Interviews and statements

2 November 2021

"The craft abandoned by the USA does not cause problems for Afghanistan alone" Head of the Federal Service for Military-Technical Cooperation tells RBC.

Photo by Vladislav Shatilo, RBC

Dmitry Shugaev, Head of Russia's Federal Service for Military-Technical Cooperation (FSMTC), has given RBC an interview, covering the consequences of Americans leaving behind weapons Afghanistan, the increase in military supplies to Central Asia, and the suspension of the FGFA project co-run by Russia and India

As a child, you wanted to be an architect. Then, you enrolled at MGIMO University to study journalism, and even covered a fashion show by Pierre Cardin in Moscow: the very same show when the French couturier signed the first contract for producing his collection in Russia...

By the way, Yves Saint Laurent also visited Moscow in December 1986. Back then, I was just about to graduate, and was working as intern at the Novosti Press Agency (currently RIA Novosti). Such high-profile visits were obviously huge newsmakers at the time. As an intern, I got to write on all kinds of subjects. I remember reporting for Paris Match: I'd write a story about, say, the ancient Orthodox heritage of Suzdal and another story about a tractor assembly plant in Vladimir at the same time. It was mandatory for us to prepare five or six long pieces for foreign periodicals. The regime was easing up a little during those years, and even though our reports still needed to have some ideology in them, we were allowed to stray a bit from the party line. So I kept running around Moscow and beyond, together with my coursemates, imagining myself a hard-boiled egg of a reporter.

So going into journalism was a conscious choice of mine. I'd always keep my eyes on the news on TV: a habit that I've still retained. I loved keeping abreast with the latest events, particularly those to do with international relations. Generally speaking, journalism is a great profession. Both in terms of interactive capabilities, and in terms of lively, diverse communication with people. And don't even get me started on the emotional high of being the first to learn a piece of news.

I did want to be an architect as a kid, though. I was a huge fan of drawing, which I still indulge in now and then, by the way. I've always been fond of detailed layout drawings, where all proportions are just right and all objects are structured properly. As far as I understand, all of this is required for architectural design. Even if we are doing repairs in our apartment, I tend to be the one to try and work out some initial concept, the furniture placement and the general designs. Then my wife makes some adjustments, and we arrive at a holistic final picture.

When I am on a business trip or on vacation, I make note of the history of the cities I visit, the architectural features specifically. By the way, I am really fond of Moscow in this context. Not just because I was born here and this is my city, but also because I sincerely believe that Moscow has its own beautiful style. It's no accident that the Russian capital is recognized around the world as a major tourism hub. If I had a second life, I'd definitely venture out to become an architect…

What do you think of Big Clay #4, an artwork by the Swiss sculptor Urs Fischer, which has been on display in downtown Moscow since August?

Frankly, I don't really get abstract art like this. I won't be so bold as to pretend that I am an expert, but in this case I absolutely do not understand what message the author meant to send. I think that any art, modern or otherwise, must be built upon talent first and foremost. I am sure you'll agree.

How did you move on from being a journalist to working in the defense industry?

My life in the defense industry, or rather, in the field of military-technical cooperation, which is an integral part of Russia's international cooperation, politics and global economic activity, began with an invitation to work for Rosoboronexport in the early 2000s.

How did you find out that you'd been appointed FSMTC director? Did you spend a long time trying to get this post?

The decision came as a surprise, but a rather pleasant one, and a great professional challenge: this is exactly the case when a new job allows you to grow and lets your business and personal qualities shine. Plus, it matches my education and background, so I won't deny that I was happy with this appointment.

What kinds of goals and objectives did you receive? Have you been able to handle them?

One of my priority tasks is, of course, to sustain the results that have already been achieved. That's on the one hand. On the other hand, I am to continue the high-quality development of our military and technical cooperation with our partners. I can say with confidence that our team is coping with all of the assigned tasks; more than that, we have something to be proud of. Even during the pandemic, we've managed to keep up the execution of the current contracts, to avoid interruptions of the negotiation process (even though this risk did exist), and to successfully secure some new deals, thereby making headway for the future.

