Military-Industrial Complex 2000-2004
Despite the economic slump in Russia, in the mid-1990s the military-industrial complex remained the most high-tech industrial sector producing competitive goods. In the period from 2000 to 2003, Russia exported more than $17 billion worth of defense products. Arms sales volumes continually increased in all these years, reaching $5 billion in 2003. A drastic change in financing of the military-industrial complex also occurred in these same years. Whereas in the 1990s defense exports were the complex's main source of revenues, today the state is its largest financier. During Vladimir Putin's first term as president, Russian state defense orders increased 2.5 times in absolute terms, reaching nearly 136 billion rubles ($4.7 billion) in the 2004 budget. In 2005, state defense orders are expected to exceed revenues from defense exports. By controlling both defense exports (94% of arms deliveries abroad went through the state agent Rosoboronexport last year) and the allocation of state defense orders, the state will continue to play a key role in the industry's development.
History: 2000-2004
For the military-industrial complex the last four years have been marked by a strengthening of state control and an increase in investments. The government has clearly shown that the military-industrial complex is the technological engine of Russian industry, and hence it will always enjoy the most favored treatment from the state.
2000
On February 11, Russia and Belarus concluded an intergovernmental agreement setting up an interstate financial and industrial group based around the Russian Defense Systems Financial and Industrial Group (FPG Oboronitelnye sistemy) that would bear the same name and include three Belarussian companies. Deputy Prime Minister Ilya Klebanov, who was responsible for the military-industrial complex and military and technical cooperation (MTC) with foreign countries, was appointed chairman of the group's board of governors.
In April, Vladimir Putin issued a decree making one of the three state agents in the area of MTC, i.e., Russian Technologies (Rostekhnologii), part of another one – Promexport. Russian Technologies' annual exports had not exceeded $20 million for three years. Liquidation of the company was the first step towards the merger of two other state agents, Promexport and Rosvooruzhenie.
In June, Kaskol Corporation, set up around the Belukha Company, first gained control of, and later bought up 38.38% of the shares of the Sokol factory from the Oppenheimer Foundation. Kaskol's president, Sergey Nedoroslev, was elected chairman of the factory's board of directors.
In September, the IST group of companies (main activity – gold mining) increased its shareholdings in the Baltic Shipyard to a controlling interest.
On October 23, Vladimir Putin signed a decree abolishing the restrictions of the “Provisional Regulations on Holding Companies Set Up during the Reorganization of State Enterprises into Joint Stock Companies” and the State Program for Privatization of State and Municipal Enterprises. These restrictions prohibited the transfer of more than 10% of the shares of a state military-industrial complex enterprise to the management of the head companies of holdings. Abolition of the restrictions allowed the government to start setting up concerns: the restrictions had left nearly two-thirds of the unincorporated and state controlled military-industrial complex enterprises on the sidelines of this process.
On November 4, Vladimir Putin signed a decree merging two state MTC agents – Promexport and Rosvooruzhenie. The result was the creation of a single state agent – Rosoboronexport. The head of Rosvooruzhenie, Aleksey Ogarev, was fired. Sergey Chemezov, who headed Promexport, was appointed first deputy general manager; and deputy director of Promexport, Andrey Belyaninov, became head of Rosoboronexport. Belyaninov and Chemezov were former colleagues of Vladimir Putin in the KGB's Main Directorate.
On December 1, Vladimir Putin signed a decree forming the RF Committee for Military and Technical Cooperation with Foreign Countries (CMTC) accountable to the RF Ministry of Defense. The CMTC became the federal executive body for the regulation and control of defense exports. Mikhail Dmitriev was appointed head of the committee with the rank of Deputy Minister of Defense. Supervision of military and technical cooperation was transferred from the Ministry of Industry and Science under Mikhail Kasyanov to the Ministry of Defense directly under the president.
