Military


Rosoboronexport (ROE)

Russia's state-run arms exporter Rosoboronexport accounts for 85% of the country's arms sales worldwide [as of 2010], with the remainder coming from several companies authorized to deal in arms on the global market. Only Russia's state-run arms exporter Rosoboronexport is entitled to export the whole range of military items, including fully assembled equipment. Another 21 engineering companies and manufacturers are also vested with the status of a separate "entity in military-technical cooperation," which allows it to "carry out foreign trade activities concerning military equipment," but these are allowed to export only spare parts, disassembled equipment and carry out service maintenance.

Considering rich experience accumulated by NPO Mashinostroyenia in military and technical cooperation with foreign countries, successful implementation of several contracts with foreign customers, availability of divisions and services responsible for military and technical cooperation in the company's structure, in 1977 the Russian government issued a directive to grant FSUE “NPO Mashinostroyenia” a right to carry out independent export operations with military products for the period of three years, i.e from that moment the company could directly without governmental mediator conclude contracts with foreign partners and bear full responsibility for their implementation. After assessment of the positive results of the company's work in the area of military and technical cooperation within 1997-2000, when the company had the right of independent export operations, the Russian President extended these authorities till 2007 by his decree dated 09.08.2000. In 2006 the Russian president decree granted the right to JSC MIC NPO Mashinostroyenia to carry out independent export operations with military products from the moment of its state registration.

Throughout the 1990s two state arms exporters existed in Russia, Rosvooruzheniye State Corporation and Promexport. The two enterprises merged in November 2000 to form a federal state unitary enterprise, Rosoboronexport State Corporation (ROE). As the single state intermediary agency Rosoboronexport became responsible for exporting and importing defense, military, and dual-purpose products, as well as technologies and services. The creation of ROE aimed to restructure the military and technical system of coordination between foreign states and the Russian Federation. Rosoboronexport's main goals were to ascertain and enhance long term relationships with foreign customers, and to advance Russia's standing in the international arms market.

Rosoboronexport was placed under the control of the Federal Service of Military-Technical Cooperation (FSVTS) in 2003, which was subsequently removed from the Ministry of Defense (MoD) and subordinated directly to the President. Later, in 2006, Rosoboronexport was subordinated to the newly-created Military-Industrial Commission (MIC). In all likelihood, experts believed the ROE would serve as the MIC's agency to regulate the defense industrial sector.

In addition, Rosoboronexport developed a close working relationship with the MoD as the two made attempts to improve certain aspects of the defense sector. Together they worked towards increasing control over the trade of conventional weapons, raising funds for future R&D projects via arms sales, supplied the armed forces with hardware and training, and offered to build an effective security system with other members of the Commonwealth of Independent States (CIS) through military-technical cooperation, often at subsidized prices

On April 28, 2004 a Presidential decree appointed Sergey V. Chemezov as Director General of Rosoboronexport. Chemezov had acted as Director General of Promexport prior to the merger, and was named the First Deputy Director General of Rosoboronexport upon its conception.

The basic trade activities of Rosoboronexport include:

  • Exportation / importation of the state's array of available military and dual-purpose products and services
  • Organization of licensed armament and military equipment production abroad
  • Maintenance and repairs of weapons, armaments, and military equipment supplied to customers
  • Modernization of armaments and military equipment made in Russia
  • Training of foreign specialists to operate and maintain supplied material in Russia and customer countries
  • Technical assistance in building military infrastructure installations, such as defense enterprises, airfields, depots, firing grounds, training centers, etc.
  • Promotion of innovative high-technology civil-purpose products developed by Russian defense industry enterprises

As the main state agency for arms sales Rosoboronexport role within the political, economic, and industrial framework of Russia has increased substantially. Russian arms exports have soared, growing from $3.7 billion in 2000 to $5.8 billion in 2004 and from $7.5 billion in 2007. In 2005 ROE announced plans to take a more active role in the management of the nation's vertical integrated holding companies. By the end of 2006 export sales had reached an annual level of $5-6 billion, which represented the main source of funds for R&D and procurement programs. In addition, it was estimated that 70-90 of critical defense companies' production and revenue was related to the exportation of systems or spare parts.

By the beginning of 2007 Rosoboronexport had expanded its authority into the civilian sector. This included the takeover and integration of firms in the automobile and metallurgical sectors. Rumors circulated that the shipbuilding industry was next on the list.

Director General Chemezov announced the formation of Rosoboronexport's own holding company, OPK (United Industrial Corporation) Oboronprom, which was formed in 2002 as a closed joint-stock company in which ROE held a significant share. A series of presidential decrees in 2004 and 2005 listed the company as one of Russia's strategic enterprises and later granted it the status of parent management and holding company within the helicopter sector. Oboronprom actively encouraged the process of forming these large, vertically integrated firms in the aircraft, helicopter, shipbuilding, missile-building, and defensive systems sectors. Rosoboronexport sought to increase its influence in these industries via Oboronprom's injection of managers and purchasing of their shares.

On August 4, 2006, the U.S. State Department announced sanctions against Rosoboronexport (and the aircraft manufacturer Sukhoi) for alleged violations of the Iran Nonproliferation Act of 2000, thereby barring U.S. companies from dealing with those Russian entities for two years. Russian officials denounced the action as retaliation for their Venezuelan arms sales. In December 2006, over Russian protests, the sanctions against Rosoboronexport were reconfirmed for two more years (although sanctions against Sukhoi were lifted).

In May 2010, the United States lifted sanctions against Rosoboronexport that it had earlier blacklisted from tendering for U.S. arms deals. The sanctions were imposed in 2006 after the U.S. government accused Rosoboronexport of violating the nuclear non-proliferation regime. Despite the ban, dozens of Mi-17s have been bought by the United States for Afghanistan and Iraq over the past four years via intermediaries as commercial items, thus avoiding direct contacts with Rosoboronexport.

In late May 2011 the U.S. Army Forces Command and Russian state-controlled arms exporter Rosoboronexport have sealed a contract for the supply of 21 Mi-17V5 multipurpose helicopters to Afghanistan. The cost of one helicopter had been agreed at $17.5 million. Apart from the helicopters, the contract stipulates the procurement of reserve units, ground support equipment, and maintenance support. The United States and Russia had been in talks for more than a year on the deal to provide the much needed vehicles for the NATO mission in Afghanistan.

Russia's state-run arms export monopoly sold no less than $10.7 billion worth of arms and equipment in 2011 under contracts with 57 countries, as opposed to $8.5 billion in 2010. But the 2011 number could be readjusted to $12 bln with the addition of direct sales of spare parts by Russian arms producers. “We are expecting Russian arms exports to surpass $14 billion in 2012,” the Center for the Analysis of Strategies and Technologies (CAST) said in a report. “Considering the current foreign orders portfolio, which is worth $41.5 billion, Russia may maintain this level of arms exports for at least three years,” the report said.

By 2012 Russia’s traditionally strong position on the Indian arms market was undermined by fierce competition with US and European companies and failures to fulfill several contracts. Russian arms exporters suffered two painful losses at Indian tenders. Russia did not win the contract to supply 22 helicopters to India, which preferred the US AH-64D Apache to Russia’s Mi-28N. During the Medium Multi-Role Combat Aircraft (MMRCA) tender announced by the Indian Air Force to replace aging MiG-21s, the Russian MiG-35 did not even make it to the finals, where the Eurofighter Typhoon twin-engine multirole fighter lost a contract worth at least $10 billion to France’s Dassault Rafale.




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