Today the “Oboronprom” owns a minority stake of the “Rostvertol” (as of September 2006, the “Oboronprom” is not a shareholder of the “Rostvertol”; the state in the name of the “Rosimushchestvo” holds only 3.44% of the shares. – commentary of press service of OPK Oboronprom). It is known, however, that the state corporation will take control over the plant, as it is establishing a helicopter holding. Within the “Oboronprom” structure a special corporation “EW” (“Electronic Warfare”) is to be established. The new corporation will include: “Gradient” FSUE, Taganrog Research and Development Institute for Communications, Research and Development Institute for Special Information and Measuring Systems, “Pribor” and “Svyaz” state design bureau. In august General Director of the “Oboronprom” D. Manturov met with Governor of the Rostov region V. Tchub. It is known that a cooperation agreement between the “OPK”Oboronprom” JSC and the Rostov region authorities is underway. Mr. Manturov answered in writing the following questions asked by a “N” reporter.  

“N”: - At the meeting with the Rostov Governor you declared that some Don defense enterprises would enter the “EW” (REB) corporation. What is the strategic aim of these enterprises being consolidated?

MR. MANTUROV: - Nowadays experts note a tendency towards a share growth of electronic warfare equipment in the total volume of world armaments and military equipment: according to their estimations, if in 2010 this share amounts to, 10%, then by 2015 it will reach 15%. Meanwhile, Russia has a good opportunity to pretend to 25-35% of the world EW market. But in order to get this pie, domestic enterprises must make a qualitative step forward to compensate for lag behind the transnational competitors. Integration of defense industry enterprises is based, to a greater degree, on market mechanisms rather than on administrative ones, and since 2000 it has been the basic leitmotif of structural adjustments in the defense industry complex. The integrated structures, apart from direct production tasks, are to solve problems of national interests insuring, which commonly lie in the spheres of defense order, military and technical cooperation and preservation of the industry’s mobilization capabilities. The consolidation of EW enterprises into an integrated structure will make it possible to solve more effectively problems on coordination of technical policy and to exclude doubling effect in the work of enterprises. We will be able to concentrate all existing resources (human, production, scientific, technical, financial and material recourses) in priority areas of EW equipment development. We will be able to carry out a coordinated policy in the sphere of marketing, buying of import element base as well as in military and technical cooperation with foreign countries. By 2010 they forecast an increase within the framework of the EW integrated structure of the volume of innovative developments (R & D) by 1.9 times as compared with 2005, the export of defense products – by 1.4 times, the production volume – by 1.95 times.

The accumulated experience and the potential of enterprises of the EW holding, including the Rostov enterprises allow us within shortest timeframe to fulfill even now programs on development of new equipment and upgrade of existing equipment, including development and production of multifunctional EW complexes and systems of ground, aircraft, sea and space basing. I would like to note that the EW holding, in spite of its military purposes, will pay attention to civil problems as well. Now on the base of “REB” Research and Development Center” closed JSC, a sole marketing center is being established. The center will have a combined data base for civil products manufactured not only by enterprises of the integrated structure, but also by other organizations concerned.

“N”: - Within what period can the Don communications enterprises be incorporated into the “Oboronprom”? What is the mechanism of incorporation?

MR.MANTUROV: - It is scheduled to draw out regulatory documents on establishment of the integrated structure by the end of 2006. The mechanism of establishment is practically similar to those used for establishment of the “Oboronprom” helicopter holding.

Pursuant to the Decree of the President and the Decree of the RF Government, the enterprises of the branch , primarily, being federal state unitary enterprises, are transformed into 100% state public joint-stock companies, then after independent estimation their shares are exchanged in the appropriate proportion for the “OPK”Oboronprom” shares. In the future it is possible to make the EW enterprises a separate legal entity as a 100% affiliate of the “Oboronprom”.

“N”: - What principles are used to define a circle of those Don enterprises to be intended for entering the “OPK”Oboronprom”? There are, however, other defense communications enterprises (“Gorizont”, “Elektroapparat”), which are not in the list, aren’t there?

