The Ministry of Defense of Ukraine announced changes in approaches to formation of the State Defense Order, as well as the introduction of new procedures when concluding contracts with SDO executors (either state ones or private ones).
Today SDO is the mechanism and procedures used to supply new or modernized weapons and military equipment to the Armed Forces and other force structures. While the new Defense Procurement Law is still in pain birth process, the Ministry of Defense will act in conditions of a transitional period. So, providing such conditions, what will be the future situation concerning re-equipping our army? What are the priorities, funds and methods of achieving the goals? And what will eventually prevail – words or after all results?
I will try to describe this in view of announcements and statements of high-ranking officials whom I listened personally.
“No One Has Come to an Agreement With Anyone…”
In fact, the complete citation of the Minister of Defense of Ukraine is as follows: “The new leadership of the Ministry of Defense and the Armed Forces has no order for corruption. If somebody tells you that you must pay for getting into procurement plan of the State Defense Order, this is a total lie. No one has come to an agreement with anyone…”
This was stated last Friday during a meeting with representatives of private (“League of Defense Companies of Ukraine”, “Association of Defense Industry”) and state-owned companies (the State Concern “Ukroboronprom”). The reason for the meeting consisted in the prospects for concluding and executing the State Defense Order for 2020.
And below are some citations and statements helping to understand the current fairway of movement and actions of the Ministry of Defense.
Andriy Zahorodniuk says that the largest in the history of Ukraine financial resource has been allocated for the Armed Forces in 2020. But the Minister of Defense thinks that this financial resource is still much smaller than real needs of the Armed Forces. So, the main thing here is that according to Zahorodniuk “it is the maximally efficient use of funds and the maximum association of what we buy with strategic needs of the Military Forces”. Some strategies have already been established and some other strategies, including those of separate branches of the Armed Forces, are still in the process of establishment. But we must issue the SDO. And we must conclude contracts. Although, it isn’t a really successful point”.
The Minister of Defense thinks that within the department there isn’t any internal control system for assessing needs. Decisions come from particular persons: from heads of departments to the departments, sometime later – to the deputy ministers and then to the minister. At the same time there is practically no independent internal control.
We must introduce the same system. So, we created a working group which is completely independent of those persons the draft State Defense Order was prepared by. It checks all propositions the State Defense Order for 2020 actually consists of. These proposals should correspond to main principles and strategies. To what extent do we really need this? To what extent was the matter of competition taken into account? If there is a proposition to buy some equipment, why this one should be bought? Were there any alternatives? Can the manufacturer perform these works?”
“If someone has promised that he or she has resolved an issue with the Ministry of Defense regarding the inclusion of a product in SDO-2020, it is a lie. Nobody has solved anything. We have changed leadership of many structures making decisions concerning the SDO. We know that new people are something completely different. They have completely different approaches. But the chain is long and there is something left somewhere. We will conduct a large number of audits to determine the way some companies are trying to get into the SDO. No one has to pay anything to anybody. All you have to do is to present good propositions. We also check those who have already supplied equipment. We call the army and ask whether the end consumer is satisfied with facilities and weapons”.
Procurement must be aimed at meeting the top priority of the Armed Forces. “We need to buy not what we have a chance to buy, but what helps to develop army capabilities, especially those areas that are not critically closed”
According to the Minister of Defense a certain share of the SDO will be reserved for the future. “We will reserve a certain share of the SDO. So that, we can support these strategies by means of the respective financial resource when they are ready. So that we have an opportunity to buy the most needed items
Priorities. Where Are We Sailing and Flying?
Although the word combination “rearmament priorities” was really used in statements made by the officials of the Ministry of Defense during their meetings with manufacturers was really used in meeting with industrialists, the SDO-2020 alone will not be enough to implement the declared ambitions – in terms of time as well as in terms of money. At the same time the matter was about the following.
The Sea Direction. Strengthening the capabilities of the Naval Forces in the Azov-Black Sea region, where the scale of threats is directly linked to the potential growth of Ukrainian economic losses caused by domination of the RF forces. Development of the Fleet Surface and Land Components of the fleet, including exclusively Anti-ship Coastal Arsenal
The Anti-Air Direction. It has been recognized that readiness of available anti-air defense complexes does not exceed 35% of the total amount and this index is decreasing, first of all due to technical problems (condition of propellant powders and solid fuels in rockets, problems with klystrons etc.). There is a particular interest in anti-aircraft missile systems with a range of 100 km or more. Ukraine does not have such ant-aircraft missile systems. Although we have a potential to create them. And there are some foreign samples. But the decision “domestic or foreign” concerning this matter has not been made yet.
