Interview of FSMTC of Russia Deputy Director Vyacheslav Dzirkaln to the newspaper Military-Industrial Courier”



The system of indigenous arms export, source of continuous and stable public revenues during the whole history of its existence, will soon celebrate its 10-year anniversary. 1 December 2000 was the date of foundation of the Committee of the Russian Federation for Military-Technical Cooperation with Foreign States transformed into the Federal Service for Military-Technical Cooperation (FSMTC of Russia) in 2004. It is the principal decision maker on specialized export relating to import and export of military products to/from Russia. FSMTC Deputy Director Vyacheslav DZIRKALN told about today's state of affairs in deliveries of Russian military-industrial products abroad.

- Vyacheslav Karlovich, probably, the main question on the eve of the anniversary of the Federal Service for Military-Technical Cooperation: what are results of the past decade, in particular, and what results of this period have been reached by Russia in MTC, as a whole?

- According to different assessments of Russian, and foreign analysts, recently, Russia has been a leader in the world market of military purpose products (MPP). Today, its total amount is about 25-30 billion USD a year. We operate in the segment, and, in the last decade, annually, we increased volumes of deliveries, and last year, we reached the level in excess of 8 billion USD.

After collapse and crisis in our defense industry in the 90ies, now, we can say with confidence that Russia has completely restored its positions in the leading world arms markets. The criterion "price-quality" is our key advantage. Russian weapons are in demand as they are simple enough in operations, but its combat capabilities are rather high. Taking into account prices lower than those of competitors, we have a range of buyers preferring the Russian arms. We plan to increase export volumes in the next years. As we use not only the reserve created in the Soviet period, but also effectively introduce new designs, our prospects are rather promising.

- By the way, some experts argue that as intellectual potential accumulated until the demise of the USSR is diminishing, export of the Russian arms will decline too, as the 90ies inflicted a heavy blow on the national economy. Is such effect really felt?

- It was felt initially. Then, the reserve created in the Soviet period was in demand. But if we want to be competitive, it is necessary to make new proposals. And they are available. Recently, we have been actively co-operating with foreign partners, as we understand that in some areas, it is reasonable to take joint efforts, borrow something new and interesting from abroad, and use for building up an export potential for our arms. We work with firms from France, Italy, and Israel; we have established strong contacts with them.

- What about a possible scenario that we will deliver only the hull, and all components will be foreign?
- No, it is not the case. We are interested only in the latest developments. These are the systems accounting for no more than 10 percent of the cost of a delivered product. We are not keen to export, say, the tank which hull is made in Russia, and all equipment is made abroad. To use the Russian base and install own developments is more beneficial for our partners.

- What about past decade changes in distribution of Russian arms, and models of Russian military materiel in different markets?

- If we said earlier that our key partners are India and China, and they remain such until now, recently, a critical breakthrough has been made to Latin America. It is not only Venezuela, but also Ecuador, Uruguay, and Brazil. Contacts with Argentina develop in the right direction, our helicopters, and Igla MANPADS have been in operation in Mexico for a long time. We have really made a very strong breakthrough to the market of Latin America. I think that certain political motives driving leaders of the Latin American states have played a substantial role. For us, this market is interesting and promising. By the way, here we do not only trade, but also render a military and technical assistance to such countries, our traditional partners, as Nicaragua and Cuba.

We have restored our presence in the Arabian world, including not only our traditional partners such as Syria, Algeria, and Libya. Now, we target Kuwait, Oman, and Bahrain. We do not make a secret that negotiations are on with Saudi Arabia, i.e. we have entered the markets of the countries traditionally focused only on the Western suppliers. Therefore, if we cannot speak in terms of a breakthrough in this area, we take robust steps for restoration of political and military positions of Russia in the Arabian world.

Our traditional partners are South East Asian states. Now, cooperation with Vietnam develops at a good pace under a comprehensive collaboration program by 2020.

To a lesser degree, today, Russia is present on the African continent, but also here we pursue certain plans for return. In Africa, we also have traditional partners since the Soviet Union time: we delivered them hardware, trained specialists, and, naturally, they are more familiar with the Russian military school than a Western one. However, previously, arms deliveries were free to them. Now, our MTC system is commercialized, but understanding limited paying capacities of these countries, we search for non-standard ways.

- Will India and China remain our key partners in MTC in the long term or are any changes expected?

