No government in the history of Ukraine has ever committed a greater mockery of the military-industrial complex than the government of Arseniy Yatsenyuk, which on January 20 of this year issued a jumbled mess of words labeled the Concept of the State Target Program for the Reform and Development of the Military-Industrial Complex for the Period up to 2020.
Paradoxically, by adopting such concepts, the Cabinet of Ministers is signing off on its own inaction and lack of initiative. The words "defense-industrial" in this concept could simply be replaced with, for example, "agro-industrial," and the new document would be ready to become the "core" of reforms in any sector.
And given that the country has been living in a virtual state of war for almost two years, the publication of such a worthless document should be viewed as an act of sabotage aimed at undermining the foundations of national security.
It's a shame the Prime Minister isn't aware that a similar defense industry reform program concept was already discussed at a government meeting and even approved, but no order was issued. This was in late 2013, the pre-war year, and the document was approved by the Cabinet of Ministers under the leadership of Mykola Azarov. One doesn't have to be an expert in plagiarism to recognize the document's true authorship. Naturally, with such an approach to "reforming" the defense industry, the lion's share of the credit will be attributed to the fugitive government. To be fair, it should be noted that Arseniy Petrovich's two cabinets also made an invaluable contribution to the collapse of the domestic defense industry.
Legal education for the Prime Minister
The latest concept for the state program was submitted to a Cabinet meeting by the resigned technocratic minister, Aivaras Abromavicius. It had been painstakingly put together for almost a year within the Ministry of Economic Development, after repeated reminders from the president and government about the need to submit the draft concept. There's no need to judge the actions of ministry officials. Their inaction has cost the lives of our soldiers, who were not promptly provided with military equipment and weapons unproduced as a result of the "effective" performance of defense industry enterprises, so loudly and resoundingly trumpeted by numerous officials and representatives of the State Concern Ukroboronprom—a company often associated with Ukraine's defense industry.
Based on an analysis by our government officials, one of the reasons cited for the military-industrial complex's poor performance is the "increased needs of the armed forces for weapons and military equipment." By running the situation by the opposite route, one might conclude that the military-industrial complex could have functioned perfectly well if the army hadn't needed additional weapons and military equipment!
The government's assertion about the imperfection of the legal framework governing the functioning of the defense industry is also illogical. Back in August 2014, at a government committee meeting, Yatsenyuk pompously declared that he "had doubts regarding the feasibility of the draft law" introduced by the Ministry of Economic Development "On the Creation and Production of Military and Specialized Equipment" (copy of the transcript in the editorial office). Moreover, the prime minister even proposed adding a "section on a simplified procedure for the production of military products" to the draft law. I wonder if the head of government has even seen armor production? Perhaps he knows how to simplify the technological cycle of shells or missiles? Perhaps design documentation should be drawn by hand from now on?
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The Minister of Finance and the Minister of Justice actively participated in the heated discussion of this law; everyone else was indifferent. And no one even noticed that this draft law introduces a national system of standards for the production of weapons and military equipment. I won't attempt to detail all the benefits of adopting this bill, but it would already create the necessary conditions for both new weapons and the development of production.
There's no need to list all of Yatsenyuk's "achievements" in improving the legislative and regulatory framework. This is precisely what's called "defense-industrial policy." And it can be judged by the meager cosmetic amendments Yatsenyuk's Cabinet made to the law "On State Defense Orders." These are the extent of Arseniy Petrovich's work in this area.
The coalition government's achievements also include the failure of the law on military-technical cooperation.
Returning to the text of the government's concept for the defense industry reform program, it should be noted that the government conducted a thorough analysis of the causes of the defense industry crisis. They were so carried away that they practically fully assessed their own inaction over the past two years in the executive branch. Everything is set out in 19 points of the first section of Government Order No. 19 of January 20, 2015.
The country's current defense industry management system is ineffective. How can it be effective if the prime minister only revealed in September 2014 that the Cabinet of Ministers was exercising management and oversight over the state-owned concern Ukroboronprom (editor's transcript). Yatsenyuk was even more upset that the president was still acting under the usurped constitution of the Yanukovych era, appointing the head of the concern even though he no longer had the authority to do so. The final straw was the announcement that the head of government would bear full responsibility for the operation of this enterprise, and therefore the entire industry.
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Otherwise, how can one explain such reasons for the unsatisfactory functioning of the defense industry (along with the above-mentioned imperfections of its regulatory framework) as “insufficient volumes of state defense orders and the absence of systemic measures of state support for exports”?
And all of this must be improved, implemented, created, produced, maintained, and enhanced in the near future—certainly by 2020. As if we have the ability, without changing anything, to contain aggression for four years using our existing resources.
