“Customers should have a clear understanding that the approach to purchasing weapons and military equipment and some stationery should be completely different, and the assessment should certainly not be at the lowest price!”
Temirzhan Abdrakhmanov in March of this year headed JSC "NC" Kazakhstan Engineering "- a production holding in the structure of the Ministry of Investment and Development of the Republic of Kazakhstan, which includes enterprises for the production of weapons and dual-use products. On the day of workers of the defense industry of the Republic of Kazakhstan, the Chairman of the Board of JSC “NC “Kazakhstan Engineering” shared his views on the state of the domestic “defense industry” and spoke about the plans for the development of the national company.
Botagoz Kazhagulova is talking.
Temirzhan Kairatovich, tell us about the current situation in JSC “NC “Kazakhstan Engineering”
The holding structure employs about 4 thousand people, a little more than half of which are involved in the production of defense products and services. Frankly speaking, the holding situation is very complicated. The presence of old debts hinders development, interest on them eats up profits, and, as a result, the fleet of equipment becomes morally obsolete and needs to be updated. The industry is not interesting for young professionals, for years there has been an outflow of personnel. It happens that those experienced professionals who retire, there is no one to fill. Additional sources of funding are very difficult to obtain: there are almost none. My colleague spoke in detail about the financial situation, you can find it ( https://ke.kz/ru/press-center/news/2241/ ).
Since today is the professional day of defense industry workers, I invite you to talk about the structure of production in the defense industry. For example, did you know that state-owned factories within our holding this year fulfill less than 10% of the entire state defense order? We are talking about the work and services for the repair of armored wheeled, tracked vehicles (Semey Engineering JSC and 811 Automobile Repair Plant JSC), repair and maintenance of aviation equipment (KAI LLP), production of spare parts and components (Tynys JSC , JSC "PZTM"), cartridges ( so far only caliber 9 mm) in Karaganda (Steel Manufacturing LLP), means of communication (ZIK JSC, KAE LLP), and we also design, manufacture and service ships and boats in Uralsk (JSC Research Institute Gidropribor and JSC Zenit) . If you look at the structure of the company on the website, at first glance it seems that we have a lot of factories, but in fact - some of them are being liquidated, some are being privatized, and some are engaged in civil projects. Or, for example, "SemMashZavod" (SMZ) - a pre-bankrupt enterprise that became a victim of management (known criminal cases), which is now in rehabilitation, but in fact a "dead" plant.
You can quite reasonably ask, where is the rest of the money allocated under the State Defense Order? I cannot answer this question, since Kazakhstan Engineering has not been an operator of the State Defense Order for several years. We do not have access to this data. In fact, now we are the same suppliers in the market as everyone else, except that we carry a huge social burden that no private company will bear. The loud name or the prefix "national company" does not give any privileges.
Speaking in general about the Kazakh defense industry, in fact, there are very few operating plants, probably about 20. In addition to our plants, I can mention private enterprises: Granit, Alma DK, Kalkan-7 and the 405th aircraft repair plant in Almaty, Kazakhstan Paramount Engineer in Astana and ZKMK in Uralsk. Manufacturers of garments, foodstuffs, fuels and lubricants and other suppliers of law enforcement agencies, I would not attribute to defense industry enterprises.
How do you see the development of the company as the first head of the holding? What are the top priorities right now?
The problems are systemic and complex. Last but not least, there are methodological problems. The law and all documents regulating procurement processes within the framework of the State Defense Order are the old Soviet economic planning approach. As a result, we get - long terms of coordination (formation of the state defense order - 21 months!), bureaucracy, lack of long-term stable plans. The methodology and processes require urgent reform.
The Majilis of the Parliament has a draft amendment to the ZRK. My colleagues and personally we are actively working as part of the working group. A large layer of work on the development of automation and digitalization: we have taken initiatives in this block of work.
Also, for example, I'm trying to introduce the concept of "total cost of ownership." So that when purchasing weapons and military equipment, the Customer first of all evaluates the quality, operating and disposal costs, and does not chase after a low price. Customers should have a clear understanding that the approach to purchasing weapons and military equipment and some stationery should be completely different, and the assessment should certainly not be at the lowest price!
As for the holding, taking into account current trends in the global economy and industry, the focus is on realizing the holding's potential through a cluster approach. The main goal is to achieve a synergistic effect from the interaction of manufacturing enterprises, scientific and research centers, universities, IT structures, SMEs in the implementation of high-tech projects, including with the participation of reliable foreign partners. The reason for choosing this direction was some imperfection of the production potential development model, when all production chains were concentrated at one plant, from the procurement of raw materials to finished products. The pursuit of a full technological cycle has led to sluggishness and high cost at enterprises. As is widely known from practice,
Our task is to ensure timely and high-quality supply of customers, based on the jointly discussed customer requirements, taking into account the synergistic effect for the entire machine-building industry of Kazakhstan. A domestic “civilian” small and medium business should be built around strategic defense enterprises, producing products and components for the needs of the entire industry.
