Tag Archives: VPK

The GOZ Last Week (Part II)

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

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

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

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

Bozhyeva concludes:

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

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

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

Editorializing in Nezavisimaya gazeta, Viktor Litovkin writes:

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

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

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

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

Latest on GOZ Woes (Part II)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Government Hour (Part II)

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

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

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

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

KPRF deputy Anatoliy Lokot told Nakanune.ru:

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

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

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

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

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

The KPRF’s Lokot also dwelled on the GOZ:

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

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

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

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

Kicking the Defense Ministry and OPK

President's Meeting on the OPK

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

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

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

Then the President says:

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

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

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

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

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

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

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

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

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

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

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

Where’s this leave things?

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

The Foggy Goal of the GPV (Part II)

Sovershenno sekretno’s Vladimir Spasibo describes the early post-Cold War process of mergers and consolidations in the Western defense industries, and then asks:

“And how are our integration processes going?  By altogether different schemes.  Mainly by creating industrial ‘kolkhozy.’”

His example is the United Aircraft Corporation (UAC or OAK) which conglomerated most Russian aircraft designers and producers.

Spasibo says this consolidation should have eliminated problems with skilled personnel shortages, technology losses, obsolete production lines, low labor productivity, product quality, duplicative development, and excess capacity.  But it didn’t.

Spasibo examines the labor force in the OPK’s aircraft industry.  He claims with VVS purchases of 380 billion rubles per year, and productivity of 6 million rubles per worker (three times less than Boeing’s rate), there should be 66,000 workers in Russia’s industry, but its 6 lead plants have more than 100,000 workers, and the aviation industry overall has more than half a million.

He looks then at the labor force for the entire OPK.  With purchases totaling 19 trillion rubles, with modest productivity of 3 million rubles per worker over ten years, the OPK should have 630,000 workers, but Rostekhnologii General Director Sergey Chemezov says there are now 1.2 million.  And Spasibo concludes good specialists won’t work for what companies are able to pay as a result.

Chemezov has pointed out that only 36 percent of Russia’s “strategic enterprises” are financially stable; at the same time, 30 percent show all the signs of bankruptcy.  The situation is particularly bad in the munitions and special chemicals sector, where nearly 50 percent of companies look like potential bankruptcies.

Spasibo adds that only 15 percent of the OPK’s technologies meet world standards, 70 percent of basic production assets are outdated, and the equipment renewal rate is only 3-4 percent.  He says:

“To count on these companies being able to produce the weapons required is laughable.  But they will absorb the money they receive.  Naturally, without any particular result for the reforming Armed Forces.”

Spasibo concludes:

“The ‘estimated expenditures’ of the Defense Ministry obviously demonstrate that we’re again being dragged into a senseless and dangerous arms race which in no way increases our military security.  On the contrary, it increases the risk of creeping into military conflicts.”

“NATO and the U.S. absolutely don’t need a war with Russia.  China doesn’t either.  Even despite periodic rumors that it has territorial claims on us.”

“But it’s impossible to make these claims by military means.  Especially if Russia will have a modern high-tech army.  But once again no one is building it.  And doing this is impossible, scattering resources on strategic arms, VKO, an ocean-going fleet, whose role in the hypothetical case of war is completely incomprehensible.  The situation’s exacerbated by the lack of an entire series of experimental models fit for production and supply to the Armed Forces, an obsolete technological and organizational structure of OPK enterprises which, most likely, will turn the money into dead metal.”

“During perestroyka, we learned that the USSR lost the ‘Cold War’ to the U.S. and that the arms race killed the Soviet economy.  Scholars and commentators talked about this with figures and facts.  In those days, there were many suggestions about what to do with the Armed Forces and VPK.  But all this ended in empty talk.  In fact, they simply killed the VPK.  They practically didn’t invest money in the Armed Forces.  There was neither an army, nor a defense industry to arm the army.”

“And here a time has come when the Kremlin and the White House have decided to modernize the army and, using the financial possibilities that have appeared, to pour 20 trillion rubles into it before 2020.  But won’t we now be stepping on the very same rake as in the eighties, won’t the president and premier be repeating the mistakes of the Politburo, initiating a thoughtless and dangerous arms race?  The key word here is thoughtless.”