2001
In mid-February, Deputy Prime Minister Ilya Klebanov sent a letter to Rosoboronexport and companies having the right to export finished defense products, in which he stated that banks specially authorized by the government would henceforth service export contracts in the area of military and technical cooperation. By that time, it had been decided to transfer all of Rosobornexport's accounts to state banks. Prior to this, more than ten commercial banks had serviced Rosoboronexport's accounts, in particular, Alfa Bank, Bank of Moscow (Bank Moskvy), Nomos Bank, MDM Bank, Mosnarbank, Rosbank, and SVA Bank.
On March 28, Secretary of the RF Security Council Sergey Ivanov, who had worked in the Foreign Intelligence Service until 1998, was appointed Minister of Defense.
On July 27, a federal target program for development of the military-industrial complex for 2001-2006 worked out under the direction of Deputy Prime Minister Ilya Klebanov was approved at a government meeting. The plan proposed to set up 74 state-controlled concerns and holdings in the military-industrial complex by 2006. In 2002, the planned number of holdings was reduced to 42. In November 2003, Deputy Prime Minister Boris Aleshin opposed the establishment of strict limits on the number of holdings set up in the military-industrial complex and suggested they be formed as required.
On October 17, Vladimir Putin dismissed Minister of Industry, Science, and Technology Aleksandr Dondukov. Ilya Klebanov was appointed in his place while keeping the post of Deputy Prime Minister. The driving force behind this move was Klebanov himself, who resented Dondukov's struggle to make the defense agencies set up by the deputy prime minister in 1999 part of the Ministry of Industry. Klebanov got to keep the agencies, and after being appointed minister gained control over issues of military and technical cooperation in addition to the military-industrial complex.
On October 29, Vladimir Putin signed a decree setting up the wholly government-owned Sukhoi Aviation Holding Company (AKhK Sukhoi). Blocks of shares of the Sukhoi Independent Design Office (OKB Sukhogo; 51%), Irkut Scientific Production Corporation (NPK Irkut; 14.7%), and the Aviation Scientific and Engineering Complex of Taganrog (ANTK imeni Berieva; 38%) were later transferred to the new holding company. The decree also made provision for converting the Komsomolsk-on-Amur and Novosibirsk aircraft manufacturing associations into joint-stock companies, with the transfer of 74.5% of their shares to AKhK Sukhoi.
At a meeting of the CMTC at the beginning of November, Vladimir Putin called for the establishment of order in the area of after-sale service of military equipment and spare parts deliveries.
On December 10, Vladimir Putin signed a decree allowing companies to conduct independent foreign trade activities in the area of deliveries of spare parts, components, training and auxiliary equipment for previously delivered military equipment and armaments, as well as to carry out independent maintenance work on this equipment. Thus, responsibility for this was taken away from Rosoboronexport, which had literally made a mess of spare parts deliveries abroad.
At the end of December, the Interros Group sold its shares in the New Programs and Concepts (NPK) holding to the company's managers. The business was divided between the president of Interros, Vladimir Potanin, and head of NPK Boris Kuzyk, a former advisor to President Yeltsin on MTC. Potanin obtained funds to invest in agricultural and metallurgical projects, while Kuzyk retained ownership of more than 20 flourishing companies, including Northern Shipyards (Severnaya verf), Northwestern Shipping Company (Severo-Zapadnoe parokhodstvo), Kovrov Mechanical Plant (Kovrovsky mekhanichesky zavod), and the Moscow Radioelectronics Factory (Moskovsky radiotekhnichesky zavod).
2002
On January 3, Rosoboronexport signed a contract with the Chinese Ministry of Defense for the delivery of two 956 EM-type destroyers (Sovremenny class) for nearly $1.4 billion. This marked the beginning of a genuine industrial war between Northern Shipyards controlled by Boris Kuzyk's NPK and the Baltic Shipyard (Baltiisky zavod) controlled by the IST group for a stake in fulfilling the contract. The government committee headed by Ilya Klebanov initially assigned the right to perform the contract to the Baltic Shipyard. However, Prime Minister Mikhail Kasyanov reversed this decision and designated Northern Shipyards as the contractor on his orders. Baltic Shipyard refused to supply components for the destroyers.
