Question: In the last few years the state defence order has been accompanied by major scandals and difficulties: the Defence Ministry was unhappy about the deadlines, prices and characteristics of weapons, while enterprises producing them maintained they did not have the money to plan the development and production of modern arms. Have you managed to eliminate these difficulties and what are the current relations between the Defence Ministry and these enterprises?

Dmitry Rogozin: I think the situation improved last year both in essence and in form, in terms of figures. Needless to say, this is not yet an ultimate success because it is necessary to make the system work automatically. I’m referring to relations between the customer and the performer of the state defence order, that is, between the Defence Ministry and the industry. We have not yet reached this stage and are involved in micromanagement but we have turned the tide. The figures speak for themselves – the state defence order has been fulfilled by 99%. Even if we consider that some parameters have been specified, the figures do not even compare to what was the case in 2011. The figure for the Rosatom State Nuclear Energy Corporation is 100%. The enterprises that were working for the law-enforcement bodies and secret services have fulfilled the state defence order by 99.9%. This situation is close to the ideal but only on paper. In reality everything is much more complicated. In a way, they have stretched themselves out and cannot continue like this for a long time. Our biggest headache is the technological backwardness of the majority of our enterprises. We have 1,350 enterprises in the registry of the defence industry complex. Let me repeat that we must fully realise what we have to preserve and develop. We must produce new equipment and train personnel. Of course, we will have to change the production line of some enterprises or simply merge them with those that are leaders in their fields.

The second issue is the change of legislation. In the past we followed federal law No. 94, which prescribed fixed prices for all manufactured products. But how do you determine prices for new technology, the development of which requires seven or eight years? For instance, what if we are developing a nuclear powered missile submarine, a unique space system, an aviation complex or weapons based on new physical principles? Nobody knows for sure how much these materials will cost or how much money we’ll spend on testing them. Therefore, we have made a decision to adopt a new Law on the State Defence Order. The State Duma and the Federation Council have already passed it and it was signed by the President of the Russian Federation on December 31, on New Year’s Eve. The new redaction of this law provides for a modern pattern of contracting for sophisticated high-tech products. Both Europe and the United States have the same pattern. It envisages reimbursement for unforeseen expenses and many other modern economic ideas.

Second, in order to prevent an excessive burden on the federal budget and social programmes, that is, health, education and so on, we have decided to attract loans. In other words, we have taught the state to live like people who sometimes borrow money from the state or a bank using their credit cards.  We also used this scheme to redistribute current expenditures by drawing from future revenues, thereby lowering pressure on the federal budget in order to provide the necessary advance payment for the defence sector, that is, to make advance payment for between 80% and 100% of the funds they need to manufacture the necessary goods. The given enterprises can therefore borrow the additional funds from banks or the government to buy new equipment, to train personnel and use financial incentives to attract young people, the smartest of them. This is a fundamentally new situation, a new reality for the Russian defence sector. We hope that if we manage to get this huge machinery moving, it will help us to develop all the sectors of the Russian economy and not just the gas and oil industry.

Question: A spokesman for the United Shipbuilding Corporation said during a conference call that they have not fulfilled all the state defence contracts in 2012. One of the reasons he mentioned was the lack of funds for building new warships. Will we see a repetition of this situation in 2013, or has such a repetition been precluded by the new law and the new measures?

Dmitry Rogozin: No, the new measures approved by the Government and signed into law by presidential executive orders only provided the framework, which needs to be fleshed out depending on the talents and professional skills of enterprise managers. This rule applies everywhere. When I was a State Duma deputy, I saw two similar agricultural companies, one dragging its feet and the other prospering. Why was that? The explanation is that different people were managing these companies. The same applies here. Managers must ensure the goods are of a high enough quality, they must comply with deadlines and set realistic prices, rather than bring down prices unreasonably just to win a tender, without thinking how they will fulfil the contracts. We have seen this happen in the past few years. To rule this out, we need highly professional, competent managers. This is why we, or more precisely the Military Industrial Commission, is creating a list of 1,000 managers for the defence industry. We do not shy away from enlisting young people on the market and from businesses and offering them an opportunity to fulfil their potential in government service or at defence enterprises. I want to say again that it is impossible to put everything down on paper, that it is very important to find the right people for the right place at the right time.

Question: I have one more subject-specific question. I recently visited the Kurgan plant, where our BMP-3 infantry fighting vehicles are manufactured. In a recent scandal, the Defence Ministry refused to accept a batch of BMP-3 vehicles, while the plant's management argued that these vehicles are in demand abroad. Why are they not in demand in Russia? What is the current situation regarding the BMP-3 and the Kurgan plant?

