Secret defense orders become a jackpot for Ukraine government
The re-building of the previously dismantled infantry fighting vehicles, the strange purchases of radio communication equipment that won’t fit into tanks, such contracts with military suppliers are turned off by high-ranking officials. Read move impressive facts in Novoe Vremya (NV) investigation.
In February, at the Munich Security Conference, President Petro Poroshenko proudly told the foreign partners that Ukraine currently spends about 6% of its GDP or 179 billion UAH on defense. However, he did not say that almost 20% of the budget of the Ministry of Defense (MO) – its number for 2018 stands at 83.3 billion UAH – goes toward some secret purchases. This is not just a lot by the world standards – in the United States, such ratio is only 10% – not transparent deals have become an area where suspicious financial transactions thrive. Those clandestine deals involve some high-ranking representatives of the presidential team and some parliamentarians.
The experts and parliamentarians who are familiar with the situation in Ukrainian defense sphere, when dealing with those murky transactions, refer to two people / professionals. The first is Oleg Gladkovsky, the deputy secretary of the Security Council (NSDC), a longtime business partner of the head of the state, who controls the Bogdan Automobile Corporation. The second one is Sergei Pashinsky, a representative of the Popular Front Faction (NF) in the Ukrainian parliament, and the head of the parliamentary committee on defense issues. Most recently, he also heads / chairs the supervisory board of the state holding Ukroboronprom, that manages the country’s military-oriented production assets.
Money machines of war
One of the strangest / the most questionable contracts signed by the Ministry of Defense in 2016-2017 concerns the supply of the Zhitomir armored tank (ZHBZ) infantry fighting vehicles (BMP) production plant.
The mentioned enterprise purchased decommissioned BMP-1 that were built around 1980’s from a company Wtorplast, Poland. The Polish company, in turn, previously bought them from a Czech company, Excalibur Army, for € 20-25 thousand per unit – at the price of a scrap metal. Wtorplast dismantled the BMPs by simply separating the towers from the chassis.
Then ZHBZ imported all these parts separately to Ukraine, in the process, each tower was estimated at $ 66 thousand, and each chassis – at $ 99 thousand; then the plant “repaired” those BMPs – it just connected the previously disconnected parts. The cost of the work was another $ 40 thousand per unit.
As a result, a BMP worth € 20,000 cost the Ukrainian defense budget the whopping $ 205,000. Last year alone, under the contract with the ZHBZ, the Ministry of Defense purchased 200 combat vehicles, spending $ 41 million on them.
Military experts are wondering why the Ministry of Defence would buy old BMPs, especially abroad. Because the Kharkov Tractor Plant produces a lightweight analog of the BMP, says Anton Mikhnenko, an analyst at the Center for Army Studies. Also, there are other enterprises that make it possible to produce infantry fighting vehicles in Ukraine.
Another dubious contract was implemented by the Shostka factory Impulse, which is a part of Ukroboronprom. In April of 2017, according to the invoices, the company sold 109 packages of detonators at a reduced price of € 95,000 to the Cyprus offshore company PH Strategic Business Limited. Then the same detonators were bought by the Serbian company Sloboda registered in Cyprus, at the price of € 684,000. The payment went through the Latvian bank ABLV, which in February 2018 the US Ministry of Finance accused of money laundering. It’s not clear in whose pocket the margin of almost € 600 thousand ended up.
And the son of Mr. Pashinsky, who has been the head of the external contracts department of the State Specialized TechnoExport, is involved in deliveries of the detonators. It is this government department that issues licenses for the arms exports. His father, the member of the Parliament, in his conversation did not confirm his own involvement in the export of detonators. But he did not deny it either.
Such contracts are certified in Ukroboronprom by Svetlana Khromets, the deputy head of the corporation. Previously, she worked in the company of Bogdan Gladkovsky.
Yuri Derevyanko, an independent parliamentarian, the member of the parliamentary committee on prevention of corruption, there is another such a story: the purchase of radio stations for the needs of the army by the Ministry of Defense.
In the spring of 2017, the department planned to re-arm the subordinates, sending $ 350 million to purchase new stations.
Two companies were bidding on the supply order: the Israeli Elbit, a member of the big league of suppliers of similar equipment, and Turkish Aselsan, a modest player by the world standards.
At the end, the MoD chose Turkish company, and purchased its walkie-talkies for $ 100 million. Aselsan’s offer was 1% cheaper than Elbit. But, according to experts, the Elbit’s offer was much better.
Mr. Derevyanko found out that the Ministry of Defense had determined the winner on the basis of tests. But at the same time, according to him, the MoD’s officials were comparing the new Turkish models with the old Israeli ones. Elbit company was ready to send its newest products, but the state managers of the Ukrainian defense department did not take an interest in the offer. Mr. Derevyanko believes that the method by which the MoD evaluated the stations did not correspond to the NATO standarts.
