Chemezov is the former head of Rosoboronexport, the country's weapons export monopolist, and a friend and colleague of Russian President Vladimir Putin from the time they worked in East Germany.

At first all Rostekhnologii shares, including Rosoboronexport, will belong to the state. But in the future, Chemezov says, the shares may be placed on the stock exchange. The state corporation needs private capital, but this is impossible without giving a right to individuals and companies to invest in such a lucrative business as the production and sale of weapons and military equipment. The founders of Rostekhnologii plan that the controlling interest, 25 percent plus one share, will belong to the state. The state will not lose control of this high-technology industry and military-technical cooperation with other countries.

It is not going to be easy to attract private capital to the defense industry. Russian investors want to get quick returns -- in a year or two, but this is not always possible in the defense industry. First, the process of creating modern weapons from research and development to serial production takes from five to 10 years depending on the type of weapon. Second, there is always a big risk that the planned performance characteristics are not achieved and the money spent on this work will not be recouped. It will be difficult to find an investor ready to put his money into such a risky venture.

Rostekhnologii is well aware of this. That is why it has promised various privileges to both Russian and foreign investors, such as tax exemptions at the research and development stage and a guaranteed state order and profit from weapon supplies abroad, as this is done at the largest defense companies such as Boeing, Lockheed Martin, and General Motors.

In order to attract private capital to the state corporation and to reduce the manufacturing costs of weapons and military equipment, the bill on Rostekhnologii included a point on the corporation's fulfillment of the government's defense order. The initiators were guided by the fact that today orders for Russian weapons from other countries often exceed those from the Russian army.

For example, India wants to buy more than 300 T-90S tanks, while the Russian Defense Ministry plans to get about 50 tanks. To combine the two orders means to sharply reduce the cost of production of every single vehicle. The military thinks it will be put at a disadvantage. A plant will begin to fulfill the foreign currency order and only after that it will take the ruble order, which is much cheaper. But what the army needs is just the opposite.

The government's defense order was not included in the law on Rostekhnologii. The Defense Ministry will keep control only over the Defense Order Agency and will want all companies involved, including those incorporated in Rostekhnologii, to fulfill the state order and to begin work on foreign orders only after that.

Rostekhnologii cannot solve all the problems of the defense industry, but the corporation is necessary. The results of its work will be seen in several years.

(Nikita Petrov is a military commentator. This article is reprinted by permission of RIA Novosti. The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.)

(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)

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