A Nationalization Exception

MOSCOW - In its drive to control the production of all major defense systems in Russia, the government here is shying away from one of the most sensitive sectors: strategic missile defense. In this sector, the privately owned Concern Radio Technical & Information Systems (CRTIS) reigns supreme.

Established nine years ago as part of AFK Sistema, Russia's largest public corporation, CRTIS has become the country's biggest supplier of strategic missile solutions, including the development and production of a new generation of huge long-range radar systems that provide early warning of ballistic missile attacks. The Sistema group is controlled by billionaire Vladimir Yevtushenkov.

CRTIS also is the Russian government's partner in developing the GLONASS satellite navigation system, and a prime contractor for the Emergencies Ministry, having completed work on the National Crisis Management Center here.

Revenues for CRTIS grew from $7.6 million in 2000 to $472 million last year, making it the 99th of this year's Defense News Top 100 firms.

The government has not had any negotiations in the last few years to acquire control over CRTIS, a spokes-man for AFK Sistema said.

In recent years, the government has been aggressively consolidating the leading sectors of Russia's defense industry - warplanes, helicopters, aircraft engines and shipbuilding - into state-controlled holdings. It believes such consolidation eliminates unnecessary inter-sector competition and streamlines management and the distribution of resources.

"I believe that AFK Sistema had been ordered by the state to create CRTIS. There is no question of who controls what - everything is controlled by the state there," said Mikhail Barabanov, an analyst with the Center for Analysis of Strategies and Technologies, a think tank here.

The Mints Radiotechnical Institute, based here, and the Scientific Research Institute for Long-Range Radiocommunication, which developed early-warning radars in Soviet times, made up the initial core of CRTIS. Twelve other firms have been consolidated into CRTIS since 2000.

A CRTIS spokeswoman said it strictly follows all government regulations.

The crowning defense product for CRTIS is the Voronezh early warning radar station, which has put an end to Russian dependence upon Soviet-era radars that were left in the former Soviet republics.

Russia leases radar stations in Baranovichi, Belarus; Balkhash in Kazakhstan; and Gabala in Azerbaijan. Last year, it decided not to renew its leases on Ukraine-based radars at Mukachevo and Sevastopol. Russia also has radars on its own territory in Murmansk, in the Arctic; Pechora, in the Ural Mountains; and Irkutsk in Siberia.

The first Voronezh radar, built near St. Petersburg, became operational in 2006. The second of the building-sized radars, in Armavir, near Stavropol in southern Russia, was put to work in February. This radar station became the center of discussions between the Russian and U.S. governments as a proposed site to track possible missile launches from Iran, as an alternative to the U.S. plan to install an early-warning radar in the Czech Republic and an anti-missile base in Poland. Moscow opposes the plan, saying it would undercut the strategic balance between Russia and the United States.

"We had the state order for these radar stations from the very beginning, and we were building the company from scratch by keeping the technological chain in mind," said Sergei Boyev, the chairman and chief designer of CRTIS.

CRTIS boasts that the Voronezh consumes 30 times less power than the Soviet Daryal-type radar and almost six times less than the PAVE PAWS, the U.S. phased-array early-warning radar.

CRTIS officials, citing government secrecy regulations, declined to comment on the size and other technical parameters of the Voronezh, such as whether it uses phased-array technology.

However, the officials said the Voronezh does not need any water for its operations, while the Daryal consumes about 150 cubic meters an hour and PAVE PAWS consumes 11 cubic meters.

But the biggest advantage, Boyev said, is the system's speed of production and installation: It takes only 18 months to build Voronezh, whereas the Daryal took eight years and the PAVE PAWS three years.

"It is because Voronezh is a Lego-like modular station," he said. "Its blocks produced by our plants are transported and mounted on the site ... and fine-tuned at the spot."

Vladimir Yevseyev, a security analyst with the Russian Academy of Sciences, said the Voronezh is a strong step forward from previous radars in one more important sense: It can be used to guide missiles, just like the U.S. radar proposed to be installed in the Czech Republic.

Boyev said government orders made up 84 percent of CRTIS revenues in 2008, up from 60 percent in 2006.

"We have been fighting to get more commercial orders and to diversify, but then stopped doing this," he said. In the global financial crisis, "the state order[s] allow [a] steady position for the company and continuation" of research and development.

There have been cautious attempts to establish cooperation with Western technological giants such as Boeing and BAE Systems, but they have not worked out, he said.

The company's activities are too sensitive, since they involve strategic weapon systems, Boyev said, adding that American companies are the main competitors of CRTIS.

Barabanov said because of the guaranteed massive state orders, CRTIS is not working in a competitive market and has limited involvement with foreign clients. He suggested, though, that CRTIS could have sold several Podsolnukh-E over-the-horizon surface-wave radars to China and participated in R&D for larger radars for the Chinese.

Boyev said that despite its domestic monopoly in long-range radars, there is competition between R&D teams within the company.

He also boasted that because CRTIS is managed as a regular business, not as a state-owned company, the arrangement has borne fruit in productivity. The rate of sales per worker is among the top five of all Russian defense firms, and the number of registered patents per engineer is among the highest in the sector.