It was precisely in the process of choosing the optimal solution to the problem of reforming and developing the industry that the government's mountain gave birth to a mouse! As the first of three options for comparison, government officials are considering "self-regulation"! In this case, the defense industry receives no budgetary or other support, no tax or customs preferences, and develops solely through the implementation of foreign trade contracts, public-private partnerships, and can also hope to receive a certain share of defense contracts. As if defense industry enterprises had existed any differently before. Although there are some differences—most of the revenue from foreign trade contracts was embezzled, and even today it goes into the pockets of intermediaries and agents in the arms industry.
Incidentally, the second proposed option—the investment and innovation option—also contains, according to the government, a significant flaw: the need to attract significant funds from the state budget! At this point, it's time to ask: did the Cabinet members and the Prime Minister even read what they adopted and signed? Which technocrats from the Ministry of Economic Development scribbled this text? Again, defense industry professionals should read it this way: attract investment, implement innovation, don't expect help from the state! Do it yourself! Do it yourself! Do it yourself!
It's easy to see that the third, comprehensive option proposed by the government has no shortcomings. According to the Cabinet of Ministers, if this approach is implemented, the defense industry will inevitably achieve technological leadership by attracting investment and other resources, maximize the economic impact of attracting financial and production resources, and expand the domestic and foreign markets for military and dual-use products.
Naturally, the key words in this version are: "restructuring, reorganization, and corporatization of defense industry enterprises." It's clear to anyone that the issue is the privatization (read: the theft) of state-owned defense industry enterprises, all of which are now part of Ukroboronprom. The rest is just window dressing and empty talk.
Why call such a program a "state-targeted program" without any financial or other state support? To clearly indicate that state officials are protecting the plundering of the defense industry?! I don't want to get drawn into a discussion in this article about the effectiveness of private owners and investors in managing defense industry enterprises. The only thing that needs to be noted is whether it's even relevant to consider the privatization of defense enterprises in the context of a hybrid war? Whether we like it or not, in a special period, we need to concentrate financial, raw materials, and production resources in state hands, not sell them off!
A word for poor finances...
But where will the funds for reforms come from, really? A decree approved a month after the budget's adoption tells us that in two months, once the snow melts, the Ministry of Economic Development will submit a draft of the program itself to the government for review. Had this already distinguished agency acted proactively, the concept, adopted before Ukraine's main financial document, could have been replete with hints at specific measures already planned and incorporated into the future program, not just in words but also in very realistic figures for the very real year of 2016.
The funding for the future program is a contentious issue. For years, the government has been revising the current funding system for state target programs (not in favor of new ones). This task was also assigned to the Ministry of Finance last year in the action plan for implementing the Government Action Program and Strategy-2020. It's worth noting that the aforementioned plan does not include the development of a State Target Program for the Reform and Development of the Defense Industrial Complex.
Can Ukroboronprom find the necessary financial resources on its own? I don't think so. This concern has been living in a parallel world for a long time.
The government's assessment of the deplorable state of the defense industry, set out in the Concept, is clear evidence of this.
And all is well at the concern! The figures are particularly striking: two hundred percent of their efforts are "focused on meeting the needs of the military in the East," and Ukroboronprom employees are breaking "records for the speed of producing high-quality weapons and equipment." The concern's reports are replete with billions in revenue and thousands of units of equipment delivered. Why, then, does the concern's management so regularly appeal to the government to allocate certain amounts from the state budget or obtain government guarantees for the implementation of its projects?
One can only regret that
Supreme Commander-in-Chief P. Poroshenko, when he was Minister of Economic Development, had poor teachers who didn't teach him how to calculate the profitability of enterprises implementing defense contracts. This, of course, isn't like calculating the profitability of chocolate production. Yes, Petro Oleksiyovych, you always have the option of obtaining the net profit figures of the concern's enterprises and not confusing them with revenue, and also request information from the State Statistics Service regarding export sales by enterprise. After that, no one will ever again have questions about the "colossal efforts" of the concern's employees.
Is it worth further discussion about the implementation of the future program for reform and development of the defense industry without funding sources?
Naturally, neither Ukroboronprom nor the other enterprises participating in the state defense order can count on excess profits during the execution of the defense order.
A defense order without a future?
No reform of the military-industrial complex will be effective without changing the ideology and approaches to the formation and subsequent implementation of defense orders.
Cosmetic improvements to legislation and the regulatory framework are insufficient in this case. This is precisely the path taken by the Yatsenyuk government, judging by the amendments to the Law on State Defense Orders, drafted and adopted by the Verkhovna Rada at the Cabinet's initiative, which was adopted at the end of the last century, in 1999.
What changed? They simply added a special period and the Anti-Terrorist Operation (ATO). A couple of conceptual clarifications were made, and that's it. And the Cabinet of Ministers and the Ministry of Economic Development celebrated this as their own accomplishment.
