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The meeting was attended by heads of relevant ministries, agencies, state corporations and a number of defence industry enterprises.

PRESIDENT OF RUSSIA VLADIMIR PUTIN: Good afternoon, colleagues, friends,

Today we are going to talk about the overall development of Russia’s defence industry.

Since this meeting is being held at Uralvagonzavod, I will start with the following: I would like to thank the Defence Ministry and the company’s management for completing highly complex negotiations and signing a three-year armoured vehicles modernisation contract (for 360 units), worth in total 19 billion rubles [$640 million], with a 100% prepayment. These are excellent terms for the company, guaranteeing efficient and uninterrupted operation. Uralvagonzavod achieved unprecedented results in car-building last year, surpassing even the Soviet indicators: the plant manufactured 25,000 train cars. This year, the plant is 10-15% ahead of the plan, which is an excellent pace and I hope it continues.

Moreover, Uralvagonzavod has an excellent, extensive investment programme, focused on modernising production. I was at the State Duma recently, presenting Mr Medvedev for the post of Prime Minister, as the already approved Prime Minister, and the deputies asked questions about modernisation in the defence industry. Although the question had to do with the elemental electronic base, it equally applies to all defence industry enterprises.

With respect to Uralvagonzavod, where this meeting is being held, the plant has a modernisation programme to 2020. The funding just from the federal budget amounts to 67 billion rubles [$2.3 billion]. In addition, the corporation will provide 40% of the funding from its own resources. In total, about 100 billion will be spent on modernising Uralvagonzavod. That is a very substantial amount, which will guarantee systematic efforts and a breakthrough to a new level of production. Today we are going to discuss how these efforts should be organised.

This was a preamble, and now to the point.

Today we will focus on national security issues, as I said, first and foremost on the new challenges facing Russia’s defence industry. The basic strategic objectives have been formulated for this sector, and we have talked about this many times. In the coming years we are to substantially improve the efficiency and combat readiness of our Armed Forces and take their capability to a qualitatively different level.

On this basis, we will continue our efforts to supply the troops with modern technology, to develop defence infrastructure and to increase the intensity of combat training and education. We will also improve the social guarantees for service personnel and their families, which includes their pay, the special insurance system, additional civilian education and so on.

Naturally, we must fulfil all our obligations on providing both service accommodation and permanent housing, as well as improving the residential quarters at military bases. (Addressing Acting Defence Minister Anatoly Serdyukov) By the way, Mr Serdyukov, the registration issue has not been fully resolved yet, and I would like to ask you to pay attention to it. We have discussed the need to open the respective centres in major cities, so people don’t have to make a trip to Moscow every time, where the queues are enormous and they just can’t get through. That is exactly how things stand – this information is absolutely reliable. Please address this issue.

It is vitally important to focus attention on a profound modernisation of the defence industry. This is the foundation of all our programmes aimed at re-equipping and upgrading the army and navy. The industry must be ready for the development and mass production of a new generation of weapons, whose combat characteristics should fully meet the requirements for today and for tomorrow. I am certain that the Russian defence industry has the potential for reaching these objectives and tackling such challenges.

At the same time, it is clear that the defence industry must make a true technological breakthrough and complete a full modernisation cycle. Unfortunately, many companies are lagging far behind. Therefore, the state will invest extensive resources in the construction, reconstruction and technical re-equipment of enterprises and research and development centres. Incidentally, I have just learned about some of Uralvagonzavod’s promising projects, for which the Defence Ministry prepared the technical data. I hope that these projects will be implemented.

Simultaneously we must address systemic problems: to introduce more stringent requirements for the financial and economic efficiency of defence enterprises, promote real competition, including through the involvement of civilian companies and private businesses in defence programmes, where it is justified and can be effective.

Next. We have already made the decision to make the state defence contracts for three years rather than annually, as it was done before. We have just seen this at work with the contract between the Defence Ministry and Uralvagonzavod. In principle, we could even extend the term to seven years, and the Defence Ministry is ready for this. We hope that this will allow defence industry companies to plan their operation more systematically and to use their financial resources more efficiently.

However, I believe that we need new measures in such a sensitive area as the planning and implementation of the state armaments programme. It should strengthen control over the quality of defence contracts’ execution at all stages, from initiation and composition to full performance, as well as to minimise the adjustments to the already approved state defence order.

I fully realise that this requires complex, multidimensional efforts: life changes and new requirements appear but the customer must bear in mind the problems associated with the organisation of production. This is an obvious fact, and we will discuss this matter today.

We will also talk about the progress made in making contracts for the current year. Everything has been decided and signed at this company. I know that the work on the contract was difficult. It is a natural process when the customer pushes to get the maximum out of the company that will execute the order and pressures them to work more effectively, but there must be the same impetus from the opposite side.

The situation with the conclusion of state contracts this year is slightly better than in 2011. However, the Defence Ministry and defence companies have failed to meet the deadlines again and over one third of the state defence contracts have not been made yet. I expect the Defence Ministry and the Military Industrial Commission to report to me on this subject in the near future.

The next issue concerns the formation of a research and technology reserve. We must restore and build cooperation ties among sectoral research institutes and defence industry enterprises, to create an efficient system for selecting and supporting R&D, research teams that generate fresh, innovative ideas, and actively use the potential of the civilian science, our universities and research centres.

I must tell you, colleagues, when I have meetings at civilian higher education institutions and research institutes, I see that people are absolutely willing to work, they have a great deal to offer, and we should use these opportunities.

It is essential to strengthen the human resources network in the defence industry. Many companies today are faced with an acute shortage of skilled employees, which stops them from modernising production. The lack of modern, well-trained skilled professionals poses great risks for the timely and high-level execution of defence contracts.

Once again I want to stress that we must raise the prestige of occupations associated with the defence industry, including through the provision of additional social guarantees and incentives to the specialists employed in the industry. Naturally, we should raise the wages, and we will discuss this issue as well today.

Let’s get to work.