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Meeting to discus use of defence industry potential in high-tech civilian goods production

September 8, 2016, Tula

Vladimir Putin held a meeting on the use of the defence industry’s potential in the production of high-tech civilian goods that find demand on domestic and export markets. The meeting took place at the premises of the Research and Production Enterprise SPLAV.

Before the meeting, the President visited an exhibition of civilian goods developed by Russian defence industry enterprises.

* * *

President of Russia Vladimir Putin: Good afternoon colleagues.

We are here today to discuss how to use the defence industry’s potential to boost production of high-tech civilian and dual-purpose goods. We have discussed this subject many times and know how important this is. We know that our defence industry’s future depends directly on resolving this task.

As you all know, we are carrying out an extensive programme that amounts to entirely re-equipping our armed forces. By the end of this year, the state defence procurement programme will see our armed forces’ share of modern arms exceed 50 percent, and this figure will reach 80 percent by 2020.

To attain these results, defence industry enterprises underwent radical modernisation. As you know, we invested considerable resources in this process. The sector has received big orders from the state, primarily from the Defence Ministry and other specialised agencies.

At the same time, by 2020, our plans for extensive modernisation of the armed forces will be complete and the peak for state defence procurement orders will have passed. Of course, we will need to continue upgrading the armed forces, and I will say a few words about this, but the peak will have passed.

There will not be such a high volume of orders for the defence industry in the future.

The task then will be to ensure planned and regular equipment supplies for the armed forces, adding to their arsenals as necessary as existing equipment comes to the end of its service life, and, of course, work on new generation arms. We are already working on this now, but this will be a priority in the future as well. This is very important.

As we work on these tasks, we must make the fullest use of the defence industry’s potential that we have created and are enhancing today. We must ensure that existing capacity is put to full use, and this requires focusing on diversifying production in the sector. This is something I have discussed many times with colleagues working directly in this sector. Today, we need to start thinking about increasing the production of civilian and dual-purpose goods at defence industry enterprises.

This is important for the financial stability of the enterprises themselves, and for their workforces, which we must preserve, of course. This is also important to ensure that the money we invested in modernising the sector works for the entire Russian economy’s growth and contributes to developing import substitution and increasing our high-tech exports.

In this respect, I would particularly like to underscore that production of civilian goods should concentrate on mass consumption goods. At the same time, we need to take our advanced science-intensive sectors’ demands as a reference. I say this because we are investing today in expensive and highly complex equipment and we cannot then use it to simply turn out frying pans. We need to focus on demand in medicine, the energy sector, aircraft manufacturing and shipbuilding, space, and information and communications technologies.

Our defence enterprises most certainly have the necessary potential to resolve these tasks. They have a solid production, technological and human resources base and their projects have already laid good foundations to build on. Furthermore, this sort of work is already underway in many enterprises, including in cooperation with top Russian universities, research organisations, and civilian organisations.

We have just heard about how Research and Production Enterprise SPLAV, our meeting venue today, is working on several projects together with Moscow State University and has carried out projects to produce modern medical equipment.

I would like to draw the attention of [Healthcare Minister] Ms Skvortsova: our colleagues have not exactly complained, but said that they find it hard to sell their products through tenders because the conditions are such that they clearly have no chance of fitting their products into the lots up for bidding. If they offer something they do not produce, they will never sell anything. I therefore draw your attention to this problem. This concerns medicines and medical equipment. Please act on this because these are issues that must be addressed.

They said they have discussed this with you already. The issue is one of coordinating between potential customers and developers, including such organisations as the Academy of Sciences, which draw up the relevant standards, and the producers. They need to know in advance, to what standards the medical sector will work, to use this as a reference in their production. There should be some kind of unified organisation here, and not just within the defence industry. We need to look at how to organise this work jointly with colleagues from the Healthcare Ministry and other agencies that are potential customers.

We already have experience here and we need now to examine and spread it.

I would like to discuss today the main areas of defence industry diversification. We have people here from state corporations and the ministries and agencies, the main producers and clients, and I think this is the best list of participants we could have for a meeting like this.

Finally, the Government Commission for Import Substitution should oversee the organisation and coordination of the sale of these goods, as we have already discussed, but a joint organisation of some kind should be established to support this work. I ask you to make a detailed study of this matter at one of the commission’s upcoming meetings.

Let us now turn to the issues I have just outlined. I give the floor to Mr Manturov, the Minister of Industry and Trade.

Mr Manturov, please.

Minister of Industry and Trade Denis Manturov: Mr President, colleagues,

Carrying out the state arms procurement programme is a big priority today, of course, but all of the defence industry companies’ product portfolios include civilian and dual-purpose goods as well. In 2015 these goods accounted for 16 percent of total production, and in 2011, they accounted for 33 percent of total goods. The drop in the share of civilian goods is due to the much higher volume of state defence procurement orders. This notwithstanding, we have already started preparing our defence industry enterprises for 2020, when, as you said, there will be adjustments to the volume of state defence procurement orders.

With the mutually complementary development of military and civilian production by defence industry companies over the next five years, we expect to see a steady increase in the share of civilian goods at a rate of at least five percent a year, which means that civilian goods should account for half of all production by 2020.

To achieve this balance, the emphasis in civilian diversification is on high-tech areas in which, firstly, we were considerably dependent on imports, secondly, there are good prospects for future demand, and thirdly, the defence industry companies have already developed the necessary skills.

