The defence-industry complex must remain the pride of our country

The date of the 16th March 2013 marked the 60th anniversary of the setting up of the Special Committee of the USSR Council of Ministers, later transformed into the Commission of the Presidium of the Council of Ministers of the USSR on military-industrial questions which was charged with the functions of guiding and monitoring the work on the speediest launching of production of missiles and jet aircraft, as well as other types of armaments, and of co-ordinating this work conducted by different industry branches. To mark this notable event, on 20th March 2013, a military-industrial conference was held in the Grand Hall of the House of the Government of Russia. The conference dealt with the subject formulated as “Topical questions of the development of the defence-industry complex of the Russian Federation”.

This event took place under the aegis of the Military-Industrial Commission attached to the Government of the Russian Federation. Among the participants of the conference were Dmitriy Medvedev, Premier of the Government of the Russian Federation; Dmitriy Rogozin, Deputy Premier of the Government of the Russian Federation; Sergey Shoigu, Minister of Defence of the Russian Federation; Denis Manturov, Minister of Industry and Trade of the Russian Federation; Mikhail Abyzov, Minister of the Russian Federation; Sergey Kirienko, General Director of the Nuclear Energy State Corporation “Rosatom”; Boris Obnosov, General director of JSC “Corporation ‘Tactical Missile Armaments”; and other prominent personalities. In all, some 1,000 representatives took part in the conference. The fact that the year of 2013 was an anniversary year for the Military-Industrial Commission prompted using the conference as the scene for handing state awards of the Russian Federation to the workers of the military industrial complex that had particularly distinguished themselves.

Dmitriy Medvedev, Prime Minister of the Government of the Russian Federation, addressed the participants of the conference with a greeting speech. Here is the text of his speech.

“Most certainly, the Military-Industrial Commission has always played a special role in the development of the defence industry complex. I will remind that it was set up in 1953 as a Special committee, and then reorganised into the Commission of the Presidium of the Council of Ministers on military-industrial questions; later, in 2006, it was resurrected in its present shape.

Today the defence industry complex comprises 1,300 enterprises employing some 2 million people. This is not just a figure; without any doubt, this figure is backed up by strong traditions, unique experience and a huge potential of our branch which, at present, is faced with tasks of vast dimensions – tasks that are related to the re-equipment of the Army and the Navy. I shall remind that by 2020 the share of new materiel and armaments in the overall arsenal must reach 70%, and these 70% in their vast majority, absolute majority must be manufactured by our defence enterprises. Simultaneously with the new state armaments programme, a programme of modernisation of the Russian defence-industry complex was launched. These two programmes are being financed on an absolutely unprecedented scale through budgetary allocations. Naturally, this funding is being provided, among other things, with a view to compensating the lack of funds that plagued our defence industry, as well as the industry as a whole, in the course of many years, and this money must be spent with utmost competence and efficiency. The main task is to accomplish a restructuring of the defence-industry complex within the shortest time possible.

While making such a huge investment into our defence-industry complex, we, naturally, expect a very serious yield. The target growth rate of the industry branch for the period between 2013 and 2015 is 10%, which is appreciably higher than in a whole range of other branches of our economy. The growth of labour productivity already this year must be approximately 20%; this is very important for our national economy and extremely important for the industry as a whole and the defence industry in particular. However, this will come by itself – one must put in much effort to obtain this result. It is important to form the mechanisms which will ensure the attainment of these goals; I shall enumerate them briefly.

First. In my opinion, one of the priority tasks is the formation of large integrated entities. This approach, on the whole, has stood the test of time. A consolidation of forces along different lines within the defence industry complex is a must, it is impossible to build up the modern Army and Navy by relying on small-scale enterprises. I think, this is clear to everybody today.

Second. It is necessary to continue the perfecting of the legal basis. The law “On the State Defence Procurement” entered into force on January 1st. The State Duma is winding up its deliberations on the draft law “On the federal contracting system in the sphere of the purchases of goods, work and services” which will replace the legendary or, if you prefer, notorious law No. 94. A system of long-term contracts must start functioning; only then the defence enterprises will be able to go over to the economically well-founded level of profitability – and this is, naturally, something we all are looking forward to, there is no denying it. A methodological basis for price-setting is being evolved, too. This is a complicated matter, sometimes fraught with conflicts, but these processes must be completed. Generally speaking, it is impossible to go on bargaining about the prices throughout a year, disregarding the need for fulfilling state defence procurement orders by the stipulated time. These things are closely interconnected, and leaders of enterprises, must, of course, be held personally responsible for the fulfilment of defence procurement orders.