The Aviation Direction. The situation here is somewhat similar to the Anti-air defense. If the matter is about the airframe capabilities and serviceability of our combat aviation will be enough until 2030. This raises the following question: Why should be MiG and Su aircrafts cardinally modernized if their “backbone” may fail to withstand the new armor. Although capabilities of organic front-line aircrafts must be increased anyway. At the same time, there is no possibility to get a new combat aircraft from the Ukrainian industry. Therefore, the matter of a radical renewal or, conversely, of revisiting the role of the aviation component in the potential of the Armed Forces in view of the nature of the new threats remains relevant. And the solution is outside the SDO-2020.
Unmanned Aviation The SDO-2020 project presupposes procurement of a significant number of unmanned aircrafts of various types.
Electromagnetic Warfare, Communication and Automation. This triunique direction is also a priority although it was mentioned at the very end. It was pointed out that the General Staff and the Deputy Minister of Defense having the respective powers concerning automation are responsible for qualitative changes in this direction.
It should be added here that in mid-January this year a rather interesting document was published on the website of the Ministry of Defense under the title “The vision of the General Staff of the Armed Forces of Ukraine on the development of the Armed Forces of Ukraine for the next 10 years”. There the priorities concerning development of weapons and military equipment for the needs of the Armed Forces are stated in a different way. It is about supplying “first of all, state-of-the-art intelligence facilities, electromagnetic warfare devices, communication equipment, ant-air defense and firearm facilities (enhancing their accuracy and range), including ensuring their compatibility with the armed forces of partner countries”.
Money for Rearmament. Some Figures and Background
Volumes of budgetary funding under the State Defense order are the main driving force for creating new and upgraded equipment and weapons, supplying them to the Armed Forces, as well as for determining their numbers. What is the general dynamics here?
In 2018, UAH 17.3 billion was allocated for development of armaments and military equipment. Alongside with all that at the end of 2018 UAH 4 billion was additionally allocated from the seized property for meeting the army needs in new weapons and equipment. 80% of this 4 billion was used for performing advance payments to enterprises of the domestic defense industry and namely for procurement a significant number of primary weapon samples and military facilities to be supplied to the Armed Forces in 2019; this sum also included reserved funds for executing contracts with foreign partners. So, the real sum for rearmament was UAH 21.3 billion. According to the results of 2019, the army was to receive more samples of new and upgraded equipment than it had been in 2018.
In 2019, UAH 16.3 billion was allocated to the Ministry of Defense from the budget for development of armaments and military equipment. Also, in 2019, a resource of UAH 3.15 billion was allocated under state guarantees to the Ministry of Defense of Ukraine for carrying out state defense programs. So, the rearmament funds were about UAH 20 billion
But execution of the SDO-2019 was extremely demonstrative. The President elections in Ukraine and the victory of Volodymyr Zelensky caused the change of all key players in the legislative and executive power systems which influenced the formation and execution of the SDO. Situation with the third and the fourth quarters of 2019 was especially interesting due to the fact that actually it was about re-distribution of an unused financial resource for procurement of what would surely be supplied. Non-use of “weapon” funds meant a significant image threat for the new leading team – both that of the Supreme Commander-in-Chief and that of the Ministry of Defense with its new head. This threat was generally handled. Some contracts in the SDO-2019 portfolio were signed or re-signed with their executors in December 2019.
In 2020 a really significant resource for the entire history of independent Ukraine has been allocated to the Ministry of Defense in the direction of “development of weapons and military hardware”. This resource is UAH 21 billion. Plus UAH 9.1 billion under state guarantees. That is the total sum exceeds UAH 30 billion. And that is the really largest volume of funds for the entire history of Ukraine.
And how is the Ministry of Defense really planning to allocate financial resources within the SDO-2020 project, which has not yet been approved? Excluding state guarantees, and never taking into account the cost of supporting missile and ammunition storage facilities and the cost of creating production facilities for large-scale ammunition assembly and repair (these are also SDO-defined articles) 73% will be allocated directly for development of weapons and military hardware.
- 20% – for rocket and artillery weapons;
- < 20% – for armored vehicles;
- < 10% – for military automotive vehicles;
- 7% – for development of anti-air defense weapons;
- a few percent are allocated for aircraft hardware and weapons;
- a few percent – for armament of the Naval Forces;
- 20% – for needs of separate army branches;
- 1% – for medical facilities and equipment;
- 1% – for development of information technologies (out of the total volume of the resource).
