17 April 2019

Liquidation of the state defence enterprise “Ukroboronprom” should not turn to the operation of cleaning up the mess. The procedure must be held competently, correctly and without a haste.

It is planned to register in Verkhovna Rada the bill on reforming the military-industrial complex, which, in particular, provides the liquidation of the state defence enterprise “Ukroboronprom”.

It was reported on Thursday, April 11, during the session of the National Security and Defence Parliamentary Committee by its head, Serhii Pashynskyi.

According to him, the forthcoming bill will provide:

  • liquidation of “Ukroboronprom”;
  • creation of the central executive body that will patronize the issues of military production;
  • changes to the procurement system and declassification of 80% of the State Defence Order;
  • an opportunity for state defence enterprises to create joint ventures together with the strategic partners;
  • changes to the Law of Ukraine “On State Secret”

The forthcoming bill should be presented at the National Security and Defence Council on April 17-18, and it should be registered in Verkhovna Rada till April 19.

A clever approach to implementation of the bill proposed by Serhii Pashynskyi could be a huge step forward for Ukraine’s defence sector.

However, a reckless approach to reforming the MIC could create significant risks, especially when it comes to the elimination of such a defence giant as “Ukroboronprom”.

The concern has repeatedly been at the center of loud scandals, and its activity from the very beginning was opaque and favorable for corruption deals.

According to Ukraine’s Prosecutor General Yuriy Lutsenko, since 2014 more than 480 criminal proceedings against the UoP member companies have been added to the Unified register of pre-trial investigations. And this is only what the law enforcers currently deal with.

Meanwhile, the situation with the investigation against the people involved in corruption activity may become more complicated in case of elimination of Ukroboronprom which is the key managing body for so many defence enterprises, some of which are already defendants in the criminal cases.

Also the elimination could be a “convenient” way of covering up the level of crimes.

Here we would like to remind you that “Ukroboronprom” was formed on the basis of enterprises which used to be under the MoD control.

Many enterprises still have significant reserves of values that belong to the Ministry of Defence.

The latest inventory of the warehouses at UoP enterprises held by Ministry of Defence revealed significant shortages.

“Ukroboronprom” representatives deny the allegations. They also claim that the Ministry still hasnot signed safekeep agreements.

Thus thoughtless elimination and recurring transfer of defence to a different management entity may complicate the situation and help cover the thefts up.

Also it is unclear what the real financial condition of “Ukroboronprom” is and what are the legal and financial obligations of the defence enterprise (as a managing company) to its member companies an well as to other ukrainian or international businesses.

Over the last two years, NAKO has made significant efforts trying to organize the international financial audit of “Ukroboronprom”.

Now the need for an audit is as relevant as ever.

Before UoP is eliminated, a detailed analysis of UoP’s activity should be provided, as well as the assessment of financial condition of its member companies and the review of its financial and legal obligations.

A complexive financial, legal and technological audit will provide a deep understanding of what has happened and is happening within the UoP member companies.

Only after that it is possible to make reasonable and weighted decisions about the future development of the enterprises which are now functioning as the UoP member companies.

To sum up, it should be noted that the elimination of “Ukroboronprom” can become an effective decision, that will reduce the corruption risks.

However, in case it is organized improperly and hastily, without considering ther experts opinion and conducting the audit, it may even worsen the situation within the member companies. It can preserve the existing problems and also help the people involved in the theft and corruption avoid responsibility.