On January 17, the government allocated 79 billion rubles for the purchase of military equipment under state defense orders for 2002. This was the start of a sharp increase in state orders, but it did not lead to an increase in equipment purchases from companies of the military-industrial complex. As in previous years, the Ministry of Defense announced that most of the funds would go towards modernization of equipment and scientific development.
The first state military-industrial holding – Tactical Missile Armament Corporation (Takticheskoe raketnoe vooruzhenie) – was set up on January 24. The leading company was Zvezda-Strela State Scientific Production Center (GNPTs Zvezda-Strela) in the city of Korolev, Moscow Region. The holding included five other companies in addition to Zvezda-Strela.
On February 18, at the suggestion of Mikhail Kasyanov, Vladimir Putin dismissed Ilya Klebanov as Deputy Prime Minister, leaving him only the post of Minister of Industry, Science, and Technology. Kasyanov was particularly displeased with Klebanov's position on setting up an air defense holding and building destroyers for China. Mikhail Kasyanov kept the issues under Klebanov's jurisdiction for himself.
At the end of March, Andrey Belyaninov, Rosoboronexport's general manager, sent Vladimir Putin a draft of a decree that would deprive producing companies of the right to independent exports of finished products. At the time five companies had this right. The president turned down this proposal.
On April 13, Mikhail Kasyanov fired the head of the Russian Control Systems Agency, Vladimir Simonov, who was considered to be one of Ilya Klebanov's proteges. Simonov was a victim of the battles to set up an air concern, which was supposed to include the main developers and manufacturers of air defense equipment. At Klebanov and Simonov's suggestion, it was planned to form the holding on the basis of Defense Systems FPG, where Klebanov was chairman of the board of governors. Viktor Ivanov, deputy head of the presidential administration, suggested an alternative plan for setting up the holding on the basis of the Almaz Scientific and Production Association (NPO Almaz) and the Antei Concern. Vladimir Putin approved Ivanov's plan.
On April 23, Vladimir Putin signed the decree “On the Open Joint Stock Company Almaz-Antei Air Defense Concern”. The concern included more than 40 companies specializing in the development and production of antiaircraft and antimissile defense systems for all types of armed forces. The main plants that had previously been part of Defense Systems FPG were transferred to the new concern.
ZAO Oboronprom United Industrial Corporation (Obedinennaya promyshlennaya kompaniya Oboronprom) was registered on July 19. Rosoboronexport owns 50% of its shares, and the State Investment Corporation (Gosudarstvennaya investitsionnaya korporatsiya) owns the other 50%. Oboronprom was set up on the initiative of Rosoboronexport's management. Shares of OKB Sukhoi and the Ulan-Ude Aircraft Plant belonging to Gosinkor were transferred to Oboronprom. Oboronprom later acquired blocks of shares in the Degtyarev Plant and Kurganmashzavod.
On July 24, Irkut Corporation announced plans to set up an aircraft construction holding. By that time it had already acquired a block of shares in the Beriev Aviation Scientific and Engineering Complex of Taganrog and a number of instrument-making companies.
On September 16, Vladimir Putin approved a list of 43 companies to which the CMTC could grant the right to export spare parts and carry out maintenance independently.
2003
The State Committee for Defense Orders under the RF Ministry of Defense (Goskomoboronzakaz) was established on March 11. The committee was given the responsibility of implementing a unified state policy in the areas of development, production, unification, and standardization of armaments and general-purpose military equipment. Former director of the Federal Agency for Government Communications and Information (FAPSI) Vladimir Matyukhin was appointed chairman of the committee with the rank of First Deputy Minister of Defense.
In March, Rosoboronexport's management sent the presidential administration and government a proposal to turn their company into a corporation, transfer 100% of its shares to the state, and set up a backbone MTC holding around OAO Rosoboronexport. They proposed transferring blocking parcels of shares (25% plus one share) of the main military-industrial complex companies to OAO Rosoboronexport.
