20 march 2013

Dmitry Medvedev attends a conference on the development of the defence sector

Dmitry Medvedev’s address:

 Ladies and gentlemen, I’d like to begin our meeting by congratulating everyone present and all those who worked or are working in the defence sector on the 60th anniversary of the Military Industrial Commission.

The commission has always played a special role in developing the country’s defence sector. I’d like to remind you that it was established in 1953 as a special committee, was later transformed into the Military Industrial Commission of the Presidium of the Council of Ministers and was revived in its present capacity in 2006. Today, the Russian defence sector comprises 1,300 organisations and enterprises employing around 2 million people. These are not just figures, they offer powerful evidence of the traditions, unique experience and huge potential of the sector, which has been set the challenging task of re-equipping the army and navy. I’d like to remind you that the share of modern weapons and equipment must be increased to 70% by 2020, with the overwhelming majority of these modern weapons and equipment manufactured at Russian defence enterprises.

The rearmament programme was launched simultaneously with the programme for modernising the defence industry. Completely unprecedented funds have been earmarked in the budget for these two programmes.

These funds are also allocated because the defence sector and industry in general have not been properly financed for many years. We must make the most of these funds. The main goal is to restructure the defence sector as soon as possible.

By investing such funds in the defence industry, we are expecting serious results.  In 2013–2015 we expect a growth rate of 10%, which is much more than in many other industries. The growth of labour productivity should be about 20%, which is very important for our economy, industry and particularly the defence sector. But this won’t happen by itself – we need to work toward this end. We must create instruments for reaching these goals, and I will mention them in brief.

First, one of our priorities is to establish large integrated agencies. This approach has stood the test of time. It is important to consolidate forces in the most diverse areas of the defence sector. We cannot build a modern army and navy in a hurry in cooperative societies. I hope everyone understands this.

Second, we must continue improving our legislation. The law On the State Defence Order entered into force on January 1. The State Duma is completing a discussion of the draft law on the federal contractual system of purchasing goods and services that will replace the legendary or, if you will, the notorious 94th law. We should launch the system of long-term contracts. Only in this case will our defence enterprises become economically profitable, which we are looking forward to very much. Experts are drafting methods of price formation. This is a difficult and conflict-prone issue but we should resolve it. It is inadmissible to bargain on prices over the course of a whole year, ignoring the need to fulfill the defence order on time. These issues are related and top managers of enterprises must bear personal responsibility for fulfilling the defence order.

Third, we occupy serious positions on the world arms market – we are second in the volume of sales. That said, it is more difficult to keep these positions with every passing year. We must move forward all the time. We must master new high technology to make modern competitive products. Nobody will feel sorry for us. If we relax, other countries will leave us behind. You know who is right behind us. Therefore, we must create a high-tech potential for the commercial production of modern arms and military equipment. We need a ramified system of support for innovative projects at all stages, starting from R&D up to commercial results. We must have a competitive R&D sector in our defence industry, which has traditionally been very advanced in this country. It must generate new technology. The fund for advanced research has been established recently to support it.

Fourth, we should use the mechanism of private-public partnership, considering that we are part of the global market. It should attract additional funds for high-tech defence projects. This mechanism is broadly used all over the world. We won’t invent anything new, but we must use this partnership more actively, abiding by all requirements, such as information protection. Recently the Military Industrial Commission set up a Council on Private-Public Partnership that should help reach these aims.

Fifth, it is necessary to develop and encourage the transfer of technology. Advanced technology of the defence industry can produce breakthroughs in the civilian sector and yield enormous economic results. You are well aware of examples of dual-use products that have changed the world: jet planes, space technology, communications and the Internet.  

It is important that our clients – security and law-enforcement agencies – should start cooperation. The Defence Ministry and the Emergencies Ministry are already cooperating on robotics. At any rate, unification makes it possible to reduce costs and simplify equipment maintenance. It is abundantly clear that some products should be made under a common order from different ministries. It makes no sense to toss the money to the wind when everyone is dealing with the same thing.

Sixth, the personnel issue. The brain drain from the defence industry has practically stopped. This is the result we have achieved also because of increased funding. That said, we must know how to deal with the generation change in the next few years. The Soviet defence industry was proud of its personnel and for good reason. Many outstanding scientists, engineers and designers came from the defence sector. This country is rightly proud of Kurchatov, Tupolev, Ilyushin and Kalashnikov. Their successors are still keeping afloat our best design bureaus and research centres.

One third of personnel in the defence industry are not older than 35 and it is critical to keep these people there. This depends on salaries and resolution of social issues, primarily housing. Young specialists will not stay without this. We must pay special attention to continuous upgrading of skills. The federal targeted programme on the development of the defence industry to 2020 provides for the training of about 200,000 engineers and technical specialists. This is very important.

The work of the Military Industrial Commission and the defence sector as a whole is crucial for this country if we want to see it modern, strong and effective. Our defence potential and our economic advancement in general largely depend on you. The Russian defence sector is consistently resolving this task but we understand that its potential has not been revealed in full. We had a difficult period that we all remember quite well. But now it is gone and I’m sure we have a lot of interesting work and achievements ahead.

This is what I wanted to say in the beginning of our plenary meeting. Now I'll present the workers of the defence industry with Government awards, which I’m very pleased to do. I’d like to congratulate you once again on the commission's 60 year-long work. Let’s start the awards ceremony.

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Dmitry Medvedev’s concluding remarks:

 Ladies and gentlemen, I’d like to congratulate the award winners once again and wish them success in their work. I hope it will continue being as productive as before.

Now you will discuss the current state of affairs. Despite what I said, there are still many problems and we all know this. But major changes have taken place and we know this too. So let’s do everything for our country to be proud of its defence sector in the future as well.

All the best! Goodbye!

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Dmitry Rogozin: Mr Ivanov (addressing Sergei Ivanov, Chief of the Presidential Executive Office), thank you for participating in our defence industry conference. I am also pleased to inform the distinguished participants of the conference that we have received congratulatory messages from the speakers of the Federal Assembly chambers – Valentina Matvienko and Sergei Naryshkin.

Allow me to proceed with my main remarks now. I want to remind you that over the years the Military-Industrial Commission has been successively headed by such prominent figures and organisers of our defence industry as Dmitry Ustinov, Leonid Smirnov, Yury Maslyukov, and Igor Belousov. We will always remember their names, along with the names of all our fathers and grandfathers who multiplied the power and glory of our Fatherland.