Based on these criteria, radio-electronics is the sector with the highest growth potential. Demand in this sector should increase 3.7-fold by 2020, primarily through the mass development and consolidation of orders from state organisations and private companies for the purchase of Russian-made electronics.

In the aircraft-manufacturing sector, implementation of current support measures should double the output of civilian aircraft by 2020. I would like to note that defence industry companies are taking part in developing the civil aviation infrastructure. In particular, Almaz-Antey is currently carrying out a project to develop and supply air traffic control systems. Our equipment is already being used at a number of airports, including abroad, in Mongolia, for example. We are currently in talks on supplying our systems to Iran and several other countries.

Two other promising civilian areas for defence industry enterprises to develop are technological equipment and specialised transport. The Kovrov Electromechanical Plant in Vladimir, for example, produces high-precision machine tools and is currently developing facilities for producing a multipurpose excavator and loader for use in the housing and utilities sector, though the plant’s main product range covers drive gear for armoured vehicles.

As far as equipment for the fuel and energy sector goes, projects are underway to equip gas transport systems and energy installations with aircraft engines. We have close cooperation with the Energy Ministry in this area.

As you may have noted, there is a great potential in medical equipment. This covers a broad range of goods, including equipment for clinical and diagnostic examinations, rehabilitation equipment, and expendable materials. These are important areas.

At the exhibition today, we saw a good example of how defence companies are contributing to import substitution at the POZIS stand (POZIS is a company that manufactures munitions and it holds 70 percent of the market for refrigerators for medical services and the pharmaceuticals sector).

Defence industry companies are currently working on 13 sector-based import replacement plans out of a total of 21 government-approved plans. In this, they are benefiting from the Industrial Development Fund, which has already allocated 1.5 billion rubles in loans to defence sector companies. This instrument is used, for example, in projects to develop electric drive gear for railway locomotives, a rotor control system, and an innovative cistern-container.

Given the high cost of loans and the great demand for access to the Fund’s resources, including from defence industry companies, we hope very much that our proposal to top up the Fund’s capital in 2017 by the same amount as in 2015 and 2016 will be supported.

At the same time, we must raise the defence sector companies’ own investment potential. In this respect, we are currently working with the Finance Ministry on a proposal we will submit to the Government to declare a three-year moratorium on defence companies paying dividends so as to channel the resources thus released into modernising facilities and developing civilian production. This will have little impact on the budget but it will be an important development instrument for the companies and will motivate them to make themselves more efficient. I hope that our colleagues will support us on this.

To create new opportunities for selling civilian goods, we have developed a separate mechanism for stimulating demand for new models by offering discounts to buyers. In other words, when the first pilot lot of goods comes off the line, companies will be compensated for up to 50 percent of the new goods’ cost. The Government has allocated 1 billion rubles this year for this purpose. This money will be spent on testing this new instrument first of all at companies producing machine tools, and for heavy oil and gas and energy sector machine-building.

I would like to say a few words about medical equipment purchases, which you mentioned. These purchases are mostly made at the regional and municipal level, as the regions account for the bulk of medical equipment purchases.

The Healthcare Ministry, together with Rostec, is developing a unified state information system in the healthcare sector. We and our Healthcare Ministry colleagues think it important that the design specifications include the organisation of a system for ongoing monitoring and data collection on medical facilities’ demand for innovative medical goods over a 3–5-year period (this is essentially what you said), so that companies can take these demand forecasts as a reference. This will be a unified system in which everything is clear and transparent and you can see who plans to buy what and in what quantity.

We think that this approach should be applied by other agencies with which the defence industry companies have substantial civilian production projects. This would give us an objective picture of demand and enable the companies to keep their facilities busy with civilian production. The regions should draw up regional programmes for increasing their purchases of Russian-made goods for state and municipal needs.

Thank you for your attention.

Vladimir Putin: On this note, let us ask Mr Dyumin to tell us how things look from Tula Region’s perspective.

Mr Dyumin.

Acting Governor of Tula Region Alexei Dyumin: Mr President, colleagues,

Everybody knows that the defence sector is the mainstay of Tula Region’s economy. The region’s defence sector companies account for around 40 percent of all Russian arms exports, and in 2015, our arms production increased by around 18 percent.

This company we are visiting today is not the region’s only example of an enterprise successfully producing high-tech civilian and dual-purpose goods. Our region is probably best placed to realise the full extent of the tasks facing the country’s defence industry today, but most importantly, we have specific proposals for the effective implementation of these objectives. Some of these proposals are reflected in Tula Region’s development programme through 2021, and they tie in well with federal interests.

There is, for example, a serious shortage of special-purpose Russian-made machine tools and new rotor production lines for munitions production. To resolve this problem, we are ready to set up at the Tula Research and Technology Institute a technology auditing centre to develop equipment and help to arrange production for companies producing munitions.

The issue of large-scale production of materials for individual armoured protections systems, light armoured military equipment, composites used in aircraft manufacturing, and fibre-optic cables for special communications is also urgent today. Here, we plan to make use of the Alexinsky Chemicals Plant’s possibilities and organise the production of new generation aramid materials for use in both the defence and civilian sectors.

