The topic of interaction between the private and public sectors within the Ukrainian defense industry continues to be one of the most acute and debatable. A certain controversy on this issue also unfolded at a seminar on the reform of the Ukrainian defense industry, held July 14 in SC Ukroboronprom.

The head of state concern Roman Romanov defended the position according to which the companies of Ukroboronprom are commercial organizations working on an equal footing with private producers and they do not differ in any way from them. He was opposed by Stephen Silverstein, Senior Adviser at the US Embassy to the Ministry of Defense of Ukraine, who insisted on the need to reduce the presence of the state in the defense industry and in the arms and military equipment market. The agency managed to get comments from both representatives of state enterprises and members of the OS “League of Defense Enterprises of Ukraine”, which united a number of private arms and military equipment manufacturers, as well as a foreign expert.

Yuri Pashchenko, a state-owned enterprise “Iskra Research and Production Complex” (part of Ukroboronprom), Director:

– Do you agree with the statement that “Ukroboronprom” enterprises do not essentially differ from private defense companies of Ukraine, except for the owner-state – and work in absolutely identical conditions?

– In many ways, yes. Despite the presence in the group of several state-owned enterprises, the majority are still self-supporting state-owned commercial enterprises. They may be more regulated than private ones, but it rather hinders them than helps.

– How do you assess the statement made by the US embassy adviser on the need to reduce the state component of the military-industrial complex?

– In my opinion, nothing should be purposefully reduced or increased. Now a league of private defense enterprises has been established. It is obvious that if they work better and more efficiently than the state, then they will gradually receive more and more orders from the power structures, and there will be a redistribution of the market in favor of private structures. Thus, the situation should change in an evolutionary way, without pressure from above and manual control.

– That is, the market will regulate itself, and there is no need to interfere?

“Until now, I believed that the same opinion prevails in the United States. But now I hear from their representative very different things.

Stephen Silverstein, senior adviser at the US Embassy to the Ministry of Defense of Ukraine:

– Mr. Silverstein, in your address to the head of the “Ukroboronprom” you stressed the need to reduce the state presence in the “defense industry.” Is there any other way of reforming the Ukrainian defense industry, or is it possible to do without cutting the state sector?

– I do not insist on its complete destruction. Only on the reduction. This is the only way to increase the level of competition without which the modern defense industry can not exist. There is no need to completely eliminate the state presence in the defense market, for it there are their own forms of existence. Certain tasks in the sphere of military-industrial complex can be solved only by the state. You just need to balance the market, remove the skew.

– In your opinion, is there an imbalance now?

– Let’s just say – it seems to me that the current configuration of the market showed itself well in a very dangerous situation two or three years ago. The state sector of the defense industry ensured stability in an extremely unstable environment. However, it is necessary to look further, and in the long run it is still necessary to cut the public sector and thus increase competition.

– Are there any examples of such development of the military-industrial complex in the United States?

– Yes. Even though the United States has a different story. We have never had such a monolithic state defense industry as in the USSR, but there have been and still exist certain spheres in which, for several reasons, the state presence is great. But even there, we gradually come to the conclusion that the growth of competition and the creation of new business leads to the fact that for less money we get the best quality, and, what is very important, we reduce corruption risks.

Oleg Vysotsky, RPA «Practika», Chairman of the Board of Directors:

– Do you agree that today the conditions of work in the market for private and state defense enterprises are equal?

– I think that it is. Of course, state-owned enterprises have a huge advantage: what they have – factories, equipment – they all had it from the very beginning. And we, the private traders, have to create all this from scratch. However, in the end, we enter the free market and work the same way. We have similar problems with them.

– Is it possible to agree with the statement of an adviser to the US embassy on the need to reduce the state’s share in the Ukrainian defense industry?

– You see, there are a number of products, the production of which private traders simply will not master in the coming decades, and the presence of the state there is necessary.

– Which for example?

– For example, tanks. Or planes.

– That is, the privatization of such industries does not make sense?

– I think that we often misunderstand the word “privatization”. In the case of the DIC, for example, privatization should mean not only investment, but also an understanding by the investor and owner of the specifics of the market, its ability to find a market for products.

– In your opinion, now the reform of the defense industry is developing in the right direction?

– At the moment it is not quite clear where it is going. For today in the theses of the seminar a lot of concrete moments were announced, but as a result, nothing concrete has sounded in the speeches.

Dmitry Kozlov,
Information Agency “Defense Industry Courier”