It’s no accident that Mr Ivanov spoke in detail about the history of the Military-Industrial Commission. It’s not just because of the anniversary. We cannot ignore what’s happening in the world. Military force is still in demand, and the threat of its use remains a most important tool in resolving political and economic issues globally. The rudiments of the Cold War are still there, such as NATO and propaganda, including Russophobia. Western civilisation is not about to abandon its high level of consumption to which it has become accustomed, even though resources have become more scarce, which means renewed global rivalry for access to these resources. At the same time, new economic giants are entering the arena of the global rivalry with similarly grand ambitions; therefore, the 21st century is not likely to be a leisurely stroll down Easy Street. As Russia shakes hands with its partners using an iron hand in a velvet glove, it must show the world its firm determination to defend peace and its rightful place in it. No one will do this work for us.

The Government has allocated huge funds for developing the Russian defence industry and rearming the Russian Armed Forces. However, we should remember that it’s the people's money, and the people have the right to make sure that we will spend it efficiently. Our work will result not only in the stable and timely fielding of everything that our troops may need for their modernisation, but also in a new industrialisation of Russia. In doing so, we should be guided by the experience of the Soviet defence industry and lessons learned in the past. I’d like to mention five such lessons, keeping in mind that only diligent students make good teachers.

So, lesson one is about the successful experience of applying the principle of performance-based planning. Between 1963 and 1990, the Soviet Union built a clear system of communications between the Ministry of Defence and the industry with regard to the concepts underlying the creation of weapons and the military and special equipment on the basis of performance-based planning. It included projections about weapons and the military and special equipment of potential enemies, assessing research, technical and production capabilities of the domestic industry, the drafting of a long-term programme for weapons, military and special equipment and drafting the list of the required R&D and experimental development work. This work was carried out jointly by industrial enterprises led by R&D institutes and Ministry of Defence’s institutes. The industrial enterprises focused mostly on research, technological and industrial capacity, while Ministry of Defence institutions developed strategies and tactics to prevent threats from potential enemies. Information coming from both sides was put together at the upper levels of the Government, which then took the final decision.

Military operational requirements for models of weapons and military equipment were mandatorily examined by leading institutes of defence industries, which made it possible to find a reasonable compromise between what’s possible and what’s desirable. After 1991, the conceptual issues related to forecasting and creating weapons and military equipment were fully transferred to the Defence Ministry. Heads of the armed forces started taking decisions about the creation of new models based on discussions with general designers. Certainly, the latter tended to promote their design bureaus. We ended up with multiple types of duplicate equipment, dissipated resources and non-existent serial production.

Unfortunately, up until now the budgeting system has provided for separating the established military budget between the armed services, and gives the command the right to use funds as they see fit. Such defence budgeting is inefficient.

The right decisions in choosing major weapons systems can be taken only on the basis of strategic objectives in the sphere of national security, but not the tasks involved in developing an individual branch of the armed forces. This approach to organising things will allow us to create new weapons systems that can be used in all environments, such as above water, under water, in the air, in space, or on land.

The second lesson is that we need to get a clear idea of who our potential enemies are, and combine armed forces and military facilities in a way that will take care of these threats both symmetrically and asymmetrically. Only then will we be able to understand how to build our Armed Forces, what the specific mission of the individual branches of the armed forces is, and what military and technological solutions we should be looking for and what kind of research we should commission.

Based on a general vision of future military conflicts, we should come up with standard scenarios for using armed forces in each of such conflicts at different stages. Use of force should be based on a thorough and comprehensive analysis of such standard situations. Once we have an image of a hypothetical means of warfare in place, we should evaluate its feasibility.

Let’s consider responding to such threats in terms of organising a military-technological and defence-industrial response. Threats to our security can be divided into three types. The first comes from a stronger enemy or, even worse, from a coalition of aggressive states. Second, threats from an enemy who is equal to us in terms of strength. And third, the threat posed by a weaker enemy, such as a state with an irresponsible and aggressive political regime, or groups of militants, respectfully referred to as rebels in the West. Clearly, each case will call for waging war on a different scale, using different methods and choosing different tools to fight off the aggressor. However, there’s a versatile tool that we will need under all possible scenarios. Russia is a vast country with long borders and a complicated demographic situation. According to the most optimistic scenario, we need an army five times larger than we have now in order to be able to address all possible threats. But this is impossible. Therefore, we need to create weapons that quintuple the combat effectiveness of our troops, see the enemy before he sees them, destroy him at a greater distance, so as to prevent him from causing damage to our troops. Our proposal is to focus our financial and human resources on developing weapons of this kind that are universally applicable under all possible scenarios. These weapons should be based on robotics and automation. As you may have already understood, I’m talking about unmanned air, ground, surface and underwater weapons systems. They should be based on automated radar, radio, optical active and passive reconnaissance and targeting systems of all ranges and should be integrated into unified sets.

As for the companies that specialise in creating strategic deterrence weapons, they will need to focus on developing innovative ideas that will radically alter our perception of fighting a global war. These ideas still need to be formulated and implemented in the form of prototypes. This will make it possible to formulate a scientifically sound opinion of specific forms and methods for fighting a stronger adversary.

The third lesson our fathers left us with was a fundamental research sector and various technological achievements accumulated over 30 years, which still allow us to obtain knowledge and technologies for developing state-of-the-art weapons systems. However, this reserve is shrinking rapidly. We will now have to embody the intellectual wealth of our scientists and designers. We have to promptly reinstate the methodology for developing prototype weapons and military equipment models to make it possible to oversee the development of any specific model from fundamental research to research and development projects and mass production.

The first step to solving this problem could be the implementation of a programme of fundamental research and exploratory projects in the interests of defence and security which has been drafted by the Russian Academy of Sciences and the Science and Technology Council of the Military-Industrial Commission. As for organisational aspects, we plan to implement this programme under the Federal Targeted Programme of the Defence Industry, so that general designers can act as its industrial clients. For their part, research institutes would ensure its implementation, thereby creating a foundation for the future.

I consider it appropriate to involve the Foundation for Advanced Research Projects in achieving this objective. Its Board of Trustees is currently completing the organisation of this Fund and launching its operations. In this connection, I would like to say that I am dismayed that amendments to the Regulations of Government Prizes in the Field of Science and Technology are reportedly being drafted, under which these prizes, which are awarded for outstanding achievements in the interests of defence and security, will be reduced by 50%. We, members of the Government’s Military-Industrial Commission, will not be happy about these innovations, and we do not expect them to go ahead.

The fourth lesson is that human resources decide everything. The issue of human resources in the defence industry is now paramount. The implementation of our entire policy to develop the defence industry depends on specific methods and deadlines for solving this problem. We have recently received the first reasons for cautious optimism. A draft programme to train and retrain skilled specialists in 2013-2020 is currently being finalised. The implementation of this document sets out co-funding projects for the training of specialists by leading defence industry organisations. I hope that a representative of the Ministry of Education and Science will discuss this issue in greater detail.A key focus for the Government and its Military-Industrial Commission is the creation of an additional vocational education system. As Mr Medvedev has already said, this system will enable us to retrain and improve the skills of about 200,000 engineers and technicians in the defence industry over the next seven years.

