Ukroboronprom

During the 10 years of its existence, the state concern Ukroboronprom repeatedly attracted media attention with its resonant stories. Schemes, scandals, thefts all revolved around the structure that united the vast majority of the country's state-owned defense companies. The State Concern "Ukroboronprom" was created in 2010 for management of the enterprises of the military-industrial complex. TSC "Ukroboronprom" united more than 100 enterprises-participants in 5 major defence industry sectors, particularly in armament and military equipment development and manufacture, scientific research and export-import operations.

"Ukroboronprom" had more than 10 design bureaus, engaged in development, design and research, enabling State Concern to implement new solutions and innovations. State Concern employed approximately 80,000 highly skilled people. Many employees have high academic degrees in engineering, applied mathematics, physics, etc. Realizing the fact, that innovation requires skilled, educated specialists, State Concern management has initiated long-term cooperation with leading educational institutions of the country, the list of which is constantly increasing.

The State Concern deepened cooperation with Ukrainian enterprises, strengthening internal cooperation of domestic manufacturers, and expands the range of foreign partners. "Ukroboronprom" has exporters, authorized by the state to supply Armed Forces of Ukraine and other military formations with armament and military equipment. Leaders of the State Concern have developed a promising model of industrial clusters with a clear specialization and a closed cycle of production to the final product.

Security Service of Ukraine investigative actions were due to signs of treason by officials of Ukrspetsexport and Ukroboronprom. This was reported by the SBU on 02 December 2020. It is noted that investigative actions are carried out in the offices of SC "Ukrspetsexport", SC "Ukroboronprom" and in one of the foreign structures. "Intelligence officers are investigating the possible involvement of officials in activities in the interests of one of the countries of South Asia to the detriment of Ukraine's defense capabilities, state, economic and information security," the statement said. It was established that the representatives of the domestic special exporter artificially involved a foreign structure as a mediator, which led to the possible loss of Ukraine's arms markets in some countries of the Asian region, inhibition of existing Ukrspetsexport contracts and obstacles to new foreign economic contracts. According to preliminary estimates, the damage to state interests is about $ 100 million.

President of Ukraine Volodymyr Zelensky appointed Yuriy Gusev Director General of the State Concern Ukroboronprom. The decree on his appointment ?532 / 2020 was published on December 3 on the website of the head of state. In 2014-2016, Yuriy Gusev was the Deputy Minister of Defense of Ukraine. From July 2019, he headed the Kherson Regional State Administration. He holds a PhD in Economics. The previous head of the Ukroboronprom concern was Igor Fomenko, who was appointed to the post on October 6 this year by presidential decree 423/2020. Fomenko worked as an acting deputy, replacing Aivaras Abromavicius, head of Ukroboronprom.

The first step in a radical reform of the entire defense-industrial complex will be the transformation of Ukroboronprom. The impetus for this was the creation of a new Ministry of Strategic Industries of Ukraine. The department was headed by Deputy Prime Minister Oleh Urusky. The main goal of the announced transformations is the emergence of new weapons in the Ukrainian army.

But, as with any endeavor in Ukraine, the "tug of war" began immediately. Initially, the state concern spoke out against the interference of the Ministry of Strategy and Industry in their work, against the manual management of the concern and accused government officials of blocking defense reform. They, in turn, expressed surprise at this development, and regarded the accusations in their favor as an attempt to thwart the tasks. In general, this story once again demonstrates that a team of like-minded people has never been formed in power. It is not known how long the "shootout" of officials on the Internet will last, but one thing is clear: the war in Donbass does not last on paper, in statements or posts on social networks, so the authorities should understand what the state will get under such reforms.

On 22 April 2020, an unexpected announcement appeared on the official website of Ukroboronprom that the concern would be liquidated. Later it was clarified that in its place will be nine industry holdings. Six of them will be part of the future state holding company "Defense Systems of Ukraine", three - in "Aerospace Systems". Roman Bondar, Deputy General Director of Ukroboronprom and Head of the Group's Transformation Office, explained at the time that Ukroboronprom's usual management model was ineffective, and that some of the 116 companies that were part of the concern were in fact "dying" and did not benefit the concern. army, were a burden. In addition, some of them had nothing to do with the defense industry at all. That is why it was decided to create holdings, the work of each will be aimed at reforming a specific area of ??defense.

