhoy was reportedly testing two Su-35s last August].  One enterprise manager claims reforms in the Defense Ministry purchasing system are holding back contracting for aircraft deliveries this year. 

CAST’s Konstantin Makiyenko says government and Defense Ministry criticism of industry for its GOZ failures could be followed by personnel changes.  In Roskosmos’ case, the situation is almost “overripe.”  But Makiyenko defends other Russian arms producers by noting that delivery delays are common even for U.S. and European manufacturers.

Ivanov’s GLONASS Report

Today Deputy Prime Minister Sergey Ivanov reported to President Medvedev on the results of the investigation into the loss of 3 GLONASS satellites on 5 December.  As expected, the report points to mistakes in fuel calculations for the DM-3 booster stage. 

The Kremlin.ru account also says Vice-President, Chief Designer for Launch Vehicles, RKK ‘Energiya’ Vyacheslav Filin, and Deputy Director, Federal Space Agency (Roskosmos) Viktor Remishevskiy have been relieved of their duties.  Roskosmos Director Anatoliy Perminov received a reprimand.

Additional steps to strengthen administrative discipline at Roskosmos will be taken, at Medvedev’s direction.

GLONASS as Dolgostroy

Viktor Myasnikov authored an interesting piece in the 17 December Nezavisimoye voyennoye obozreniye regarding the loss of three GLONASS-M satellites in the Pacific on 5 December. 

Myasnikov said the ten-year Federal Targeted Program (FTsP or ФЦП) “Global Navigation System” has spent $4.7 billion since 2001, but GLONASS has confirmed its status as a ‘long unfinished work’ [dolgostroy or долгострой] in space.

Myasnikov pointed out Prime Minister Vladimir Putin’s long personal interest in the system’s restoration, and Putin’s description of it as a sine qua non for development and deployment of modern precision weapons systems.  Myasnikov noted the government’s intention to invest 48 billion rubles in space and ground infrastructure for GLONASS in 2010-2011.

He said the 3 ill-fated GLONASS-M and now-delayed GLONASS-K, originally intended for launch on 28 December, were supposed to bring GLONASS to a complete constellation of 24 satellites and full global coverage. 

President Dmitriy Medvedev had just promised that the GLONASS grouping would be fully formed before the end of 2010, and its large-scale use would begin in the next two years.

After the 5 December failure, Medvedev ordered an investigation of GLONASS, its financing, and who might be responsible for the 5 December mishap.

Myasnikov also explored the insurance scheme for the 5 December launch.  It turns out insurance was provided by the ‘Sputnik’ Insurance Center, which just happens to be run by the sons of current and former deputy chiefs of Roskosmos.  ‘Sputnik’ has assured everyone that the GLONASS loss was reliably reinsured, but it provided no specifics.  Roskosmos Chief Anatoliy Perminov, however, said the launch was partially insured, and a settlement will be collected but only after a long and drawn-out process.

Myasnikov spends some time discussing possible causes of the 5 December accident which largely boil down to an upper stage improperly fueled with too much liquid oxygen.  He concludes that, while a couple scapegoats might be found at RKK ‘Energiya,’ no one associated with GLONASS at Roskosmos is worried about his job.

And so he recaps where this leaves GLONASS.

By 2008, GLONASS reached 18 satellites and complete coverage of Russia.  A fully deployed GLONASS of 24 spacecraft should have covered the planet by the end of 2009.

Russia counted on a service life of 7 years, but the satellites are only lasting 3-1/2 to 5 years, so the system couldn’t be completed.  The system officially has 20 operational, and another 5 are held as “being studied by the General Designer.”  The oldest satellite is 71.7 months old, one is 60 months, and two are 47.4 months.

So, Myasnikov concludes, even if 6 satellites are orbited, a complete system will likely need 8 over the next two years, leaving GLONASS a ‘long unfinished work.’  GLONASS-K is coming, and it’s supposed to have a 10-year service life.

Then he turns to the global positioning system market.  GLONASS has only a 1 percent share of a $60-70 billion market.  In the future, if Russia captured 15 percent, this would be $9-10 billion annually, more than Russian arms sales.  But it isn’t likely.

In 2014, the European ‘Galileo’ system will begin operations.  This will be a serious competitor for GLONASS.  And the Chinese ‘Compas’ will be fully deployed by 2020.  And GPS is already moving to the next level – 48 satellites and 0.9 meter accuracy.

Myasnikov sums up:

“Russian cosmonautics is living through a serious crisis.  It has turned from high technology, science-intensive sector into simply capital-intensive.  Global scientific projects lead to project-mongering, while plans for real earth and space research are regularly delayed.  Almost nothing new is being created.  To replace some multibillion projects come others which cause even greater enthusiasm among the budget recipients.  The reusable ‘Angara’ has already been in development for ten years, cosmodrome ‘Svobodnyy’ is first closed, then opened.  So GLONASS is just the tip of the crisis iceberg.”

“In four months, the country will proudly note the 50th anniversary of Yuriy Gagarin’s flight.  But what’s being done now that we’ll proudly note after the next 50 years?  Certainly not GLONASS in a halo of lies.”