Finally, there is the matter of universal machine tools for producing civilian and dual-purpose goods. Successful production of these machine tools is underway at Tulamashzavod, but this production would be far more efficient if we had specialised production facilities in Russia making the specific groups of component parts needed. In this respect, we are ready to launch a facility here in the region to produce ball screw pairs and linear guides (which we mostly import today). This would cover most of Russia’s demand in the production and maintenance of our machine tools. We will also launch a plant for high precision casting of steel and pig iron, and most important of all, we have a design institute for developing universal software. We are not in the best situation at this point in terms of software.

Let me note that these are perfectly realistic proposals based on practical experience and our region’s objective possibilities, including our human resource potential: we have more than 30,000 people working in the region’s defence industry today, and this is not the limit.

Mr President, you saw today the presentation by the Rostec Higher Technical School on the creation of a children’s technology park Kvantorium, which will open soon in our region. Furthermore, together with the Defence Ministry, we plan to establish training and production military companies based at the region’s three main defence enterprises – the Shipunov Machine Tool Design Bureau, the Research and Production Enterprise SPLAV, and the Research and Production Enterprise Strela. We are reopening the military department at Tula University. I would like to take this opportunity to thank the Defence Ministry in the person of Sergei Shoigu for supporting our initiative and the work we are undertaking in this area together.

Before the meeting, I discussed with Mr Rogozin and Mr Shoigu an interesting idea to establish research military companies at the Moscow Suvorov Academy and the Tula Suvorov Academy. In other words, gifted children at the Suvorov academies would receive intensive training from a young age in maths and physics. In this way, their training would prepare them not only for becoming unit and group commanders, but also for work in the defence industry as specialist officers. Our weapons systems are developing and becoming ever more sophisticated, and we will need such specialist officers to operate these increasingly complex systems.

Defence Minister Sergei Shoigu: We support this idea. It is a good idea to provide professional training from a young age so that the young people can later go on to university, and not only the Defence Ministry’s universities, but engineering schools, where they will learn to develop, maintain, and use high-precision, complex weapons systems.

Deputy Prime Minister Dmitry Rogozin: Roscosmos and Rosatom are ready to assign their representatives to the Moscow and Tula Suvorov academies’ boards of trustees and exercise oversight of the main chairs and classes in physics, maths, biology, astronomy and so on. We will identify children with potential in these areas and will put in place these scientific companies. It is an excellent idea.

Vladimir Putin: A very good idea.

Alexei Dyumin: In other words, we have this result-oriented direction for work: the science and production companies at our big defence companies, the military department at Tula University, and the plans for the Suvorov academies. Besides, there is also what you were told of today, the Higher Technical School, which will also train engineers and workmen, not only for civilian production sectors, but for the defence industry as well.

Tula Region’s technology and infrastructure potential is not in need of promotion. The defence industry is a big part of the region’s history and is just as important here today, and I am confident that it will be important in the future too. The region has everything needed to carry out these federal projects to a high standard.

I ask you to consider and support our proposals, Mr President. Thank you for your attention.

Vladimir Putin: The scientific companies are a very good idea. It will be important not only to identify the gifted children, but also to work with them. And if, as Mr Rogozin said, we organise direct contacts with universities and production facilities, this would be perfect. It is a very good idea, I agree.

Thank you.

We have our colleagues here from various government agencies that could place orders for equipment manufactured in the defence industry. One of them is the Ministry of Health. Ms Skvortsova, please.

Minister of Healthcare Veronika Skvortsova: Mr President, colleagues,

The key to understanding and forecasting demand for medical products are the equipment standards at medical organisations used in medical procedures that are mandatory across our country, as well as clinical recommendations for required implantation products.

At present, the list of medical products registered in the country contains 36,000 items. They are arranged by 21,000 types. However, only 300 of them are classified as heavy medical equipment, with a little over 800 listed as medical implantation products. The rest are consumables, tools and so on.

As of the end of 2015, only 30 percent of products were manufactured in this country. The financial equivalent is approximately 18.5 percent. Defence industry enterprises accounted for 6 percent of the Russian segment of the market, which is to say, about 1.3 percent of the total medical products market. The overall market value as of the end of 2015 was 212 billion roubles, of which 70 percent was subject to state municipal procurement.

(Next Veronika Skvortsova spoke about mechanisms to finance medical equipment procurement in the regions and of making lists of priority high-tech medical products that should be manufactured in Russia.)

I would like to point out, Mr President, that while last year 18 percent of the equipment in operation was Russian-made and even less in previous years, this year a significant increase was recorded – almost double that at 35 percent. The Ministry of Healthcare has issued clear-cut guidelines for all newly opened and upgraded facilities to have no less than 60 percent of domestically manufactured equipment. A case in point are perinatal centres where the Urals Optical Mechanical Plant supplied all ORs, all medical ventilators, equipment for children and so on.

The average depreciation of medical equipment is 65 percent. We already have an initial estimate of our need for equipment from the priority list for the next three years: 78 types. I would like to note that for five items of heavy technical equipment alone – CT and MRI scanners, angiography systems, x-ray and ultrasound machines – in the next three years we need to replace about 11,500 units. Having addressed the issue with the Ministry of Industry, we can say that domestic industry has sufficient reserves to make these replacements solely with domestically manufactured products.

To accomplish the tasks that you laid out in your opening remarks, Mr President, we need, of course, to transition to a centralised procurement system for medical products in the medium and the long term, three to five years, based on planned forecasting and monitoring. We are ready for this. We have already formulated an initial order.

Vladimir Putin: This is precisely what manufacturers are asking.