- Changes in relations with India and China refer to transformation from a “seller-buyer" pattern to technological cooperation, i.e. first of all, these countries are interested in possible development of their own defense industry, and they succeed in this area. In particular, China is already a strong competitor of Russia on the African continent. So, we continue development of our relations, but it will change a bit in terms of its content - technological transfer, and joint developments will become a key agenda. With India, for example, besides creation of BraMos family rockets, such projects, as a fifth generation fighter and a mid-range transport aircraft, are in the pipeline. We take joint steps in these areas, a number of units, assemblies, and systems will be produced by the Indian partners.

- How critical are quality issues relating to the Russian weapons? Do you often deal with claims? Is there a tendency to improve products?

- To be frank, quality issue exists, but due to objective reasons. First, it goes back to the 90ies notable for outflow of qualified specialists, and disrupted cooperation. Though, it is necessary to underline that from the early 2000ies, our industry has been on the upsurge. Now, we may say that we have restored those positions laid by the Soviet military-industrial complex, including human resources, as well as upgrading of production assets. If we refer to statistics, we see a clear-cut tendency for decrease in claims asserted against us. At the same time, customers became more demanding: after all, if they pay money, they can expect a product of an appropriate quality. Among other things, we are working under government programs for improvement of quality of delivered products, and a higher level of control over manufacture. The problem exists, we are aware of it, we use our best efforts to deal with it, and the results are in place.

- Is an established structure of foreign deliveries of Russian MPP through the sole specialized exporter Rosoboronexport and a number of enterprises authorized for an independent entry to a foreign market optimum? Are any changes expected here?

- The MTC system, in which I have been working for 15 years, have operated different specialized export options. First, it was the General Engineering Department (GIU), the General Technical Department (GTU), then, a number of enterprises acquired the right to export independently products without brokers. Three brokers represented by Rosvooruzhenie, Russian Technologies (Rostekhnologii), and Tekhnoexport were working simultaneously.

Given the stage of competition, optimization of deliveries process, and post-warranty service, the current system, under which 22 enterprises are authorized to independently carry out repairs, upgrade, and deliver spare parts for their products, is optimum. But its present configuration is not a dogma. If necessary, to improve promotion of the Russian arms, such scheme can be changed.

MTC system should not be rigid, but flexible. At the same time, if any changes in the specialized export scheme are required, they will not have a revolutionary nature. But I repeat, so far, the MTC system has been an optimum solution. Volumes grow, the geography of our deliveries expands; therefore, it is senseless to kill the goose that lays the golden eggs. Since December 2009, we have opened FSMTC representations at the Russian embassies in three states, such as India, China, and Vietnam. This year, we plan to set up our missions in two countries - Algeria, and Venezuela. By the way, based on this data, we may have a picture of the composition of key Russia partners in MTC.

If necessary, to become more efficient and effective, we will open new representations. Representations have a regional status, i.e. they operate in interests of neighboring states, except for missions in India and China, which have a lot to do. The Ministry of Foreign Affairs enthusiastically welcomed this initiative. After all, now, we have staff having expertise in MTC in the countries, most important for us.

- Sometimes, we hear that there is too much red tape in the system of the Russian specialized export, and it takes months to obtain approval of delivery, let’s say, of a batch of thirty machine guns. Are there any resources to increase effectiveness of MTC system?

- Resources are available. Moreover, the President of the Russian Federation set a task to improve the system of registration, and performance of officials. A number of proposals aimed at optimizing the process of authorizations was put forward by our Service and approved by the Government, and the Leader of the state.

Today, there is no red tape in this process. If earlier, we really had cases when authorization papers were drafted within two years, now, this process is rather quick. Standard timeframe set for each ministry and department to consider documents is met in most cases, if there are no controversial issues.

Unfortunately, there is one point not yet fully addressed. I mean seller and co-contractor collaboration. If contract performance is delegated to Rosoboronexport, it should establish contacts with a principle manufacturer. This collaboration process between a principle manufacturer and cooperation split into several levels has not yet fully optimized. Today, we really waste a lot of time at this stage. There is still work to be done.

- Could you forecast short-term dynamics of MTC revenues?

This question is not within my competence. But I can say that this year’s revenues will be higher. If more than 8 billion USD was reported by results of 2009, in 2010, we plan to earn more than 9 billion USD. Income from arms export shows a consistent growth dynamics. This is the evidence that we do not only use the Soviet reserve, but also introduce new developments to the market. If we offered only obsolete materiel, we would not occupy current positions.

Date of publication: 18.01.2011




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