Ukraine’s state-run defense production giant UkrOboronProm — which has been a breeding pool of immense corruption for years — is again facing a moment of truth.
After a year in office, the concern’s director-general Aivaras Abromavicius, who is deemed by many a strong advocate of reforms and war on corruption, was finally dismissed by President Volodymyr Zelensky on Oct. 6.
But against pessimistic expectations, his position was inherited not by just another protege of oligarchic groups or old retrogressive political clans — but a member of the Abromavicius team, his former deputy Ihor Fomenko, a Western-educated business manager with a reputation that is still unstained.
Now as he leaves, Abromavicius says that was a victory over those many willing to kill the reform and the transformation of UkrOboronProm into a modern, Western-style defense production holding.
In an interview with the Kyiv Post, the Lithuanian-Ukrainian official said he had in general met all of his key goals at UkrOboronProm.
He created a brand new top management team, he launched a comprehensive financial audit, gave a boost to the concern’s strategic modernization, and managed to keep it afloat in the extremely difficult time of the global pandemic.
“My main goal was to demonstrate to the society that such a complicated, high-security, mysterious company can be managed in a modern and transparent way,” he said.
“And we have completely achieved this goal, as there has not been a single corruption scandal involving this team.”
Nonetheless, as he added, reformists still need broad popular support in Ukraine, as now there’s a real possibility of them being run over and driven off the UkrOboronProm — again.
Good in general
When little more than a year ago Abromavicius had his first interview as the UkrOboronProm top manager with the Kyiv Post, he overtly admitted he took the office for a short time as more like a low-paid voluntary servant — just to help get many key reform initiatives started.
In general, he said, due to his family obligations and his own businesses, he preferred to remain serving as part of UkrOboronProm’s five-member supervisory board.
His year in office was extremely difficult, including one change in government, slow financing of the state defense procurement program, and the inception of yet another Ministry for Strategic Industries in July. COVID-19, which closed many of UkrOboronProm’s foreign markets, was also a heavy blow as well. According to Abromavicius, 11 of his employees died and over 200 got infected.
Nonetheless, he said, despite all this, the concern managed to prevent all government contracts from failing in 2020.
Among his achievements, he also mentioned the successful launch of an all-out audit of all of UkrOboronProm’s enterprises, a promise ignored under President Petro Poroshenko and the concern’s management. Only in October 2019, UkrOboronProm finally signed an Hr 29-million contract with Baker Tilly Ukraine on a consolidated financial statement audit. According to the official, the first report on the year 2018 is expected to be presented by the end of 2020, and in January 2021, the auditor will roll out a 2019 report.
“In general, I am happy about this year, given the circumstances, although more could have been done,” he said.
Aivaras Abromavicius, the director general of Ukraine’s state-run defense production giant UkrOboronProm, delivers a speech during a celebration ceremony at the Antonov airfield in the town of Hostomel near Kyiv on Oct. 18, 2019. (Kostyantyn Chernichkin)
No pressure
Immediately after his nomination in 2019, he also said he would help find a decent next top manager instead of himself. As far back as in August, Abromavicius filed a resignation letter to Zelensky, publicly insisting that no political reasons were behind his quitting.
Not many believed in this, knowing that many in defense security leadership grew increasingly hostile towards Abromavicius, and even more were involved in a behind-the-scenes struggle for the control over of over 130 defense enterprises united by UkrOboronProm.
Abromavicius admits the struggle for the top position “between good guys and bad guys” was rather serious — but he never faced a direct and forceful pressure upon himself.
“Frankly speaking, I’d even render thanks to the Presidential Office, and the government…for not meddling with our personnel policies while I was in charge,” he said.
“There have always been some CVs sent to me via WhatsApp, and over 90% of such CVs were thrown in the basket as those people did not merit the job… But among nearly 100 appointments I have done, none was made due to someone’s solicitation.”
Over the year, this helped create a brand new team has been formed of professionals of their craft,” Abromavicius said.
“When it comes to finances, we engaged one of the best financial directors, if it is about procurement — one of the creators of Prozorro (e-procurement system), transformation — one of the best personnel managers, arms sales — we managed to invite a veteran of special exports industry from the private sector.”
As a result, Abromavicius’ deputy for production Ihor Fomenko was the one to be appointed by Zelensky as UkrOboronProm’s acting director-general, to the big surprise of defense industry observers.
For weeks before the appointment, the most probable candidacy was indicated for Presidential Office official Serhiy Tikhonov, who had been interviewed for the job by Prime Minister Denys Shmyhal on Sept. 10, despite being unknown to Ukraine’s defense and security community and having a history of membership in controversial pro-Russian political forces.
Fomenko at the same time has as an experience as a top manager in automobile construction and mining businesses. He has also graduated business management courses at the Berlin-based Institute of International Business Relations, Harvard Business School, and Paris-based business school INSEAD.