Veronika Skvortsova: Yes, this is what they want and we believe that this is absolutely right.

In this case, by understanding the capacity of our defence industry enterprises, we can significantly increase production. In our estimate, over the next three years, by 2020, defence industry enterprises could double their share of the Russian segment of the market to 15 percent, which is 6 percent of the total medical products markets. This is a conservative estimate.

Lastly, I would like to say that of course we need to make government spending more efficient. Just as we are finalising an information and analysis system for the procurement of medications, we support the proposal of the Ministry of Industry and Trade and believe that the next step should be to put in place a similar system for medical products. This will allow us to switch to reference pricing, save significant resources and expand the reach of our medical organisations. Thank you very much.

Vladimir Putin: It is important (more of our colleagues will speak now) that we do not forget anything.

(Addressing Presidential Aide Andrei Belousov) Mr Belousov, we need to draft an instruction so that the Government can adopt a corresponding decision and so that what the Minister just said is recorded in corresponding documents to be followed in the future. Manufacturers should know the market, its capacity, and they should know the rules under which they will work on this market. This needs to be recorded without fail.

Mr Sokolov, please.

Minister of Transport Maxim Sokolov: Mr President, colleagues,

The transport sector is one of the largest consumers of industrial products, including those used in the construction of transport infrastructure.

It should be noted that unfortunately, at present, the list of products that transport industry enterprises need is not entirely covered by Russian-made products. A certain share of them is procured from foreign manufacturers. In this connection the Transport Ministry prepared lists of priority types of products, services and software, which are critical in terms of import replacement and national security that were sent to the Trade and Industry Ministry and other government agencies concerned.

Based on these lists, the Trade and Industry Ministry developed and approved under a corresponding order – naturally, endorsed by the Transport Ministry – sectoral import replacement programmes. Mr Manturov spoke about them. With regard to the Transport Ministry, they are related to four programmes: the automotive industry, commercial aircraft engineering, transport equipment manufacturing and shipbuilding.

This year we held a meeting of the Scientific and Technical Council to consider proposals concerning the use in the transport sector of products manufactured by enterprises affiliated with Rostec state corporation, including with the participation of enterprises such as the Splav Scientific and Production Association, where we are now, Vysokotochnye Kompleksy, the Central Scientific Research Institute for Precision Machine Manufacturing, and Motovilikha Plants.

Based on our analysis, we have set up a working group that ensures prompt and efficient interaction to promote certain models and types of products in the transport sector.

We have formed a structured consolidated contract for the next three years and for a longer period for Russia’s regions and transport enterprises, which the companies and ministries, including the Industry and Trade Ministry, will use to develop their long-term policies. It concerns the purchase of trolleybuses, tramcars and buses, including natural gas-fuelled ones.

We are also using the leasing mechanism for supporting our engineering industry through the State Transport Leasing Company. The volume of contracts has exceeded 200 billion rubles, out of which some 40 billion rubles worth of contracts were signed in the first eight months of this year.

The leasing system for supporting the transport and engineering industries is also designed to renew the transport companies’ pool of vehicles, encourage import replacement and attract extra-budgetary investments. For example, the aviation industry will continue to implement the programme of operating lease of the Sukhoi Superjet airplanes in 2016. As of September 1, the State Transport Leasing Company (STLC) has delivered eight Superjets to Russian regional airlines, six of them in the first eight months of this year.

We are also working on a leasing mechanism for the helicopter industry and on localising the manufacturing of Let L-410 Turbolet and other Russian aircraft projects, such as Il-114 and Il-96–400. We have prepared these proposals jointly with the Industry and Trade Ministry and forwarded them to the Government within the current budgetary process and the anti-crisis plan.

The implementation of these projects will allow us to buy over 120 Russian-made aircraft in the next three years, that is, in 2017–2019. The STLC now has a pool of 66 aircraft.

(Maxim Sokolov went on to report on a non-commercial leasing programme for passenger transportation, including in Crimea, as well as water and railway transport.)

In short, by implementing the above-mentioned plans, which the Industry and Trade Ministry has approved, and by forming a consolidated contract for the regions and for each kind of product, including its financial aspects, we are working in keeping with the policy of import replacement and diversification in the defence industry.

Thank you.

Vladimir Putin: Thank you.

Please, Mr Novak, your report on energy issues.

Energy Minister Alexander Novak: Mr President, colleagues,

Annual investments in the fuel and energy sector total about 3.5 trillion rubles, the potential demand for the industry, which is now mainly met by Russian companies, including those in the defence industry. At the same time, in each of the sectors, there are critical technologies that depend on imports.

We have worked actively with the Industry and Trade Ministry to draft seven sectoral plans of import replacement, which also include the fuel and energy sector. They have been approved. I would like to say that we have selected several areas for import, or 18 priority technology areas – 11 in the oil and gas industry, three in the power sector and four in the coal industry.

I will not list all of them, but would cite some examples, such as hydraulic fracturing, natural gas liquefaction technology, compressors and flexible tubing. In power generation, there is the electric power equipment for AC mains with voltage of 330 kV and above. We have compiled a database, determined the range of critical technologies, and a list of enterprises, including those in the defence industry.

One of the key areas is software development (the Governor has talked about it here). Software accounts for our greatest import dependence in the energy sector today. I am referring to automated control systems for digital data transmission systems, and IT-equipment in general. There is critical dependence on imports in software tools for the drilling process in hydrocarbon production and for directional drilling, with import volumes increasing, while the existing demand for these products is very important for us.

