Last chance saloon

Mired in corruption and increasingly unable to meet procurement contracts due to a lack of components, Russia’s defence manufacturers find themselves in a precarious position

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Last chance saloon

Illustration: Alisa Krasnikova, exclusively for Novaya Gazeta Europe

By pouring record sums of money into the sector, moving to round-the-clock production and threatening management with prison terms for failure to deliver on contracts, the Russian government is trying to drain whatever it still can from the country’s depleted military-industrial complex.

Earlier this year, former Russian president Dmitry Medvedev, paid a visit to the 61st Armoured Vehicle Repair Plant in St. Petersburg, which upgrades Soviet T-72 and T-80 tanks, which remain in widespread use by the Russian army today. After inspecting the floor, Medvedev casually reminded factory staff that failure to meet defence order deadlines would lead to prison terms.

Medvedev’s visits to military manufacturers began last November, when he toured Kurganmashzavod, Russia’s sole manufacturer of BMP infantry fighting vehicles, where he also referenced the criminal liability its employees would bear should they fail to meet their Stakhanovite deadlines.

Shortly before Medvedev’s visit, all defence plants in the Kurgan region had moved to a round-the-clock work regime, requiring employees to work 12-hour shifts six days a week and cancelling all leave. These radical tactics allowed Kurganmashzavod to manufacture its annual number of BMPs in six months.

After being named deputy chairman of the Military Industrial Commission, a role that was created just for him, Medvedev raised more than a few eyebrows by reading aloud a telegram sent to captains of the armaments industry by Soviet dictator Josef Stalin demanding they boost the production of munitions.

Understanding the former president’s message loud and clear, the managers of most armaments manufacturers in the country, fearing criminal persecution, switched to a round-the clock regime. But having factories work around the clock can’t solve the more systemic problems facing Russia’s defence industry.

Since Russia’s invasion of Ukraine, the number of criminal cases opened for not meeting state defence order deadlines has doubled.

Shortly after the Russian invasion of Ukraine, then Deputy Prime Minister Yury Borisov publicly admitted to “colossal sanctions pressure” being placed on the defence industry, and asked the State Duma, the lower house of Russia’s Parliament, to adopt legislation to “optimise” arms supply.

By September, Russia’s Criminal Code had been updated to include four new articles criminalising the refusal of defence manufacturers to accept orders from the state, as well as for failing to fulfil state contracts on time.

Putin first proposed prison sentences for those failing to fulfil defence orders back in 2017, though according to Russia’s Federal Antimonopoly Service, the number of procurement orders not being met on time has been steadily growing since 2014.

Since the start of the war, Russia’s Federal Antimonopoly Service has fined 419 employees in armaments factories for failing to deliver contracted goods. The actual number of violations is likely to be far higher, however, as our figures were calculated using the number of appeals made to the service by those it had fined. According to the new legislation, repeat offenders could face criminal prosecution and jail sentences of up to 10 years.

Litany of failure

In 2015, defence manufacturer KBP announced it would begin the mass production of the Pantsir-M air defence system, the naval counterpart of Russia’s widely-used Pantsir-S air defence system, but the Russian Navy didn’t receive its first Pantsir-M until late 2022. The project manager and their deputy were both fined for the seven year delay.

Two months before the war, KBP, the manufacturer producing almost all of Russia’s high-precision weapons for the frontlines, unveiled a new guided drone missile, which it would begin to deliver in just a few months later. The Russian Armed Forces are still waiting for their first consignment. At least 39 KBP employees have subsequently been convicted on charges of delaying state defence orders.

The Defence Ministry’s relationship with the Zvyozdochka ship repair yard in Russia’s northern Arkhangelsk region has been even more fraught, with several criminal cases being opened against the concern’s directors. In 2020, the company was added to a list of so-called “unscrupulous suppliers” for its failure to deliver on a 100-million-ruble state order.

Less than the sum of its parts 

One of the main reasons for the delays on the production line is a chronic lack of parts. Since the first day of the war, Western sanctions have made it almost impossible for Russian companies to buy the semiconductors and other electronic components needed for the construction of aircraft, air defence systems, and vehicles.

However, the challenges faced by Russian defence contractors hoping to get their hands on technical hardware have been a constant since the annexation of Crimea almost a decade ago.

