Medvedev takes on Russia's outdated military-industrial complex

Russian President Dmitry Medvedev said Tuesday that the Defense Ministry should open its contracts to bidding by foreign firms if Russian products didn't fit the bill.

Russia's ambitious $730-billion rearmament program appears to be stalling amid skyrocketing prices, late deliveries and, in some cases, the sheer inability of Russia's military industries to deliver the goods.

Experts say the increasingly frustrated tone of public statements by Russian leaders, including President Dmitry Medvedev, suggests that they are only now fully realizing that the once-mighty Soviet military-industrial complex, which produced everything from bullets to intercontinental missiles, is irreparably shattered.

In a testy meeting with top military officials Tuesday, Mr. Medvedev voiced the previously unthinkable idea that the Defense Ministry should open its contracts to bidding by foreign firms if Russian products were too pricey or substandard.

Earlier this year, Medvedev sacked several top industry managers over unfulfilled contracts, and last week he ordered a full investigation into claims by one of the country's top weapons designers, Yury Solomonov, that the 2011 military procurement program had been "botched."

"We're dealing with a systemic problem here, and nobody knows what to do about it," says Vitaly Shlykov, a former Soviet war planner and ex-deputy defense minister of Russia. "After 20 years of doing nothing about the decay of our defense industries, they've just unexpectedly noticed it. If they go ahead and spend the vast sums of money they're talking about (on new Russian military equipment) it's obvious that much of it will just be wasted or stolen."

Modernizing the military

Russia's former president and current prime minister Vladimir Putin has announced increasingly expensive plans to overhaul and re-equip Russia's armed forces, beginning with a $200-billion 7-year program in 2007.

Following a brief summer war with Georgia in 2008, which laid bare a wide range of Russian military shortcomings, the Defense Ministry launched a thorough organizational reform that slashed manpower, abolished scores of Soviet-era "phantom divisions" that existed mostly on paper, and set the stage for a modern professional army.

Early this year, Mr. Putin said the government will spend 20-trillion roubles, about $730 billion at current exchange rates, by 2020 to completely re-equip Russia's armed forces with 1,000 new helicopters, 600 combat aircraft, 100 warships – including aircraft carriers and 8 nuclear-powered ballistic missile submarines – and new generations of intercontinental missiles and advanced air defense systems.

But experts say the ability of Russian defense industries to provide these items doesn't come close to the armed forces' appetite for new weaponry.

"To fulfill this program we would have to rebuild our entire military industry," says Alexander Golts, military expert with the online newsmagazine Yezhednevny Zhurnal. "It was a Soviet tradition to build everything at home, from shotguns to fighter planes, but in the 1990's the whole infrastructure of subcontractors disappeared," meaning this approach is no longer an option, he says.

"When the USSR collapsed there were 2,200 big defense industry enterprises, but many were sold off or went bankrupt, and now there are about 1,200 in varying states of health," says Viktor Baranets, a military expert with the Moscow daily Komsomolskaya Pravda. "What we have left is mainly the result of Soviet-era investments. About 90 percent of the equipment our armed forces use today is from our fathers' era."

A few "islands" of military industry have survived and even thrived in post-Soviet times and their products, which include T-90 tanks, Sukhoi fighter planes, and S-300 anti-aircraft systems have propelled Russia to second place among the world's top arms exporters.

Russia has even developed, jointly with India, a futuristic "fifth generation" fighter plane that some experts hail as a worthy competitor for the US F-22 Raptor and F-35 Lightning II.

Inefficiencies

But Mr. Golts says the factories that produce these weapons need to manufacture nearly all their components in-house, which leads to massive delays and cost overruns.

"Military industries in Russia are totally inefficient. They are mostly state monopolies, and they dictate terms to the Defense Ministry, not the other way around," he says. "The problem here is that they adopted a rearmament program without a full reform of the defense industry sector, and that's why the whole plan is running into a brick wall now."

In his meeting Tuesday with Defense Minister Anatoly Serdyukov and Deputy Prime Minister Sergei Ivanov, Medvedev sounded stern and decisive about the need to force defense contractors to meet production schedules, agreed prices and quality standards.

"You must buy only quality goods, and at transparent prices, and not the prices this or that company finds to its liking," he told them. "This is big money, and so you cannot buy junk. Place the contracts with other companies. If all else fails, import the needed goods."

Russia already does import a few things, including German sniper rifles and Israeli drones. Last year it signed a multi-billion contract with France to buy four Mistral-type helicopter assault ships at a price of about $750-million each.

But experts say that deal, personally clinched between Putin and French President Nicolas Sarkozy, engendered fierce opposition within Russia's military-industrial establishment and is unlikely to be repeated.

"It's not politically possible to let contracts out to foreign firms on any scale," says former deputy defense minister Mr. Shlykov. "The defense ministry is at the mercy of the industry, which decides on prices, quality, and timetables. Things are coming to a head now, and the only optimistic thing about it is that at last the leaders of the country have started talking about this problem in the open."