Ukraine’s state arms company Ukroboronprom says it won’t be able to develop modern weapons for the country’s armed forces because it’s suffering from a serious shortage of funding from the state.
In a statement published on Jan. 26, the Ukroboronprom said the company could produce many times more weapons than the state is currently funding.
“We have fulfilled the state defense order 100 percent – we have given the army everything it ordered,” the statement reads. “But let us be honest: our state defense order is several times smaller than the entire amount of funds foreseen in Ukraine’s defense industry development program. In simple words, the state is capable of covering only minimum requirements and unable to make any investment in production and technology (development).”
Referring to figures for 2016, the company said there had been an Hr 1 billion shortfall in state funding. It said only Hr 4.4 billion ($160 million) was allocated to Ukroboronprom last year, out of total state defense spending of Hr 13.5 billion ($500 million).
The funding shortfall meant Ukroboronprom was unable to provide the army with modern, Ukrainian-designed T-84 Oplot main battle tanks or Dozor-B armored cars, among other advanced military hardware, the company said.
Budget cuts and small state contracts forced the company to put most of the workers at the Lviv Tank Plant on unpaid leave.
Under such conditions, Ukroboronprom is compelled to rely on its own resources in seeking external investment, joint ventures, technology transfers and developments, the company said. Ukroboronprom pointed to Dozor armored cars, the Fantom remote-controlled multipurpose vehicle, and Horlytsya drones as examples of advanced weaponry that was developed for production in Ukraine without any government support.
According the company’s official figures, during the first nine months of 2016, Ukroboronpron supplied 6,209 units of weapons and military equipment to Ukraine’s Armed Forces, while the nation’s domestic law enforcement agencies received 1,362 units of new and modernized military equipment, 1,389 units of repaired equipment, and 3,458 units of spare parts, components and assemblies.
Meanwhile, in early January, Ukroboronprom and Aeroscraft – a U.S.-based aircraft and weapons venture – signed a memorandum on producing a version of the M16 assault rifle in Ukraine for the nation’s armed forces under a U.S. government license.
“This is the way to introduce technologies, to get money for the country, to create jobs, and to enhance our industrial base and the competence of our personnel,” Ukroboronprom. representatives said, announcing the deal.
The low state funding is also forcing Ukroboronprom to seek buyers on external markets rather than provide the Ukrainian military with the company’s most advanced innovations. The profit from each exported tank is enough to pay for several more for the Ukrainian army, according to the concern’s press service.
“Our enterprises are only 25 percent occupied with the contract from our security agencies,” Ukroboronprom Director General Roman Romanov said on Jan. 5, adding that since 2014, the concern had earned over Hr 36 billion ($1.33 billion) in profit, with only Hr 13 billion ($480 million) of that earned on the domestic market.
As of today, the deal to sell up to 54 T-84 Oplot tanks to Thailand remains Ukroboronprom’s biggest export contract.
“Oplots are more profitable when exported rather than used in the war. Their export price is $4.9 million, so it would be better to sell them and spend money on repairing and modernizing several dozen T-64 tanks to the BM Bulat level,” Ukroboronprom Deputy Director General Serhiy Pinkas told the press in April 2015. The BM Bulat is a Ukrainian-developed upgrade of the Soviet-era T-64 tank.
The deal with Thailand, signed in 2011 and worth $241 million, has to be completed by October 2017. But so far Ukraine has only managed to deliver 20 of the new tanks to the Thai army, due to a drought of funds at its producer, the Malyshev Factory in Kharkiv.
Because of the funding crisis, Malyshev is capable of building only five tanks a year out of a total annual output capacity of 2,000 tanks.
The funding shortfall meant that only 56 out of Ukroboronprom’s 105 enterprises were profitable in 2016.
To help the defense holding, the government has promised to reduce taxes on its income in 2017 to 30 percent, down from 70 percent. And according to Ukraine’s deputy minister of economic development and trade, Yuriy Brovchenko, the state defense procurement budget this year will be increased by 10-20 percent compared to 2016.