For execution of the SDO the Ministry of Defense is planning to involve domestic enterprises of various types of ownership (90%) 10% of procurement is planned from abroad. It is about a critical nomenclature of weapons and defense products not manufactured in Ukraine. The Ministry of Defense has received the right to independently implement such contracts.
It is not yet known officially how and what for the UAH 9.1 billion intended for conclusion of arms contracts under state guarantees will be spent. However, it was explained that state guarantees would cover development and procurement of complex systems.
The Ministry of Defense has an extremely negative attitude towards the tendency that companies take money for implementation of the SDO, but their products are not received by the army in time. Failure of the contract for supplying BTR-4 is just one of such stories.
Accounts receivable for the past year are UAH 5.2 billion taken to advance the work on the SDO-2019. About UAH 1.7 billion of that sum is a past due debt. And there is no one hundred percent guarantee that the equipment and weapons ordered by the Ministry of Defense from private and state-owned executors of the SDO will finally be received by the army. And this, in fact, applies not only to products under closed articles of the SDO. For example, in December 2019, the company that won the tender for supply of fuel to the army of the army returned UAH 800 million to the budget (Let me specify – the money returned by the companies that failed their SDO obligations, go to the state budget, not to that of the Ministry of Defense. These are simple holes for the army).
Against the background of that the Ministry of Defense has announced that advance payments to companies performing the SDO will be decreased. Previously, prepayment for execution of a contract had to reach 80%. Also, companies with overdue debts cannot at all count on the financing of projects at the expense of the state budget. That is already the requirement of the Government resolution issued last December. So SDO executing will become a harder task for negligent companies. Although it will not be easier for those who did everything in time.
These are eventually all key facts. If I have got something wrong I don’t think it is critical. In case of getting more accurate data from the Ministry of Defense we will correct the mistakes. All the presented citations, facts and figures are for your own conclusions. My subjective remarks are going next.
Afterword or Subjective Remarks
On Declarativity of Priorities. At the first glance differences in rearmament priorities stated by the Ministry of Defense and the General Staff cannot but be a source of some alarm. If electromagnetic warfare facilities, communications and automation are the priority why is only 1% of cost determined?” But don’t worry. By and large, systemic things are violated in a larger format. Because real priorities of the SDO-2020 could be determined only after the Defense review, assessment of threats and counteraction scenarios. Next, in the light of these scenarios, the State Armed Forces Development Program should have been adjusted or radically updated since 2017, and then the State Arms Development Program would have to be updated to meet the current needs of the army. And next, the SDO would finally follow being the last element of this chain of purchasing and supplying specific samples of weapons (of domestic or foreign production) for the Armed Forces.
Right, the Defense Review has already been finished but the General Staff will not summarize all the data before March. I obtained this information about the General Staff from the Ministry of Defense. I don’t know, maybe they lied but rather they didn’t. But in fact, that isn’t a problem of the General Staff or the Ministry of Defense. That is a consequence of requirements of the updated defense planning cycle. And that is why the Minister of Defense says that “although this is not a very good moment, we must issue the SDO. And we must conclude contracts”. The cart was put in front of the horse because otherwise it would not go at all. But what should we carry in that cart?
According to the Defense Review results we should spend for rearmament UAH 295 billion annually during a period of ten years in order to effectively counteract the projected threats and to let our Armed Forces be successful in carrying out military operations. It is ten times as much as in the “breakthrough” year of 2020. Of course it is unreal. But in case of such a wide ranging demand everything will be a priority – from the American “Patriot” to a usual iron stud. A wide field of needs is a far-sighted step in terms of own responsibility and nerve sparing. The more specific the priorities are, the greater the risk of being responsible for implementing them into concrete results. But it does not seem about us. And that is why the sum is UAH 295 billion.
On SDO Manual Management “When late last year the funds were urgently redistributed we had a vivid example of bringing changes to the SDO This mechanism is not determined in the governing documents and is carried out in a “manual” mode leading to subjectivism in the system of managerial decisions. This procedure of bringing changes is regular. SDO corrections are performed at least quarterly. For some it is a window of opportunities and for others it is a window of corruption. We’ll see how the new model proposed by the Minister of Defense in combination with the decision to create a single procurement organization at the Ministry of Defense will cope with this task. I hope the Ministry of Defense will bypass the seductive reefs of rapid enrichment, which affected the similarly designated enterprise “Bezpeka” (“Security”) of the Ministry of Economic Development.
