Interview of FSMTC of Russia Deputy Director M.V. Petukhov to ARMS-TASS Agency

This December, the Federal Service for Military-Technical Cooperation (FSMTC of Russia) will celebrate its 10th anniversary. A period is rather short, but we have resolved a number of critical issues: volumes of deliveries of Russian military products (MPP) abroad have significantly grown, portfolio of contract obligations has increased; a number of major buyers of Russian MPP has grown; geography of Russian export MPP has diversified, Russia returns to regional arms markets which it has left or has been forced out by competitors in the aftermath of the collapse of the USSR; we are at the transition stage from performance of contracts for deliveries of unbundled arms to integrated package solutions aimed at maintaining military security of importer countries, and we extpand practice of joint international projects.

In particular, this year, the volume of Russian export MPP can exceed 9 billion USD, and the volume of already concluded short-term contracts is 46 billion USD. By these indicators, Russia is among world leaders in MPP trade. According to the data of the long-term forecast of MTC development and with an optimistic scenario of economy development, in the next 5 years, the volume of MPP export will vary between 9 – 9.5 billion USD. With the worst scenario, we may expect slump by about one third. But so far, considering large export contracts concluded in the end of 2009, we can count on a stable level of export volume for the next 2 - 3 years.

As to assessing the structure of portfolio of orders by the geography of deliveries, in the recent years, it has undergone a dramatic change. Over a long period, major volumes of Russian export have been directed to two countries - China and India with 60 to 80 percent of all Russian deliveries. 2006 saw a radical breakthrough in the formation of a balanced geographical structure of deliveries with concluding a series of contracts with Venezuela, and a large package agreement for deliveries of different types of arms and military materiel to Algeria. By the end of this decade, Vietnam shows a tendency of a substantial growth of purchases of Russian products, there are good chances of a renewal of a large-scale MTC with Libya, Russia maintains and expands presence in the markets of other states of the Near and Middle East.

At present, India, our traditional partner in the south of the Central Asia, is a leader in the number of contracts, followed by the countries of the South America (Venezuela, Brazil, Peru), then, countries of North Africa (Algeria, Libya), South East Asia (Vietnam, Myanmar), Western Asia (Syria, the United Arab Emirates, Kuwait, Jordan, Turkey, Azerbaijan).

By kinds of arms, the structure of portfolio of orders remained, by far, unchanged: aircraft materiel is at the top of the list — approximately 50 percent, then, naval ships, ADMS, and arms of land forces. By types of arms - deliveries of arms and military materiel (AMM) account for 60 percent, delivery of components, spare parts, units, and auxiliaries – 30 percent, services– 10 percent.

MTC affiliated entities are responsible for more than 6 billion USD out of the current total amount of portfolio of orders, including deliveries of spare parts and units, repair and upgrading services for earlier delivered AMM.

Taking into account current threats in the multi-polar world order, necessity to maintain national security has strengthened ambitions of a number of Latin America countries buying MPP and training national military staff in the USA for a long period to diversify sources of AMM delivery. Now, a majority of the Latin American countries seek to reduce cooperation with the USA and apply for MPP purchases to other states. Such developments created favorable conditions for returning of Russia to the Latin American arms market and establishing mutually advantageous relations, including those in the military and technical area. The volume of Russian MPP export to this region has been steadily growing. Russian companies succeeded in entering markets earlier beyond their reach (Argentina, Brazil, and Chile). Today, Mexico, Colombia, traditional partners of the USA, operate Russian made equipment.

At present, joint development, manufacture and upgrading of AMM has become a universal tendency, characteristic, first of all, for industrially developed countries, and successfully adopted by our traditional partners — India and China. Based on the experience of a number of states, we may say that such approach promotes introduction of advanced technologies into military manufacturing and creation of robust technological base in interests of the national defense industry.

Considering an extremely high rate of development of the economy and manufacturing industry in China, a powerful state support and huge potential capabilities of Chinese defense enterprises, they are fully capable of adopting high technologies. On this assumption, the Russian-Chinese cooperation should be based on strict observance of long-term interests of each of the parties taking into account rates of developing new technologies and AMM versions by the national military-industrial complex.

In December 2008, Russia and China signed the Agreement on intellectual property protection in the area of military and technical cooperation enabling to develop new forms of bilateral collaboration in interests of both of the parties. To facilitate quick response actions, FSMTC of Russia appointed its representative in Beijing in September 2009.

As to MTC with India, during the Russian-Indian summit, the Intergovernmental Agreement on the military and technical cooperation program by 2020 was signed on 7 December 2009. Its overriding principles are to jointly develop high-tech MPP versions, upgrade Russian made AMM in services with the Indian Army, including licensed equipment, and carry out joint research in the military and technical area in interests of both of the parties. Today, we are ready to start developing a multifunction fighter and a multirole transport aircraft jointly with the Indian partners. All our projects on hi-tech MPP provide not only joint developments, but also co-production, including in interests of third countries. We are at the transition stage from a «buyer - seller» principle to an equal partnership in MTC-based relationships with India.

We are keen on moving forward MTC with the NATO in the area of joint developments of licensed manufacture. There are prospects for establishing strong business relationships with countries of the Alliance, above all, in upgrading arms of the Russian/Soviet manufacture, standardizing and codifying, managing a life cycle of products, and improving their quality and reliability. MTC with the CIS countries is high on the agenda. Now, the volume of MPP export to the CIS countries is not impressive, as the world economic crisis has adversely affected financial capabilities of these countries, including supplies to the national armed forces. At the same time, MTC with the CIS countries is not limited only to AMM deliveries and has a dynamic, forward-looking nature.