“Of course, the draft State Program of Armaments, 2011-2020 is a document under the top secret seal.  Does this mean the public shouldn’t discuss and understand what trillions will be spent for.  Or is it the prerogative of a narrow circle of interested officials — lobbyists for the VPK and the military?”

“The trouble is old and familiar.  Recently deceased  Academician Georgiy Arbatov wrote about it in 1990:  ‘An affair most important for the country and the people — defense, security, fantastically large military spending — was monopolized by a narrow group of generals and general designers from military industry.’  And further:  ‘I think the military shouldn’t be given a monopoly on assessing the threat of war.  Just the same it’s reasonable not to make this assessment without accounting for its opinion.’  It just shouldn’t dominate this.”

Thank you Mr. Spasibo.  A good article.  He has a clear point of view on the issue of the GPV and where the Russian military might or might not be headed.  But where does it leave us?

Just a little commentary . . . Spasibo says Russia aims to match NATO, the U.S., and maybe China too.  This raises the issue of whether it should aim for this and whether it can achieve this.  The answer to both is no.

That is, however, not the same thing as saying the Russian Armed Forces don’t need to modernize.  If they were smart, they’d aim for capabilities to offset the advantages of their stronger potential enemies.

That means difficult picking and choosing, something we haven’t seen much of in the GPV, where it looks like every service is at the table awaiting a full meal.

Russia is definitely not France, but this doesn’t mean Moscow has to defend everywhere.  Perhaps it should prioritize and worry more about Vladivostok and China than about Iturup and Japan.

Spasibo does a good job of pointing out that there are at least as many problems in the VPK, the OPK as in the military itself.  And yet there’s no real effort yet to remedy them.  All of this goes to whether Russia can reach whatever aim it sets for military modernization.  As Spasibo says, they might just be sending good money after bad.  They may be risking a repetition of past mistakes by overspending on arms, but, of course, they may not even get a chance to repeat these mistakes if money isn’t allocated.  Remember that previous GPVs died of financial starvation in their infancy.

One’s not sure about Spasibo’s argument on Moscow’s promotion of an arms race.  Right now, only the Russians need to ‘race’ — and the race is to catch up after years of falling behind.  And it doesn’t necessarily need to catch up to the extent that it duplicates U.S. capabilities.

And yes Spasibo’s right in saying these defense expenditures should be debated and decided more widely and publicly, but unfortunately Russian citizens have even more basic and important political and social issues that need that kind of scrutiny first before they get down the list to military procurement.

Popovkin for Kolmakov

A long-swirling rumor that First Deputy Defense Minister, General-Colonel Aleksandr Kolmakov would be forced into retirement became a fact this week.  Talk of this dated to March.  Defense Minister Serdyukov didn’t want both of his first deputies [Kolmakov and General Staff Chief Makarov] occupied with combat training and readiness, reportedly wanting to end this unnecessary division and competition.  More recently, Aleksandr Golts said Kolmakov’s and Makarov’s activities with operational troops intersected, even though nothing was ever heard about tensions between the two generals. 

Argumenty nedeli indicates Kolmakov more than once firmly, but tactfully, expressed his disagreement with Serdyukov’s reforms, specifically the elimination of warrant officers and the posting of excess officers in sergeant’s duties.

It’s not precisely clear who will benefit from Kolmakov’s departure.  The press largely assumes it’s the Genshtab and the main commands of the armed services and branches, but it’s no longer as easy as that.  Golts linked the Kolmakov change with the move to 4 military districts or operational-strategic commands (OSK or ОСК).  He argues that putting all ground, air, and naval forces under 4 operational commands would weaken all central supervisory organs, including the Genshtab and main commands.  As for Kolmakov’s Main Combat Training Directorate, it might move somewhere else, morph into something else, or simply disband.

Deputy Defense Minister and Armaments Chief Vladimir Popovkin takes his old portfolio and responsibilities to his new post as First Deputy Defense Minister.  So as much of the Russian media has noted, rearmament is an entirely new priority and job description for the First Deputy.  One wonders if Popovkin will even have a successor in his old position. 