"We are not observing many scope reduction trends due to the sanctions"

 Aside from the pandemic and the sanctions, has the military-technical cooperation system run into any other difficulties?

Today, many countries want to purchase Russian military craft, along with getting a chance to access our technology. It's a universal trend. The countries that, only recently, used to mostly important arms and military equipment, are voicing their ambitions to develop their own defense industries increasingly often. And we absolutely must take that into account. Overall, we've been working in this field with relative success, having entered multiple contracts for licensed overseas production of various types of Russian weapons. Things like the Su-30MKI in India or the RPG-32 in Jordan. At the same time, we have a sufficient number of contracts for collaborative research and development in the interests of foreign customers. So we are up with the times.

To continue answering your question, both Rosoboronexport and any other organizations involved in military-technical cooperation are dealing with basically the same universal difficulties as the rest of foreign trade fields. Payment delays for various reasons, for example.

Do payments get delayed because some exporters are not able to make them on time, or are there other reasons?

Sometimes there are bank audits, or technical issues on the financial operator side. Or simple negligence. Some nuances concern timely insurance or shipments, for example, due to weather conditions or due to the lack of vacant ships or cargo planes at this particular moment. Logistic troubles, essentially.

Could you cite any specific examples?

Trust me, issues with military-technical cooperation are not much different from the widely known setbacks in international economic activity as such. They are all solvable through negotiations. Nobody takes off and fines all the others without thinking. Because partner relations are long-term, with a fairly solid backstory. We usually try to meet one another halfway.

Is the geographic scope of your shipments shrinking due to sanctions affecting your partners? Which countries have refused to trade or are trading less, and which new directions are exports taking?

We are not observing many scope reduction trends due to the sanctions. More than that, we have been building up some new contacts, meaning that our scope is actually expanding.

Right now, we are enjoying sustainable military-technical cooperation with a hundred countries and supplying military goods to over 50 countries. Success does not depend on the level of sanctions pressure; it mainly hinges on how quickly we can respond to the requests of our partners, or offer products that meet the current demand.

Let's, for instance, consider the MAKS-2021 International Aviation and Space Salon or the Army-2021 Forum. Despite the pandemic, sanctions and the general rise in competition in the arms market, MAKS and Army both demonstrate that we are still managing to get our partners interested in our new offers and approaches, and quite successfully at that. Our task is to develop military-technical cooperation with our foreign partners, while competently and correctly assessing their interests. This requires constant, really painstaking work on the part of our regional and international representatives, and market and finance experts. They have to collect, process and analyze enormous amounts of data.

"I don't see anything that could interfere with S-400 shipments for Belarus"

Which Russian defense products were the most popular among foreign customers in 2021?

Our S-400 anti-aircraft systems. As well as the Pantsir S1 missile complexes, which have proven to be highly effective, particularly against drones. Plus, our entire aircraft family accounts for at least 50% of our sales. Our anti-tank Kornets, Smerch multiple-rocket launchers, and other guided arms systems are still in great demand.

Does the rising demand for anti-aircraft systems and radio and electronic warfare tools attest to changes in the way wars are fought?

Without a doubt. One thing inevitably leads to the other. Right now we are seeing the advent of an era of drones and robots. The more people use unmanned aerial vehicles and robotics complexes — and airborne drones really are omnipresent today — the greater the need for tools that will help strike them down or suppress their signal. That's entirely logical.

How many requests for S-400 do you have to day?

We are seeing keen interest from about a dozen countries.

So these countries are ready to sign a contract?