Third. We occupy serious positions on the world armament market – being the world’s second largest as regards the volume of sales – but retaining this position becomes more and more difficult with every passing year. One can draw only one conclusion: it is necessary to move forward constantly. This is the question of mastering new basic and critically important technologies with a high scientific content which a required for manufacturing modern competitive products. Nobody will take pity on us. If we relax our efforts, we are bound to be shifted aside by somebody and to fall behind other countries. You know very well, who is hot on our heels. Therefore it is necessary to ensure in advance an amount of novel scientific and technical solutions which will form the basis for series manufacture of prospective weapon systems and military hardware. What is required here is a comprehensive system of support and monitoring of innovative projects at all stages, beginning with the initial idea and all the way to obtaining a commercial result. The object is the emergence – or the retention, if you wish, in the defence industry of a competitive segment of scientific research and development – a segment which has always been very strong in our defence-industry complex. But this scientific sector must generate new technologies. Incidentally, it is precisely for searching out and supporting such technologies that the Foundation for Long-Term Research was established recently.

The fourth thing to be done is as follows. Bearing in mind the fact that we live in the conditions of a global market, we must use the mechanism of partnership between the state and the private business which is intended to ensure the influx of additional financial means into the high-tech defence projects. Incidentally, this kind of arrangements is practised very widely in the world, we are not inventing anything new in this case; but, of course, we must be more active in practising this approach – provided that we do this under the observance of the appropriate regulations, including the regulations on the protection of information. Recently a Council for partnership between the state and the private business was set up as a body attached to the Military-Industrial Commission; it must provide assistance in solving these tasks.

The fifth thing to be done is to perfect and stimulate the transfer of technologies. It is precisely the advanced technologies created in the defence industry that are capable of creating in the civil industry not only breakthrough technologies – this goes without saying – but also an economic effect, sometimes on a very considerable scale. You know perfectly well examples of such double use and of the emergence of corresponding products which have changed the world – one can mention jet airliners, space technologies, communications and notably the Internet. It is important that our customers, our defence and law enforcement agencies should start working jointly. Such work has already been organised, in particular, between the Ministry of Defence and the Ministry foe Emergency Situations with regard to automatic devices. In any case the unification helps reduce costs and simplify the subsequent servicing of the equipment. It is also quite obvious that certain products must be developed on the basis of a joint order from different ministries, rather than squander away the money when everybody embarks on developing the same thing.

The sixth item is personnel. One can state that the drain of the personnel from the defence industry has virtually ceased. This is a result which we have achieved, among other things, thanks to the influx of money into the industry. But at the same time we must understand in what way we shall be able to ensure the passing of the baton between generations in the years to come –by the way, this was justifiably a matter of pride for the defence industry of the Soviet period. In fact, many outstanding scientists, engineers and designers had a defence industry background; we know and remember this. Kurchatov and Tupolev, Ilyushin and Kalashnikov – these personalities have constituted the glory of our country, and their disciples and the disciples of their disciples keep the best design bureaux and research centres going to this day. At present approximately one third of the working force consists of people aged below 35; it is critically important to retain them in the industry. This hinges upon wages, as well as on social aspects, including housing, of course. Without solving these questions it is impossible to retain young specialists. Special attention must be paid to the constant raising of the level of proficiency. The Federal Special Purpose Programme “Development of the defence industry complex in the period up to 202” envisages the training of some 200 thousand engineers and technicians/ This is extremely important.

The work of the Military-Industrial Commission and of the defence industry complex as a whole is extremely, critically important for the development of our country – for keeping it modern, strong and efficient. Your work will determine to a large extent both our defence potential and, not least, the rate of development of our economy as a whole. Yes, there were hard years, we all remember this. But these years are a matter of the past, and I am sure that we can look forward to much interesting work and numerous achievements.

Albeit there are still many problems, the situation has started changing in a most significant way. Therefore let us do everything to ensure that our defence-industry complex also forthwith should be a matter of pride for our country!”

The main report was delivered by Dmitriy Rogozin, deputy Premier of the Government of the Russian Federation. We publish the text of his speech in slightly abridged form.