As of late 2012, 1,255 participants had completed advanced training courses under specially selected programmes at Russia’s research and engineering centres, and 472 people were trained abroad. There are plans to double the number of trainees in 2013. Once implemented, this programme will help train at least 4,500 specialists in Russia and at least 2,000 people in other countries. As part of efforts to achieve these objectives, defence industry organisations are expanding cooperation with technical universities at open days for prospective students, including preparatory work to select prospective trainees. You see, the heads of defence industry enterprises and you, our general designers, need to establish close ties with technical universities, the main source of your human resources, to help them with their educational and production facilities and to oversee and organise the work of specialised departments. This is the main aspect of your work, rather than some optional extra. Of course, apart from creative self-assertion opportunities, regular improvements in the living standards of defence industry employees have always been a very important aspect of addressing the defence industry’s human resources problem. These living standards are primarily determined by wage levels and the size of social packages.

In this connection, I would like to note the close link between the volumes of state defence contracts at defence industry organisations and the increase in the incomes of their employees. For instance, measures to expand state defence contract volumes and provide state support for basic, strategic defence industry organisations have made it possible to raise the wages of defence industry workers by almost 40% over the past three years. Defence industry wages are set to rise by 50% by 2015, provided that current weapons and military equipment procurement volumes are retained. Defence industry wages are set to increase by 100% by 2018 compared to 2011.

Currently, defence industry organisations need specialists in a variety of fields. Most organisations need engineers of various specialties, primarily design engineers, where there is a shortfall of 22%, and industrial designers of which there is a shortage of 17%. Industrial enterprises also need workers, primarily fitters, turners, toolmakers, maintenance workers and machine tool fitters. Here, 40% of these positions are currently vacant. We need to train these specialists in Russia and recruit them abroad, primarily among our compatriots in other former Soviet republics. I would like to note once again that we will not purchase ready-made military products abroad because no one will sell us the most essential and advanced products. But we are ready to buy technologies and to recruit smart and skilled specialists who have mastered these technologies and to relocate them to Russia. To address the issue of importing brains, we are ready to issue residence permits and work permits to skilled specialists. And I believe that national leaders will support our proposal to grant Russian citizenship to the best specialists who are in high demand here. In the final analysis, it is precisely this kind of useful labour immigration that we need, rather than hordes of illegal workers.

Mathematics is the fifth lesson learned. As you can see, measures of state support are being implemented for those defence industry organisations which are implementing investment projects. This is being done to ensure the cost-effective implementation of the Federal Targeted Programme of the Defence Industry and to reduce the negative impact of financial peaks.

The 2013 federal budget specifies state guarantees for the implementation of the project of the Federal Targeted Programme of the Defence Industry, including 31.5 billion roubles of loans and subsidies totaling 441.6 million roubles. Furthermore, defence industry organisations will receive federal budget subsidies under Government decisions in order to compensate part of their expenditures to pay interest on loans obtained at Russian loan agencies and Vnesheconombank for implementing innovation and investment projects to manufacture high-tech products. The 2013-2015 federal budget has set aside three billion roubles for these purposes.

We will promote competition among designers and production engineers in order to manufacture new-generation weapons and military equipment, and we will actively involve private national capital in implementing state defence contracts. The Military-Industrial Commission has established a Public-Private Partnership Council, and Minister for Relations with the Open Government Mikhail Abyzov will discuss its work in greater detail.

The influx of fresh blood will improve the quality of those fulfilling state defence contracts. We hope that this influx will eliminate monopolists, blackmailers and profiteers as a class. And we also hope that it will make it possible to share state risks with the business community as part of the introduction of new design and engineering solutions. We want to ensure the full-scale rearmament of the army, the navy, the air force and to re-equip the entire defence industry. But we have to realise that this will be impossible unless we revise some of our traditional perceptions of credit and financial policy. I have always been surprised to see the staunchest Russian liberals turn into tight-fisted conservatives and sometimes even obscurantists when it comes to supporting national industry. Yes, the Government is certainly ready to restructure interest costs on defence industry loans which were taken out under state guarantees to implement the state rearmament programme, using Bank of Russia refinancing rates plus 1.5%.

But isn’t it high time a serious discussion was launched about the fact that long-term and state-guaranteed defence contracts need to be ensured by inexpensive long-term loans? Is it possible to provide industrial recovery by issuing loans at 10%, 12% and 13% rates of interest? I'm not so sure. But it is certainly possible to achieve this objective by issuing loans at 4%-5%. We can create a stable state financial economic system by cutting back on ineffective spending and boosting revenues. This is absolutely essential, and only a robust and sustained national industry can boost these state revenues.

Finally, I would like to flag up the main tasks we must solve in the near future. Dmitry Medvedev has already outlined the principal tasks. Let me mention the following. Firstly, from 2013 to prepare and adopt the whole legal framework so that the law On the State Defence Order, which has been passed and signed by the President, really kicks in. I have just signed a plan for implementing these measures, a plan for the preparation and adoption of Government resolutions on putting this law into effect. I hope that we will not depart from that law even for a single day. I am sure that this will enable us, starting from as early as 2014, to provide the Defence Ministry and our industry with a flexible contracting system for the production of sophisticated high-tech equipment.

Secondly. To get the Advanced Research Fund off the ground. I repeat: we are pinning great hopes on the work of this new structure.

Thirdly. To start implementing the programme of fundamental science and research in the interests of defence and security.

Fourthly. To put in place new credit and financial mechanisms to stimulate industry.

Fifthly. To design an optimum structure for the space missile industry and to actively introduce in the defence industry the ideology of creating centres of competence as well as major efficient integrated structures. I am confident that the sustained work of enterprises and the introduction of a consolidated technical policy will dramatically improve the quality of our products.

Lastly and most importantly. President Putin in his articles published before the election and in the early executive orders issued shortly after his inauguration set the task for the Government and industry of providing the Armed Forces with modern and cutting-edge equipment, meaning not the weaponry of today, but of the future, which to date exists only on the tip of the designer’s pencil. It is impossible to build such hardware without new materials, new equipment and technology based on fundamentally new approaches to organising the industry.

We have decided to tie in the solution of the task set by the President with the new arms programme, GPV 2016-2025, whereby new advanced samples will only be planned after all the necessary materials, technology, production and other research and development work has been carried out. They will determine the full range of what the state can afford.