Unfortunately, it's not that easy. The procedure involves multiple steps. First, we receive a request for a specific arms type. Then, the request is forwarded for processing. If this is a request for a final product, then, as a rule, it is sent to Rosoboronexport, which reviews the feasibility, conditions and details of the potential shipment, taking into account the industry's current capabilities, specifically whether or not it is currently working on a government request, which is always a priority. The system carries out a general set of prep measures. And it is only at this point that we start pre-contract and contract negotiations, along with step-by-step interactions with the customer, which are often lagging and exhausting because everyone wants to buy things cheaper and get them faster, while we strive to maintain a balance of interests, government interests first of all. So a dozen requests does not automatically meet a dozen contract-ready countries.

The President of Belarus, Alexander Lukashenko, recently expressed his confidence that the country will receive the S-400 very soon. At the same time, he acknowledged that Belarus is kind of short on money. He's hoping for a discount or preferential treatment. Be honest: can we actually give him a discount for the S-400?

I don't see anything that could interfere with S-400 shipments for Belarus. After all, we are part of the same Union State. But discussing any discounts or the final cost of the deal would be inappropriate at the very least. We'll proceed depending on the needs of our partners from Belarus and on our own capabilities.

Because the others will also want a discount?

Absolutely everyone wants discounts and bonuses. That's a normal part of the business.

Have the Belarusians make any specific offers, or is it all just words at this point?

As soon as we get down to actual negotiations, I will be sure to tell you (laughs). As for the potential shipment size, it will be determined in the relevant contractual documents.

But from a geopolitical standpoint, it is probably important for us to strengthen our own national borders, which would include using these complexes, right?

You've already answered your own question. Obviously, we care a great deal about the integrity of the Union State's air space.

"Assessments by Jane's and SIPRI are not without political subtext"

While, for example, the SIPRI institute or the specialized Western edition of Jane's report a decrease in Russian arms exports, Russian officials talk about surprisingly stable exports: first $13 billion, then $15 billion over the recent years. How does this happen?

The secret lies in different assessment methods. We base our export assessments on contractually recorded prices for the assets we supply. Say, Product X has a price of $1 million. After we ship this product to our customer, we enter this $1 million into our records. We don't make anything up: the service has been rendered, the acceptance certificate has been signed, the numbers have been entered where they should be. In other words, the Russian method is based on reports. Without any discrepancies, just like in any good accounting book.

But SIPRI's approach is entirely different. Instead of a specific product's cost, they use the so-called trend indicator, with approximately the same value for all products of the same type. For example, they assume that all tanks, be they American, German, French, Chinese, or Russian, cost the same, which obviously does not reflect reality at all. That's to say, the focus is on the quantitative side of export, which, as the Institute itself points out, cannot be used to make a proper export assessment.

On top of that, SIPRI only uses open-source data, which is most certainly incomplete. And when it comes to things like spare parts and services, they, frankly, do not even fully account for them in most cases, unless they are studying some kind of major repairs or software upgrades.

Plus there's another point: at the end of the day, the SIPRI employees are still from the Western Hemisphere. So these assessments are not without political subtext. I am almost 100% sure that it's impossible to call the Institute's opinion an unbiased expert stance. It even seems sometimes that they benefit from saying that Russia is falling behind in arms export. But since they have a certain level of authority in academic circles, their assessments are often treated as scripture.

As for Jane's, with all due respect, I think only the publication itself knows what kind of methods they use. So please, trust our figures. These are the figures from our reports to the Russian President, the Commander-in-Chief, the Ministry of Defense, and the Government. There can hardly be any distortions, can there?

But Russia is not even the world's arms export leader. We are second, after the USA. Why tell people that Russia is reducing its export?

To show that the USA are still confidently maintaining the lead, while Russia is allegedly doing so badly that it is about to plummet to third place or even lower. It's all part of politics and of shaping the public opinion: improving your standing, demeaning your arms market competitor etc. Nothing but PR, targeting both their own potential customers and electorate, and ours.

 Do publications by SIPRI and Jane's affect your ability to enter contracts?

Fortunately, they do not. All experts are aware that the real point of reference is genuine factual knowledge on the subject, not what one of the scientific or expert institutes claims to be the truth. No matter how hard they try, they will not be able to jeopardize our leadership.

