Russian Nuclear Submarine Contracts Underpriced

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RIA Novosti, PUBLISHED June 10, 2013

Former Russian Defense Ministry officials forced shipbuilders to underprice nuclear submarine contracts, which nearly scuttled the 2011 State Defense Order, a senior Russian official said Friday.

Deputy Prime Minister Dmitry Rogozin, who oversees the defense industry, said the contracts were for Borey- and Yasen-class ballistic missile submarines, and the underpricing almost scuttled the order, which was eventually signed under former Defense Minister Anatoly Serdyukov.

Serdyukov, who had held the post of Defense Minister since 2007, was sacked in November and replaced by Sergei Shoigu amid a series of ongoing corruption scandals that have rocked Russia’s defense sector.

Defense Ministry officials had claimed that the shipbuilders’ contract prices were too high, which led to a protracted wrangling over prices. In 2011, the contracts were only signed in November, in the presence of then-Prime Minister Vladimir Putin.

Whereas the original price of the Yury Dolgoruky submarine was more than 20 billion rubles (about $70 million), it subsequently increased to 50 billion.

Rogozin said the work on the new submarines was currently going according to schedule but the underpriced contracts were resulting in additional costs. “We are thinking of how to tackle that problem,” he said.

Rogozin said in late May that Defense Ministry contracts signed under Serdyukov were to be thoroughly examined and, if necessary, audited. Those contracts were “largely detrimental,” he said, adding that the Russian government was ready to step in to sort out the crisis in Russian naval shipbuilding that is threatening to derail the defense procurement program.

He made his comments on the same day it was revealed that the state-run United Shipbuilding Corporation (USC) was looking for money allocated to complete the Nerpa nuclear submarine for India’s navy. A total of 500 million rubles ($15.9 million) went unaccounted for, the Kommersant business daily reported.

USC’s previous board of directors “bears full responsibility for nodding their heads, signing unworkable documents and concluding contracts at prices that were obviously below market levels,” Rogozin said at the time.

President Putin has been briefed on the issue, and the implementation of the arms procurement program will be discussed in late July, Rogozin said. Putin ordered USC's management to submit a report by October 15 on measures to improve the situation in the industry.

Doubts about the ability of the industry to deliver warships on time and within budget prompted Serdyukov to order Mistral-class amphibious assault ships from France in 2011. That deal has subsequently been criticized by Rogozin and other senior defense industry officials.

The Russian Navy is expected to receive 24 submarines and 54 surface warships of various classes by 2020, according to the Defense Ministry.

Putin said last year that the procurement of new warships and submarines for the Navy would be a priority over the next decade. The Russian government has allocated 5 trillion rubles ($166 billion), or a quarter of the entire armament procurement budget through 2020, for this purpose.

Topics: Russia, Nuclear ships

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