Construction Batallions Won’t Disappear

Construction Batallions Won’t Disappear


Instead of the notorious Spetsstroy, a new megastructure which will take over all military construction will appear in Russia. In theory, the creation of the Military Construction Company (VSK) should put an end to corruption in this sphere. But this is very unlikely, experts say.

Our strict “no” to corruption

“Spetsstroy Russia” was liquidated in September 2017, but the corruption scandals associated with it are still ongoing. So, in response to criticism of Russian President Vladimir Putin, who said that the affairs at Vostochny Cosmodrome had never been put in order, the head of Roskosmos Dmitry Rogozin immediately replied something like "everything has been stolen before us." It means corruption cases date back to 2014, and "Spetsstroy is to be blamed for everything."

According to the president, dozens of criminal cases have been instituted only at Vostochny Cosmodrome. In addition, immediately before the abolition of the company, the Federal Antimonopoly Service announced that the Spetsstroy had failed to meet the deadlines for fulfilling the state defense order by more than 150 billion rubles.

"Spetsstroy" became “famous" for its exceptional inefficiency and widespread corruption, Mark Goikhman, head of the analyst group at the Center for Analytics and Financial Technologies, said in an interview with “Vek (Century)”. But after its liquidation, the functional need for a state structure that would organize and carry out the construction of defense facilities still remained.

The Military Construction Company (VSK), has a number of significant differences from the "Spetsstroy", the analyst says. For example, organizational form - a public interest entity (PEP) - is a more open and accountable structure. It will not carry out any commercial projects. Thus, the attempt to eliminate the commercial component as potentially fraught with corruption and burdening significant debts to third-party customers. A smaller number are to be employed as well, as the MCC will do up to 60% of the work itself. It will include military construction units, which will provide the opportunity to become the main executor of works.

Considerable attention is paid to the control of the MCC and its activities, the expert adds. Funding will go through a special account in the bank supporting the state defense order. Preventive control and monitoring will be carried out by the supervisory board and ongoing audits; follow-up control - by the Court of Audit and the Federal Treasury. The measures are designed to radically change the approach to the effective implementation of the tasks of military development, data management processes, allocation and use of funds. The MCC is to become an exceptional performer and general contractor in the construction of defense facilities.

According to Goikhman, the possible disadvantages of the MCC could be a higher monopolization in this area. At first glance, concentration seems to be a logical step, but only in comparison with the previous bacchanalia of Spetsstroy. But the restriction of competition and increased administrative pressure can give rise to new disadvantages instead of old ones. There are fears that typical manifestations of monopoly will take place, i.e. rising costs and weakening work quality.

Mergers and acquisitions, military style

Meanwhile, it seems that the MCC is being created according to the patterns of another military construction holding, already liquidated Oboronstroy OJSC. The company was part of the Oboronservice OJSC, and became famous during the time of the defense minister Anatoly Serdyukov and his famous deputy Evgenia Vasilyeva. By the way, Oboronstroy is also a distinguished participant in the construction of the Vostochny сosmodrome and other military construction.

However, in the Ministry of Defense the word "military construction" has a rather broad interpretation and includes housing for the military, and cadet schools, kindergartens, passenger air terminals, temples, and "Patriot Park."

All these facilities are now supervised by Timur Ivanov, the Deputy Minister of Defense, who has inherited the affairs of Evgenia Vasilyeva in Oboronstroy. In connection with the liquidation of Oboronstroy, which used to be headed by Ivanov, he now oversees all construction projects of the Ministry of Defense under the auspices of the Main Directorate for the Arrangement of Troops (GUOV).

It should be noted that duplication of the functions of Spetsstroy and Oboronstroy used to raise questions in the past. As we can see, both structures of military developers were involved in the Vostochny cosmodrome projects and many others. Spetsstroy, for example, was also involved in housing and infrastructure construction for the Military Forces, where Oboronstroy was supposed to specialize in. And it seems that the question who should build all the facilities and how to control the corresponding financial flows could be answered only in the corridors of the Ministry of Defense. Later, Spetsstroy was disbanded. Oboronstroy dissolved in GUOV.

It is noteworthy that for some time all this was supervised by Aleksey Dyumin, who became the governor of the Tula Region quite on time. His three-month leadership of construction battalion was accompanied with a resume that the former security guard was not professional and did not understand anything about military construction. Timur Ivanov, who was appointed to his place, by the way, did not serve as a mathematician neither in construction sphere nor in military affairs, but had been already recommended as a professional builder and crisis specialist.

Now the inheritance of both structures will be under the control of one of Shoigu deputies.

“Today we have a guaranteed budget for the construction of special facilities for the placement of weapons and military equipment for 10 years approved in the amount of 1 trillion. rubles. This is unprecedented”, Ivanov told Novaya Gazeta. According to the deputy minister, who he cited in an interview with RBC, the budget of the new company will be about $ 15 billion until 2027, which is a record for the amounts ever allocated by the budget to business companies.

At the time of the liquidation of Spetsstroy, there had been working about 37.6 thousand people. The MCC is expected to unite construction organizations, manufacturers of building materials, structures and products supplied to the Ministry of Defense. It is assumed that the structure of the MCC will include at least 11 organizations. These are, design institutes No. 20 and No. 31 of the Ministry of Defense, the Main Directorate for the Arrangement of Troops, one construction company in each military district and the Northern Fleet, three special organizations for the construction of airfields, hydraulic engineering and nuclear facilities.