In terms of contractual performance, how is 2021 holding up in your estimates? What's this year's portfolio for Russian defense product orders?

Our orders portfolio exceeds $52 billion, allowing us, as they say, to look to the future with confidence. And I think that in the next three to five years, we'll have just as many military-technical cooperation tasks for the industry.

What are you expecting from 2022? Will things stay on the same level?

I am almost completely certain that the portfolio will not shrink.

Have you had to move any contract deadlines because of the pandemic?

Some of our timing did shift, but we compensated for that thanks to other orders. So if you look at the overall scope of planned deals, the pandemic has not had much of an impact. That said, the number of in-person meetings has been objectively reduced, same as the number of exhibitions, which is also where negotiations take place. But, thankfully, the Army Forum is really helping us out, for the second time now. MAKS has been really productive too.

Still, I'll be frank and admit that delegation exchanges have really suffered because of the pandemic. We find ourselves turning to modern communication tools more often.

What kind of tools? Conference calls?

Yes, wherever possible. We've also authorized our foreign representatives to perform a broader range of tasks. Rosoboronexport has done the same thing: these people are on the front lines, they have to do more work now. By the way, they are really walking on the razor's edge during the pandemic. The foreign branch system is proving to be more useful than ever.

 What is the percentage of postponed contracts? For how long have they been postponed?

I cannot give you an exact percentage, because we made an extra effort to complete some contracts that were planned for early 2022 this year instead. This allowed us to balance things out. For example, in 2021 we shipped the Su-30SM aircraft, the Mi-35M helicopters, the Buk-M2E anti-aircraft missile systems, and the BTR-80 and BTR-82A armored personnel carriers to Kazakhstan and Uzbekistan. The same countries also received the Orlan-10E multifunctional complexes with unmanned aerial vehicles, the Taifun-K lightly armored vehicles, and firearms.

"The craft abandoned by the USA does not cause problems for Afghanistan alone"

The chief of the General Staff said this August that Russia had increased its arms supply to Central Asia against the background of conflict escalation in Afghanistan. And you just mentioned supplying defense systems to Kazakhstan and Uzbekistan ahead of schedule. How did you make this decision?

Decisions on increasing or decreasing supply are made by the customer and negotiated with us, as per contractual obligations. What I mean is, the countries adjacent to Afghanistan, our partners, decide for themselves how many weapons they require, based on the needs and plans for building up their national armed forces. Our main goal is to maintain stability in the region and fulfill the arising duties.

America's ex-president, Donald Trump, has made claims that the US have left behind about $85 billion's worth of military craft and arms in Afghanistan. What does this entail for Russia's security? Do we need to arm Tajikistan to the teeth now?

The correlation here is not as straightforward. First of all, we have no intention of going to war with the Taliban (RBC note: the Taliban is a terrorist organization officially banned in Russia), or with Afghanistan in general. The astronomically expensive craft abandoned by the USA does not cause problems for Afghanistan alone. This is a huge issue for the whole world. All the more so because there are a variety of international terrorist groups active in Afghanistan, and it's a distinct possibility that the discarded weapons will end up in their hands, if they haven't already. Meaning that all of this leads to indirectly arming extremists, at quite a notable scale. In addition, these arms may find their way into the black market. And ultimately end up in any part of the world. It is entirely possible that we are in for some very unpleasant surprises. Especially considering that the US have abandoned some pretty hefty military craft.

Is it true that after the S-500 is deployed in the Russian army, India may become the first foreign buyer of this complex?

India has been Russia's strategic partner for quite a while; we have entered a contract for S-400, and India will receive the first division of this system by the end of the year. So it's absolutely logical for our Indian partners to express an interest in the S-500 as well in the foreseeable future. Once our own Armed Forces are supplied with this system in the sufficient amount, exporting it will become a possibility, among other options. We are counting India, same as China and all other countries that we are enjoying a long-standing, predictable partnership with, among the future owners of this state-of-the-art system. As for when this will happen — time will tell. We will be reviewing potential requests on an individual basis in every specific case.

