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24 December, 2021
Ukroboronprom follows the global trend of increasing transparency at state owned enterprises – NAKO
A recent report by the Organisation for Economic Co-operation and Development (OECD) demonstrates that more and more state-owned enterprises around the world are increasing their publicity and transparency. In line with this trend, State Concern Ukroboronprom is undergoing a transformation. Over the past few years, it has demonstrated significant progress towards increasing transparency. This was stated by Olena Tregub, NAKO Executive Director, during the expert discussion “Ukroboronprom Reform in 2022”, organized by StateWatch and the Gorshenin Institute.
In particular, the Concern has introduced a compliance system, launched transparent procurement procedures, and issued its first annual progress report. Due to this, Ukroboronprom could improve its Defence Companies Index score. Over five years, the score went up from 0 to 28, Tregub recalled.
The next logical step to achieve greater transparency and accountability would be to ensure effective implementation of Law 1630-IX on reforming Ukraine’s  defence industry enterprises. The document provides for transforming state-owned enterprises into modern companies run in accordance with corporate governance standards and best international practices.
A liquidation commission is already functioning as a part of the reform, said Ukroboronprom’s Director General, Yuriy Husyev. Currently, Ukroboronprom is being transformed into a joint-stock company, while its member enterprises are being transformed into joint-stock or limited liability companies. Establishing industry-specific research and production clusters is the third step.
“Today, 63 Ukroboronprom enterprises are undergoing transformation. We already have the first company registered as a part of this process. For another 34 enterprises, we are making a deep analysis to assess their role and value for the defence industry,” Husyev noted.
“We had been working on the draft law for over a year and finally we came up with a clear and verified procedure for the reform, detailed at the methodological and legislative levels,” Oleksandr Zavitnevych, Chair of the Parliamentary Defence Committee, emphasized. The reform should be implemented with maximum transparency to avoid any possible risks, in particular, risks associated with transferring assets pending the transformation, he added.
“Transferring property is the key risk. But we have realized that if we take a standard approach, we will waste a lot of time,” Zavitnevych said.
Gleb Kanevsky, head of the expert civil society organization StateWatch, noted that today Ukroboronprom is demonstrating transparency, including publishing information on procurements, property management, personnel appointments, etc. He hopes that the trend will continue.
Among the reform’s possible risks, he mentioned insufficient transparency of certain aspects, e.g. privatization of former Ukroboronprom member companies. “They have already published the list of industry-specific clusters and companies to be included in the holdings. The same should be done for the list of companies to be merged and companies handed over to other state authorities or privatized. Ukroboronprom should explain which factories had to be converted into civilian enterprises and thus should be subjected to different state authority,” Kanevsky said.
Olena Tregub also stressed that it is crucial for the reform to envisage clear and transparent rules for appointing members of supervisory boards for the head company and member companies of the industry-specific holdings.
“It is crucial that the candidates are selected based on merit, not politics. Clear eligibility criteria should be established. The society should understand why this or that individual appeared on the supervisory board. We should understand what kind of problems they are going to address,” she said. It is also important to involve civil society in selecting the supervisory boards, exactly like it was during the preparatory stage of the transformation, Tregub contends.
Today, there is a growing trend around the world to appoint supervisory board members based on their professional qualities, not political considerations, said Olena Tregub, relying on the most recent OECD report.
Ms. Tregub also emphasized the importance of maximum transparency in future joint-stock companies. “It is important to ensure publication of senior management’s asset declarations , their biographies, remuneration, etc. In recent years, a lot of information was published on the website of Ukroboronprom and its companies, but even more information is still to be disclosed”, she added.
Furthermore, Ukroboronprom should develop and adopt the statute of a joint-stock company, code of ethics, compliance and risk-management systems, etc. Regarding financial transparency in line with best international standards, Ms. Tregub suggests introducing three reporting levels at the newly established companies, including internal, state, and independent audit.
Currently, NAKO is advising Ukroboronprom on its draft statute, which is generally consistent with OECD standards.
It should be noted that according to the reform’s timeline, corporatization and establishing new industry-specific clusters should be finished by April 2022. In June-July 2022, operations with the assets should start.