Ukrainian attack drones, projectiles and corruption loopholes in Ukroboronprom. Interview with CEO Herman Smetanin
What has changed in the work of Ukroboronprom state holding company since the new CEO came in, what are the priorities in the production of weapons and drones, and what is happening with the missile programme?
Ukroboronprom is a fiefdom of Soviet-era natives, or "great fathers" as they are also known. They have held senior positions at state-owned plants for decades. Some have been doing their jobs honestly all their lives, while others have been caught red-handed in corruption schemes.
Each of the directors has their own interests. Some of them are so influential that they have outlived all eleven heads of Ukroboronprom and even managed to get into open conflicts with them.
Finding a common language and organising the work of all these heads fell to 31-year-old Herman Smetanin, who became Ukroboronprom's CEO in June 2023, replacing Yurii Husiev. His appointment is part of a major personnel reshuffle in the defence industry.
The phrases "industrial nationalism" and "domestic production of weapons" have become much more commonly used by government officials. Understanding the changing nature of Western support, the government has set a goal of multiplying arms production, and Ukroboronprom will play a key role in this.
It is no coincidence that Smetanin's main difference from his predecessors is that he is a man of the people.
Smetanin has been working at Ukrainian tank plants since 2014. After nine years of working on the development of the tank army and a fairly rapid career progression, he received a new challenge – to launch a weapons production line unprecedented since 1991, to clean up the terrible corruption reputation of the state-owned concern and turn it into a modern holding company.
How exactly will he do this and what has he already succeeded in doing?
On his appointment, tasks from Zelenskyy and overachieving on plans
Over the past nine years, you have held five positions at four different armoured tank companies. Why did you change jobs so often?
My colleagues saw that I could work better and take on more responsibility. But there were already competent people in management positions, for example. So I went to another company where such specialists were needed.
When there was an offer to be promoted, to perform more complex tasks, to try myself in a new role, I accepted it. This is normal for any person. However, I have always stayed in the industry.
Could you name your main achievements during your work in the industry?
The first is the development of the Lev armoured recovery vehicle (ARV) based on the T-72 tank. This was the reason for my promotion from chief designer to chief engineer. At the same company, we mastered the overhaul of T-64 tanks with all the technical documentation in a year. We also mastered the overhaul of the T-72 and the production of ARVs based on the T-55 tank.
At another plant, the output of commercial products increased from 600 million hryvnias (about US$16.5 million) to 1.2 billion hryvnias (about US$33 million) during the year when I was manager. We produced twice as many tank engines and started making track belts for BMP-2 IFVs. At yet another company, we upgraded the T-64 to a command tank for the first time in Ukraine.
These are all different projects. I am proud of all of them.
How did you become CEO of Ukroboronprom and who recommended you? You weren't selected in a competitive selection process, which is a normal procedure.
Yes, competitive selection processes were cancelled under martial law. The first person who interviewed me was our Minister of Strategic Industries, Oleksandr Kamyshin, because this is his area of expertise. Then there was a series of interviews, including with the president.
Was this your first meeting with Zelenskyy?
No. I used to run a project that fell under his purview, as he is the first person of the state.
What tasks did he give you?
Reforming the concern, fighting corruption and, most importantly, increasing the production of equipment and weapons, including those in line with NATO standards.
Who approves Ukroboronprom's production plan?
We have contracts with the Ministry of Defence with clear delivery schedules. And the Ministry of Defence receives a request from the General Staff of the Armed Forces of Ukraine, which knows exactly what the Armed Forces need now. Our first priority is ammunition, the second is drones, and the third is armoured vehicles. And, of course, MANPADS and air defence systems.
Are you able to meet your production plan goals?
Yes, we are. Moreover, we are now ready to produce even more weapons, so we expect new contracts. In terms of volumes, we have increased production by 62% over three quarters compared to the same period last year. I think this figure will be higher in the fourth quarter.
On Ukrainian Shahed-type drones, other UAVs and the Sapsan missile
The previous management said that Ukroboronprom was developing a kamikaze drone capable of flying 1,000 kilometres. There is even evidence that it has already flown and exploded somewhere. But there is so little information that people have begun to doubt its existence. Tell us, is this drone being mass-produced?
It is being produced. In particular, in cooperation with foreign partners. I will not tell you where exactly for security reasons. The main thing is that these drones fly and explode, and the Defence Forces order them. This is great!
Is this an analogue of the Iranian-made Shahed attack drone?
