Russia to Limit Weapon Makers' Profits

MOSCOW, May 12 (RIA Novosti)

The Russian government is to set out recommended profit margins and prices for domestically-produced armaments in a bid to reduce what it sees as their excessive cost, and speed up procurement.

The government has instructed the Federal Tariff Service and the Trade and Industry Ministry to prepare recommendations for initial prices for state defense order contracts, according to a government resolution published on Saturday.

The resolution says the Federal Tariff Service and relevant federal ministries and agencies must prepare a list of state defense spending, adjusted for inflation, within three months.

Profits from the sale of items in the state defense order cannot exceed 20 percent of the supplier’s costs for core production and 1 percent of the costs for the purchase of components and payment for sub-contractor work, according to the resolution.

The profit margin may be raised to 25 percent if the supplier can prove a need to channel part of the profits from the contract into production development, the resolution states.

The Defense Ministry has become increasingly frustrated with the high price of Russian weapons and has started ordering foreign-made ships, armored vehicles and other equipment for the first time since World War II.

Disputes over the price of military products between the Defense Ministry and the miltary-industrial complex drove the 2011 state defense order to the brink of collapse.

President Vladimir Putin has said the Defense Ministry has failed to place more than a third of state defense orders with contractors this year and demanded the ministry and the defense and industry commission submit a report on the causes of this failure.