“From the moment of the setting up of the Military-Industrial Commission in this status and with this name, it was consecutively headed by such prominent persons, outstanding organisers of our defence industry as Dmitriy Ustinov, Leonid Smirnov, Yuriy Maslyukov, Igor Belousov. We shall always remember their names – the names of all our great fathers and grandfathers, who multiplied the power and glory of our Fatherland.

Today’s conference is not a tribute to the status of our jubilee event, no, it is a different matter. We cannot ignore what is going on in the world. Military power remains in demand, and the threat of its use is one of the most important factors in the solution of political and economical global issues. The rudiments of cold war have not disappeared either – such as NATO, representing an organisational rudiment, or Russophobia as a rudiment in the sphere of propaganda. The Western civilisation, in the conditions of the depletion of resources, is not going to give up the high level of consumption to which it has been accustomed for such a long time, and this will mean a new aggravation of the world struggle for access to these resources. In the meantime, new giants are entering the arena of the global struggle, and they have equally gigantic ambitions, commensurate with their size, so the XXI century will not turn out to be a pleasant promenade. Shaking the hands of her partners with a steel fist in a kid-glove, Russia must demonstrate to the world her firm determination to secure a peaceful world and her worthy place in it. Nobody will do this work for us.

Our Motherland has allocated huge resources to the development of the Russian defence industry complex and the re-armament of the Russian Armed Forces, but one must remember that it is our people’s money, and the people have the right to know that we shall spend this money in an efficient way. Our work must result not only in the stable and timely delivery to the troops of all the hardware that is required for their re-armament; the overall result must be the new industrialisation of Russia. It is impossible to do this without taking into account the experience of the work of the Soviet military-industrial complex, of the Soviet defence industry branches, without learning the lessons from the past period. Here I would draw attention to five lessons that have been learned – after all, only good pupils can become good tutors.

Well, the first lesson is the successful experience in the application of the principle of programme-based and goal-oriented planning. The period between 1963 and 1990 saw the establishment of a clear-cut system of organising interaction between the Ministry of Defence and the industry on conceptual questions of the development of weapons, military and special hardware on the basis of the programme-based and goal-oriented planning. It included the preparation of a forecast of the development of weapons, military and special hardware of a potential adversary, the evaluation of scientific, technical and production capabilities of our country’s industry, the preparation of a long-term programme for the development of weapons, military and special hardware and compiling a list of the necessary research and development projects. This work was put into effect through a joint effort of industrial enterprises under the guidance of the leading scientific research institutes and the institutes subordinated to the Ministry of Defence. Within this co-operation, the industry concentrated its attention primarily on the scientific, technical and industrial potential, while the institutes of the Ministry of Defence developed strategy and tactics for preventing the emergence of threats from a potential adversary. Information from both sides of this process was integrated in the upper echelons of the state where final decisions were taken.

Technical requirements for new models of armaments and military hardware, as well as all stages of projects of these models, underwent a mandatory expert evaluation in the leading institutes of defence industry branches; this helped find a reasonable compromise between what was possible and what was desirable. After 1991 the right to take decisions on conceptual questions of forecasting, development of armaments and military hardware became the exclusive domain of the Ministry of Defence. The commanders of services of the Armed Forces began to take decisions on the development of new weapon models at best after discussions these questions with general designers. Naturally, these advocated decisions favourable to the interests of their design bureaux. This resulted in the emergence of an excessive number of types, in duplication of effort and dissipation of means. All this boiled down to a lack of models suitable for series production.

Unfortunately, to this day the system of budget allocations to a large extent is based on dividing the adopted military budget between services of the Armed Forces, the command of each service being granted the right to distribute the means in the interests of its service. This pattern of forming a military budget lacks efficiency.

Correct decisions regarding the choice of the basic weapon systems can be taken only proceeding from strategic goals in the field of national security, but by no means proceeding from the tasks of the development of each individual service of the Armed Forces. Incidentally, it is precisely this approach to the organisation of the business that will enable us to develop new weapon systems capable of versatile functioning in the most varied environments – on the water surface, under the water, in the air, in space, on the ground.