All observers seem to agree, however, that the swap of Popovkin for Kolmakov and rearmament for troop training focuses the Defense Ministry on providing the troops what they need and the Genshtab and uniformed commanders on training them.  Read Kommersant and Rossiyskaya gazeta for more on this.

Popovkin himself told Rossiyskaya gazeta

“We decided to divide the Defense Ministry’s administrative and operational functions.  A civilian  channel is being created which will support the troops.  A second channel will conduct combat training, all troop activities connected with the operation and use of armaments and military equipment.  It’s been decided to withdraw purchases of armaments and everything else from the duties of the Chief of Rear Services and the Chief of Armaments and to appoint a responsible person who will order and purchase all this.”

This would all seem to connect in the person of Nadezhda Sinikova, whom Medvedev and Serdyukov recently appointed to head and invigorate Rosoboronpostavka.  Military men will continue to make their own orders and requests, but Sinikova’s organization will deal directly with suppliers.

Here’s what President Dmitriy Medvedev said to Popovkin on 22 June:

“Naturally I wish you success and hope that the sector you will coordinate, – this is, first of all, the armaments sector and military equipment and the resolution of a series of issues connected with the civilian component  in the Defense Ministry, – will develop successfully, and we will be able to realize this state armaments program which we are now coordinating.”

“This is a large-scale program, complex, intense, however, at this time, it is directed at establishing on the current foundation a modern, effective armaments system for our army, to reequip, and fully supply it in the framework of those priorities on which we agreed and which must create the basis for the development of our Armed Forces in the future to 2020 and even to 2030.”

“This is a large, complex task.  I hope we have forever gone away from the situation of patching holes in the Armed Forces, which was characteristic in the 1990s and the beginning of this century, and we have set out on a different basis of work.”

“But here methodical, scrupulous work is needed especially with military equipment suppliers because they are sometimes pampered and don’t provide quality, and very unpleasant price increases appear for us.  Therefore we have to hold everything taut, but at the same time acquire everything our Armed Forces need to be combat capable and well trained.”

Gazeta.ru asked to Deputy Chairman of the Duma Defense Committee Igor Barinov to explain what Medvedev was saying about the Defense Ministry’s suppliers:

“Prices on VPK products are growing out of proportion with the growth of inflation and taxes.  For example, the ‘Topol-M’ increased 2.5 times in 3 years, and a sniper rifle cost less than 30 thousand rubles at the beginning of the 2000s, but now the Defense Ministry buys them for 400 thousand.”

“Enterprises don’t want to reduce defects, they place incomprehensible prices on their own products—some places because of corruption, some places because of a lack of restraint.  It’s impossible to allocate money if a process of systematizing price formation doesn’t occur.”

In Vremya novostey, Pavel Felgengauer describes Popovkin as one of the drivers of the current military reforms:

“Popovkin was the first to begin publicly saying that the problems of the Russian VPK are connected with a large lag behind the West.  And he was first to acknowledge that Russian space system use large amounts of Western components.  Before him no one publicly talked about this.  And in 2008 Popovkin was first to announce that Russia will buy foreign military equipment, and not just components.”

An informed, anonymous source also told Vremya novostey that Popovkin is an “old acquaintance” of Medvedev and Putin.  And he will be the Defense Ministry’s real number two man, pushing Army General Makarov lower in the de facto hierarchy [of course, this overlooks the very good likelihood that Serdyukov maintains his own hierarchy based on his own team of trusties and it probably doesn’t include any ex-generals like Popovkin].

Popovkin’s official bio can be found here.

Defense Ministry Claims More Money Needed for Armaments

General-Lieutenant Frolov

Speaking before the Duma yesterday, acting Armaments Chief, General-Lieutenant Oleg Frolov indicated the proposed 13-trillion-ruble State Armaments Program (GPV or ГПВ) for 2011-2020 is not enough to accomplish the Kremlin’s rearmament goals.  RIA Novosti reported the draft GPV will go the government’s Military-Industrial Commission (VPK or ВПК) by the end of this month. 

From the Space Troops like his boss Vladimir Popovkin, Frolov is the Defense Ministry’s Deputy Armaments Chief, and Chief of the Main Armaments Directorate. 

Frolov said 13 trillion rubles will guarantee development of strategic nuclear forces, air defense, and aviation, but the Ground Troops’ requirements for modern weapons will be underfinanced. 

