RUSSIA: Forgotten Far Eastern Defence Plants Brought To Heel

By IPS Correspondents Reprint | | Print |

Andrei Ivanov and Judith Perera

MOSCOW, Aug 6 1997 (IPS) - Out on Russia’s far eastern Pacific coasts a forgotten arms industry is finally being brought to heel by its government. Infuriated by years of fraud, failure, wasted funds and opportunities, Moscow has ordered a top to bottom shake-up.

As almost everywhere in Russian heavy industry, cash flow problems, lost orders and slashed state funding has left the staff unpaid for weeks and struggling to make ends meet.

Moscow’s claim is that all this is largely unnecessary, since the Pacific defence industry is better placed than most to take advantage of Asian markets — and that better (and perhaps more honest) management is what’s needed.

Among the accused are management staff at the Zvezda plant in Bolshoi Kamen in the Primorye region. Bolshoi Kamen is a top centre for the repair and maintenance of nuclear submarines and a prime contender for lucrative contracts to maintain diesel submarines sold to India and China in the 1980s.

According to the Primorye region Federal Security Service (formerly the KGB), the Zvezda management has selling off high- priced scrap non-ferrous and precious metals recovered from decommissioned submarines — but left their workers without wages for 10 months.

The abuses were uncovered last month by a fact-finding government commission led by Oleg Yefimov, director of the Economy Ministry’s department for strategic defence. The commission included experts from the ministries of defence, the economy and finance.

It recommended Zvezda’s management implement a business plan built around an increase in state orders for maintenance of the submarines sold by Russia to India and China. In return Yefimov also promised to speed up the settlement of the defence ministry’s unpaid bills for work already done, totalling 100 billion roubles (18.1 million dollars).

The first 20 billion roubles has already reached the enterprise, he says. The plant is also to speed up conversion to civilian services by repairing not only military but also civil vessels. But the works management will still have to search for new orders.

Similar problems afflict the Progress aircraft building enterprise in Arsenyevo, also in Primorye territory. A full health check was ordered by president Boris Yeltsin’s representative in Primorye, Viktor Kondratov, and is being conducted by a special commission of the Accounts Chamber of the Federation State Duma.

Workers at the enterprise, where the Black Shark and Alligator combat helicopters are produced, have not received their wages for 15 months and serious financial malpractice has been uncovered.

Kondratov says the main cause of the present difficulties is “gross financial infringements by the works management and the lack of initiative on its part to look for orders”. The plant has seen its output drop four times over the past two years.

But the Far East plants are not unique. Generally, Russia’s defence industries are in a bad way as a result of a significant reduction in state support and state orders.

The most recent blow was a presidential decree abolishing the Ministry for Defence Industries. Last year the government paid the bills for barely 50 percent of the state orders and 20 percent of civilian production at defence plants.

At present, the Russian defence industries have 1,700 enterprises with a staff of over three million. Of these, 41 percent are state- owned, 32 percent are mixed capital enterprises, and 27 percent are private companies. The slump in state orders has led to the bankruptcy of 450 out of 615 enterprises undergoing conversion.

Only 23 out of the planned 120 new civilian products being produced at the defence plants, and only five of them meet world standards. Only 200 out of Russia’s 1,700 defence enterprises are still functioning, and this is due mainly to exports.

In the early 1990s, the production of strategic missiles fell by 2.4 times, of aircraft, by 1.8 times, and of munitions, by 2.8 times. The purchase of military hardware went down by 70 percent, and the government’s debts to the industries grew from 1,500 billion roubles in 1994 to 9,000 billion in early 1997.

The Russian electronics industry is shrinking as well, with 1996 production figures amounting to barely 15 percent of the 1990 level.

Under the programme for the development of electronic hardware in Russia, annual federal investments in research and development and capital construction were planned at 1.2-1.5 billion roubles — with a similar amount supposedly to be raised from non-state budget sources. In practice, barely 10-12 percent of the planned sum has been allocated.

In the late 1980s, Russia was the world’s fifth largest producer of metal-cutting instruments. Today, it produces less than half that produced by the average nation worldwide. In 1995, Russia’s share of world instrument-making had crashed to just 0.78 percent. Its production of computer controlled lathes plummeted from 16,700 in 1990 to 230 in 1995.

Even high profile sectors like space engineering are suffering.

Allocations to space projects went down by a factor of 10 between 1989 and 1997. The approved allocations to the Federal Space Programme amount to only 30 percent of the required sum. In the first quarter of this year, allocations on space industries were less than 40 percent of the planned figures and amounted to only 15 percent in some spheres.

The already modest plans for launching spacecraft are being slashed. In 1993-96, only a half of the planned number of spacecraft were launched (53 percent, 41 percent, 47 percent and 51 percent, respectively).

The situation of military satellite launches of is even worse. The orbiting craft have grown obsolete, including 80 percent of communications and TV broadcasting satellites. They have exceeded their design life and can break down at any time.

The production of boosters and spacecraft has plummeted. The production of engines for the Proton boosters is being cut, and there is no money to repair the launch sites at the Baikonur and Plesetsk space ports. Over 50 percent of the missile-space enterprises’ equipment has been operating for more than 20 years.

Yuri Chervakov, a former official with the Ministry of Defence Industries, says there is a widespread feeling that the crisis cannot be overcome in the near future. He explains that domestic business has dried up, and that is hitting hard the many non- export defence enterprises.

Even in cases where it is still placing orders with enterprises, the Russian military ends up paying for less than half of the equipment it receives. Even those companies that have converted their production to civilian goods are in trouble. Last year, they saw their output fall by 24 percent, as they could not compete against cheap imports.

Chervakov is pessimistic about the government’s promises to pay wage arrears and to increase funding for 1997 defence orders.

And he predicts that the abolition of the Defence Industries Ministry will disrupt sweeping defence industry reforms that were under way.