Do you already have a development strategy? What is its essence?
As it was said, we will develop a cluster approach in production.
Thus, it is proposed to create several research and production clusters for the main types of weapons and military equipment, including:
- aviation cluster in Astana;
- maritime cluster in the Mangistau region;
- ammunition cluster;
- repair cluster of equipment and tanks;
- electronic digital cluster.
For example, within the framework of the aviation cluster, the production of strike and reconnaissance UAVs will be launched (together with Turkish Aerospace, but only if military tests of the purchased UAVs are successfully passed), and an MRO center for aircraft maintenance is being created. Recently we have received an Aviation Training Center near Astana. Last week, an open day was held, where we showed the real very difficult situation of this facility, invited government agencies and businesses to actively join in the development of this center. We also plan to develop this center together with Kazakh companies producing UAVs and small aircraft. Now it does not look so attractive - there is no infrastructure, for example, the lack of an asphalt road or the lack of electricity, heat, water.
A project for the production of a wide range of ammunition is proposed. At the same time, we are planning to implement a radio-electronic digital cluster. At the moment we are negotiating with partners, owners of documentation and technologies.
Taking into account the growing importance of the Trans-Caspian routes, the construction and maintenance of sea vessels for military and civil purposes is of particular importance. To do this, in the Mangistau region, Kazakhstan Engineering, together with partners, proposes the construction of a shipyard as the basis of the maritime cluster.
It should be noted that attracting foreign partners is a relatively forced measure for us. We perfectly assess the situation and understand that in order to effectively build future production, we need to turn to those who have already mastered this production. However, it should be taken into account that "Kazakhstan Engineering" at the head of this cooperation sets the conditions for increasing the localization of manufactured products, by transferring part of the volume of SMEs, as well as training our personnel and gradually reducing the share of participation of foreign companies.
What about the assets, what are the plans?
The proposed vision is supported by our shareholder - by the decision of the Government of the Republic of Kazakhstan, three enterprises that will form the basis of clusters have been excluded from the privatization circuit:
- LLP "Kazakhstan Aviation Industry", which has competencies, licenses, personnel and production facilities for the implementation of projects in the aircraft industry;
- Semey Engineering JSC is the only enterprise in Kazakhstan capable of overhauling, restoring and modernizing armored vehicles;
- Steel Manufacturing LLP, which is implementing the construction project of the country's first cartridge plant.
The company, being the largest segment of the Kazakh defense industry, is aware of the responsibility for its comprehensive development and is ready to act as an integrator of efforts and projects with all interested parties to ensure the country's military-industrial potential, develop production and innovation, create jobs, and import substitution.
There are also plans and proposals for "civilian" assets. We want to sell more than 50% of the share in PZTM JSC and Tynys JSC - in fact, these are diversified plants capable of producing a huge range of products for the civilian market, from household products to heavy engineering products. Here we invite and look for strategic private partners who are able to sell products and services, who have the ability to attract funding.
As for civil projects and factories, I can tell you separately in more detail.
And what will happen to the current production and the social aspect? As you said, 4,000 people work at your enterprises, this is a large social stratum.
The holding's plans apply not only to new projects. We are actively trying to maintain the current utilization rates of our enterprises and are fully working on increasing the potential, taking into account the rich experience of our specialists at the plants. I touch upon the topic of support for current production, it can be noted that the increase in wages for production personnel is paramount. Unfortunately, part of the staff works on a piece-rate basis, due to not being busy with orders during the year.
We are actively trying to develop civilian production. So, for example, at Tynys we are increasing production for our railway workers, and at PZTM we are working on restoring lost production for the oil and gas industry.
In theory, on social issues, the formula is very simple - "the higher the income and profit of factories, the higher the salary and social package." However, this formula does not work in our holding. In connection with debts, the maturity of the main of which is already the current year, we have to direct profit and income to pay off debts. Ironically, this money is not even enough for the principal debt, but only for interest.
Yesterday I received a video message from the employees of the SMZ plant in Semey - they have been delayed in their salaries for several months now. For years, the plant was destroyed, brought to such a state. People are suffering. This is very painful to watch. This year, according to the decision of the board of directors, money was allocated several times for the payment of wages - while the plant did not have any orders. The head of the plant calls just before the holidays, elections, referendums and other public events, says that people want to go to a rally, turn to the President, write complaints. I understand perfectly. At the same time, we continue to allocate money to SMZ for salaries from the money that we have to spend on paying off debts, otherwise the entire holding, and not just one company, will go bankrupt.
You talked about a lot of bureaucracy and the complexity of some processes. What measures are planned to be taken?