Fundamental science must become the midwife of industry ready to assist the birth of a new industrial Russia. Science should look not 3-5 years ahead, like today, but 20-30 years ahead. We should not be running behind the broad back of a prosperous and arrogant adversary, we should be bold enough to take the shortest route to the target. Remember, we are of the same blood. The engineer, designer and worker all belong to the creative class, the class of intellectual workers. The hope for the future of a great country rests with you. Long live Russia.

I would now like to give the floor to the Minister of Industry and Trade, Denis Manturov.

Denis Manturov:  Distinguished participants, colleagues and friends. I am pleased to welcome you all. I would also like to congratulate you on the opening of this conference and the awards that you have received today.

The Russian defence industry complex is a systemic component of the military organisation of the state, playing a key role in meeting the defence and socioeconomic challenges facing the country. To ensure the necessary level of the country’s security the President has set the task of sweeping technological modernisation of the defence industry. That task is being tackled through federal targeted programmes, off-programme activities and by bringing in mechanisms of state support.

It needs to be stressed that modernisation is aimed not only at providing the Russian Armed Forces with a new generation of weapons and military equipment, but at tapping the potential of the defence industry complex to develop the whole manufacturing industry.

Federal targeted programmes for the development of the defence industry in 2011-2020 and the restoration of strategic materials in 2009-2015 will undoubtedly play a key role in implementing this task. Before these programmes were launched, in the absence of systemic financing, all efforts were aimed at optimising and maintaining the existing production complex and selective retrofitting.

The first stage of the defence industry development programme for 2007-2010 involved about 500 organisations and saw the implementation of about 300 investment projects. All the targets of that stage have been met.

Thanks to the implementation of the programme and some other measures of state support for the defence industry we managed to fulfil the state defence order and meet our commitments as part of military-technical cooperation. Significant renewal of the range of weapons, military hardware, a several-fold increase in the supply of new-generation hardware in accordance with the State Armament Programme call for a technological spurt by the entire defence industry complex and for a massive build-up of production capacity.  This entails a need for a systemic, comprehensive approach, not only significant investments, but new managerial solutions aimed at a rational combination of the state support mechanisms that exist and enhanced quality of administering the federal targeted programmes.

The second stage of the defence industry modernisation between 2011 and 2020 is being implemented within the framework of the new Federal Targeted Programme for the Development of the Defence Industry, which is closely bound up with the state armament programme and seeks to ensure the production of priority types of weapons and military equipment that will determine the future look of the Russian Armed Forces. Implementation of this programme is the main condition for fulfilling the approved State Armaments Programme, which naturally provides for a considerable amount of financing. High rates of defence industry technological modernisation are of fundamental importance for us. This programme provides for such growth as it will enable the defence sector to function as a highly efficient and profitable business by the end of the programme period. 

The federal targeted programme for defence industry development contains a sufficiently weighty innovation component. Thus, the technological block of this programme includes measures to lay down scientific and technical groundwork and measures to develop and introduce over 1,400 industrial, critical and basic technologies.

In terms of spending, the programme is a manifestly investment one. Capital outlays make up about 80% of the total volume of the financing. Budget allocations are being directed above all into the construction and reconstruction of production capacity to guarantee that priority is given to nuclear deterrence, space defence, communications systems, modern transport aviation, high-precision weapons, and individual protection kits for servicemen, and the Navy.

It should be pointed out that last year alone, within the framework of this programme, the federal budget helped to implement about 600 investment projects. Some 500 organisations are taking part in the programme. Thirty-seven companies have put into operation 43 facilities including for advanced fighter plane production, the production of the Iskander missile system, the S-400 ground-to-air missile system and other armaments.

With a view to increasing the role of integrated organisations and the responsibility for managing modernisation costs in the defence industry, it was decided to finance the measures through the lead organisations. From 2013 on, a mechanism will be available for the priority financing of separate modernisation and technical retooling measures by attracting new loans.

State support, as Mr Rogozin said, includes state guarantees and subsidies to compensate for some interest payment costs on commercial loans. When the issue of optimising defence industry modernisation costs was raised last year, we and our colleagues from the Finance Ministry and the Ministry of Economic Development found what I believe is a compromise solution that envisions the partial replacement of budgetary financing with loans followed by their redemption starting in 2016. All in all, this loan approach will finance almost 160 projects.

The mechanism for attracting loan facilities has been tested on civilian innovation investment projects since 2009 and proved its efficiency. We believe it should be used to implement modernisation programmes during this new period as well. In accordance with Military Industrial Commission decision, we are now drawing up a draft state armament programme for 2016-2025. To ensure comprehensive matching and balancing of the State Armament Programme, a provision has been made for formulating two programmes – the Development of the Defence Industry Sector in 2016-2025 and the Strategic Materials programme in the same period. Since production capacity for equipment must be solved in principle by 2020, the main emphasis in the new development programme should be put on the further design and introduction of new industrial technologies that are related to the weapons planned by the State Armaments Programme. The basic tool for financing investment projects within the programmes should be bank loans with the subsequent inclusion of investment costs in the price of products mainly in the case of enterprises with large-scale output and exports. Naturally, interest rate subsidies will be retained, as well as state guarantees. Understandably, capital outlays by strategic nuclear triad enterprises and Treasury enterprises making deep-water equipment should, as before, be financed from the budget.

Defence industry development is also the driving force for all related branches. The programme will give an impetus to engineering, chemicals and information technology.

Separately, I would like to stress the importance of the machine tool industry. This is currently the focus of attention. This branch must provide support to the production base of the entire defence sector.

The programme will also give enterprises resources for renewing their fixed assets and for researching new technological solutions. It will guarantee the continued work of research and design teams and, therefore, their presence on the civilian prototypes market. The Strategic Materials programme, which provides for the modernisation of the materials industry as a supplier of materials for the defence industry, plays an important role in this respect. More than 450 materials and 500 technologies for the production of these materials have been developed over the past four years as part of the programme in the interest of over 100 armaments and military equipment prototypes. Without this programme it would have been impossible to produce most of the nuclear deterrence assets.

What is important is that support is targeted not only at public enterprises but also at private ones which take part in fulfilling the state defence order and federal targeted programmes. Furthermore, public-private partnerships and their projects are of key importance in building up the personnel potential of the defence industry.

In conclusion, it should be said that consolidated efforts to implement these modernisation programmes will change and improve the performance of the defence industry. By 2020, its labour productivity will grow 400% compared with 2007. As early as 2015, 80% of the defence industry and by 2020 all 100% of it must have a management quality certificate acknowledged by external markets. By 2020, a new competitive defence sector must be shaped by large research and production companies capable of self-development, able to manage their assets professionally and efficiently, fulfilling state armament programmes and military-technical cooperation plans, as well as positioning themselves on civilian and military high-tech markets. Thank you. 

