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Reform of the Defence and Industrial Complex: while Israel Is Under the ‘Iron Dome’, We Are Under the ‘Iron Boot’ of the Russian Federation

Author

Hlib Kanievskyi,

Everybody says that Ukraine needs modern weaponry. President Volodymyr Zelenskyi issues decrees to increase expenditures for the defence order, and he is reported to in meetings about progress of the reform of the state concern Ukroboronprom. In order to develop Ukrainian Defence and Industrial Complex, the Ministry of Strategic Industries has been created, with 200 million hryvnas spent from the budget for its bureaucracy. But the domestic defence complex is going into circles, with some recent achievements even rolling back.

To cut a long story short, this year should have seen two significant reforms to strengthen military capabilities of the country.

The first reform is about introduction of competitive defence procurements instead of the outdated and secret procedure of the State Defense Order. 

The second one is the reform of corporate governance of Ukroboronprom in line with standards of the Organization of Economic Cooperation and Development (OECD).

They are needed to effectively provide the Armed Forces of Ukraine with modern weaponry within the available budget. 

In second turn, the reforms are important in order to reduce corruption risks in procurements of the Ministry of Defence and other security services; ensure financing of the modern military projects of Ukroboronprom and its cooperation with foreign counterparts from NATO countries. 

Finally, it is necessary to institutionally embed managerial decisions. This will eliminate possibilities to use the concern for private gain. 

It is worth reminding that in 2009 the-then presidential candidate Volodymyr Zelenskyi won his predecessor Petro Poroshenko not in the least due to his sharp criticism of corruption in the army. 

Years pass, and what do we have today?

On defence procurements

The Law on Defence Procurements (No 808-IX) was voted for and implemented in 2020. However, competitive procurements have not been fully launched. Despite the fact that Mr. Zelenskyi personally assigned to officials from the Ministry of Strategic Industries and Ministry of Defence to introduce competitive military procurements in February of 2021, the Cabinet of Ministers issuing a decree on resumption of the State Defence Order, having put off the reform in procurements until 2022.

Anyway, the resumption of the State Defence Order will not be a life-buoy ring. It is known that this year state defence order plan was approved significantly later. 

Ukroboronprom explains months-long stoppages of state factories due to the lack of orders from the military by the fact that the old legislation has been canceled and new one has not been implemented yet. Currently, neither private nor state enterprises are legally eligible to conclude contracts with customers. However, the State Defence Order being secret, ordinary Ukrainians may never know about the real scope of the problem.

Following the acute criticism to which experts subjected the leadership of the Ministry of Defence after disruption of supplies of weapons to the Armed Forces of Ukraine, the Minister Andriy Taran said that in the period between January and June of 2021 the army received more than 3.3 million defence-oriented products. 

Of course, this is an impressive number. But what is it about? Tanks, planes or missiles? If we had bought up a million missiles, why is the Russian flag still waving over Crimea?

As it was mentioned before, the State Defence Order is secret. Therefore, the Ukrainians have nothing to do but guess what exactly the Ministry of Defence has bought up in the number of more than 3 million units for their security. 

One can assume that this number includes everything bought up during the fiscal year, namely motor vehicles, spare parts for military equipment, helmets, body armor vests, shells, bullets. Hopefully, it will not turn out in some time that nails to fix trenches in Donbass have been counted as defence produce too. 

To balance this, another story is worth adding here. 

In 2020 implementation of a series of top priority military missile projects were suspended through bureaucratic delays in connection with reallocation of funds within the State Defence Order. 

Pavlohrad Chemical Plant (it produces equipment for missile engines) complained to the Council of National Security and Defence that the Ministry of Defence was ignoring implementation of the Presidential Decree on creation of new types of missile weaponry and ammunition. The ministry was late to make a decision to order missile complexes Vilkha, Vilkha-M, Hrim and other systems. The plant emphasized they could not get any financing from the ministry. For that reason, production capacity of the enterprise is not being exploited, with competent personnel dismissed. 

Who knows how this missile story, being an official secret, ended. But the fact that in 2020 Pavlohrad Chemical Plan incurred losses in the amount of 156 million hryvnas stands clear.

