Interview with head of the Ukrainian State Commission for the Defense Industry Complex Volodymyr Horbulin.^*

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The Ukrainian State Commission for the Defense Industry Complex was set up in summer 2000 as a central government body with a special status. Its main task is to carry out the government policy of operating and advancing the defense complex and safeguarding Ukraine’s national interests

The State Commission has been a central executive body with a special status for about a year and a half. The concept of restructuring the Ukrainian defense industry complex (DIC) drafted by the commission is known to provide for rather radical steps.

DIC cannot reform by itself, independently of an integral systemic reform of the entire defense sector. And this means that the national military-technical policy – and the DIC restructuring is one of its components – should be adapted primarily to the political situation in the world, shifts in military threats, international tendencies in altering approaches to the methods and means of warfare, changing attitudes to the defense economy itself and finally to the definition of clear-cut objectives for DIC. And, of course, it should take into account the national military-technical cooperation policy.

It is worth naming among the impressive positive changes of the past few years in Ukraine the transformation of the attitude to the development of the national Armed Forces and, consequently, to the priorities in the development of new armaments and military hardware. While even just recently Ukrainian military leaders spoke of readiness for defense along the border perimeter, now one can speak of an absolutely sober-minded evaluation of the army’s capabilities. One should first clearly understand the depth of problems in order to choose the right ways to resolve them.

Another important change in the approach to the defense sector reform was the involvement of the industry in the person of the State Commission for DIC as well as the National Security and Defense Council, what permits us to speak of the beginning of a systemic approach to the reform itself.

You singled out new approaches to evaluating the capabilities of the army. Could you outline in a few words the most vulnerable parts of the Ukrainian Armed Forces?

At the end of 2001 Defense Minister Volodymyr Shkidchenko mustered the courage to state that it was senseless to demand a rise in the standard of combat training or to speak of purchases of new armaments in 2002. For the first time the Ukrainian Defense Ministry actually admitted in public that the government did not have the resources for the military reform in its present form, and for my own part I am grateful to the new defense minister for that.

Today it is absolutely evident that Ukraine cannot maintain an army of such size and with such quantities of materiel. At the present stage over 50% of armaments in the Ukrainian army require replacement or fundamental upgrading as obsolete and worn out, and about 70% of all materiel requires overhaul. Problems are especially acute in Air Defense and Air Force, the arms of service that used to closely cooperate with Russian designers and manufacturers. In general, according to military expert estimates, less than 50% of aircraft in the Air Force and only about 16% of the helicopters are in operating condition. The combat potential of the Ukrainian army annually declines by 7-9%. According to experts from the State Commission, the Defense Ministry annually needs at least 12-15 billion hryvnyas  ($2.2-2.8 billion) to tackle the problems. However, so far annual budget spending has not exceeded 200 million hryvnyas (about $37 million).

At the same time, Ukraine has developed truly unique new types of armaments, that if they appeared in the national army, it would look quite decent even compared to the best armies in the world. However, the imbalance in spending budget money on national defense needs does not permit us to speak of launching the serial production of new weapons: the army simply eats up about 90% of the money assigned to it by the government. Therefore, the main question is the existence of political will to eliminate such a problem as chronic insufficient funding of the Armed Forces, to seriously reduce the army and to balance the defense budget. The State Commission insists that no more than 50% of the funds assigned by the government be directly spent on the maintenance of the army. Today the agencies involved in the implementation of defense reform are working to have no less than 20-25% of the defense budget being spent on fundamental research, the development of new armaments and their procurements, and also on upgrading the arms and military hardware that the Ukrainian Armed Forces have. I think that this objective can be achieved in the next few years. In addition, we insist that the money for upgrading and acquiring weaponry and military hardware for the army would be inscribed in the budget as a separate item, instead of constituting a special fund, i.e. that this spending would be protected instead of depend on the economic activities of the army. I hope such a decision will also be made in the nearest future. According to the estimates of the State Commission, given the current geopolitical situation, present-day threats and the country’s economic capabilities, Ukrainian army personnel should not exceed 120,000-130,000 - on condition that it is supplied with up-to-date armaments, of course. This is a complex but feasible task. It will take eight to ten years depending on funding. Ukraine can try make use of the favorable geopolitical circumstances for a breakthrough in reforming the defense sector by concentrating financial resources on reduction first, a reduction that will have a social component to it. Kiev also attaches significant hopes to the revival of cooperation with former Soviet republics, primarily Russia. Ukraine intends to advance military-technical cooperation with other countries as well, of course, depending on economic considerations. As for direct arms purchases, for several years the Ukrainian army will restrict itself to small quantities of new types of armaments manufactured by domestic defense industry plants and will invest the lion's share of money in R&D, in upgrading combat aircraft, air defense, means of control, communications and reconnaissance with reliance on the national infrastructure.

