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OUR WEEKLY NEWSLETTER ON UKRAINE'S RECONSTRUCTION
April 2024
Newsletter 24
WARTIME REFORMS AND INSTITUTIONS. KEY ACTORS
INTERNATIONAL COOPERATION
Country Amount Type of the aid
???????? USA "$61 billion total for 2024
Delivered: $275 million, $1 billion"
"$275 million:
  • Precision strike rockets for HIMARS
  • Artillery rounds, air-launched munitions
  • Anti-tank weapons
$1 billion:
  • RIM-7 and AIM-9M missiles for air defense
  • Stinger man-portable air defense systems
  • Small arms and ammunition
  • Additional HIMARS ammunition, artillery shells
  • Infantry fighting vehicles, tactical vehicles
  • Anti-tank systems, high-precision aerial munitions
  • Airfield auxiliary equipment, mines, night vision device
  • Spare parts, maintenance equipment
"
???????? Sweden $7.01 billion Military support over three years

May 2024

🇪🇸 Spain - €1.1 billion:
Spain will supply Ukraine with weaponry worth over €1.1 billion. Unlike before, most of the supplies will not come from the arsenals of the Spanish Armed Forces but will be manufactured specifically by Spanish industry. The new aid package includes the delivery of a second batch of Patriot surface-to-air missiles, adding to the dozen already delivered in April. Additionally, 19 used Leopard 2A4 battle tanks will be supplied, in addition to the ten delivered last year.

🇺🇸 USA - $275 million:
The United States announced a new security assistance package for Ukraine worth $275 million. This package aims to help Ukraine repel Russia's assault near Kharkiv and includes various items such as precision strike rockets for High Mobility Artillery Rocket Systems (HIMARS), artillery rounds, air-launched munitions, and anti-tank weapons.

🇩🇪 Germany - €28 billion:
Germany provides support for Ukraine by supplying equipment and weapons. The military assistance includes deliveries from the Federal Armed Forces stocks as well as financing deliveries of military equipment from industry. The assistance includes various items such as Leopard 1 A5 battle tanks, HIMARS rocket systems, ammunition, reconnaissance drones, tactical vehicles, small arms, and spare parts.

🇸🇪 Sweden - $7.01 billion:
The Swedish government agreed on a program of additional military support for Ukraine totaling $7.01 billion over three years.

🇬🇧 UK - €217 million + £500 million in military funding:
Britain announced a new military aid package for Ukraine worth €217 million. Additionally, £500 million in military funding will be provided, including equipment such as ammunition, missiles, and vehicles.

🇱🇹 Lithuania - reconnaissance drones and ammunition:
Lithuania sent a new batch of military and humanitarian aid to Ukraine, including reconnaissance drones and ammunition.

🇩🇰 Denmark - €750 million:
Denmark announced a new military aid package for Ukraine worth €750 million, aimed at strengthening its air defense and artillery.

🇦🇺 Australia - $100 million:
Australia will provide Ukraine with Sentinel 830R RHIB speedboats as part of a $100 million aid package.

🇫🇷 France - Aster anti-aircraft missiles:
France will supply Ukraine with a new batch of Aster anti-aircraft missiles for the SAMP/T air defense system.

🇮🇹 Italy - SAMP/T air defense system:
Italy approved its ninth military aid package for Ukraine, including the SAMP/T air defense system.

🇱🇻 Latvia - NBS anti-aircraft systems and reconnaissance drones:
Latvia approved a new military aid package for Ukraine, including NBS anti-aircraft systems and tactical reconnaissance drones.

🇨🇦 Canada - $2.3 million for drones:
Canada will provide over $2.3 million for the production of drones and additional funding for artillery ammunition. Additionally, Canada will deliver 100 Teledyne FLIR drones to Ukraine.

🇧🇪 Belgium - Rockets and €200 million:
Belgium will supply Ukraine with rockets for air defense systems and allocate €200 million for participation in a German initiative to supply air defense systems.

