Ukroboronprom: Defense industry reform under threat

Ukroboronprom, Ukraine's state-owned defense concern, has released a public appeal to President Volodymyr Zelensky, Prime Minister Denysh Shmyhal, National Security and Defense Council Secretary Oleksiy Danilov, and Rada Defense Committee Chair Oleksandr Zavitnevych, voicing "concern regarding the curtailment of Ukraine's defense industry reform and interference into its economic activities by the Ministry of Strategic Industries of Ukraine."

Despite promises of resolute action, "for the third month in a row, the Ministry has been systematically blocking the reform of Ukroboronprom and the defense industry complex as a whole," the statement reads.

Ukroboronprom complains that:

• The preparation of the defense industry strategy has not even started;
• Ukroboronprom’s Individual Ownership Policy has not been approved;
• Consideration of bills on reforming public sector of the defense industry was suspended, at the Ministry's insistence. At the same time, in four months, the Ministry has not put forward any alternative proposals;
• Work has still not begun on the preparation of key regulations that are necessary for the implementation of the new law on defense procurement due to enter into force on January 1, 2021;
• Ukroboronprom’s repeated appeals to solve key producers' issues with pricing, state guarantees, treasury accounts and others have not been studied and considered, while the critical situation with the implementation of the State target program on ammunition and special chemicals has not been resolved;
• Also, the company complains, the Ministry, since its inception, has been interfering in its activities through issuing verbal instructions.

"In particular, we affirm that there are systematic demands and recommendations for the appointment of third persons as directors of UOP's constituent companies, namely such companies as Ukrspetsexport, Spetstechnoexport, Ukrobronservice, SE Kyiv Armored Plant, PJSC Kyiv Radar Plant, Ivano-Frankivsk Boiler House-Welding Plant, and enterprises in Lviv region, etc," the appeal reads.

There are also strong demands coming in for the dismissal of Ukroboronprom staff responsible for security, exports, GR, and reform, the Concern claims.

"Such methods directly contradict OECD Guidelines on Corporate Governance of State-Owned Enterprises, implementation of which was officially announced by Ukraine (in particular, by fixing them at the level of the Strategy for Improving the Efficiency of Public Sector entities), and may bear the signs of abuse of influence and conflict of interests that lead to corruption risks," the appeal stresses.

According to Ukraine legislation and the Ukroboronprom Charter, it's the Cabinet of Minister that shall perform the function of owner in relation to Ukroboronprom through appropriate supervision and control by the Supervisory Board.

The Ministry, in turn, shall only formulate "state policy and appropriate regulation in the defense industry," Ukroboronprom says.

Read alsoUkroboronprom to be reorganized into nine holdings, deputy PM saysThe Ministry has no authority to manage state-owned enterprises that do not belong to its sphere of management, the appeal notes.

"We hope for a balanced and active position of the state leadership to ensuring the defense capabilities of a country in war," the defense concern says.

Background:

On October 6, President Volodymyr Zelensky dismissed Aivaras Abromavicius from the post of Ukroboronprom CEO and appointed Ihor Fomenko its acting chief.

In August, Deputy Prime Minister, Minister for Strategic Industries Oleh Urusky announced the transformation of Ukroboronprom and personnel shifts in its management.

Ukroboronpom: Memo

Ukraine's state-run Ukroboronprom concern was founded in 2010 to ensure the effective operation and management of state-run economic entities involved in the development, manufacture, sale, repair, upgrade, and disposal of weapons, military and special equipment, and ammunition. Ukroboronprom incorporates about 140 enterprises of Ukraine's military industrial complex.