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President of Russia Vladimir Putin: Good afternoon, colleagues,

Today we are holding the Military-Industrial Commission’s first meeting in 2016. We will review the 2015 defence procurement programme results and examine the current and future outlook for our defence industry’s development.

We finished 2015 with better defence procurement results than in previous years. In 2013, the defence procurement programme was 93-percent complete, in 2014, the figure was 96 percent, and last year, it was 97 percent. Orders for the law enforcement agencies, security agencies, and Rosatom Corporation were completed in full.

Regarding the Defence Ministry, orders increased in volume, but there was a noticeable drop in the share of work not carried out. This figure does not exceed four percent today.

In this context, let me thank the ministries, agencies, and defence industry workers for their successful and efficient work in our country’s interests and their big contribution to ensuring our national security, defence capability, and to shaping the new look of our Armed Forces.

We are meeting today at one of Russia’s industrial giants – KAMAZ. This company plays an active part in carrying out defence procurement orders. Let me take this opportunity to congratulate the KAMAZ staff once more on the big date they are marking – 40 years since the first truck came off the assembly line.

Coming back to our agenda today, let me note that we reached the planned level of equipping our troops with new models of arms and equipment last year. Our target was 30 percent.

We need to keep up this pace and take the level up to 70 percent by 2020, as we planned. In this respect, we need to set the parameters for the new state defence procurement programme for 2018–2025, and draft the foundations of this, our most important planning document for developing our defence industry over the coming years.

Of course, we need to keep in mind that our budget’s possibilities and the country’s possibilities can change, as can the conditions for the defence industry’s development. Over the last two years, for example, a number of defence companies have seen international cooperation ties severed and encountered other problems. But we have seen a convincing demonstration here at KAMAZ of how these are temporary difficulties that can be overcome if we work with intention.

Let me say again that the state and the defence industry must fulfil all tasks concerning our defence capability and national security in full, including through optimisation of internal procedures. We must improve cooperation mechanisms between those placing defence orders and those carrying them out, and we must strengthen budget discipline.

Let me remind you that, starting from September 1, 2015, new requirements took effect on the use of budget money for defence procurement purposes. Contract payments are now made through separate accounts opened with authorised banks. This procedure will make payments more transparent and improve monitoring of how state money is spent.

I ask the Military-Industrial Commission’s Board to monitor compliance with these requirements very closely. You must also follow closely the new laws’ practical application and, if necessary, propose any needed amendments in order to ensure uninterrupted work on defence contracts.

We are well aware of the debt existing within the military-industrial complex, and we need to resolve this problem. Earlier, we provided advance lending to defence companies, due to certain difficulties they experienced, but the volume of debt surpassed all sensible parameters. I am constantly hearing about this, the Defence Ministry knows this, as do other departments and supervisory organisations. I am asking you to look into this problem very carefully and change the situation.

Colleagues, there is another issue I would like to discuss separately, pertaining to the development plans for the Crimean military-industrial complex.

Right now, organisational work is actively underway in Crimea and Sevastopol. The regional structures have been integrated in the Russian military-industrial complex system. The production capacity and the number of people employed in this sector are growing.

There are 21 organisations operating in the military-industrial complex of Crimea and Sevastopol, including 14 in shipbuilding, three – in aircraft manufacturing, two in the radio electronics and two in conventional arms production. Naturally, we need to look at the prospects for these enterprises, we need to make the existing production facilities more efficient, take the quality of the products to a new level and broaden their range.

This year, the state programme for military-industrial complex development will begin financing modernisation of Crimean defence enterprises. Funding will be channelled toward upgrading production lines, training new staff and further training experts working in Crimea’s defence industry.

By the way, how do things look there overall financially? What will be the approximate volume?

Deputy Prime Minister and Chairman of the Military-Industrial Commission Board Dmitry Rogozin: Mr President, the funding volume there is growing by a magnitude of dozens. But this figure is not totally correct, because we had nothing at all before, with few orders.

Vladimir Putin: Nevertheless, remind me of the volume.

Dmitry Rogozin: Mr Bochkarev will provide the exact figures now, he will report on this matter.

Vladimir Putin: Mr Bochkarev, how much was it?

