Tag Archives: Rosoboroneksport

What’s It Cost? (Addendum)

There’s reason this week to return to the issue of what the S-400 system costs. Specifically, what it might cost China.

Vedomosti reported Wednesday that Russia has signed a deal with China to sell it the S-400 / Triumf.

The business daily’s defense industry source claims the agreement inked by Rosoboroneksport and the Chinese military will send off not less than six battalions of the advanced SAM system for more than $3 billion.

That would be at least $500 million per battalion (against the previously ventured guess of about $320 million).  Or in excess of $80 million per TEL.

The Russian Defense Ministry has consistently maintained that the S-400 won’t go abroad before 2016.

Vedomosti notes China’s last big purchase was 15 battalions of S-300PMU-2 completed in 2010.

RIA Novosti pretty quickly reported that an official of Russia’s Federal Service for Military-Technical Cooperation (FSVTS) said an S-400 contract hadn’t been signed with China as yet.

Rosoboroneksport and Almaz-Antey just declined comment.

Shoygu’s Inherited Dilemmas

Shoygu and Serdyukov

Shoygu and Serdyukov

Before Russia’s holiday topor fully enshrouded military commentators, Gazeta’s Sergey Smirnov published an interesting piece on the situation in which Defense Minister Shoygu finds himself.  There isn’t a lot of great comment on Shoygu yet, but it might be cranking up.  Smirnov looks at how the popular Shoygu could mar his well-regarded career while tackling the same accumulated military structural problems that faced his predecessor.  He writes about possible bureaucratic and personal conflicts with Sergey Ivanov, Sergey Chemezov, and Dmitriy Rogozin.

Leftover Problem One:  Contract Service

According to Smirnov, Russia’s military added virtually no contractees in 2012, but still has to recruit 50,000 of them every year until 2017 to reach its assigned target of 425,000.  The obstacles are the same.  Eighty percent of them don’t sign a second contract because the army doesn’t offer living conditions more attractive than barracks.  Undermanning is a related problem.  Smirnov says the military’s manpower is certainly below 800,000.  And Shoygu may have to acknowledge this problem.

Leftover Problem Two:  Bureaucratic Competitors

Smirnov describes Serdyukov’s conflict with Rogozin over the OPK and its production for the military.  He claims the “Petersburg group” of Sergey Ivanov, Chemezov, and Viktor Ivanov wanted one of its guys to take Serdyukov’s place at the Defense Ministry.  But Putin didn’t want to strengthen them, so he took the neutral figure Shoygu.

According to Smirnov, Serdyukov wanted out, and wanted to head a new arms exporting corporation to replace Rosoboroneksport.  That, of course, conflicted directly with Chemezov and the interests of the “Petersburgers.”  And Smirnov makes the interesting comment:

“But that appointment [Serdyukov to head a new arms exporter] didn’t happen precisely because of the big criminal cases which arose not by accident.”

Was Serdyukov done in for overreaching rather than for corruption scandals in the Defense Ministry?

Shoygu, writes Smirnov, was not thrilled at the prospect of continuing the “not very popular” army reforms.  Smirnov is left at the same point as everyone else:  will it be a “serious revision” of Serdyukov’s reforms or a “course correction?”

There’s lots of talk to indicate the former rather than the latter.  The new VVS CINC has bloviated about returning to one regiment per airfield instead of large, consolidated air bases.  He claims the Krasnodar, Syzran, and Chelyabinsk Aviation Schools will be reestablished.  He babbles about going to a three-service structure and retaking VVKO.  Shoygu will allow Suvorov and Nakhimov cadets to march in the May 9 Victory Parade.  He stopped the Military-Medical Academy’s move out of the center of Piter.  Other commonly mentioned possible revisions are returning to six MDs and transferring the Main Navy Staff back to Moscow.

Leftover Problem Three:  Outsourcing

Serdyukov’s outsourcing policy led to scandals, and didn’t work for the Russian military’s remote bases.  Gazeta’s Defense Ministry sources say the structure and activity of Oboronservis will likely be greatly modified or, less likely, Oboronservis will be completely disbanded if some workable entity can take its place.

Leftover Problem Four:  Military Towns

The military wants municipal authorities to take over the vast majority (70-90 percent) of a huge number of old military towns (that once numbered 23,000) no longer needed by Armed Forces units.  The army only wants some 200 of them now.