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Mikhail Abyzov: Colleagues, I would like to join the President, the Prime Minister and my colleagues in congratulating you on the anniversary of the Military-Industrial Commission. This is a milestone event, as confirmed by such a representative conference. I hope the conference will consist not only of congratulations and speeches, but will review the practical results of our work. For example, for the Council that I head, the Public-Private Partnership Council under the Military-Industrial Commission, it is very important to know the opinion of the industry officials concerning the problems, challenges and tasks we will face in the near future.

Dmitry Rogozin, indeed the Presidential Address, today’s speech by the Prime Minister and your speech, Mr Borisov, refer to the role the public-private partnership has to play in implementing the state military-industrial policy, and issues of modernising the defence industry complex… This is of course easier said than done, and I am going to tell you about the problems that face the Council today. They are in many ways due to the current state of the defence industry enterprises, and they are the result of 20 years of stagnation. Accordingly, the massive unprecedented financing of the military-industrial complex (the State Armament Programme, investments in replacing the basic assets) is not a whim, it has been prompted by earlier misguided decisions and gross under-funding of the defence industry. We will have to pay the price for that now, but there is no other way.

What are the main problems of the military industrial complex as the Council sees them? First of all, the operational models, corporate management models and the equipment inherited from Soviet times. Hence the inefficiencies, extra costs unconnected with production activities, low yield on investments, lack of investment control and management, and lack of proper management of the product’s life cycle, as Mr Borisov mentioned in his speech – from development to post-warranty period servicing. But the state client, as represented by the Ministry of Defence and the Military-Industrial Commission, is working on that. As a result, there are frequent complaints from the client, the Defence Ministry and other security-related ministries about the high production costs at defence industry enterprises. Mr Rogozin, I recall our visit together to a small arms factory: several thousand employees, 20 metre high ceilings, full central heating, 30-tonne cranes, just in case, because it can serve as a reserve site for the production of other types of hardware. To produce small arms, from my experience, this enterprise needs just 300 workers and clean floors. That would make for a very different production cost, and this is in fact the gap that we must bridge between the past and our radiant future by retrofitting and creating new facilities.

Monitoring production costs at all production stages is of course necessary in a market, not a command economy, so in modernising the military industrial complex we should take into account the experience of modern business accumulated over the past 20 years.   

Today we already have examples of successful private companies that develop and produce military and dual-purpose goods. The AFK Sistema group is actively investing in the development of the defence industry and I am sure its head, in his speach, will pay due attention to the problems and tasks of developing the public-private partnership.

As has been said, the state armament programme to 2020 allocates 20 trillion roubles for the state order, as well as more than 3 trillion roubles for retrofitting defence industry enterprises. The Prime Minister and the Deputy Prime Minister have set a very ambitious target: in addition to the 3 trillion roubles for defence industry modernisation, to attract a further 3 trillion roubles in non-state investments, investments from the private sector and borrowed capital investments. That is a very ambitious task, because the investments have to be used up before the SAP programme expires, which is before 2020. This means that the money is supposed to – and certainly needs to – be used up by 2017 at the latest. Then we could expect these light modern production facilities to produce the bulk of the state defence order. In other words, time is pressing and, Mr Rogozin, I have to say something about the availability of capital that you have mentioned, or rather about its not being fully or largely available for retrofitting defence industry enterprises. The reason is not the short term of bank loans, but the high interest rate.

In August 2012 the President described improvements of public-private partnership mechanisms as one of the key conditions for the development of the military-industrial complex. As has been mentioned, the Council has been set up under the Military-Industrial Commission. How does the Council work? It comprises more than 100 representatives of business as well as government structures. The Council is divided into 10 groups corresponding to different areas. Detailed programmes for each of the groups for 2013 have been adopted. I would like to dwell on some points. Our main efforts will be aimed at preparing a new modern normative-legal framework regulating the use of public-private partnership mechanisms in the military-industrial complex, in particular the spread of the draft federal law On the Public-Private Partnership in the Russian Federation. The Government adopted the draft law two weeks ago and we hope (I am calling on the State Duma deputies present here) it will be passed soon. Investments cannot be effectively attracted without the new law on the PPP.

The second area is analysis of the regulatory and supervisory functions of state bodies of power with regard to the developers and producers in the military-industrial complex.

Third: accessibility of information, its non-confidential part, including open data about the needs of the military-industrial complex for new products and the long-term state order. This is our approach to our work with the Defence Ministry and with the Military-Industrial Commission. We are able to report considerable progress here.

The fourth area is monitoring how effectively money is being spent to implement the state defence order. What has been done already? It is of no small importance. The Council has adopted the concept of the use of PPP mechanisms in the military-industrial complex that we developed jointly with the Ministry for Industry and Trade. It has been approved by the Council members and will be fine-tuned in 2013, depending on the practical application of the concept. We have discussed and basically approved, and I am sure will finish by the end of March, the discussion of the draft rules for the creation of armaments and specialised technology at the expense of the organisations and private investors on their own initiative. As of today, there are no such regulations, which leaves such initiatives outside the legal field.

Regarding public-private partnerships and its development in the military-industrial sphere, I would identify six of them. In several areas, licensing takes too much time and money. Just recently we discussed a federal agency in the defence sector and noted that in order to obtain a license it is necessary to have a contract for the sale of the corresponding hardware and equipment, but to sign such a contract, you need the license. So, it is a vicious circle: you can’t get a license without a contract and you can’t get a contract without a license. The bottom line is that it is impossible to get a license. Given such a system, there will be no new players in the military-industrial complex. Therefore one of the main tasks is to comply with the requirements concerning access to information and proper oversight.

As for access for companies with private capital to R&D results – at present it is clear that R&D form a single chain. Research is tailored to the needs of a concrete producer where development and design work is then carried out, and often production is organised. It is often impossible to make R&D accessible to a new producer.

Third. Accessibility of test ranges for new types of military hardware. It is not a major problem today, but it is significant. At present test ranges and the regulation of access for private companies to test their products need to be improved.