The main problem with defense procurement is that the procurement (delivery) process for defense products, works, and services is non-competitive. The entire veneer of secrecy stems not from the need to conceal the command's plans for implementing operational plans, but from the embezzlement of budget funds.
The annual government resolution "On the Key Indicators of Defense Orders" deliberately omits the column identifying contractors and suppliers. Perhaps some doubt that these companies have long been known to defense customers? Does anyone doubt that the cost of the products, works, and services to be purchased hadn't already been agreed upon before this document was adopted? Not to mention kickbacks and advances.
Under the ostensible pretext of developing the domestic defense industry and preserving state secrets, a non-competitive, narrowly corporate system of government procurement has been developing within the country for years, completely inert even in the face of the need for new weapons systems.
Well, if we're counting on the strength of our own defense industry, is it really that difficult to quickly inventory the country's existing developments and technologies, including the intellectual property of the private sector? And what about an inventory of production capacity?
Why hasn't this been done yet? The reason is banal. Some of the developments were bogus. Some have already been exported and are now being produced by foreign companies. The rest is gathering dust in archives and warehouses.
There's no point in even talking about new developments. It's sad and ironic, but the government is unaware of its own regulatory documents, which stipulate annual funding for research and development in priority areas of weapons and military equipment development, amounting to no less than 60 percent of defense procurement. Such a funding structure for priority developments should become the rule, not the exception. Furthermore, the creation of appropriate capacity for all this development should begin today, naturally depending on the progress of specific new weapons development.
I wouldn't consider the 10 percent of defense procurement funds allocated this year to research and development a positive aspect of the government's performance. The defense procurement amount for 2016 is negligible compared to the actual needs of the army and security forces for weapons and military equipment. This doesn't necessarily mean the need for obsolete weapons, but rather the need for genuine rearmament to enable troops to perform combat missions at a qualitatively new level.
No matter how pleased the president is with the defense procurement work on "retaliatory weapons" like the Olkha, Neptune, and Grom, can anyone in our country explain to the Supreme Commander-in-Chief what, for example, a sea-launched cruise missile is? What is a missile warhead, a charge? Yes, Pyotr Alekseyevich, we'll launch, we'll definitely launch, but not now! Let's just identify the enemy.
Where to look for the enemy?
Let me make one thing clear right away. While the General Staff may have the lead in identifying external threats and adversaries, that's precisely what it exists for. But we shouldn't remain silent about the internal adversary, whose actions or inactions cause colossal damage to the state's defense capability.
Let's take the coalition agreement, for example. Let's open the section "Reform of the National Security and Defense System" and begin writing the indictment.
Wherever you look, there's a failure!
One only needs to look at the achievements in the reform of the military-industrial complex.
Let's all ask Arseniy Petrovich: what prevented the government from creating an interdepartmental commission on the development of the military-industrial complex in the first quarter of last year?
You were well aware that the recently dismissed Deputy Minister of Economic Development, R. Korzh, was unable to handle the responsibilities of shaping defense-industrial policy. This was confirmed by the decision, initiated by the leadership of the National Security and Defense Council, to create the position of First Deputy Minister for the Defense Industrial Complex within the ministry. Incidentally, this decision ended in an incredible scandal and, among other reasons, led to the Minister of Economic Development's resignation.
Let me also remind you: already in the second quarter of last year, it was necessary to resume critical programs for the development of advanced weapons and military equipment, as well as approve new programs. Where are they? Was there not enough time? Did you have more important issues than defense capability and national security?
And how many times have you personally, Arseniy Petrovich, withdrawn from consideration at a Cabinet meeting the issue of allocating funds from the budget reserve fund for the relocation of the Topaz plant from occupied Donetsk?
This solution would have allowed us to begin production of Kolchugas in the shortest possible time.
And what about Ukroboronprom? Back in the first quarter of last year, it was necessary to optimize this organization's financial operations so that the majority of funds from arms production and supply contracts would be returned to the manufacturing companies to ensure their effective operation and development! The dog barks, but the caravan still eats up... the companies' money!
Let me reiterate. The government itself assessed its effectiveness in the concept I mentioned earlier, the State Target Program for Defense Industry Reform and Development until 2020. It's described by the well-known phrase: "Boss, all is lost!"
Should we continue to search for the enemy?
And where did the enemy come from at the Shirokiy Lan training ground?
And if the soldiers hadn't marched in formation to the prosecutor's office, would everything have gone unnoticed? Like in dozens of other cases?
How should we evaluate Poroshenko's decree on providing local authorities with sponsorship assistance to units and military formations of the Armed Forces of Ukraine, the National Guard, and the State Border Service of Ukraine? Sponsorship assistance?
What billions of budget funds allocated to the defense and security sector are the government and the president reporting on then?
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