Now in its fifth year of war against Russian-backed militants, the Ukrainian military has gained long-awaited approval to purchase and import new gear and weapons for its soldiers, free from the oversight of third-party state mediators.
A new bill signed into law by President Petro Poroshenko on Jan. 31 removed the exclusive rights of UkrOboronProm – a state-run defense production monopoly – to control and regulate all foreign arms deals in the country and skim the cream off of the top of such deals.
The new legislation has resurrected hopes for deals to be struck with the United States on an array of modern, high-tech weaponry that Ukraine says it needs to defend itself.
The document finally recognized 14 Ukrainian public defense customers, particularly the Defense Ministry and the General Staff of the Armed Forces, as import/export entities entitled to procure weapons, equipment and services from abroad for their needs.
Some lawmakers say that the new legislation will optimize and accelerate the purchase of advanced military hardware from foreign partners, giving the Ukrainian armed forces a much-needed boost amid ongoing war and stumbling defense reforms. Many say that removing UkrOboronProm from the equation as a broker will also save money.
But it took Ukraine’s lawmakers years to finally approve this simple liberalization of the arms procurement process, natural and usual for Western militaries. In many ways, the new law has only seen the light of day thanks to pressure from the United States, who has reportedly been keen to strengthen ties.
A young Ukrainian soldier and a woman hug each other after the Independence Day parade rehearsal in central Kyiv on Aug. 20. (Volodymyr Petrov)
Potential concerns
The new law also allows the military to procure from abroad with classified contracts, but only if the items in the deal cannot be procured in Ukraine.
In such cases, the Ministry of Defense or the Armed Forces can even strike deals with a single seller, without going through a competitive tender — but only “based on substantiated and document-confirmed results of marketing studies of defense equipment and services market.”
Even so, the prospect of private, shady deals has raised some concerns, with many worrying about how the nation’s defense budget will be spent.
If a foreign sale exceeds 5 million euros in total value, the legislation can also now demand extra offset obligations and conditions on a foreign entity exporting its military-purpose goods to Ukraine. Such conditions are ambiguous, however, with the law allowing different offset obligations to be imposed.
The law was filed to the Verkhovna Rada back in January 2018, but its roots can be traced for years prior to that.
As far back as 2016, the RAND Corporation – an influential, U.S.-based global policy think-tank – acknowledged in its comprehensive report, “Security Sector Reform in Ukraine”, that among numerous problems impeding far greater Western arms exports to Kyiv was UkrOboronProm’s “sole ability to import defense items for the use by the Ukrainian military.”
Until this week, there was a strong feeling in the U.S. that UkrObornProm was not an ideal to stakeholder to deal with, with Washington usually preferring to strike deals on a government to government basis.
“In (the) case of the United States…foreign military sales can only be concluded with a procurement authority under the (Ministry of Defense) of the receiving country, not a state-owned enterprise,” the RAND report also noted.
“While direct commercial sales of military items from U.S. defense companies are possible, U.S. firms in the short term would likely only consider selling weapons or military equipment to Ukraine through foreign military sales given the significant political and economic risks, as well as concerns about fulfilling strict U.S. regulations about the transfer of high-tech equipment abroad. Hence, under current circumstances, most transfers of U.S. equipment and weapons are limited to assistance, rather than sales.”
A Ukrainian soldier gets on top of a infantry fighting vehicle during drills at the Honcharivskiy firing range on July 1, 2016. (Ministry of Defense of Ukraine )
Moreover, the RAND report added that UkrOboronProm, in this regard, was marked with a conflict of interest, since it was not interested in importing items that could be produced by its own subsidiaries.
“UkrOboronProm has a reputation for excessively marking up import costs by 5–20 percent or more,” the think tank wrote.
However, as one source close to Ukraine’s defense sector said, requesting not to be named as he’s not authorized to speak with the press, UkrOboronProm’s subsidiary that’s engaged in licensing foreign sales, the UkrSpetsEksport company, would sometimes commission up to 40 percent of a deal price for its mediation.
“By making it more difficult to import items, UkrOboronProm may hope to develop Ukraine’s own defense industry. While this may be understandable, if not strategically optimal, prioritization during peacetime, during wartime it prevents Ukraine from acquiring needed equipment,” the Rand report notes.
In this regard, RAND recommended the Ukrainian government to eliminate “UkrOboronProm’s exclusive control of imported defense items and giving the (Defense Ministry’s) explicit, streamlined authority to conduct foreign procurement in an expedited process for all items that are immediately needed (including armaments), within a specified budget.”
