Year and half of reforms go down drain: why Umierov’s team encroached on independence of agencies
One of the key positive changes in the Ministry of Defence (MoD) was the launch of two procurement agencies. This initiative emerged during the tenure of Minister Oleksii Reznikov as a response to corruption abuses by MoD officials and was finalized under Minister Rustem Umierov.
While the reform showed significant promise, it would have been ideally successful if the heads of the Defence Procurement Agency (DPA) and the State Logistics Operator (DOT) had been selected through a competitive process, and if key personnel decisions had been made by their supervisory boards.
After a year and a half of struggle, the members of the Public Anti-Corruption Council of the Ministry of Defence, the Anti-Corruption Action Centre, and the Independent Anti-Corruption Commission succeeded in approving the composition of the supervisory boards for both the DPA and the DOT. From the moment these supervisory boards were formed, they were tasked with appointing and dismissing the management of the agencies, as well as verifying the most expensive contracts.
However, in December, the Ministry of Defence took a step that effectively undermined the entire reform and jeopardized the independence of these agencies.
On December 16, the Ministry of Defence amended the charters of both agencies, reserving the right to dismiss and appoint the heads of both agencies, as well as to influence the contracting of goods.
To be honest, this came as a shock to the members of the supervisory boards of both agencies.
On December 27, in their official appeals to the Ministry, both supervisory boards emphasized that the latest version of the Charter, approved by Ministry of Defence Order No. 839 of 16.12.2024, raised concerns about its alignment with the principles of proper corporate governance.
According to the members of the Supervisory Board of the DPA, these changes restrict the independence of the Supervisory Board and create conditions for interference in its activities. Moreover, "the new version of the Charter introduces risks of duplication of functions, conflicts of interest, and abuse of power due to the absence of a clear and balanced distribution of authority between the Ministry of Defence, the Supervisory Board, and the Agency."
The members of the Supervisory Board of the DPA have suggested that the provisions of the Charter be revised to align with the relevant regulatory acts and the corporate governance principles set forth by the OECD.
Particular attention, in their opinion, should be paid to the regulation of personnel issues in the Charter and the establishment of clear criteria for determining significant economic obligations.
After that, the Ministry of Defence (MoD) finally came forward with a semi-official position and commented on the author's post, stating that it was guided by the amendments to the Law of Ukraine "On the Management of State Property Objects."
"According to Article 11-2, paragraph 7 of the Law of Ukraine 'On the Management of State-Owned Property,' the governing bodies of state-owned enterprises are obligated to monitor existing or potential threats to national security and take measures to neutralize them. Paragraph 7 is in effect during the period of martial law. In peacetime, this provision will not apply," wrote Hlib Kanevskyi, Head of the Procurement Policy Department.
"Meetings were held with both Supervisory Boards, with the participation of lawyers, auditors from the MoD, etc., two weeks ago. The positions were discussed. It was agreed that the DPA and DOT would prepare official proposals for their Charters. So far, no such proposals have been received. Other strategic SEs (State Enterprises) of the MoD (Motor Sich, AvtoKrAZ, etc.) have similar versions of their charters," he added.
Almost a month has passed since then. During this time, members of both supervisory bodies have met with the ministry. However, the results appear to differ, as can be observed from the posts about the meetings on Facebook.
Meanwhile, the head of the Anti-Corruption Committee, Anastasiia Radina, initiated a committee on the issue of the MoD's encroachment on the institutional independence of the agencies.
It should be emphasized here that the problem of changing the charters is far from being about the dismissal of Maryna Bezrukova, the head of DPA (although this is indeed one of the main versions of why the charters were changed - so that the MoD could influence the dismissal and appointment of the head of the DPA, as the MoD has long had a conflict with Bezrukova). This is a much bigger problem. It is quite boring, but very important.
And this is exactly what Radina emphasized in her opening remarks – that we are talking about institutions, not individuals. The number of invitees to the committee was record-breaking – at least five people from the Ministry of Defence (including Deputy Ministers Dmytro Klimenkov and Ivan Havryliuk), representatives of both agencies and both supervisory boards, members of the Civil Anti-Corruption Council, and about a dozen representatives from embassies. And, of course, Members of Parliament.
However, the readiness of the Members of Parliament for the committee was simply disappointing. With the exception of a few, it was clear that most People`s Deputies had not reviewed the changes to the charters or the provisions of the law that the MoD had cited as justification for the changes.
It was clear that People`s Deputy Yuliia Yatsyk attended the committee solely to voice her complaints about the DOT, and Oleksandra Ustinova – about the DPA. Furthermore, after their speeches, the People`s Deputies left rather quickly.
Out of the two hours of speeches, only a few segments were truly valuable.
According to Roman Shuliar, a representative from the MoD`s Legal Department, the Law on the Management of State-Owned Property required the MoD to bring the charters of state-owned enterprises into compliance with the law within a year. "Our work is not limited to agencies; we have already updated ten charters so far," Shuliar said.
"The appointment and dismissal of the agency's director remains within the exclusive competence of the supervisory board. This is how the current version of the charter is worded. A clause was added stating that the Ministry must approve these decisions before the supervisory board adopts them. The idea was that the ministry would use its resources to vet the candidates, to help and secure the situation when a person who had not been fully vetted would become the head of the company. And we do not consider this approval to be an interference with the competence of the supervisory board," the Defence Ministry lawyer said.