For example, as far back as 2014 the Defence Ministry ordered aircraft engines from a repair plant, only for its management to be put on trial two years later for their failure to fulfil the state’s order on time. It later became apparent that the contract could never realistically have been fulfilled as the sole manufacturer of a vital component required was located in Ukraine’s Zaporizhzhia region.

According to defence industry analysts, aviation and shipbuilding are the two sectors most reliant on imported Westen parts, and it’s no coincidence that the same two sectors are the ones whose deliveries to the Defence Ministry are most frequently disrupted. While the “cannibalisation” of aircraft for spare parts was officially sanctioned in Russia earlier this year, shipbuilding has either been severely delayed or halted entirely due to the lack of engine parts.

Without imported microelectronics, defence factories are unable to produce even the most basic weapons, such as artillery shells, mines, and rifles in the amount required by the army, military expert Yury Fedorov says.

Another reason for state defence contracts not being fulfilled is corruption. In May, the head of Russia’s Investigative Committee Alexander Bastrykin lamented the high level of embezzlement believed to affect the defence industry, accusing contractors of endemic corruption and theft.

Fedorov blames the culture of secrecy that permeates Russia’s defence industry for the high incidence of corruption relative to other sectors of the economy. As the government can ill afford to turn a blind eye to the misappropriation of funds from the military budget, the defence industry has increasingly been the target of law enforcement investigations since the start of the war, Federov says.

Last year, Russia’s Investigative Committee pursued some 8,700 cases of corruption within the military-industrial complex, 700 cases more than in 2021.

Missing in action

There’s been a 48% increase in Russian defence industry job listings over the past 12 months.

The downsides to being a lathe operator at the world’s biggest titanium producer are myriad, aside from the generous paycheck. In particular, having to work 11 hours a day six days a week won’t appeal to most.

In June, the plant’s employees told Russian newspaper Novye Izvestia that due to the unprecedented workload, unbearable conditions, and the staff’s poor treatment by management, meant employees started quitting, including highly qualified and hard-to-find specialists who decided they’d had enough and would rather go and work at the local supermarket.

The shortage of personnel has forced some Russian factories to employ inmates from nearby prisons as a stopgap solution. Defence industry contractor Kurganpribor, for instance, has allocated an entire floor of its production facility to prisoners manufacturing missiles.

The 100 inmates provided by the prison, who also temporarily reside at the factory, are unable to make up for the factory’s current shortfall of around 750 staff members, but it’s definitely a start. It was not possible to find out how many hours a day the inmates work or whether they get paid, however.

According to Yury Borisov’s June estimates, the defence industry’s total staff shortage stands at almost 500,000 people, some 120,000 posts of which require specially qualified staff.

Military expert Pavel Luzin says that money isn’t usually a deciding factor in attracting people to work in the military-industrial complex. Most of the sector’s staff is made up of people who “got bad grades in school”, he says, adding that while honour students rarely took jobs in the field, those that did tended to go into non-military production.

Military-industrial coma

In 2014, Russian newspaper Izvestia published an article about the Ministry of Trade and Industry planning to repurpose certain defence sector factories into medical and agricultural production by 2020.

Even the Kalashnikov Group, the biggest manufacturer of small arms in Russia, planned on upping the number of its non-military products. However, Putin firmly rejected the idea, calling the military-industrial complex a source of innovation for the Russian economy and banning defence enterprises from producing consumer goods.

The Kalashnikov Group fulfilled 45 Defence Ministry procurement orders last year, the highest number in the company’s history. Even before the war, Kalashnikov’s revenue began growing significantly, with earnings seeing a 420% increase between 2017 and 2021.

Of Russia’s 15 biggest weapon manufacturers, 10 saw their revenues increase in the run up to the war. How much each company has made subsequently is impossible to say, as their financial data has since been classified.

Following an order issued by Putin in June to ensure that Russian weapons production was increased this year, the military-industrial complex has received more and more funding from the government.

But despite the record amount of money being poured into the industry, the Russian military-industrial complex remains unprofitable, Luzin said.

“For the Russian military-industrial complex, war is like adrenaline shots given to a dying man,” Luzin observes. “Spending on the war revives the industry and stops the pain for a while. The war allows for the writing off of losses, debts, and mistakes. But that doesn’t solve any of the actual problems faced by the military-industrial complex. As soon as the war ends, it will fall into a coma,” says Luzin.

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