Reform with obscure consequences
29 January 2013, less than three months after being appointed, new Defense Minister Army General Sergei Shoigu reported to Supreme Commander Vladimir Putin a plan for a radical transformation of the armament repair system, military and special equipment (VVST) by completely abandoning the Ministry of Defense RF repair enterprises and their transfer to the defense industry. The rapidity with which the 70 system that successfully existed for years, for 70 days, was unexpectedly declared a burden to be eliminated, caused many puzzled questions.
WHY ARMY REPAIR
After the collapse of the Soviet Union, Russia inherited, among other things, the Soviet structure of the Ministry of Defense, which was formed on the basis of the experience of military operations of the Great Patriotic War and subsequent conflicts. This structure included, among other things, a large number of enterprises specialized exclusively in the repair of military equipment and armaments and included in the staff of the main departments, such as GRAU, GABTU, etc. Their directors had military ranks and received orders from the military command, they directly descended the plan and released budget funding.
Why today the Ministry of Defense needs its own specialized repair enterprises, if according to newfangled trends the manufacturer should be engaged in repair? The thing is that the manufacturer and the repairman have completely different tasks, and accordingly - different configuration of the production base, different economic interests. Especially in market conditions. Own repair enterprises of the Ministry of Defense are needed for several reasons.
Firstly, the Ministry of Defense is the main agency responsible for the task of protecting the interests of the state. To accomplish this task, he was allocated human resources and technical means. Constantly keeping these forces and means under their unified control and management for the most efficient use is one of the main needs of the ministry: all IATS put into operation by industry, in this case, throughout the life cycle, are within the Ministry of Defense’s sphere of control and do not depend on what interdepartmental inconsistencies. In other words, by sending the equipment to your own repair company, you can really ensure its timely return to service in the shortest possible time.
Secondly, the military department, as the owner and user of the adopted AMST, is most interested in receiving the maximum return from them throughout the life cycle, minimizing downtime. It was the presence of our own enterprises that made it possible to organize any control over the depth, timing and quality of repairs.
Thirdly, the presence of its own enterprises allowed the Ministry of Defense to carry out repairs in close proximity to the locations of equipment without additional time and financial costs for transportation. In contrast to manufacturing enterprises, located, as befits a strategic object, in the rear, all enterprises of the Ministry of Defense of the Russian Federation were distributed throughout the country in relation to the location of districts, armies and divisions with the possibility of interchangeability and safety net in part of the tasks.
Fourthly, repair enterprises of the Ministry of Defense of the Russian Federation are universal, specializing in the repair of equipment from different manufacturers. As a result, instead of several manufacturers opening their own repair department in one place, one multi-military factory coped with the tasks.
Fifth, the repair of the VVST was a single well thought-out system that developed in accordance with the development plans of the Armed Forces themselves. The Ministry of Defense had a direct opportunity to carry out its technical policy at its own factories, it was itself deciding where and when to re-equip the facilities, where and how to create a new production.
Sixth, the entire departmental repair system of the VVST was subordinated to the fulfillment of the main task - the maximum satisfaction of the needs of troops in the repair of equipment. Administrative powers in relation to their own repair enterprises allowed the military department to also carry out obviously unprofitable, but vital works.
Seventh, the Defense Ministry’s own enterprises were the bridge that connected industry and troops during all periods of the latter’s activity, in particular, outside the permanent deployment sites. Defense industry enterprises are not designed and not adapted to provide for the repair of equipment during exercises, when deployed during a threatened period, during combat operations. These tasks were performed by enterprises of the Ministry of Defense, which accompanied the movement of troops with their own mobile brigades capable of carrying out up to partial overhaul in the field.
The experience of combat operations shows that in the first days of the war, the output of weapons and equipment down to 40%. However, of these, within a day up to 80% was restored precisely due to small and medium repairs carried out at repair facilities in the field. The troops themselves are unable to make such repairs.
MILITARY AGAINST
You have to agree that the above arguments in favor of maintaining the own repair enterprises of the Ministry of Defense are very weighty, but the minister still decides to completely abandon the old system. What is the matter?
And the thing is in the nuances and stories issue.
Everyone remembers the campaign to reform the Armed Forces. The task was entrusted to Anatoly Serdyukov, but he performed it in the only way available to him, the main know-how of which was reduced to the notorious privatization - the incorporation of repair enterprises of the Ministry of Defense and their inclusion in the Oboronservis holding.