These weeks I myself personally study in detail the budgets for the coming year of all plants. Extremely dissatisfied with the quality of planning. I criticize the heads of factories and those responsible for the formation of budgets. Somewhere I see that the laid down prices for materials are too high. At the same time, I understand why this is happening.
For example, a factory buys 2 masks for diving equipment. The price in the budget of the plant is 30% more expensive than the price from the manufacturer on the website. When forming an application, the customer requires a signed, with an outgoing number, a seal, a certified document from the supplier of masks, on the terms of delivery of DDP. The manufacturer (European), of course, for the sake of two masks a year, will not deal with such bureaucracy. He tells our factory - "if you want to buy, go to the site and buy online, we will send you DHL, pay for shipping and customs clearance yourself." If our plant does this, it will never, in accordance with the approved regulatory documents for the formation of the State Defense Order, hand over the finished product to the customer, because it will not have a commercial offer with a signature, seal, outgoing number, etc. … Therefore, the plant conducts its competitive procedures. Until all these procedures are completed and until the state defense order is formed, it will take 6-12 months. By this time, for example, the market price of masks will rise, and the state defense order has already been formed, the prices have been approved ... As a result, in order to receive money for the supplied products, the plant will either sue the state defense committee for another 6-12 months, or 6-12 months will receive compensation through GOZ-2. In order to form at least some decisions related to the state defense order, documents must go through the offices of state bodies for months, also in the “secret” mode! or if he justifies the rise in price in another 6-12 months, he will receive compensation through GOZ-2. In order to form at least some decisions related to the state defense order, documents must go through the offices of state bodies for months, also in the “secret” mode! or if he justifies the rise in price in another 6-12 months, he will receive compensation through GOZ-2. In order to form at least some decisions related to the state defense order, documents must go through the offices of state bodies for months, also in the “secret” mode!
I would like to note that we proposed to create an automated ordering system for defense industry enterprises, which, in turn, will include a perimeter for marking and accounting for weapons and military equipment, general circulation of all applications, cataloging of products of defense industry and dual-use enterprises, as well as a risk management system. Moreover, it will be possible to track the entire supply chain, see the final supplier of components and the prices at which materials and components are purchased by state defense contractors. And we are ready to do all this according to modern digital security standards, ensuring the safety of classified information.
Along with this, we do not forget for a second about sustainable development, where the company, in accordance with international standards, has identified promising areas for development for itself and has already approved its internal policy. In these areas, special attention is paid to the development of personnel. We actively cooperate with local educational institutions and conduct excursions to our enterprises on an ongoing basis, as well as invite the public to familiarize and increase interest from young people.
I would like to note that all proposals and visions are supported by the public within the framework of the work of the Public Council, in accordance with the law.
What innovations have already been introduced into the work of the holding?
You worked very clear and understandable corporate governance in the holding, built control processes, work with law enforcement agencies, strengthened international cooperation. Our Public Council is successfully functioning: it is a council of really very competent specialists in production and the military sphere. We have created the Competence Center, a structure aimed primarily at finding new knowledge, its active transfer and the provision of consulting, service and highly professional services. Highly professional experts in the field of military science, defense production and military affairs participate in the work of the Center.
Based on the experience of our team, the current global challenges and requirements for structures like ours, the management and the board of directors have developed strategic goals in the medium term to rebuild the holding, developing civilian production based on defense production, and not as it was previously an isolated direction.
The corporate center now functions as a project office for all enterprises and projects. We are launching an information infrastructure for deep digitalization of production and business processes, including the State Defense Order. Measures are being implemented within the framework of scientific and industrial parks. The enterprises of the group, together with SMEs, carry out a full production cycle - from an idea to a serial sample. As part of the group of companies, joint ventures with foreign companies have been created, we recently managed to retain one of the foreign investors who wanted to exit our market.
For obvious reasons, I cannot talk in detail about all projects in the defense industry.
In conclusion, I would like to note that the biggest problem in our business environment of defense industry enterprises is the lack of unity. For the sake of commercial gain, some are willing to go against the interests of national security, which inevitably becomes known.
I would like to leave further quotes from our President from a recent news feed, with which I fully agree:
"The President expressed concern that respect and mutual trust are declining in society," the statement said after Tokayev's meeting with the public of the Abai region on Friday.
As the president admitted, the situation worries him very much.
“Cruelty and distrust, indifference and indifference are dangerous traits that can lead people to the abyss. If we want to unite, first of all, it is necessary to instill moral qualities in young people. We need solidarity and brotherhood. Abay said it best of all: “If you don’t see a friend in your neighbor, all your deeds are in vain.” Let us remember this commandment of the great thinker!”
“Our youth should be attentive, active, educated and responsible. The most important thing is that we be true to our aspirations and common cause. I have said more than once, and I want to repeat again: “Patriotism is manifested not in loud words, but in concrete deeds,” Tokayev concluded.