He added that 28 trillion rubles would allow the Defense Ministry to cover the Ground Troops’ needs, and 36 trillion—almost three times the planned amount of the GPV—would fully finance programs for the Navy and Space Troops. 

First Deputy VPK Chairman, ex-general Vladislav Putilin responded that his commission hasn’t heard answers as to why the proposed 13-trillion-ruble allocation is insufficient for the military’s needs: 

“In the Defense Ministry’s opinion, the armed forces will degrade under an allocation of 13 trillion rubles out to 2020.  But we haven’t gotten explanations even though we’re asking:  show us these horror stories.” 

Putilin noted that the GPV is still a ‘working’ document at this point. 

At the same time, the Audit Chamber (a GAO-type organization) told the Duma the Defense Ministry is not succeeding in using its allocated funding.  Lenta.ru reported that, by varying measures, the Defense Ministry executed only 42-65 percent of the State Defense Order (GOZ, Gosoboronzakaz, ГОЗ, Гособоронзаказ) for last year.  Also of interest from yesterday, SIPRI released its estimate of Russian defense spending for 2009–$53 billion (about 1.6 trillion rubles), good enough for fifth place worldwide.  See also Grani.ru for coverage of the Defense Ministry’s difficulty spending the GOZ. 

Newsru.com captured this story appropriately as a Defense Ministry demand for more funding.  Prime Minister Putin and President  Medvedev have vowed repeatedly to increase new armaments, from the current level of 10 percent, to 30 and 70 percent of the inventory in 2015 and 2020 respectively.  What’s unknown is why at least one uniformed military man has decided to challenge the feasibility of his political masters’ long-term rearmament goals.

Defense Industry’s Last Warning

Popovkin in a Suit

Last Friday’s NVO printed an interesting editorial that discussed arms exporter irritation with Deputy Defense Minister, Armaments Chief [former Commander of Space Troops and ex-General-Colonel] Vladimir Popovkin for publicly admitting the Defense Ministry’s dissatisfaction with many of the OPK’s products.  The exporters are obviously upset that Popovkin’s comments have, and will, cost them sales abroad.  But NVO concludes a greater danger would be trying to silence anyone–high-ranking defense official or independent defense analyst–who dares point out the OPK’s problems in the hope of remedying them.

NVO’s sub-title for the article is “The OPK’s systemic crisis threatens a breakdown in the supply of combat equipment to the Russian Army and a lack of export contracts.”

The Greeks have apparently called off a purchase of 420 BMP-3s for $1.5 billion (let’s call it $3.6 million per vehicle).  The deal had been 2 years in the making, and it wasn’t the state of the Greek economy that caused the halt.  According to NVO, the money was already in the defense budget.  Rather it was Popovkin’s specific criticism of the BMP-3 that folded the deal.

Popovkin is quoted:

“We very much need to protect our soldiers.  Today everyone rides on top of the BMP because no one wants to ride in this ‘coffin.’  We need to make a different vehicle.”

Greek journalists published his remarks, and opposition politicians turned them into a scandal:  how can you buy unsuitable equipment that even the country that makes it won’t buy?

Popovkin also complained about the T-90 that the Indians are buying, the tank support combat vehicle (BMPT) that Rosoboroneksport recently demonstrated at an arms show in Kuala Lumpur, and other equipment which the army won’t buy for one reason or another, but which is put forth for export and actively advertised there.

According to NVO, the arms exporters are terribly offended because the [ex-] general cost them several lucrative contracts.  But, in NVO’s estimation, his speech is very necessary.  It says:

“. . . the truth about the condition of the Russian defense-industrial complex, about those processes occurring there, about the systemic crisis in it and the inability of its various directors, including even the government’s Military-Industrial Commission [VPK], to correct the existing situation, is not a secret at all.  It’s been talked about more than once.  On the most varied levels.  Including even presidential.”

NVO says this truth is very important; it could help the powers-that-be uncover the problem areas, fix them, and produce the modern equipment needed for the defense of the country’s interests.  Without an honest discussion, the deficiencies can’t be fixed.  But the Kremlin, government, the legislature, executive organs, or the regions won’t undertake any serious measures against negligent managers.  Despite constant talk of state arms programs, federal programs of technical reequipping of defense enterprises, in reality, with the exception of aviation and air defense firms, nothing is really happening.  It’s moving at a snail’s pace.  Or is it?

