The reform is aimed at transforming the military industrial complex of Ukraine to better meet the needs of the security and defence forces for performing tasks under the current and projected security environment conditions and enhancing the development of the national economy.
The aim of the military industrial complex reform is expected to be achieved by implementing the following strategic goals:
systemic and competent reform of the military industrial complex;
implementing efficient approaches to customer and military industrial complex interaction;
supporting technical and technological development of military industrial complex facilities;
integration into the world market of armaments and military equipment;
enhancing the investment appeal and financial situation of military industrial complex facilities.
Over 25 years of Ukraine’s independence, its military industrial complex (MIC) has taken the form of a post-Soviet model characterised by inadequate response to challenges and inability to meet the needs of the country’s defence forces, high dependence on budget funding, lack of transparency and low financial and executive responsibility.
Today, about 300 companies, institutions and organisations employing more than 250,000 people produce weapons and military equipment in Ukraine. The majority of these entities are state-owned and depend on government grants.
The MIC development is being complicated due to military, political and economic challenges caused by the armed aggression of the Russian Federation against Ukraine, Russia’s temporary occupation of the Autonomous Republic of Crimea and Sevastopol, part of Ukraine’s sovereign territory. The armed conflict is going on in some districts of Donetsk and Luhansk Regions where terrorist groups act with the support of the Russian Federation. There is also a potential threat of conflict escalation and full-scale Russian military aggression against Ukraine. The conflict has made the Ukrainian government ban military and technical cooperation with Russia, the main customer of Ukrainian exported military and dual-use goods until 2014.
For these reasons, the MIC must be transformed to meet the urgent current and future needs of Ukraine’s defence and security forces and to enhance the country’s economic potential. The military industrial complex development strategy to 2025 which is currently underway will be used as a roadmap for reforms.
The MIC reform is being implemented as follows:
reforming the need identification and weapons and military equipment procurement system for defence purposes, ensuring the highest possible transparency of the process, supporting Ukrainian manufacturers of weapons and military equipment;
ensuring the consistency of military technical and military industrial policies, in particular at the stages of development and manufacture of modern weapons, military and space equipment models;
supporting of manufacturers making products of significant export potential;
reforming state-owned MIC facilities, switching to a corporate governance model, creating mechanisms for attracting investments in the sector;
Implementing import substitution industrialisation policy and developing modern technology in manufacturing of weapons and military equipment;
enhancing military and technical cooperation to attract international investments in MIC enterprises;
reforming the military and dual-use goods export/import system;
implementing inventions of the National Academy of Sciences of Ukraine and other research institutions at the stages of development and manufacturing of weapons and military equipment, re-establishing the general designer institute or opening a new institution for creating the latest models of weapons and military equipment.
To introduce an effective model of forming and implementing the governmental military and industrial policy:
By the end of 2020, the Cabinet of Ministers will develop and implement institutional arrangements to ensure the effective operation of a central executive body responsible for forming and implementing the governmental military and industrial policy.
By the end of June 2021, the Cabinet of Ministers will establish and ensure the full-scale operation of the Defence Technology Development Agency.
By the end of 2020, the Cabinet of Ministers of Ukraine will amend the Budget Code of Ukraine to create the Ukrainian Military Industrial Complex Development State-owned Trust Fund.
By the end of 2020, the central executive body responsible for forming and implementing the governmental military and industrial policy together with the MIC property management entity and the State Property Fund of Ukraine will develop and approve the methodology for identifying unproductive and non-operating enterprises. The entities found unproductive or non-operating by the results of the assessment will be liquidated or privatised by the end of 2021.
By the end of 2020, the central executive body responsible for forming and implementing the governmental military and industrial policy together with the National Security and Defence Council of Ukraine and with other competent central executive bodies will develop and approve the criteria to be used in the assessment of strategic importance of enterprises for national security and defence of Ukraine, and will define which of them should remain in state ownership. Any other MIC facilities not having strategic importance will be privatised or liquidated in accordance with the law by the end of 2021.
By the end of 2020, the central executive body responsible for forming and implementing the governmental military and industrial policy will develop and implement a mechanism of directing proceeds from privatisation of enterprises and sale of surplus assets to the Ukrainian Military Industrial Complex Development State-owned Trust Fund.
The central executive body responsible for forming and implementing the governmental military and industrial policy together with the Cabinet of Ministers will develop a legal framework for the implementation of corporate governance standards for state-owned enterprises.
To harmonise Ukrainian defence procurement legislation with the provisions of Directive 2009/81/EC:
The Cabinet of Ministers and other central executive bodies will develop and approve a package of by-laws to ensure the implementation of Law of Ukraine “On Defence Procurement” within the deadline set forth in the final provisions thereof.
To develop an efficient and flexible pricing process for products purchased without the use of a competitive bidding procedure:
By the end of 2020, the central executive body responsible for forming and implementing the governmental military and industrial policy together with the Cabinet of Ministers of Ukraine will review the return rates in contracts for the purchase of goods, works and services for defence purposes.
To ensure the transition to the NATO standards:
By the end of 2020, the central executive body responsible for forming and implementing the governmental military and industrial policy in close cooperation with the Ministry of Defence and State-owned Enterprise “Ukrainian Research and Training Centre for Standardisation, Certification and Quality” will develop and publish a plan of transition to the NATO industry and technical standards.
To improve the export control system:
By the end of 2020, the central executive body responsible for forming and implementing the governmental military and industrial policy in close cooperation with the State Export Control Service will review the licensing procedure for exports of military and dual-use products to streamline export procedures for businesses while introducing a comprehensive process of verification of true origin of exported military products.
By the end of 2020, the Ministry of Defence of Ukraine together with other public contracting authorities, the State Export Control Service and the central executive body responsible for forming and implementing the governmental military and industrial policy will develop draft amendments to state export control regulations to optimise imports of military and dual-use goods by public defence contracting authorities and businesses.
The National Security and Defence Council of Ukraine, Verkhovna Rada Committee for National Security, Defence and Intelligence, the Cabinet of Ministers of Ukraine, Vice Prime Minister of Ukraine — Minister for Strategic Industries of Ukraine, the Ministry of Economy, the Ministry of Defence, the Ministry of Finance, the Ministry of Foreign Affairs, the Ministry of Internal Affairs, the Security Service of Ukraine, the Ministry of Education, the National Academy of Sciences, State-owned Enterprise “Ukroboronprom”, the State Space Agency of Ukraine, the Institute of Informatisation and Modelling of Economy, NGO “Defence Enterprise League”, Central Research Institute of Armaments and Military Equipment of the Armed Forces of Ukraine.