Fourth. Availability of capital for the creation of new production facilities. Mr Rogozin, if we are serious, this is not about cutting the rate from 10% to 4% or 5%, this is about revising the whole system of financial support for the modernisation of the military-industrial complex. We need credits for 15 years, a state order for 10 years and guaranteed budget support, and we need interest rates in the range of 3.5%-4%, because otherwise it is impossible to set up a new effective production facility and attract a major investor...You remember how many meetings we had with truly major investors who would have been ready to invest. But the conversation went something like this: “The state puts up 10 billion, are you ready to invest at least 3 billion? You will get another 7 billion against collateral and bank guarantees covered by the Finance Ministry.” “No," says the investor, "because under the current model I will lose even my own three billion.” “Come on, you’ll get 17 billion almost for free.” “No, we are not prepared to do this.” The rules of the game must be changed drastically, using entirely different mechanisms to attract private capital to this sector. Without it, unfortunately, Mr Rogozin, effective policy would be impossible. You described the monopolies as being “pampered.” I do not share your point of view: that’s the way our monopolies took shape, such was the structure of the economy… There are some problems of a historical nature: mono-cities, inefficient production, under-financing over 15-20 years. But today we should preserve these monopolies, finance them, offer them a healthy alternative, without which there will be no healthy pricing. A state order should be awarded for more than ten years, and of course the issue of intellectual property and development must be addressed. This is clearly manifested in the small arms area. It is impossible to use the products of private companies without privatising their rights ( I am referring to Strizh), without privatising their rights to development. So, this is not the most modern or efficient mechanism.

The Council’s tasks for 2013, as I have said, are to improve the normative-legal framework, to develop cooperation and attract private companies at the second level of cooperation, at the level of subcontracts. This is a serious tool for cutting production costs.

Third, support of pilot enterprises in designing and building new pilot models produced jointly with private capital. There are some examples that can be cited for reference. For example, the building of armoured vehicles by Basel Group, and new small arms, ORSIS and Strizh. We need success stories. We need someone to emulate in developing the military-industrial complex and attracting private capital.

Next, the use of PPP mechanisms in state investment in retrofitting defence industry basic assets. This involves 3 trillion roubles. How can we make these investments accessible and transparent for private companies to invest in them? I mean construction, the purchase of new domestically produced technology. Or is it the case that we are going to buy all machine tools abroad? Because the task you have set for machine tool builders, Mr Rogozin, has not been fulfilled. So, our basic assets, if things get off the ground, will be replenished mainly by imports, and 3 trillion is a lot of money for the Russian budget.

In 2013 the Council will focus on spreading the best practices and positive experience. We have something to work with here. Today state corporations are also involved in the private-public partnership. The Rosatom state corporation is conducting several projects together with private interests and Rostekhnologii is pursuing several projects. We should disseminate this experience, demonstrate it and present it as a success story to attract domestic private capital. Then, I am sure, the tasks facing the military-industrial complex will be fulfilled, and I hope the Military-Industrial Commission will be helpful. Thank you.


* * *

Briefing by Deputy Prime Minister Dmitry Rogozin based on the results of a defence industry conference

Dmitry Rogozin: Good afternoon, colleagues, the defence industry conference dedicated to the 60th anniversary of the Military-Industrial Commission has just wrapped up. Speakers focused mainly on organisational issues related to the fulfilment of the state armament programme.

As you may have noticed, much was said about working with people. We realise that it’s imperative to see the forest for the trees, so when we talk about staffing issues, we should focus on real people and their lives. We need to establish a system of incentives to attract the best of the best. The brightest minds should work to strengthen our country's defence capabilities. Russia will benefit from this in two ways: we will not only enhance our defence capabilities, but also expand civilian manufacturing. Eventually, 40% to 60% of the output of each defence enterprise should promote the growth of our entire economy. This will be money well spent. It will be used not only to build tanks, guns, or aircraft. It will be used to drastically improve the quality of life of the Russian people – at least, that’s our goal.

The second important point is about a retrospective look into the past. It’s important for us all to see how the unified defence industry management system was formed starting with the difficult years of WWI, the first years of the Soviet Republic, the Soviet Union, during WWII and after. Indeed, the Military-Industrial Commission, which was revived a few years ago, has roots in those times.

I tried to structure my remarks around the lessons we learn from our recent past and from the work done by the people who are thankfully still with us at this conference. First of all, we should look to the future by performing system-wide work based on programmes and plans, as well as scientifically and methodologically sound approaches, so that the funds that go into this work are spent wisely. We shouldn’t just invest in some programmes. Instead, we should invest in things that will boost the industry’s potential for self-development, that is, in modern production techniques and staff training.

I believe that a tool such as this defence industry conference can be further used to promote the spirit of corporatism among employees of the Russian defence industry and those engaged in military research, and in general for a serious analysis of our work in 2012 and early 2013. Currently, we are holding weekly meetings of the Military-Industrial Commission, which are attended by senior representatives of all ministries and departments that are part of the military-industrial complex. In the coming weeks, we will start holding teleconferences with Russian regions, because I want things that we discuss in the Government House be heard by regional leaders, representatives of regional corporations and regional unions of industrialists and entrepreneurs, so that they understand what’s going on and what tasks are being set by the Government for the executive authorities and the Russian regions in terms of establishing the systematic and methodical operation of our industry.

Big monthly meetings of the Military-Industrial Commission should also be capped off with all-Russian defence industry conferences. It’s imperative to involve many people in this difficult work, so that we can hear what they have to say to us, draw from their experiences, and introduce them to the best practices of other Russian companies that have already made progress not only in manufacturing advanced products but also in staffing policies. We are talking about decent, annually adjusted salaries and benefit packages to boost the prestige of these professions – designers, engineers, and highly skilled workers.

Another point which I mentioned earlier today: we used to complain in late 1980s and especially in the early 1990s about the brain drain from Russia. At some point, this process stopped. We are experiencing shortages of highly skilled personnel. There are many migrant workers in Russia, but not the kind that we need. We need to create incentives for engineers, manufacturing engineers, researchers and highly skilled labour from former Soviet republics and maybe other foreign countries to come to us. We should create the most favourable conditions for them, so that these people come and live in Russia. It’s very important for us, and the Government will act consistently along these lines based on presidential support. We hope that bright minds and good hands will start flowing into Russia and that we will eventually start importing brains instead of exporting them. This would be great, because Depardieu alone is clearly not enough for us. Let’s move on to questions.

Question: The Military Industrial Commission is working harder now than it did in the Soviet era, because back then issues could be resolved by issuing orders. How do you see the work of the commission in the market environment?

Dmitry Rogozin: We can’t issue orders, as you say, but perhaps there’s no need for orders at all. It’s important to create economic, political and financial incentives that will make things happen in the defence industry.

I have been working in the Government at this post for over a year now, and I have noted several very important things. We strive to attract private capital of all sizes, because small and medium capital will help us deal with the monopolies by creating parallel manufacturing processes.