The situation on the Armenian-Azerbaijani border remains uneasy. It's quite clear that the recent change in its configuration may prompt either side to strengthen its military potential and adapt it to the new developments. Considering this, has Yerevan expressed an interest in new military-technical cooperation contracts with Russia?

Both Armenia and Azerbaijan are our strategic partners. Each is an independent country, and has the right to determine what kids of new arms it needs. Our shipments to either side do not violate any international obligations; this goes for all our partners, actually.

We have certain arrangements with each country that engages in military-technical cooperation. With some, the arrangements are more far-reaching; with others, they are more short-term. But either way, we are interested in preserving peace and stability in this region. We want to make sure that the conflict that was settled just as it entered an active phase, does not flare up again.

According to SIPRI calculations, almost one half of all imported arms in Africa come from Russia. Algeria, Egypt, Angola and Sudan account for the biggest purchases of Russian arms. How can you explain this?

Yes, African nations are also some of our major buyers, because they, like a number of other regions, are currently facing such challenges and threats as extremism, terrorism, and the fight against illegal armed groups. Sometimes, the people they are fighting are nothing but bandits, who are climbing on the political stage somewhere from the peanut gallery and attempting to actively and often aggressively meddle with political processes. And generally speaking, instability in different regions around the world factors in as well. Apart from that, some African countries are developing at a considerable pace. Certain nations are changing their status, mineral deposits are being explored, which yields extra funds and, consequently, an objective desire for better defense, including the defense of strategic assets. It is also evident that national safety concerns many countries today as much as the pandemic. That's the kind of world we live in.

Last year, you yourself said that the scope of Russian arms and military craft exports into the Middle East and North Africa reached at least $6 billion per year. Have the figures changed since then?

Exports of military products to these regions have not dropped below the level of $6 billion per year over the past five years. We are even seeing a certain upward trend.

So the figures might be even bigger at the end of 2021?

We'll see when we get there.

"My ambitions are absolutely down-to-earth"

You mentioned previously that Russia was planning to claim a 10% share of the global drone market. Are the plans you voiced coming to fruition? Do you get any buyers? Who are they?

The process of supplying the Orion-E complexes to foreign clients is already approaching the finish line. There really is exceptionally high interest toward these drones: during the Army Forum, we discussed Orion shipments with delegations from 20 countries. As for shipment destinations, I'll tell you this: the Middle Eastern nations expressed a particular interest.

At the same time, our drones have also intrigued buyers from Africa, the Collective Security Treaty Organization member states, and Latin America. I think that we will actually be able to take up 10% of the military drone market in the foreseeable future, and our competitors will have to make room for us. Turkey has evidently made a huge breakthrough in this field, and its products are in great demand. But we are not falling behind either. Our engineers are working hard, and we have a variety of enterprises aimed at developing this field. I think that in the short term, we will be able to offer other drones for export as well, not just the Orions.

Has the Checkmate light-weight tactical aircraft gotten any foreign buyers?

We haven't explored the single-engine fighter aircraft market in a while. Obviously, the Checkmate still has a long way to go before becoming an export product, but it is already clear today that its announced technical parameters match and even surpass those of its current foreign counterparts. So, especially considering that we've named a fairly competitive price for it, I think it will be in demand within its segment.

And what are our plans for the Checkmate's share in there?

I won't go so far as to make a clear-cut prediction just now. But our prospects are definitely quite nice.

Yuri Slyusar, head of the United Aircraft Corporation, says that the Middle East has already gotten interested in this craft. Can we name specific countries already?

We are currently having preliminary consultations, not contractual negotiations as such. You can only have those once you have a properly finished product. Otherwise, what do you have to show? You need to do some work, to make sure that it (the aircraft) passes the necessary tests, and becomes a finished product at last.