As for power generation, there is a need for high-tech equipment, transformers, circuit breakers, generators and diesel generator units. Today at the display, we could see that the Tulamashzavod company makes backup power supply units (diesel generators), which enjoy high demand today, more than a thousand pieces a year.

Russia currently imports mobile gas turbine power stations, and does not produce them. We actively used these generators in Crimea when there were issues with power supply there. I think that we need to develop our own mobile gas turbine stations with a capacity of up to 25 megawatts. We have everything to do it, since producers within the defence industry complex and the United Engine Corporation (Aviadvigatel LLC) already have the necessary power units.

Vladimir Putin: We should also export this equipment.

Alexander Novak: Of course, there is a huge demand for these products. Mobile gas turbine power stations could be used in isolated regions, like Kaliningrad. So far, we have been using imported equipment.

Another important segment is gas turbine units. We currently have some 500 turbines with a capacity under 40 megawatts and a service life of over 30 years. This is a major order for the United Engine Corporation.

Mr Manturov, Mr Chemezov [Rostec CEO] and I had a special meeting on this subject, during which we identified what is needed and will move in this direction. We have also agreed to draft a special programme that would provide incentives to Russian companies to replace worn-out equipment and buy new technology from enterprises currently operating within the defence complex.

Finally, another important subject we are working on in the power generation segment is the development of a high-power gas turbine unit. Rostec affiliates are currently working with Inter RAO and RUSNANO on a pilot project to build a 110-megawatt power generator. Tests on the relevant equipment are expected to begin in 2017, and production could start in 2018. This goes to say that this will be our first 110-megawatt generator.

Let me say just a few words about the oil and gas complex. We have great potential in this respect. We have created a research and technology council within the ministry with 13 groups that work on specific technology areas. They are headed by the heads of oil and gas companies: Gazprom, Rosneft, Gazprom Neft and Novatek. This means that these companies are customers, while also contributing to the development efforts alongside defence industry producers and the academic community. The key areas are high-flow compressors, heat-exchange equipment and catalysers for making Euro 5 emission standards fuel.

In the gas industry, we are working on large-capacity LNG equipment, 65 to 85 percent of which we have to import. Gazprom has started buying the Russian-made GPA-Ts-25 gas compressor units for its trunk pipelines. I have mentioned the United Engine Corporation’s company Aviadvigatel, which has delivered 30 power units for Nord Stream and for the Ukhta-Torzhok gas main. We will place contracts with these companies for the Power of Siberia, Nord Stream-2, Turkish Stream and other pipeline projects.

We support the proposals on encouraging production and marketing, which Mr Manturov has mentioned. Moreover, seeking to stimulate the coordination of efforts by consumers, users and manufacturers, we have created a database, an information system that facilitates the retrieval of information, including on the fuel and energy sector’s requirements.

Thank you.

Vladimir Putin: Thank you. Mr Sokolov, what can you report on the communications industry?

Deputy Minister of Communications and Mass Media Alexei Sokolov: Mr President, colleagues,

The ministry’s responsibilities cover the development of information technology, telephony, internet, postal services, radio and television. These sectors cannot develop without high technologies, and therefore, they are the potential consumers of defence companies’ products.

The Russian market of telecommunication equipment is estimated at some 200 billion rubles, 100 billion of which are operators’ expenses and the other 100 billion spending by corporate consumers. Of these 200 billion rubles, foreign producers receive about 160 billion, which means that our defence companies can compete for the right to manufacture these products. We are ready to help them.

Working jointly with the Industry and Trade Ministry, we have analysed the development programmes of the largest Russian telecommunication operators. We have prepared a summary table of requirements for equipment, by item and year, until 2020.

Today we are actively cooperating with the Asian and European manufacturers combining our software with their equipment or hardware components. Given the large state defence orders, a number of defence companies, such as the Rostec and Rostelecom joint venture, started a project to move manufacturing of telecommunications equipment to Russia. Defence companies are capable of producing servers and switching equipment, various gadgets, smartphones, tablets (the latter with cooperative design work).

I would like to cite a few examples of re-introduction of original defence industry projects in the information technology industry.

First, the Elbrus processor, which was initially designed for defence and security needs. Due to that project, we are now ready for serial production of this processor with a unique architecture. Other countries only have the American Intel x86 base.

We have transferred the passport and visa information system to Elbrus-based servers to break the dependence on IBM processors. The Interior Ministry plans similar changes for the next year to establish its departmental accounting systems.

As for eliminating the dependence on imported CNC machines, as Mr Dyumin said, we have initiated work in conjunction with the Industry Ministry and STANKIN Technology University to develop high-tech-based machine control systems based on the Elbrus microprocessors.

The second example involves equipment for the enforcement of the anti-terrorism amendments, known as the Yarovaya Package.

We have analysed the six-month demand for data together with telecom operators and selected two models for the traffic storage and management system architecture.

The first model involves scaling finished technical solutions for operational investigative needs, the so-called SORM-2 Internet search and surveillance system, which provides storage for a 12-hour backup (this system is used by about 70 percent of Russian operators), and a gradual build-up of storage volumes to 180 days. This kind of approach will require the procurement of at least 5 million sets of equipment.

Operators’ expenses can be reduced either through cutting the cost of their equipment, or by limiting the storage time and type of data to be stored.