Secondly, we have given big business an opportunity to obtain the necessary information about the needs of the state armament programme in creating major production facilities and major investment. Look, even in such sensitive matters as the development of aerospace defence, we have an aerospace defence concern formed by private funds. I'm not even mentioning firearms or the development of ammunition and equipment for military personnel. Interestingly, state-owned enterprises are complaining about their hard life, but then you see private businesses come in, open the same kind of enterprise, enter the market and start selling their products. We are uniting groups of state enterprises into one concern or corporation, but at the same time we are helping to form private corporations, which will compete with the state concern. In a sense, we are promoting competition. Here’s an example: I’m actively involved in the creation of the Kalashnikov concern, which I believe is extremely important. Even when working in Brussels as Russia's envoy to NATO, I have on many occasions told my colleagues – permanent representatives of NATO countries – that they require us to bulldoze counterfeit DVDs with all those movies, while they themselves quietly churn out our Kalashnikovs without paying anything to us or the inventor. Therefore, creating a large concern and branding our products is important. That’s the way for our businesses to get ahead on the markets.

Of several enterprises that are equally poor performers (lack of orders, horrible technical backwardness, and so on), we take one, then another one, clear them of debt and give them government contracts. They receive funds for technological innovation and recruit new people. Two companies streamline their product line in order to avoid manufacturing the same thing under different names, such as Vepr and Saiga. Firearm manufacturers know what it means to manufacture the same thing under different names, so we have streamlined their manufacturing processes and combined their design potential. We will then throw other depressed companies into the mix. There must be a leader who has a goal and is willing to achieve it. We need such prevailers who can manifest vitality and viability. We will build other enterprises around them and they will raise them up.

In addition to Kalashnikov, we will form the Degtyarev concern based on the Degtyarev plant in Kovrov, which is now privately owned, by the way. In this way, we will promote competition and markets. We will create centres of excellence based on major state-owned enterprises. We should discard all unnecessary things, eliminate unnecessary mobilisation tasks that date back to WWII and focus on future weapons programmes. We should raise the bar for them in terms of responsibility and quality, and introduce private capital in the defence industry. I am positive that this will work as a magic wand for our defence industry. It stimulates competition and helps the state to share risk, in matters of defence order contracting, with the private sector. But we need the Government to establish the rules of the game.

In 2012, we did good work in terms of executing the financial aspect of the defence order. Although there were many amendments, the most important thing is that new laws became effective in 2012. This year, in 2013, all kinds of support legislation must be prepared, i.e. the legal framework for pricing, work with integrated organisations, because the new law we passed late last year has not yet really taken effect, it will kick in only in 2014, but this work must be followed through by making very important government decisions every month, decisions that will bring this law “down to earth,” put it on solid ground in our practical life.

The second point is to involve private business in the defence sector by providing the necessary information, by putting in place the rules of the game that will encourage the private entrepreneur. He is ready to risk his money in the first step, the step when a prototype is prepared, but he must know that if he has fulfilled the Defence Ministry’s request for a proposal and if the sample suits the Defence Ministry he will then make up for his costs because he will benefit financially from volume production. But we need to study this new situation, visit all these enterprises, talk to all these people to create a balanced approach, that is why these three years – 2012, 2013 and 2014 -- will see the creation of a new system for organising the Russian defence industry. Beginning in 2015 new models of weapons and military equipment will start being produced and we will begin production of these prototypes. Research and development is being completed and companies are beginning to work under stable conditions and on a large scale.

This is also a big question because formerly these businesses were starved of government orders and now there are many orders, but the industry for the most part is not ready for them in terms of technical capacity or in terms of human resources. Time is short and all these challenges must be met simultaneously. You say that this process cannot be managed. It can be managed, and perhaps it is more difficult to administer, but it is possible and necessary to manage these companies judiciously with only those you want to be involve in the effort, into the common plan. That’s why we need these kinds of conferences so that businesspeople can learn what the Government expects from them. They must be full-fledged participants of a common ideology, share with us the responsibility for the decisions being made. We will not make these decisions without them.

Look at how we have organised the work of the Military-Industrial Commission: we set up Military-Industrial Commission councils. Initially we had only one council, the scientific-technical council, a very authoritative body, with a lot of members from the Academy of Sciences, a lot of intelligent people, a kind of scientific-technical filter. But this was the only council like that, since then we have organised a council for public-private partnerships, then the public council, which is important because no major undertaking can be implemented without public support, without the public knowing how tax payers’ money is spent. And now we have started to create a series of councils for various areas, i.e. we have councils for the procurement of the various armed services: a council for shipbuilding, for aircraft building, for technical support of ground forces, the airborne troops, the marines, the special forces etc., an IT council for information management systems, communications and reconnaissance and for space.

What’s a council? It is not just some people sitting there handing out advice. Each council has a staff member of the Military-Industrial Commission, heading up the council which is about 40-50-strong: they are leading designers working in a related field, leading businesses (represented by their directors), state customers, representing the Defence Ministry, the Federal Security Service, the Internal Affairs Ministry and so on, that is, those who will buy the product, and the experts. We are at long last restarting the professional dialogue in these specific areas. This was not the case before, now we have it, so we are trying to find ways to work under the new conditions not by administrative methods, but by including all parties in a common plan and in a common effort.

Question: I would like to ask about your opinion of Sergei Shoigu’s speech. He talked about “non-core functions” and he mentioned the figure, 300 enterprises. What in general can be done with these businesses that are owned by the Defence Ministry?

Dmitry Rogozin: To give you an idea of what the discussion between Minister Abyzov and Minister Shoigu was about, there was an exchange of opinion, but in reality I don’t think it was an argument because Abyzov focused on how to work with credit funds that we take out in order to fulfill a defence order, while Sergei Shoigu was talking about budget funds, wondering why that money was insufficient. We advance 100% on a long-term basis, and isn’t that enough to fulfill a defence order properly and on time. These are two groups of assets. Some of the money is indeed borrowed in the open market by businesses and we subsidise the interest rate to ensure that the loan is paid back. But there is also budget money, i.e., a direct load from the budget.

As for the second point made by Minister Shoigu, he said that perhaps the Defence Ministry in its new form should be relieved of some of its responsibility which should be delegated elsewhere.

That’s a difficult question because it’s not only about authority, it’s also about money. If the Defence Ministry shies away from the pricing issue and doesn’t want to deal with it, then it should forego the money that is in Defence Ministry accounts. Then somebody else will have to manage that money and be the so-called Chief Administrator of Government Resources. Who should that be? So we will have to adopt a resolution on a new system for pricing military equipment, a resolution that flows from the adopted law on the state defence order (I think that the work will be finished by July, at least it is in our plan).

In the framework of the Military Industrial Commission’s pricing council I have already issued instructions to first deputy chairman Ivan Kharchenko. He will have to include the leadership of the Defence Ministry, the Finance Ministry, the Ministry of Economic Development, the Federal Tariff Service and all the other participants in  a dialogue  on how we should organize the pricing process, and of course the Ministry of Industry and Trade because its enterprises make the final product.

