Zelin’s Update (Part III)

In the middle part of General-Colonel Zelin’s incredibly long NVO interview, he reacts to Defense Minister Serdyukov’s high command changes and other structural realignments over the last couple years.  He also shares thoughts on the state of VVS training.

Zelin speaks to interviewer Viktor Litovkin like a 58-year-old three-star who’s surprised to have stayed at his post as long as he has.  He speaks like he isn’t concerned about being retired.

Asked what he and his Main Staff do now that the VVS operate under the four MD / OSK commanders, Zelin responds that plans to create an automated C2 system (ASU) haven’t quite gotten there.  He talks and is online with the district commanders often.  But, he says:

“The main thing is combat training remains with the VVS Main Command. Organizational development (stroitelstvo or строительство) of the service and combat training.  And without combat training what kind of employment can there be?”

There were, he continues, arguments and unresolved issues:

“But during the decisionmaking I proved my point of view, my vision of present problems, sometimes they had to agree, sometimes they had to listen on several issues, but, since now decisions have been made, we have to fulfill them.  To get to work.”

But he grouses a bit more.  He sounds like a man with responsibility who lacks authority.

The ASU isn’t working, but service central command posts (TsKP or ЦКП) were eliminated.  Regardless, Zelin says he has to organize and control training.  Every day 70-80 units have aircraft flying, and they have to be tracked.  They can’t just be given a mission and forgotten.

Asked about the newly-established Aerospace Defense (VKO) Troops, Zelin claims interestingly, that only PVO brigades in Russia’s central industrial region — the old Moscow AD District, KSpN, or OSK VKO — went over to them.  He says MD / OSK commanders got the rest, and he equips and trains them for regional commands to operate.  His view seems to be VKO is limited to strategic and theater MD.  You can’t, he opines, have PVO without air defense aviation integrated into it.  According to Zelin, a single national system of air defense, including Troop Air Defense, is needed, but a decision’s been made and it’s left but to fulfill it.

Before talking more about training, Zelin reiterates that a single system of net-centric strategic C2 and decisionmaking is the goal, but they aren’t quite there.

He seems envious of the large-scale, largely automated airspace control systems he’s seen in the U.S., Europe, and Japan.

On training and flight hours, Zelin says he’s got no problems with material support (i.e. POL), but problems addressing aircraft service life support [ресурсное обеспечение].  He states frankly he worries about maintenance provided (or not) by civilianized, outsourced Oboronservis affiliate Aviaremont.  There is plenty of money for maintenance, but those responsible aren’t getting it done.  While the Glavkomat has heartache about aircraft serviceability:

“Our other structures for some reason are responsible only for financial flows.”

Zelin was asked earlier if 130 flight hours was the VVS goal.  He says last year pilots got 340,000 hours, or 90 per pilot.  That makes roughly 3,800 pilots, if they’re shared evenly (they’re not).  Eighty percent of young pilots got not less than 100. In some cases, it was harder and they got a little more than 50.  Zelin adds this is still better than the 1990s.

Revenge of the Fallen

Ivan Safronov

Well, more like Return of the Retired, or Dawn of the Dismissed, or whatever.  Your attention’s been grabbed (hopefully).

Last Thursday, Kommersant’s Ivan Safronov reported the Defense Ministry will bring 4,011 ex-general officers back as civilian advisers and consultants, primarily in military districts (unified strategic commands — OSKs) and large operational-tactical formations (armies).  The idea, apparently, is for today’s top commanders to benefit from the experience of their predecessors.

Safronov’s report is based on claims from a source in Defense Minister Serdyukov’s apparat, his immediate staff.  The plan to deploy retired generals as advisers got Serdyukov’s approval on January 20.

The former higher officers will also work as scientific associates in VVUZy and in military commissariats.

Kommersant’s source said these men generally have advanced education and a wealth of combat troop and administrative experience to share with today’s commanders.