The local government wants the military to provide compensation to restore and support these towns, but the latter doesn’t have the funds.  The army is laying out billions of rubles in the next three years, but only to outfit 100 military towns it wants to use.  There is also the problem of who gets, or has the power to give away, legal title to this military property.

Leftover Problem Five:  Officer Housing

Shoygu, says Smirnov, has to solve the unresolved problem of officer housing, especially for officers “left at disposition” of their commanders (i.e. not retired but lacking duty posts and apartments).  The Defense Ministry still doesn’t know how many need housing.  Smirnov writes:

“Despite the fact that the military department daily reports on the handover of apartments, the line of officers retired from the army who are awaiting receipt of living space is not becoming smaller.  At present from 80 to 150 [thousand] former officers are awaiting the presentation of housing.”

More than enough lingering headaches for one Defense Minister.

Done Deal

Mistral Contract Signing

The deal for the first two Mistrals, that is.  With President Medvedev looking on, Rosoboroneksport’s Anatoliy Isaykin and DCNS’ Patrick Bouasie signed the contract at the Petersburg International Economic Forum.  RIA Novosti quoted Isaykin on the €1.2 billion price.  Work can begin after the Russians pay an advance (Versii.com repeated a rumor that the French wanted 80 percent prepayment). 

RIA Novosti also noted Isaykin saying the Russian Mistrals will be identical to French units except they’ll have reinforced hulls and flight decks to handle Russia’s northern waters, and its heavier helicopters.  Isaykin said Russia has an option for two more Mistrals to be built in Russia.  But it’s up to the Defense Ministry to get money for them in the Gosoboronzakaz.

ITAR-TASS made the point that the Senit 9 tactical command and control system, and its documentation, are part of the just-inked deal.  OSK General Director Roman Trotsenko told Rossiya-24, “The French side has gone to an unprecedented level of technology transfer and is transferring technologies, including the programming source codes for battle information-management systems, communications systems.”

Kommersant reported the first Russian unit is expected in 36 months, the second in 48, or 2014 and 2015 respectively.   It cited Trotsenko on Russia contributing up to 40 percent of the work on the two ships to be built at STX in Saint-Nazaire.

While the Mistrals will come with French electronics, the Russians will have the task of outfitting the ships with their own weapons, helicopters, amphibious assault craft, and other systems.

Radio Svoboda asked for some thoughts about the occasion.  NVO’s Viktor Litovkin opined that these expeditionary warfare ships don’t make much sense under Russia’s current military doctrine or in the context of defending the Kurils.  Pavel Felgengauer said the Mistrals may be appropriate for fighting enemies with weak air and naval forces, but Russia’s leadership hasn’t specified who they might be.  Viktor Alksnis complained that they are another stake in the heart of Russia’s dying OPK.  He calls for Russia to modernize its own arms production base instead of buying abroad.  He also fears the French could put an “off switch” in the ships’ C2 systems, effectively turning them into “target barges.”

Aleksandr Golts supports the deal because Russian shipbuilders will participate and get new technologies, but he also because he favors the emphasis on force projection rather than the Navy’s pro-SSBN mission.

Navy CINC, Admiral Vladimir Vysotskiy made some appropriately effusive comments about the capabilities and prospects for employing the Mistrals.

Mistral in Piter (photo: Izvestiya)

Defense Minister Serdyukov was less willing to elaborate saying:

“Let’s build them first, and then we’ll think about where to deploy them.  We have plans to employ them, when they’re closer to ready we’ll disclose them.”

In Moskovskiy komsomolets, Olga Bozhyeva writes that the Mistral deal does several things for Moscow.  An arms sale like this implies a level of acceptance by Europe, it divides old and new Europeans, and it serves as a wedge between the U.S. and its European allies.  She notes that Russian military leaders have kept pretty quiet about Mistral.  And Bozhyeva concludes, overall, it’s a bad deal for Russia.  It’s a high price tag for something that’s not a priority for the fleet.  Its missions are not well thought out.  A relatively old system like Senit 9 won’t help Russia catch up very much.  And Russia didn’t seriously consider Dutch, Spanish, or South Korean shipyards to drive the French price down, but:

“. . . we would have to exclude a certain corruption component, which, in the opinion of many experts, is included in the Russo-French contract (but it’s better to leave this subject to the procuracy).”

