End of the UOP’s era. Will Kyiv reform Ukroboronprom at the third attempt?

Table of Contents
Photo: UNIAN

Photo: UNIAN

On August 30, 2019, the team of Aivaras Abromavicius, the former Minister of Economic Development and Trade of Ukraine, entered Ukroboronprom.

11 of his deputies gained complete control of the concern’s life—from structural changes and marketing to internal security and information policy.

On the supervisory board of Ukroboronprom, for example, there was Igor Smelyansky, Ukrposhta CEO, Andriy Yermak, Head of the Presidential Administration, and the former Deputy Chief of the National Police Konstantin Bushuev was in charge of security issues. Abromavicius himself was appointed as CEO.

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1

Reformers troop

Ambitious plans were announced:

  • pay off wage arrears (in the process, the promise has transformed into "halving them");
  • in 2020 to reach the export of Ukrainian armament in the amount of $1.3 billion;
  • to reorganize problem enterprises;
  • change the concern top management;
  • complete its reform.

The bankrupt enterprises were to be transferred to the State Property Fund and sold through privatization.

And the effective ones were united into clusters according to the EU recommendation—aircraft construction, armored vehicles, shipbuilding, radioelectronic warfare and communications, precision weapons and ammunition.

The concern itself as a management company must cease to exist.

2

Directors’ reshuffling

But a year later, President Zelensky, without much noise in the media, fired Aivaras Abromavicius, replacing him with acting CEO Ihor Fomenko, deputy head of the radio locator station and special equipment department.

And in early December 2020, he replaced him with Yuriy Husyev, the ex-Deputy Minister of Defense of Ukraine and the former head of the Kherson Regional State Administration.

With the wording that the new Chief should eliminate corruption in the UOP and complete the reform. The question is: why corruption was not eliminated there after the last troop of reformers and anti-crisis managers? Or is it not entirely the reason?

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Some insiders talk about a serious conflict between the UOP and the Ministry of Strategic Industries, created on July 22, 2020, about the reform vision as a whole.

Others talk about the problems that were growing like a snowball: wage arrears at more than half of the enterprises, the delay in the AN-70 contact for Peru, the disruption of the ammunition program at SJSHC Artem.

3

Systemic crisis

In addition to the above, during the year up to 10,000 concern workers and employees left for the private sector, went on vacation or switched to a short working week because of the epidemic, and went to Poland to work there.

Those who were tired of waiting for dozens of "Dozors", hundreds of tanks "Oplot" and salaries for March last year.

QuoteThe main reason for the systemic problems: the military-industrial complex of Ukraine is a relic of a completely different country.

And this is, at best, for last year—there are enterprises, like KSSIE Kvarsyt where the debt is 30 months.

However, these problems did not begin yesterday. Both the debt and the lack of large quantity orders for most of the UOP entities have been dragging on since the late 1990s. As well as the "brain drain" abroad.

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And the famous overdue contract for 45 BTR-4E for the 92nd separate mechanized brigade that was nevertheless fulfilled and became an asset to the new team was eventually handed over with a delay of three years.

Moreover, handedштп over to the army 8 armored personnel carriers ordered by NGU two years ago.

Therefore, the deputy commander of the National Guard for rear services writes perplexed letters to the UOP that the equipment ordered since 2017 has not been received and waits for an explanation. In general, the reason for the Aivaras dismissal may lie not only in a different vision of the reform or working conflicts.


What is going on in the military-industrial complex largest corporation of Ukraine, why is there a continuous reshuffling of leaders and reformers, and when will the security officials finally get their equipment for the 7th year of the undeclared war in the East?—Kirill Danilchenko for The Page.


4

Back in time

Ukroboronprom is a state corporation consisting of 137 heavy industry plants, design bureaus, research institutes and subsidiaries of foreign trade enterprises. It is included in the first hundred of such companies on the planet.

