The aim is to boost the civilian-oriented production segment up to 50 percent before 2025
For instance, if we are talking about Rostec, it has a large share of the civilian-oriented production segment. In 2016, this segment accounted for a quarter of the overall output and as of today all of our group’s companies were assigned to boost this figure up to 50 percent before 2025.
Otherwise, our enterprises would go bankrupt. The state rearmament program is in force until 2020 and we hope that its completion would be gradual.
However, what comes next? Obviously, production of up-to-date weapons will continue in the future, but not like today’s volumes. A gradual shift into towards civilian-oriented production is inevitable and we will need to come up with top-quality, cutting-edge intellectual and competitive products. I should say that our production for perinatal centers is in line with Western standards. Our manufactured Neonatal Intensive Care Units (NICU) is in great demand across Europe. This is not our only product, which enjoys customers’ popularity in Europe and beyond its borders.
But you are right saying that we keep up with producing decent Kalashnikov assault rifles. By the way, I would like to say that four years ago Izhmash scientific and research center was on the brink of bankruptcy seeing delays in wages up to half a year, exhausted manufacturing equipment and only a 20-percent workload on newly purchased equipment. In 2013 we have reformed the scientific and research center into the Kalashnikov Consortium inviting private investors, who acquired a 49-percent stake in the company. Rostec remained the core shareholder of the company and in January 2014, Alexei Krivoruchko, one of the major investors, assumed the post of the director general. He takes great interest in his work, likes weapons and is a great expert in this sphere. However, we are not coming up with combat assault rifles only. Today, it is a multi-oriented enterprise producing various products, including hunting rifles, sports rifles - both for sports shooters and biathletes – as well as developing guns and equipment for Airsoft and Paintball competitions.
Last year the consortium bought the Rybinsk shipyard and assumed management over Vimpel shipbuilding company. The shipyard is developing and constructing high-speed powerboats as well as low and medium water displacement vessels. The vessels are produced both for military and civilian purposes.
Moreover, the Kalashnikov consortium is currently reviving motorcycle manufacturing. Perhaps, you do remember how popular the Izh-Planeta motorcycle was in the past. We now have been assigned to resurrect what was in the past and bring it to today's level.
The development of the pharmaceutical industry
At first, they transferred several enterprises to us, including Microgen research and production association, one of Russia’s largest producers of immunobiological products. We still hold a 38% stake in the Kurgan-based Sintez pharmaceuticals company while the rest has been bought by Alexander Vinokurov and he now has a controlling stake.
We have taken out a loan from VEB to build the Fort pharmaceutical facility in the Ryazan Region and subsequently we have purchased the bank’s stake of 25% plus one share in the enterprise. We are now deciding on whether to place Fort under our management or buy out the remaining stake. We are thinking.
Considering that some assets are in our possession, it would be logical to further develop this area of business. We have started setting up joint ventures and involving foreigners. We are the sole supplier of vaccines for Russia’s Federal Penitentiary Service and all the products are made domestically whereas previously imported medicines accounted for almost a half and were sold with a markup of 100%. We obliged all companies to set up local production in Russia instead of bringing preparations from abroad and bottling or packaging them here. This is because it was a well-known fact that counterfeit products made up a considerable share of imports. We have suggested holding three-stage tenders. The first tender is intended for producers of the full cycle, from substances to finished products while the second is for those who do at least something in Russia, even if they pack medicines. And the third type of the tender is envisaged for the situations when no similar medicines are produced in Russia and can only be purchased abroad.
Now we want to bring the Rosplazma blood products factory in Kirov into operation. It has remained in its unfinished state for about ten years. While imported equipment worth huge amounts of money had long been purchased, it stood in unheated premises and partially fell into disrepair. Incidentally, no one has been held responsible for this negligence. The need for the factory’s products is great and most medicines planned to be rolled out in Kirov are not produced in Russia today. They have to be purchased abroad. Nacimbio, which is Rostec’s fully-owned subsidiary, will be completing the factory’s construction together with Italian partners from Kedrion Biopharma and the Russian company Pharmstandard.
The portfolio of Rosoboronexport’s contracts exceeds $45 billion
– Do you have a feeling that we are being edged out on the arms market?
– No, we do not observe this so far. On the contrary, we are demonstrating growth.
– But, for example, we lost large tenders in India: we lost to French contractors for the fighter jet and to Americans for attack helicopters.
– This has always been the case. Sometimes, we get ahead of others but then our rivals get the upper hand. This is a normal market struggle. Rostec annually sells armaments worth $1.5-2 billion to India. Besides, we have to take an important factor into account: the contracts you are speaking about have just been signed but have not yet been implemented. A contract is considered to have entered into force when the necessary decisions have been made by both sides on government levels. As they say, a promise does not mean I’ll plunge into marriage. There were so many cases when preliminary documents were signed but then potential buyers backtracked on their pledges.
