ROSTEC: Russia's Giant Publicly Owned Conglomerate

As Russia emerged from its war-like raping by Western Neoliberals and their Russian “oligarch” criminal aides which resulted in the ruination and deindustrialization of much of Russia’s economy, Putin and his team made a series of basic moves to regain control of the economy and neutralize the oligarch criminals. One of the most critical moves Putin made was to establish Russia’s partnership with China in 2001 that led to a series of investments to Russia’s hydrocarbon extraction industries. Other moves were made to halt the slide of social services and improve other publicly important policy areas. But soon it became clear that reliance on the private sector alone to revamp Russia’s industrial system wasn’t going to work as speedily as needed. So, after months of consultations, in 2007, Putin issued the Decree that brought Rostec into being. Here’s a short extract from Putin’s meeting today with Rostec CEO Sergey Chemezov:

”I can remind you of a few figures for comparison: In 2007, a decree was signed on the establishment of the corporation, And in 2008, we already received 443 enterprises, of which 148 were in a state of crisis, 28 - in bankruptcy, 17 did not carry out their economic activities, and 27 partially lost their property or had significant risks of losing it.” [In total, these companies owed 630 billion rubles. Their production chains were in shambles, their fixed assets were worn out and obsolete, and all of them were in dire need of competent management.]

This is from ROSTEC’s history opening page:

At the end of 2007, the government resolved to establish the State Corporation Rostec," to which it proceeded to transfer a significant share of the country's industrial assets.

At the heart of the decision to create the State Corporation was the intention to support Russia's industrial complex through hard times and make home industries competitive on the world markets.

It took over four years to shake out the unworthy, revamp the worthy, and embark into new market areas. The structural nature of Rostec is that of a conglomerate with Rostec acting as parent holding company for many different offshoots, while all are held by the public making Rostec and its kin (Rosatom, Roscosmos, etc.) rather unique public utilities. In 2012, a major restructuring was undertaken. In 2015, the board instituted a ten-year plan—something unheard of today within Neoliberal economies:

The main task is to change the Russian economic model by increasing the share of high-tech civilian products and non-resource exports. The new strategy contains 5 key elements: aggressive growth, access to new markets, operational efficiency, partnership with key market players, and a mechanism for implementing the strategy.

The change was due in part to the application of illegal sanctions onto Russia’s economy where it was made clear that Russia would need to prepare to become 100% self-reliant—technologically sovereign—as the West’s war against it was certain to escalate. In many respects, Rostec’s performance has become a proxy for that of Russia’s entire economy. After its first ten years, this report was made and appended to its history page:

Over the first decade of its operation, the Corporation has achieved high performance despite the difficult macroeconomic situation and new challenges of the geopolitical situation. Today, Rostec continues to demonstrate stable growth and is confidently looking to the future.

Over 10 years, the value of the Corporation's assets has increased from 1 trillion rubles to 3 trillion rubles. Since the founding of the Corporation, the production of civilian products has grown by 10% or in absolute terms - almost 4 times. Revenue across the entire contour of the State Corporation increased from 511 billion rubles in 2009 to almost 1.5 trillion rubles in 2017. Products are exported to 70 countries around the world. At the start, the volume of military exports was about 6 billion dollars, and in 2017 - already 13 billion dollars, i.e. growth over 10 years - twofold.

As you read, Rostec is a part of Russia’s Military Industrial Complex which is almost completely owned by the public via the State and is clearly a superior model when compared to those of the West that are plagued by corruption and poor weapons performance. The above background provides a short introduction to the conversation you are about to read between Putin and Sergey Chemezov where a bunch of new data will be provided. The scope of Rostec is vast as you’ll discover, but that vastness is shared by most of Russia’s State Owned Enterprises as well as those that aren’t. At the end you’ll be presented with figures related to “Social Responsibility” which relates to the Soviet Era practice of large companies providing most means of socio-cultural support to their workers and the cities in which they live and work. More info can be found at Rostec’s website, which has English language pages along with Russian. And now, the conversation:

Sergei Chemezov: Today we have a traditional annual report.

(Shows a presentation.) This is one hundred of our landmark developments that we have made over the 15 years of the corporation's existence. In general, 2022 was our anniversary year. Thank you so much for coming and congratulating our team. Many employees of the corporation were awarded state and departmental awards. This is well deserved, because a lot has been done over the past 15 years.