April 2024

🇺🇸 USA - $1 billion USD:
The United States announced a $1 billion military aid package, including various items such as RIM-7 and AIM-9M missiles for air defense, Stinger man-portable air defense systems, small arms and ammunition, additional HIMARS ammunition, artillery shells, infantry fighting vehicles, tactical vehicles, anti-tank systems, high-precision aerial munitions, airfield auxiliary equipment, mines, night vision devices, spare parts, and maintenance equipment.

🇩🇰 Denmark - €295 million EUR:
Denmark allocated €295 million for military aid to Ukraine, which includes ammunition, drones, production of missile components, and a special project "ZBROYARI: Manufacturing Freedom" aimed at raising funds for Ukrainian weapon production.

🇰🇷 South Korea - $2.3 billion USD:
South Korea announced a medium- and long-term aid package worth $2.3 billion starting in 2024, including $12 million for the rehabilitation of wounded Ukrainian soldiers through the NATO Trust Fund for Ukraine Aid.

🇫🇮 Finland - €188 million EUR:
Finland announced a new aid package worth €188 million, including various military equipment and support to enhance the defense capabilities of Ukrainian forces.

March 2024


🇧🇪 Belgium - $100 million USD:
Belgium allocated $100 million for the maintenance and support of F-16 fighter jets.

🇩🇪 Germany - Various Packages:
Germany announced a large military aid package including various equipment such as tracked repair and evacuation vehicles, demining machines, bridge-layers, reconnaissance UAVs, tank ammunition, artillery shells, surveillance systems, infrared cameras, and grenade launchers. Additionally, Germany committed to another aid package worth approximately €500 million focusing on artillery shells.

🇬🇧 UK - $75 million USD:
The UK announced a new aid package worth $75 million, including drones and air defense systems.

🇪🇪 Estonia - $20 million USD:
Estonia committed a new military aid package worth $20 million including artillery shells, anti-tank grenade launchers, explosives, sniper equipment, gas masks, and cartridges.

🇽🇰 Kosovo - Assistance:
Kosovo will provide Ukraine with mortar shells, trucks, tactical and armored vehicles.

🇧🇪 Belgium - $412 million USD:
Belgium approved additional military aid packages totaling $412 million including minehunters, armored medical vehicles, procurement of reconnaissance drones, and artillery ammunition.

🇩🇰 Denmark - $330 million USD:
Denmark announced a new military aid package worth $330 million including Caesar self-propelled howitzers, mortars, and ammunition.

🇫🇷 France - Assistance:
France's aid package includes various equipment such as radar systems, self-propelled howitzers, howitzers, and armored fighting vehicles.


Explaining aid package from the USA to Ukraine

REFORM IN FOCUS: UKROBORONPROM CORPORATE REFORM

In Newsletter 22 we have discussed Ukraine’s defense procurement reform. In this newsletter we explore the corporate reform of the "Ukrainian Defense Industry," or former “UkrOboronProm”, the reasons behind it, why it is important, and what it may change in making Ukraine’s defense industry more transparent and attractive for foreign partners.

UrkOboronProm as a post-soviet legacy

After the collapse of the Soviet Union, independent Ukraine retained about 30% of the USSR military-industrial complex, or over 750 enterprises and organizations. This meant that despite Ukraine’s independence, the military industries of Russia and Ukraine remained interdependent after 1991. The 1990’s and early 2000’s were also characterized by a massive sell-off of the soviet-era military equipment, generating important and unregulated cash flows. When, propped by Russian support, Victor Yanukovich became president in 2010, he decided to centralize these cash flows under his reign by uniting numerous defense industry companies into a state holding company UkrOboronProm (UOP). The centralization of cash flows facilitated the sell-off of equipment without modernizing production, undermining Ukraine’s military capacity.
Source: РБК
The UOP business units were structured around 5 areas:
1) aircraft construction and aircraft repair,
2) high-precision weapons and ammunition production,
3) manufacturing of armored, automotive, engineering, and special vehicles,
4) shipbuilding and marine equipment,
5) radar, radio communications, and air defense systems.

