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. Last Updated: 07/27/2016

Lifting the Arms Sales Veil

The U.S.S.R. controlled the world's biggest weapons arsenal, and Russia inherited most of it. Since the collapse of the Soviet Union, foreign observers expected modern military equipment to flow profusely from Russia into the hands of Third World rogue states and bad guys. But Russian arms exports have been relatively low in recent years. Today, the situation is seemingly changing.

A recent report by the U.S. Congressional Research Service calculated that Russian arms sales rebounded after the slump that set in following the breakup of the Soviet Union and reached a staggering $9.1 billion in signed arms-transfer agreements in 1995. Russia, in effect, became the world's biggest arms trader, overtaking the United States. And Russia's most important buyer was China.

"Russia has made significant efforts to gain arms agreements with developing nations that can pay cash for their purchases," the report said. "With Russia now having an emerging market economy, domestic defense industries also have greater freedom to promote the sale of their weaponry."

If this rosy picture of the arms industry were accurate, then the wildest dreams of Russian producers would appear to be coming true. The state arms trading company Rosvooruzheniye is boasting of its success, but Rosvooruzheniye never fully confirmed the Western reports; it claims a more modest $3.09 billion in arms sales in 1995. And in the arms-producing industry, the success story is met with skepticism.

Russia has indeed recently concluded negotiations on a major arms deal with China for the sale of long-range Su-27 Sukhoi jet fighters. China purchased 26 Su-27s in 1992 and sought an agreement to begin licensed production.

The deal was finally approved last April during President Boris Yeltsin's visit to Beijing. China agreed to buy 18 more Russian-made Su-27 fighters and secured a 15-year license agreement to build up to 200 Su-27s on its own. These 218 fighters, which are presumably priced at $30 million each, make up the backbone of the Congressional Research Service's calculated $9.1-billion Russian arms export success story.

But the calculation was wrong. The 18 Su-27s have already been produced at the Komsomolsk-on-Amur aircraft factory and delivered to China. Informed sources say the official price of these planes was over $30 million. But the Chinese paid only 50 percent; the rest was deducted from Russia's debt to China. And the 200 Su-27s that will be produced in China under a military-technology transfer agreement will cost much less than Russian-produced fighters. That is why China was seeking such an agreement in the first place.

Obviously, the West has grossly overestimated the Su-27 deal and Russia's overall arms trade achievements. But one can hardly blame Western researchers. All Russian arms dealings are closed to the public, and almost no substantiated official information filters through to the press.

The State Duma does not approve arms export deals, and deputies are not informed of them. Rosvooruzheniye, has, in effect, a monopoly on the export of arms and military technology. Like any other monopoly, it does its best to keep all its dealings secret.

The general director of Rosvooruzheniye, Alexander Kotelkin, is a former military intelligence officer. He worked under diplomatic cover in the United States. Kotelkin was appointed chief of Rosvooruzheniye after General Alexander Korzhakov and the president's security service took control of Russia's arms trade in 1994. It is clear that Kotelkin and Korzhakov were hardly the kind of people who would be inclined to open up Russian arms trading to the general public.

It has been alleged that proceeds from arms exports are not reaching arms producers and designers because they have been misappropriated or arbitrarily diverted. Russian Prosecutor General Yury Skuratov accused Rosvooruzheniye of spending too much money on salaries to its management, while defense industry workers who produce the arms for export were receiving no pay.

But information on Rosvooruzheniye has been leaked to the press only because control over the arms trade has recently become a bone of contention between security chief Alexander Lebed and Prime Minister Viktor Chernomyrdin. After the Kremlin power struggle is settled, Rosvooruzheniye and its dealings will, most likely, again be shrouded in secrecy to conceal new possible misappropriations.

Pavel Felgenhauer is defense and national security affairs editor for Segodnya.

The negotiations lasted several years, and the bargaining was very rigorous. In the end, the Chinese succeeded in cutting the starting price considerably.