Safronov turns to Vitaliy Tsymbal to describe how deploying a huge number of ex-generals contradicts earlier Defense Ministry policy:

“There’s no particular logic evident in this, many now retired generals are already remote from military affairs.  This is a sufficiently magnanimous gesture on the part of the minister, but it doesn’t have some kind of deeper sense in it.  Earlier nothing stopped him from dismissing the very same generals for various reasons.”

According to Safronov’s source, it remains only to determine what to pay the returning generals. 

Who knows if any of this will actually happen?  But if it does, it’s another walk back on a key plank of military reform.  Remember the walk back on keeping 220,000 rather than only 150,000 officers?

In late 2009, General Staff Chief Nikolay Makarov said the Defense Ministry had cut 420 of 1,200 generals in the Armed Forces.  With current manning, the remaining 780 generals are enough for a relatively high 1-to-1,000 ratio to other personnel.  So they’ll be digging deep for 4,011 former generals.  Who and what will they find?  

In late 2010, Makarov almost bragged about cutting useless, superannuated officers:

“During this time [before 2009], we grew an entire generation of officers and generals who ceased to understand the very essence of military service, they didn’t have experience in training and educating personnel.”

However, those officers and generals saw it differently, for example:

“Ill-conceived reform has left the Russian Army without a central combat training methodology – that is, now no one knows what and how we teach soldiers and officers on the battlefield.”

So either Serdyukov’s shift to a new, younger, and more junior generation of military leaders isn’t working out, or there’s some other reason for bringing the older dudes back.  One obvious possibility would be to keep them from being openly and publicly critical of Putin’s regime and Serdyukov’s Defense Ministry on the eve of the presidential election.  Maybe some can be bought for a small supplement to their pensions.  A couple things are more certain.  If the old generals arrive, their former subordinates — now in charge — probably won’t like having them around.  The old guys probably won’t enjoy it much either.  And the whole scheme may not even get off the ground, or last very long if it does.

Special Steel

Yasen Rollout in June 2010

On Thursday, Argumenty nedeli published a short article citing a source claiming Russia’s specialty steel makers aren’t very interested in supplying metal for new submarines planned for the Navy.

Argumenty’s record is interesting.  Sometimes they go out on a limb and don’t quite get a story right; other times they nail it or catch the gist of what seems to be happening.  Can’t say which it is this time.  But the paper has a tradition of looking closely at different parts of defense industry.

The story maintains Sevmash is trying to scrape together the specialty steel needed for new boats, and is short of what it needs for Borey- and Yasen-class hulls.  The paper’s OPK source notes, of course, that those boats already launched were assembled from existing sections of older submarine classes.

The source concludes rather direly:

“If the issue of steel isn’t resolved, then you have to forget about further production of our missile-carrying submarines.”

He continues:

“. . . it’s unprofitable for suppliers to produce.  Their own cost is high, but the Defense Ministry is buying a miserly quantity and trying to drive down the price on the finished item and, accordingly, on the components.”

Argumenty ends its short piece by reminding readers about the conflict between the Defense Ministry and United Shipbuilding Corporation (OSK) on the one hand and Sevmash on the other over pricing and contracts which lasted most of 2011.

That year-long battle ended in mid-November when Prime Minister Putin supervised the signing of seven submarine contracts worth more than 280 billion rubles in Severodvinsk.  There aren’t precise details on what the deal covered except nuclear-powered submarines — the modernized proyekt 955 Borey and proyekt 885 Yasen (or 955A and Yasen-M).

If Argumenty’s story is accurate, it suggests future disputes over submarine production and profit margins for Sevmash’s sub-contractors and suppliers.  Perhaps Putin’s deal was only a temporary end to the government-industry conflict.

Makarov Reports to Public Chamber

Makarov Briefs the Public Chamber

According to Mil.ru, General Staff Chief, Army General Nikolay Makarov reported to the Public Chamber today as part of its hearings on “The New Profile of the Russian Army:  Results, Problems, Prospects.”  Here’s a sampling of what he discussed.