Foreign buyers send in 33 warranty claims for every 100 Russian weapons systems exported.  And the scandal with the Algerian MiGs didn’t teach the OPK anything.

It would be possible to silence critics and protect military-technical cooperation with foreign countries and keep the profits coming to the budget and the manufacturers.  But won’t the low quality of these systems, their inability to meet the demands of modern war, really be a negative advertisement?  Does someone really think if they quiet the generals, together with the Moscow media, military analysts and experts then they can sell some kind of half-finished military goods to a serious buyer?  Naive views worked out for illiterate dilettantes.

NVO figures there are two ways out:  either give up, lose export orders, and accept the situation or sharply improve the quality and effectiveness of Russian weapons, reduce prices and defects, and strive to be on the leading edge of technology.  In other words, saving defense industry is in the hands of defense industry itself.  And no one else.  

When it comes to combat vehicles, sniper rifles, UAVs, assault ships, night sights, and armor, the international division of labor in defense industry isn’t such a bad thing after all.  It brings Russia closer to the ‘probable enemies’ of the recent past.  But when it comes to nuclear-powered submarines and strategic missiles we still don’t know how to do them ourselves and no one’s going to sell us those.  And [unless Russia remembers how and gets its OPK in order] it will remember national security the same way it remembers the long forgotten past. 

This is NVO’s way of telling the Putin-Medvedev regime it would be foolish to shut down this feedback channel that tells it what needs fixing in the OPK.

Can Imports and Money Solve OPK Problems?

Ilya Kramnik (photo: RIA Novosti)

On 22 April, RIA Novosti military commentator Ilya Kramnik provided an essay on the army, the VPK [OPK], and post-Soviet realities.   He gives a convincing negative answer to the question posed above.  Like more money and budget, foreign imports won’t be enough by themselves to fix the Russian OPK’s structural problems which have to be addressed more directly at their roots.   

He has praise for Defense Minister Serdyukov for being willing to admit that the ‘emperor had no clothes’ to some degree.  Serdyukov’s management has recognized that the world has changed and changed the army’s missions accordingly. 

A recognition of one’s problems, however, is not the same thing as fixing them.  Serdyukov, the army, and the OPK face the same kind of modernization dilemmas that face Russian politicians, business, and society.  But thanks to Serdyukov, the armed forces are operating under a more realistic vision of what they are, or should be, building toward.

Kramnik believes imports are fine, but the OPK needs the capability to build the entire line of military equipment needed, if it has to.  To do that, it will have to remedy its capital problems, including human capital.  He concludes there’s still a way to go to get to a mobile, well-armed, and trained army, appropriate for the real threats facing the country.

Kramnik writes:

“In the past few days Defense Minister Anatoliy Serdyukov and his deputy Vladimir Popovkin again raised questions about the quality of the work of the country’s VPK [military-industrial complex].  These questions are not being mouthed for the first time, and are taking on a particular acuteness against the backdrop of announcements of planned purchases of military products abroad–both separate components and complete systems.”

“It’s difficult to say when the theme of the Russian VPK and armed forces’ dependence on foreign supplies first began to resound.  In a large sense, it was always acute–even the USSR didn’t have full independence from foreign supplies, in its heyday, trainer aircraft from Czechoslovakia, light helicopters (Soviet-designed) from Poland, large assault ships from the very same Poland, various types of boats and ships from the GDR, etc., were bought.”

“After the USSR’s collapse this dependence deepened because of the foreign status of many producers which had been an integral part of the Soviet VPK–from Dnepropetrovsk’s Yuzhmash to the Tashkent Aviation Production Conglomerate.  But the problem of the VPK’s growing dependence on producers in the ‘far abroad’ is the most acute and painful today.” 

“The list of purchases of military equipment abroad being realized by the Russian military and producers is already now quite broad:  different types of infantry weapons, communications systems, unmanned aerial vehicles, thermal sights, digital electronic equipment…” 

“Now being added to this list are multipurpose assault ships, and armor for vehicles and light armored equipment.” 

