«Call of the day is super-mobility; we need to do business quicker»
FSMTC Director Mikhail Dmitriev about weapons export
Export of the Russian arms and military vehicles is one of the most stable sources of public revenues. The order portfolio of the Russian weapons shows a continuously growing tendency. However, recently, Russia has been operating in the world arms market in very uneasy conditions. Director of the Federal Service for Military-Technical Cooperation (FSMTC) MIKHAIL DMITRIEV told about internal and external challenges of the Russian arms export system to the «Ъ» correspondent IVAN KONOVALOV.
— Recently, the Federal Service for Military-Technical Cooperation has celebrated its ten-year anniversary. What can you say about the last year’s results?
— Last year’s successes are good enough. We again reach a record. The planned target was $9.5 billion. We were above $10 billion; it means that the plan is exceeded. This is another chance to report to the President of the Russian Federation. The order portfolio significantly increased and reached $48 billion. Last year was also remarkable, as for the first time, we reached a planned target without any extraordinary efforts. Certainly, Rosoboronexport is an indisputable and well-established leader, but other companies, MTC affiliated entities, also performed well at their level (delivery of spare parts and service): they have been invariably responsible for their 15% share of the total MTC output.
— Was it a decade characterized by different trends, or was it a forward going process?
— In general, yes, it has been a forward going process. We have not had any failures. We managed to expand cooperation geography every year, increase volumes of arms deliveries, including SPTA (spare parts, tools, accessories — «Ъ"), and services. Simultaneously, we tried to optimize a document flow process that is huge in this area, requires many approvals, opinions, etc., and takes a lot of time. It is necessary at all costs to simplify everything in this area.
For a past decade, we have succeeded in drastically expanding, and diversifying an MTC scope, and departing from an unequivocal reliance on South and South East Asia. Today, we mostly focus on cooperation with ten countries, — in Asia Pacific region, North Africa, the Middle East, and Latin America, with India being still a number One country. We value this strategic partnership. There are promising prospects for further cooperation under the BrahMos project (manufacture of supersonic cruise missiles — «Ъ"), a fifth generation fighter, and building of a military transport aircraft, and others.
— But after all, our military-technical cooperation with India is not a smooth process, for example, a military transport aircraft project. It has been in existence for a number of years, but real work has not yet started?
— Certainly, it remained on a paper for long, and we embarked on it only two and a half years ago. Today, we are at a practical stage of works. One of the divisions of the United Aircraft Corporation is already directly engaged in it, a joint venture is set up. These are not conceptual works; it is the beginning of real activities.
—Indians will not pay extra money for the heavy air carrier Admiral Gorshkov, will they?
— I do not want to discuss this matter. I think this case is resolved. It was not only a matter of money; it was a matter of revising set objectives. Actually, at a certain stage, we started to build a new ship. Therefore, it was necessary to change the program, and then, extra money was required to finance this program. Unfortunately, a negotiating process was lengthy, though works did not stop, but rates were not such as we would like them to be. Now, we have agreed about everything, including new terms, and extra financing. I think that we will manage to do the job within the schedule and costs, and meet our commitments.
— When will you hand over this ship to the Indian Navy?
— According to the documents, it will be done by the end of 2012, and we are on the schedule. Ship tests are due in 2011-2012.
— Why is transfer of a multi-purpose nuclear submarine Nerpa to Indians still postponed?
— All is ready, and there are no problems. It is already a final stage. Any extra works are not required, except a bit of internal painting of the boat and some small things. The Indian crew has been working for long with Russian instructors, and carries out a number of tasks. Neither Russians, nor Indians have any concerns.
— And why have there been no large-scale contracts for a long time with China?
There are contracts. They are being signed. It is not a pause — cooperation still develops, but its rates slowed down. There are objective reasons. The Chinese defense industry has escalated, and can produce many products that were bought in Russia earlier. Now, they make them themselves. These days, it is a matter of technological cooperation, but here we also find things in common. Probably, in the near future, there will be some specific themes, and you will learn about them.
— Have you tried to address the issue of copying our combat material by the Chinese?
— Yes, it relates to intellectual property protection. In 2008, a special agreement was signed between China and the Ministry of Justice in the area, and we raise this subject before the Chinese. It is enough difficult, including for us. Earlier, we did not pay a proper attention to this issue.
In post-war time and afterwards, at the time of the USSR, we supplied to China complete lines of different products. At that time, there was no need to sign any papers, and today, we had nothing to present on this matter. We cannot make any serious claims now, because we simply gave away products, and technologies that they used in their production, and introduced their elements. These products are no longer ours, and made with a substantial input of the Chinese defense industry. Chinese consider them as theirs. It is a very difficult area to agree. But you are right this issue is relevant, and at the present stage, we continue to address it under current international laws.
The same issue exists in relations with the former Warsaw Treaty countries. Under licenses transferred to them, it is difficult to find the solution today. No documents cover this aspect. We signed with Hungary the agreement for the use of the former USSR licenses. Now, there are negotiations with Slovaks, Czechs, Poles, and Bulgarians about the conclusion of similar agreements.
