October 27, 2011: Russian shipyards are refusing to build submarines for the Russian Navy. This is the result of the government trying to rein in rapidly rising prices charged for military equipment. Actually, this is part of a larger battle against corruption, or suspected corruption, in Russian defense procurement. The situation has put the Defense Ministry in a difficult position.
Russian Defense Minister Anatoly Serdyukov is caught between conflicting orders. President Dmitry Medvedev is trying to reduce corruption in the military, and has ordered Serdyukov to make it happen. But in doing that, Serdyukov has withheld payment to many military suppliers, because these firms refuse to explain why prices have suddenly increased. That has created problems with Medvedev, who is also demanding that defense industries produce the quantities of weapons agreed on, and according to promised delivery dates. That will not happen as long as Serdyukov is putting contracts on hold to deal with corrupt practices. President Medvedev ultimately backed whatever Serdyukov wanted, and this ended up with submarine builders threatening to close shop. All this might speed corruption investigations, but will definitely be interesting no matter how it turns out.
Aircraft and missile manufacturers have agreed to lower their prices, but the submarine builders claim they cannot control their own rising costs. They point out that they would lose money of they received less than $1.6 billion for the first of the Graney class SSGNs (nuclear powered cruise missile sub) The second one is costing $3.5 billion, and the government wants a lot more details before they pay. The government points out that this is more than twice what the new, and larger, Borey SSBNs cost. The government suspects dirty dealing.
The shipyards say they will not be able to continue operating if the government does not pay what the builders are asking. The government believes the higher costs are the result of inefficiency and mismanagement, as well as antiquated shipbuilding facilities.