Accounts Chamber Comes Up Short on Weapons

August 2, 2013
Oleg Kharseyev | Kommersant

Oboronsevis, a firm with ties to the former Defense Minister, has illegally been granted contracts for arms recycling and disposal – contracts, it seems, that it has either subcontracted (for profit) or not completed.

The Oboronservis case was opened in the fall of 2012. According to the investigation, real estate and land owned by the Ministry of Defense was sold off at reduced prices through a holding company (“Expert”) created to hide the officers’ economic activity. Oboronservis has been tied to several newsworthy scandals  involving corruption and the military which led to the removal of former Defense Minister Anatoly Serdyukov. Recently, the company has faced new allegations of fraud stemming from the buying and selling of real estate through web of other companies.

Below is the translation of the latest report. – Ed.

The Accounts Chamber inspected the use of budget funds in a federal allocations program (FAP) titled “Industrial Recycling of Weapons and Military Equipment for 2011-2015 and the period to 2020.” The results are disturbing: the contracts in the first two years of the program’s operation were completed late, the recycling of the aviation equipment was not performed at all, and the Oboronservis offices signed contracts in violation of the law.

The Account Chamber’s final report, a copy of which Kommersant has obtained, states that according to the totals for the first two years of the FAP, only 8.5% of the program was implemented, including 6.7% of the ammunitions, 4.6% of the general-purpose missiles, and 6% of the small arms ammunition. In 2011, 14 of the 45 contracts to be fulfilled were completed, and in 2012, 14 out of 29. Out of 599 planes and helicopters slated for recycling in 2011-2012, not a single one was scrapped. The schedule for completing the contracts is now behind; in 2011, out of 67, only one was finished on time, and in 2012, out of 42, not a single one.

The program has been affected also by the delayed transfer of the armaments and ammunition destined for recycling to their handlers, and also the absence in a number of cases of the design documentation and engineering. The report specifies that planned tasks to receive the products of recycling (including ferrous and non-ferrous metals) were not fulfilled. And the funds which were supposed to be received from their recycling were not transferred to the federal budget.

As the auditors learned, in 2012, 877.9 million rubles (31% of the funds confirmed for the year) were not sent to implement the FAP but under a government instruction dated 27 December 2012, were re-allocated to maintain the infrastructure of the armed forces. A condition regarding the return of these funds before 1 April 2013 for the implementation of the FAP was not met. “The updating of the program and its targeted indicators was not done,” the report emphasized.

The holding company Oboronservis is mentioned in a separate line. Thus, in violation of the requirements of federal law, the approved bidding documentation for the closed bid for recycling the special weapons, ammunition, and battle and artillery armaments, did not contain the obligatory requirement that private participants in the bids possess licenses. As a result, the state contract dated 12 December 2011 was signed with Oboronservis which did not have the license. And when a closed bid was held for recycling, only Oboronservis and its affiliates, which later dropped out, were invited to the auctions. The state contract was signed at the maximum price of 925.8 million rubles. This was done, according to the auditors’ information, in violation of the requirements of Article 17 of Law No. 135, “On the Protection of Competition.”

Similar violations were found in the sub-holding company Aviaremont when its affiliates dropped out of the auctions, and the contract was signed 27 December 2011 with Aviaremont itself for a total of 232.5 million rubles. The auditors emphasize that the costs for the recycling jobs on a number of items of aviation equipment were 1.2 to 2.8 times the indicators included in the state defense order for 2012.

Also noted in the report are facts of unauthorized earnings by the holding [company]. Thus, the contract signed in December 2011 to recycle weapons and special equipment (a total of 928.5 million rubles), was handed out to eight co-contractors. The difference between the price of the state contract and the prices of the contracts for the co-contractors was 80.7 million rubles. The funds remained on the account of Oboronservis as payment for its brokering services. As a result of the inspection by the Defense Ministry, a notification was issued and Vladimir Putin was sent a memorandum enumerating the facts of the violations discovered.

On 23 July, a Kommersant source in the Defense Ministry confirmed the receipt of the Accounts Chamber report. “Much of what is described by the auditors became known to us after conducting internal inspections, in part this is what influenced the decision of Sergei Shoygu to get rid of the Oboronservis assets,” the source said. He noted “in order to remove the violations, time is needed – we cannot destroy the system without building something new in its place.”