26 november 2012

Meeting on measures to improve the management system of the aerospace industry

Transcript of the beginning of the meeting

Dmitry Medvedev: Good afternoon. This is not our first meeting to discuss improvements in the management system of the aerospace industry. Those who are present here have attended these meetings. To the best of my knowledge, this is our third meeting in the past four months. Of course, this is due to the rather complicated situation in this industry. And to be honest, it’s also related to our setbacks in the past few years. Many plausible statements have been made about the scientific and industrial potential of the industry. I won’t repeat myself, but, obviously, we have achieved many tremendous milestones here. These achievements make it possible to preserve and develop the industry. But we have to work to restore, rather than deplete, those real advantages with every passing year. The state allocates substantial funding for space exploration. Of course, these allocations are smaller than those of some other countries. Nevertheless, this funding continues to increase steadily. Such funding has increased by over 100% since 2008. In 2011, the allocations exceeded 80 billion roubles. Nevertheless, there are problems, including accidents and emergencies. We must therefore continue to work consistently on this to prevent these setbacks in the future. We need a new generation of space exploration equipment that is more reliable, long-lasting, and simply more effective. 

I was told that all recent accidents have been analysed. I have talked about this with the head of Federal Space Agency (Roscosmos), and have had several discussions with Deputy Prime Minister Dmitry Rogozin, who is supervising the industry. Conclusions have been made. The key issue is replacing the insufficient control over the quality of production with control that is sufficient and effective. There are problems with management.

At present, the structural reforms in the industry have been implemented, but we also discussed the need to avoid duplication of research, production, and experimental facilities. The number of integrated facilities has been increasing. However, we still need to finalise the proposals on the reorganisation of the entire management system. That was precisely the assignment I gave in order to determine the direction we should move in. The time for executing this assignment has expired, and I would like to hear a full report on the reorganisation of the entire management system at present and in the medium term.        

There is also a proposal to reinstate the previously existing institution of military acceptance. Let’s discuss this issue. It has also been proposed to resume the work of the inter-agency commission on space to ensure an objective expertise of double-purpose space projects – socio-economic and scientific.

Finally, there is a proposal to adopt special inter-agency cooperation regulations to help expedite corporate decision-making in organisations that are overseen by Roskosmos. These issues, however, are specific, although very important ones. Our main goal is to determine the direction we should move in. This also includes the reforms in the central administration of Roscosmos. We need an effective mechanism, and I would like to hear from this report what needs to be done to this end. Mr Rogozin, go ahead please.         

Dmitry Rogozin: Thank you Mr Medvedev. In accordance with your assignment, we created a working group that includes representatives of the Federal Space Agency, the federal executive agencies, the military-industrial commission, the Academy of Sciences, and the Government’s Expert Council. The group studied issues related to the organisation of the space industry and improving the quality of products for space. The group held 20 meetings on specific issues, involving expert sub-groups and four general sessions. We all proceeded from the fact that although heavily technical, the issue under consideration is very high profile and is important to the public, as the state of our space industry determines, as a litmus test, Russia’s place in the club of high-tech industrial powers.

Russia’s national interests in the exploration and use of outer space are related to achieving three fundamental objectives. The first objective is to ensure the country’s defence and security, the second is to effectively use the resources of space for the development of the national economy, and the third objective is to develop fundamental science and knowledge.

Based on the state armament programme through 2020, we need to launch more than 100 new spacecraft, including for the purposes of missile defence, reconnaissance, communications, cartography and navigation. During the same period, we have to significantly upgrade the capacity of our strategic missile forces.

At the same time, to meet the requirements of the country’s socio-economic development, primarily geological exploration, weather services and all types of transport and communications, we need to substantially increase the orbital group of civilian satellites and to launch over 200 spacecraft using modern electronic and optical components in this period. Besides, the requirements of basic space research call for creating spacecraft for planetary and astrophysical studies and for solar-terrestrial relations research, including within the framework of international programmes.

For your reference, Mr Medvedev, I’d like to say that our civilian and defence orbital group currently consists of 118 satellites. Given the above tasks and in view of growing global competition and the persistent technical drawbacks of the Russian aerospace sector, we must revamp the system of management in the space industry in terms of its composition, specific features and pressure points.