On Minister’s “Secret” Group Performing Assessment and Review of the SDO-2020 Project As far as I understand emergence of this group is a consequence of total distrust to what was done in the Ministry of Defense before. It is an attempt to find an urgent option that should minimize risks of assessing the SDO in conditions when there is insufficient knowledge about the state of affairs in the Military-Industrial Complex (MIC). I hope that it is only a temporary one-time phenomenon; and that it is not another model of the Supervisory Boards, which has already been implemented in “Ukroboronprom”, “Ukrposhta” or “Ukrzaliznytsya”; and that 10 persons who know everything and have a better understanding of needs of our Armed Forces than our General Staff and heads of the AFU branches do not have either US or UK passports; and that they all have proper admissions but don’t have no professional sympathies to our eastern neighbor. I think these forewarnings are worth to be publicly disclaimed.
To put it mildly, assessing the quality of weapons through telephone calls is also by far not the best solution, which was announced by the Secretary of Defense in the context of the work of the same all-knowing group. For this purpose there is a system of testing and passing into service. The Minister of Defense says that this system will be improved and simplified compared to current procedures. What is meant by “simplified”? From the perspective of industry, of course, I support simplification. But the devil is, as always, hidden in details. When there are details we will discuss them.
In this context, both the clear position of the General Staff and the non-antagonistic form of interaction with the Ministry of Defense are now important. This applies to both arms requirements and determination of quantitative needs. Here is an example – during formation of the SDO-2020, profile officials of the Ministry of Defense claimed that the need for unmanned complexes was met by 90%. At the same time, according to General Staff estimates the need for drones has been met by just over a half. Which is the truth? I think such differences are quite common.
On When the New SDO-2020 will Appear. The later the SDO is approved, the greater the risks of its failure. In the case of slow passing the chain of SDO review and approval chain through the Ministry of Defense, the Ministry of Economic Development, the Parliamentary Committee and the Government, the time to fulfill each of the contracts is decreased, since the SDO still remains an annual issue in terms of financial statements; in most cases the period of product delivery is October-November. If you fail to perform work in time it is your own fault. Therefore, the temporal productivity of SDO verification work performed by the think tank is essential. According to the Minister “We will not shoulder this burden. But we will not sign it for the sake of signing itself. I promise you that. It will be signed when we are ready to sign it and if we take into account all the risks that I have mentioned earlier”.
The ministers says that he share of costs reserved for execution of “until strategies appear” contracts is a separate but related topic.
On Quantities, Cost and Value According to the results of 2019, the army was to receive more samples of new and upgraded equipment than it had been in 2018. But it did not work.
In 2018, some 8,000 units of primary arms and military equipment 2,000 units of guided means of destruction, more than 550,000 of ammunitions and other items were supplied to the army and nearly 1,000 pieces of equipment were repaired. In 2019, over 4.8 thousand units of arms and military equipment and more than 1.2 million of ammunition units for various purposes were delivered to the Armed Forces of Ukraine.
But quantity is, in fact, half the battle. Let me explain why it is so. For example the army has already received one modern “Obolon” automated artillery fire control complex (although an incomplete one). And dozens of such complexes are needed in order artillery brigade could act differently on the battlefield. We have purchased several dozens of domestic EW complexes, capable of fighting enemy drones, but unable to disrupt control of enemy’s BTG or brigade because they are not suited for this purpose. However, the enemy has EW systems that can suppress us and make our units uncontrolled. Especially against the background of the fact within the SDO-2020, we plan to equip our combat units with communication systems that are unable to withstand the impact of Russian EW systems.
So, formally everything is right – the Ministry of Defense seems to perform procurement according to the priorities. But in fact, that does not improve combat capability of our subunits, they do not become stronger. Single samples of new weapons are still nothing but cost to us – because we pay for them. Value is what we get. For example, a corvette completed for $ 240 million but destroyed by the enemy in the first hour of combat is nothing but cost. A certain number of high-speed powerboats equipped with missile munition and sufficient to perform a combat mission means transition of cost into value. Because such powerboats create conditions for a new format of actions where enemy’s power superiority can be minimized.
So, the process of arms procurement must be aimed at receiving values or abilities. In the process of rearmament the number of specific samples should only be taken as a criterion in reference to specific military units and subunits. Assessment should be performed based on acquisition of new capabilities or qualities by our specific brigades or, for example, BTG. The same applies to other types of troops.
So, there are many words told. However, only practice is the criterion of the truth. Now, only one thing should be done. We must achieve a noticeable result.