This solution made it possible to immediately kill several birds with one stone:
- enterprises became “private”, left the Ministry of Defense structure, as a result of which the number of their employees was no longer counted as part of it;
- since enterprises were withdrawn from state financing and transferred to receive funds through the struggle for state orders and orders from third-party customers, this allowed to formally reduce the amount of expenses for the maintenance of the Ministry of Defense;
- the transition of the Ministry of Defense to the category of the sole shareholder opened up additional opportunities for financial maneuvering for programs in relation to the enterprises themselves, especially in terms of using profits in the interests of developing the production base.
Prior to the reform of the Ministry of Defense of the Russian Federation, the repair enterprises were its main technical resource for the operational support of the return to the field of equipment throughout the entire period of its operation. It was planned that during the corporatization this function will remain unchanged. However, the team of the former Minister of Defense provided the opposite result.
On the one hand, enterprises transferred to the commercial terms of financing were deprived of guaranteed state order and were forced to fight for contracts of the Ministry of Defense on a par with other state and private enterprises. On the other hand, the main criterion for the success of enterprises was not meeting the needs of troops for repairs, but making a profit.
Driven by considerations of commercial expediency, formally remaining in the ownership of the Ministry of Defense, but deprived of "tight" leadership by the military, enterprises began to refuse to repair "unfavorable" positions in the nomenclature of troop requirements, to avoid investing in the creation of promising stocks of material and financial resources, to concentrate efforts on obtaining only expensive orders, save on the creation and equipment of mobile teams, etc.
The main task of the joint-stock repair enterprises united into a holding company - the receipt of commercial profits - came into conflict with the interests of their owner, the Ministry of Defense.
The military department is not interested in making a profit in a pure form, because in the end it simply transfers it to the budget, but is interested in the efficient repair of VVST in order to maximize its use during the period of operation. At the same time, the Ministry of Defense, which formally owns enterprises, but separated from direct management of them by two intermediate levels of governing structures and deprived of the ability to influence their work quickly and conduct their own technical policy, has lost its perception of these enterprises as its own technical resource. between them and third-party organizations and it became erroneous to qualify repair of the VVST as a “function not inherent to the MoD” and to be transferred to the defense yshlennosti.
CONCEPT OF THE LIFE CYCLE CONTRACTS
How does the defense ministry plan to repair the VVST, abandoning its own enterprises? In this case, applied overseas "magic wand" - "life cycle contracts."
The idea of abandoning repair of the VVST as a function uncharacteristic of the Defense Ministry of the Russian Federation has long been actively promoted by some industrial concerns lobbying the concept of “supporting the full life cycle” copied from the West and its subconcept of “life cycle contracts” copied from the West. According to this concept, enterprises-producers should not only play a leading role in handling their samples of AME at all stages of development, delivery and disposal, but also maintain them in working condition during the period of operation in the armed forces.
The logical system that existed earlier, in which at the main stage of the life cycle of the ATT - the operation stage - the end user represented by the Ministry of Defense acted as the main manager of equipment on all issues, including keeping it on alert and returning to the operational system, is replaced by another one. Now the industry, which once put the equipment into operation, periodically and again withdraws it from the military department for repair, and then transfers it back. In other words, VVST, intended for use by the military department during the established period of operation, repeatedly change their departmental affiliation. At the same time, by transferring the equipment for carrying out an already average repair to third-party industrial enterprises, the Ministry of Defense loses access to its equipment and does not have any leverage over them, except for contractual ones. At the enterprises, however, commercial priorities, the composition of the owners and financial condition may change, and the AMS may suddenly turn into the subject of securing third-party lawsuits.
On the contrary, the system that previously existed and operates today at JSC “Spetsremont”, in which the Russian Defense Ministry has direct control over enterprises in the form of both a budget customer and a commercial owner, provides for the AMS to be under the jurisdiction of a single department throughout the entire period of operation, from armament prior to disposal for disposal. The Ministry of Defense of the Russian Federation has the ability to fully control production priorities and the financial health of its own enterprises, to carry out the necessary financial interventions quickly and without any additional approvals, flexibly using funds received by their own enterprises in the form of profits.
The manufacturer’s enterprises at this stage have been created and exist to carry out a completely different task - the creation and putting into service of new types of VVST. The entire production base, the methodology and the concept of the core business are based on such a priority purpose, repair is not a priority, and this leads to a significant cost of repairs. For some samples and types of repair, the cost of work performed on the basis of the manufacturer exceeds the cost of the same work at specialized repair companies of the Ministry of Defense 2,5 – 3 times.
It is important to note at first glance a completely invisible, but essentially critical detail. As part of the active promotion of the Western concept of “supporting the full life cycle”, the corporations developed their own “concepts of organizing the system of technical operation of the VVST”. According to these concepts, the manufacturer with pleasure assumes the maintenance of only the equipment produced and repaired by him, which is under warranty or has a residual post-warranty resource.
