Alexander Velovich/MOSOCW
EIGHTEEN AIRCRAFT being offered by eighteen agents, including a Russian popular singer with alleged mafia connections. No wonder the sale of Mikoyan MiG-29 Fulcrums to Malaysia proved such a tortuous process.
Russia's attempts to "rationalise" its arms-export structure, has proved positively baroque. The centralised edifice of the old Soviet regime has been replaced by a plethora of competing and contradictory organisations supported and undermined by a myriad of presidential decrees.
The collapse of the defence budget has seen internal procurements tumble, forcing the defence industry to shift its focus to the export market.
Russia's current share of the world arms- export market, says Yuriy Glybin, first deputy chairman of the Stat Committee for Defence Branches of Industry (SCDBI), amounts to only 12%. As a result, a "...special state programme of military-technical co-operation" - the term traditionally used in Russia for foreign arms sales - has been set up to increase sales.
Seven years ago, the Soviet Union was the leading arms exporter on the international market, selling weapons and military equipment worth $15 billion a year. In 1994, Russia received only $1.7 billion from weapons exports, placing it sixth in the league table of major arms exporters.
This loss of export market share causes considerable consternation among Russian politicians and industry officials. This has led to the creation of numerous companies and organisations, which are now attempting to reverse the slide.
CAMPAIGN FOR INDEPENDENCE
In late 1993, the state company Rosvoorouzhenie was created by a presidential decree, combining the three separate agencies, previously associated with arms sales. The new company, although independent, retained strong links with the foreign economics relation ministry, and enjoyed monopoly rights in the signature of arms exports. It inherited a network of about 40 offices set up worldwide by one of its predecessors, the GIU, or chief engineering directorate.
Military-equipment manufacturers, however, campaigned for more independence in their international marketing activities. This resulted in another presidential decree, which eliminated Rosvoorouzhenie's monopoly on foreign arms sales. Instead, a complex mechanism of state control was established.
The State Committee for Military Technical Policy (SCMTP) was formed, by yet another presidential decree, with responsibility for regulating arms sales and for control of the defence industry in general. Since its formation, however, President Boris Yeltsin, again by decree, has curtailed some of the SCMTP's power.
Several manufacturers have received licences allowing them to market and sell their products independently, although few have managed to sign any deals. The most widely publicised success was the decision by the Royal Malaysian Air Force to purchase 18 Mikoyan MiG-29 Fulcrums to meet an air-defence fighter requirement from MiG-MAPO. Rosvoorouzhenie played a major part in the negotiating the contract. As many as 18 different intermediaries approached the Malaysian Government at one stage or another, however, including a popular Russian singer, and even a section of MAPO which offered contract terms different to those submitted by its parent company.
Even by its own estimates Rosvoorouzhenie admits that the lack of coordination has cost Russia some $500-600 million in lost business in 1994 alone.
Theoretically, any weapons deal has to be approved by a clutch of Government agencies, including the SCDBI, SCMTP, foreign economic relations ministry, defence ministry, foreign ministry, Federal Security Service and Foreign Intelligence Service.
To regulate this process, an inter-agency commission on military-technical co-operation was formed. Another body - the consultative advisory council on military-technical co-operation - which gathers representatives from around 60 of the main manufacturers, is supposed to settle any disputed between the parties involved.
DAMAGING SCANDALS
To complicate things even more, the SCDBI and the defence ministry established their own arms sales agencies, Promexport and Voentech. These, in theory at least, have the same arms-export "rights" as Rosvoorouzhenie.
Perhaps not surprisingly, given the air of near anarchy surrounding Russia business deals, all three agencies have become involved in a series of damaging scandals.
Less than a year after it was set up, Rosvoorouzhenie's general director Victor Samoilov was dismissed, to be replaced by Alexander Kotelkin. The company was accused of illegal operations and violations of tax legislation, but the results of a criminal investigation have yet to become clear.
Voentech, meanwhile, was reported to have managed to sell ex-Russian army T-72 main battle tanks to Croatia in violation of the United Nations arms embargo. It also appears that the company sold surface-to-air missiles to the Tamil Tigers in 1992 through a Ukrainian intermediary. Because this deal came to light, the Sri Lankan president Chandrika Kumaratunge has frozen all military contracts with Russia, pending an investigation into the allegations.
Not to be outdone, Promexport has also become embroiled in scandal. In January 1995 its director, Oleg Borisov, apparently committed suicide. There are allegations that a continuing criminal investigation was on the brink of uncovering the illegal sale of Igla man-portable surface-to-air missiles.
While probably less sophisticated than the equivalent Western kit, much Russian military hardware remains state-of-the-art, is robust, and has the added advantage of being relatively cheap.
The way in which equipment is priced remains different to that in the West. Under the Soviet regime, manufacturing costs were ignored, and the product was priced according to the competition.
Even in the middle of 1994, when the parliament was preparing the state budget for 1995, the internal price of a Sukhoi Su-27 Flanker based on production costs, amounted to 4,700 million roubles ($2.36 million at the then exchange rate), substantially less than the price of the aircraft on the export market.
Pavel Litvarin, the foreign ministry department head for supervising arms sales, explains that "...prices of our weapons always were lower than world prices because our production costs were lower. Now, with the transition of our industry to world prices, the production cost of our weapons is going up."
Litvarin adds, "The Soviet Union used to sell weapons in exchange for political support and influence. Now, we are trying to sell weapons, preferably for hard currency, or on the condition of bringing sufficient profit to the Russian Federation."
Sergei Blagovolin, a member of the presidential council, says: "Those huge sums which the Soviet Union, as we all believe, got from weapons sales are three-quarters a legend. About that share of the equipment's value was given away without charging a kopeck."
The combined debts of Iraq, Iran, Libya and Syria to Russia are estimated to be around $25 billion. "We will definitely not get this money if we discontinue our military technical co-operation with African and Asian countries which are our debtors," says Blagovolin. He adds that continued co-operation is the only way that any money will be recovered.
Industry officials exhibit much less patience. Alexander Dorofeyev, head of the directorate of military-technical co-operation in the SCDBI, says that Russia's economy today "...demands that we should get hard currency for weapons deliveries, and not by extended payment through loans, but in the year of delivery".
Dorofeyev also makes it clear that, with few exceptions, Russia is willing to sell any of the military equipment it now has in development.
MARKED CONTRAST
This approach is in marked contrast to the old regime. In the late 1980s, Mikoyan refused to fit Iraqi MiG-29s with air-refueling probes because the Russian air force did not have such a requirement. By comparison, MiG-MAPO is embarking on a four-stage upgrade programme for its MiG-29SM for Malaysia.
The first stage, implemented before delivery of the aircraft, was to convert the instrumentation to imperial, rather than metric, displays. The second stage, now under way, was to fit Western avionics, including an instrument-landing system, TACAN and VOR/DME navigation aids, and a Cossor identification friend-or-foe system. The third phase will be the installation of an air-refueling probe, while the fourth phase, scheduled for 1997, will provide weapon-system enhancements. This will include a radar upgrade to allow two-target engagement with the Vympel R-77 (AA-12 Adder) air-to-air missile.
Blagovolin says that not everybody likes Russia's more realistic approach to arms sales. "Some people say it smells bad, the money smells with blood. It seems to me that in politics the worst thing is not to see the reality: it smells with stupidity. That is even worse, so it is necessary to trade," he adds.
Source: Flight International