According to ITAR-TASS, Makarov said there are 186,400 contract servicemen today, and there will be 425,000 in 2016.  Recruiters will work throughout Russia starting next year.  Prospective contractees will train for three months before signing contracts.  Minimum pay will be 23,000 rubles.  Makarov said 2012 will be a test year, and from 2013, 50,000 contractees will be signed up each year.

RIA Novosti printed Makarov’s stark assessment of Russia’s conscript manpower.  The General Staff Chief said, of all men liable to conscription, only 11.7 percent can be called up, and 60 percent of them are excluded for health reasons.  So, he concludes:

“Therefore we are practically faced with the fact that there is almost no one to callup into the Armed Forces.”

He said Russia’s current mobilization reserve consists of 700,000 ex-conscripts. 

Makarov suggested increasing the prestige of military service through a veteran’s preference system.  Former soldiers and officers would enjoy a priority in hiring for government service, according to RIA Novosti.

ITAR-TASS quoted Makarov on cuts in military command and control organs.  He indicated they’ve been cut by a factor of four — from 51,000 to 13,435 personnel, and this process continues.  One-third of C2 organs were disbanded, and the rest reduced in size several times. 

He indicated that, when the Defense Ministry’s central apparatus numbered 51,000, it occupied more than 20 buildings in Moscow.  The apparat is now in a single building.  Other buildings were sold off.  But Makarov assured his audience the effectiveness of C2 hasn’t declined because of the reductions.

Regarding the new pay system for officers, RIA Novosti wrote that Makarov said higher pay basically implements the old Order No. 400 on premium pay, but officers will still have the chance to receive extra “stimulus” pay under the new system.

ITAR-TASS printed Makarov’s figures on efforts to get rid of old ammunition.  According to the General Staff Chief, at the start of the year, Russia had 119.5 million tons of old munitions to destroy, but now only 7 million.  Less than one percent could be dismantled; the vast majority had to be blown up.  Makarov indicated the number of ammunition storage sites will drop from 161 at present to about 30.

Makarov defended his past criticism of domestic weapons and equipment by giving more examples where foreign systems are superior to Russian ones (i.e. tanks, MLRS, satellites), according to ITAR-TASS.  The general argued for increasing the range and service life of systems as well as providing better protection for soldiers operating them.

RIA Novosti reported Makarov intends to continue pushing for lower prices on arms and equipment the military’s buying.  He intimated there will be a “specialized department” for negotiating with producers.  He claimed shipbuilding contracts with OSK were concluded on the Defense Ministry’s terms.  He added that the military has given Almaz-Antey two years to build two new factories to produce the S-500, according to RIA Novosti.

ITAR-TASS relayed Makarov’s remarks on Russia’s airfields.  Makarov indicated Russia has cut from 357 military airfields down to 26 that he describes as meeting world standards.  Russia has eight air bases. 

He said pilot flight hours are at 90 per year.  He said it’s planned to increase them to 130 next year, and then to 220 at some point.

ITAR-TASS and RIA Novosti carried the General Staff Chief’s comments about threats on Russia’s borders: 

“Under certain conditions, local and regional conflicts can grow into mass ones with the employment of nuclear weapons.”

“The conflict which could occur in connection with the withdrawal of American troops [from Afghanistan] could lead to a local, regional and even large-scale one.  And we have to be ready for it.”

Difficult Course to a Grand Fleet

Konstantin Bogdanov sees reason for pessimism when looking at the course ahead for rebuilding Russia’s fleet.  Writing in Friday’s Nezavisimoye voyennoye obozreniye, he says, despite an intention to spend 4.7 trillion rubles of the ten-year GPV on the Navy, there are technical challenges, clearly impractical schemes, and failures in what he calls the “organization-financial plan” ahead. 

Bogdanov provides us a handy review of the state of Russian shipbuilding.

