17 July 2021

On July 16-17, a conference on effective industry for defence capability was organized in Odesa by the Lviv Security Forum and State Concern Ukroboronprom with NAKO support.

The participants discussed a prospective model for a reformed defence industry in Ukraine, including steps to turn it into an advanced, transparent, and efficient field capable of attracting foreign and domestic investments. Participants included NATO members and other foreign partners, Ukroboronprom representatives, defence manufacturers, experts, and specialized civil society organizations.

NATO Deputy Assistant Secretary General for Defence Investment Mr. Gordon B. Davis stated that the Alliance is fully committed to Ukroboronprom reform that brings Ukraine’s defence industry closer to NATO standards. He also mentioned that NATO member countries have no common standards for defence industry except for the key principles of transparency, fair competition, effective parliamentary control, and high-quality private-public partnership.

According to Mr. Davis, the reform to be launched by recently approved Law No. 3822 “would increase Ukroboronprom’s financial stability, consolidate its market positions, and make it more attractive for potential investors.”

Ukroboronprom General Director Yuriy Husev is convinced that Draft Law No. 3822 “On the Reform of State Concern Ukroboronprom” would open the way for investments. According to Mr. Husev, “Draft Law No. 3822 establishes the preconditions for attracting investments; protects defence Industries from corruption risks; allows for combining property, resources, and technologies; and supports revitalizing enterprises.”

The panel discussion “Changes necessary to attract investment for Ukraine’s defence industry”, moderated by NAKO Secretary General Olena Tregub, focused on the changes required to attract investments for Ukraine’s defence industry. Alexander Vinnikov, Head of the NATO Liaison Office Ukraine, welcomed the draft law’s adoption. He believes that, if properly implemented, “this law would facilitate cooperation between Ukrainian enterprises and those from NATO and the EU. It would reduce corruption and ensure compliance with OECD standards, making Ukraine more attractive for foreign investors.”

At the same time, any failure in the law’s timely and quality implementation would result in a waste of time. Therefore, all stakeholders should agree on how to implement this law. “The supply of advanced weapons and military equipment is the best way of paying tribute to the sacrifices of the Ukrainian military,” Mr. Vinnikov also stated.

Ukroboronprom Deputy General Director Roman Bondar underlined that the recently adopted Law No. 3822 is a precondition for successfully reforming Ukraine’s defence industry. “There will be no Soviet heritage in state-owned enterprises that prevents cooperation with other market players. Ukroboronprom is willing to rebuild trust among the international partners that has been gradually degrading over the past 10 years. We should start by introducing compliance and risk management, fulfilling commitments, and preventing corruption.”

NAKO Secretary General Olena Tregub believes that Ukrainian society and international partners should thoroughly monitor the corporatization of Ukroboronprom enterprises as provided under this law. Therefore, NAKO should reinforce its supervision over the transformation of enterprises that belong to Ukraine’s defence industry and the Concern’s liquidation in order to reduce the risks of corruption.

Chair of the Expert Organization StateWatch Gleb Kanevsky underlined that there should be open and transparent competition for the appointment of supervisory board members and other leading officials for Ukroboronprom and its enterprises. According to Mr. Kanevsky, “We should proceed with a transparent mechanism for distributing state property among the newly established joint-stock companies, while any rent or sale of surplus property should be carried out through ProZorro Sale.” This would prevent any conspiracies and ensure a proper market value for the property.

The conference demonstrated a consensus among key Ukrainian and International stakeholders on the need to transform our defence industry and ensure quality implementation of Law No. 3822. The participants agreed that state defence enterprises should be reformed in accordance with OECD corporate governance standards and based on the principles of transparency and openness.

The conference was organized with support from the Independent Defence Anti-Corruption Committee (NAKO), the NATO Liaison Office Ukraine, the Black Sea Regional Cooperation Fund, the Hanns Seidel Foundation, Odesa Regional State Administration, and Odesа Polytechnic State University.