We are aware of the extremely negative response from a number of industry players. Some said these amounts will be included in customer charges. So we worked out another model, based on a preliminary analysis and selection of data to be stored, which will reduce the costs of large telecom operators by 90 percent or more.

Both options have been calculated on the basis of standard server equipment and specialised software.

At today’s exhibition, the MCST company – the manufacturer of the Elbrus line – showed the finished data storage system. With the serial production of the microprocessors they use (which our defence companies are ready to do), we will be able to supply at least 400,000 database storage units and significantly reduce the operators’ costs – that, without the plan to optimise the amount of data to be stored.

One of the main problems in implementing the import replacement programme, from our part, is consumer ignorance of the opportunities that exist for the manufacturing of domestic equipment. Therefore, we are ready to organise expanded meetings of defence industry enterprises with telecom operators, TV and radio companies, IT companies and software developers. We are ready to assist in the creation of a unified information system, expanding the defence industry’s capabilities for the production of civilian goods.

Vladimir Putin: In addition to public procurement, in addition to our direct influence on the market, as the Deputy Minister just said, we still have state-owned companies or companies with predominant state participation. I would like to hear some brief reports from Roscosmos, Rosatom and Rostec.

Go ahead, please.

Director General of State Space Corporation Roscosmos Igor Komarov: Mr President.

The share of noncore (non-rocket space) products in the space industry is about 10 percent. Understanding the need for the diversification of our production, we are moving along several lines.

First, increasing the share of civilian products. In this connection we are increasing export and enhancing efficiency. This year, our export earnings will go up to about $1 billion.

Second, commercialisation and the generation of additional revenues from commercial operations, the provision of commercial services.

Third, the development of noncore production, which currently accounts for 10 percent. In the next seven to eight years we plan to raise this share to 20 percent. As far as these products are concerned, Roscosmos enterprises manufacture for the oil and gas sector gas pumping equipment, magnetic suspension systems and other equipment for gas pipelines.

For machine-building sectors, we have a wide range of products, including control systems and units for locomotives, electrical equipment for nuclear power plants and components for the auto industry and transport.

For the medical industry, our enterprises manufacture prosthetic and orthopaedic products, equipment for newborns, x-ray equipment and hyperbaric oxygenation systems, that is, pressure chambers. In this respect, we also intend to develop cooperation with the Healthcare Ministry and increase this production.

Regarding dual-purpose products, our enterprise manufactures components and elements of aircraft turbo jet engines, electric machines for the submarine fleet and optical location devices for combat vehicles. A great deal in fact depends on enterprise managers. We see that even enterprises that manufacture combat rocket systems are converting to civilian products and water purification systems, among other areas. We will continue to prioritise this sphere.

Unexpectedly, in the process of modernising our enterprises, optimising and implementing production upgrade and modernisation programmes, we saw an effect from the premises thus vacated and setting up production facilities unrelated to our core activities.

For example, an agreement will soon be signed with the Moscow Government on the Khrunichev State Research and Production Space Centre and the land plot that will be allocated will produce more than just a financial effect for the enterprise. In the near future I believe we will sign an agreement with [Moscow Mayor] Sergei Sobyanin on establishing a technopark that will serve as a basis for the development of new scientific areas in the space sector and for the creation of new jobs that will not be directly related to Roscosmos, but companies will engage in activities that are new to us: selling commercial [satellite] imagery, working on the navigation service market, and providing other services. We also see serious prospects in this area and will actively develop them.

Thank you.

Rosatom State Atomic Energy Corporation CEO Sergei Kiriyenko: Mr President, colleagues,

We at Rosatom have identified several areas. After consultations with our colleagues from [other government] agencies, we had a clear understanding of the needs and compared the characteristics of our technologies and imported equivalents.

We have identified five priority areas: medicine, security, machine building, information technology and new energy.

I can say right away, Mr President, that aggregate growth in 2015 was over 60 percent compared to 2014. In other words, import replacement is working.

We have even made a catalogue. It is a list of products manufactured by nuclear weapon making enterprises.

Medicine. These are primarily isotope products and radioactive pharmaceuticals. We cover 100 percent of the Russian market. We have already reached agreement with Ms Skvortsova to factor in the Healthcare Ministry’s programme to increase supply and will augment our capacity to meet Russian market demand in full.

Our exports of radioactive pharmaceuticals and isotopes have increased considerably, by 30 percent. In other words, at present, we meet the needs of over 30 countries: molybdenum-99, cobalt, iodine and an array of other essentially new preparations. Of course, our prime task is to combine this with equipment production and establish a full technological cycle.

In some sectors we had to use foreign-made equivalents and build up localisation while others are already 100 percent Russian. For example, the Agat contact radiation therapy system has 100 percent localisation in Russia and demand is so high that we were unable to bring a model to an exhibition. Mr Manturov requested one but we were unable to provide it because they are snapped up like hotcakes. Consumers refused to make them available for the exhibition. They said: “Forget the exhibition. We need to work.” We meet about 50 percent of demand for these systems in Russia. The outlook is very good.

The second issue is security, Mr President. This is technology that we developed to protect our special sites and facilities. Then we used them on your instructions for the Olympic Games in Sochi. At present we have installed them under a contract with the Mayor’s Office and the Moscow Metro. We are installing these systems at railway stations in all cities that will host the World Cup. Demand is high. We have already received a query regarding the possibility of using it for the 2022 World Cup in Qatar and the Universiade in Almaty and Krasnoyarsk. This technology has an admirable track record.