He points first to OSK’s insistence on seeing new aircraft carriers (with nuclear-powered destroyers in their battle groups) on the Russian Navy’s horizon.  But Defense Minister Serdyukov has only a cold rebuff for the idea.  Early R&D into what a new carrier might look like is as far as he’s being willing to go.  It was made pretty clear that a carrier isn’t part of this GPV.

Bogdanov says OSK may be looking for work for the New-Admiralty Wharves it sees on Kotlin Island in the future.  The 30- to 60-billion-ruble shipyard could be ready in 2016.  An aircraft carrier project would help launch this idea.

Then Bogdanov turns to the Navy’s more immediate needs — frigates and corvettes.  

Proyekt 22350 frigates are needed by tens, if not 30, or even 40, of them.  But Northern Wharf is having trouble building them.  Lead unit Admiral of the Fleet of the Soviet Union Gorshkov was five years in construction, and its underway testing isn’t complete.  Fleet Admiral Kasatonov was laid down just about two years ago.  Its SAM system, Poliment-Redut with 9M96 missiles isn’t ready, and will have to be fitted right to finished frigates.  But Bogdanov sees the frigates’ VLS – the Multipurpose Ship Fire System (UKSK or УКСК) as a positive step.  It could fire antiship, antisubmarine, land-attack cruise missiles, torpedoes, and possibly SAMs.

When proyekt 22350 didn’t come along quickly, Bogdanov says, the Navy went for its own proyekt 11356M frigates like those being built for India.  But, he notes, Baltic Shipbuilding Plant “Yantar” in Kaliningrad isn’t having an easy time constructing them for its Indian and Russian customers.  There are delays in the Indian units, but Admiral Grigorovich and Admiral Essen have been laid down for Russia, and Admiral Makarov should join them soon.  The contract for a second batch of three was just signed.  They’re supposed to be “localized,” but may actually be more like the Indian versions.  They’re slightly cheaper than the proyekt 22350 at 10 billion vs. 16 billion rubles per ship.

Northern Wharf has the order for nine proyekt 20380 Steregushchiy-class corvettes (with the proyekt 22350 frigates this comes to more than 220 billion rubles).  Soobrazitelnyy (proyekt 20381) began sea trials this year, Boykiy was launched, Stoykiy is under construction, and Provornyy (proyekt 20385) was laid down.  Sovershennyy (proyekt 20380) remains under construction at Komsomolsk-na-Amure.  Bogdanov says the proyekt 20385 ships will have an eight-cell UKSK.

Bogdanov notes, however, that Northern Wharf’s production won’t be steady until its ownership issue is finally resolved.  If OSK takes over, this could have a good or bad effect on fulfilling defense orders, but the current financial questions around Northern Wharf are even worse.

Turning to submarines, Bogdanov believes the situation is more transparent, but there are still questions.

The SSBN picture is pretty clear.  Proyekt 955 Borey-class SSBNs finally have a missile that looks like it works.  Yuriy Dolgorukiy has fired it, and Aleksandr Nevskiy might this year.  Vladimir Monomakh is under construction, and they’re preparing production materials for Saint Nikolay.

The problem, he notes, is units 1 and 2 used sections and components of proyekt 971 and 949A submarines never built.  Units 3 and 4 will be built from scratch, and it’s too early to say how this will be reflected in their cost.  Bogdanov concludes another battle over inflated prices awaits, and there is, of course, still no 2011 contract with Sevmash.

It’s less clear with the multipurpose proyekt 885, Yasen-class, of which the Navy wants ten by 2020.  But these boats have been the focus of the Defense Ministry’s familiar complaint about unjustified price increases.  Unit 1 Severodvinsk was built from materials and resources on hand, and its rising price was frozen at 47 billion rubles in 2005.  The Defense Ministry says Sevmash wants 112 billion for unit 2 Kazan. 

Bogdanov thinks it’s hard to tell who’s justified here.  There is structural industrial inflation, and a higher costs could be the result of the frozen handover price on Severodvinsk.

