"Russian Expo Arms – 2009": casting-off of civilians begins

13.07.2009 — Analysis

Having visited the Nizhniy Tagil Arms Exhibition, the RusBusinessNews observer established that at the time of economic crisis the companies of the Russian military industrial complex loose orders, primarily, for its non-military products.

The 7th International Exhibition of Arms, Military Equipment and Ammunition Russian Expo Arms held in Nizhniy Tagil 8-11 July presented products of 335 companies from 30 Russian Regions. This event, ultimately, was going to pronounce the diagnosis for the Russian defence industry which is trying to survive the world economic crisis. I would like to state the fact here, that the crisis affected the most those defence companies among whose products the non-military goods make up a significant share.

Granted, it does contradict the laws market economy, as a rule, companies which are most diversified prove to be the most robust in difficult economic circumstances. However, the market for "peace" products is low globally across the whole range of industries, from medical equipment to construction machinery.

The most notorious example is the situation at OAO NPK Uralvagonzavod (Ural Railway Car Plant). About 70% of the production at this plant was engaged in making railway carriages. Orders from OAO Russian Railways practically ceased since the beginning of 2009. As a result the total Uralvagonzavod's debt amounts to almost 39 billion roubles. The situation at other defence companies is less critical but the tendency is the same.

"The share of non-military products made made by our company before crisis amounted to about 50%, today it has dropped, - Sergey Oksak, the Deputy Director of OAO Kurganmashzavod for Sales of Special Machinery, told RusBusinessNews. - This is caused by the current low demand for construction machinery and loaders which we make".

"Crisis has affected our non-military production, - agrees with him Mikhail Gelasimov, the Head of Marketing of Ekaterinburg-based FGUP N. Semikhatov NPO Automation. - we produce the control information unit for animal feed harvesters for Rostselmash. We have been working for Rostov for three years but since the beginning of 2009 the problems with orders began.

The paradox is in that the authority figures are trying to convince the defence companies to convert their production even more. "The Government pays very serious attention to the repositioning of enterprises of our defence industry complex on the civil market. This is because the orders from the State will not be enough for the sufficient workload and profitability of an enterprise. It is simply impossible in the current situation" - said Yuri Borisov, the Deputy Minister of Industry and Trade of Russian Federation, who came to the exhibition in Nizhniy Tagil.

It is beyond doubt that the figures for the military orders from the State are growing, regardless of the crisis. The Ministry of Defence stopped purchasing one off units of tanks and artillery systems for the Russian Army, they purchase complete squadrons and batteries today. By 2012 40% of all arms and military machines in the Russian army must be updated to current models, this figure must reach 70-80% by 2016. However, the pretty picture of the military orders from the State is spoilt by not only the lack of budget money but by the notorious red tape as well.

"According to the 2008 figures almost 10 billion roubles allocated from the federal budget for the purchasing of weapons for the army was not asked for, that is the money was not needed, - this sensational statement to RusBusinessNews was made by Viktor Ozerov, the Chairman of the Defence and Security Committee of the Federation Council of the RF. - It happened because entering contractual relationships takes much too long a time. A notification has to be published, proposals collected, then competitions have to be conducted... In order to avoid the same situation in the future, our legislation has to be improved, if there is only one manufacturer of a certain type of arms or equipment, what would be the meaning in announcing the competition and wait for two months for proposals to come?".

However, even entering into contracts with the State for military orders does not save the situation today. For instance, OAO Kurganmashzavod supplies personnel carriers (BMP-3) to the Russian Army, as well as modernized BMP-2 and BMP-3 with improved characteristics of the personnel protection and with new thermal sights. "The Ministry of Defence of the Russian Federation does not pay us on time, the terms of settling accounts with plans have worsened, there are problems with suppliers", says Sergey Oksak.

Same as in the nineties, the Governor of the Sverdlovsk Oblast Eduard Rossel make the appeal to the Urals defence companies, do not wait for the orders from the State, if you do get it, treat as a gift from fate, and convert your facilities for the production of non-military goods. One has to remember the story from the same nineties. A director of one of defence plants gave Victor Chernomyrdin a handgun and half jokingly said "Viktor Stepanovich, whatever we do trying to make non-military products, we always end up making arms anyway". A solution can be found in the production of some sort of a hybrid product - non-military in its use, but based on the state of the art military technologies. This will allow the enterprise not to loose the expertise and at the same time successfully compete with foreign manufacturers.

For instance, the N. Semikhatov NPO Automation is successfully working within the framework of the Russian-European projects on the launch of Soyuz-TM spacecraft and cargo craft Progress from the Kuru Space Center (French Guiana). The enterprise is developing the on-ship and ground control navigation systems. The French are entirely satisfied with the collaboration with the Russian party, they know everyone working in Kuru personally. More than a half of the employees of NPO Automation are engaged in the development, support and the making of the products within this project altogether" said Mikhail Gelasimov.

Another illustrative example was given to RusBusinessNews by the Director General of JSC Ural Priborostroitelny Plant (priborostroitelny - Russian for "instrument-making") Georgiy Vasilyev. His enterprise is trying to start making "secondary" civil products - mechanical lung ventilation machines, ultrasound scanners, electricity meters. However, all these products in the conditions of the crisis remain unsold in the plant's warehouse. "Instead, we have more orders for our key products - gyroscopic navigation equipment which helps aircraft to orient in space. Amongst our buyers we have Russian helicopter and airplane building companies which are very strictly checked by the prosecutor's office for the possible use of pirate equipment" he concluded.

The slogan to smelt tanks into pots and pans today does not work, not only due to the national security considerations, but through the purely economic reasons as well. The strengthening competition makes the defence companies produce hi-tech goods with minimal production costs. This level can only be achieved on the already established capacities designed for the manufacturing of military products.

Pavel Kober