The second lesson that has been learned is as follows. We have to sort out the threats coming from strategic directions and to determine clearly, who is our probable adversary, what sort of adversary we have to deal with. Proceeding from this, we must form such combinations of Armed Forces and military-technical assets which can counter these threats both in a symmetrical and an asymmetrical way. Only after this is it possible to understand what sort of Armed Forces we are to build up, what mission will have to be carried out by a specific service of the Armed Forces, what sort of military-technical solutions we are to seek and what sort of research studies to order.

The general vision of future military conflicts must serve as a basis for evolving typical situations of the use of the Armed Forces for each of these conflicts at different stages of the conflict; argumentation for a potential hypothetic configuration of a new means of warfare must be built on the basis of a thorough comprehensive analysis of these typical situations. When the configuration of this hypothetical means of warfare, a hypothetical hardware article has been finally determined, it is necessary to evaluate it technical feasibility.

Let us consider this question of countering the threats from the point of view of organising a response to them in terms of military technology and defence industry. For the sake of convenience, threats to our security can be divided into three types. Threats of the first type are those coming from an adversary surpassing us in strength or, still worse, from a coalition of aggressively minded states. Threats of the second type are those coming from an adversary whose strength is equal to ours. The third alternative covers threats coming from a weaker adversary, who can turn out to be either a state with an irresponsible and aggressive political regime, or even something that is not a state at all; I mean criminal armed formations which in the West are elevated to the rank of insurgents. Understandably, in each specific case one will have to deal with situations radically differing in the scale and type of warfare, and, consequently, in the choice of various instruments for repelling the aggression. However, there is one versatile instrument which we shall need under all the possible scenarios of the development of the situation.

Ours is a vast country with borders of enormous length; at the same time, we have a very complicated demographical situation. According to the most optimistic evaluations, in order to be ready to repel all possible threats, we must have an army which is 5 times greater than what we have at present. Consequently, one must, as a matter of priority, create weapons which will allow our soldier to increase his fighting potential fivefold, to see the enemy before the enemy sees him, to hit the enemy more reliably and at a greater distance, leaving the enemy no chance to hit us. We suggest that one should concentrate our material and human resources precisely on the development of the hardware if thus type which will be versatile and suitable for use under all the possible scenarios. These means of armed struggle must be based on robotic technologies and automation. As you may well understand, it is the question of developing unmanned weapon systems – aerial, ground-based, sea-surface-based and systems for underwater operation. The systems to be developed must rely on automated means of reconnaissance and target designation, including radar, signal intelligence and optical devices of active and passive character, covering all wave bands; they must be tied up into joint systems.

As for the group of enterprises which specialise in developing the means of strategic deterrence, they will have to concentrate on evolving basically new original ideas which will radically change our notion of warfare in a global war. These ideas are still to be formulated and translated into hardware in the shape of demonstrator specimens. This will permit to form a scientifically well-founded view on the forms and methods of armed struggle with a superior adversary.

The third lesson is to the effect that our fathers have left us the fundamental science and a 30-year backlog of scientific and technical knowledge which still allows us to source from it the know-how and technologies for creating modern weapons; however, this backlog is shrinking rapidly. Now it is ourselves that are called upon to invest into our country’s treasuries the intellectual riches of our science and the genius of our designers. One must immediately resurrect the methods of developing prototypes of weapons and military hardware which make it possible to track the process of creating a specific item of hardware all the way from fundamental research to applied research and design work and then to introduction into series manufacture.

The first stage on the way to solving this problem could be the implementation of the programme of fundamental and exploratory work in the interest of defence and security which had been prepared by the Russian Academy of Sciences and the scientific-technical council of the Military-Industrial Commission. As far as organisational aspect is concerned, we plan to implement this programme within the framework of the Federal Special-Purpose Programme for the defence industry complex; this means that general designers from industrial enterprises would act as customers, and scientific institutes would ensure its implementation thus creating a backlog for the future. I deem it expedient to involve the Foundation for Long-Term Research in the realisation of this task; now the trusteeship council of this foundation is completing the work on the defining the organisational aspects and launching the work of the foundation on which our industry pins great hopes. In this connection I would like to express my perplexity concerning the recent reports on the alleged preparation of amendments to the statute on the prizes of the Government of the Russian Federation in the field of science and technology, according to which it is suggested that these prizes awarded for outstanding achievements in interests of defence and security should be cut by half. We, in the Military-Industrial Commission under the Government of the Russian Federation, are not pleased with such innovations and are not looking forward to them.