There are many state and private manufacturers in Ukraine. We have an analogue of the Shahed drone, and we also have more powerful models, because Shahed drones don't fly that far. We are now focusing on the production of more complex and expensive high-performance projects.
What is the record for combat range among your drones?
About 1,000 kilometres.
Have you mastered the production of small FPV drones?
FPV drones are in high demand right now. We help private companies to scale up their developments. We have signed licence agreements with three large companies to produce their models. We have people and premises, components are delivered to us, and we produce. We help everyone who comes to us to scale up their developments.
Ukroboronprom is currently ramping up ammunition production. How long can we keep increasing production volumes and won't we hit a certain ceiling on our capabilities?
This is a very sensitive topic. If I say that, for example, we have a shortage of a component that is produced in only a few countries, Russia will create problems for us. Its representatives will come there with five suitcases and say: "We will buy everything up till 2048." Then we will not have this component. There is no need to prompt the enemy.
What I can say is that we are successfully producing mortar, artillery and tank projectiles in cooperation with foreign partners. Our production facilities are located not only in Ukraine but also abroad.
Last year, the Ministry of Defence ordered few domestic projectiles, so we didn't produce many of them. Is the Ministry of Defence currently supplying you with orders for ammunition?
We are ramping up production and are already ready to do more than the current contracts. We are looking forward to new orders. The Ministry of Defence and the Ministry of Strategic Industries have reached an agreement that the capacities of Ukrainian facilities will be contracted first, so I think this is a matter for the near future.
The story of the construction of a cartridge factory has been going on since 2014. Various politicians have made promises, but nothing has been built in nine years. Is Ukroboronprom currently getting into the business of producing cartridges?
There is cartridge production in Ukraine, but they are not produced by Ukrboronprom, and not enough are manufactured to cover the needs of the Armed Forces. Next year, the budget will allocate seven times more funds for the development, modernisation and growth of the defence industry than this year. Part of this money will be used to develop cartridge production capabilities.
Previously, Ekonomichna Pravda’s sources in the government said that the former director of Ukroboronprom had been forced to leave in particular because of problems with the missile programme. Do you already know what to do so that Ukrainian Sapsan missiles arrive in time for a decisive battle?
I'll put it in general terms. There is a state programme aimed at increasing the production of missiles. People are working, they are all motivated and want to shoot at f**king Moscow, so that they’ll feel it out there. But in times of war, this is top-secret information that I cannot share.
How noticeable is the shortage of employees at Ukroboronprom facilities?
I remember when I attended the competitive selection process for directors’ roles, very serious people came for those – big shots, real monsters. They brought with them strategies for company development. Now, just about 10 people show up, only half of whom have done anything in the industry. Perhaps professionals have left, or maybe they are afraid – but because of this, we have a significant shortage of managers.
At the companies themselves, there is also a shortage of workers. Every month you need to do more, so you need to recruit more people every month. If at some point we tell you that there is no shortage of personnel, this means that there is simply no growth in production.
Until 24 February 2022, Ukroboronprom had a portfolio of export contracts worth hundreds of millions of dollars. What's the situation with them now?
Our export contracts remain in force, no one has cancelled them. Advances have been made on some of them. After the war, as soon as we have built up the reserves of the Ukrainian army and other departments, we will be able to resume the implementation of these contracts.
We are not refusing to carry them out, there is simply such a thing as force majeure, and our customers understand this. Ukroboronprom equipment is currently not sold abroad. Everything goes to the needs of the Armed Forces of Ukraine.
On corporatisation, supervisory boards in factories and corruption
Many people from the industry believe that Ukroboronprom should not exist at all, because since Yanukovych [ex-President of Ukraine – ed.] it has been a haven for siphoning off money and allegedly prevents defence companies from unleashing their potential. Why do we need Ukroboronprom today and why bring the entire defence industry under one roof?
In wartime, control and coordination in the defence industry is a direct necessity. For example, the Ministry of Defence gives an order for the supply of certain products. The General Staff says that it is needed tomorrow. And the director of the company says: "I can't do it tomorrow, my capacity is full." And we are looking at whether another plant can supply these products, or somehow cater to that need.
Out of 10,000 new shells, 40 pieces have to be shot in order to test the batch. I say to the director: "You have 2,000 in stock, they must be urgently sent to the front." And the director says: "If I deliver 2,000 now, I will still have to shoot 40 of them. Then my numbers will not add up." And together we find a way to make that balance sheet right.