Let me repeat: this is not an easy issue, but we need to discuss it. The main thing is that while under the former Defence Minister all the authority was concentrated in the hands of the Minister himself, who all but set the prices for equipment procurement himself. The new Defence Minister works differently. They say, we need the quantities and the deadlines. What is the State Armament Programme? It is all about  quantities of equipment, deadlines and money. How many tanks, against what deadline, and at what cost, should be built and delivered to the Armed Forces. The Defence Ministry says: “We are not interested in money matters; we leave it to you to decide. We are responsible for defending the country, we need this hardware to be able to move and shoot, fly and sail, dive and so on and we need specific deadlines so that we could plan the training of personnel to man all this hardware and fulfill the challenges facing the Defence Ministry, which is the protection of the Motherland.

So I repeat: this is serious reform, not revolutionary, but a profound change that must be pursued thoughtfully, and I hope we’ll come up with the agreed upon proposals by July. It also has to be kept in mind that under the new statute on the Military-Industrial Commission, it also is involved in the issue of pricing as the final arbiter in the event of a dispute. But let’s hope that there won’t be any conflicts because the Defence Ministry chief for armaments, Yuri Borisov of the Military-Industrial Commission, knows the kind of problems we have encountered and how to deal with them from the industrial point of view.

I think the balance that has now been restored between industry and the Defence Ministry by the President and his new appointments is not just about names but about creating new competences, the understanding of how a partner to this dialogue feels, what problems he faces and how to lend a hand to each other in order to cope with these problems. The Military-Industrial Commission is the best place for this because it brings together both sides.

Question: Mr Rogozin, just recently reports came out that the number of defence industry enterprises (which currently stands at 1200-1300) will be reduced to about 1000 in the near future, over the next few years. I would like to know how quickly this will happen, how difficult it is and what the cost will be. And will all the enterprises that…  be preserved?

Dmitry Rogozin: Surely you understand that not everything can be preserved. If we introduce production automation, for example, then robots will take over some labour, modern technology replaces a lot of low-skilled workers, of course there will be fewer such workers or no such workers and instead we will have high-skilled workers, intellectuals that can operate digital machine tools. The way I see it, we have inherited the Soviet defence industry with not just its problems, but with its huge number of workers because it was designed to produce mountains of weapons to be able to wage war against the whole world. Now we don’t need that much labour intensive production. We should certainly proceed from Russia’s demographic potential and a competent analysis of any threat. I have already spoken about this today: one soldier should be fighting like five soldiers, that is, he must be equipped to be able to do that, and the defence industry must increase its productivity fivefold. So these companies must be modern, automated, robotised, and that will inevitably reduce the number of enterprises and release some unskilled labour, which of course, proceeding from the need for social development, we will have to retrain, basically, teach them another trade to avoid problems. We should be particularly careful with single industry cities.

So what would be the timeframe? The timeframe should be set on the understanding that we are dealing with people. It is only when we provide these people with a fishing rod so they can catch fish that we can proceed with reducing some enterprises. I repeat: there is no need to simply reduce the number of enterprises. High technology results from what’s happening, in what our Finance Ministry likes to call “optimization.”

Optimisation is a handy word. It was invented as a synonym for downsizing. But in this context the word is more appropriate: we are talking about the optimisation of production for the goals set under the state armament programme, but with due account for scientific and technological progress. We don’t need as much as we have. The production sites released will be used to build housing for defence industry employees. That is a great reserve and an attraction for the people who want to work in defence industry. Also, we hope that some redundant production facilities will be simply converted for various civilian purposes. The experience of Rosatom in Sarov is a case in point: there they created an industrial park together with private investors for people who became redundant and were laid off from the nuclear industry (in any case they live in Sarov and they have nowhere to go). Rosatom simply transferred its core high technologies to that industrial park and the laid-off workers have been employed in production facilities that provide material incentives and enable them to fulfill their creative potential. Those are the kinds of decisions we need. But we need to watch all this to prevent them making a mess of it. We have far too many leaders who would rather cut the work force and simply throw the workers out.

Question: My question is a little bit off topic. Some time ago you spoke of the need to create a “cyber command” in Russia. If my memory doesn’t fail me, about a year has passed since you made that statement. Is anything being done in that area? The media have discussed options, reported that the General Staff was considering certain plans, that the command could be based on the Federal Technical and Export Control Service. If this work is being done, how will the “cyber command” be financed and can you give any timeframe?

Dmitry Rogozin: I wish I could say something without saying anything. Yes, this work is being done, and it is being done intensively. But one has to bear in mind that cyber attacks do not always mean the use of open social or some other cyber networks. The main threat posed by cyber wars comes from the apps put into the software of various machine-tools or, say, weapons systems, etc. To know what is built into these boards, to understand who will actually control them at zero hour, how to prevent this from getting into the systems that have strategic importance is an extremely complicated but important task. Therefore the question of creating a cyber command has to do with the Armed Forces and calls for a military approach to the situation.

As regards industry, it is also an important issue for us because we are currently purchasing large amounts of technology and machine tools. We must know how these machine tools will operate at a certain moment when, for example, mobilisation is required. Will they crash or start producing matryoshka dolls instead of the important military equipment we need? That is a serious question and of course we are working on that. Who will be doing it and how it will be organised, apparently a decision will be made, but not immediately, a bit later. On the whole, I repeat that the Military-Industrial Commission is working closely on that within the framework of one of its councils. This programme is being supervised by Igor Sheremet, the former head of the General Staff Military Science Committee.

Question: Mr Rogozin, Russia has a new type of enterprise, engineering design centres with excellent training facilities for the training of young specialists. Do you see such engineering design centres being involved in the defence industry and the creation of full-cycle industrial parks in the defence industry sector?

Dmitry Rogozin: Yes, of course. We see great potential there for creating engineering and design competences that could work for the Russian defence industry. But I have to say that most of our plans are connected with the programmes of the Fund for Advanced Research. According to our plans, we will deal with organisational issues at the Fund until June. You understand that so far it is a desert: one has to find budget money, rent an office, recruit competent, serious people from the professional market, and they cost a lot, so we are negotiating with them to form a first ground-floor elite team for the Fund for Advanced Research.

But the position of Andrei Grigoryev, the Director General of the Fund, is that these centres should be located mainly at large technical universities. It is important for us to have flexible laboratories doing some unique high-risk research in an environment with many people with outside-the-box thinking who attend these classes. They are above all students and young scientists. So such engineering design centres, including temporary centres created for five years to prove the feasibility of a given article, a hypothetical product with the possibility of starting research and then development – this is the job of the Advanced Research Fund. I think they will be able to put their act together, according to our plan, by July of this year.

Thank you, colleagues. Once again I congratulate you all on our holiday.