MOSCOW — Russia's largest state-owned defense industry holding, Rostec, is set to become even larger. The company has announced plans to take ownership over UralVagonZavod, a subsidiary of the Tractor Plants Concern specializing in military vehicles like tanks and other armored platforms, according to a statement provided to Defense News.
Rostec is an umbrella corporation founded in 2007 to begin consolidating and reforming disparate elements of the Russian defense and high-technology base. It is run by Sergey Chemezov, who is reportedly a close friend of President Vladimir Putin. Under Chemezov's charge, Rostec has taken about two-thirds of Russia's defense industry under its wing.
"Our task after we obtain control over the plant," Rostec weapons cluster director Sergey Abamov was quoted as saying in the statement, "is to set up coordination between the UVZ military segment and other holdings and entities … to improve the effectiveness of the production process and to increase the competitiveness of the products."
Over the next 18 months, Rostec said in the statement, the company will work with the state-owned Vnesheconombank to solve UralVagonZavod's clinical debt and financial woes before Rostec takes full control of the company. UralVagonZavod was featured in Defense News' Top 100 listing in 2016, where it reported a 34 percent drop in defense revenues.
"This was a logical step for Rostec," according to Pavel Luzin, a defense policy researcher at Perm State University. "UralVagonZavod has economic trouble: high debt, low profit. But its core value is the huge volume of state orders (financial flows). In the Russian political and economic reality, value is determined by financial flows. So Chemezov has increased his influence and power."
UralVagonZavod is part of a larger play by Rostec to expand its holding over the defense industry. In the same statement, Rostec said it will be acquiring 70 defense industry enterprises. Twenty of them will be state-owned gunpowder manufacturers, as well as 50 firms owned by the company Spetsremont.
"These enterprises are key in the ammunition industry," the statement said. "Many of the assets are bad; therefore, a comprehensive development and financial health program will be necessary."
As they are reorganized by Rostec, they will be managed specifically by Rostec's weapons cluster. Eventually, they may be transferred to Rostec's main holding structure.
Further down the line, recent reports in the Russian press suggest Rostec will also make a play on the United Aircraft Corporation, which owns Sukhoi and MiG. In March, Russian Industry and Trade Minister Denis Manturov said that the government was looking at transferring UAC to Rostec's control.
Rostec, which owns Russian Helicopters, already supplies UAC with most of its aircraft components.
"We have not ruled such a decision out, insofar as there is a trend in this direction," Manturov said. "There is a great deal of synergy between [Rostec holding] Russian Helicopters and UAC. This will only increase each year due to the optimization of production processes."
Chemezov, who some defense industry experts in Moscow call the "shadow defense industry minister," chimed in on the issue a week before Manturov, calling the potential takeover "expedient, but not for today."
Matthew Bodner covered Russian affairs for Defense News.
