Media Review

21 february, 2012 12:43

Izvestia: "Vladimir Putin orders removal of defence industry middlemen"

Twenty-three trillion roubles of defence orders are being given to companies entirely "on trust".

President Dmitry Medvedev has promised the Ministry of Defence 23 trillion roubles to purchase new equipment for the army. At a Government Presidium meeting on Wednesday the overall programme for this will be made official. In addition, the government will approve a special law on army purchases. This was discussed on Monday at a meeting in Komsomolsk-on-Amur about implementing government policy on development.

The meeting, which was chaired by Prime Minister Vladimir Putin, was held at the local aviation manufacturing association KnAAPO (75% of its shares are owned by the Sukhoi company and 25% by the United Aircraft Corporation (UAC)). Here there is military order: smoking is banned, mobile phones can only be used with special permission (mobile phones with cameras are considered spy equipment), and the fifth generation of the T-50 fighter jet was hidden from journalists behind a screen.

UAC President Mikhail Pogosyan showed the prime minister around the plant and boasted about their plans for the future: by 2015 the company's revenues are expected to reach 30 billion roubles, compared with the 24 billion they expect to receive in 2012. The reason is simple: Sukhoi has a state defence order to supply 46 Su-35S jets by 2015. Two of the planes were already delivered to the Ministry of Defence last year.

"I have always been interested in aviation," Deputy Prime Minister for Defence Dmitry Rogozin told Izvestia. "I have myself flown in a fighter plane more than once."

The plant failed to make much of an impression on former taxman and current Defence Minister Anatoly Serdyukov. He told Izvestia that the bulk of the multi-trillion defence budget would go to the navy.

"The figures for the state defence order have been agreed," he said. "Everything has been specified down to each individual piece of equipment. The bulk of it will go to the navy."

"The main thing is that the money is spent to good effect," Rogozin added.

This is a telling remark, since, as Vladimir Putin emphasised, the defence companies are currently not working very effectively.

"Between 65% to 95% of defence companies' spending goes to the intermediaries," Putin said, clearly outraged. "Are they doing only 5% of the work themselves?"

The prime minister also said that the business of the intermediaries is not transparent and they often become centres at which all the profits from the defence orders accumulate.

"Any attempts to inflate prices should be nipped in the bud, by, for example, using fines and financial sanctions," the prime minister said. "The price of military products should not be spun out of thin air."

The prime minister instructed Dmitry Rogozin to deal with the intermediaries. He was tasked with working out a government programme to monitor military expenditure. This is especially important since the large defence budget is currently given over to the defence companies with virtually no guarantee of any kind.

"These huge sums of money are being handed over on trust," Vladimir Putin said. "It is vital that the end product is not made more expensive by credit resources and that defence enterprises can plan their activities."

Izvestia was the first to report that a significant part of the defence budget was being swallowed up by intermediaries. Last year the Accounts Chamber carried out an audit of the Main Directorate for the Provision of Facilities for the Military, which is under the control of the Ministry of Defence. This is the only company that has been awarded state contracts to build housing for service personnel.

The results of the inspection were disappointing. The programme to provide housing for military service personnel is stalling, due in large part to the fact that the way the construction process is organised means there are superfluous intermediaries in the chain. In the first nine months of 2011, outside companies involved in the business of the state company took a 97% share of the money (72.9 billion roubles), compared with three years ago when the figure was just 1.2 billion roubles.

Marat Abulkhatin

Alexandra Bayazitova