It was created in 2010 under Yanukovych and Salamatin, as an attempt to solve the long-standing problems of the defense industry that are passed from tenure to tenure.

And, of course, to control the special exporters through whom traditionally Ukrainian attack helicopters surfaced in Macedonia and Sri Lanka, and MLRSs Smerch in Azerbaijan—they were the ones who ensured the rusting equipment conversion from the army's storage facilities into "dead presidents" on banknotes.

"We launched cruisers in Mykolaiv, and now we are buying boats in France."

The main reason for the systemic problems was that the military-industrial complex of Ukraine is a relic of a completely different country.

A country that baked tanks like hot cakes and launched the cruisers—"killers"of the American aircraft carrier groups. And that in many respects was the reason for its collapse—however, this is a completely different story.

At the time of the USSR collapse, almost 700,000 skilled workers worked in 800 enterprises in the sphere. Workers accustomed to salaries of 400 rubles against the background of 120 average in the USSR, canteens with preferential meals and special supplies.

They turned out to be "superfluous people" in the new country. Gradually they went to private traders or emigrated. And so for a quarter of a century there was a situation when "we launched cruisers in Mykolaiv, and now we are buying boats in France."

5

Times of change

Naturally, after the fall of the Iron Curtain, the asset turned into a liability. Because thousands of units of equipment for the three military districts were no longer needed to threaten NATO, and the plants had to pay salaries, heat huge workshops and maintain design bureaus.

Debts accumulated like a snowball, and the army and defense industry in Ukraine were always supplied with whatever funds remain—rather, its storage facilities were donors for the budget.

After the invasion of Russian army in 2014, 21 subjects of Ukroboronprom remained in the occupied territory. For example, the plant Topaz that produced the Kolchuga passive sensor.

The destruction of chains within the concern and the loss of assets hit the corporation hard enough.

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The current crisis, budget deficit and decline in industrial production also do not make the situation better.

QuoteAfter the Russian Federation invasion, 21 subjects of the UOP remained in the occupied territory.

The logical result is that salary debts amount to 5 billion UAH, there are 8 bankrupt enterprises, and about 80 enterprises have deep financial problems.

Arms export is at the level of 392 million UAH—how is the increase to1.3 billion UAH promised by Abromavicius doing there?

Debts to creditors and suppliers is up to 10 billion UAH.

And the money earned from exports went to the budget where they closed a hole in the pension fund or financed roads instead of updating the machine park, solving debt problems or developing a company.

6

UOP splendours and miseries

Not everything is so simple in the structure of the UOP, too. On the one hand, JSC Lutch (Design Bureau) which supplies Saudi Arabia, Jordan and Turkey with ATGM Korsar and Skif for $240 million a year in net income and an average salary of 30,000 UAH.

On the other hand, the Kharkiv aircraft plant is in perpetual crisis with a salary of 5,000 UAH and 230 million of debt.

After the reform had started, the "war" for special exporters escalated.

Relatively normally operating SJSHC Artem from which there are attempts to launch an ammunition production cluster and that produces bodies for missiles Vilkha.

And then the bankrupt Mykolaiv shipbuilding plant where trees and 820 million UAH of debts grow on the stocks.

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Therefore, after the reform had started, the "war" for special exporters, the backbone of enterprises that bring 70% of the corporation's income, escalated. Who will eventually manage them—"Minstrategprom" or UOP.

For it is one thing to skim from the Corsairs' technology sale to Jordan, and another thing is to try to sell the vegetable storage of the Krasilovsky Aggregate Plant as a coworking space and to clear up debts that have accumulated over 10 years.

7

Calculator

In general, Ukraine spends a lot on security as a percentage of GDP—more than 5%.

Turkey, participating in at least three wars, keeps this figure at 2.72%, the average figure for NATO that is preparing to confront Russia on the Eastern flank is about 2% of GDP.