Bogdanov mentions the thought given to cheaper attack boats like the Victor III or Akula, or proyekt 957 Kedr which never left the design phase.  The Yasen is intended to replace Soviet-era SSNs and SSGNs, but Bogdanov thinks it’s too complex and expensive to be built in the numbers Russia may need.  Twenty years ago the Russian Navy was planning for not less than 30 [sized of course against the U.S. fleet], and currently it has not more than 30 SSNs and SSGNs, and this is considered insufficient. 

Despite the uncertainty above, Bogdanov says one still hears talk about the need to develop a fifth generation submarine, but it’s unknown if there will be any development work on one.

 

Russian Military Power

Finland’s National Defense University has published a study entitled Russian Politico-Military Development and Finland.  If the media reporting is accurate, it may read a little like a latter-day Soviet Military Power.

Now few have read the document since there’s only a two-page English precis to go with press accounts of its contents.  Perhaps the entire thing will appear in English soon.

But here’s the gist. 

NATO and other Western countries believe war is an outdated idea, and U.S. power and interest in Europe are waning.  Russia, meanwhile, is seeking to revise the verdict of the Cold War, restore its great power status, and regain the Soviet sphere of influence.

It’s modernizing its crumbling armed forces with increasing investments [i.e. the 19-trillion-ruble State Program of Armaments or GPV 2011-2020].  The formation of the Unified Strategic Command (OSK) West (aka the new Western MD) has shifted the Russian Army’s center of gravity from Western Europe to the Northwest [at Finland].  And:

“The Russian armed forces are being improved by forming high-readiness forces with a capability of achieving operational results directly from peacetime employment.”

Finally, the study’s authors seem to see a Russian military resurgence that needs to be met by reinvigorating Finland’s territorial defense system:

“A large military reserve force is an indication of the will to defend the country, and has a major preventative value.”

It’s worth challenging three central propositions here.

Russia’s “increasing investments” in its military.  The Finnish report is reacting a priori to plans for large outlays for defense procurement that may or may not happen.  They authors are concerned about Russia’s intention to modernize, and what its forces might look like after modernization.  The current GPV could go the way of its predecessors; the first annual state defense order (GOZ) to fulfill the GPV isn’t exactly proceeding smoothly.  It’s important also to consider what’s being modernized.  In many cases, Moscow plans to replace arms and equipment from the 1980s and earlier, and not everything will be a world-class fourth- or fifth-generation weapons system.  Lots of the ”new” models will be based on late Soviet-era designs.  

The shift to the Northwest.  To some extent, there may be an effort to get forces closer to their likely theater of operations.  But hysterical assertions of vastly increased Russian forces shouldn’t be taken seriously.  It’s largely the same forces organized differently, and certainly not all opposite Finland.  The creation of OSK West or the Western MD was also an attempt to cut redundant command and staff echelons and get the Ground Troops out of the expensive environs of Moscow and Moscow Oblast.  One could easily argue the Defense Ministry’s placed a higher priority on forces in the Southern or Eastern MDs. 

The formation of high readiness units.  The report’s authors are quoted as saying Russia’s high readiness forces will be ready to leave garrison, and begin offensive operations in an hour, according to Vzglyad’s interpretation of a Russian-language media outlet in Estonia.  In reality, the forces are now more highly ready to depart the garrison and get combat orders.  No one can say what those orders will say.  Any combat missions will have to be carried out by troops who generally have less than six months in the army, and they’ll be lucky to execute a successful defensive operation.  Also, let’s hope the Finnish study says that this high readiness was really more about getting rid of useless, hollow, low readiness cadre units.

But, as Newsru cites a former deputy commander of the OGV(s) in the North Caucasus, it’s hardly possible to talk about Russian efforts to encircle anyone “in the condition which we’re in, and with those obvious army problems which we have.”

No one should misunderstand.  The Finns are to be admired for their perspicacity when it comes to Moscow.  They’re keen observers of what’s happening in Russia.  They have to be. 