As is often the case, Nezavisimaya gazeta sums it all up best:

“The Glavkom [CINC] ought to specify the countries on which our Navy intend to ‘project the power’ of the LHD.  Judging by the fact that it’s intended to deploy the first two ships in the Pacific Fleet, for the defense of the Kuril Islands (can it really be that someone intends to attack them?), then Japan—ally of the U.S., China—our strategic partner or North and South Korea could be the object of this projection.  Again with Seoul it’s somehow uncomfortable.  It’s also an ally of Washington.  And don’t mention projecting power on Pyongyang, apparently, even the Americans aren’t risking doing this.”

“And not everything’s clear with our deck-based aviation for ‘Mistral.’  Our attack helicopters, Mi-24, Mi-28N, Ka-52, and naval Ka-27, Ka-28, Ka-31 are bigger (higher) in their dimensions than French ones, so it’s necessary to redesign the LHD’s hangar deck for them.  This means extra expenditures of financial resources, as well as a change of extremely weak armament for this ship.  Including even air defense.  There are also other problems.  Like the construction of a shore base for the deployment of ‘Mistrals’ on the country’s eastern shore, on the Pacific Ocean.  It still isn’t there.  But to keep such a huge hull tied up at anchor in Petr Velikiy Gulf or in other Far Eastern bays, like it was with domestic Proyekt 1123 class helicopter carriers ‘Moskva’ and ‘Leningrad,’ means to expend their service life in vain and kill it without reason.”

“In a word, the French LHDs, which should enter our Navy’s inventory in 2014 and 2015, could be not a reinforcement of our groupings of ships, which, by the way, also still need to be built up, but a headache for Russian admirals.”

Mistral Endgame?

Mistral (photo: ITAR-TASS)

Maybe.  Maybe not. 

The Mistral contract endgame may in fact be upon us.  But some major players have warned (more than once) of a protracted negotiating process.

Kommersant reports Rosoboroneksport and DCNS signed a “contract” on June 10 for the first two Mistral units, according to a source familiar with the course of negotiations. 

After meeting President Medvedev at the G8 summit on May 26, French President Sarkozy said a “contract” would be signed in 15 days [that would have been June 10].  Now Sarkozy also said in late May that a Mistral “contract” would be signed on June 21 when Prime Minister Putin visits France.  Kommersant suggests this could be an official unveiling of whatever was signed on June 10.  But an RF government source said this isn’t planned, according to ITAR-TASS

As for the terms and price . . . the Russians were insisting that the Mistral come equipped with the SENIT 9 tactical combat information system and licensed rights for €980 million, but the French were saying no such tech transfer for €1.15 billion.  Also according to this story, the French don’t intend to provide SIC-21 in the Mistral package.

In contrast to Kommersant, RIA Novosti says what was signed last week was no more than a “protocol of intent” to sign a “contract.”  The news agency said the date and place for the “contract” signing remains up in the air, but it could be the international naval exhibition in St. Petersburg from June 29 to July 3.

It also says the price will be between €1 and €1.2 billion, and the French military still opposes giving SENIT 9 to Russia.

Rosoboroneksport’s press-service denied that a “contract” has been signed, and told media outlets the negotiations are in their concluding phase, and a Mistral contract is in the process of “technical formation.”

Utro.ru sums up what many may think about acquiring four units of Mistral:

“Military experts still don’t know precisely why Russian sailors need them, since all of two [sic] ships will scarcely substantially change the situation in the fleet.  It’s not excluded that Russia, first and foremost, wants the technologies the French use in constructing ‘Mistrals.’”

It’s also not excluded that perhaps some involved want the deal itself, commissions, bribes, and kickbacks, more than they want the ships.

Smiling, But Not About Mistral

Anatoliy Isaykin

FGUP Rosoboroneksport General Director Anatoliy Isaykin is smiling, but not about Mistral.

In fact, Isaykin’s poured cold water on thoughts of quickly resolving the Russo-French impasse over these helicopter carriers.

As if to answer anyone looking for a date when negotiations will be completed,  Voyenno-promyshlennyy kuryer quotes Isaykin:

“Dates are guesses.  Such contracts, when we’re talking hundreds of millions of euros, — this is years and years of negotiations.  It’s simply funny to expect we’ll conclude such a contract over several months.”

Of the complex and lengthy contracting process, VPK says don’t expect a detailed contract to be signed earlier than next year.  The political agreement on the acquisition was one thing, but now there’s routine pre-contract work which takes months, if not years, agreeing step-by-step on hundreds of points and compromises.