Have new end products appeared in the Ukrainian defense industry in the past few years?

Yes, of course. They were partly demonstrated at arms exhibitions in 2001. First of all it is the passive target detection radar codenamed Kolchuga with a range of 600 km. There is no other apparatus in the world that could function the same way. The Zoopark-2 fire control radar station developed at Iskra Design Bureau and manufactured at Zaporizhzhya-based Iskra Electric Machine-Building Plant is perfectly well known to Russian designers. Its greatest advantage is the capability for integrated all-arms battle reconnaissance. It can not only define who is conducting the fire but also determine the coordinates and transmit them for targeting. The latest digital equipment is integrated in the system. Finally, the Kvant-Radiolokatsia radar system research institute has developed a system of active resistance to high precision weapons with laser homing devices. Ukraine has produced a system that virtually helps to prevent attacks involving high precision missiles with self-homing laser warheads. This offers guaranteed defense of strategic targets what has become especially important after September 11, 2001. By the way, the new products I mentioned are in fairly good demand on the world market, and the companies themselves have a stable portfolio of orders. By the way, Kvant has started working in the interests of Russian security.

Here one can add that new approaches to warfare also imply the development of nonlethal arms, i.e. arms specially developed on the basis of various physical, chemical, biological and other principles to temporarily neutralize the enemy personnel and material and simultaneously reduce casualties or unwanted damage to materiel and the environment to the minimum. Ukraine has its own designs in these spheres.

How do you generally see MTC with Russia?

Not a single country in the world manufactures all the arms and military hardware for its armed forces in its own territory. As for Ukraine, objectively speaking, it cannot guarantee the technical upgrading of its armed forces it badly needs in the necessary time with any other country than Russia. In addition, for Russia, Ukraine is a fairly attractive arms market with potential growing year after year, given the state of armaments of the Ukrainian Armed Forces.

Today over 400 Russian companies rely on deliveries from Ukraine. On the other hand, over 70% of suppliers of systems and components for Ukrainian defense plants are located in Russia. Ukrainian companies are involved in the biggest Russian arms contracts for the delivery of combat aircraft to India and China. I believe that this year will see quite successful examples of Ukrainian-Russian interaction on markets of third countries, and I personally regard this as a positive tendency. Ukraine and Russia have come to a point that requires the pooling of efforts, and not just under some individual projects. The formation of joint ventures and industrial-financial groups in DIC is in question today.

At the same time Ukraine’s MTC with Russia does not contradict or prevent Ukraine’s MTC with Western countries. Though the actual scale of MTC with the West is not great today, the prerequisites for expanding it exist. We do not rule out though that in a number of spheres Ukraine and Russia together could be much more successful in European markets than either one of them separately.

What can be generally said today of the Ukrainian DIC and its restructuring directions?

To begin with, in the past few years the number of industrial facilities and organizations in the Ukrainian DIC reduced approximately to one fifth and their personnel to one seventh. Following a sharp cut in budget financing the volume of R&D as well as the production of the key types of armaments plummeted. Today many Ukrainian defense plants live at the expense of foreign orders. Some foreign orders constitute 70-90% of total output, while domestic consumption has dropped to 5%. One cannot say that this is a purely negative tendency. If we have a defensive military doctrine and do not intend to conduct large-scale combat operations in foreign territory, it is unacceptable both the political and economic viewpoints to maintain an enormous number of means of territorial destruction. However, the development of this tendency increases risks for some strategic enterprises, and this prompts corresponding decisions. It is also natural that plants that used to turn out their products by the hundred and now only by the dozen cannot remain the way they used to be. There is also the grave problem that production assets are badly worn out and traditional patterns of cooperation between designers and production facilities have been disrupted. There is also one purely national peculiarity: a limited number of technologically complete productions of key types of armaments. It is here that Ukrainian-Russian production cooperation can continue in a whole number of directions. However, today Ukraine is also considering the possibility of joint projects with several other partners. For instance, at this stage Ukraine has a choice of partners for developing and launching the production of several new types of armaments and military equipment. Without naming the potential partners I may say that they are located in the Middle East and Asia as well as Europe.

Ukraine does have the resources to develop its DIC. In shaping its DIC Ukraine will proceed primarily from the objective of satisfying the needs of its own army and law enforcement agencies. It will also take into account the possibility of boosting the export potential through raising to export standard the high tech sector - about 15-17% of the total – that Ukraine cannot use today for economic reasons, but will need in the future. The national DIC now in the making will not be a rigid structure. For instance, industries that traditionally did not belong to DIC will be incorporated in it, if there is a need to develop various weapons based on new principles. On the other hand, facilities traditionally manufacturing defense goods may lose their dominating role for the same reasons. The size of the government defense contract will naturally be the main regulator and incentive.

