Outside View: New defense giant -- Part 1

MOSCOW, Dec. 11 (UPI) -- The Russian president has signed a law establishing a state company Rossiiskiye Tekhnologii -- Russian technology.

Sergei Chemezov, former head of Rosoboronexport, the country's weapons export monopolist and a friend and colleague of Vladimir Putin from the time they worked in East Germany, has been appointed general director.

Chemezov said in an interview that he was the main initiator and driving force behind the creation of Rostekhnologii, which apart from Rosoboronexport comprises VSMPO-AVISMA -- production of titanium and titanium components, AvtoVAZ -- cars, Oboronprom -- helicopters, and other industrial and financial companies.

Rostekhnologii is expected to take in the plants producing special steel and armored vehicles in Volgograd, a factory in Arzamas producing armored personnel carriers, the car manufacturer GAZ, and in the future companies producing electronics, aircraft engines and automated battlefield systems -- in other words, the main elements of the Russian defense industry.

What has become patently clear is that the new state corporation is trying to take from the Industry Agency the main elements that have not been properly developed so far.

Chemezov and his colleagues will have extremely effective economic leverage. For example, the law establishing Rostekhnologii envisages making the state corporation and its structures, including Rosoboronexport, a joint stock company. Given the fact that today the organization makes its profit by exporting more than $5.5 billion a year worth of weapons and that the portfolio of orders is more than $20 billion, it becomes clear what funds will be invested into the state corporation and its development.

It is no secret that the defense industry, along with the oil and gas industry, put Russia on the same level as the world's leading powers. According to the Stockholm International Peace Research Institute, Russia is 1 percent ahead of the United States in weapons supplies to the world market.

True, one of Russia's main advantages on the market until recently was the relatively low price of its weapons. Russian weapons used to be 25 percent cheaper than similar foreign models. But a rise in the prices of energy supplies, metals, and often unjustifiably high prices of components and other elements of weapons make it impossible to keep the old prices of Russian military equipment.

Moreover, Rosoboronexport has been facing problems not directly related to the market and do not depend on it. It cannot regulate and control cooperation ties between the members of the entire production chain. Often plants with foreign defense contracts fail to fulfill their obligations, to meet the deadlines or even to supply the goods, which causes reclamation and fines. President Putin spoke about this at a recent government meeting on military-technical cooperation.

Chemezov says that since Rossiiskiye Tekhnologii is part of Rosoboronexport it will lead the whole process, control the production and supply chain from research and development to the supply of special equipment abroad.

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(Next: Rossiiskiye Tekhnologii's metallurgical strategy.)

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(Nikita Petrov is a military commentator. This article is reprinted by permission of RIA Novosti. The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.)

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(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)