In fact, according to the latest amendments from the MoD's Policy Department, which were distributed at the committee, the amended text regarding the ministry's measures in relation to the agencies reads as follows:
"The Head of the Authorized Management Body shall issue binding instructions and orders to the bodies, officials, and employees of the Enterprises.
The appointment (election) and termination of powers (dismissal) of the Head of the Authorized Management Body shall be made after consultation with the Chairman of the Supervisory Board (if possible) regarding the company's officials.
The bodies, officials, and employees of the enterprise are required to comply with the measures established by the authorized management body, including adhering to the instructions, orders, and directives of the Authorized management body." (These paragraphs come into force only by the decision of the Headquarters of the Supreme Commander-in-Chief or the National Security and Defence Council during martial law).
The list of officials includes the head of the company, his deputies and accountant, corporate secretary, heads of structural units, and members of the supervisory board.
The Supervisory Board requested the removal of the corporate secretary from the list, but the Ministry of Defence declined.
The head of the DPA will have to agree on his deputies with the Ministry's leadership. This means no more liberties like the appointment of Artem Sytnyk will be allowed.
Furthermore, the Ministry of Defence insists that it has the right (but not the obligation) to sign a five-year contract for the director of the DPA. This means the contract term can be shorter.
What the MoD did agree to is that the supervisory board must approve the assumption of economic obligations worth 10-25%. However, this provision is part of the aforementioned law.
After Shuliar's speech, Anastasiia Radina remarked that the MoD, in claiming to have implemented one clause of the adopted law on state property, had actually ignored the following article of the law.
'Who gave you permission to implement one article and ignore another?' the deputy asked.
Then, Oleksandra Ustinova, a representative of the Voice party, intervened in the debate and suggested that they should focus on real problems, rather than on statutes."
As you know, Ustinova recently wrote a column about how "poorly the DPA works". At the same time, Ustinova herself was indeed previously mentioned as a possible candidate for the head of the DPA, although she has no experience in procurement. And it is also known that Ustinova promoted Umierov to minister.
In her speech to the committee, Ustinova once again accused the DPA of inefficiency, claiming that they were purchasing through intermediaries and that 25 billion worth of ammunition had not reached the frontlines. However, the People`s Deputy failed to mention that among those munitions were those contracted to Ukrainian factories, which did not deliver on time, and the ones that were delivered turned out to be of low quality.
"You've done an incredible job with eggs and jackets, and I have a proposal for you—let’s hold a closed meeting not on statutes but on procurement. Why is it 300-500 euros more expensive to buy, why are more purchases made from intermediaries, from ‘shell’ companies? And here we are, saying everything is fine…" Ustinova said.
"I’m curious about the issue of state secrets—how are these prices getting into the network?" the People`s Deputy added.
Her colleague, Yuliia Yatsyk, asked why the DPA did not contract with the Turkish supplier but instead bought the same product from the intermediary company Excalibur.
It’s worth noting that the Czech company Excalibur is one of the largest arms manufacturers. However, the real issue here isn’t even that, but the fact that Yatsyk walked away without hearing the response from the head of the DPA, Maryna Bezrukova, to this question.
"I categorically reject the accusations of collusion with special importers. We are following a trend of reduction and work with them only where they provide added value. Secondly, the company Arka, which was mentioned, did indeed offer a cheaper proposal. We had an inspection and serious intentions regarding the contract, but the situation developed such that when the information reached the system, intermediaries actually arrived. And from my side, I received a very strong warning from the security services and the Ministry of Defence. That is why this contract did not go ahead, and the goods were purchased through intermediaries," said the head of the DPA.
Arsen Zhumadilov, CEO of DOT, noted that the changes to be made to the charter "needed clarification," but that there is "a dialogue" between the supervisory board and the Ministry of Defence.
In particular, he mentioned the instructions that DOT would give in case of a threat to national security during procurement. According to him, these decisions will not be "a unilateral decision by an official who was in a bad mood."
"This will be a collective decision of either the National Security and Defence Council or the Headquarters of the Supreme Commander-in-Chief. And even if there is such a confirmed fact of a threat, the supervisory board will still be involved," the official said.
Deputy Defence Minister Dmytro Klimenkov said that the amendments to the DOT charter are expected to be agreed by the end of the evening on 16 January or the next morning.
Instead, Maryna Bezrukova, the head of the DPA, expressed her comments on the amendments to the charter more harshly.
"For example, receivables can be considered an actual or potential threat to national security. And from a certain perspective, this may indeed be true. That is why there is a law, and I am asking to bring the charter in line with the law. This is the most important thing, and it is very critical because our reputation depends on how well we maintain the principles of corporate governance," Bezrukova emphasized.
Indeed, one of the reforms that European partners constantly demand from Ukraine is corporate governance reform. However, Ukrainian officials are continually trying to throw up roadblocks to this reform. In the summer, Ukraine faced significant setbacks after the dismissal of the head of NPC Ukrenergo, Kudrytskyi, which led to the resignation of two members of the supervisory board. And now, the state is unable to reconstitute this board.
Summing up the committee meeting, Anastasiia Radina stated that she saw no other solution but to initiate a separate bill draft on agencies. There might be logic in this. However, the practice of amending laws through amendments is stronger than ever in Ukraine.
Tetiana Nikolaienko, Censor. NET
