Dmitry Medvedev has chaired a meeting on promoting public-private partnerships to design and manufacture small arms.
Transcript of the beginning of the meeting:
A meeting on promoting public-private partnerships to design and manufacture small arms
Dmitry Medvedev: Today’s meeting will focus on public-private partnership in the important segment of the defence industry – small arms manufacturing. Until recently it was hard to imagine that such a subject could be even discussed. This is still a new path, but we are committed to following it. For this reason, the fact that we are meeting in Promtekhnologiya’s facilities is no coincidence. This is a private company operating in a segment that used to be controlled by the state. This plant makes high-precision weapons that are equal in quality to the best foreign models. The ORSIS trademark has gained global appeal. Certain achievements have been made. A team of Russia’s special service officers has won the Sniper World Cup two years in a row.
There is no doubt that the subject of public-private partnership is directly linked to the upgrade of army and navy equipment: as you know, by 2020 the share of new equipment and weapons is expected to total 70%. In the current environment, with the possible use of arms ranging from counterterrorist operations to local conflicts, the efficiency of weapons used in such situations is particularly important. Substantial funding, about 26 billion roubles, has been allocated from the State Arms Procurement Programme to equip the army with small arms.
Dmitry Medvedev: “There is no doubt that the subject of public-private partnership is directly linked to the upgrade of army and navy equipment: as you know, by 2020 the share of new equipment and weapons is expected to total 70%. In the current environment, with the possible use of arms ranging from counterterrorist operations to local conflicts, the efficiency of weapons used in such situations is particularly important. Substantial funding, about 26 billion roubles, has been allocated from the State Arms Procurement Programme to equip the army with small arms.”
These allocations must produce the maximum returns, since the Government does not have any money to spare. I hope that they will help to evenly fill order books in this segment, which at the end of the day will ensure that public contracts are executed in a timely manner and that the resulting products are of high quality. Most importantly, it should provide our military with reliable and efficient arms, and I hope that the price will be reasonable, not least because this issue has received a lot of publicity lately. This is what the public-private partnership model is all about. <…>
In Russia, private companies were not allowed to work in the defence industry until recently and did not view it as a promising segment. I hope that this is about to change, but in order to get there both the state and the relevant private enterprises will have to do their part.
What opportunities exist in this segment? First, companies can attract additional private investment, additional funds.
Second, we are interested in promoting competition in this segment. A lack of competition (in any industry, from ice cream to arms manufacturing) leads to stagnation and degradation. For this reason, public-private partnerships should undoubtedly promote innovations in arms manufacturing.
Public-private partnerships are also expected to enhance the quality of the products. We have just seen how the main types of arms are made at Promtekhnologiya’s facilities. Since quality is absolutely essential, extensive financial and R&D resources go towards improving it. What I want to say is that in order to find efficient and mutually beneficial mechanisms of public-private partnerships in the design and manufacturing of small arms, producers should strictly comply with the requirements of the government client, especially regarding the use of arms in military operations.
Of course, the amount of purchases is also important because all the new things we had in this area were experimental pilot samples. When it comes to such sophisticated technology, the scale of production and purchases matters not only from a business viewpoint but also for upgrading skills, even with the understanding that many components of small arms are being and will be produced manually for a long time despite the availability of the latest technology.
I’d like to hear your proposals on how to develop this partnership. Mr Manturov (addressing Minister of Industry and Trade Denis Manturov ), go ahead please.
Denis Manturov: First, I’d like to outline what small arms production covers. They are just one category of conventional weapons. According to federal standards, small arms include all types of civilian and military weapons with a calibre of up to 20 mm. In fact, the biggest calibre weapons produced in this country are 14.5 mm. Small arms are more oriented to the domestic market than any other segment of the defence industry. About 70% of all arms manufactured by domestic companies are civilian weapons. Our export potential is also huge. In the past we used to export more than half of what we produced and now we export about half of our total production.
This makes the industry attractive to investors, and there are no obstacles that would prevent business from pursuing its interests. This sector is open to private capital, and the second slide shows a list of 18 major enterprises. Less than half of them are publically owned. Owing to the limited administrative barriers, many players can enter this market, including small and medium businesses. To do this they must obtain the necessary license. The Ministry of Industry and Trade is in charge of licensing civilian arms production and Rosoboronzakaz (the Federal Service for Defence Contracts) is in charge of military production. Some companies have a full package of licenses for the development, testing, serial production, repairs, technical maintenance and disposal of small arms.
Denis Manturov: “Small arms are more oriented to the domestic market than any other segment of the defence industry. About 70% of all arms manufactured by domestic companies are civilian weapons. Our export potential is also huge. In the past we used to export more than half of what we produced and now we export about half of our total production. This makes the industry attractive to investors, and there are no obstacles that would prevent business from pursuing its interests.”
Dmitry Medvedev: The figure that you present here – 22,000 workers… This is not a small figure. Does it include new private companies or not?
Denis Manturov: This is the total for small arms production, including private companies. We do not differentiate between them by form of ownership. Federal standards are the main criterion for us.
A number of private companies producing high-tech small arms have appeared in the market recently. Their products not only compete successfully in the civilian sector but also appeal to defence and law enforcement agencies. I can quote such examples for any stage of the small arms life cycle. For instance, the Tula Ammunition Factory developed a cartridge under order from the Federal Guard Service at its own expense. Now the Federal Guard Service has fully switched to this cartridge.
As for the last stage in the life cycle – disposal – some time ago our federal plant in Tambov rented a disposal unit from the private company Megaton (the Amur Ammunition Plant is going to follow suit). As many as 380 million cartridges have been recycled this year. Considering that the Defence Ministry expects to dispose of three billion cartridges by 2020, I hope these units will not be idle. There are many similar examples. The Government has created a number of back-up tools. Having introduced subsidies on loans for innovative and investment projects in 2009, it provided 14 companies with about 570 million roubles.
This October you approved a Government resolution on subsidising exporters of military products. Companies received such subsidies some time ago but later they were suspended. Now they can receive them again. So companies can actively use all these tools.
On the Government’s instruction our ministry is working on a draft strategy for the small arms and ammunition industry up to 2020 in cooperation with Russian Technologies. One of its goals is to attract private investors to the companies in the defence industry. The Kalashnikov Concern – part of Russian Technologies – is a prime example. The draft strategy provides for the implementation of priority pilot projects by private investors. One of them is aimed at establishing a production and engineering centre for special steel and alloys, while another provides for the construction of an ammunition factory. They are focused on the raw materials and technological base that will help private companies to develop their business.
As for public-private partnership in the defence industry, we have already taken a first step in this direction together with the Open Government and interested federal executive bodies. The Military Industrial Commission has approved the concept for public-private partnership in the defence industry. Its legislative basis has also been prepared – it is addressed in a new law on contracts. Now the State Duma is reviewing a draft law on the foundations of public-private partnership.
It is very important for private companies in this sphere to give a new status to the rules for developing arms and military equipment at the expense of private investors. They should be adopted by the Government rather than the Defence Ministry.
In conclusion, I’d like to say that investors have been provided with all the tools necessary for entering this industry and forming new companies. Now they must make the most of them.
Dmitry Medvedev: Thank you, but if everything was okay we wouldn’t have to meet. It appears there are still problems to be addressed, such as the issue of regulatory acts.
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