Moreover, after finishing the tests and finalizing the contract, Ministry of Internal affairs officials unexpectedly found out that Turkish stations were too big, and therefore did not fit into T-64BV tanks, for which they were bought.
NV received a copy of Mr. Shlomo Dagan’s letter, one of the top managers of Elbit, sent to the anti-corruption committee of the Verkhovna Rada. The author claims: General Vladimir Rapko, the head of the committee that conducted the tests, was fast to declare Aselsan the winner, without waiting for the end of the tests. Despite the fact that even during the testing process, Turkish sample stations were constantly breaking down.
The press service of Elbit says that during Ukrainian tests their products surpassed the products from Aselsan in all respects. It also added: “Despite substantial investments in Ukraine, our efforts during the tests and our constant requests, the Elbit company has not received any official reports on the results of the tests.” According to Mr. Derevianko, in November of 2017, the Israeli Prime Minister Benjamin Netanyahu phoned President Poroshenko and asked him to clarify the situation.
After the call, the MoD conducted repeated tests of the radio stations, but still chose Aselsan. In response to the requests from Mr. Derevyanko, the Ministry referred to a large number of technical nuances, according to which Turkish products are more suited for Ukrainian army.
Bogdan The Almighty
Lately, The Auto Corporation Bogdan is very fortunate. Its owner, Oleg Gladkovsky, chairs the Security Council, and moreover, he heads the commission for military-technical cooperation. And his corporation receives nice orders from the government.
The Independent Anti-Corruption Committee for Defense Affairs (NACO) NV reported: at the beginning of the last year, the Ministry of Defense signed the contract with Bogdan Corporation to supply 100 medical evac vehicles, at $ 32,000 each. The department did not announce a tender because the law allows for such procedures to be conducted without a tender if they pass under a secret defense order. This is exactly how the MoD has formalized its application.
According to the National Aeronautical Defense Ministry, half of the 50 cars delivered to the front line, broke down in less than a year of operation. Nevertheless, the MoD plans to acquire a hundred more of these vehicles.
Mr. Gladkovsky, commenting on this case, said to NV: first, he had learned from the press about the purchase of vehicles from Bogdan Corp., second, the actual number of the broken vehicles were three. Although earlier, representatives of his own corporation admitted the fact of 25 faulty medical evac units. Mr. Gladkovsky believes that the main cause of the breakdowns is / was the poor quality of fuel. The Ministry of Defense purchases it from a company called “Trade Commodity”.
The NABU is currently investigating the suspicious activity of this company. In late March, its detectives completed the investigation of this case. The key suspect in this scheme was Igor Pavlovsky, the Deputy Defense Minister, who was going to bail himself Gladkovsky. The court, however, freed the deputy minister under the guarantee of two military men / officials.
The Defense Ministry also buys trucks from Mr. Gladkovsky’s corporation. According to NV’s sources, in 2015, the MoD procured 120 “Bogdan” trucks, produced in cooperation with the Belarusian MAZ Corporation. The price of the contract was 100 million UAH.
In subsequent years, the purchase numbers increased to 150 cars a year.
Bogdan-MAZs are at the Kuznya factory in Rybalskoye, that belongs to Mr. Poroshenko and Mr. Kononenko.
Having chosen the Bogdan-MAZ deal, the Ministry of Defense dismissed the fully Ukrainian similar product – the Kreznug KrAZ trucks, that are 10% cheaper and come with a five-year warranty, unlike Bogdan’s products with only two-year warranty).
Dina Stegantseva, the spokesperson for the KrAZ Company, says that the defense products of their plant, prior to being shipped to the MoD are subjected to the two-year tests at the manufacturer’s expense. At the same time, the Bogdan-MAZ trucks are being tested for only two months. In addition, there are Russian components in that Ukrainian-Belarusian product.
In March, Bogdan Corporation issued a statement that from now on, it won’t use any
accessories from Russia. But in KrAZ note: the proposed new model is the Belarusian MAZ assembled in Ukraine, which is more expensive than the Ukrainian analog.
Asked whether Mr. Gladkovsky does not see any conflict of interest – he and Bogdan owns the corporation and holds a high position in the defense sector, – the deputy head of the National Security and Defense Council answered: “Look at the top-level American politicians, almost all of them own some companies.”
Image credit: NV
A military secret, which is not a secret
Excessive secrecy in defense sector – this is what causes suspicious deals and corruption in the area of military appropriations in Ukraine.
And this is no secret to anyone in the world. In the rating of the Government Defense Anticorruption Index, which is the London office of Transparency International for monitoring the situation with corruption in the defense sector, Ukraine is in the group D. The most “clean” countries are group A, and the most doubtful are group F. Any person, familiar with the Latin alphabet, guess that the Ukrainian position in the rating is far from ideal.
In order to change the current state of affairs, Elena Tregub, the head of the NACO, does not offer anyone to plant. In her opinion, it is necessary to completely change the approach to the state defense pending procedure, making it more transparent and accountable to the society.
Image credits: NV