— Can any MTC agreement be signed with Israel in the long term?
— At present, there is no MTC frame agreement between Russia and Israel, but we will be ready to conclude it when favorable circumstances arise. We have agreements for operations in the markets of third countries, intellectual property, and classified information protection. Thing is, and it not a secret that we experience competition from Israeli companies which try to modernize any Russian military hardware in all countries where it is delivered. We tried to streamline this business, having entered into the agreement for operations in the markets of third countries to avoid an unnecessary competition and agree on joint efforts to upgrade the Soviet and Russian military hardware.
— Have our deliveries of Yakhont anti-ship cruise missiles to Syria not damaged an emerging cooperation?
— All necessary explanations were given to Israelis during our last contacts. We do not see here any problem: there is a replacement of an old product available with Syria that did not cause any objections for a new one: the Redut coastal defense weapon system is changed for a new Bastion system (with Yakhont missile — «Ъ"). Redut is already obsolete by all parameters. But its missile range (namely this is the issue) had the same parameters as a new one. I will repeat: we do not see any problem here. The contract corresponds to supervision terms, and all international standards. Russia cannot afford any violations in this area.
— OK, now, about international obligations and standards. Will we return to Iran the advance payment for not delivered S-300 anti-aircraft defense systems?
— Yes, we received the advance payment under this contract, works to build those systems continued until the known resolution of the UN Security Council was adopted. Negotiations on return of the advance payment are underway, terms and forms of its return are discussed. However, partners may say that they do not need money, and request us to deliver something else that is not forbidden by the Security Council resolution.
— It means that we continue MTC with Iran even in these conditions.
— We have not interrupted MTC with Iran. It is a heavy-duty resolution forbidding a lot. But there are areas to continue negotiations with the Iranian party. We delivered our TOR anti-aircraft missile systems, and we can carry out their service. We can maintain other air defense systems not covered by the resolution. We have prepared a long list of possible subjects for interaction with the Iranian party.
— And where will “Iranian” S-300 systems go?
— The Almaz-Antey Concern will find an area of their application under agreements with our armed forces.
— What are prospects for a large contract with Saudi Arabia much discussed a couple of years ago?
— Really, we have jointly developed a lot of material on different themes and compiled a large package. There was much, but premature talk about this, because we did not reach a final stage of a negotiating process: there were arisen a number of different obstacles, including price. The Saudi party has not yet made a final decision. Contacts continue. It is too early to talk about results.
— What was the content of the Libyan large package?
— Both parties expressed a mutual desire to launch a number of contracts. Some contracts were signed a year ago, but they did not come into force (as we did not agree on financial terms), and other issues were under discussions... Amounts are huge, and contracts are multi-dimensional, including aircraft, and air defense systems.
— Now we witness a new tendency — military import to Russia unlike traditional for us export. French helicopter carriers, Israeli drones... What is FSMTC position?
— Now, military materiel import is being discussed at all levels. It is counter-productive. The main thing here is the position of our armed forces which duty is to defend the homeland. This goal is to be pursued. At present, the Defense Ministry has raised the issue of import of arms and military vehicles, first of all, as samples, and it testifies to serious problems in our defense industry that needs to be promptly resolved. By the way, these are the same problems that we have in the export. So, whether we like it or not, but the fact remains that now, we deal with import of arms to Russia.
— The structure of military-technical cooperation has changed many a time. How do you feel working under the current system when FSMTC, Rosoboronexport, and Rostehnologii are engaged in selling arms?
—I would like to correct at once: FSMTC is not engaged in trading. The mission of FSMTC, the Defense Ministry, and the Ministry of Foreign Affairs is to elaborate policy in this area, determine directions of work of our companies, a price range, issue import and export licenses, and set up export control. Following decisions made, MTC-affiliated entities are engaged in trade operations.
In 2000, we started to create a current MTC system. A number of the existing companies merged and set up Rosoboronexport, the single state broker. The Committee, FSMTC predecessor, was set up. 2007 was a landmark year: the President of the Russian Federation by his Decree No 54 made a number of important changes. A Rosoboronexport monopoly position was legalized, and licensees of five other MTC-affiliated entities, that had the right to enter the market with final products, were withdrawn. But a number of MTC-affiliated entities authorized to deliver spare parts and carry out services was simultaneously increased. The last measure was taken purposefully to achieve more efficiency in SPTA deliveries and supply of services of our military products abroad.
— Do buyers of our arms and military vehicles make many claims?
— We think that they are many, and we would like them to be fewer. At the time of the USSR, we ignored a very important component such as repairs, upgrading, and SPTA delivery. Unfortunately, this legacy still exists, and it is not easy to put an end to this. But we continue to move persistently in this direction, and have already made a certain headway. The situation began to improve with entry into this segment of the arms market of MTC-affiliated entities authorized to do such business. OAO NPO Mashinostroeniya (Machine-building), OAO Sukhoi Company, FSUE MMPP Salyut, and OAO Admiralteyskie Verfi are best performers for the time being.