All new is well overlooked old

Everything that is offered today for the MCC as a panacea, has been tested by Ivanov at Oboronstroy when he began the practice of buying up civil contractors and concentrating their work purely on defense orders. Successful construction companies, thus, were brought almost to bankruptcy.

The military, as perhaps any government structure, is not a model of payment discipline. It is enough to look at the practice of arbitration courts to see how Rostech enterprises get money from the Ministry of Defense for completed orders. The construction industry is not much different though, but Oboronstroy’s takeover of its former civilian contractors allowed it to delay payments, avoiding direct litigation.

Since 2014, the company has bought Oboronstroyproekt Saint Petersburg LLC (formerly AsconStroy), Kubanproekt OJSC, Oboronstroyproekt LLC (Strof PM), Oboronmedstroy LLC (Hosser Engineering Bureau), Oboronsnab LLC ”, “Oboronkadastr LLC ”, “ Oboronstroyengineering JSC ”(CJSC RISSPA), “NPO Center for Professional Equipment JSC”, as well as “Oboronenergoeffectiveness LLC”. After that, "Oboronstroy" began to purchase from a single source, its own affiliates for at almost maximum prices.

Paradoxically, this practice began to bring the newly acquired affiliates almost to bankruptcy. For example, IB Hosser in 2014 received revenue of more than 2 billion rubles, the company's net profit constituted up to 44.6 million rubles. In 2015, after the acquisition and renaming the company into Oboronmedstroy, it already had 47 claims of more than 400 million rubles. It even finished in a salary debt to employees of the company in the amount of 35 million rubles, which was paid only because of the scandal which had happened just as Ivanov’s candidacy was considered for the post of deputy minister dismissed by Dumin.

As we see, Timur Ivanov can fully implement all the principles of Oboronstroy by creating the MCC.

From the the construction market point of view, the creation of the MCC is fraught with the formation of a new monopolist in a certain part of the construction industry, analyst of Alor Group Alexei Antonov confirmed to “Vek (Century)”. Of course, in terms of the implementation of strategic objects, it is justified to some extent. But from the point of view of creating infrastructure facilities, including social one, this may violate the principles of market competition and the government risks getting a new analogue of Spetsstroy, claims the expert

Among other things, the creation of such a giant can lead to a decrease in “transparency” and the situation where all competencies in design, construction and supervision spheres focus on one counterparty, which could potentially lead to an increase in the percentage of advance payments, affect the quality and timing of ongoing projects and other negative consequences.

When positive turns into negative

Experts are still trying to see the positive in the creation of the MCC, which will be formed as a public law company (PLC), which is a rare organizational form for such companies, Antonov notes. This structure, in his opinion, is a kind of recognition of the fact that for the fulfillment of super tasks in individual state structures, the most optimal option is still the formation of the largest company with clear control over the use of state money. The removal of it in the PLC is just necessary in order to minimize the options for leakage of funds for inappropriate use.

But in the end, according to Antonov, this option has many disadvantages, and first of all, it is the impossibility of forming the principle of healthy competition.

Anyway the next reorganization of military construction management is essentially the completion of the process of the final return to the Soviet model of management organization, independent analyst Dmitry Adamidov said in an interview with Vek. (Century). As a matter of fact, this was almost implemented in Spetsstroy, but, apparently, the Ministry of Defense needed to tactfully change the stealing management, and at the same time eliminate the last legal obstacles and the remnants of publicity.

There is something rational in this approach, the expert believes. At the same time, remembering the monstrous corruption scandals in Spetsstroy, the first thing that comes to mind in connection with the new structure is that they will steal even more, and we will not know anything about it.

Defense of Ivanov

In fact, Ivanov could have worked having only the Main Directorate for the Arrangement of Troops at his disposal, which has all the resources and capabilities for this. But only the creation of the MCC allows the military to protect their money from outside competition. And we are talking not only about the practice of setting uncompetitively high prices (which had been perfectly mastered in Oboronstroy and its affiliates), but also about eliminating other major players from the military orders market.

For example, the Stroyproektholding of Arkady Rotenberg, which could compete for large military orders. According to RBC VEB.RF and Stroyproektholding of Arkady Rotenberg agreed to create the largest player in the market of infrastructure financing and construction. With government support and experience in successfully building the Crimean bridge, the group could well intervene in the distribution of military orders, and competition would remain in this market.

It is believed that it used to happen once when the structures that were associated with the interests of the Rotenberg family intervened in the distribution of billions of contracts for the disposal of military scrap. At first, scrap was promised to Rostech’s structures by Sergei Chemezov, but then Translom declared its interests in this market. As a result of auctions, where Translom turned out to be the only participant and, therefore, the winner, the Ministry of Defense is believed to have lost billions of rubles.

The distribution of military property, which was continued by Timur Ivanov after Evgenia Vasilyeva, has caused a lot of problems to many of his colleagues and subordinates. Some of them lost their positions, some had to meet with investigators from the FSB and the military prosecutor's office.

Now, with the creation of the MCC, it will be possible to get rid of competitors with their excessive attention and bring the system of military development and development of military budgets to perfection. However, the leadership of the MCC still remains one of the key questions. It is known that Timur Ivanov is not the only one to show interest in construction budgets inside the Ministry of Defense, and certain influential players who are ready to fight for control over the MCC remain outside the ministry. We’ll try to figure this out soon.