Military-technical cooperation between Ukraine and foreign countries in 2010-2013: a few touches on the overall picture
Question about Chernyshevsky: what to do?
So, in the previous two parts of this material, the reader was introduced to a so-called "standard" arms contract with Ukrspetsexport during the presidency of Viktor Yanukovych and the story of the largest failure in Ukraine's military-technical cooperation with foreign countries in the short history of our country's second independence. I believe that the answers to "Chernyshevsky's first question" ("Who is to blame?") can be obtained from these reviews quite comprehensively. Of course, the list of "contractual problems" in Ukraine's military-industrial complex export activities is, unfortunately, far from exhaustive. For example, as of October 1, 2014, not a single T-84UM "Oplot-M" tank had been produced under a contract worth approximately USD 240 million, which calls for the production of 49 of these vehicles for Thailand. Even though the corresponding contract was signed back on September 1, 2011 (!).
This is all the more unfortunate because, as a result, the fate of not only the contract but also subsequent Thai tank purchases from Ukraine has been left "in limbo." The potential volume of these purchases was estimated at a very impressive number, up to 200 units. Incidentally, in part due to this circumstance, Nikolai Belov has now been appointed the new General Director of the V.A. Malyshev Plant. He replaces Vadym Fedosov. Serhiy Pinkas, the current Deputy General Director for Commercial Affairs at the Ukroboronprom state concern, read the corresponding order at the plant on August 21, 2014. The new head of the renowned Kharkiv machine-building enterprise has been instructed to "establish serial production of modern tanks and armored personnel carriers as soon as possible." Well, we wish him every success.
Returning to the topic of the third part of this publication, the author will attempt to answer "Chernyshevsky's second question"—"What is to be done?" But first, a few words about personnel. Personnel, according to the wise advice of Joseph Vissarionovich Dzhugashvili-Stalin, "decide everything." Well, perhaps not everything—but a lot. A great deal, even.
There are currently three key figures in military-technical cooperation in Ukraine: the Chairman of the Interdepartmental Commission on Military-Technical Cooperation and Export Control Policy, the CEO of the state-owned concern Ukroboronprom, and the CEO of the state-owned company Ukrspetsexport (part of the state-owned concern Ukroboronprom). Let's talk about them.
Ukrainian President Petro Poroshenko appointed (with consent) Oleh Svinarchuk as Chairman of the Interdepartmental Commission on Military-Technical Cooperation and Export Control Policy by Decree No. 646/2014 of August 13, 2014. Petro Poroshenko also instructed Mr. Svinarchuk to submit proposals within two weeks to “update” (as in the document) the Regulation on the Interdepartmental Commission on Military-Technical Cooperation and Export Control Policy (the previous one was cancelled by the same Decree), as well as proposals regarding the personal composition of the aforementioned Interdepartmental Commission (the new composition of the Commission – it currently has 17 people in total – was approved by the President on September 11 of this year).
Oleh Svinarchuk is a well-known figure. Since 1995, he has been vice president of the Ukrprominvest group of companies, and since 2003, he has also served as chairman of the supervisory board of the Bogdan Industrial and Investment Holding. After the holding was transformed into the Bogdan Corporation, Mr. Svinarchuk became its president (while remaining vice president of the Ukrprominvest Group). It's worth noting that the Bogdan automobile corporation was long an important component of Petro Poroshenko's business, but in 2009, Oleh Svinarchuk "amicably acquired" (a business term) a controlling stake in the corporation. Since then, he and the current President of Ukraine have been friends (in the "universal" sense of the word).
It seems that the President can trust Mr. Svinarchuk personally. But can he trust him professionally? Especially in such delicate and complex areas that require both thorough training and, most importantly, practical experience. Yet, Oleh Svinarchuk possesses neither the one nor the other, neither in military-technical cooperation nor in export control! Overall, this appointment is entirely in keeping with Viktor Yanukovych's practice of handing out arms trade and defense industry posts to his "insiders" in 2010-2011. The consequences are well known. But it seems that once again, "history teaches us that it never teaches us anything."
In exactly the same vein, Roman Romanov was appointed CEO of the state-owned concern Ukrobronprom on July 4, 2014, by Decree No. 569/2014 of the President of Ukraine. He replaced Yuriy Tereshchenko, a highly experienced figure in the arms business since 1992, who was appointed acting CEO of the concern only on March 21, 2014, by then-acting President of Ukraine Oleksandr Turchynov. Mr. Romanov is undoubtedly an experienced entrepreneur. He has been in private business since 1992. But! Until 2001, the individual in question was engaged exclusively in what is succinctly called "individual labor activity." However, in 2001, Mr. Romanov did found the company "Autotechnical Center Avtoplaneta," which two years later became the official Hyundai and KIA Motors dealer in Kherson. Since 2005, he has been the chairman of the Kherson Regional Union of Small, Medium, and Privatized Enterprises of Ukraine. Since that year, he has been the chairman of the Kherson Council of Entrepreneurs under the head of the Kherson Regional State Administration. From 2006 to 2014, he also served as a member of the standing committees on trade, consumer protection, and advertising of the Kherson City Council, and then on the committees on industry, construction, and housing and communal services of the Kherson Regional Council.