Our engineering projects are fully in line with the programme that is being developed at the Industry and Trade Ministry. We fit in perfectly.

As for information technology, we reported on this in Sarov, Mr President. It is obvious that the Government has invested heavily in super-computers and Russian software for modelling special nuclear tasks. This software enjoys demand now in light of the sanctions.

Today we had a fruitful meeting with senior managers from the SPLAV company that showed that our modelling of nuclear test explosions in conditions of a nuclear test moratorium can be also used in the creation of new SPLAV technology. This is why we have agreed to cooperate.

There is also demand for the Logos 3D modelling software and the Nymph software, which can be used for fluid and natural gas filtration, in the oil and gas sector, as Mr Novak said.

As for renewable energy, we have been instructed by the Energy Ministry to assume responsibility for creating wind parks in Russia. We have won a tender in this area. We also have excess facilities for the production of carbon fibre, which we used to manufacture for centrifuges and other special equipment. Therefore, we have been ordered to increase localisation. On the other hand, it is a good opportunity for Russia and for boosting exports. These parks could be useful in the countries where we are building nuclear power plants: nuclear plants can produce the bulk of energy, while wind parks can produce variable amounts of energy.

I fully support the proposals that have been aired here in terms of long-term contracts for the production of medical equipment. What we need to know is the requirements for such equipment by year and parameters. We don’t need any investments; we have enough funds we can invest in this project. But we need guarantees that if we produce quality equipment with required specifications it will be sold, or leased, or purchased on instalment. Any of this will suit us. I consider as correct and fully support the proposals made by the Healthcare Ministry and the Industry and Trade Ministry.

I would also support the idea of research units at Suvorov military schools. It is a very good idea. We know how important it is to provide solid university education, but it turns out that starting to learn a high-tech profession in high school is too late. We should start much earlier than that. We know this because we had so-called nuclear classes in several regions. In short, it is a good idea, and we would support it.

Thank you.

Vladimir Putin: Thank you.

Mr Artyakov, do you have anything to add?

Rostec State Corporation First Deputy General Director Vladimir Artyakov: Mr President, colleagues,

It so happens that Rostec is a kind of a poly-company that is currently involved in all sectoral programmes. This especially applies to the civilian sector and import replacement. I would particularly like to note this because, as all of our colleagues here said, a significant share of products in all sectors today are imported.

Considering that we began to work on the issue much earlier and in keeping with your instruction, we understand that the maximum share of civilian products should be manufactured at home, factoring in 50 percent. We set ourselves these targets.

I would like to consider several proposals and perhaps even examples related to the Healthcare Ministry, the Energy Ministry, Communications Ministry, and the Transport Ministry.

As Ms Skvortsova said, we are in close contact with the Healthcare Ministry. I could cite examples related to the Schwabe holding, where we produce virtually the entire list of equipment for perinatal centres. These are high-tech products. By using them we develop certain competences. I am not talking about consumables, which are made at virtually all of our enterprises.

However, with regard to the Healthcare Ministry, I would like to point out (we are currently looking into this matter with the Industry Ministry and holding consultations with the Healthcare Ministry) that we are planning to start the development and production of heavy equipment for the Healthcare Ministry. This will set a precedent in our science and technology, but we believe that we will cope with this task.

Vladimir Putin: Not exactly. The production is already there.

Vladimir Artyakov: Considering that all of our products are imported…

Vladimir Putin: Not all. But there is a lot of import – a lot.

Vladimir Artyakov: Yes, indeed.

We believe that if we set this objective before ourselves and achieve it this will be a serious import replacement programme, which will save significant resources and increase the capacity of our defence enterprises in the civilian sector.

With regard to the Energy Ministry, Gazprom, Rosneft, Gazprom Neft, and NOVATEK have stepped up their gas pumping business. The bulk of the gas pumping equipment is manufactured by Rostec.

Mr Novak mentioned that Rostec with all its divisions and enterprises will participate directly in the new projects that are being put together by these companies, which is a new development. Now we have a clear-cut import replacement programme developed by the Industry Ministry, Energy Ministry, and state-owned companies, primarily, Gazprom and Rosneft, which in and of itself keeps our enterprises busy and improves their bottom line. Using this as a basis, we will develop a new product for these customers.

In conjunction with the Energy Ministry, we are actively working on a programme for building small power plants in our country. We believe (and the Energy Ministry supports us) that our grid companies and generating stations incur major losses, including sizable overheads. There are territories where it is necessary to build small power plants. We are prepared for this scenario. We are putting together complete packages for building such plants to supply power to towns and small districts. This system can be effectively used in the Caucasus, where the grid economy poses numerous problems and is fairly unprofitable. We discussed this with the leaders of the Caucasus. They liked the idea, and we will implement this programme with them.

With regard to the Ministry of Communications, I would like to focus on the telecommunications equipment, which many companies are willing to market. The Ministry of Communications gave it the green light, and we are working on it together, but we are still at an early stage of work, as it is necessary to deploy a new production system. We are willing to do this work. We have the equipment and, most importantly, the people who can do this work are willing to go ahead and do this.

On a separate note, Mr President, I would like to mention the projects involving cooperation with the Transport Ministry. Mr Sokolov did not mention it – it is the GLONASS system. We are now implementing it. Importantly, not only the software, but also the hardware for this system will be made by Rostec, in particular, enterprises operated by Roselectronika. We are ready for this work.

