Defense Ministry approves 200 plant bids for defense orders 2012

MOSCOW, October 11 (Itar-Tass) —— The Russian Defense Ministry has invited 600 defense plants to take part in the fulfillment of state defense orders 2012, First Deputy Defense Minister Alexander Sukhorukov said on Tuesday.

“A total of 460 of them replied and sent their price lists. The ministry has approved 200 bids,” he said.

Loans will be used actively in next year’s defense procurements, Sukhorukov said. “Loans on Russian state guarantees in the fulfillment of state defense orders in 2011-2014 is a forced measure. The problem is that the allocations for the state armament program are highly disproportionate: 31% of the total allocations will be made in 2011-2015 and 69% in 2016-2020,” the officer said.

The loans did away with the disproportion and allowed the ministry to sign long-term contracts, including those on strategic missile systems, this year.

More than 154 billion ruble loans are granted in 2011, Sukhorukov said.

At the same time, the scale of the Russian Defense claims to the quality of defense products remains too high, he said.

“The scale of claims to the quality of defense products has been very high in the past three years. A total of 1,764 claims were made in 2010 [which is 20% more than in 2009], and the number of claims grew by 10% in the first half of 2011,” he said.

The Defense Ministry acts in strict compliance with contract terms and effective laws in its relations with unscrupulous suppliers, he said. “We levy fines [at the amounts set by contracts – usually, 5% for failed deliveries and 0.1% for every day of delay] in the case of late supplies and inferior products,” he said.

One of the largest claims was made to Kurganmashzavod, “which was fined at over 3 billion rubles for thwarting the delivery of BMP-3 infantry combat vehicles in 2010,” Sukhorukov said.

Another point of disagreements is pricing, he remarked.

The Defense Ministry and the United Shipbuilding Corporation (USC) differ over the cost of Borei and Yasen submarines, Sukhorukov said.

The government has formed an interdepartmental working group but even the Military Industrial Commission is unable to say how much the submarines really cost, he said.

“The Defense Ministry will accept any prices, which are economically founded and proven with estimates,” he said.

“The imperfect pricing system in the country is another problem,” Sukhorukov added.

“A number of shipyard executives hope to sign the contracts without specifying submarine prices. That won’t happen,” he said.

The Governmental Military Industrial Commission will consider a draft of state defense procurements 2012 in the middle of November, a Commission representative told Itar-Tass last week.

“The meeting due in mid-November will focus on the draft of state defense procurements in 2012 and the period of 2013-2014,” he said, adding that the placing of defense orders for next year had not begun.

“Next year’s contracts are not even being negotiated,” a source in the defense sector said. Some orders of 2011 have not been placed either, such as the orders for nuclear-powered multi-role submarines of Project 885 ‘Yasen’ and strategic missile carrying submarines of Project 955 ‘Borei’.

Defense Minister Anatoly Serdyukov told the newspaper Komosmolskaya Pravda earlier that they had to place only 20 billion rubles worth of defense orders for next year.

“State defense orders 2012 have been practically placed. Slightly more than 20 billion out of 580 billion ruble contracts are yet to be signed,” he said.

The Russian Defense Ministry will sign a contract with the United Shipbuilding Corporation (USC) to build strategic and multi-role nuclear-powered submarines as soon as it is offered a founded pricing formula, Sukhorukov said.

“We have substantial disagreements with the United Shipbuilding Corporation over contracts on the construction and repairs of nuclear-powered submarines,” he said.

An interdepartmental working group has been formed at the Governmental Military Industrial Commission for settling the disagreements.

“The USC will present us with a pricing formula and we will verify its practicality. If that is so, the contract will be signed immediately,” he said.

“We have not received pricing documents from the USC so far,” Sukhorukov added.

In his words, the Defense Ministry wanted to avoid extra revenues of contractors from sub-contractor activities. “This policy cuts the price of certain arms models by 15-20%,” he said.

The Russian Defense Ministry and the Moscow Thermal Technology Institute signed three contracts on Yars and Bulava missiles in August, Sukhorukov said.

“Three contracts were signed with the Moscow Thermal Technology Institute on August 26 concerning three strategic missile systems, i.e. two Yars contracts and one Bulava contract,” he said. “Main works on the contracts of state defense orders 2011 are done. A total of 95% of state defense orders are placed.”

“Some 362 billion rubles have been transferred in payment for complete and future works [74% of the total contracted amount]. The deliveries are due before November 25, 2011,” he said. “The deadline may be extended until the first or second quarter of 2012 on coordination with the Governmental Military Industrial Commission.”

The Russian Defense Ministry will also buy 65 Yakovlev Yak-130 combat trainers from the United Aircraft Corporation (UAC) before 2018, Sukhorukov said.

“The state armament program for the period until 2020 stipulates a long-term contract on the acquisition of Yakovlev Yak-130 combat trainers in 2011-2018 on state-guaranteed loans,” he said. “The Defense Ministry held consultations this year to determine the plane’s price. As a result, it was agreed with the United Aircraft Corporation in September 2011 to conclude the deal with the median price of 444 million rubles per jet. Bearing in mind the lengthy period of negotiations and the technological production cycle, the ministry agreed with delaying the beginning of the Yak-130 deliveries until 2012,” he said.

“In all, it is planned to buy 65 jets under this contract [by 2018],” he said.

The deliveries of the third and fourth regiment sets of S-400 anti-aircraft missile systems are planned for 2012, Sukhorukov said.

“Another two long-term contracts have been signed with the Almaz-Antei Concern in the interest of the national aerospace defense,” he said.

Almaz-Antei will coordinate cooperation between defense plants involved in the project. “It is also necessary to enlarge industrial capacities of the concern for meeting the demand of the national aerospace defense network. Due to the late signing of the contracts on the third and fourth S-400 regiments, the deliveries will start in 2012,” he said.

Three trillion rubles will be assigned from the federal program for technical support to the defense sector, the officer said. “The money will be invested in new productions, personnel training and so on. For instance, it is planned to build two plants for making S-400 systems. The plants will produce S-500 systems in the future,” he said.

The Defense Ministry has placed orders with the Russian Helicopters Holding, the Almaz-Antei Concern, the Moscow Thermal Technology Institute and manufacturers of conventional armaments. Negotiations are complete with the United Aircraft Corporation, he said.

State defense orders 2011 total 581.5 billion rubles, Sukhorukov said. “Bearing in mind the massive deliveries, we wanted to agree on transparent prices before signing any contracts,” he remarked.