The above list would undoubtedly be an excellent recommendation for Mr. Romanov if he were to head, say, the State Agency of Ukraine for the Promotion of Small and Medium-Sized Private Entrepreneurship under the Ministry of Economic Development and Trade (such an agency does not exist, but it certainly wouldn't hurt to create one). But to lead the state-owned concern Ukroboronprom, which comprises 116 enterprises (the Ukroboronprom website lists 131 enterprises, but the list hasn't been updated for over three years (!); therefore, the author has taken the liberty of citing the actual number of enterprises currently part of Ukroboronprom)? Some of whose enterprises, in their heyday, employed 75 and even 100 or more people? Isn't that a rather bold appointment? It makes you involuntarily think of that very same Hedgehog – a great connoisseur of pineapples... But seriously – compared to the appointment of Roman Romanov, even the appointment of the odious Dmitry Salamatin as the first general director of the concern in January 2011 looks like “the height of personnel wisdom”!
On the contrary, Oleksandr Kovalenko, CEO of the state-owned company Ukrspetsexport (appointed on July 10, 2013, and retaining his position), is perfectly placed. Mr. Kovalenko has worked at the company since its inception on October 9, 1996, holding the positions of Deputy and First Deputy CEO. He is rightfully considered one of the most experienced managers in the domestic arms business. Moreover, he represents the very team of "special exporters" that concluded record-breaking deals by the end of 2009. Let me remind you that this – in addition to the contract for the supply of An-32 aircraft and BTR-4 armored personnel carriers to Iraq and the contract for the supply of Oplot-M tanks to Thailand – includes a contract with India for the modernization of 105-seat An-32 (USD 397,7 million), a deal with mainland China for the supply of four small Zubr-type landing craft on an air cushion (USD 126 million), a contract with Thailand for the supply of 112 BTR-3E armored personnel carriers worth approximately USD 123 million (smaller contracts need not be mentioned).
But let's return to Ukroboronprom. A sensible personnel decision for the concern would be to appoint a "team": an experienced senior financial manager (preferably an outsider, but with experience working at a large state-owned company) and an experienced senior production manager (preferably an insider—from among the CEOs of large state-owned enterprises within Ukroboronprom itself). The position of CEO of the concern could equally well be filled by either one, and any of their partners in the "team" should then take the position of First Deputy CEO. But a manager from a provincial Hyundai dealership definitely has no business heading one of the country's largest companies.
However, while personnel, as already mentioned, is indeed crucial, it appears that organizational changes in the management of Ukraine's military-industrial complex and military-technical cooperation are also essential. First, the management of military-technical cooperation must finally be separated from the management of export control. Otherwise (as is currently the case), export control will inevitably end up as the "unloved stepchild" of military-technical cooperation. Therefore, in place of the current single interdepartmental commission, two committees should be created: one for military-technical cooperation and one for export control.
Secondly, these committees should function under the Cabinet of Ministers of Ukraine. The concept of "presidential business" must be abandoned.
Thirdly, the state-owned company Ukrspetsexport (with all its subsidiaries) should be removed from the state concern Ukroboronprom (since its task is to serve the military-technical cooperation of Ukraine as a whole – including its Armed Forces – and not just the enterprises of the concern).
And finally, fourth, the liquidation of the Ministry of Industrial Policy of Ukraine should be abandoned and, moreover, a full-fledged Ministry of Industry should be restored, along with a Department of Military Industry within it (the latter is necessary, as the Ukrainian military-industrial complex is far from being limited to the enterprises that are part of Ukroboronprom – it comprises 216 organizations, of which only slightly more than half are part of Ukroboronprom). If, however, restoring the Ministry of Industry is deemed impractical, then a Department of Military Industry should be created within the Ministry of Defense, reorganizing the latter into the Ministry of Defense and Military Industry. However, this is a less preferable option.
Overall, it can be concluded that Ukraine's military-industrial complex requires major personnel and organizational reforms. This begins with personnel, without whose proper placement no organization (even the most ideal) will be able to achieve its goals. But the latter must also not be forgotten. Frankly, however, it seems highly doubtful that the necessary reforms will be implemented in the foreseeable future: at least, so far the country's leadership lacks even a basic understanding of their necessity. Therefore, it is highly likely that the "great Iraqi fiasco" will not be the last such "fiasco" in the recent history of Ukraine's military-industrial complex.
Sergey MIDDELDORF, especially for SLED.net.ua
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