Thank you.

Vladimir Putin: Good. Does anyone want to speak? Please, go ahead.

Economic Development Minister Alexei Ulyukayev: Mr President, colleagues,

The obvious task is to increase the share of civilian output in the defence industry by 50 percent by 2025. Unfortunately, it decreased from 33 to 16 percent over the past few years, though not because the production of civilian goods has plummeted. No, the decrease was minor, and the volume of civilian production has been relatively stable at some 500 billion rubles. The decrease was due to the fact that production under state defence orders increased by 50 percent in foreign currency, or threefold in ruble terms, what with the exchange rate. It’s as simple as that.

What do we expect in the near future? As you have said, there will be a nominal increase in the volume of defence orders because we have completed the larger part of the rearmament programme. But the volume of military and technical cooperation projects will be considerable, especially because of the exchange rate movements.

However, the share of civilian products should be increased sixfold to reach 50 percent of the total output. This is not at all a trivial but a very complicated task.

Since the issue concerns high-tech products, our defence companies will not produce pans; these companies have to fulfil state or comparable contracts. In light of strict budgetary restrictions, which will likely remain until 2025, it will be very difficult to increase allocations for civilian projects from the federal, regional and municipal budgets.

What am I driving at? I want to say that we badly need export contracts for these products. The global market is boundless. Civilian products currently account for about 3 percent, actually less than 3 percent, of our exports. But a mere glance at this exhibition shows that the quality of these products is very high, while their prices are much lower than those of comparable foreign products.

What are the impediments to exports? First of all, the certification of products. Only one of these enterprises – I talked to their managers – has its products certified for entering European markets but all of them should have their products certified. Our first task is to ensure certification and licensing, especially with regard to dual-purpose goods, the protection of patents and intellectual property rights.

Second, subsidising logistics, cutting delivery costs.

Third, exhibition activity and promoting our products, showing why they are good.

Fourth, more or less acceptable lending programmes to prepare enterprises for export operations and ensure supplies.

The Russian Export Centre was in fact established to provide financial and non-financial support.

Regarding certification. It seems that we generally agreed that our anti-crisis plan with an asterisk provided for a sum of 1 billion rubles for all the valuable activities of the Russian Export Centre. Now we’ve agreed that this asterisk will be removed before the end of the year and that the 1 billion rubles will go there. This is very important but not sufficient.

The same goes for the provision of logistical support for deliveries by our defence enterprises. We need to ensure these basics in 2016–2017 without fail and then things will run smoother. When there is a definite list of customers, when there is definite demand, a servicing network, support and so on, export starts to grow.

Now we will set about customising our trading houses for this. This year the Russian Export Centre will open 10 trading houses affiliated with our trade missions. We will provide this support through them. I believe this is of major importance.

Thank you.

Vladimir Putin: What you just said is very important.


Dmitry Rogozin: Mr President, the presentations mainly concerned enterprises that already run diversified operations, that is to say have both military and civilian production programmes. Here, everything is more or less clear. Aviation, shipbuilding, the microelectronic industry – it is clear how to change these proportions.

Something else worries me the most: enterprises that are geared toward purely military production, for example, those working for the strategic nuclear forces.

Rather, what we have seen here at SPLAV is an exception to the rule, because no one else has ever been involved in civil manufacturing, meaning that they are not familiar with the market. They are not even aware of how to make inroads on the market. Therefore, letting them find their own way on the market, without administrative oversight and support, is not an option, as they will fail.

In this regard, I would like to say a few words about organising our future work. Of course, what we need is not just a consolidated order, but an aggregate consolidated order, especially in areas such as healthcare, the machine-tool industry, and power industry. The situation here is similar to what we had in microelectronics. We got it underway only after approval of the consolidated order, which should fully account for the outgoing defence enterprises.

Within two months of identifying the parameters of the state armaments programme, we will have a sense of what we have going on at what companies, and when we should expect a decline in output. We should focus primarily of such parameters.

In general, I believe it’s important to introduce a repayable loan system for the companies that get their funding from the Industry Support Fund, because the fund can do so. Indeed, we must provide loans that are not cheap or interest-free, but only repayable loans. I believe the fund will cope with this role.

Vladimir Putin: Then we need project work.

Dmitry Rogozin: Correct.

There is an important issue that I would also like to focus on. I’m referring to tightening requirements for categorising products as domestically manufactured, because, unfortunately, there are examples of loose interpretations, when they put in just a few Russian-made screws in a piece of equipment made in China or another country, and brand it as Russian-made.

So, (I will work through this matter with the Ministry of Industry), it is necessary to tighten regulations.

There’s a snag with regard to organising our future work. The fact is that the import replacement plan for civilian products is run by one sub-commission of the Commission for Import Replacement, whereas the defence industry products are overseen by another sub-commission.

I believe this work must continue, of course, as part of the commission’s terms of reference. But since we were the ones who initiated this process, and recently held in Tula, together with Mr Dyumin, a major federal conference on healthcare called The Defence Industry for Healthcare, I believe it’s appropriate to name the Military-Industrial Commission Board as the oversight body, because we can work with the civilian ministries for aircraft manufacturing and shipbuilding. We're involved in this work anyway. I have no problem working with the Energy Ministry, the Healthcare Ministry, or any other ministry.


September 8, 2016, Tula