MR.MANTUROV: - By the resolution of interdepartmental commission for the EW development dated June 7 this year a list of enterprises, assumed to participation in the integrated structure, was approved. Proposals on quantitative and qualitative composition of the EW holding were subject to agreement and were approved by the RF Ministry of Defense, the Industry and Energy Ministry, the Russian Industry and other departments. As for non-listed enterprises, including some Rostov ones, they are possible to join the holding in the future - certainly, with voluntary consent of the plants.

“N”: - The integration of some companies into one corporation frequently implies redistribution of functions carried out by enterprises. Will these redistribution processes affect the Don enterprises entering the EW holding?

MR.MANTUROV: - Optimization processes are inevitable inside the holding. They will be aimed at increasing the workload of enterprises and their financial recovery.

“N”: - In May the “Rostvertol” shareholders made a decision to issue additional shares and to place them in private offering in favor of the “Rosimushchestvo” and the “Oboronprom”. Have the shares already been placed? What block of shares will belong to the “Oboronprom” after the placement?

MR.MANTUROV: - At present the “Rostvertol” offering statement is submitted to the Federal Service on Financial Markets for approval. Once it is approved, pursuant to the law those shareholders, who voted against the issuance or did not participate in voting, has a preemptive right to re-acquire the shares within 45 days. And only after this the rest shares will be placed in private offering in favor of the “Rosimushchestvo” and the “Oboronprom”.

The cumulative shareholding of the state and the “Oboronprom” in the “Rostvertol” authorized share capital after completion of all corporate procedures shall amount to, at least, 25% + 1 share  taking into account 3.44% of shares already held by the state.

“N”: - How was the price of additionally issued shares defined for the “Oboronprom”? The par value of the share is RUR1, while the marked price for repurchase of additionally issued shares amounts to RUR 3.67, doesn’t it?

MR.MANTUROV: - The decision about estimate of the shares’ market price was made by the “Rostvertol” Board of Directors upon the results of independent estimation audited by the “Rosimushchestvo”.

N: - Within what period do you plan to increase your shareholding of the Rostov helicopter plant to the controlling stake?

MR.MANTUROV: - We are not going to speed up the process and we expect to complete it not earlier than 2007.

“N”: - Stock exchange analysts, evaluating the “Rostvertol”, regularly declare that large state defense orders of the enterprise are thus far only in the form of statements. Is it possible to specify the volumes of state defense orders with contracts already signed? How long are these contracts planned to be fulfilled?

MR.MANTUROV: - It is possible to say that today, taking into account the decisions made, the state defense order status is clear for us. As it is known, the RF Minister of Defense Sergei Ivanov during his recent visit to the  Rostov region doted the i’s and crossed the t’s in issues concerning the AF main attack helicopter now produced by the “Rostvertol”.

The same time it was declared that within nine years the MOD planned to buy 67 helicopters (“Night Hunters”) pursuant to the armaments program. (Compare: until 2006 the “Rostvertol” manufactured 5 to 6 such helicopters per year. The defense order indicated by Mr. Manturov in terms of money can amount to about $1 bln. –“N”)

N: - Today a cooperation agreement is being prepared for signing by the “Oboronprom” and the Rostov authorities. What is the subject of cooperation?

MR.MANTUROV: - Our relations with the regional authorities are closely connected with all aspects of the “Oboronprom”’s activity: both helicopter building and electronic warfare equipment. An across-the-board agreement between our corporation and the regional authorities is planned to be signed soon. It is assumed, that through joint efforts we will work out a program of reformation and development of enterprises of our corporation pursuant to the program of economic and social development of the Rostov region during the years of 2003-2006.

It goes without saying that we will coordinate our activity with the regional authorities with regard to development of science-intensive branches of industry, income support of the regional consolidated budget received from the enterprises’ activity as well as retention and creation of new jobs in the region.