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Saturday, August 11, 2007

On Russia's Potemkin Military

Writing in the Moscow Times Alexander Golts (pictured), deputy editor of the online newspaper Yezhednevny Zhurnal, exposes the pathetic Potemkin village that is the Russian military.

For some time now, the Kremlin has been having some real difficulties dealing with how it presents certain information to the public. It is becoming trickier to find just the right words to describe meetings between President Vladimir Putin and the leading candidates to become the next president.

It has become quite awkward, for example, to present First Deputy Prime Minister Sergei Ivanov when he speaks with Putin about relatively mundane affairs. The Kremlin finds it necessary to show Ivanov in a more important light -- one that is more fitting for a presidential candidate. Therefore, Ivanov has recently been presented on television as sort of an adviser to Putin, offering the president a complex analysis of the national economy.

No one would think of questioning Ivanov's ability to play the serious role on television as an economic adviser and analyst, especially when he waxes eloquently about all of Russia's economic achievements. Listening to Ivanov, one would actually believe that the country has overcome its dependence on oil revenues. He declared that the manufacturing sector grew by 12.2 percent -- almost double the growth rate in all other sectors. I listened with great pleasure as the first deputy prime minister told his boss about the sharp increases in the manufacture of locomotives, dump trucks and cranes.

But when Ivanov cheerfully stated that the defense industry grew by more than 15 percent, I was a bit taken back. This doesn't jibe with what top military brass (including Ivanov himself while he was defense minister) have been stating -- that the State Armaments Program for 2007 to 2015, the ambitious 5 trillion ruble ($200 billion) strategic defense program intended to modernize the armed forces, is under the threat of collapse.

In April, at a meeting of the Military-Industrial Commission in Yekaterinburg, the first deputy chairman of the commission, Vladislav Putilin, said, "The targets for increasing armaments have not been met, even when spending for the program consistently increases." In addition, Lieutenant General Vladimir Mikheyev, who is the first deputy chief of armaments for the Defense Ministry, stated, "Uncertainty regarding financing means that we will not receive the tanks from Nizhny Tagil-based manufacturer Uralvagonzavod, nor the Su-34 aircraft that the armaments program mandates."

Another piece of bad news from this front: a $1.5 billion Russian-Indian contract for the completion and modernization of the Admiral Gorshkov aircraft carrier fell through. The money was allocated, but the work was not done.

Moreover, malfunctions forced a three-day delay in the commission of the new multipurpose Su-34 aircraft by the state test-flight center in Akhtubinsk, in the Astrakhan region. A representative of Sukhoi, which manufactures the aircraft, said any talk of mass producing the plane was out of the question. Only one Su-34 has been assembled in its Novosibirsk plant so far this year. The most optimistic estimates indicate that only two more Su-34s will be produced by the end of 2007.

This is truly an astonishing phenomenon. Ivanov believes that the defense industry is experiencing amazing growth, even though the armaments program remains woefully unfulfilled. The reason behind this is really very simple -- the uncontrollable increase in military production prices. This is what Ivanov and other officials have been complaining about all the time. The cost of the T-90 tank rose by almost 25 percent in just three months. What is often presented as a growth in the defense industry is really only a growth in prices. This is the reason military brass avoid disclosing the actual numbers of tanks, airplanes and helicopters that have been manufactured for the military.

It appears that the scenario that many experts predicted is now playing out. For the past 10 years, Defense Ministry officials went out of their way to convince us: "Just give us the money and we'll inundate the army with the most modern arms imaginable." But there was not an ounce of truth in those statements. All of today's armaments were developed based on designs from the 1980s and 1990s and can hardly be called new.

One of the worst inefficiencies in the defense manufacturing sector is that there is no reliable supply chain of subcontractors, which could provide component parts to large defense manufacturing plants. This network collapsed along with the collapse of the Soviet Union. As a result, everything has been manufactured in a primitive way.

In examining the first year of the ambitious arms procurement program, we see that prices are on the rise, but production is not. But Ivanov has his own solution -- the creation of the same type of "power vertical" that Putin implemented on a national scale. The new vertical structure will be organized as a state-run holding company that brings together all manufacturers of military technology.

But this will do nothing to solve the fundamental problem of a poor supply chain and lack of reliable component parts. After creating a single aircraft construction corporation, the state now plans to establish another holding company for aircraft engine construction as well. Officials have announced that fifth-generation fighter jets will fly within one year, even though the aircraft's engine is still in the prototype stage and manufacturers are still squabbling over who will produce it.

In addition, a critical shortage of component materials in the defense sector was announced just days ago. At the latest meeting of the Military-Industrial Commission, Sergei Ivanov said: "There is a deficit of over 1,500 materials needed in defense. That constitutes a threat to the state's defense capability and economic security."

To solve these problems, yet another holding company will undoubtedly be created in the near future -- this time for defense materials. Eventually there might be a separate holding company for nuts and another for bolts. But I doubt this will lead to long-term economic growth.

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