And, despite the transition period fever, in 2020 the OUP has provided services and shipped products for 30 billion UAH. Dragging out 36% of the entire state defense order—every year the private sector share and purchases abroad is increasing while the state share is declining.

QuoteThe overhaul gives the vehicle 150 hours of motor life, and that is enough for several exercises.

It is quite natural that in the Ukrainian realities there will be a "personnel war" for who will get this billion dollars in the form of orders.

Another question is that in absolute terms this is almost nothing. Because Ukraine needs to change 100+ interceptors produced in 1986, launch corvettes, minesweepers and missile boats, purchase two hundred attack and transport helicopters and transfer the Armed Forces of Ukraine to 1,500 armored vehicles.

As well as thoroughly repair 800+ combat tanks. For a major overhaul gives the car 150 hours of motor life that can be easily worked out in just a few exercises.

Moreover, the question is not only about money, but also about administrative issues. Hence, for example, the "zoo" of the Marines. They are simultaneously armed with BTR-70, 80, IFV, armored vehicles "Kazak" and "Varta".

The rear is "hanging itself", the repairmen are crying bitter tears, while the military reception is finding out who is to blame for the fact that the BTR-4 was not handed over to the 92nd—the armor steel of the wrong system or the welders of the Lozovsky plant.

8

Failures

Back in 2016, the army asked to transfer reconnaissance troops from armored reconnaissance and patrol vehicles to "Dozors". As a result, we made 10 armored vehicles and in Mykolaiv we fasten thermal imagers to the armored reconnaissance and patrol vehicles

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Do you remember with what fanfare in the media the shell production at Artem started? Until now, in Ukraine, they are made by the piece, and we buy serially from the Czech Republic.

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The main vehicle in the Armed Forces of Ukraine is the Belarusian MAZ, the main chassis for special equipment, apparently, is the Czech Tatra, the main ambulance is the Chinese vehicle localized on the Bogdan corporation.

What other symptoms of a systemic crisis in the defense industry do you need?

9

Successes

On the other hand, there are also successes—in cooperation with Turkey, for example.

Engines for missiles and ATGM—to Ankara, and the corvettes production at the plant Okean and attack UAVs—to Kyiv.

Even the very formulation of the question that we have stopped raving for 10 years with the completion of a domestic corvette and missile boats that do not exist anywhere except drawings, but localize the British and Turkish technologies is a step forward.

The program of tanks modernization is progressing well—more than half of the Ukrainian fleet has already received a protected digital equipment, thermal imagers and new dynamic protection.

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This year, almost 1000 ATGMs were transferred to the troops, the KMDB (Kharkiv Morozov Machine Building Design Bureau) received a contract for the production of 75 BTR-4M.

Engines for missiles and ATGM—to Ankara, corvettes and attack UAVs—to Kyiv.

In digital communications, third-generation anti-tank systems, strike UAVs, sanitary evacuation, we are already head and shoulders above our opponents in the unrecognized republics.

The anti-ship missile "Neptune" entered service and the first division was ordered.


10

Third attempt

On December 21, 2020, the new UOP Chief Husyev signed an order to turn concern into holdings—the ten-year period of the corporation's dominance in the Ukrainian defense industry will end in July 2021.

Everything that does not make a profit should be sold under the hammer (16 enterprises have already been transferred for privatization), everything that brings it will be grouped into clusters in order to increase production.

Because in order to re-equip 400,000 Ukrainian security forces, in the coming years Ukraine will need maximum efforts.

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The announced plans for the French and British boats localization, the construction of a Turkish Ada corvettes series for the Ukrainian Navy, the formation of the 4 Neptune anti-ship missile system battalions, two regiments of strike UAVs with their screwdriver assembly inside the country are impossible without systemic reforms.

Whether they will be successful or not, the next 3-4 years will show. We have already heard a lot of promises and stories about Oplot tanks and submarines in 2020. But there is no doubt that they are needed for yesterday.

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