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Final General Meeting of the Association Took Place in Kyiv

The first six months have gone since the creation of the Association of Ukrainian Defense Manufacturers, and the first results of its activity were reviewed during the meeting that took place in late October in Kyiv.

The representatives of the enterprises that are the members of the Association gathered at the head office of the “AUDM” with a clear purpose to hold a series of professional discussions regarding the problems of the industry and to share experience in solving the actual situations that arise in private sector’s activity of the defense industry.

Chief Executive Officer of the “AUDM”, Ruslan Dzhalilov, made a brief report on the Association’s activity, achievements and program objectives for the future.

The draft order of the Ministry of Defense of Ukraine “Rules of the Armed Forces of Ukraine on Development (Modernization) and Putting into Operation (Supply) of Armament and Military Equipment” has been worked out. It should replace the current regulation in function.

“The acceptance of proposals from the “AUDM” will allow to form clear rules of the relationship between the state customer and manufacturers of weapons and military equipment. Today, the Ministry of Defense of Ukraine gave an answer on appropriateness of the given proposals and their consideration in the draft order”, said Ruslan Dzhalilov.

“There were made three working visits during this time to the United States on attracting investment for joint projects on the development and modernization of armaments and military equipment”, said Chief Executive Officer of the Association.

President of the Association, Vadym Kodachyhov, also addressed the honored meeting.

In his speech, he focused firstly on the differences between the public and private sectors of the economy, emphasizing the effectiveness of private entrepreneurship and the unequal conditions under which a private trader works due to the existing defense order system.

“We need to put in order the relations with our main customer and buyer, since both the domestic and foreign markets, thanks to the existing system, have made the private sector more efficient, but … less competitive. We cannot even enter the global market now because, according to our legislation, all relations with the outside world the Ukrainian manufacturers must carry out only through a special exporter. Such a method is considered a violation of antitrust laws in all civilized countries. There are only two entities responsible for the sale of weapons and armaments: the state which is responsible for the purity of business before the world community and the producer who has the same responsibility before the state”.

In fact, there is nothing bad in practice of using the institute of special exporters if they only had the function of a service company.

So, in our case, the state took on the role not only the control function, but also independently sells weapons to foreign markets.

According to this situation, the Association has developed two draft laws and has already agreed their consideration in the Verkhovna Rada of Ukraine. Also, the presentation of these draft bills will be held in the Parliament in the nearest future.

Their essence is to make changes, firstly, to the Law “On Foreign Economic Activity” with the removing from the obligatory control through the special exporters of weapons and military equipment manufacturers (both in terms of export of finished goods beyond Ukraine and import of components for own production). Secondly, this draft law provides the cancellation of obligation of the Ministry of Defense of Ukraine within the framework of the state defense order to purchase armaments and military equipment exclusively through “Ukroboronprom”.

What is the point? The answer is very simple: if we now open the world market for the Ministry of Defense, then, accordingly all Ukrainian technologies, that are competitive, will be deprived of the need for additional price confirmation through the calculation documents. At the same time, the domestic manufacturer will be protected through a special norm which will oblige the domestic customer to buy the products of the Ukrainian production, even if the Ukrainian analogue exceeds the foreign one at the price within 10 per cent. The similar norm exists in many countries of the world.

If this norm is implemented, the Ministry of Defense of Ukraine will have access to the global technology market. On the other hand, it will encourage domestic enterprises to increase the efficiency of management and improve product quality. But the main advantage of the Ukrainian manufacturer at the moment is the testing of weapons, armaments and military equipment in real combat conditions, but not in virtual laboratories.

Instead, Ukraine is a field now, where new technologies are created for relatively small money, which compete directly with Russian ones. And the interest in us is quite high in the world, in particular, in the USA. It is well-known overseas that the Ukrainian hands, brains, production facilities and a scientific school together with the American technologies is that very combination thanks to which it will be possible to move the Russian Federation from its traditional sales markets of weapons and armaments.

At present, Russia exports annually military products in the range of $ 15 billion. Ukraine has a real opportunity to take over from the aggressor about $ 6 billion in the next two years. To do this, our producers need the specific components that would constitute a complete cycle of production of various types of weapons and military equipment.

Today, we consider the actual step is to create a separate commercial structure that will represent the interests of all companies-members of the Association and have the status of a special exporter. But this will not be a compulsory or obligatory measure. Everyone will decide for himself whether to go to the international market on their own (in the conditions of implementation of the above-mentioned draft bill), or to seek the assistance of their own, not a state special exporter.

Also, the Association will initiate a series of projects in the nearest future in order to stop the outflow of skilled personnel from Ukraine, stimulate the implementation of new developments and develop a domestic weapon product. This is the holding of a competitive tender for weapon startups and promotion of an initiative to create an analogue of the DARPA (Defense Advanced Research Projects Agency) in Ukraine.

“It is also proposed to host a presentation-seminar next year in the USA in which the Ukrainian defense companies would be able to present themselves and their capabilities to the AUSA representatives”, summed up the President of the Association.

The hottest discussions at the meeting took place around the rules of establishing the so-called marginal price, the status of a special exporter and the algorithm for its acquisition, as well as a wide range of issues regarding the organization of regular consultations and meetings with the representatives of the Ministry of Defense of Ukraine, General Staff of the Armed Forces of Ukraine, State Border Guard Service of Ukraine, National Guard of Ukraine, Administration of State Guard of Ukraine.

Vitaliy Manko, the Head of the grant programs of the “AUDM”, presented a thorough analysis of the peculiarities and realities of the work of the public procurement system and the issues of creating common economic rules for the participants of the arms market. He stated that with the introduction of the system of electronic public procurement “PROZORRO”, the participants of the arms market had a potential opportunity to cooperate with the state on the basis of fair competition and justice. However, soon afterwards, officials learned to game the system, working out eight basic schemes, which allow to discriminate legitimately the best companies and buy not the best products and services at a higher price.

Vitaliy Manko presented the Tender Club’s project, the purpose of which will be to study tender schemes, transfer of normative initiatives to the expert council, protection of business against discrimination, development of anti-schematic proposals and decisions, and the introduction of common market rules.

Serhii Khlamko gave explanations regarding the competitive tender for military startups and the stages of creation of a catalogue of the “AUDM” corporate participants for officials from the Ministry of Defense of Ukraine, General Staff of the Armed Forces of Ukraine, State Border Guard Service of Ukraine, National Guard of Ukraine, Administration of State Guard of Ukraine.

Head of the Supervisory Board of Association, Dmytro Umanets, made a final speech before the participants of the meeting.

He summarized the results of the meeting and proposed several strategic directions in the Association’s activity regarding its further work with customers and attracting new participants to the “AUDM”.