OREANDA-NEWS. October 7, 2011. Good afternoon. Today we will be talking about the current situation and the modernisation of our defence industry.

We have repeatedly returned to this issue. But we have a serious, massive task in front of us, which is to fully re-equip the armed forces in the coming ten years. Obviously, this is an impossible task under the current conditions. The entire defence industry requires upgrading. If we want to produce the advanced weapons needed in modern combat operations and ensure that this high level is maintained in the long term, we must consider a modernisation of the defence industry as a whole. We can rely on our strong foundation and our personnel. The weapons produced in our country must be advanced and fully appropriate for our long-term objectives.

I would like to repeat that the 2011-2020 federal armament programme and the plans to upgrade the defence industry as a whole are interconnected. If there is a single weak link in this chain the chain will inevitably break. As I said, the Russian defence industry has the potential to produce equipment and weaponry with advanced technology. We have already made a substantial investment in production upgrades and in recruiting new personnel. Last year we spent remarkable 75% of the allocated money on purchasing new equipment. It is a positive sign indicating that heads of enterprises have a perfectly clear understanding of the objectives and the required steps. A new programme for training and rewarding the most promising young professionals has been adopted.

Nevertheless, I would like to emphasise that this is only the beginning. We should carry out comprehensive modernisation that concerns the majority of enterprises and corporations in the country. This modernisation will cover 1,700 enterprises. It is clearly a massive objective. More importantly, we have agreed with the customers and of course the Defence Ministry that these enterprises must see a profit margin of at least 15%. At our last meeting, the Minister of Defence reported that for some businesses the forecasts are even better.

In other words, the industry must be upgraded to produce advanced equipment and weapons that meet the demands of the armed forces in terms of quality and, of course, the price. The Federal Targeted Programme for Russian Defence Industry Development to 2020 is a key instrument to achieve these objectives.

It is also perfectly clear that the armed forces must be re-equipped primarily relying on the domestic defense industry. This is a realistic goal, but it requires our close attention. We will have to invest massive funds, three trillion roubles, within next ten years.

We have already allocated the required money to the 2012-2014 draft federal budget. It will be used to re-equip the defence industry. We have allocated a total of 440 billion roubles over a three-year period.

We expect that this immense contribution to the defence sector will result in the general growth of the Russian economy. This is how it goes everywhere in the world. Russia is no exception. In one way or the other, a large investment in the defence industry will have an impact on the economy as a whole and will trigger progress in hi-tech industries, for example, through research and engineering projects.

One of our priorities is to establish a strong basis for innovation in the defence industry. For this reason, we intend to spend some 20% of the funding on research and development.

Some of the other priority areas include updating the space industry, aviation, shipbuilding, telecommunications and control systems, and the electronics equipment and components that are essential for the manufacture of modern weapons.

Moreover, we intend to support the enterprises that will attract investment for this production upgrade. Starting with 2015 we will allocate the funds to subsidise interest rates on loans taken from Russian banks, including Vnesheconombank, to help finance projects under the defence industry development programme. The necessary funds will be set aside in the budget for the next period.

And the last point: the programme that I have been talking about must be approved as soon as possible. As far as I know, the main things have already been coordinated between respective departments and there are only some technicalities – which are equally important – that still require consideration. These details must be discussed as soon as possible in order to finalise the programme. Again: the key issues have already been agreed upon and have been approved by the Military Industrial Commission.

I expect the final version of the programme will be submitted to the government within a very short time.