I can recall a few figures for comparison: in 2007, a decree was signed on the creation of the corporation, and in 2008, we have already received 443 enterprises, of which 148 were in a state of crisis, 28 were in bankruptcy, 17 did not carry out their economic activities, and 27 partially lost their property or had significant risks of it. losses.

During these 15 years, we have grown: Today, the corporation unites about 800 scientific and industrial associations in 60 regions of the country, and thousands of different products are produced, including military and civilian ones.

Vladimir Putin: What is the current percentage of the civilian population?

Sergey Chemezov: I can say for sure that today we have a 44.5 percent share of civilian products in the corporation as a whole. Last year it was 45.5, but due to the fact that the state defense order has grown significantly, our share has slightly decreased.

Although in absolute terms, we still grew up. For comparison, in 2021 we had 939 billion [rubles] – the share of civilian products, and in 2022-942 billion. Slightly increased, but in relative terms, of course, in relation to the total volume of GOZ and the total order, we decreased.

I can give you a few figures. In 2009, for the first time, we made a consolidated report, and the revenue was 511 billion, and the loss was 64 billion. This year we have already reached such a figure as two trillion 116 billion, we have grown by 2.5 percent compared to last year, but, unfortunately, our net profit has decreased significantly-it was only 39 billion, and last year it was 163 billion. But this is primarily due to the fact that we have a state defense order: profitability is zero, and sometimes even negative. The losses that we incur are covered by civilian products, which, thank God, we already have today, and we can somehow improve the financial component in order to be in the black.

Last year, we increased our investment by 20.6 percent. The volume in absolute figures is 292 billion rubles. This was mainly aimed at expanding production, technical re-equipment and, above all, expanding the production of military products. All this is connected with the SVO.

Our average number is 592 thousand [people]. Unfortunately, we still don't have enough people. This year we will urgently need to close 23 thousand vacancies, we will recruit-these are highly qualified specialists, of course.

We raised wages. Due to the fact that the Government decided to increase the average salary for defense enterprises by ten percent in relation to the average salary in the regions, we did it. But we got more magnification: compared to last year, wages increased by 17.2 [percent]. This is due to the fact that last year many of our enterprises worked on weekends, holidays, and at night, and these days are paid, of course, at an increased rate. But I would like to note that our output per worker has also increased by 2.5 percent compared to last year.

As for GOZ. This is the main task that our enterprises face, since they are mainly defense enterprises, and about half of the entire state budget of the country lies on the shoulders of our enterprises. The implementation of the state defense order for the past year, 2022, was 99.5 percent. This indicator is quite high. We have increased production volumes for all types of military products, which are massively used today in the Northern Military District.

If we talk about the SVO, then 90 percent of all the products that are involved there are ours. First of all, these are barrel and rocket artillery, light and heavy armored vehicles, transport helicopters, combat aircraft, heavy fire systems, small arms, and all types of ammunition. Such military equipment as BMP-3, BTR MDM, T-90 Proryv tanks, Iskander missile systems, Kinzhal hypersonic aviation missile systems, Ka-52, Mi-28, Su-57, Su-35 helicopters, Kub and Lancet drones, it has proven itself well in today's combat operations. We are completely closing all the volumes that are required for the Ministry of Defense today, and today we are closing everything.

Vladimir Putin: We need to increase the percentage of production of the latest weapons.

Sergey Chemezov: We are working on it.

Vladimir Putin: T-90 "Breakthrough" aircraft systems. You know what I'm talking about.

Sergey Chemezov: Of course.

Vladimir Putin: The Lancets and so on.

Sergey Chemezov: A few words about civilian products, and we don't forget that either. I have already told you that our share of production is quite high compared to all other enterprises operating in the defense sector. I can name a few examples of civilian products – new types of products that we have created over the past year.

In the pharmaceutical field, our holding "Natsimbio "has launched a new drug for the treatment of immunodeficiency" BioGam " – the first domestic intravenous immunoglobulin. The drug is used as a replacement or immunomodulatory therapy, for example, for HIV infection, for the treatment and prevention of infectious diseases, as well as for organ transplantation.

In the field of engine building: the GTA-8 power plant was created for offshore production platforms. Developed by our company UEC. The unit is resistant to extreme conditions, it can operate at -50 degrees, at +50 both on gaseous and liquid fuel.

In the field of medicine, I believe that we have quite a good breakthrough. We have created our own electron beam computed tomography scanner. Initially, the project was conceived as an international one, and many countries participated, but due to recent events and sanctions, we are forced to carry out a lot of work (research and development) on the localization of this tomograph.