Deputy Chairman of the Military-Industrial Commission Board Oleg Bochkarev: As of today, we have ten billion rubles planned through 2020.

Vladimir Putin: For Crimean enterprises?

Oleg Bochkarev: For Crimean enterprises and within the framework of further professional education in the military-industrial complex. This programme was submitted by the Industry and Trade Ministry.

Vladimir Putin: Ok.

We need to monitor this carefully and provide this financing. We need to maintain the jobs there and add something in terms of technological development; there are good prospects and good people there. We need to provide further training to staff. There are certainly things to work on, as you understand. It is imperative to give more attention to cooperating with other Russian companies and improving corporate governance.

And, of course, it is fundamentally important that in addition to Defence Ministry’s orders, Crimean and Sevastopol military-industrial complex companies receive civilian orders. We discussed it with the Industry Minister many times; there are specific examples of work with enterprises in specific sectors and we need to continue that work.

Mr Menyailo, did you get things straight with the shipbuilding companies?

Governor of the Federal City of Sevastopol Sergei Menyailo: We did, and we are holding regular meetings.

Vladimir Putin: Have you provided orders?

Sergei Menyailo: We have; we are already at over 50% capacity. We are nearing 100% this year.

Dmitry Rogozin: Mr President, I will give you a separate report today on the additional capacity through 2020 at two of the biggest shipbuilding enterprises: the Zaliv Plant in Kerch and the More Plant in Feodosia.

Vladimir Putin: Ok.

We need to look at all the options, as I already said, including the civilian sector, shipbuilding, other enterprises, metal structures for the Kerch transport passage, and so on.

I am asking the ministries and departments to assist in this work and make the necessary decisions quickly.

Let’s begin our work. Mr Rogozin, you have the floor. Please.

Dmitry Rogozin: Mr President, I would like to report that the creation of the institution of chief designers for promising, complex armament and military technology systems is proceeding in strict accordance with your decision, in accordance with your executive order.

Let me remind you that a year ago, at the suggestion of the Military-Industrial Commission Board, we approved 21 areas where systemic work had to be done. Currently, taking into account the Commission’s decision of January 19, we have 19 chief designers who have begun their work. Two positions are still being finalised; I will report on them separately.

I must say that overall, the work is being done within the framework of the Military-Industrial Commission Board, which includes the chief designers. Last December and this January, the Military-Industrial Commission Board heard and approved the first reports on the systemic work plans for chief designers. The rest of the reports will be delivered by the end of the year.

There is just one problem, but I want to report on it already now: it concerns the need to appoint a special individual who will be responsible for the creation of arms and military technology for the Ground Forces. This situation can be easily explained as there is an enormous weapons list ranging from heavy armour to battlesuits. It seems nearly impossible to find one person to deal with all this, so we chose a different solution. At the next Military-Industrial Commission meeting, we will report to you on the composition of the Chief Designers Council, which will focus on specific models of arms and military equipment for the Ground Forces.

There is one mismatch we would like to resolve. The areas we approve chief designers for are major, complex, systemic directions. For example, airborne systems and their arms. Or, offshore maritime zone ships and their arms. But, because our chief designers’ current administrative status is that of deputy director generals in a defence complex, an individual corporation or a specific enterprise, this certainly limits the creative opportunities of their work. Because the focus of their work affects the activities of a wide variety of companies and integrated structures, we need a specific decision here.

We have carefully analysed the process of research and technical support for creating modern arms and military equipment and noticed that as of today, there are over 170 research institutions in various departments. At the same time, the sector-specific research and technology councils created do not feature representatives from related sectors. In total, there are about 55,000 workers in these research institutions.

We believe it is necessary to create central head institutes for each major area, of which there are 21 in total, that could take on coordination of work by all research institutions regardless of who they are managed by: the Industry and Trade Ministry or the Education and Science Ministry, or any other. And, of course, chief designers must head these research and technology councils on a purely inter-industry, inter-departmental basis.

We would like this work to be part of the job of the Military-Industrial Commission’s science and engineering council, and if you agree with this suggestion, we will prepare a draft decision.

Thank you.

Vladimir Putin: Very well. When?

Dmitry Rogozin: This March.

Vladimir Putin: Ok, agreed.

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