But there’s obviously a huge issue of perspective.  Things look very different from Helsinki, Washington, Paris, London, and Berlin.  Russia’s capabilities are somewhat hyped in a public debate about what level of forces and readiness Finland needs to deter Russia.

But, all in all, it doesn’t help anyone in the long-term to inflate [re-inflate?] a Soviet-style military threat.  A realistic assessment of Russian capabilities and intentions will lead to practical, affordable measures to counter them.

GOZ War Winding Down?

Vedomosti’s Aleksey Nikolskiy sees a possible end to the conflict between the Defense Ministry and industry over the production of strategic nuclear systems.  His OSK source claims a multiyear Defense Ministry contract with Sevmash for proyekt 955 Borey-class SSBNs will be concluded in the coming week.  This would reportedly leave OSK with just one contract remaining to be completed.

Conclusion of a 40-billion-ruble contract for three proyekt 11356M frigates was announced Wednesday.

Vedomosti’s source said the Defense Ministry and OSK also finished a deal for proyekt 885 Yasen-class SSNs several days ago.  The paper once again cites Konstantin Makiyenko’s 500 billion ruble price tag for the new SSBNs and SSNs.

An industry source tells Vedomosti that all MIT’s ballistic missile contracts are complete.

While deals for renovating Russia’s strategic forces are apparently done at last, not all contracts for conventional armaments are finished, particularly those involving Rostekhnologii and its enterprises, according to the director of one of them.

What’s this mean?

The conclusion of submarine / SLBM / ICBM production contracts would be a relief to both sides since their absence has been the biggest GOZ news story.  If all this is done, or almost done, one would expect a major government or Defense Ministry press announcement soon.

If the submarine deals are worth 500 billion rubles, that is, once again, apparently closer to Defense Minister Serdyukov’s price than to OSK’s.

The proyekt 11356M frigates are updated Krivaks (or Talwars for India), and they aren’t exactly cheap.

The issue of incomplete contracts with Rostekhnologii’s enterprises is significant given the size and breadth of their work on weapons and military equipment.  People will ask which enterprises and systems are in question.  It also contradicts Serdyukov’s recent claims that only OSK deals needed to be inked, and implies there are lingering problems and issues in areas other than shipbuilding.

The GOZ This Week

Putin at the Conference (photo: RIA Novosti / Aleksey Nikolskiy)

At United Russia’s interregional conference in Cherepovets on Monday, Prime Minister Putin reported on the Defense Ministry’s failure to conclude all its GOZ contracts by his most recent September 1 deadline.  Putin said, despite Defense Minister Serdyukov’s assurances that only OSK contracts need to be finished, agreements with MIT and OAK are still not finalized.

According to RIA Novosti and the stenogram, Putin told the United Russia audience:

“Unfortunately, full agreement between the Defense Ministry and producers by 1 September didn’t happen, as we arranged.  Disagreements continue there in several areas.”

“I want to direct the attention of all sides to this process:  firstly, we have a colossal amount of money being allocated for strengthening the country’s defense capability.  We’ve generally never allocated such money, well, in Soviet times, when they threw everything at the defense sector, there were comparable figures, but in recent history never, — 20 trillion to 2020.  We are constrained in other places – very many – either to stop or cut our expenditures, but we need to do this to guarantee our defense capability.  But we don’t need to absorb these billions and trillions, we need to provide items quantitatively and qualitatively.”

“At the same time, of course, the profitability of enterprises should also be guaranteed.  The obvious fact is a minimum of 15 percent.  It’s necessary to get this profitability so there are resources for development, for worthy wages for the workers.  I hope that soon, in the course of a week, this process will be concluded in shipbuilding, in missiles, and in aviation.”

“In 2012, orders, advances and other payments should be sent in full measure to enterprises not later than March.  I’m counting on this very much.”

Vedomosti’s source close to the Defense Ministry admitted a week won’t be enough to close contracts worth 500 billion rubles with Sevmash and tens of billions with MIT.