That is, some business leaders see the situation only at their own plant and think that everything is fine, forgetting about global challenges.
The existence of a state defence holding company is a normal practice in this world. The only point we need to pay attention to is high-quality corporate governance.
Ukroboronprom is currently undergoing corporatisation. Tell me briefly, what will it achieve?
The world works like this: there is a plant that is part of the holding company. The holding company creates common standards and procedures for them, and systematises them – audit reports, supervisory boards, and order portfolios. At the same time, each plant has a director, and the director has its own supervisory board, which oversees it every day.
We still have a state-owned company, and it has a director. Who oversees the director? Ukroboronprom. Who is Ukroboronprom? We are like one big obscure supervisory board.
We are currently working on the transition to modernised standards. 28 of our companies have already been converted into commercial companies, another seven are in a state of transformation. The great achievement of recent months is the creation on the site of the state concern Ukroboronprom of the Ukrainian Defence Industry, a joint-stock company, and the issue of its shares, which are owned by the state.
It’s not as easy as simply changing the name plates. The concern was not able to create joint ventures with Western partners or exchange technologies. The emergence of a joint venture with the German company Rheinmetall became possible only after the conversion of Ukroboronprom into a joint-stock company.
When will they form new supervisory boards at the companies?
Supervisory boards are currently being formed at Ukroboronprom and its companies. As the head of the company, I am not directly involved in this. Regarding Ukroboronprom, this should be done by the Cabinet of Ministers, and regarding specific companies, by the newly elected Supervisory Board of the concern.
That is, the creation of supervisory boards at companies will be the next step after the formation of the supervisory board of Ukroboronprom. We hope that by the end of the year, they will be elected.
Is it possible to attract foreign specialists to supervisory boards?
If a foreigner wishes to participate in the competitive selection process and meets the criteria established by law, his or her candidacy will be considered. At least a third of the supervisory board should be independent members. However, it should be borne in mind that, according to the law, a foreigner cannot become an independent member of the Supervisory Board of Ukroboronprom, only a representative of the state.
At the presentation of the anti-corruption strategy, you promised that there would be arrests and detentions at your companies. Have they already begun?
What I can tell you now: managers were suspended and searches were conducted at two of our companies. Acting officers were appointed in their place, and investigative actions are ongoing.
Historically, Ukroboronprom has a very bad reputation for corruption. What arguments will you use to convince your potential partners and Ukrainians that the era of siphoning off money is a thing of the past?
We have three main corruption scenarios: the first is when someone takes funds to appoint a company director, the second is when plant managers buy something at inflated prices, and the third is when managers rent out for 1000 UAH [approx. US$28 - ed.] something that can be rented out, let’s say, for UAH 10,000 [appox. US$275 - ed.].
Concerning appointments. We have restored and improved the competitive selection of candidates for heads of companies. Four representatives of foreign embassies were involved in the last competitive process.
How does this happen? Several dozen candidates come to us. Our personnel officers choose from them the 10 most professional and educated. Then they invite people to the table, around twenty of them: representatives from the Cabinet of Ministers, the Ministry of Economy, the Ministry of Strategic Industries, and foreign diplomats. The candidate comes in and they start asking questions.
The Independent Anti-Corruption Commission (NAKO) and StateWatch look into the candidates to ensure that they do not have suspicious firms or corruption risks. As a result, out of ten candidates, two are short-listed. And then during a personal interview, I choose the one who is more suitable.
Procurement. We monitor all the largest purchases at companies so that there is no such thing as a printer bought at the price of a jeep. We are actively running purchases through the Prozorro system, although this practice was suspended at the beginning of the full-scale invasion. For example, we jointly purchase electricity and gas for our companies. Thanks to this, it has already been possible to save almost UAH 50 million [approx. US$1,38 million – ed.]. We also conduct tenders for services and non-military goods.
And regarding abuses in the use of property. We have developed a policy that during the sale or lease of property, there should be an independent assessment that will determine the starting price. And then all these deals will be conducted through Prozorro Sale.
Everything that the NACP (the National Agency on Corruption Prevention), NAKO, and StateWatch have recommended to us has been taken into account in our strategy. Soon we will report how we are implementing and using all this. Perhaps someone will look for cracks. But our task is not only to look for cases where someone has stolen something but to make the system such that it is not possible to steal in principle.
Translated by Myroslava Zavadska and Theodore Holmes
Edited by Susan McDonald