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Fundamental reform of the defense industry. Dreams Come True?


What did the ideologues of the defense-industrial complex reform plan?

Recently, the details of the large-scale reform of the defense industry in Ukraine, which resulted in the country, became known a new Ministry of Defense should appear and the Defense Technology Development Agency. The transformation, the idea and details of which were developed by the National Security and Defense Council, should take place in less than a year and a half.

Heroic and sad background

Born of the world war and hardened by the cold confrontation of the superpowers, the Ukrainian defense-industrial complex had excellent preconditions, if not to become one of the best in the world, then to be among the world leaders.

But no one has traditionally worried about the life and development of the domestic defense industry. Previously, there was no need, because the government was not interested in developing an army, and the Armed Forces themselves lived on what was inherited from the Soviet Union. Once on the brink of disaster, entire industries and schools rushed to save themselves - by external contracts. The tank school survived at the expense of Pakistan and also managed to give impetus to the development of missile development. Aircraft - at the expense of Iran. The caring Leonid Kuchma did not allow the Dnieper cluster of Pivdenne CB / Pivdenmash to die. The rest dug as best they could, hastily borrowing experience. And so they lived, making the defense industry 95 percent export-oriented. The system was unnecessary because the Ukrainian defense industry was governed by a foreign market. In principle, they survived, judging by the fact that in 2009 Ukrspetsexport signed contracts worth almost $ 2 billion, which became a national record.

But then the war came to the house. Unfortunately, during Petro Poroshenko's presidency, the trend of so-called manual defense control developed in Ukraine. This is when the key decisions were made by a certain, very small group of people, where lobbying for various, including dubious projects took place primarily in favor of specific individuals or defense industry groups. And only in the second place - in favor of the army.

Despite criticism, including from foreign experts and even NATO officials, Petro Poroshenko has shown remarkable resilience: he has been reluctant to create a defense ministry within the executive branch. When there are interests, the system always interferes. Appealing to the fact that defense is the sphere of competence of the president, and the defense industry provides defense, hence the sphere of the president.

Only once, before the NATO summit in June 2016, the enterprising president doubted. Yes, so that the First Deputy Prime Minister Stepan Kubiv undertook to create a Ministry of Defense in the Cabinet. But in the same June, Poroshenko decisively waved his hand at NATO, and Kubiv's initiatives were quietly nullified.

In fact, the defense-industrial complex is a large part of the economy. For example, there are 137 defense enterprises in Ukroboronprom alone, although 21 of them are located in the occupied territories. There are 21 enterprises in the State Space Agency. A few more - in various other departments. For example, the manufacturer of small arms "Fort" is under the jurisdiction of the Ministry of Internal Affairs, the developer and manufacturer of armor protection systems Basic Center for Critical Technologies "Microtech" - in the sphere of authority of the Ministry of Education and Science of Ukraine.

But most of Ukraine has private defense companies. Today there are more than 200 of them. That is, there is something to work on. Although the defense industry is significantly degrading, despite the annual growth of state defense orders (DOZ). Thus, Roman Bondar, Deputy General Director for Transformation of Ukroboronprom, admitted that after a careful analysis of all 116 existing companies, it became clear that 27 companies produce 90% of their products, the rest are inefficient. Regarding the space agency's legacy, evil tongues say that only seven of the 21 companies are "fully alive." The private sector, on the other hand, is booming. But mostly without the attention of the state and for their own resources.

Until now, a small department of the Ministry of Economic Development, Trade and Agriculture has dealt with the problems of defense and health in the executive branch. This department is headed by the Deputy Minister. But in a country where 16 customers and many of them are represented by ministers, it is difficult to talk about the possibility of the influence of the head of a small department - the deputy minister. Therefore, the possibility of implementing a military-industrial policy in the Cabinet can be said only conditionally. For example, the government does not actually coordinate Ukroboronprom - it lived and lives as a separate state within a state. By the way, he is reforming himself, which is also evidence of the inability of the executive branch, without a clear structure, to really influence various segments of the defense industry. Although the same "Ukroboronprom" is de jure subordinate to the Cabinet. Acting Deputy Minister of Economy Svitlana Panaiotidi in a May interview with Security Talks acknowledged that the powers of the Deputy Minister to work with 16 customers, including in the formation of state defense orders, are insufficient. "Even a minister of one ministry cannot have a supervisory function over another ministry," the official rightly said.

Profile analytical structures and associations - the Center for Army Research, Conversion and Disarmament, the Ukrainian Institute for Security Studies, the League of Defense Enterprises of Ukraine, the Association of Manufacturers of Arms and Military Equipment and a number of other structures over the past six years. Including the creation of a ministry and bringing the management vertical to the level of Deputy Prime Minister. Therefore, the first reaction of experts to the emergence of a plan to reform the defense industry is quite positive. But first, in essence, the reform of the defense industry, which, if implemented, may become the largest in the recent history of Ukraine.