The group has concluded that the industry’s research, production, technological and personnel potential has not been growing sufficiently rapidly. The labour intensity of producing aerospace goods has not decreased, and labour productivity in the industry is still considerably below the global level. This has had a negative impact on the quality and reliability of our aerospace equipment, increased the accident rate and undermined competitiveness. This ultimately affects the country’s prestige. The group has taken into consideration the fact that the Federal Space Agency and the industry’s enterprises have analysed the reasons for recent accidents and have started implementing a priority action plan to improve the quality of aerospace equipment. Objectively speaking, it should be said that these emergency measures have produced the first positive results. Unlike in 2011, the accident rate this year does not exceed the average statistical data when compared to the United States and other space countries in terms of number of launches. But these measures will not achieve their goals unless we reform the system of managing our space activity and build a new architecture of the aerospace industry.

And now I am coming to the main point. The working group has thoroughly studied the alternative options for reorganising the aerospace industry’s administrative system. The first option is to create a state space corporation that will replace the Federal Space Agency (Roscosmos) and continue the organisational and structural reforms of the aerospace enterprises that form part of this corporation. Roscosmos saw this option as the most effective one. It should be mentioned that this is not the first proposal to create a state corporation. The Government considered this issue in detail three years ago, and we came to the conclusion that this would not be the best option with regard to space exploration. The main danger inherent in this option is that the functions of customer and contractor in a state corporation will be masked by its organisational shell, with both the Government and society unlikely to receive any guarantees that the industry will correct its mistakes.

In the course of discussions within the group, no new arguments in favour of precisely this administrative system were forthcoming. The Roscosmos leadership has agreed that this issue requires more detailed analysis and a comprehensive review of all the legal, financial and organisational conditions.

The second option has been suggested by members of the Government’s Expert Council. They proceeded from the principle of systemic separation of non-profit state, scientific, and infrastructure activities and activities capable of generating profit. They proposed a two-tier method in which, first, we keep the Federal Space Agency as a planning and coordinating body whose function will be limited to placing the state order. Second, we pool all aerospace industry components together in order to form an open holding company whose governing agencies will pursue an integrated technological policy, ensure that equipment is produced and its quality is maintained at an appropriate level, etc. This means that they will be directly in charge of administering the aerospace industry, including its military divisions. After discussing this option in the working group, we rejected it as well, although it does contain what we see as a reasonable proposal on optimising the composition of structures created within the industry and their governing bodies. Members of the working group are ready to consider these issues in detail within the next two or three months as we prepare proposals on reconfiguring the aerospace industry.

The third option (proposed by experts of the Skolkovo space cluster) involves expanding the powers, responsibilities and functions of the Federal Space Agency while at the same time enlarging existing and establishing new integrated structures of the aerospace industry on the so-called shop principle. The aim is to concentrate the design and production capacity of the testing infrastructure and, ultimately, to conduct a single technological policy. Unlike the other two options, this one can be implemented within a reasonably short timeframe and will not require any far-reaching changes to existing legislation. Roscosmos notes that currently its influence and the speed with which it can impact the joint-stock company are constrained because the agency is not empowered to manage the federally-owned stock of its subordinate open joint-stock entities. In turn, this limits Roscosmos’ ability to develop and put into use space equipment, improve its quality and reliability, and control the modernisation of the aerospace industry.

As a result, the formerly thriving industry began to resemble Kievan Rus when it splintered into various rival principalities. To implement these functions, Roscosmos is asking for permission to increase the maximum number of its employees and pay them monthly benefits for performing particularly important work in the field of space activities.

Currently, Roscosmos employs 215 people, and this number may get cut to 191 in 2013. According to Roscosmos, it should have at least 450 federal government employees, which is still fewer than in similar agencies in other space powers.

Please second this motion. We will be able to come with specific figures regarding the number of Roscosmos’ personnel only after each job has been properly substantiated and proposals duly reviewed by the Government Commission on Administrative Reform and approved by the Government. Also, Roscosmos is asking for the right to manage shares of subordinated federally-owned open joint-stock companies and participate in transactions involving the property of industry-specific federal state unitary enterprises. We believe we should keep in place existing property management procedures approved by the President and the Government. However, in order to improve the decision-making process, we propose having the Federal Space Agency and the Federal Agency for State Property Management develop and adopt relevant rules of cooperation and quickly resolve outstanding problems in a number of joint stock companies by holding extraordinary meetings of shareholders and make changes to the boards of directors at Energia, Energomash, the Moscow Institute of Heat Engineering, Academician Reshetnev Information Satellite System and the Makeyev State Rocket Centre.