Abromavicius defined the new acting top manager as “a very decent man, a work addict” with real expertise in his field and someone who is tougher as a leader than Abromavicius himself.
Notably, Zelensky so far came only as short as to appoint him as acting director-general — however, Abromavicius explained this by the president’s desire to see if Fomenko would prove himself in upcoming months in the office.
Superministry
Many in Ukraine’s defense community offered a very cold welcome to the recent inception of the so-called Ministry of Strategic Industries created to execute control over the country’s aerospace and military production branches, including the whole of UkrOboronProm.
Many perceived it as yet another excessive Soviet-style bureaucratic monster inconsistent with a plan of reforms pursued by the Abromavicius team.
Particularly, in terms of reorganizing 60 of the concern’s enterprises within five years into several major corporatized, industry-based holding companies each working in the manufacturing of aircraft, armored vehicles, highly-precise weapons, radars, munitions, and naval equipment.
Moreover, UkrOboronProm, which has become notorious not only in Ukraine but also in foreign markets, must be eliminated as it is now, according to the program.
And when Oleg Uruskiy, the recently appointed vice prime minister for strategic industries arguably tied to Russian defense business, asserted in August that Abromavicius, together with the whole of his team, would be dismissed, it was a loud alarm ring.
Still, many observers in Ukraine say the Uruskiy’s superministry still hasn’t publicly endorsed the reform plan, particularly in terms of draft bill No. 3822 on the corporatization of UkrOboronProm. Many still see him as a potential threat to the reform and as someone who would try to influence the concern’s current leadership.
“Time will tell what happens next,” Abromavicius said.
“I believe that temptation to influence personnel policies at UkrOboronProm will increase severalfold now, and this will be a challenge for the new leader.”
“I’d like to ask that new vice prime minister (Uruskiy) effectively sticks to his word,” he said. “In his numerous interviews he gave to G7 envoys he asserted that the new ministry would not meddle into UkrOboronProm’s staff affairs or its enterprises and would only shape policies in this industry. That the Organization for Economic Co-operation and Development (OECD) principles of corporate management will be observed.”
“I of course have doubts about this being as fine as it talked of, but I still I believe the expert community, other politicians must use every effort to make sure everyone does what ought to be done.”
But in general, he added, a brief period of cooperation with Uruskiy gave his team “reasons for cautious optimism.” In discussions, according to Abromavicius, Uruskiy in general endorses the corporatization plan, although he seeks to take full control of UkrOboronProm’s special export companies enjoying a monopoly on foreign arms sales in Ukraine.
And apart from that, he added, the new team has all chances to complete the 5-year reform as it has broad support in the Verkhovna Rada defense committee, from Zelensky, the West, and many of UkrOboronProm’s clients.
Aivaras Abromavicius, the new director general of the UkrOboronProm defense production concern, show the photo portrait of former President Petro Poroshenko at his office on Sept. 11, 2019. (Volodymyr Petrov)
Struggle goes on
But still, he did not exclude the very real possibility of Fomenko being replaced by someone much more tolerant about the Soviet-style bureaucratic swamp that has cloaked systemic corruption that kills Ukraine’s once-powerful defense production.
“Such a situation is absolutely possible,” he admitted.
So there must be efforts made to prevent this dire plan from being carried out. And this is must be made by everyone endorsing reforms in our country.”
The continued reform is in the very best interest of the Zelensky administration, he added.
“Partially because of the UkrOboronProm problems, the previous president (Poroshenko) failed to be re-elected. So it would be very unwise from the current leadership to agree with anything else but radical, positive, and transparent reforms in this industry. Especially given the fact that we’re still having a war, and our defenders are still getting killed.”
The world is changing rapidly, the official concluded, and modern advanced weapons are playing an increasingly great role in wars, as one can see now in Syria, Libya, and Nagorno-Karabakh.
“So we can’t be lagging behind, we need to move forward,” he said.
“And those who think we can build something new by applying old principles are very wrong.”
UkrOboronProm Fact Box
UkrOboronProm is an association of over 130 state-run defense production enterprises throughout Ukraine, the primary contractor of the country’s state defense procurement.
It was created in late 2010 under former President Viktor Yanukovych in order to consolidate control over the country’s strategic industries. It is fiercely criticized over endemic corruption and has a bad reputation in foreign arms markets.
The firm is involved in the modernization, repair, manufacture, export of munitions, weapons, military vehicles, aircraft, naval vessels, and special equipment.
Number of employees: 80,000
Wages: Hr 3,500-59,000 ($123-$2,000)
Net income: Hr 37.6 billion ($1.33 billion) in 2018
Biggest enterprises: Antonov Company (aircraft production, repairs, cargo transportation), Kyiv Armored Vehicles Plant, The Kharkiv Malyshev Factory (armored vehicles), the Luch Design Bureau (highly-precise weapons, special equipment).