The military department is primarily interested in getting the most out of its equipment and minimizing downtime in repair. Photos from the official website of the Ministry of Defense of the Russian Federation
All equipment, with or without residual life, but maintainable, while being in service and not repaired by the manufacturer, including numerous products made abroad, is subject to repair by the customer, that is, the Ministry of Defense. According to some information, the amount of such equipment in the Armed Forces of the Russian Federation today is already more than 60%, and who will repair it if the Ministry of Defense refuses its enterprises, is an open question.
It should be especially noted that the US model of “maintaining the full life cycle” taken as a model in the United States itself relies on a very rigid and detailed regulative system of relations between the Pentagon and suppliers (failure to comply with the letter of the contract is automatically fraught with sanctions for any of the parties), as well as serious financial capabilities of the US military budget, covering significantly higher costs of using such a system.
In countries where the capabilities of the military budget are not limitless (in particular, in Europe), “life cycle contracts” are made only for those technical positions in which the resource is stable in place and predictability. An example would be mining machines that continuously operate in the same quarry. With regard to equipment that does not have a fixed anchor point and reliably predictable operating time - such as, for example, VVST, - “life cycle contracts”, as a rule, are not concluded because of their economic inexpediency either for the supplier or for the customer.
REAL ALTERNATIVE
Blind copying of the Western concept of “maintaining the full life cycle” in its pure form into the Russian reality with its prepayment under contracts and different departmental affiliation of the customer (Ministry of Defense of the Russian Federation) and the manufacturer will simply lead to the collapse of the VVST repair system in our country.
The predominance of commercial interests over government in the Russian reality, the absence of a mechanism for effectively coercing parties to a contract to fulfill their obligations, substantial departmental disunity, low performing discipline and weak technical and financial equipment of many manufacturers put the operator of VVST - MO RF - in an extremely disadvantageous and disadvantaged position.
Responding fully to the fulfillment of its main task - guaranteed protection of the country, with the introduction of a new concept, the Ministry of Defense can only partially control the situation. The combat readiness of the AMIS, transferred to it and being the main instrument for accomplishing the task, will be under the jurisdiction of a completely different department and will not depend on the wishes and intentions of the ministry itself.
In such a situation, responsibility for the defense of the country will ultimately be eroded: the Defense Ministry will blame industry for everything, and the industry for the Defense Ministry.
Meanwhile, the repair enterprises of the Ministry of Defense of the Russian Federation, primarily belonging to the specialized sub-holdings of Oboronservis (Spetsremont, Aircraft Repair and Remvooruzhenie), considered today as an alien body to be rejected, are the link that unites third-party the industry and the military department in matters of maintaining the combat readiness of the AMS and ensures the reasonable full responsibility of the Ministry of Defense to defend the country.
Only on the basis of the merger of repair enterprises of the Ministry of Defense of the Russian Federation it is possible to create our own original Russian combined system of maintaining combat readiness of the VVST at the operational stage, which will take into account our existing realities and combine, on the one hand, the subsystem of “maintaining the full life cycle” for certain types of VVST efficient and capable manufacturers, and on the other hand the existing repair subsystem at departmental enterprises of the Ministry of Defense. To do this, quite a bit is needed - to merge repair enterprises into a single repair holding under the direct control of the Defense Ministry of the Russian Federation.
A new repair holding could combine all the accumulated experience and saved production capacity and, first of all, return to the system those categories and samples of the AMST that are not covered by the manufacturer’s service: outdated equipment, equipment that has developed a resource, but maintainable and in service , equipment of foreign manufacturers.
In addition to the above-mentioned repair of VVST, in which the combined holding plays a leading role, it can and must participate in the system of "supporting the full life cycle" of producers as a co-performer. At the same time, its enterprises can each enter the system of several manufacturers at once as a multifunctional technical center in those places where the manufacturer does not have or does not plan to create its own centers. Such participation at the level of co-execution will ensure that the Defense Ministry of the Russian Federation will be able to continue to effectively maintain the equipment with the help of its own resources and in case of loss of the ability to fulfill obligations on the part of the manufacturer regarding the AMS in a given region.
This aspect is extremely important in assessing the overall picture. If the Russian Defense Ministry's own enterprises, included in the same Spetsremont, continue to be part of the supplier’s full life cycle maintenance system, the military department will be able to control the return of VVST to service through all types of repairs, even if the supplier is declared bankrupt or refuses their contractual obligations for the state defense order.