The fourth lesson sounds as follows: Training of personnel is a key to everything. The problem of personnel is the main problem of the defence industry at present. The implementation of our entire policy regarding the development of the defence industry depends on how soon and in what way we shall solve the problem of personnel. Recently we have noted the first grounds for a cautious optimism. Now we are putting final touches to the draft programme for training and re-training of skilled personnel for the period between 2013 and 2020. Its implementation will be based on financial participation of leading organisations of the defence industry in the training of personnel.

A matter of special monitoring on the part of the government and its Military-Industrial Commission is the question of establishing a system of supplementary professional training. This system will enable us to conduct retraining and improve the skills of some 200 thousand engineers and technicians of the defence industry complex in the course of the nearest seven years.

According to final statistics for 2012, 1255 trainees received on-the-job-training on the basis of specially selected programmes in research and engineering centres in Russia; 472 persons received similar training abroad. We plan to double the number of persons receiving on-the-job training in 2013. The planned final results of the whole programme envisage probation training for no fewer than 4.5 thousand specialists in Russia and no fewer than 2 thousand abroad. For this purpose efforts are made to enhance co-operation between defence industry organisations and technical institutions of higher learning, in particular, in connection with ‘open-house days’ and round-table conferences; this co-operation will include preparatory measures or selecting the persons who are to take part in the on-the-job-training. Leaders of defence industry enterprises are induced to establish very close ties with technical educational institutions, to help them in providing the production training facilities, to head and organise the work of chairs corresponding to the enterprise’s specialisation. This is not a matter of free choice, but a mandatory part of the work.

Undoubtedly, apart from enabling a specialist to realise his creative potential, an important factor in the solution of the problem of personnel in the defence industry was a constant uplifting of the living standard of those employed in the defence segment, which is determined primarily by the level of wages and the size of the social package. Here one must note a close connection between the volume of state defence procurement orders in the defence industry organisations and the growth of incomes of their employees. In particular, thanks to the present measures intended to raise the volume of the state defence procurement and to support given by the state to the core defence industry organisations of strategic character, the wages of the employees of the defence industry complex were increased by a factor of nearly 1.4 in the course of the last three years. Provided that the purchases of armaments and military hardware remain at their present level, the wages in the military-industrial complex are expected to rise by a factor of 1.5 by 2015 and by a factor of 2 by 2018 as compared to 2011.

At present the organisations of the defence industry complex are in need of specialists of different kinds. The majority of organisations require engineers of different specialisation, primarily engineers-designers (their shortage amounts to 22% of the required number) and production engineers (here the shortage is 17%). Also needed are skilled workers of different specialities; especially acute is the shortage of turners, fitters, and machine adjusters. I wish to say it once again – we shall not buy abroad ready-made defence-related products – all the same, nobody will sell us the most needed and modern products, – but we are ready to buy technologies and the bearers of these – lucid minds and hands of gold, by arranging their transfer to our country. In solving the question of the import of brains, we are ready to grant to highly skilled specialists residence permits and work licences. Furthermore, I think that the country’s leadership will give us support in the question of granting citizenship to the best specialists of this kind, of whom we are so much in need. After all, it is exactly this useful labour migration that we need, as distinct from masses of illegal migrants.

The fifth lesson that we have learnt is a lesson of mathematics. You see how the Government, guided by the wish to achieve an efficient implementation of the Federal Special-Purpose for the Defence Industry Complex and to reduce the negative influence of financial fluctuations, is putting into effect prompt measures of state support to those defence industry organisation which have launched investment projects. The Federal Budget for 2013 envisages guarantees for the implementation of the project of the Federal Special-Purpose for the Defence Industry Complex, involving the use of credits to an amount of 312.5 milliard roubles and subsidies to an amount of 441.6 million roubles. Additionally, in accordance with a decision of the Government of the Russian Federation the organisations of the defence industry are granted subsidies from the federal budget to reimburse a part of the costs caused by repaying interests on credits which were received in Russian credit organisations and in Vnesheconombank for the purpose of implementing innovation and investment projects related to the manufacture of high-tech products. A sum of 3 milliard roubles is allocated for these purposes in the federal budget for the period of 2013-2015.

