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Military Industry Under Putin

In August 1999 Vladimir Putin was appointed Prime Minister. On 31 December 1999, he became acting President, on 26 March 2000 he was elected President of Russia, and was inaugurated as president on 07 May 2000.

The fundamental challenge to defense industry was a level of expenditure on military hardware by the Russian government that was only a small fraction of that by the Soviet government. This was compounded by the numerous "town-forming" enterprises [company towns that reduced labor mobility and made it politically difficult to close factories] as well as a persistent inability to solve the problem of industrial organization above the level of a single enterprise. The problems of enterprises of the military industrial complex remained the same in the new century: the absence of working assets and venture capital, low level of management, ageing workers, worn out capital assets, social sphere as the additional cost center, low capital/labour ratio, high energy costs, fines and penalties of fiscal services due to delays in payments from the customer. To this must be added purposeful incitements of bankruptcy and seizures by raiders.

Federal Objective Programs (FOP) are considered to be an instrument of forming Russia's new quality in the XXI century. These are important long-term state programs upon which the future of Russia depends greatly. The Federal Program entitled "The Development of Civil Aviation Engineering in Russia for 2002 - 2010 and up to 2015" was adopted October 2001. The Thirteenth Five-Year Plan of the Soviet Union covered the period 1991-1995. The Sixteenth Five-Year Plan would have covered 2006-2010, and the Seventeenth Five-Year Plan would have covered 2011-2015.

Putin singed a decree Matters of Military and Technical Cooperation between Russia and Foreign States in September 2005 in an effort to knock down the domestic competition in those industries where the vertical-integrated holdings had not been set up yet. The decree enabled the Federal Military and Technical Cooperation Service to appoint executors of export contracts without tenders but based on collective decisions.

Armament Program 2002-2010

In 2002 Russian president Vladimir Putin's administration produced the so-called "Armament Program 2002-2010," which set priorities for weapons research and development in 2002 to 2005 and procurement by the end of the decade.

The principal goals of the FOP "Reforming and development of defense-industrial complex" (2002-2006) were forming of a new image of the defense-industrial complex by means of its reformation in accordance with the objectives of military building and taking into consideration the basic parameters of The State Armaments Program for 2001-2010, prognosis evaluations of military-technical cooperation and the need to maintain at the required level the mobilization capacities, as well as creating conditions for stable development of the defense-industrial complex, development and production of competitive at internal and external markets high technology military and civilian purpose products.

The main objectives of the 2001-2010 Program were:

  • Creation of conditions for ensuring the stable development of the defense-industrial complex, development and production of competitive at internal and external markets high technology military and civilian purpose products;
  • Development of the necessary normative-legal basis, outlining the issues of the defense-industrial complex reformation and establishing system-forming integrated structures;
  • Optimization of the defense-industrial complex's composition and structure by means of concentrating defense production at the limited number of system-making scientific-production complexes controlled by the state;
  • Preservation of scientific-technological potential of the defense-industrial complex and creating preconditions for its stable development; Optimization of the state participation's share in the defense-industrial complex organizations' capital;
  • Conjugation of state defense order's resources, capabilities of military-technological cooperation, utilization of capabilities of dual-use technologies for forming of scientific-technological base on development of prospective technologies and military and civilian purpose product models.
  • Diversification of production in order to increase production volumes of high technology civilian purpose products;
  • Realization of the state social guarantees provided to the defense-industrial complex's employees in connection with the complex structural reformation, including carrying out the activities on personnel retraining and ensuring employment of highly skilled specialists.

Cosolidation in Putin's Second Term 2004-2007

Graham Stack explained Putin's industrial policy. "The policy of regrouping the partly privatized, sprawling and under-financed defense industry into a state-controlled holding was conceived from the start of Vladimir Putin's presidency. But only in 2004 did it take off ... Putin's radical reshaping of the government involved creating the Federal Agency for Industry and giving it oversight of the entire defense sector. Boris Alyoshin, an ardent proponent of the holding policy with a background in the aviation industry was named head of the agency. Additionally, the newly-created Federal State Property Agency was headed by a contingent of St. Petersburgers dedicated to the liquidation of state unitary enterprises as a class by transforming them into joint stock companies."