What will such a transformation give to the state? First of all, it will attract private and foreign capital to the still closed sector. Implement large capital-intensive projects, for example, the creation of a domestic anti-aircraft missile system, where the missile is made by a state-owned enterprise, and the homing head is private. Or to create a strike drone, which, for example, allowed Azerbaijan to dominate the battlefield in Nagorno-Karabakh, within a joint Ukrainian-Turkish enterprise. All this will happen due to the corporatization and corporatization of enterprises.

In the finale of this process, the Ukrainian defense industry will operate according to international standards. For example, Antonov will be able to cooperate with Boeing, and Luch will be able to cooperate with Turkey. It is not about buying and selling, but about real cooperation between enterprises, which is currently impossible. And, by the way, the opportunity to earn a lot of money - by selling weapons to foreign countries. Because still the defense-industrial complex of Ukraine remains 80% export-oriented.

Such a plan envisages that modernized Soviet weapons will be relegated to the background in Ukraine, and new, modern weapons will appear. The need to have her should not be persuaded, we can take at least the successful attacks of Turkey in Syria in February 2020 and Azerbaijan in Nagorno-Karabakh - this fall. In the eyes of the world, modern technology has changed the course of the war.

But reforming an area such as security and defense is a surprisingly delicate moment where there is simply no risk. Lack of money, political will, different views are all obstacles to rearmament. In our case, everything rests on the parliamentary vision of changes in defense. In addition, it is necessary to mention the imbalance of the system itself, when the industry is reformed, and the General Staff and the Armed Forces simply do not provide guidance to companies on the weapons they need. In particular, Deputy Minister of Defense of Ukraine Oleksandr Myronyuk said last week that the frequent change in the General Staff's priorities and needs in providing the Armed Forces with weapons and military equipment "is a problematic issue of rearmament."

According to the official, in 2016 the State Defense Order was adjusted seven times, in 2017 - nine times, and in 2018 - five times. Last year - three times. This actually disorients not only the industry but also the military department itself. That is, in the worst case scenario, the defense industry can be successfully reformed, but there is no way to improve rearmament.

Thus, the authorities promised to form the following holdings in a year and a half.

"Defense Systems of Ukraine"

1. "Aircraft repair";
2. "High-precision weapons";
3. "Armored vehicles";
4. "Marine systems";
5. "Radar systems";
6. "Ammunition and special chemicals".

"Aerospace Systems of Ukraine"

1. "Antonov";
2. "Aircraft engines";
3. "Rocket and Space Center" South ".

In total, there are more than 60 companies that have to go through the process of corporatization almost simultaneously. a significant number of state-owned enterprises currently part of the Concern will not be part of the new state defense holding, as they have long been not only economically unprofitable, but also unrelated to Ukraine's defense industry. In the same Concern" Ukroboronprom "there are a number of enterprises that have already lost any relation to the defense industry.

"28 enterprises need to be removed from the Concern's structure. These are all long-defunct enterprises, bankrupts who have lost their significance for the defense industry, have not produced military products for a long time, do not participate in the execution of the state defense order and do not export anything. In fact, these companies only generate debts and problems” said Roman Bondar, Deputy General Director for Transformation of the Concern.

"Radar Systems"

In mid-2020 the first new military holding company appeared in Ukraine - Radar Systems. It included 10 specialized enterprises specializing in new means of electronic warfare, which are of key importance in modern wars, as well as complexes that aim the missile at the target.

Enterprises included in the first holding

State Southern Production and Technical Enterprise (DPVTP, Mykolayiv); SE "Lviv Radio Repair Plant" (LRRZ, Lviv); SE "Research Institute" Quantum "(Kyiv); SE "Research Institute" Storm "(Odessa); SE "Research Institute of Radio Electronics" (Research Institute of PET, Kharkiv); SE "Research Institute of Radar Systems" Quantum Radar "(Kyiv); SE "Radio Meter" (Kyiv); SE "CCB" Proton "(Kharkov); SE "Generator Plant" (Kyiv); KP "NVK" Iskra "(Zaporozhye).

The state-owned holding is considered to be the Iskra Research and Production Complex, headed by Yuriy Pashchenko. The situation is the same in some other potential holdings that have not yet been formed. That is, it is already clear which enterprises will become the base where cooperation will be concentrated.

The holding was actively working out an effective model - on the example of the established holding "Radar Systems". However, it has an obvious leader - "Iskra" with 2.5 thousand staff. Approximately the same situation in the field of high-precision weapons - there is an obvious leadership for the state enterprise "State Kyiv Design Bureau" Ray. And in the "marine systems" the most powerful positions are occupied by "Zorya-Mashproekt". But in the armored and aircraft repair industries, the leadership is not obvious, ”explains the acting General Director of the state concern "Ukroboronprom" Igor Fomenko.

