The top management of UkrOboronProm will move to eliminate the state-run defense production giant and transform it into at least six industrial branches.
This is the ultimate goal of efforts to reform UkrOboronProm, the defense concern’s press service said.
“The UkrOboronProm leadership is convinced that the present model of the concern’s management must be changed,” Deputy Director General Roman Bondar said in an interview with the Defense Production Courier media outlet, according to the concern’s press service.
Currently, “it fails to ensure effective management of over 100 fragmented enterprises that are part of the concern,” he added.
UkrOboronProm is supposed to serve as the centralized managing and planning body for a loose association of over 130 state-run defense manufacturers. If these changes are implemented, it will be regrouped into several independent state-run holding companies that specialize in different types of military production: missiles, aircrafts, airсraft repair, armored vehicles, radar and naval systems.
“For instance, the tank production holding under the code name ZIMM includes enterprises that provide repair works, produce components, conduct research and manufacture a finished product,” the press service quoted Bondar as saying.
“This is the entire production cycle. Other sectoral holding companies will be created this same way, based on the concern’s most progressive and perspective enterprises.”
UkrOboronProm will be eliminated as a central administrative body, the official reiterated.
However, for the reform to work, it needs a solid legal foundation. Amendments must be introduced to state defense production regulations and a brand new packet of legislation on turning defense production industries into corporations will be required.
According to Bondar, two bills have already been submitted to the Ukrainian parliament. If the legislation is approved, it will take between 6 and 9 months to establish new defense production holding companies. Without the legislation, this process could take nearly 2.5 years, he said.
UkrOboronProm was created in December 2010 with the objective of imposing highly-centralized control over most of Ukraine’s defense production sector and asserting a monopoly in arms exports.
In practice, however, the concern was fiercely criticized for being a highly bureaucratized supervising body focused on siphoning profits and resources from its enterprises, rather than managing and planning.
“Today, a large share of state-run defense enterprises are non-competitive in comparison to private manufacturers,” Mustafa Nayyem, UkrOboronProm’s deputy director general, said on April 23.
“The main reason behind that is their shareholder, the state, hog-tying them with excessive regulation and bureaucracy.”
In 2017, the authoritative Defense News site ranked UkrOboronProm as 72nd among the world’s largest defense manufacturers, with total annual revenue worth $1.06 billion.
However, its 10-year history has hardly been a success. In the years after its creation, Ukraine’s constantly declining defense production industry sank into a dire crisis. UkrOboronProm itself has also seen multiple high-level graft cases, which gave it a reputation as a deeply ineffective, extremely corrupt organization and severely undermined its position in foreign markets.
In response to the concern’s bad reputation, officials began publicly airing plans to transform it into several specialized holding companies as far back as 2016 under President Petro Poroshenko.
However, no actual progress had been made since then.
Instead, under Poroshenko, the concern saw some of its worst corruption scandals. In the most prominent case, Oleh Hladkovsky, a top national security official and close ally of Poroshenko who supervised defense production, was implicated in allegedly embezzling millions of dollars from the defense ministry.
In August 2019, shortly after his election, President Volodymyr Zelensky appointed Aivaras Abromavicius, the former economy minister, as UkrOboronProm’s director general.
In a September interview with the Kyiv Post, Abromavicius vowed to carry out a drastic reform of UkrOboronProm with the ultimate goal of transforming it into several specialized holdings.