To facilitate the launching of manufacture of a new generation of armaments and military hardware, we shall rouse competition in design and production solutions related to the fulfilment of state defence procurement orders; we are going to induce actively the national private capital to take part in the implementation of state defence procurement. We have set up the Council for partnership between the state and the private business within the framework of the Military-Industrial Commission. An influx of fresh blood will tone up those participating in the fulfilment of the state defence procurement/ We hope that it will weed out the very category of monopolists, blackmailers and profiteers, and this will make it possible to share with the private business the risks shouldered by the government in the questions of putting new design and engineering features into production.

Having embarked on the ambitious goal of a large-scale rearmament not only of the Army and the Navy, but of the entire defence-related industry, we must understand that this cannot be done without revising some of our traditional notions concerning the financial policy. I have always wondered why Russia’s most thorough liberals, as soon as the question of supporting the Russian industry came on the agenda, became the most obstinate conservatives, and sometimes even obscurants. Yes, the Government is really ready to optimise the costs of the organisations of the defence industry complex related to repaying the interests on credits that had been obtained with the backing of state guarantees for the purpose of implementing the state defence procurement – in particular, the Government is ready to limit the interest rate, proceeding from the discount rate of the Central Bank plus 1.5%. But isn’t it time to start a serious discussion of the idea that long-term defence orders supported by state guarantees must have a backing in the shape of long-term credits with moderate interest rates? Can one really achieve a resurrection of the industry by lending money at an interest rate of 10, 12, 13%? I am not sure. But with the interest rate of 4-5% this is possible, without any doubt.

The stability of the nation’s financial and economical system can be ensured not only by curtailing inefficient state expenditures, which is the right approach, but also by increasing the incomes, which is twice the right approach. But the state can obtain this rise of incomes only thanks to the thriving, normally functioning national industry.

In conclusion I wish to note the tasks which we must solve in the nearest future; the main among these tasks have already been described by Dmitriy Medvedev.

First – in the course of this year, 2013, we must prepare and adopt all the necessary legislation in order to ensure that the law “On state defence procurement”, adopted and signed by the President begins to function to the fullest possible extent. I have just signed a plan for the implementation of these measures, a plan for the preparation and adoption of Government resolutions related to the entering of this law into force. I hope that we shall stick to this plan without even a day’s slippage. Undoubtedly, this will enable us already from 2014 onwards to provide the Ministry of Defence and our industry with a flexible system of contracting for the manufacture of complicated high-tech products.

Second. The Foundation for Long-Term Research must be put into operation. I repeat once more: we pin great hopes on the work of this new organisation.

Point three. We must start the implementation of the programme of fundamental and exploratory research in the interests of defence and security.

Point four. New crediting and financing mechanisms must be formed for stimulating the industry.

Point five. We must form an optimum structure of the rocket and space industry and actively promote in the defence industry the idea of setting up centres of competence and large efficiently working integrated clusters. I am sure that by ensuring a stable work of enterprises and introducing a unified technical policy we shall be able to raise radically the quality of products manufactured by our industry.

Now, the most important point. Vladimir Putin, Russia’s President, in his pre-election articles and the first decrees issued after the inauguration, set before the Government and the industry the task of equipping the Armed Forces of the country with the military hardware which is not merely modern, but incorporates the state-of-the-art technology. This matter is concerned not with the present-day weapons, but with the hardware which still exists only at the point of the designer’s pencil. It is impossible to create this technology without new materials, new equipment, without production methods based on radically new approaches to the organisation of our business.

We have decided to co-ordinate the fulfilment of the task posed by the President with the new Programme of Armaments for the period between 2016 and 2025, in which the planning of prospective models of hardware will be possible only after conducting the necessary research projects on materials, production methods, production equipment requirements etc. It is these research projects that will determine the full scope of capabilities of the state. The fundamental science must become a sort of midwife for the industry and be ready to assist in the birth of the new industrial Russia. The horizon for the future-oriented scientific back-up must be broadened from the present 3 to 5 year to a period of 20 to 30 years ahead. It is not a good idea to run behind the powerful back of the prosperous and complacent rival, we must resolutely make a short cut and go straight to our goal. Engineer, designer, machine-operator– they form a class of creative, intellectually well-equipped workers. It is on you that the future great country pins her hopes. Glory to Russia!