Other claims, in general, relate to the quality of delivered products. We keep monitoring for the situation by issuing licenses under claim statements. It’s a pity but such licenses are still many. Though as a whole, the situation changes for the better (but slowly), and we manage to maintain our main advantages on the arms market — not the highest price and a satisfactory quality degree.
— And for how long will we maintain these advantages?
— We are mostly concerned about pricing. Internal prices for the Russian military products grow at a high pace. Core enterprises explain it by uncontrollable rise in prices for components. The issue is not within our competence. We are engaged in export, not in production, and we only comment on an alarming situation because export prices for the Russian military products also go upwards. Such tendency can have far-reaching implications for competitiveness (with existing quality problems). And, as is known, over the last decade, the competition in the world markets has become more aggressive.
— In other words, we can reach a certain price threshold, cannot we? Perhaps it is necessary to change the system?
— I would say that we have already reached that threshold. As to the current MTC system, it has secured our successes, but it also requires further improvements. It is by no means the system established once and for good. We need to go ahead, and improve MTC legal framework. In my opinion, Russian political leaders, and competent authorities should have different options, and more flexible leverage for the whole MTC system. The call of the day is super-mobility, and quick response, we need to do business quicker. Too many tasks are assigned to the state broker. Sometimes, it fails to respond promptly. Merger of Rosoboronexport and Rostekhnologii Corporation has made the MTC system bulky. The state broker must deal with internal issues of the Corporation, and perform different tasks not related to its core profile.
— Today’s situation in the Russian MIC is not easy — limited capacities, shortage of qualified personnel, inadequate financing — can our defense industry meet growing demand of foreign customers?
— As a whole, I am sure, it can, but within certain limits and volumes. The fact, that we continuously increase volumes, makes this issue highly relevant because the state order increases simultaneously, and this is a new reality non-existent earlier. Today, we have large orders from the Russian Armed Forces that have a top priority. Export in this case is not a mainstream. And this is right. Thus, the state defense order grows, and capacities are limited. Moreover, in the recent years, they have been reduced. We do not produce many items today. The army has refused them. To maintain non-utilized capacities is loss making, and enterprises got rid of them in their own ways. Today, when volumes of orders, both internal, and external, increase, we need to step up capacities.
PVO Antey-Almaz Concern has to resolve such dilemma because now, ADS are favorites in the market, demand for them is growing progressively, orders are many, and they can be even more. Here again, we take into account realities: we take only as many orders as we can "digest", agreeing with our Armed Forces on a case-by-case basis. And if the Defense Ministry objects to any export orders we, of course, do not accept such orders. So, the problem exists, and it seems to become worse.
— Considering all intricacies we spoke, could you forecast developments, well, say, for the next five years?
— As a whole, I look optimistically. The current portfolio of orders amounts to $10 billion, and we are sure it will grow. Anyway, we will not allow it to reduce. But the main thing is different. We are already at a new level of military-technical cooperation when interaction transforms into the area of technology transfer, and joint designs and production. It requires a profound regular high-quality performance in each segment of the market (especially in services), and effective quick response actions. To what extent are we ready to reset? It is the question addressed not only to the MTC system.
Dmitriev Mikhail Arkadievich
born on 25 April 1947 in Moscow. Graduated from MGIMO (Moscow State Institute of International Relations) majoring in International Economic Relations (1970) and Krasnoznamenny KGB Institute (1971). Since 1971, he served in the First Central Department of KGB of the USSR and the Russian Foreign Intelligence Service (SVR). According to some data, he was an adviser to the Ambassador in the Republic of South Africa. The last position in SVR — Head of the Analytical and Information Department. On 11 August 2000, he was appointed a deputy minister of the Industry, Science, and Technologies of the Russian Federation during the office of Alexander Dondukov. Since 13 November 2000 — deputy defense minister during the office of Igor Sergeev and Sergey Ivanov. Since December 2000, he was simultaneously the acting Chairman of the Committee for Military-Technical Cooperation with foreign states. On 8 April 2004, he became the Director of the Federal Service for Military-Technical Cooperation; retired Lieutenant General; Class I Active State Advisor of the Russian Federation. He was awarded with Orders «Sign of Honor », “Friendship”, IV degree «For Merits to Homeland». Language knowledge: Czech, and English. Married, two children.
Federal Service for Military-Technical Cooperation
It was set up by the Presidential Decree dated 9 March 2004 as successor of the Committee for Military-Technical Cooperation with Foreign States set up in 2000. It is a federal executive authority, which functions are to control and supervise military-technical cooperation, issue licenses for import and export of military purpose products, prepare and sign international treaties, make proposals for state defense order, participate in negotiations with foreign customers, and arrange exhibitions of military products abroad. The Service reports to the Defense Ministry. Staff numbers amount to 350. In 2010, RUB326.9 million out of the state budget was allocated for FSMTC, and estimated expenses in 2011 were RUB373.7 million. Sales of Russian military products via FSMTC in 2010 were circa $10 billion (in 2009 — $8.5 billion). The volume of already concluded contracts is estimated at $46 billion.
Date of publication: 05.04.2011