Recall early this year Isaykin was very reserved about the political agreement on Mistral, reminding the press it contained nothing about costs or timeframes.

Rosoboronpostavka Understaffed, Ineffective?

This author has written several times that Rosoboronpostavka – the Federal Agency for Supplies of Armaments, Military, Special Equipment and Material Resources – is supposed to be key to making the GOZ and GPV work.  It’s supposed to take responsibility for negotiating, contracting and taking deliveries out of the hands of military men, so they aren’t tempted by bribes and kickbacks from manufacturers, and can concentrate on the specific requirements for weapons and equipment that needs to be made and bought.

In mid-2010, erstwhile Putin ally Viktor Cherkesov (who once warned of infighting and corruption among high-ranking security service veterans) was unceremoniously booted from Rosoboronpostavka.  President Dmitriy Medvedev criticized the agency (and Cherkesov) for not accomplishing much, and he moved it under the Defense Ministry, declaring that it would become a reinvigorated part of the effort to rearm the Armed Forces during the next decade.

Nadezhda Sinikova

With great fanfare, Defense Minister Serdyukov’s confidant, Nadezhda Sinikova took over at Rosoboronpostavka.  This all fit pretty well with Serdyukov’s general intent – to establish strict control over the Defense Ministry’s “financial flows,” and to civilianize Defense Ministry functions that aren’t clearly military in nature.

It’s seemed that Sinikova’s Rosoboronpostavka has remained stillborn, much like it was prior to mid-2010.  At least, nothing was heard from or about it until a 3 March article in Rosbalt.ru.  Now we have to be wary — Cherkesov’s wife, Natalya Chaplina is Rosbalt’s General Director.  Be that as it may, the article seems pretty solid.

According to Rosbalt.ru, Rosstat published data on salaries in the federal executive organs, and experts were surprised the highest average paychecks — 135,000 rubles per month or more than 1.6 million rubles per year — are in Rosoboronpostavka, an organization not even really functioning.  The average 12-month federal salary is 728,000 rubles, about 60,000 per month.
 
Rosoboronpostavka is working only in a technical sense.  The different power ministries and departments haven’t hurried to hand over authority to conclude contracts for them, and they’ve tried to sabotage the agency’s work, according to Igor Korotchenko. 

Rosoboronpostavka’s supposed to have 1,100 professional employees, 980 in the Moscow headquarters.  A source close to Rosoboronpostavka claims that, prior to mid-2010, not more than 10 people worked for the agency, and it didn’t have its own office.  They worked in a room in Rosoboroneksport on Moscow’s Ozerkovskiy Embankment. 

The Rosstat data says Rosoboronpostavka has the lowest staffing level of any executive structure, only 15.5 percent or 152 people against an authorized level of 980.
 
Before the mid-2010 changes, Rosoboronpostavka salaries had been 50-70,000 per month; the director got 70,000 and he reported to Prime Minister Putin.  Now, with its status downgraded and reporting to the Defense Minister, the agency’s pay has increased several times.
 
Experts think the pay’s kept high because the country’s leadership wants to deter corruption in the state defense order (GOZ), but deputy editor-in-chief  the journal “Armaments and Economics,” Professor Sergey Vikulov says this high pay comes “from the naive belief of our leaders that high pay will deter bureaucrats from bribery.” 

One notes Vikulov’s journal is the professional publication of the 46th TsNII, not exactly an objective voice since it used to form the GOZ (and probably collect the bribes) pretty autonomously before Rosoboronpostavka was established.
 
Korotchenko believes even bureaucrats who earn millions will be tempted to “saw off” part of the billion-ruble contracts they oversee.  He goes on to say  corruption in the Defense Ministry directorates occupied with the GOZ and the OPK already caused the failure of the two previous state programs of armaments (GPVs).
 
Rosbalt.ru also claims the Audit Chamber has said GOZ-2009 was only 50 percent completed.  Then it cites NG‘s (Mukhin’s) 70 percent fulfillment figure for GOZ-2010.

Although one expert hopes higher pay at the agency is tied to greater productivity in processing contracts, a Rosbalt.ru source says as before only a small number of contracts are being completed.  The expert is just about ready to give up searching for a logical explanation for the lack of elementary order in Russia’s management structures. 

But Korotchenko thinks it might be early to judge Rosoboronpostavka, since it’s still establishing itself.  Perhaps at the end of this year or the beginning of next, it will take over all power ministry arms and equipment procurement contracting, he says.

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.