Denis Manturov, Minister of Industry and Trade, stressed the enormous role played by the defence-industry complex in the country’s economy. The defence-industry complex is a basic element in the military organisation of the state, it plays a leading role in tackling the country’s tasks in the spheres of defence, social affairs and economy. With a view to ensuring the necessary level of the country’s security, the President has put the task of a radical technological modernization of the defence-industry complex. This task is being fulfilled within the framework of federal special-purpose programmes, supplemented by measures outside these programmes, and by mechanisms of state support. It must be emphasised that the modernisation is aimed not only at providing Russia’s Armed Forces with a new generation of armaments and military hardware; it also serves the purpose of using the potential of the defence industry as a means of developing the manufacturing industry as a whole.

Certainly, the key role in the fulfilment of this task is played by the federal special-purpose programmes for the development of the defence-industry complex for the period of 2011-2020 and for the restoration of stocks of strategic materials for the period of 2009-2015. Prior to launching the implementation of these programmes, in the conditions when systematic funding was lacking, all efforts were directed at the optimisation and maintenance of the existing production facilities and at technical re-equipment in selected places.

Some 500 organisations took part in the implementation of measures that had been put into effect in the course of the first stage of the defence industry development programme in the period of 2007-2010; some 300 investments projects were realised. The plan targets for this stage were fulfilled completely. Thanks to the realisation of the programme and to a number of other measures of state support for the defence industry were succeeded in fulfilling the tasks of the state defence procurement and in fulfilling deliveries in the framework of the military-technical co-operation. A considerable renewal of the range of armaments and military hardware and the multiple increase of deliveries of new-generation hardware envisaged by the State Armaments Programme face the entire defence industry with the necessity to perform a technological breakthrough and to achieve a considerable growth of production capacity. This determines the need for a systematic, comprehensive approach; considerable investments must be supplemented by new methods of management directed, among other things, at a rational combination of the state support mechanisms, as used at present, and the higher quality of management of the federal special-purpose programmes.

The second stage of the modernisation of the defence industry complex between 2011 and 2020 is being realised within the framework of the new federal special-purpose programme for the development of the defence industry which has been formed in a tight correlation with the State Armaments Programme and is directed at ensuring the manufacture of top priority models weapons and military hardware which will shape the future aspect of Russia’s Armed Forces. Realisation of this programme constitutes the main pre-requisite for the fulfilment of the endorsed State Armaments Programme; therefore it is exactly this special-purpose programme that provides for considerable funding. It is basically important for us to ensure a high tempo of the technological modernisation of the defence industry. The programme incorporates a high rate of development which will enable the defence industry to function as a highly efficient and profitable branch of business by the end of the programme period.

The Federal Special-Purpose Programme for the development of the defence industry complex contains a sizeable component of innovative character. For example, the technological segment of this programme includes measures intended to ensure the formation of a future-oriented bulk of scientific and technical research results, as well as measures for the full-scale introduction of 1.4 thousand industrial technologies of critically important and basic nature.

As regards the structure of expenditures, the programme quite clearly makes emphasis on investments. Capital investments make up nearly 80% of the total volume of financing. Budget allocations are used primarily for the construction and reconstruction of production facilities which ensure, as a matter of priority, the development of nuclear deterrence forces, aerospace defence assets, communication systems, modern transport aviation, high-precision weapons, means of individual protection of military personnel, forces and assets of the Navy.

It must be noted that last year alone nearly 600 investment projects were being realised within the framework of this programme on the basis of funding from the federal budget; some 500 organisations are participating in the programme. 43 facilities were put into operation at 37 enterprises; these include facilities intended to ensure the production of a prospective fighter aircraft, the Iskander missile system, the S-400 surface-to-air missile system, and a number of other armaments.

To enhance the role of integrated clusters and to stimulate a responsible approach to the management of expenditures for the modernisation of the defence industry, a decision was taken to finance the appropriate measures through the central organizations of these clusters. From 2013 onwards, a mechanism is envisaged for speeding up the tempo of financing some selected measures in the field of modernisation and technical re-equipment through the use of credits.

It is envisaged that the measures of state support will include the granting of state guarantees and subsidies intended to cover a part of expenditures for the repayment of interest on commercial credits. Last year, when the question was raised of optimizing the funding of the modernisation of the defence industry, the Ministry of Industry and Trade together with our colleagues from the Ministry of Finance and the Ministry of Economic Development found a compromise solution and made a provision for partially replacing the budget funding by credits which are to be reimbursed later, beginning from 2016.In all, nearly 160 projects will be implemented on the basis of the credit arrangements.