How much time will pass before the aircraft is export-worthy?

I recommend asking this question to its developers.

Won't it become obsolete by the time it's finished?

It won't, because it already has future-oriented parameters and technologies built in. Generally speaking, no fighter aircraft can emerge in a year, or even in two years. The process of its creation has quite a sizeable time frame.

Indian media have been reporting that India has left the program for the development of the FGFA, a Su-57-based fifth-gen versatile fighter. Is that true?

It would be wrong to make an unconditional statement that this matter is over and done with. Our Indian partners have suspended their participation in this program until the Su-57 gets approved by our Armed Forces, this is a fact. Right now, the aircraft is undergoing testing. The only thing I can add is that the Su-57 is a multi-functional aircraft, initially designed for the national Air Force. But at the same time, it possesses a remarkable export potential, reaffirmed by feedback from international experts.

 The Su-57 did get tested out in Syria. Isn't that sufficient PR? Why did India decide to withdraw from this collaborative project?

Yes, it has been used in Syria, and quite successfully too. But not all stages have been completed at this point. Only when this craft becomes a fully fledged part of our Aerospace Forces, then will we be able to say to people, including to foreign partners, that the Su-57 is in active service.

Indian media are also saying that the country's own program, the creation of the AMCA fifth-gen fighter aircraft, is intensifying. Allegedly, the AMCA will be ready by 2024, and then India won't need the Su-57. What do you think about that? Will the Indian fighter truly surpass the Russian one?

Our Su-57 fighter aircraft is heavy-weight, while the AMCA is medium-weight. Comparing them is entirely inappropriate. Our offer was very competitive and quite appealing from the outset: we were working on a fifth-generation aircraft, and the project would have provided our Indian partners with the necessary competencies as well. For now, they have suspended their participation. That's fine, that's their decision as a sovereign state. We are not forcing anything on anyone. More than that, our own program is proceeding full steam ahead, and we'll be using the new aircraft for our own needs no matter what.

Could you name the top 5 buyers of Russian defense products? Which ones do they prefer, and why?

The top buyers are China, India, the Middle East and North Africa region, and Latin American nations. We are dealing both with countries that purchase our military products regularly and in large quantities, and with new and promising partners. All of these partners base their choice of Russian arms on their combat capabilities, reliability, and deployment history: the counter-terrorist operation in Syria is one example.

At the same time, each region has its own specifics. For instance, North African countries have a preference for purchasing armored vehicles, anti-aircraft defense systems, naval equipment, the MiG, Su and Il aircraft, various helicopters, electronic warfare equipment, and firearms. Sub-Saharan Africa, in turn, has great demand for the Mi helicopter family, the Sukhoy and MiG aircraft, the Pantsir S1 and Tor-M2E anti-aircraft systems, the Buks, and the Kalashnikov firearms. In the Asia-Pacific Region, aircraft and their engines, as well as anti-aircraft arms, still remain the most popular export categories. Whereas among our Latin American partners, there's demand for our helicopters, which have proven themselves to be highly reliable in difficult climatic conditions, as well as for special vehicles that can be used for both military and civilian purposes, and more.

Could you share your plans for the next three to five years? Your personal plans.

My ambitions are, as they say, absolutely down-to-earth. I just want to keep moving and catching up with the times. My main mission, though, cliché as it sounds, is to keep my family safe and healthy. These are very uneasy times. Who could have predicted, a couple years ago, that we would have a pandemic, unplanned lengthy work breaks, masks, elbow bumps instead of handshakes, and festive greetings through conference calls? I really want to believe that we make it through this.

What does catching up with the times mean for you? Who and what are you catching up with?

Among today's younger generation, almost every second person is a tech genius. I can hardly catch up with that (laughs). Let's hope these kids go through life without forgetting their values and rejecting tradition, in the broad sense of the world. And as for my own vision of the future, that's a conversation for another time…

 

RBC News Agency. 11/02/2021