THE REALITY OF THE EXCEEDING THE EXPECTATIONS
It must be said that the correct place for the comma in the phrase “execute cannot be pardoned” in relation to repair enterprises in the RF Ministry of Defense was looking for an unexpectedly long time - 18 months. For the last year and a half, there was an active struggle between the “stupid party” parties that had been established inside the department and the “pointed ones”, and the “sentenced” structures offered ammunition to their defenders in the form of projects for reforming the organizational structure or switching to the project management model. Not without "human sacrifice" - only in one subholding for the year 2014 changed four CEOs.
However, the prolonged intrigue was resolved by the Minister of Defense, who at a conference call on 3 June announced a decision on the fundamental reform of Oboronservis and the elimination of "non-core assets". As a result, the creative association Krasnaya Zvezda and the vital holdings of Voentorg, Voentelecom and the United Housing Company are recognized as having the “inherent functions of IOs”.
All repair shops of Spetsremont, Aviaremont and Remvooruzheniye - and such 131 - are recognized as non-core assets. They are transferred to industry or liquidated.
It is noteworthy that, according to Deputy Defense Minister Yuri Borisov, the industry agreed to take only 50 enterprises. Why not pick up such a gift: carefully selected the best and most profitable, in one fell swoop removed the competitors who beat down the price for repairs, increased their assets and at once untied their hands in squeezing money out of the state - after all, they are now monopolists! So what if the territorial and universal system of the VVST is completely destroyed, and no one is going to create a new one? So what if monopolies are now sort of responsible for repairing what they had never done before? So what, that will be destroyed many enterprises, including city-forming? The main thing is that someone somewhere was pleased.
RHETORIC QUESTION - WHO AND WHERE?
How did it happen that a reliable, time-tested system of departmental repairs of the RF Ministry of Defense was reborn as a non-core asset, a practically malignant tumor that should be cut out immediately?
This was the manifestation of the "skill" of military reformers. Acting on a standard raider seizure, individuals who are knowledgeable in these matters skillfully set up unprincipledly mercenary people in key positions in subholdings, blocked financing opportunities for enterprises, did not allow government orders, forcing them to accumulate wage debts, energy carriers and utilities, for years did not accept payment for the bill long performed and accepted work. In the end, they quickly brought a reasonable and efficient system to bankruptcy.
The situation, however, could still be corrected. Why the new leadership of the Ministry of Defense did not go for it? There are a lot of versions. I would like to highlight two of them.
Version one is as follows. In order to rectify the situation, we need people who know, are ill with the interests of the state, ready to work painstakingly to restore the departmental system of VVST repair in order to ensure the fulfillment of the combat mission. Such a new minister was obviously not seen in his team. The deputy minister Ruslan Tsalikov indirectly confirmed this in his interview to a well-known publication. On the question of repair companies, he complained to the correspondent that some of them had not returned the Defense Ministry’s accepted equipment for repair for years. This news! The Ministry of Defense, which is the owner of the repair enterprises, which, in relation to both the enterprises and their management, has absolute power in the framework of the legislation, is not able to get back the equipment transferred to itself. It is like saying - my right hand does not return the money to me, that I put in it with my left. This happens only with a serious mismatch of the head with the limbs - paralysis.
The second version is no less likely, but much more alarming. For its proper understanding, two facts need to be realized: first, the activity of “getting rid of non-core functions and assets” (read, the sale of property of the Ministry of Defense for profit) was started and put on the conveyor by the team of the previous Minister of Defense; and secondly, according to the publicized temporary structure of Oboronservis, there will continue to exist two temporary blocks - an investment one, which will include “residual assets that will soon (attention!) REALIZE” and “enterprises that industry has refused ". In total, these enterprises 81, their fate does not say, but according to available information, the relevant authorities of the Ministry of Defense simply insist on a total sale. It seems that the former minister was removed, but his team remained and stubbornly continued his work.
Is it possible to somehow save the situation now? Sure you may. There are even several options for salvation.
Option one. Defense Minister Sergei Shoigu may simply “screw” his own conclusions in the right direction: after all, apparently, the final formal decision has not yet been made, and the power of a true leader is also manifested in being able to recognize and correct their mistakes.
Option two is to save at least the remnants of the VVST repair system, which have not been removed by industry, even if not under the auspices of the Ministry of Defense, but in a single organism. According to rumors, Rostekh's general director, Sergey Chemezov, addressed the military department and the Russian government with such a proposal. His corporation is ready to accept into its structure practically all remaining enterprises of the former defense complex of the Ministry of Defense that remain "abandoned", solve problems with debts and form a unique repair holding on their basis.
I want to believe that Sergei Shoigu will make the right decision in favor of the state and will not allow to squander nearly a hundred unique enterprises that have both an extensive production and repair base and a rich, long-term experience for the benefit of the defense capability of the Russian state.
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