Kommersant’s source familiar with the course of negotiations with MIT confirmed that the process isn’t complete.  Another source said a contract for Yak-130 trainers is almost complete, but one for MiG-29K fighters isn’t.  Konstantin Makiyenko told Vedomosti the MiG-29K doesn’t matter since the Kuznetsov aircraft carrier is headed for repairs.

Most striking is Putin’s call, a plea almost, not to “absorb” the GPV’s 20 trillion rubles without supplying the new weapons and equipment the army needs.  He’s well aware the situation could be like water in sand.

The GOZ Last Week (Part I)

Let’s start with the news.  In short, Defense Minister Serdyukov told the press all GOZ-2011 contracts, except ones with OSK, were signed.  But most news outlets concluded he failed to meet Prime Minister Putin’s August 31 deadline for finishing the contracting process.

ITAR-TASS reported the Defense Ministry signed its fourth contract with OSK on August 29.  It was with Baltic Shipbuilding Factory “Yantar” for three Proyekt 11356M frigates.  Kommersant reported others are with Admiralty for three Proyekt 636 diesel-electric submarines and with Zvezda Shipyard in the Far East for nuclear submarine (probably OSCAR II-class) repairs and modernization.

But the largest and most important contracts with Sevmash for Proyekt 955 Borey-class SSBN and Proyekt 885 Yasen-class SSN production are still not signed.  The contract is supposed to cover two of the former and one of the latter that are already (or almost) complete.  Kommersant says the contracting delay means a fourth 955 and second 885 won’t be laid down until sometime in 2012.

ITAR-TASS concluded there are still differences over pricing although there is progress in the negotiations.  The wire service writes that Sevmash refuses to make concessions taking below a minimum profitability level, while the Defense Ministry calls price increases unjustifiable, and says it will only pay for concrete items regardless of the producer’s profitability.

On September 1, ITAR-TASS reported Serdyukov’s announcement that, on the whole, the Prime Minister’s order to conclude all GOZ contracts had been fulfilled.  It provided some choppy, weaseling quotes from Serdyukov:

“We are reprogramming for other requirements – precision weapons mainly, aviation, air defense . . . some suppliers because of some obstacles can’t provide their products.  . . . now we’re making changes – on the order of 30 billion [rubles].  . . . in essence, this is a formality  . . . .  Essentially, we’ve been through the entire agreed part.  The signing itself occurred yesterday-day before yesterday.  Only the United Shipbuilding Corporation contract remains.  Perhaps that’s all.”

Kommersant added Serdyukov’s comment that:

“We, unfortunately, can’t accept the figures which industry gives us.  For the most part, they are simply unjustified.”

Kommersant’s sources maintain, in addition to OSK, contracting with OAK and MIT remains incomplete, and no one’s willing to guess when this still-difficult process will end.

On September 2, Kommersant’s source said part of MIT’s contracts are done, but it would be premature to say the process is complete.

ITAR-TASS added that Sevmash’s contract is now supposed to be signed in mid-September.  The factory reportedly will agree to current prices for its submarines in exchange for some kind of “coefficient” to offset their rising costs starting in 2013.  The wire service also claimed there are now 6 of 13 OSK contracts signed.  And it put the cost of a Borey-class SSBN at a somewhat hard-to-believe 23 billion rubles.  OAK and MIT sources also told ITAR-TASS their contracts aren’t complete.

Vedomosti cited Konstantin Makiyenko on long-term submarine production costing 500 billion rubles.  If that’s eight Borey- and eight Yasen-class boats, it’s a $17 billion contract, basically $1 billion per submarine.  Thirty billion rubles a boat is a lot closer to 23 billion than the 47 or 112 billion that Serdyukov complained about in July.

Despite indications to the contrary, one has to wonder if Serdyukov isn’t very slowly winning his battle with the OPK.  But ultimately, it’s hard to say before we see what gets delivered, when, and how good it is.

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?