We deem it necessary to restore the independent expert analysis of space projects, which is provided for in the fundamental decisions underlying the organisation of space activities in our country. It is proposed to revive the expert commission on outer space and bring in members of the Russian Academy of Sciences, the Government Expert Council, the Skolkovo space cluster and members of the scientific and technical council of the Military-Industrial Commission. It will be likewise useful to create a council of chief space rocket designers at the Military-Industrial Commission and to identify members of the aerospace industry’s lead organisations to bear responsibility for performance standards of the newly designed equipment.

In addition, the group believes that the military acceptance procedure should be immediately re-installed in the aerospace industry with the number of members set by the presidential executive order. Of course, we should also promptly complete Russia’s state programme of space activities and draft basic space exploration policies to 2030. Mr Medvedev, we need your approval for our group to continue carrying out the directive issued at today's meeting, since the experts need to decide on the best configuration of integrated aerospace enterprises based on the shop principle. Tentatively, we plan to establish individual holding companies for developers of orbiting space vehicles, launch vehicles, instrumentation engineers, operators, researchers and test facilities, as well as strategic missile manufacturers. Mr Medvedev, Slide 19 shows a tentative layout, but it definitely needs to be further discussed by professionals.

The group believes that Roscosmos’ medium-term goal is to carry out the national space policy, shape and ensure the implementation of the common technological and quality-control policy, develop national space infrastructure and core technologies, conduct research, streamline the implementation of the manned space programme’s flights and fundamental space research. As they say, everything should be done with a greater goal in mind, and Russia’s achievements in space exploration are precisely such a goal. Our industry should be in a position to provide technologically advanced solutions to all challenges on our way to these achievements.

It is also necessary to promote public-private partnerships in space research and consistently reduce the entry barriers to private businesses. We should mainly focus on a substantial revision of the range of activities that are subject to licensing as space exploration activities.

I also propose supporting the experts’ idea to use the Foundation for Advanced Studies on providing primary support to breakthrough research on rocket and space technology of the future, including on the basis of public-private partnerships and with the involvement of young researchers from major university centres. Please second this motion. Thank you.

Dmitry Medvedev: Thank you, Mr Rogozin.


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Following the meeting, Head of Federal Space Agency Vladimir Popovkin spoke with journalists.

Question: What efforts have you decided to take to reorganise the aerospace industry?

Vladimir Popovkin: There was a wide-ranging discussion on different ways to develop the aerospace industry and the future of the Federal Space Agency (Roscosmos). Following the meeting, the Prime Minister adopted the urgent and necessary measures aimed at making the sector more controllable. First of all, this means strengthening the role of Roscosmos as the body managing all joint-stock companies in the aerospace industry. This also means greater coordination between the Federal Agency for State Property Management (Rosimushchestvo) and Roscosmos as regards appointing board of directors and directors of enterprises, as well as issuing directives on behalf of the Government. A fundamental decision has been taken on enlarging the holdings in Roscosmos, and setting up about five or six such holdings, with proposals approved. A proposal has also been made to continue efforts to centralise management of the aerospace industry, including the possibility of establishing a state corporation at Roscosmos and its subdivisions. This is what we discussed and these are the decisions that were taken.  

Question: When might the state corporation be established?

Vladimir Popovkin: Deputy Prime Minister Dmitry Rogozin has been instructed to  check the first-quarter figures which show changes in the sector’s performance, including whether it is necessary and the time is right to set up a state corporation, as well as with reporting proposals on further centralisation to the Prime Minister.

Question: You mean the first quarter of next year?

Vladimir Popovkin: Yes, of course. 

Question: You have mentioned raising wages for personnel.  How much will they increase?   

Vladimir Popovkin: True, the Prime Minister has issued an order to Mr Rogozin, Roscosmos, the Ministry of Labour and the Ministry of Finance to draw up proposals, including those on material incentives for Roscosmos personnel. We have proposed making a 50% bonus payment for those working for the national aerospace industry.

Question: How many roubles does that equal?

Vladimir Popovkin: The current average salary is 37,500 roubles, so make your estimates.  

Question: Who might be appointed as the new head of Russian Space Systems?

Vladimir Popovkin: It is premature to speak about this. Various candidates are being considered, and the decision has yet to be taken. The current acting head is Mr Chimiris (Andrei Chimiris, Acting General Director of Russian Space Systems).

Question: Are there any deadlines for taking the decision? When is the appointment expected to occur? 

Vladimir Popovkin: As soon as the candidate for head is approved, a directive will be drawn up by Rosimushchestvo on behalf of the Government and all necessary procedures will be performed, such as the shareholders’ meetings and the board of directors’ meeting, where the director will be appointed.