However, the UOP holding was vested in the legal structure of a “concern”, another soviet legacy incompatible with Western corporate structures, creating inherent and real concerns around doing business with UOP through partnerships or investment.


After adjusting the Constitution, President Yanukovich and his Prime Minister held full control over the defense industry through direct appointment of the UOP head, although technically the company was subordinate to the Cabinet of Ministers. Thus, UOP became a money laundering machine for Yanukovich, de facto unaccountable to anyone but the president and distraught from its mission to strengthen defense industry, with fatal consequences for the sovereignty of Ukraine since the first Russian invasion of its borders in 2014.

After the Maidan Revolution of 2014, UOP fell under scrutiny of Ukraine’s civil society, where actors such as NAKO created pressure on the Presidential Administration and the Ministry of Defense for more transparency in the sector. They were supported by foreign partners who demanded greater accountability for the military assistance they were providing to Ukraine. In response to these demands, Petro Poroshenko elected president in 2014 announced the creation of a legal framework for UOP reform. However, the first international audit of UOP was conducted in 2019, 5 whole years after the legal framework was adopted.


The UkrOboronProm corporate reform since 2019, and why it took so long to implement:

On 21 March 2023, Ukraine’s Cabinet of Ministers announced the transformation of the state “concern” "UkrOboronProm" into a Joint Stock Company "Ukrainian Defense Industry" (UDI). The UDI holding company in turn will consist of numerous Joint Stock Companies organized by business area. The main difference from the previous business structure, consisting of 137 enterprises within the UkrOboronProm “concern”, is the shareholding nature of every UDI enterprise, making each UDI company, from plane to missile production to maintenance to spare parts production, compatible with any Western counterpart. So far, 28 out of 137 earlier UOP enterprises have been corporatized, with 10 more in progress.

The Ministry in charge of developing and overseeing defense industry policies, and thus in charge of UDI, is the Ministry of Strategic Industries. Innovation and technological progress are the main missions it sees for UDI. With the name change from UOP to UDI came a new CEO, appointed by the Cabinet of Ministers of Ukraine: a leading UOP engineer Herman Smietanin.

UDI 6 key business areas include: aircraft construction and maintenance, high-precision weapons, ammunition and special chemicals, armored vehicles, radar, and naval systems. Drones should be added as a sixth area. The business priority is to develop international partnerships for joint production in or for Ukraine.
The corporatization of UDI is important for three main reasons:

1) Turning UDI into a Joint Stock Company equips it with a modern corporate structure understandable to Western businesses and adapted (in contrast with the “concern” legal structure) to partnerships with foreign firms to maximize and improve weapons production.

2) While UDI remains 100% state-owned, corporate structure allows for mergers within the corporation, potentially reducing inefficiencies. In the mid- to long-term, the new shareholding structure allows for future investment by domestic and foreign investors, with a potential for privatization.

3) Western corporate structure also brings internal “checks and balances” system through three management bodies: the management board, the supervisory board, and the state as the only shareholder (for now). This management structure is meant to avoid the concentration of control over the corporation in the hands of the sole figure of Ukraine’s president, as has been in the past. For example, instead of being appointed the President, the CEO should be selected by the Supervisory Board and the Cabinet of Ministers. While among the people appointing Supervisory Board members are prominent members of Ukraine’s civil society acting through the Anti-Corruption Commission, from within the MoD.

The caveat to this third point of the reform today is that this new system of management appointments should take place only after the war. Under the marshal law, the CEO is appointed only by the Cabinet of Ministers. However, the choice of the new UDI CEO Herman Smietanin (see person of the month section) is a positive sign in itself.

Source: Slovo i Dilo

How can these changes help fight corruption?

In his recent interview, the new CEO pointed out 3 corruption risks in the defense industry he aims to fight with the following methods:

● Bribery for high-position appointments with a merit-based competition system.
● Inflated prices for the company market with Prozorro state e-procurement system.
● Reduced rent for public land to cronies with Prozorro Sale contracts.