Dmitry Rogozin: You know, enterprises have to create equipment to the client’s specifications which is of high quality and at acceptable prices and delivered on time. The client is the Defence Ministry, which orders equipment based on the scenarios of wars in 5, 10, 15 and 20 years, the goal of ensuring national interests, etc. As for the issue of the Kurgan plant and its output… The BMD-4 airborne combat vehicle was an especially sensitive issue. The vehicle is designed for the Airborne Force and I held a special meeting in Tula, where paratroopers, including Heroes of Russia, forcefully demanded that the Defence Ministry, our Defence Ministry, buy these vehicles for the Airborne Force. They need it because it is amphibious and can be dropped with the crew, has a big 100-mm gun, and so on and so forth. The paratroopers like it, but unfortunately the former command of the General Staff did not share their opinion.

It is up to the General Staff to play the part of fashion designer since they have been instructed to design the uniforms for our Armed Forces; it is primarily up to the General Staff to order equipment, and the industry must implement this order. Currently, after the changes in the leadership of the Ministry of Defence and with the new head of the General Staff, the perspective of the industry, and most importantly, the perspective of our troops, our airborne forces, should be taken into account. And currently the experimental shipments of BMD-4M airborne combat vehicles will be delivered to the army for testing, and I hope these vehicles will be approved, because they are good, they are exported, and many people like them. Or, say, the Uralvagonzavod vehicles – not T90A or T90S tanks, but the vehicle known as the Terminator, the tank support combat vehicle. These are unique vehicles, favorite vehicles at all defence exhibitions worldwide, not only the ones of the Russian Ministry of Defence.  So now, when forming a new defence order, we have created a normal, rational and professional dialogue between the customer and the contractor. And it has not been not in vain: the First Deputy Chairman of the Military Industrial Commission has been appointed Deputy Minister of Defence for Armaments. We hope  that will end the professional conflict that unfortunately accompanied the work of the Military Industrial Commission, the Ministry of Defence and the Ministry of Industry and Trade in 2012. Now the situation is changing for the better. We hope that in the end it will change for the better.

Question: As a moderator of this process, of implementing the state defence order, what can you say about the state defence order in the coming year? What are the priorities in armaments, in equipment and so on?

Dmitry Rogozin: In the first place, we managed to lay a solid foundation last year. Many contracts, up to 70% of contracts for the state defence order, are to be fulfilled within three years, therefore they also cover 2013–2014. It would take two or three months to create a legal framework.  The law has been adopted. Now we have to make several government resolutions on how to enforce this law and what kind of contracts are needed; we will accomplish this work, we are working hard, but it will take some time. But most importantly, we are currently paying close attention to creating a new Russian - not a Soviet - but a Russian research and technological base. We pin our hopes on the work of the Foundation for Future Research. Tonight I’m holding the first meeting of the Board of Trustees of the Foundation for Future Research which, as a research and technology hunter, will embrace the most interesting, the most extensive research, based on university centres, that can be used for our defence needs. We will combine the support for fundamental science, which should create a basis of modern materials, new technology, metals and so on for the industry, and simultaneously launch such risk projects that might seem slightly heuristic. Such technology and projects should be selected and supported, and we seriously hope for support from university centres and young people. We will make it possible for our young people to seek self-fulfilment, and this will be the priority of our work in 2013.

Question: Today an automated system was discussed, and you said it will make it possible in general to plan the state defence order and take into account the details. But will it help to combat diversion of funds or inefficient use of funds allocated for the state defence order, which was mentioned earlier?

Dmitry Rogozin: We hope so, and this system is being created to this end. This will be a state system called GAS-GOZ: the State Automated System of the State Defence Order. In fact, this is the nerve of the whole Russian defence industry, the nerve that will show all sensitive points, all problems emerging in complex chains of cooperation. The construction of a submarine or an airplane needs 100, 200, 300 or 600 participants of this complex technical and technological chain. In order to know precisely how the funds have been distributed, whether they have been transferred in a timely manner, whether they have been transferred to the right person, whether the tenders and auctions for state defence order placement have been unbiased – it is necessary to create a completely new system, and the Government should primarily be responsible for that.

So, on the one hand, we have done a great thing – we have withdrawn the Federal Service for Defence Contracts from the control of the Ministry of Defence. The Federal Service for Defence Contracts will exercise control over legal aspects of defence contract placement to prevent corruption and to form a proper technological chain when creating high-tech products. On the other hand, the automated system itself will simply draw attention to the problems which we couldn't properly monitor until now. We will monitor the implementation of a defence contract, specific tasks of the defence order on every single stage down to the fourth and fifth tier manufacturer. This is very important.