Defensive Horizon, or Where the Paths of the Reformers Lead

So, what are the ideologues of the reform.

A ministry is being set up in Ukraine to deal with the problems of the defense industry. Its current name is the Ministry of Strategic Technology and Innovation Development. It should be built on the basis of the Department of the Ministry of Economy, which today employs about 70 people. Ultimately, at the end of the reform, this number should double. The structure of the new ministry should include SC Ukroboronprom, the State Space Agency of Ukraine, the State Research Institute of Informatization and Modeling of the Economy, as well as a separate state enterprise Pavlograd Chemical Plant, which produces fuel for the latest rockets.

There is an idea that all this economy should be managed by the Deputy Prime Minister - the Minister of the mentioned ministry. According to the developers, this will ensure a high level of representation of the defense industry in the executive branch. For the first time in the history of the country, a single center for making management decisions on the defense industry will be created, ie it will be possible to talk about the systematic implementation of military-industrial policy. In addition, the defense industry will become an entity at the government level. All this should accelerate its development.

However, this development can be ensured only by amending a number of laws, as well as the adoption of some new ones. Among the most critical - amendments to the Law of Ukraine "On the peculiarities of management of state property in the defense-industrial complex" (in terms of changing the principles of management of defense enterprises) and the Law of Ukraine "On corporatization of enterprises". And also, according to the developers of the reform, it is necessary to adopt a separate law - on the peculiarities of the transformation of the defense industry and the space industry. These are just the basics. Because to ensure real development, there is a long list, where the long-suffering draft of the Law of Ukraine "On Defense Procurement" is next. If all legislation is passed at the same pace, it may take two to three five-year plans to reform the defense industry.

Finally, a very important, and perhaps the most important element of the reform is to ensure the development of technology. In particular, it is planned to adopt a government resolution on the establishment of the Agency for Advanced Defense Research Projects. In fact, its formation, as well as the creation of the ministry itself, is provided by Presidential Decree №59 of February 27, 2020. But only now, when the quarantine and corona crisis are at the finish line, they tried to take it seriously.

As for the terms, it is assumed that the new ministry will work in three to five months, and then the transition period will last another 12 months. It is during the second annual stage of the reform that the Agency for Advanced Defense Research Projects should appear on the basis of the State Research Institute for Informatization and Modeling of the Economy.

Bottlenecks, or Notes in the margins

The problems of synchronous work of the parliament have already been mentioned above: without a number of laws there will be no joint ventures with foreign companies, no reform of Ukroboronprom, no public-private partnership. As proof: even the fierce desire to create a joint venture with a Turkish company for the joint production of strike drones is exposed to such a bunch of problems that the future formation is called, at least, vague and strange.

However, political will can be both the main driver of reform and its funeral team. Therefore, observers consider the personnel issue to be the primary question: who exactly will organize this reform. Because a lot depends on the person in our state. Elements of the parquet-personnel war are already visible, and it is felt that there are a lot of people willing to go on a campaign for office. However, a decision is currently being made to set up a qualification commission to select a candidate for the post of Deputy Prime Minister - Minister of Development of Strategic Technologies and Innovations. Sources in the OPU say that they want to offer Academician Volodymyr Horbulin, who is an indisputable authority for the entire national "defense", to head the commission.

A little about the essence of the issues that will have to be solved by the new Deputy Prime Minister. Namely: what will be included in the powers of the Agency for Advanced Defense Research Projects. It will work with existing technologies - or, like the American DARPA, will give tasks to defense companies (research institutes and design bureaus) to find new technologies and create new weapons. There is already a conflict of interest here, because the heads of future state corporations (which are to appear on the basis of the reformed Ukroboronprom) are not at all interested in someone giving out technological tasks to their design bureaus. And Ukroboronprom itself still has the idea of ​​creating a kind of technocluster inside the concern (although this idea was failed by Roman Romanov, who invited but did not listen to the advice of Anthony Teter, a member of the supervisory board who headed the American DARPA for nine years).

It is even more important to identify opportunities for the development of the defense industry, in particular in terms of creating joint ventures with foreign countries, the formation of various consortia for various sensitive tasks. For example, the creation of a national anti-aircraft missile system or the creation of strike unmanned aerial vehicles. Such issues can be implemented when the control center is a single one and coordinates all tasks. I can cite an example of one of the darkest spots on the governing body of the defense industry: in 2017, Ukroboronprom pompously presented the Gorlytsya drone, announced that it was being equipped with missiles by the State Committee for Luch and postponed the project in a long drawer. And then we bought Turkish…

And the last, perhaps the most important. The role of the ministry is not really cementing, but formative. To form a system of equal rights of enterprises of all forms of ownership. Execute market liberalization, change the petrified defense industry to flexible defense-industrial structures. Release the defense industry into free swimming. This can be a very good thing. Even if after completing the mission the ministry successfully self-liquidates…

Valentyn Badrak,

Director of the Center for Army, Conversion and Disarmament Studies (CEDAW)