“Meanwhile from the Defense Ministry resound still louder complaints about the domestic VPK over the quality of the equipment it is producing.  Of the number of the largest scandals of this type the recently resonating complaints about domestically developed unmanned aerial vehicles, armored personnel carriers and infantry fighting vehicles must be noted.  Problems are also arising where there are no alternatives to domestic manufacturers, and can’t be in principle–in the development and production of ballistic missiles (“Bulava”).”

“What is happening with the country’s VPK, and what kind of ways out of the situation which has taken shape are there?” 

“The main cause of today’s situation is obvious:  from the beginning of the 1990s through the mid-2000s a large part of VPK enterprises together with the entire country was occupied with everything except strengthening defense capability and modernizing production.  The collapse of the USSR, with the consequent destruction of Soviet industrial infrastructure, disruption of production ties and scientific schools didn’t leave any chance for a better result.” 

“It follows to note that the disruption was systemic, and besides experts in the State Property Committee and other government organs of the 1990s, the authors of this process could, with complete justification, be considered the ‘captains of industry,’ many of whom in this period openly used enterprises entrusted to them for the purpose of ‘making money here and now,’ even through the ruin of production sold off for scrap.”    

“Against this background in the armed forces and those close to the military, but also in industrial circles, groups of ‘patriotic’ experts and analysts, rose like mushrooms after the rain, thoroughly glorifying the country’s army and VPK with chants of one and the same incantation:  ‘it has no analog in the world.’  The incantations rang out with respect to various military and technical wonders, and meanwhile not the slightest attempt was made to comprehend the changing world map, missions of industry and the armed forces.”       

“From the other side the ‘alarmists’ were entrenched and grievously moaned about the death and destruction of the army and military industry, keeping such an inadequate perception of the world as a whole.  Both sides supposed that Russia and its army would in the future conduct a precisely ‘Soviet’ type war against the entire capitalist world, or, at a minimum, against a Chinese invasion.”       

“Very few production associations, which were flagships of the domestic VPK, were able to preserve themselves as single entities in the Bacchanalia of destruction.  There is, first of all, the ‘Sukhoy’ firm, which knew how to turn the crown of Soviet scientific-design thinking–the family of aircraft on the T-10 (Su-27) platform–into the most commercially successful product on the combat aircraft market of the last 20 years.  There is ‘Almaz-Antey,’ whose air defense systems received not less recognition.  There is Nizhnyy Tagil’s UVZ which was saved thanks to the T-90.  There are some shipbuilders and several other companies that managed to ‘get’ the situation and survive.  But such successful ones turned out to be far from all.”        

“The renewal of defense development and the increase in the State Defense Order in the middle of the 2000s could not be and didn’t become a panacea.”       

“Firstly, a simple increase in monetary investment will not save a disrupted industry:  dead people don’t need money, neither do the seriously ill generally.”       

“Secondly, this money by itself could not resolve the row of problems of even successful enterprises–for example, the problem of a lack of personnel, caused not only by the outflow of workers ‘in the hungry 1990s,’ but also by a sharp decline in the young population, together with the fall in the quality of engineering-technical education, and the practically complete collapse of the system of specialized secondary education.”       

“But the biggest problem became the management of the armed forces and military industry in principle.  The armed forces command right up to recent times didn’t have any kind of clearly expressed views on the future profile of the Russian Army.  All the years of reforms right up to the arrival of Anatoliy Serdyukov in the post of Russia’s Defense Minister preserved in essence the truncated and frayed Soviet Army, whose model was becoming ever less and less adequate for the missions facing the country in the prevailing economic and political conditions.”

“Military industry against this background survived reorganization after reorganization, the overwhelming majority of which led to nightmarish overgrowth in bureaucratic components and an increase in the already huge gap in pay between specialists on the line and in the laboratory and the management.  This state of production efficiency contributed to the growth of military expenditures and the amount of ‘kickbacks’–most of all.  Responsibility for results was conveniently forgotten:  ‘captains of industry’ together with the armed forces leadership now, as a rule, won’t risk even dismissal, much less their freedom.”       

