Russia’s Industry Consolidation Plan Aims To Reduce Reliance on Imports

by

MOSCOW — Russia is planning another major consolidation of its sprawling space industrial complex in a bid to reduce reliance on imported components and reduce excess manufacturing capacity.

The move, which primarily will affect subcontractors and component suppliers, comes in the wake of reliability issues with Russia’s workhorse Proton rocket, which failed spectacularly in a July 1 mission. But the connection between the two is not clear.

The appointment of a new leader at the Russian space agency, Roscosmos, along with an updated definition of the agency’s role, was an initial step in the restructuring. In appointing Oleg Ostapenko, a former commander of the Russian Space Forces, as the new director-general of Roscosmos Oct. 10, Prime Minister Dmitry Medvedev discussed some of the forthcoming changes.

“We are in the middle of modernizing the system of managing the space industry,” Medvedev said, according to the transcript of the meeting posted on the Cabinet’s website. “Large conglomerates of companies will emerge to be in the business, build new facilities and operate them.”

Under a presidential decree proposed by Medvedev’s deputy in charge of space, Dmitry Rogozin, the state will fold scores of space hardware developers and manufacturers into a single company called United Rocket and Space Corp.

Rogozin made public some of the general elements of the proposal, which is now awaiting the Kremlin’s stamp of approval, at a meeting with President Vladimir Putin Oct. 9.

The Moscow-based Research Institute of Space Device Engineering, which among other things developed software for Russia’s Glonass satellite navigation system, will pull the consolidated companies under its corporate umbrella, Rogozin said at the meeting.

The key goal, Rogozin said, is to diminish the reliance on imported equipment by spurring research and development.

“Our main problem is the supply of components,” Rogozin told Putin, according to a transcript posted on the Kremlin website. “In order for us to be independent of their imports — and we understand that … certain countries use their export controls, basically, to prevent us from buying all we need — this system will allow us to concentrate the funds and research on creating our own production of these components.”

The consolidation is not expected to affect Russia’s large prime contractors, such as the Khrunichev Space Center, RSC Energia, TsSKB Progress and Lavochkin, according to Yury Karash, a space industry expert in Moscow.

Imports account for 75 percent of parts used in building satellites, according to Dmitry Payson, development director of the space research center at Skolkovo Foundation, a think tank here.

Rogozin said the consolidated corporation would implement unified technological standards, and would have the purchasing power to negotiate volume-based discounts for space components.

In addition, the new company would seek to eliminate excess manufacturing capacity within its newly incorporated divisions, Rogozin said. Currently, some of the firms to be brought under the United Rocket and Space Corp. umbrella are operating at 40 percent of capacity and thus having difficulty making payroll.

Although mishaps form the backdrop of the proposed restructuring, Rogozin did not mention the subject when he laid out the reasons.

Andrei Ionin, an analyst with the Tsiolkovsky Space Science Academy, a Moscow think tank, said lowering the accident rate was not the main reason for the changes. But he said a large corporation would be more likely to improve quality control in the industry than dozens of separate, smaller players.

“It is a least a precondition for a better quality of management,” Ionin said.

Rogozin stressed that the consolidation must leave room for competition among Russia’s spacecraft and rocket manufacturers.

Payson said the Skolkovo space research center, which helped hammer out the restructuring proposal, supported the idea of maintaining competition. “All this does not have to boil down to creating a supermonopoly that will give the state only one option,” he said.

According to Rogozin, if the new space industry giant survives the labor pains, Roscosmos will lose some of its current powers. The agency will stop being a government agent in managing operations at state-controlled companies, and will serve primarily as a policymaker, dispenser of contracts, supervisor of research and operator of launch pads, he said.

The government has not released any further details about the restructuring proposal. Rogozin said via Twitter after the meeting with Putin that the president backed the plan.

The is the second major restructuring of Russia’s space industry in the last decade. In 2006, Putin ordered a sweeping consolidation to preserve and maximize the industry’s potential.