On the legal level, UDI, its patron Ministry of Strategic Industries of Ukraine and the NAPC (the National Anti-corruption Agency of Ukraine) have developed a larger anti-corruption framework: the Strategy for Preventing, Detecting and Combating Corruption, presented in September 2023. The strategy is based on the UN Convention against Corruption, OECD recommendations, NATO's Building Integrity Policy, reports from the NAPC, and the recommendations of Ukraine’s anti-corruption NGO’s (such as NAKO, Together Against Corruption and StateWatch).


Results since 2023:
1) UDI established a Supervisory Board made of 5 independent experts, including 3 state representatives:
  • Tymofiy Mylovanov, President of the Kyiv School of Economics and former Minister of Economy;
  • David Lomjaria, member of the Supervisory Board of Ukrzaliznytsia and former CEO of Iberia Refreshments PepsiCo;
  • Lindy Smith, President and CEO of the Arizona Defence Industry Coalition)
and 2 non-state members:
  • Sergiy Konovets, former member of the Supervisory Board of UkrExImBank and the Board of Naftogaz of Ukraine;
  • Oleksiy Honcharuk, former Prime Minister of Ukraine and Chairman of the Supervisory Board of AeroRozvidka.
The Supervisory Board members were selected in consultation with the civil society representatives.

2) The above civil society representatives, from anti-corruption NGO’s, were given an institutional role within the Anti-Corruption Commission embodied within and working closely with the MoD on supervising and making recommendations on processes from procurement to the UDI Supervisory Board appointments.

3) Property management policies update for defense companies to enhance efficiency and accountability in resource allocation.

4) UDI’s first Joint Venture with the German Rheinmetall AG, “Rheinmetall UDI”, signed on October 18, 202, for the the maintenance and repair of armored vehicles, joint production of Rheinmetall products, and the development of new weapons and equipment – all of it in Ukraine.

he full-scale invasion prompted UkrOboronProm to start reforming for the first time, with a corporate structure favorable to partnerships, a new management structure, a shareholding legal structure allowing for potential future privatization, and an anti-corruption strategy. However, concerns linger regarding the lack of clear safeguards against political interference and accountability, which remain impossible during the war. Continuous monitoring is essential for a sustainable reform and results, crucial in the face of belligerent Russia.



PERSON OF THE WEEK: CEO OF UKRAINIAN DEFENSE INDUSTRY HERMAN SMIETANIN
In late June 2023, Herman Smietanin, a UOP engineer, at 31, was appointed the CEO of Ukrainian Defense Industry (former UkrOboronProm). He has 3 priorities, defined by the Ministry of Strategic Industries: increase the production of ammunition, build anti-corruption structures inside the company, and transform UOP into a modern corporation.

A graduate of Kharkiv National Automobile and Highway University with a degree in engineering and of the National Technical University with a degree in management, he brings a combination of technical ability and organizational potential required for his new role. During his 10 years at the company, Smietanin rose through the ranks from an inventor engineer to the head of Malyshev production plant in Kharkiv. He was noticed by his management and later by Oleksandr Kamyshin, Minister of Strategic Industries, who recommended him to Zelensky as a leader able to yield results. And the results are needed fast, as Ukraine is going through the ammunition scarcity on the frontlines. Smietanin’s predecessor, former head of UOP Yurii Gusiev, was fired from this position after he “blew the missile program.”

There is an increasing demand for meritocracy in Ukrainian society, and old-generation managers of state corporations have been targeted by critics for years for frequent signs of incompetence, corruption or being out of touch with reality (as a matter of example, former president of Ukraine’s high-tech plane engine producing company Motor Sich, Viacheslav Bohuslaiev, who was fired in late 2023 after being charged with state treason, was born in 1939). Appointing young and sharp Smietanin, with a proven track record of engineering and management achievement, climbing through the ranks of UOP, responds to that demand. He presents the face of a new generation of Ukrainian management, the face of Ukraine Kyiv wants to project to the world.
Herman Smietanin Source: Telegraf
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