The mechanism of using credit means was tested from 2009 onwards on investment projects in the civil sphere, and it proved its efficiency. We consider that this mechanism must be used in the course of implementing modernisation programmes also during the new period. In accordance with the decision of the Military-Industrial Commission, a draft state armaments programme for the period of 2016-2025 is being prepared now. For the purpose of comprehensive co-ordination and for ensuring a balanced character of the measures envisaged by the State Armament Programme, it is also planned to prepare the following two programmes: “Development of the defence industry complex” for the period of 2016-2025 and “Strategic materials” for the same period. By 2020 the question of the availability of production facilities for the series manufacture of hardware must be basically solved; in consequence, the main emphasis in the new development programme must be made on the further creation and introduction of new industrial technologies in close co-ordination with the armament prototypes planned by the State Armaments Programme.

Bank credits must become the main instrument for financing investment projects within the framework of the programmes; later on the investment expenditures must be included into the price of the products manufactured. This is primarily applicable to enterprises which manufacture their products on a large scale and perform export deliveries. Naturally, subsidies for reimbursing the interest payments will be retained, as well as the state guarantees. Understandably, the financing of capital investments of the enterprises associated with the strategic nuclear triad, the deep-sea technology, and of state-owned enterprises must be effected fully from the budget.

Development of the defence industry complex must also become a locomotive for related industries. Realisation of the programme will give an impetus to machine-building, chemical industry, the industry of information technologies. I would like to note especially the importance of the development of machine-tool industry. This question is an object of keen attention today. This branch must ensure the formation of production facilities for the whole defence industry complex.

The programme which is being implemented now will give the enterprises of these branches resources for the renewal of their fixed assets, as well as new technological solutions; it will ensure stable work of scientific staff and design teams and, in consequence, their presence on the market of articles developed for civil use. An important role in this respect will be played by the programme “Strategic materials”, because it is related to the modernisation of the industry segment which supplies materials for the defence industry. In the course of the last four years alone more than 450 materials and 500 methods of production of these materials were developed in the framework of this programme in the interests of more than 100 models of armament and military hardware. Without the fulfilment of this programme the production of the most part of assets of the nuclear deterrence forces would be impossible.

Importantly, the instruments of support are addressed not only to state enterprises, but also to private enterprises taking part in the realisation of the state defence procurement and of the federal special-purpose programmes. It must be noted that partnerships between the state and private business and their projects are critically important for the development of the personnel potential of the defence industry complex.

As a result of consolidated efforts directed at the implementation of the programmes of modernisation, the defence-industry complex will undergo substantial changes and will display improved characteristics. By 2020 the productivity of labour will grow fivefold as compared to 2007. As early as 2015, 80% of the defence industry, and by 2020 – the entire 100% will have to possess the certificate of the quality management system, the validity of which will also be recognized at foreign markets. By 2020 a new competitive defence-industry complex must be formed, consisting of large science and production companies, capable of self-sufficient development, professional and efficient management of assets; these companies are to ensure the fulfilment of the State Armament Programme and of the plans of military-technical co-operation, and to display active presence on the markets of high-tech products and services for military and civil use.

What are, then, the causes of the problems with which our defence industry is faced? The answer to this question was given by Mikhail Abyzov, Minister of the Russian Federation who is the head of the Council for partnership between the state and the private business attached to the Military-Industrial Commission. The problems are largely caused by the current condition of the defence industry enterprises bearing the imprint of the 20 year period of stagnation. Allocations for the implementation of the State Armaments Programme include not only the 20 trillion roubles for the state defence procurement, but also more than 3 trillion roubles for the re-equipment of the defence industry enterprises. This huge, unprecedented volume of funding of the defence-industry complex is not some kind of a whim – it is due to faulty decisions that had been taken before, and to a serious shortage of financing that plagued the defence industry before. At present we shall have to pay for this, to invest a much larger amount of money, but this cannot be avoided.

Thus, the military-industrial conference that had taken place turned out to be far from a trivial show event filled with ceremonial congratulations and jubilee speeches – and some of the participants had admittedly feared this would be the case. The conference had a prominent practical aspect, it revealed the pressing problems, pointed out the ways and means for their solution, summed up the results that had already been achieved, and posed tasks for the future. This conference will be held every year with a view to establishing a permanent dialogue between the industry and the customer, noted Dmitriy Rogozin, the chairman of the conference, in conclusion.