Sergei Chemezov, proponent of a proactive industry policy for the defense sector and an old friend of Putin became head of the state arms intermediary Rosoboronexport (ROE). Chemezov lobbied successfully for ROE to be regain the monopoly on all Russian arms export contracts, leading pundits to dub ROE the Gazprom of the defense sector. ROE enjoyed significant leverage over companies because it selected which plants were assigned the export orders it negotiated.

In August 2007 an interview in Kommersant by hitherto unknown businessman Oleg Shvartsman explained the methods of defense sector restructuring. "Generally we use voluntary-compulsory instruments - market value, the mechanism of blocking growth, all sorts of administrative matters," Shvartsman explained in the interview. "But, as a rule, people understand where we are coming from ... In fact, usually we are talking about conflicts that are already smoldering somewhere, already the center of attention for existing companies. They only need to come to an agreement with our older colleagues and reach some sort of consensus. As a rule, it is the lower rung of the market value. But we're not talking about taking over Yukos - the people do get sensible money."

State Program of Development of Arms for 2007-2015 (GPRV-2015)

On 02 June 2007, the Military Industrial Commission of the Government of Russia headed by Sergey Ivanov adopted the State Program of Development of Arms for 2007-2015 (GPRV-2015). Representatives of the Ministry of Defense declared that while the previous program, approved in 2001 and intended till 2010, did not provide for serial purchases, now the main costs (over 63%) will be the costs of equipment of the military with new types of arms. But GPRV-2005 (approved in 1996) and GPRV-2010 actually had been a failure in this respect: the level of their implementation by various positions did not exceed 10-15%. In 2004, 300 tanks were exported to India, while the Russian Army received only 30 machines. The aircraft industry of the Russian Federation is serving mainly foreign customers. For the previous five years the amount of aircraft purchased for the Air Force of the Russian Federation was 28 times less than the amount sold abroad; and from 1994 to 2003 new aircraft and helicopters had not been supplied to aviation units at all. For the whole year 2006, as well as for the whole post-Soviet period there has not appeared any new type of military air equipment.

Russia planned to spend in 2006 about 10.5 billion dollars for the purchase of arms and military equipment. The Armed Forces of the Russian Federation have received for this money: 6 intercontinental missiles, 6 space vehicles, 12 carrier vehicles, 31 tanks, 125 armored personnel carriers, 3,770 motor vehicles, 9 aircraft (one Tu-160), while 139 tanks, 125 cannon, 104 aircraft, and 52 helicopters have been upgraded. Arithmetic calculation shows that with such re-equipment (and upgrade) rates - one tank battalion and one combat aircraft squadron per year - re-equipment of the Armed Forces of the Russian Federation will take many decades. For instance, at this rate it will take 64 years for replacement of 6 thousand T-72 tanks and 5 thousand T-80 tanks, currently available in the Russian Army, and almost 100 years for replacement of 1.8 thousand combat aircraft of the Air Forces and the Air Defense Forces (transition to the upgraded aircraft may take 16 years).

Experts of the State Duma Committee for Defense considered that a significant increase in the annual supplies of arms and military equipment was necessary for the adequate re-equipment of the army and fleet - about 5% of the effective combat strength of the Armed Forces each year. This would be not less than 140-150 aircraft, 40-60 helicopters, 200 tanks, 250 artillery pieces per year. These parameters exceed the ones stipulated by the GPRV-2015 State arms program by 2-5 times. But even if the domestic military industrial complex reached such volumes of the purchase of arms and military equipment, it would provide for rearmament of the Army not earlier than in 20-25 years' time, that is, by the year 2030. By 2006, by the estimates of the State Duma Committee for Defense, the share of modern arms in the total amount of arms in the Army did not exceed 21%, while in armies of the leading world countries this constitutes over 60%.




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