Vladimir Putin: Very good.

Sergey Chemezov: At the beginning of this year, we already held a demonstration, and the first electronic cannon localized in Russia started working – this is the main unit that is installed in the tomograph. It was created at our company "Istok". Today, this tomograph has a localization level of 25-30 percent, but by 2026 we plan to increase the localization level to 60 percent, and by 2029-to 90 percent. We plan to start producing up to 100-150 units per year by 2029. In general, this is very important for us, since most of the tomographs are now purchased abroad.

Air ticket booking system. Previously, the entire booking system was foreign, mainly American, European, and, of course, all information about the movements of our Russian citizens both inside the country and abroad, in general, was fully known abroad. Today we have created our own system, it is called "Leonardo": last year we launched it as soon as possible. The example is very interesting. Today we have both Aeroflot, Pobeda, and many other airlines (today there are already more than 60 airlines) working with our Leonardo system. About five million passengers are registered in the system every month. Naturally, all levels of comfort are used there: the usual operations with a ticket, sales of additional services, check-in at airports, bonus systems, loyalty systems, and so on are available.

Vladimir Putin: The system is domestic, but it is called "Leonardo".

Sergey Chemezov: I don't know, the inventor of this system came up with such a name.

Vladimir Putin: Well, it's part of world culture.

S. Chemezov: Marking. In recent years, we have done a lot of work in this area, reaching 220 million people, and we have implemented them not only in Russia, but also in five union states. Ten categories of different types of products are marked – medicines, dairy products, water, shoes, light and fur industry, tires, perfumes, photographic equipment, tobacco products. In April of this year, we have already started labeling beer. In Russia, 570 thousand companies are covered, and all cash registers in the country are fully connected to this system.

What does this mean? The volume of illegal turnover of products has been reduced and tax revenues to the budget have significantly increased. Approximately, according to our calculations, the budget received 435 billion rubles from 2019 to 2022, as soon as this system started working.

Facial recognition system. It was first launched at the 2018 FIFA World Cup. Recognized as one of the best today: in 2021, NtechLab is recognized as the most accurate in the world, especially taking into account terrorist threats. In 2022, we implemented these projects in 36 countries, including at the World Cup in Qatar. Today, our system is used in our cities and provides security. That is, it is quite easy to find either a criminal or a lost person today, because each camera has this NtechLab facial recognition system.

As for helicopter construction. In 2022, our Russian Helicopters holding company produced 296 helicopters. Last year it was 134, this year-296, a significant increase. This, of course, is primarily due to the increase in the GOZ: according to the GOZ, we doubled the production of military helicopters, but we also worked on civilian helicopters. A new Mi-171A3 helicopter was created. In 2022, it made its first flight from St. Petersburg to Moscow. It's a passenger helicopter. It is also intended for the fuel and energy complex.

Vladimir Putin: It works on the shelf.

Sergey Chemezov: It can work on the shelf. The take-off weight of the car is 13 tons, the capacity is 24 passengers, the maximum range is 1000 kilometers with the main (conventional) fuel tanks, and if there are additional ones, it will fly even further. All-weather operation - from -50 to +50 [degrees].

By the way, we have also created one of the first unmanned BAS-200 helicopters. It has a take-off weight of 200 kilograms, and a payload of 50 kilograms.

Vladimir Putin: Do you want to carry mail?

Sergey Chemezov: If it's for civilian purposes, then of course it's for the post office. In December last year, we tested it in the Arctic Circle, that is, at temperatures over 50 degrees. It has shown itself very well, and today the leadership of Yakutia is ready to conclude an agreement with us in order to deliver mail to remote areas of Yakutia. I think that it will be possible to use it not only in Yakutia, but throughout Siberia, where transport logistics are complex and it is very difficult to deliver any mail. And, of course, we will use this helicopter in the SVO as well. Today we are conducting tests, and I think that it can also perform well, because 50 kilograms is lifting, that is, the payload is quite good.

I have already mentioned about drones – these are the "Cube" and "Lancet", they have proven themselves very well. This is a Kalashnikov production facility.

Vladimir Putin: Both the "Cube" and "Lancet" proved to be very effective: first, the impact is powerful, any equipment, including foreign-made ones, does not just burn, but ammunition sets also explode. The manufacturers promised me that they would increase the amount of production. They keep up with this promise, but we need to increase more.

