Kremlin pressures Russian businesses to pay for drone defences

Vladimir Putin is shifting the burden of anti-drone defences on to businesses, with companies that fail to protect their assets from Ukrainian strikes now facing the prospect of state takeover.

The move is part of the Kremlin’s response to Kyiv’s intensifying long-range drone campaign that set dozens of commercial warehouses on fire and destroyed as much as 20 per cent of Russia’s refining capacity, leaving the petrostate scrambling for fuel.

In late August, the Russian president signed a decree allowing the introduction of “temporary management” at “critical infrastructure objects” that fail to protect themselves against drones. Three days later, the government established a committee to oversee implementation.

A former Kremlin official told the FT that Putin signed the decree after his intelligence services and the military sought to shift responsibility for drone defence on to companies. “They complained that businesses were sitting on their hands and don’t want to lift a finger, and Putin agreed,” the person said. “The message is: guys, get your act together and start spending,” he added.

Vyacheslav Plaksin, a drone defence expert, said inquiries from businesses increased fivefold almost overnight after the decree was issued. “The decree served as a trigger,” he said.

Putin appeared satisfied with the result. “Companies have got involved and started putting money in,” he said on September 3.

Throughout the full-scale war in Ukraine, businesses and the state have wrangled over who should foot the bill. The frustration reached such a high level that even Alexander Shokhin, the head of Russia’s Kremlin-loyal business lobby group, has repeatedly urged the state to help businesses finance the defence project.

But the government was adamant. “They [the businesses] have the money,” finance minister Anton Siluanov said at Russia’s flagship economic forum in June. In late September, the finance ministry finally said it was preparing “tax changes” to recognise companies’ spending on defence, though no details were disclosed.

Putin’s decree ended the debate and fuelled fears among businesses that the Kremlin could use the new powers as another route to nationalisation. State seizures have become increasingly common since Russia’s full-scale invasion of Ukraine in 2022, including of assets formerly owned by western companies. Recent cases include the de facto seizure of Auchan and Nestlé subsidiaries.

Putin insisted that he had “never even considered taking anything away” with the decree, but the assurance did little to dispel concerns among business figures.

“Undoubtedly, it will be used to snap up assets at some point,” said a former executive of Rosneft, Russia’s state-backed oil company. But for now, it is a way to force business owners to “make people stump up”.

Some companies with close ties to the Kremlin, including Rosneft, could even benefit from the arrangement, the person added. “They will be able to offload their refineries on to the state temporarily, have them patched up [at public expense] and take them back when better times return,” he explained.

There are still no clear rules on who is responsible for protecting facilities from Ukrainian drone strikes or what measures they are required to take. Many anti-drone defences require hard-to-obtain permits. Putin’s decree introduced penalties without clarifying the underlying rules.

“Legislation is now like a jigsaw puzzle that every company has to put together itself,” said Plaksin.

Russia’s anti-drone rules have evolved from older anti-terrorism regulations, leaving companies to navigate dozens of overlapping requirements, from electronic warfare systems to protective netting.

Hundreds of thousands of companies could fall within the rules. Plaksin said that, in one industry alone, officials discussed prioritising 24,000 critical sites out of about 700,000 in total. The list, the government said, would remain secret.

Businesses sought urgent clarification on whether they fell under the new requirements. Shopping mall operators were told they were “unlikely to be included at this stage” and could “decide for themselves”, a person familiar with the situation told the FT.

Although Russia is trying to keep such measures under wraps, satellite imagery reveals some of what has been put in place.

“At vulnerable sites such as military airfields, oil refineries and power plants, we can frequently see anti-drone netting and reinforced concrete structures shielding critical assets,” said a former Ukrainian officer who operates the analytical group Frontelligence Insight. Air-defence systems such as Pantsir can also be positioned nearby, including in residential areas.

The closer a critical facility is to Ukraine, the more sophisticated its defences tend to be, the person said. “A power plant in Crimea may implement nearly all of the protective measures described above,” while infrastructure “beyond the Ural Mountains may have only limited protection, or in some cases none at all.”

Drone defence ranges from passive measures such as netting to electronic warfare. But almost anything involving the destruction or jamming of drones requires permits from the security services, which most companies — apart from a handful of energy and financial heavyweights — do not have.

Reservists — civilians who remain in regular jobs while contracted to the military reserve — can be used by companies for protection, but are not allowed to carry weapons, the former Rosneft executive said. That means companies need separate arrangements with the military and National Guard.

“Every big company strikes deals with nearby military units. Some of them are now entirely tied up guarding a particular factory instead of performing their regular duties,” he said. A powerful Pantsir air-defence system can be deployed to a company site only at the defence ministry’s initiative and remains under military control.

But even basic anti-drone defences available on the open market carry a hefty price tag.

The cost to individual companies varies depending on their size and the requirements imposed on them. Plaksin cited one factory that needed to install a protection system costing Rbs220mn ($2.8mn) — equivalent to one day’s revenue.

A businessman in a region bordering Ukraine that is under frequent attack told the FT he had spent more than Rbs1.5bn ($19.1mn) on air defences. At an economic forum earlier in September, Putin mentioned an oil company spending “dozens of billions of roubles” on anti-drone defences.

“The state does not have money both to keep fighting the war and to build a layered defence against drones,” said Alexandra Prokopenko, a fellow at Carnegie Russia Eurasia Center. “And businesses have nowhere to turn.”

According to the former Rosneft executive, “this has become yet another new tax”.

Data visualisation by Steven Bernard