On April 19, Vladimir Putin signed a decree appointing Major General Aleksandr Burutin as his advisor on military and technical policy. Prior to this, Burutin had served in the Main Operations Directorate of the General Staff. Questions of reforming the military-industrial complex, state defense orders, and military and technical cooperation came under his jurisdiction.
On April 24, Vladimir Putin appointed Boris Aleshin Deputy Prime Minister for industrial policy. His jurisdiction included some of the functions that Ilya Klebanov had previously fulfilled.
On June 5, Minister of Industry, Science, and Technology Ilya Klebanov announced plans to set up an integrated shipbuilding holding that was supposed to include the Admiralty Shipyards (Admiralteiskie verfi) and the Rubin Central Design Office (TsKB Rubin) before the end of the year. It was proposed to form a single St. Petersburg shipbuilding company, which would include the two private companies Baltic Shipyard and Northern Shipyards, on the basis of the new holding. The minister did not rule out government intervention to draw them into the holding.
On June 6, acting general manager of the Almaz-Antei concern Igor Klimov was murdered in Moscow. According to the main version of the investigation, the murder was connected with his professional activities. The murder has still not been solved. St. Petersburg native FSB Major General Vladislav Menshchikov was appointed general manager in August.
On June 27, Deputy Prime Minister Boris Aleshin announced plans to set up a unified aircraft construction corporation within two years. The corporation was supposed to include all developers and manufacturers of military and civilian aircraft. It was initially proposed to set up a private–state consortium with a management company in which the state would have a share ranging from 25.5% to 51%. A corporate structure in the form of a holding company would then be formed.
On August 7, Boris Aleshin held a meeting to settle the dispute between Northern Shipyards and the Baltic Shipyard: Baltic was obliged to supply the shipyard with the necessary components for the Chinese destroyers.
On August 13, the Interros holding sold its last defense assets – a 50% stake in the Defense Systems- Invest holding, which produces air defense equipment – to Oboronprom (affiliated with Rosoboronexport.
On August 20, Irkut Corporation announced its intention to acquire the Yakovlev Independent Design Office (OKB imeni Yakovleva). Company managers owned controlling interests in both enterprises.
At a meeting of the government on September 29, Vladimir Putin once again criticized after-sale service of military equipment delivered abroad. CMTC chairman Mikhail Dmitriev announced right afterwards that his committee would stop issuing licenses for independent deliveries of spare parts and maintenance. As a result, only 14 of the 46 selected companies received this right.
The legalization of AKhK Sukhoi was completed on October 1; the state owned 100% of its shares. Mikhail Pogosyan, who had previously been the principal designer at Sukhoi Independent Design Office, was appointed president of the company.
On November 4, Mikhail Kasyanov dismissed Nikolay Nikitin, the general manager and principal designer of MiG Russian Aircraft Corporation (RSK MiG). Nikitin was officially blamed for the corporation's serious financial problems and for failing to implement a program to produce Tu-334 passenger planes. On November 14, Valery Toryanin, deputy general manager of AKhK Sukhoi, was appointed general manager and principal designer of RSK MiG. The change of leadership at MiG took place just before the company signed two large contracts with a total value of more than $1.5 billion.
On November 1, Ilya Klebanov was relived of the position of Minister of Industry, Science, and Technology and appointed the authorized representative of the RF president in the Northwestern Federal District.
On November 18, Vladimir Putin signed a decree placing Rosoboronexport under the economic control of the CMTC. This decree buried the plans of Rosoboronexport's management to turn the company into a corporation.
2004
On February 24, Vladimir Putin fired the government of Mikhail Kasyanov. During the reorganization of the government, the defense agencies for conventional armaments, control systems, shipbuilding, and ammunition were eliminated and their functions were transferred to the Federal Industry Agency (FAP) under the Ministry of Industry and Energy. In addition, the aircraft construction sector was also transferred to FAP's jurisdiction from Rosaviakosmos. Rosaviakosmos was reorganized into the Federal Space Agency. The CMTC was reorganized into the Federal Military and Technical Cooperation Service, and Goskomoboronzakaz, into the Federal Defense Order Service; both were under the jurisdiction of the RF Ministry of Defense.
