All security and defense ministries and agencies should have the ability to import defense equipment and services without the intermediation of special exporters, chiefly special exporters inside state-owned UkrOboronProm.
This issue was raised in the recent letter from the U.S.-Ukraine Business Council to Ukrainian President Petro Poroshenko and touches problems of military-technical cooperation between the Ministry of Defense and other Ukrainian security agencies with the United States and other NATO countries. It is a question about simplifying the procedures for importing defense products which are not produced in Ukraine and are critically needed to counter Russia’s aggression and strengthen Ukraine’s defense capability.
Since the beginning of Russia’s war in eastern Ukraine, most foreign arms and equipment have come to Ukraine in the form of assistance. The Ukrainian military mainly uses only what domestic defense companies are able to produce. Ukraine has never manufactured warplanes, air defense systems, naval weapons, combat helicopters, etc. The situation has become much more complicated after the end of cooperation with Russia – the development of country’ manufacturing capabilities for these areas are only planned or just started. We will require help from foreign investors to make these plans a reality.
UkrOboronProm has a significant impact on the import of defense goods. In accordance with the requirements of the current legislation (the Law of Ukraine “On State Defense Order” and “On Foreign Economic Activity”) the import of weapons and equipment should be made through special exporters, most of which belong to Ukroboronprom. This is especially problematic for cooperation with the United States, where foreign military sales can only be concluded with a procurement authority under the Ministry of Defense of the receiving country, but not with a separate state-owned enterprise.
Having such preferences in export and import,UkrOboronProm constantly receives state funding for renewal and/or enlargement of its manufacturing facilities. In 2018 such state financing constitutes around $180 million for procurement new equipment. In spite of high corruption risks, the money of taxpayers goes through Ministry of Economy, where at the end of 2016 took place a total sweep out of all reform forces that came after the EuroMaidan Revolution that ousted President Viktor Yanukovych in 2104.
Instead of them were appointed state officials, close to the president’s team, like deputy minister Yuriy Brovchenko, who affects procurement and any other decisions connected with UkrOboronProm. But the National Anti-Corruption Bureau of Ukraine can hardly prove their wrongdoing. Due to total secrecy, there is little or no evidence that they are inflating contracts and engaging in corrupt schemes.
According to the Strategic Defense Bulletin, the government has to make legislative changes in order to provide the Ministry of Defense with all the necessary functions that will allow direct procurement of armaments and military equipment, work and services from outside Ukraine. The deadline for completion was the end of 2017. The main question should be addressed to our defense and security officials, because it is not clear whether they want to change the existing rules. Their delay in the implementation of the necessary reforms shows that they are not very interested in changing procedures, and the existing system is absolutely suitable for them. A recent investigation shows that one of the reasons for delaying with such a reform can be the potential business interests of commercial structures, which fulfill contracts for the country’s naval forces and connected to Poroshenko. Another reason why Ukraine has delayed for three years with acceptance of two Island-class patrol boats from the United States is that one of condition was a direct transmission but without the intermediation of UkrOboronProm.
After the investigation was released, the Ministry of Economic Development drafted a law to simplify defense import procurement. Despite the expired deadline and a number of serious controversies in this bill, this is at least a good start to improve policy in defense procurement. But it is absolutely not clear when this draft law will be adjusted, registered in Rada and approved.
According to the Center for Research on Army, Conversion and Disarmament, granting the right to state customers to procure items without the involvement of intermediary companies will decrease cost of goods by 40%. It should also be noted that the development of such “direct” procurement is linked to the attraction of investment to the Ukrainian economy in form of offset (compensation) agreements.
Unfortunately, the Ukrainian people are seeing the war less and less as a war for independence and pro-Western values, but as an opportunity for profiteering and speculation. Speculation using the blood of patriots. While failing to make good on his promises on defense reform, Poroshenko and his close associates may be using defense for political purposes, and as another method for attracting money for a re-election campaign. Information about such cases should be properly investigated by law enforcement authorities.
Ukroboronprom’ monopoly and excessive preferences in export and import still exist. All this prevents Ukraine from acquiring needed equipment during wartime. Such situation has to be fixed through amendments to existing legal acts. UkrOboronProm and the entire national defense industry ought to be properly audited and reorganized to become attractive for investment, free from corruption and able to provide weapons to the Ukrainian military to defend the country, not line the pockets of insiders. The relevant appeal for urgent reforms in the defense with a list of recommendations has recently been sent to the prime minister by a group of experts.