Sergey Chemezov: We will work hard.

At the same time, Rostec enterprises also produce UAV counteraction systems. In particular, "Roselektronika" produces anti-drone guns, called "Pishchal-Pro", UAV suppression systems "Serp". KRET Holding [Concern Radio-Electronic Technologies] creates electronic warfare equipment.

Our holding company "High-precision Complexes" is working on the creation of an air space control system. We have created small radars that can detect small-sized and low-speed targets – these are just drones, because today's radars can not always detect these targets, because they fly low, and radars are designed to intercept high-flying types: aircraft, missiles, and so on.

As for the aircraft industry. In addition to military and combat aircraft, the production of which, by the way, doubled last year, we also pay great attention to the production of civil aviation equipment. We have approved the production program until 2030. For the first time in 2024, we will launch mass production of Superjet – Superjet New aircraft. This is an aircraft that is equipped with our PD-8 engines, completely our avionics, in fact, completely our aircraft, completely from our, Russian components. Starting from 2024, 20 such vehicles will be produced annually.

In 2024, we will also start producing the MS-21: the first production six aircraft will also be transferred to Russian airlines, and by 2025 we will mass-produce ten Tu-214 aircraft per year. These are aircraft that our airlines will need very much today, since from 2025 all foreign companies will start to leave, because major repairs of aircraft will be necessary, and so on.

Vladimir Putin: There is a real chance for our producers to fill the vacant niche.

Sergey Chemezov: Yes, we want to take advantage of this.

Vladimir Putin: It is absolutely necessary to do this.

Sergey Chemezov: Of course, we will do this.

Vladimir Putin: We need to do this before foreign producers return, and they want to do it.

Sergey Chemezov: We need to get ahead of them.

Vladimir Putin: Yes, that's for sure.

Sergey Chemezov: And of course, we pay great attention to educational activities and personnel training. We work with more than 300 universities and specialized secondary educational institutions. We have 130 basic departments, we have developed three training programs, primarily for the aviation industry – the Moscow Aviation Institute is the basic university, and all aviation departments that are available in technical universities in the country.

The second is for the radio-electronic industry and the IT sector, the project is called "Rostec Code". The main universities are the Moscow Institute of Radio Engineering, Electronics and Automation and the Southern Federal University. For the production of medical optoelectronic equipment-the Rostec Biotechmed project, the main university is Bauman Moscow State Technical University.

A few words about the Wings of Rostec program. The purpose of the program, of course – is to train engineering and technical specialists for aircraft manufacturing enterprises. We recruit students, and our students actually begin to combine work in enterprises and study from the first year. On the one hand, they also receive a salary, that is, it is additional material support in addition to a scholarship, and on the other hand, they receive both skills and abilities specifically at the enterprise for which they may come to work in the future.

We also support advanced engineering schools: we spent more than 350 million rubles on this last year. Together with colleges, we strengthen the training of workers and participate in the federal program. The number of future graduates for 2022/2023 is four thousand people-these are already highly qualified specialists who will come to work at our enterprises.

We create training centers at our enterprises. The first such center was opened in Ufa, the next one is planned in Moscow, then in Perm, Rybinsk, Kazan and Samara. In other words, in all the regions where our enterprises operate, we will conduct retraining and training of specialists in these training centers.

Social responsibility. Social spending increased by 16 percent last year – from $ 12.2 billion to $ 14.2 billion. First of all, this is, of course, the housing program, which amounts to one billion rubles.

Vladimir Putin: What is your average salary?

Sergey Chemezov: We have 72,000, and the average in Russia, in my opinion, is 64, which is decently higher, specialists are coming to us.

Vladimir Putin: Good.

How unique is Rostec compared with its kin like Rosatom or Gazprom? They all share working in multiple areas of Russia’s socio-political-cultural realm along with the economic, and like Rostec don’t just produce one line of goods. Yes, the West has corporate conglomerates too, but most of them have been financialized like General Electric or General Motors where most of their income now comes from exploiting debt instead of creating useful products. Another aspect that’s vital to Russia’s political-economy is the participation of these massive companies with Russia’s education system which you just read about, a marriage Putin promoted about the same time Rostec was born. It’s amazing that western analysts could ignore something as large as Rostec when appraising the degree of Russia’s economic power. The revamping of Russia’s economy along the lines Team Putin have promoted makes for a very interesting comparison between what Russia is becoming versus what the USSR failed to become.

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