Thus, supplies of the domestic Vilkha missile complex with destruction radius of more than 100 km, which was brought in service only three years ago, is currently facing a risk of disruption.

By the way, the question whether the State Defence Order will be replaced by defence procurements next year is also open, with the problem hidden in decisions of the current head of the Ministry of Strategic Industries Oleh Uruskyi. 

As a matter of fact, it is the so called Register of Selection Participants and Execution of State Contracts which is to become a key element of defence procurements. Though it was supposed to be launched at the beginning of 2021, nothing has changed since then. Such a web register is needed to monitor execution of contracts for the army as well as filter contractors of defence projects. It is also needed to analyze how effectively money for rearmament is spent overall. 

This is the missing register which is one of key reasons why the state concern cannot get long expected orders from the military this year. 

Mr. Uruskyi entrusted development and administration of the register with the State Research Institute of Informatization and Modeling of Economy. This is rather weird decision, taken the fact that the government includes powerful IT-teams such as Prozorro and Ministry of Digital Transformation of Ukraine. It is enough to have a look at the web site of the state institute and its Facebook page which has not been renewed since June of 2020 to understand what risks the launching of the register of defence manufactures may face.

On transformation of Ukroboronprom

The reform of Ukroboronprom has not even become a law, remaining a draft law No 3822 for a year or so, despite the fact that the high-quality document was drafted at the beginning of 2020 in cooperation of the Ministry of Defence, Ministry of Economy, experts of Ukroboronprom, private manufactures and deputies of the Committee of National Security.

As of today, the concern abides by a number of anti-corruption measures such as maximum use of Prozorro in procurements, rent of premises through auctions Prozorro.Sale and active involvement of expert circles into civil control over activities of Ukroboronprom. 

The draft law has to be adopted, first and foremost, to eliminate any political pressure on the management of Ukroboronprom which can lead to disadvantageous contracts when state leadership changes again (‘sbinarchukgate’ is a good example to refer to). 

Second, adoption of this law will enable us to effectively dispose of property of the concern enterprises which have often been standing idle for decades, turning into brushwood. 

Third, adoption of the given law will reveal legislative possibilities for joint operations of the state-owned enterprises of the Defence and Industrial Complex with foreign investors from NATO countries. 

However, these are just the plans in the status of ‘draft law’ on the web site of the parliament.

The reason for such bureaucratic going into circles is a system error made a year ago. 

The concepts of reforms of defence procurements and Ukroboronprom were built up by experts who had been appointed to the newly created Ministry of Strategic Industries without occupying posts either at the Ministry of Defence or Ministry of Economy. Though the last one was delegated realization of tough transformations in obsolete Defence and Industrial Complex by the government of Denys Shmyhal. 

In other words, key security innovations have to be introduced by officials who have nothing to do with development of these very innovations.

Conclusion

These may be unpleasant conclusions for someone… From the perspective of geopolitics conservation of problems in the Defence and Industrial Complex of Ukraine is advantageous for the Russian Federation.

If Israeli citizens are protected by the Iron Dome, which was witnessed by the whole world after the last missile attack of HAMAS terrorists, the Ukrainian society is still under the iron boot of the Russians, with its political leaders starting the third circle of reflections on modernization of the army.  

The Kremlin navy, air force, missiles, armored vehicles, drones and other weaponry and military equipment leave far behind military capacity of Kyiv.  

No success of the domestic defence and industrial complex featured in development and production of the modern weapons, one has yet again to hope for heroism of soldiers and enthusiasm of volunteers. 

Honestly, one has to admit that in the last two years the conceptual base for such transformations has been prepared. 

It is already clear that the defence procurements have been postponed until next year. However, it also means that the government has received time to correct own personnel mistakes as well as ensure modern and effective defence procurements.

The draft law on the reform of Ukroboronprom is planned to be voted for in the second reading in July. So, lawmakers may just as well control that the future law is in consistence with world management standards of OECD without any implied political corruption and eventually vote for launching the reform of the defence giant.