On March 12, by order of the new Prime Minister, Mikhail Fradkov, former Deputy Prime Minister Boris Aleshin was appointed head of FAP; and commander of the RF space forces, Anatoly Perminov, was made head of the Federal Space Agency.
On March 12, RSK MiG and the Sokol Aircraft Factory in Nizhny Novgorod signed a memorandum to start the process of making Sokol a part of MiG. In order to do this, Kaskol transferred 38.38% of Sokol's shares to the control of RSK MiG's management.
On March 25, Sokol Corporation became the first coempany of the military-industrial complex to make a primary share offering on the Russian stock market. So of the proceeds were directed to the acquisition of 75.46% of the shares of the Yakovlev Independent Design Office.
On March 29, head of FAP Boris Aleshin submitted a project for forming the Mil Helicopters (Vertolety Milya) holding to the Ministry of Industry and Energy. The holding was supposed to unite companies that developed and built Mi-class helicopters. Oboronprom was to be the holding's managing company.
On April 2, the RF State Duma accepted amendments to the law “On State Regulation of Aircraft Industry Development” for first reading. The amendments increase the allowable proportion of foreign capital in the charter capital of aircraft manufacturing companies from 25% to 49%.
On April 9, Vladimir Putin appointed Andrey Belyaninov director of the Federal Defense Order Service after relieving him of the position of general manager of Rosoboronexport. Head of the CMTC Mikhail Dmitriev was appointed head of the Federal Military and Technical Cooperation Service.
On April 29, Sergey Chemezov was appointed general manager of Rosoboronexport.
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People Who Have Arrived on the Scene
Boris Aleshin
Worked at the State Aviation Systems Research Institute. He became RF Deputy Minister of Industry, Science, and Technology in June 2000. Ilya Klebanov, who was appointed head of the Ministry of Industry, Science, and Technology in November 2001, got rid of Aleshin and got him appointed as chairman of the RF State Committee for Standardization and Metrology. However, in April 2003, on Mikhail Kasyanov's initiative, Aleshin was appointed Deputy Prime Minister for Industrial Policy. He headed the government's administrative reform committee. He lost his job as deputy prime minister in March 2004 and agreed to head the Federal Industry Agency.
Andrey Belyaninov
Started working in the First Chief Directorate (PGU) of the KGB of the USSR (foreign intelligence) in 1978. While working in East Germany, he made the acquaintance of fellow officers of the PGU's Dresden spy post Vladimir Putin and Sergey Chemezov. He left the KGB in 1991 and worked at REA Bank. He then moved to Novikombank, where he was chairman of the board in 1998-1999. In December 1999, he became deputy to the general manager of Promexport, Sergey Chemezov. In November 2000, Vladimir Putin unexpectedly appointed Belyaninov general manager of Rosoboronexport. Since April 2004, he has been director of the Federal Defense Order Service.
Aleksandr Burutin
Served in the forces in command and staff positions beginning in 1978, and in General Staff starting in 1992. In March 2002, Major General Burutin made the acquaintance of Vladimir Putin. At a meeting on issues of national security that the president held while on vacation at a ski lodge in Irkutsk Region, Vladimir Putin praised General Burutin as a “well-informed, broad-minded person”. In April 2003, Aleksandr Burutin was appointed advisor to the RF president on military and technical policy and was also given jurisdiction over problems of reforming the military-industrial complex, state defense orders, and military and technical cooperation. Prior to this, the president had never had an advisor with such discretionary power in the defense industry sphere. Burutin kept his job during the president's administrative reform in March 2004.
Mikhail Dmitriev
Graduated from Moscow State Institute of International Relations (MGIMO) and became an officer of the KGB's PGU. He worked abroad, in particular, as advisor to the ambassador in South Africa. He held various positions in the Foreign Intelligence Service (SVR), ending his service with the rank of lieutenant general and the position of head of the SVR's information analysis department. He was appointed Deputy Minister of Industry, Science, and Technology in August 2000, but in November of the same year, he became head of the CMTC with the rank of Deputy Minister of Defense. He retained his functions during the reorganization of government structure, receiving the position of head of the Federal Military and Technical Cooperation Service.
