Transformation of “Ukroboronprom”: first stage of the Ukrainian defense industry reform and the expected formats of Ukrainian defense industry

A round table on "Transformation of “Ukroboronprom”: first stage of the Ukrainian defense industry reform and the expected formats of the Ukrainian defense industry" was held by the Ukrainian Security Studies Institute in IA “Ukrinform” on December 18, 2020.
Transformation of “Ukroboronprom”: first stage of the Ukrainian defense industry reform and the expected formats of Ukrainian defense industry

Roundtable participants:

  • Valentyn Badrak– the USSI Board member, Director of the Center for Army, Conversion and Disarmament Studies (CACDS);
  • Roman Bondar – First Deputy General Director of Ukroboronprom State Conern;
  • Yuriy Gusev – General Director of Ukroboronprom State Conern;
  • Roman Kostenko – Secretary of the Verkhovna Rada Committee on National Security, Defense and Intelligence;
  • Yuriy Pashchenko – Director of the State Enterprise ” Iskra Research and Production Complex;
  • Oleksiy Arestovich – Advisor to the Chairman of the President’s Office.

“We are approaching the New Year with a positive situation – we have formed and almost completely fulfilled the State Defense Order,” said Valentyn Badrak, the USSI Board member, opening the roundtable on December 18, 2020 in Ukrinform.

Badrak presented the result of the Ukrainian Security Studies Institute, presented CACDS, and 10 enterprises of Ukroboronprom joint analytical research – “Radar Systems”. A step towards first industry holding establishment”. Experts investigated how logical and important it is to reform Ukroboronprom by creating industry holdings on its basis.

Valentyn Badrak informed that the USSI further offers a format of cooperation where the Institute works with the industrial sector (public and private), studying various issues on a sectoral basis and then proves them in form of proposals and recommendations to the reformers’ team, which took take responsibility and risk to carry out this reform.

Yuriy Gusev, the newly appointed director of Ukrboronprom, and Roman Kostenko, the secretary of the Parilamentary Committee on National Security, Defense and Intelligence disagreed in their forecasts regarding the prospects for considering bill No. 3822 on the specifics of reforming state-owned defense industry enterprises. Discussions on the draft law on reforming defense enterprises are still ongoing in the Verkhovna Rada of Ukraine. This debate occurred during a round table in Ukrinform.

“In the near future, we expect to consider bill 3822, which will actually become the basis for the transformation and reform of Ukroboronprom into transparent holdings that will introduce a corporate governance system. And we also expect support of the experts and public associations specializing in military-industrial complex research”, – said the director of Ukrboronprom Yuriy Gusev.

At the same time, a representative of the relevant Parliamentary committee outlined a different vision of the prospects for this bill. “This bill will be introduced and we will study it. It will be next year. We cannot talk about the timing,” Roman Kostenko, secretary of the Verkhovna Rada Committee on National Security, Defense and Intelligence, noted.

In his opinion, the reform of the military-industrial complex should be a priority task. “I think there will be a lot of attention to this bill,” Kostenko predicted. However, according to Kostenko, today at the level of statements there are controversial issues that may delay the consideration of the bill in the Verkhovna Rada.

“There is another question. Last time, when we had a meeting in the Committee, after that, Deputy Nemylostiviy remained (Deputy Minister for Strategic Industries Vitaly Nemylostiviy), He said that it is necessary to pass the Nalyvaychenko law. As far as I have read this law, it directly conveys the ability of  the Ministry to influence state enterprises. My vision is that this cannot be so,” Kostenko said.

At the same time, as noted by the discussion participant – External Adviser to the Head of the President’s Office on strategic communications Oleksiy Arestovich, the adoption of the law is a key condition for reforming the defense industry enterprises. “Some of the tasks can be completed before the adoption of the law, by simple administration, but without the adoption of the law, nothing will happen. The Head of the Office and the President clearly understand that the main reference point is the adoption of the law and promised to politically contribute to the adoption of these decisions, to facilitate the adoption of the law as quickly as possible. But as I understand that it will be necessary to gather more than one round table on the content of this law, ” he said, urging the participants in the discussion to resolve disputes through communication and dialogue.

The concept of reforming Ukroboronprom provides that in 2021 Ukroboronprom will cease to exist. Instead 6 holdings including enterprises-participants of the former Concern according to the industry basis, will be created: armored, radar systems, marine systems, precision weapons, ammunition and special chemicals, aircraft repair enterprises.

Yuriy Pashchenko, Director of the State Enterprise “Iskra”Research and Production Complex talked about the 8 months of work on the establishment of the Radar Systems holding. The newly created business unit will become the competence center for everything related to radio wave detection.

“After conducting a serious analysis of the enterpises, we determined their production potential. From among 30 enterprises with production potential that is personnel or scientific, production, technical and financial components, 10 strategic companies with all the main functions of this holding- research and development, production, repair and modernization – were identified. The integration of samples, purchased by Ukraine and the countries of the Western world, with subsequent trouble-free operation and modernization already on the territory of Ukraine, with a certain percentage of locations in the production of these samples, is also a very important task”, – said Pashchenko.

Today, the Radar Systems holding, in addition to its standard tasks and functions, has mastered two new areas: the creation of counter-battery warfare means and a line of electronic warfare equipment. Experts are working on the latest equipment, which will be cheaper, and in terms of technical characteristics, not worse than samples from the EU countries. They plan to complete the design work by the end of 2021.

Roman Bondar, First Deputy General Director of Ukroboronprom, believes that the reform of Ukroboronprom, as part of the reform of the defense industry, is the most difficult task for Ukraine now.

“We have a task of turning the post-Soviet legacy into a modern holding company capable of developing along the maximum trajectory,”- he said during a roundtable of the USSI.

“We have a lot of reforming objects and interconnected levels. Any mistake – and we lose defense capability in certain segments, this is a very big responsibility, so all our hypotheses were considered, first of all, through the prism of two criteria: how to do it quickly and without losing defense capability.”

“The corporation is the first challenge, the second is to create holdings. As soon as we pass the law, it will take us 6-9 months to demonstrate the first result. I believe that Radar Systems should be the holding of the first wave, it will inspire other holdings to go this way faster.  The second wave will concern armored vehicles – ground vehicles, military aircraft repairs, and naval systems. Other holdings will be in the third wave, there are more complex challenges.

We believe the third major issue is financial recovery. The debt of some enterprises is an extraordinary tax burden, we are now working out proposals for the state to do for defense enterprises, what it did for space enterprises. “- Roman Bondar informed.

In conclusion, Roman Bondar said: “Karabakh has shown that the war is already different. We will get a robot war in 10-15 years. Now there is a need to invest in robots, automated systems, modern and digital weapons and cyber weapons. We have a specific enemy – Russia. Russia has its own technological development curve; to counteract it, you first need to think about how it will evolve and develop. “