“A similar uncertainty led to uncertainty with the military order.  Plans and ideas floated and sank, development began and stopped, the vision of the army and its complex of armaments as some kind of organic system aimed at resolving such-and-such concrete missions was totally absent.  The sole exception on this score was the strategic nuclear forces, where a clear understanding of missions and ways of conducting them was preserved, and work was conducted–on supporting old RVSN missiles, on testing and adopting new ones, on repair and modernization of the Navy’s strategic missile submarines and Air Forces heavy bombers.” 

“Anatoliy Serdyukov’s reform, being the first systemic reform of the armed forces in the last decade, not directed at supporting a dead Soviet structure, but at arranging a new one, under concretely certain missions of fighting local and regional conflicts while preserving nuclear deterrence potential, did not create new problems.  It simply revealed old ones, aggravating them with the absolute ‘nonconcurrence’  of the new Defense Ministry leadership in the old system of relations of the army and VPK.”       

“This ‘nonconcurrence’ became a thorn in the side of very many, those problems earlier kept quiet behind the reckoning ‘well, you understand,’ suddenly stopped being kept quiet, and floated in all their ugliness before the eyes of an astonished public.”      

“For the public the foregoing was a big shock, since it all these years kept the point of view on the army and VPK as some ‘island of stability,’ preserving, in the face of all problems, the Soviet system of connections and ties, and, in general, Soviet possibilities.  Many understood the fact that this wasn’t so, but an open recognition of the changed situation by the leadership of the armed forces and the country, nonetheless, was unexpected.”       

“However such a recognition was necessary as a recognition of the fact that the world has changed.  The Russian Army is more incapable of realizing the West’s half-century nightmare–a three-day dash to the English Channel (we set aside the question of whether the Soviet Army was capable), however does Russia need this capability for defending its people, its sovereignty, its interests?”      

“It occurs that our country needs something different.  It needs a clearly expressed understanding of threats, developed with the participation of the military, politicians, and the public, which stand before the country and the capability to counter these threats.  It needs a compact, ‘quick reaction,’ innovative, directed military industry with minimal bureaucratic overhead, and an education system regularly supplying engineering and labor personnel who will receive pay greater than the managers of shops selling mobile phones and taxi drivers.  At a minimum.”      

“This industry needs to produce the entire line of types of equipment and hardware essential to the armed forces, even if using some quantity of imported components–in the end, even the USA doesn’t disdain the use of military imports, and it imports foreign military hardware worth $15-16 billion annually.”      

“It needs an army–mobile, trained, armed, conscious of its status, prestige, and many centuries of history.  It needs strategic forces which protect the country against wars with superior enemies, the calculation of which on our planet doesn’t even require three fingers.”      

“All this could become a reality only in the event that it’s made into a goal at the very highest level.  Still the reactions of the country’s leadership, and of the armed forces, at a minimum, demonstrate understanding of the problem.”      

More Money in GPV-2020

ITAR-TASS yesterday cited a Military-Industrial Commission (VPK) source who said the volume of financing for the State Armaments Program 2011-2020 (GPV-2020) will be 13 trillion rubles (roughly $430 billion).  The source said this amount includes purchases of new arms and equipment, development of new types, soldier gear, and other army necessities.  He said the Finance and Economic Development Ministries are familiar with the amount and have not objected.

As background, ITAR-TASS reminded that this money is supposed to get Russia to not less than 30 percent modern armaments by 2015, and not less than 70 percent by 2020, according to Prime Minister Putin’s goals.

Deputy Defense Minister, Armaments Chief Vladimir Popovkin has said the RF Security Council will review GPV-2020 in June, and it will be the basis for developing a new Federal Targeted Program for OPK development.

So, 13 trillion rubles over the 10-year period is 1.3 trillion rubles in procurement per annum (undeflated, of course).  At face value, this is a significant increase over the old GPV 2007-2015, which was reportedly funded at 5 trillion rubles for 9 years, or about 550 billion rubles in military purchasing per annum.

But it’s not so easy.  First, the cascading and overlapping way the GPVs are done (how did the last years of the old one mesh with the first years of the new one?) would make it well-nigh impossible to judge what was actually bought, even if it were clear how much money was disbursed when and what was bought with it.  But none of those things are clear to outside observers, and probably not clear even to officers and officials inside the system.