Valery Toryanin
Served in the armed forces until 1986. In November 1986, he moved to the Main Engineering Department of the USSR State Committee for Foreign Economic Relations, which was responsible for defense exports (it was later reorganized into Oboronexport and then the state company Rosvooruzhenie). From 1990 to 1994, he worked as a senior engineer at the Russian trade mission in Algeria. Until November 2000, he headed the air force department at Rosvooruzhenie. After Rosoboronexport was formed on November 4, 2000, Toryanin was fired by its new general manager, Andrey Belyanin, and he went to work for Sukhoi, where he held the position of deputy general manager. Toryanin became head of RSK MiG in November 2003.
Sergey Chemezov
From 1983 to 1988, Sergey Chemezov was an officer of the KGB's PGU; he headed the representative office of the Luch Experimental Industrial Association in East Germany, where he made the acquaintance of Vladimir Putin and Andrey Belyaninov. In 1996, after Putin's appointment as deputy to the president's executive officer, Chemezov became head of the executive office's department of foreign economic relations. Three years later, he was appointed general manager of Promexport. In November 2000, during the formation of Rosoboronexport, Andrey Belyaninov became its general manager and Sergey Chemezov was appointed as his first deputy. But it was Chemezov who became the secret head of Rosoboronexport. In April 2004, after Andrey Belyaninov moved to the Federal Defense Order Service, Sergey Chemezov became the official general manager of Rosoboronexport.
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People Who Have Left the Scene
lya Klebanov
Began working at LOMO in 1977, becoming general manager in 1992. In December 1997 he was offered a job in the St. Petersburg government as deputy head of the administration for economics and then as First Vice Governor of St. Petersburg. In May 1999, he was appointed deputy prime minister in Sergey Stepashin's government by decree of Boris Yeltsin. He kept this job in the governments of Vladimir Putin and Mikhail Kasyanov. In February 2002, at Mikhail Kasyanov's suggestion, he was relieved of the duty of deputy prime minister and appointed Minister of Industry, Science, and Technology. In November 2003, he was appointed the authorized representative of the RF president in the Northwestern Federal District.
Igor Klimov
From 1993 to 2000, he held the position of president of OAO Ladoga Investment Corporation (Ladozhskaya IK). He then worked as advisor to the office of the Russian Government Reserve Agency. In November 2001, he became an assistant to deputy head of the presidential administration, Viktor Ivanov. In August 2002, he was appointed deputy general manager of orders and deliveries of the Almaz-Antei concern, and then acting general manager of the concern on February 14, 2003. He was murdered on June 6, 2003, just before his appointment as head of the concern. The crime has still not been solved.
Nikolay Nikitin
Began working at OKB Sukhoi in 1973, where he rose from engineer to deputy principal designer. In February 1999, he was appointed general manager and principal designer at Military Industrial Complex Moscow Aviation Production Association [VPK MAPO (since December 1999 – RSK MiG)]. Mikhail Kasyanov fired him from this position in November 2003. His dismissal happened just before RSK MiG was to sign two large export contracts with a total value of nearly $1.5 billion. He was reinstated in his previous position through the courts.
Aleksey Ogarev
Graduated from Moscow Aviation Institute, where he studied together with Aleksey Dyachenko, future husband of Tatyana Yeltsina (Boris Yeltsin's daughter). Worked in the Ministry of Foreign Affairs (MID) and took part in disarmament talks. In 1997, he became deputy head of Boris Yeltsin's administration and was responsible for questions of military and technical cooperation. In February 1999, he was appointed Deputy Secretary of the Security Council. In August of the same year, he became head of Rosvooruzhenie. However, he lost his job during the amalgamation of Rosvooruzhenie and Promexport, despite the objections of Mikhail Kasyanov.
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by Konstantin Lantratov
All the Article in Russian as of May 24, 2004
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