– Did this also happen to us?
– In India, this didn’t happen to us. We always avoided such situations there. But as for other countries, such instances took place. For example, we signed contracts worth $20 billion with Saudi Arabia five years ago but it was useless as the deal did not progress further than the intentions. Riyadh did not buy anything at that time.
To call things by their proper names, the Saudis simply played with us, saying: do not supply S-300 air defense systems to Iran and we’ll be purchasing your weapons – tanks and other hardware.
Now we have started a new round of negotiations and concluded a preliminary agreement worth $3.5 billion. However, the Saudis have set a condition: the contract will enter into force, if we transfer a part of technologies to them and open production on the kingdom’s territory. We are thinking about what we can share. The simplest thing is to build a factory for the production of small arms, say, the well-known Kalashnikov assault rifle.
– And what can you say about the deliveries of S-400 systems to Turkey?
– As I said before, both sides have agreed all the technical terms. However, no final decisions have been made yet.
In this sense, things are quite different with India, for example. The inter-governmental agreement on the S-400 complexes has been signed, although there is still no contract, and we are discussing details of the deal. Let me repeat: it sometimes takes a year or more from the start of the process of negotiations to their completion.
Much depends on the buyers’ mood. If they urgently need it, they may promptly enter into a deal but in any case this takes no less than 3-4 months. I can’t remember any deal with any country that went through more quickly.
– You have long been speaking about the contract on the Pantsyr-S1 air defense system with Brazil. At what stage is it?
– There is certain interest and the Brazilians came to us to view all the trials and evaluate. Apparently, they send specialists not only to our country. They are choosing who can offer them better hardware and at a lower price. This is their right. We are waiting.
The portfolio of Rosoboronexport’s contracts that have been signed and have entered into force exceeds $45 billion. It is expected to be implemented in the next three-four years. I don’t see any reason to worry for a more distant future. Largely speaking, the sanctions have not affected our plans in any special way either. I won’t hide that initially we had fears that our volumes would shrink but this did not happen. There was no fall; on the contrary, we continue growing.
In a sense, serious demonstration of our military hardware took place in Syria. Our weapons vividly showed how they operated.
– Has the demand for some weapons increased?
– There is higher interest in air defense systems, from Pantsyr, Tor and Buk complexes to S-400 systems.
– Do we have any restrictions on deliveries? Turkey is a NATO member country, for example.
– These are defensive systems, which are designed to protect a country’s own territory rather than to attack anyone. Moreover, we do not transfer the codes, the friend-or-foe identifiers as the buyers adjust everything for their needs.
The competition for enrollment to our master’s degree courses is very high
The personnel problem posed a major hassle when I joined the corporation. The average age of employees was close to sixty years. Young people did not want to work at the company as they saw no prospects. We started to think how to solve the problem. Now the ‘age threshold’ has decreased to 42-43 years. Rostec has agreements signed in all the Russian regions where there are specialized higher educational institutions. These institutions have departments preparing specialists directly for us. We conclude agreements with the most promising students and pay for their studies and after they complete their master’s degree, they join the corporation’s enterprises, undertaking to work within the Rostec system for at least five years. Otherwise, they will have to return the funds we have spent on them.
I am the head of the department of management in the field of military and technical cooperation and high technologies at the Moscow State Institute of International Relations (MGIMO). Unfortunately, I have little free time to communicate frequently with students but I see very talented persons among them. And the competition for enrollment to our master’s degree courses is very high. The corporation is expanding and so there will be enough work for all.
The production of the Armata tank will start in 2019
– And what is the situation with Uralvagonzavod’s main brainchild, the Armata tank? When will it go into series?
– It is undergoing trials in the troops and they are scheduled to be completed by late 2018 and production will start in 2019. It is early to say how many machines the Defense Ministry is ready to order but I’m confident that the Armata will be in demand. This is the most advanced tank in the world!
But the T-90 is also a good tank. Several years ago, the Saudis organized a tender for the purchase of tanks, which involved the French Leclerc, the German Leopard and the US Abrams. Our T-90 was the sole tank that reached the tender’s final without any malfunctions after driving in a race across the scorched desert and shooting targets at an air temperature of 50 degrees Celsius.
Western tanks have air conditioners installed inside while our guys were sweating it out in a ‘tin can.’ I told the test drivers: “I’ll pour a glass of vodka for each of you guys when we return to Moscow. The dry law is in effect in Saudi Arabia and alcohol is prohibited. But in Russia no one could prevent us from celebrating a worthy performance. As they say, it was a fabulous race!
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