Russia » Politics
Author`s name Alex Naumov

Who reforms Russian military industry?

The role of ROE in terms of influencing the processes taking place in the defense industry of Russia goes far beyond those of a state intermediary in arms export. Even without the status of a state corporation it has significant achievements in forming the integrated structures and even controlling specific industries. Besides, ROE is actively interfering into the policy matters which concern the whole military-industrial complex.

In the past couple of years the problems of quality and technological upgrade became most acute for the top managers of many Russian defense enterprises. ROE is contributing to a comprehensive solution of this problem. National Center for Technical Upgrade of the Enterprises of the Defense-Industrial Complex (NCTP OPK) was set up at the initiative of ROE. The Center is supposed to render professional assistance to the military manufacturers in developing system projects of technological upgrade.

Together with the League of Assistance to the Defense Companies NCTP OPK is successfully trying to influence the system of the national defense order. They assume that the federal structures taking decisions on distributing defense contracts must have detailed and precise information on the production potential of a specific enterprise. So far there have been too many precedents when fist an enterprise wins the tender and later it becomes evident that it cannot fulfill the contract. As a result the delivery terms are disrupted, quality falls, costs grow. The above two structures suggest introducing a system of technological auditing to prevent such situations. The enterprise which has not passed such technological auditing, should not have the right to bid for the defense order.

Another problem of principle importance for the defense industry is pricing. In the past two years since this problem was publicly acknowledged on the top level, governmental structures demonstrated little progress in solving it, if any. ROE undertakes certain measures within its competence, however, it is recognized that there is a bad need for the principal interference of the government. For example, privately owned producers of rare earth and special metals, realizing their monopole position, raise prices over 100 % a year. According to the independent experts there may be no economic reasons for such growth.

Digitalizing the defense industry is often mentioned as the number one point in the agenda of technological upgrade. Today it is too early to say that the industry entirely and completely focused on comprehensive introduction of the digital technologies. The Center and the League actively support the process of developing a special program of introducing ITs and its financing through the federal purpose oriented programs. ROE participates in the process too, coordinating these works. According to the public statements of the top managers of ROE, today foreign market demands digital back up for nearly all arms Russia exports. Developing digital back up for the military exporters go along with creating uniform methodological approaches in the organization of the work of the industry, building up catalogues which can be offered to the customer, setting up comprehensive logistical support, working out new repair-operation documentation and organizing a working system of the deliveries of spare parts and after-sale service.

The organizers of the process of digitalizing Russian defense complex want to makes sure that they avoid the situation when a company is working with paper documents and simultaneously have digital turnover. Unfortunately it takes place. ROE appeals to the Ministry of Defense for assistance. It is suggested to use the structures of military acceptance service and procurement organizations to force the companies to get rid of the paper turnover of the documents. Due to economic reasons it is out of the question to have papers for the national Ministry of Defense and digital documents for the foreign customers.

Very important consideration is that ROE is viewed as an instrument of fighting the red tape. Reforms in the military-industrial complex did not withdraw this problem. Moreover, the managers of the enterprises and the participants of the foreign economic activities complain that the number of the structures involved on this process has increased. There are more people who are supposed to approve something at different stages, however, the overwhelming majority of these people do not bear any personal responsibility for the final result. The most vivid example is the presidential decrees on forming the holdings in specific branches. After a decree it takes years (!) to fulfill the decision. And there is nobody who could be blamed for delaying the process.

Unfortunately, there are some objective reasons too. Very often it is necessary to include into a holding a completely private enterprise. Sometimes it can be just an obstacle, sometimes – a barrier impossible to overcome. For example, according to some unofficial sources this was the reason why some time ago the government had to refuse from establishing the holding of light armor.

And again ROE proved it can successfully solve this problem. The holding Helicopters of Russia which was formed by the ROE’s daughter Oboronporm puts the whole helicopter industry amongfew most dynamically developing. Inside the integrated structure there is a totally different foundation for taking managerial and strategic decisions. If helicopters were still managed by the numerous bureaucratic organizations, it would have been second to impossible to get the budget means for buying the assets required for the establishment of the holding and Russian companies continued competing with each another, losing the market to foreign manufacturers.

ROE represents the interest of the whole industry on the top level. In fact it can go as far as publicly criticizing the Ministry of Defense for the wrong practice of concluding defense contracts with the manufacturers. According to the recently changed legislation the ministry should conclude the contracts by January to facilitate planning of the manufacturers and leveling up the financial flows. However, in fact the contracts are still delayed till April-May. The representatives of the industry repeatedly complain that the situation with the state defense order should be changed. It should be distributed equally throughout the year instead of having all money in the end of the year, which puzzles the managers what to do with it. Before that an enterprise is forced to take credits thus worsening its economic parameters. ROE has been concluding contracts with the manufacturers for three and even five years ahead. Why the Ministry of Defense cannot sign such contracts remains unanswered. Hopefully the situation will be corrected from next January, when the special procurement agency consisting of the civilian specialists will start full-fledged work.

The Union of the Machine-Builders, another non-governmental institution, recently headed by the General Director of ROE Sergey Chemezov is also viewed by the military managers as their own structure, representing the interests of the defense industry. First of all the Union is to help with the technological upgrade. It is no secret that there are powerful members of the government who do not deem it necessary to accelerate this process (notorious economic block of the government). They are happy with the current 1% a year, whereas the representatives of the above mentioned organizations are sure that the rates of technological upgrade should be about 10% a year.

Yuri Seleznev