Such a measure would enable the military to buy critical military equipment and weapons it needed from abroad, such as secure radios and equipment for improved reconnaissance, without delays or “surcharges” to UkrOboronProm, RAND report authors also noted.
Ukrainian soldiers ride on a armoured personnel carrier (APC) in the town of Maryinka, Donetsk region, located on the front line with Russian-backed separatists on Jan. 18, 2019. (AFP)
Decision overdue
But, as years went by amid grueling war in the Donbas and defense reforms slowly taking place in Kyiv, UkrOboronProm, led by its late head and president Poroshenko’s former business partner Roman Romanov, showed no signs of its intention to drop its control over arms imports.
The situation somewhat changed when the United States upped the pressure on Kyiv, urging the Rada to push this Soviet enterprise aside and to let them talk directly to the military regarding defense aid and imports.
As sources in the defense production industry told Kyiv Post, even though Ukraine is definitely not a major arms customer to the U.S., American officials are interested in having closer ties with Ukraine’s military, seeing it as an effective deterrent to Russian expansionism, and also aiming to prevent China, its global competitor, from further penetration of Ukraine’s defense market.
Moreover, the American stance was the biggest premise for reform advocates in Ukraine’s official circles, according to sources.
But even when registered in early 2018, the draft law No. 9122 on amendments in foreign defense procurement seemed to go through all nine circles of hell throughout the following 12 months.
On at least three occasions, the bill failed to even be placed on the agenda in parliament due to frantic resistance by lawmakers lobbying for UkrOborobProm’s interests.
In late December 2018, the Rada’s security and defense committee even received a letter signed by Pamela Tremont, the Deputy Chief of Mission at the U.S. Embassy to Ukraine, urging the Rada to finally come to a decision so that Ukraine in 2019 could join the U.S. Department of Defense’s Foreign Military Sales program and receive American military items without any problems.
Washington, which has spent over $1 billion on military aid to Ukraine, including lethal weaponry, since the outbreak of Russia’s war in 2014, also planned to allocate an extra $250 million in 2019 for Kyiv, including $125 million on weapons.
“The United States is making themselves absolutely clear that if we’re not passing this law, they won’t be able to render the military aid to us to the full extent,” said the committee’s chairman Serhiy Pashinskiy on Dec. 19 regarding the embassy’s message.
The letter obviously overcame the last remnants of resistance in Ukraine’s Rada – throughout the next month or so, up until Jan. 17, the law sustained two readings and later entered force.
Ukrainian paratroopers board IL-76 plane in Ozerne air base, prior to their dispatch to the east of the country, Zhytomyr region in northern Ukraine, on December 6, 2018. (Photo by SERGEI SUPINSKY / AFP)
New opportunities?
Meanwhile, after years of delays and deferrals that seemed to only benefit UkrOboronProm, Ukrainian officials are now praising the new regulation as a widening window of opportunities for strengthening the defense.
As Ivanna Klympush-Tsintsadze, Ukraine’s vice prime minister for European and Euro-Atlantic integration, asserted on Feb. 1, Ukraine is now interested in launching “a large-scale acquisition of advanced defense hardware from the United States,” including an additional quantity of JGM-148 Javelin anti-tank missiles, which had been provided to Ukraine for free in the spring 2018.
Moreover, Klympush-Tsintsadze added, Ukraine now also hopes to become an active recipient of the U.S. Department of Defense’s Foreign Military Financing (FMF) program and therefore receive even more defense aid from Washington.
The new law now also opens up hopes for resurrecting negotiations on Ukraine’s procurement of U.S.-produced Patriot air defense systems, long wanted to protect the country’s now barely-defended skies from Russian air superiority.
As Ukrainian ambassador to Washington Valeriy Chaliy asserted in August 2018, Kyiv had reportedly requested to purchase at least three Patriot units to the total sum of over $2 billion. Later, however, the American side showed no explicit enthusiasm regarding the deal.
Viktor Plakhuta, the chief executive officer with the Ukrainian Freedom Fund and one of the authors of the new procurement law, remains somewhat less optimistic about the long-awaited victory in crippling UkrOboronProm’s excessive control of foreign arms sales.
“That was clearly a positive step,” he told the Kyiv Post. “But this is only the beginning of a far greater process. The Ministry of Defense and all other state customers now need specialists with a deep understanding of global arms markets and experience in international deal-making. It will surely take a certain time.”
“After all, only time will tell whether our government will be successful in taking advantage of becoming a more reliable customer and therefore getting advanced weapons from abroad.”
“So far, statements remain statements,” he concluded.