In essence, the Radar Systems Holding should set an example for other business units. In turn, Iskra's director Yuriy Pashchenko is convinced that Radar Systems Holding will be an independent player in the global radio wave detection market, as well as a strategic partner of leading foreign companies, including in the field of civilian products.

Iskra's director also expressed his opinion on the functions of the Radar Systems holding: “This is airspace control thanks to the means and technologies of radio wave detection. Radar Systems Holding is to be implemented in four areas: Air Force, Land Forces, Navy and Civilian Programs. The holding's enterprises will develop and produce new equipment, carry out current and capital repairs, prepare new productions, and modernize domestic models."

Ukroboronprom - Background

Ukroboronprom was created in 2010 by then-President Viktor Yanukovych, who formed it by consolidating the nation’s state-owned military companies under one umbrella shortly after he took office. He also bestowed upon the concern essentially a monopoly over exports of all military products, making it both a regulator and an industry player.

Ukroboronprom’s structure closely resembled that of Russian state military conglomerate Rostec and raised suspicions that Yanukovych – who was pushed from power in 2014 by the Euromaidan protests over his bid to bring Ukraine closer to Russia rather than the European Union -- wanted to integrate the Ukrainian concern with the Kremlin-controlled company. The two countries' military industries had strong ties, a legacy of the Soviet era, with some Russian companies supplying parts to Ukrainian manufacturers and vice versa. Much of that cooperation came to an end after Moscow reacted to Yanukovych’s ouster by seizing Crimea in March 2014 and stoking the separatism that erupted into war in eastern Ukraine that April.

Lithuanian Aivaras Abromavicius In 2014, he received Ukrainian citizenship, was Minister of Economic Development and Trade. In June 2019, he was appointed a member of the supervisory board of Ukroboronprom, and in September of the same year - CEO of the concern.

Over nearly a decade in existence, Ukroboronprom has botched export deals, driven entrepreneurs to move production outside Ukraine, and kept many potential Western partners away, industry executives and analysts say. Ukroboronprom is a “serious, serious problem” for Ukraine and the whole military industry is suffering from a “lack of transparency and corruption,” John Herbst, a former U.S. ambassador to Kyiv and now director of the Eurasia Center at the Atlantic Council think tank, told a conference in Washington on 29 July 2019.

A month after his May inauguration, Zelenskiy named reformist former Economy Minister Aivaras Abromavicius to Ukroboronprom’s five-member supervisory board, tasking him with carrying out a long-awaited audit of the concern. But fixing Ukroboronprom -- which oversees about 130 companies employing 80,000 employees who make products from tanks to planes to missiles -- won’t be quick or easy. It will require shaking up the ministries and agencies overseeing national security, industry analysts say. The U.S. Defense Department has appointed advisers to help Ukraine with the reforms, but analysts say they have yet to see real progress.

“There is no clear armaments development strategy from our Ministry of Defense to drive innovation,” says Denys Hurak, a former deputy director of Ukroboronprom who quit in 2018. “This is essential. Without it, the country will continue to lose its defense capabilities.”

The future of Ukraine’s military industry -- which produces plenty of high-quality weapons and components -- will depend on its ability to develop a strategy to integrate with NATO now that ties with Russia are severed. Ukrainian companies could make parts for NATO’s defense industry or incorporate Western technology into their weapons to compete more effectively with Russian products in third markets, Phil Karber, president of the Potomac Foundation think tank and a specialist on Ukraine’s military sector, told RFE/RL in August 2019. But the shift to such products cannot happen unless Ukroboronprom achieves a transparency that meets Western demands. “If you are not producing stuff that is compatible with allies, you are facing an ever-declining market,” says Karber. “If left alone right now, Ukraine’s defense industry will be a shadow of itself.”

In early 2020, Ukroboronprom CEO Aivaras Abromavicius announced the presence of 43 problem companies with debts. And on November 6, 2019, he promised the President of Ukraine Volodymyr Zelensky to fully pay off debts to employees of the Concern's enterprises within 6 months. “The Concern consists of 137 enterprises. More than twenty remained in the occupied territories. Of the remaining only 27 provide almost 90% of the revenue of the entire concern! A few more are practically working for survival, others are unprofitable. Today, their total debt to the state and employees of enterprises is about five billion hryvnias, ”Mykhailo Morozov said. That is, as of April 2020, about 90 enterprises of the Concern were unprofitable.