Now, our partners in the CIS countries pursue an objective to supply the national armed forces with AMM models meeting up-to-date requirements for defense protection. Developing and manufacturing such arms will require to pool efforts in long-term research, engineering, and manufacture. To this end, we are involved in building relevant international legal framework.

In particular, CSTO has adopted a legal instrument setting out the procedure for drafting, and financing CSTO target interstate programs under which a draft Program for military and technical cooperation between CSTO member states until 2015 is in the pipeline.

The Interstate Agreement on fundamentals of MTC between CSTO member states plays an important role. Based on this Agreement, AMM deliveries are made under favorable terms, and the Government of the Russian Federation has set the procedure for such deliveries. MPP deliveries under this Agreement do not pursue profit earning, but collective security of all CSTO countries, including Russia. Considering MTC in CSTO and the CIS format, on the whole, we can speak with confidence, that it has not only good prospects, but plays an important role in maintaining defense capacity and security of all member states.

MTC is subject to the state monopoly, securing a reliable control on the part of the state over foreign trade operations with MPP. All arms supply transactions are to be concluded under instructions of FSMTC of Russia and under its control, as well as instructions of other federal government authorities. So, for example, draft decisions on MPP delivery will be agreed upon with the Defense Ministry of Russia and the Ministry of Foreign Affairs of Russia, and, if necessary, with other governmental authorities.

The Russian Federation does not deliver weapons to "problem" countries and strictly observes relevant resolutions of the UN Security Council. Besides, MPP are exported only for the state needs, i.e. authorities and agencies of foreign states taking up obligations to use bought MPP of the Russian manufacture for declared purposes and preclude their re-export or transfer to third countries without the consent of the Russian Federation act as end users.

And, at last, the legislation of the Russian Federation provides control by authorities of foreign states over performance of obligations on target use of certain types of MPP delivered from the Russian Federation, including most "sensitive" types of arms in terms of their use by terrorists, such as MANPADS, anti-tank weapons, hand-held anti-tank grenade launchers, and jet infantry flame throwers. The control procedure is established by Order of the Russian Federation Government dated 6 October 2006 No. 604.

It is worth noting that recently, we have been facing problems limiting MPP export in terms of manufacture and technologies, including inadequate quality of products, non-performance of contractual obligations, continuing growth of local ex-works prices for raw materials, materials, spare parts, and components. Most of these problems directly connected with a distressed financial and economic condition and available equipment of many enterprises and organizations of Russian MIC have a system-based nature and are inherent in the current Russian manufacturing industry, in whole.

Export MPP quality is especially relevant in the market conditions when high quality has effectively become the main condition for winning and retaining leading positions in all world markets, including the arms market. To date, quality issues are focal ones not only for FSMTC of Russia, but also for the top political and military leadership. Maintaining an appropriate quality of products is a system-based challenge to the national manufacturing industry, in whole, and MIC, in particular. This problem is connected, above all, with an actual condition of many industrial enterprises, loss of manufacturing technologies, and a shortage of qualified personnel. Comprehensive efforts of state authorities, integrated structures, organizations, and MIC enterprises are required to deal with that challenge. Measures recently taken by the Russian Government give hopes for a positive solution in the near term.

At present, MPP export is inseparably linked with internal defense production capacities. A great volume of export obligations combined with the beginning of a large-scale reengineering of the Russian Armed Forces have provided workloads for a number of enterprises for 5 - 7 years ahead, and, practically, they operate at the limits of their capacities. Therefore, in current conditions, when manufacturing technologies are continuously upgraded, to preserve the status of a world leading AMM exporter, Russia should take urgent measures to revamp capacities of MIC enterprises, and cut down production costs.

Today, it is especially important that the State attaches particular importance to supplying the Russian Armed Forces with advanced arms. Therefore, the volume of the public defense order has considerably grown, a share of funding procurement of military materiel being increased. It has a positive impact on the condition of MIC enterprises and creates the basis for developing and manufacturing of advanced arms.

Specified areas can be successfully addressed through engaging foreign stakeholders, creating joint ventures, and implementing mutually beneficial defense projects.

A high quality after-sales service of MPP is among top priorities and instrumental for a further promotion of Russian weapons, stronger positions of Russia on traditional arms markets, and entry to new segments in this market.

Intergovernmental commissions and working groups are created to address after-sales service of earlier delivered equipment, including, for example, a subgroup for after-sales service of AMM at the Russian-Chinese joint intergovernmental MTC commission. Reached arrangements will enable in the near future to essentially reduce timeframe for dealing with arising problems, and prevent them in certain cases.

Setting up service centers of joint ventures is one of the ways to improve logistics support for delivered equipment. Such enterprises along with handling after-sales service can deal with other businesses, for example, customizing and upgrading MPP, technical advising and assistance, personnel training, and R&D services.

Another important line of business is to continue works on introducing advanced systems to manage logistics support at the enterprises of the Russian MIC with the use of new information technologies for recording condition and movement of each MPP element at all stages of its life cycle — from designing and manufacturing to recycling.

To respond to these challenges efficiently and effectively, it is necessary to maximize potential of new and already operating MIC integrated structures.

It is expedient to authorize leading arms manufacturers to conduct independent foreign trade, which will allow them to expand possibilities and effectively deal with after-sales service of delivered equipment.

As a whole, over the last decade, the MTC system has proved its ability to reach national political, military, and economic targets. It has been developing and improving as any operating system. Over the past years, given the results of practical activities and attempts to increase its efficiency and effectiveness, multiple amendments have been made to the MTC legal framework.

Publication date: 26.08.2010

Date of publication: 18.01.2011




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