Tuesday, August 28, 2018

Russian Military isn’t Paying Its Bills – and Suppliers are Increasingly Suing

Paul Goble

            Staunton, August 27 – Last year, suppliers of the defense ministry went to court almost 3600 times to force it to pay them what it owes; this year, there have been 3200 such suits already, a number that suggests there will be more than 5,000 by the end of this year, Yury Lobunov writes.

            On the one hand, the Forbes analyst suggests, this reflects cutbacks in the military budget. It has been cut at least nominally both of the last two years. But on the other, it is a product of the ministry’s difficulties in coping with post-Soviet realities and of corruption in the system (forbes.ru/biznes/366095-armeyskaya-bednost-i-voennaya-hitrost-kto-suditsya-s-minoborony).

                In the majority of cases, Lobunov continues, “lengthy court cases do not save the military from paying its debts. The only significant result of these military actions on the legal front is delaying payment for several months to several years,” something that makes the system ever more difficult to function.

            But Georgy Fedovo, an advisor to the Duma security committee, says that this pattern reflects “the ineffective administration” of the ministry. “The defense ministry was and remains an enormous system with many branches including non-military infrastructure tasks.” In Soviet times, the military simply was given all that it wanted. But now things have changed.

            The ministry has been forced to enter into contracts with firms which provide services to others as well, and that is not something the ministry has found it easy to cope with.  Moreover, there is an enormous problem with corruption in these firms when they are headed by “’friends of Putin.’” In that event, the real profits lie elsewhere and the ministry is caught in a trap.

            According to Lobanov, “military lawyers heroically fight for the financial interests” of the ministry. Sometimes this generates respect but sometimes only “a smile” because they adopt tactics that allow the ministry to avoid paying in a timely fashion. Among these is an unwillingness to sign contracts or to extend them – or claims the wrong people signed them.

            What is interesting is this, he continues. The arbitrage courts typically find for the suppliers, and the appellate courts do the same, even when cases reach the economic collegium of the Supreme Court.  But the delays in payments mean that many suppliers are reluctant to provide the ministry with what it needs and this is creating serious bottlenecks in some sectors.

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