There are plans for making an inventory of fundamental scientific studies conducted in Ukraine the implementation of which in, say, unconventional types of armaments may significantly influence the choice of forms of guaranteeing the country’s defense capability. In addition, fundamental principles should be worked out, a scientific and technological potential developed and personnel trained for information and propaganda warfare both for neutralizing technical means and resisting influences on mass consciousness, as well as warfare involving nonlethal weapons. The undoubted priority today is the comprehensive development of means of data support for combat actions, namely through the use of civilian satellites and ground infrastructure.

A key measure that should be singled out is future establishment of several national joint stock companies and companies for managing government property in DIC. In addition to them Ukraine will also have vertically-integrated companies in DIC, for instance, in the rocket and space, aircraft-making and ship-making sectors. The draft concept provides for the sale of part of the shares to foreign investors. The government will decide on the size of the stake separately in each case. And this in its turn requires the adjustment of Ukrainian legislation.

Could you say what particular legislation?

Firstly, amendments have to be made in the Law on bankruptcy with regards to state-owned enterprises fulfilling orders for the development and delivery of arms and military goods, the Law on the privatization of the property of state enterprises with regards to the rights and duties of enterprises responsible for the production of arms and special chemicals, and finally the Law on financial-industrial groups regarding the conditions of the involvement of Ukrainian companies in foreign financial-industrial groups and transnational corporations manufacturing arms and military goods.

Secondly, regulatory acts should be developed to facilitate leasing and offset programs in trading arms and defense technologies. Besides, conditions should be created to form joint ventures with companies of the Ukrainian DIC for the development and production of arms and military goods.

Thirdly, the system of government licensing of the development and production of arms and military hardware should be improved, national standardization and certification systems harmonized with similar systems of foreign arms consumers and manufacturers.

Does this mean that legislation will be adapted primarily for purposes of integration in Russian holdings?

I would say it would be adapted to facilitate integration in various transnational structures – Russian as well as Western, for example.

What does the State Commission suggest doing with fully state-owned enterprises?

Part of them will remain as such, of course. But there will not be dozens of them like today but only a few. The state cannot pledge to help all the state-owned enterprises existing today.

Does Ukraine have any possibility to reduce national security expenditures other than directly increase defense spending?

It does, by applying the achievements, infrastructure and services of the civilian sector. The civilian sector in Ukraine is now growing faster than the defense sector. To be more exact, production in DIC constitutes only 6% of overall industrial production in Ukraine. A growing number of technologies developed in the civilian sector virtually without government subsidies is employed in the defense sector which should allow to reduce defense spending by approximately 25-30% in the future.

Recently you spoke out for adding a military component to the National Space Program. Does Ukraine really need it that much?

Ukraine’s relatively small territory that should be monitored in the interests of national security, the existence of facilities for manufacturing and launching the necessary satellites and the scientific and technological capabilities for designing and building the necessary ground infrastructure offer a unique chance of resolving purely defense tasks in combination with civilian space programs. Ukraine’s law on space activities directly provides for the existence of a military component of space programs.

A country that takes care of its national security should have space reconnaissance data, receive, transmit and use such data. The technical equipment of the Ukrainian intelligence is a very acute problem today. Considering that Ukraine is capable of developing means of space reconnaissance it would be a sin not to benefit from this capability. In general after September 11, 2001, many countries, but not Ukraine have turned to the development of space reconnaissance. The nature of present-day threats, among which terrorism is almost central, is such that it prompts a radical change of approach to the standard of national means of reconnaissance. In addition, by acquiring technical means of reconnaissance, including space means, for its own needs the government not only gives work to national companies but also attracts potential importers. Otherwise, how can we logically convince a buyer that we make good passive radio reconnaissance stations in Donetsk, if we do not buy them ourselves. The same applies to space.

Last summer Ukraine, in the person of the chairman of the State Committee for DIC, invited Europe to cooperate in organizing a European missile defense system.

The question of Ukraine’s involvement in the development of a regional missile defense system has not been dropped from the agenda. Ukraine has every prerequisite for working in this direction. Firstly, we have two missile attack early warning stations that can be used to notify European countries. Both can operate as part of a global space control system. The stubborn reluctance of EU members to recognize this factor is surprising. Secondly, Ukraine could participate in the development of sea-launched tactical missile defense means in the Black Sea area and in other joint projects. And finally, Ukraine has legal grounds for participating in the development of a regional or European missile defense system, because it is one of the legal successors of the former Soviet Union under the 1972 ABM Treaty.

^{[*] The interview was taken with the mediation of the Center for Army, Conversion and Disarmament Studies (CACDS) in Kiev, Ukraine.}