A victory for Ukraine in Russia’s war is the main goal of UkrOboronProm and all of us in the nation.
As soon as the inflow of strategic Western investments into the defense sector begins, we will start the process of winning the war. We will automatically receive huge support from all partner countries. But first we should become intelligible to the world.
Therefore, UkrOboronProm, the state firm created in 2010 that oversees more than 100 companies in the nation’s military-industrial complex, started an international audit procedure in autumn.
This is the first step towards the global transformation to reform in accordance with best international practices. Transparency International and a number of partner countries support this process and will be independent observers. We also invite other international and nongovernmental organizations to join the process.
How will the process take place?
The audit of UkrOboronProm, known by the acronym UOP, will consist of four stages: strategy development, financial due diligence, legal due diligence, implementation of restructuring and corporatization processes.
What is it in practice?
We plan to separate non-core assets from core ones.
The core assets will be corporatized and merged into joint-stock holding companies organized by type of activity, according to the five already established clusters (armored, aerospace, marine, precision weapons and ammunition, special equipment).
In order to implement this project, we strive to attract the best specialists. UOP has already announced a tender for conducting an international audit on ProZorro website.
Thus, for the first time in the history of Ukraine, the leading consulting companies in the world market with an effective experience in the field of defense industry will be involved in this process. It is expected, that since the announcement of the winner, the whole process will last for two years.
Now we are already establishing a project office which will consist of 20-30 employees from UOP, auditors and consultants.
Why is this important?
The issue of audit is important both for UOP and for the whole country, because this is a top priority of the time. Without it UOP can not fully develop and integrate into the world market and security mechanisms. Now the defense industry is stalled, because it is based on the outdated principles of the Soviet Union. Unfortunately, over the past 26 years nothing has changed radically. Taking a course towards European integration and membership in NATO, we must definitely get rid of all Soviet legislative atavisms, implement NATO standards by 2020, integrate into the Western political structure and supply chains.
We will have very limited opportunities for investment without the legal and management mechanisms that exist in the West. For the moment, many countries have a significant interest to invest in manufacturing, outsourcing, individual projects and share purchase. But we do not have clear and understandable mechanisms for future partners, so the process of transformation is inevitable.
What to expect?
In two years we plan to get a restructured holding company, prepared for the sale of shares in the open market. We will have the international standards of management, corporate governance, achieve transparency and prove that it is beneficial to work with UOP from the financial and legal points of view.
It is necessary to emphasize that privatization is not the main goal of the transformation process, but we understand that this is a logical way for the future. Now the government has to determine which assets can be privatized and which ones cannot. We have already initiated the first step to change the Law in order for the UOP’s enterprises to be privatized in future.
In this way, we are adopting the analysis of the experience of leading international companies. The conclusion is that the most successful defense companies in developed economies have never been state-owned and never underwent corporatization.
On the other hand, almost all companies in emerging economies are owned by the state or the state is a majority shareholder. Such companies have restrictions regarding the establishment of joint ventures and disposal of property.
If we want to be a full member of the Euro-Atlantic community, then the answer of what UOP needs to do is clear. The only other questions are how and when?
Our ultimate goal is to remove all restrictions for fruitful work in the domestic and world markets. The systematic reform of UkrOboronProm will help to make Ukraine stronger.
