On the eve of the new year, Defense Minister Rustem Umyerov made illegal changes to the statutes of the Defense Procurement Agency (AAOZ) and the State Rear Operator (DOT). These changes undermined the reform of defense procurement, which took place after the dismissal of the previous minister Oleksiy Reznikov.
The price of such a decision: manual management of the country’s largest procurement budget in over UAH 550 billion per year. It’s more quarter of income annual state budget. For the army, AOZ buys weapons and equipment from this money, and DOT buys food, fuel and other non-armament related goods.
At the beginning of the full-scale invasion, the closure of defense procurement and the concentration of insanely large procurement budgets in the Ministry of Defense became one of the reasons for high-profile corruption scandals with “17 eggs” and three times more expensive “winter jackets”. Reznikov paid for it with his position. In turn, his successor, Rustem Umyerov, had to implement new approaches to interaction both with the military and with society.
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However, only in the last months of last year, Minister Umerov collected his own string of scandals: tens of thousands married min 120 and 82 mm; transfer to border guards UAH 23 billion for purchases through a dubious Polish company;
and the most senseless – the attempt to liquidate AOZ – the largest purchaser of arms during a full-scale invasion.
Now the Minister of Defense is destroying the defense procurement reform that Ukraine won during the great war with his own hands. From now on, AOZ and DOT have become hostages in the hands of the leadership of the Ministry of Defense. That is, we have returned to the inverse point of reference in the defense procurement reform – the two agencies were de facto equated to separate departments of the MoU. The separation of procurement functions from the MoU and their transfer to separate agencies with transparent internal procurement procedures was the main achievement in defense procurement reform according to both public experts and NATO specialists.
what happened
Illegal changes to the Statutes are already the second major attack by the current minister on procurement agencies with the largest budgets in the country. The first happened at the end of September: Umyerov and his deputy Dmytro Klimenkov tried against each other requirements NATO to liquidate AOZ due to absorption by DOT. The Alliance demanded the strengthening and development of both agencies during the war through the appointment of independent and competent Supervisory Boards. Already after the end of martial law in NATO, it was recommended to merge the agencies into one, which would procure for the entire security and defense sector, which we previously detailed wrote.
In turn, under the guise of the same requirements, the leadership of the Ministry of Defense decided to liquidate the AOZ (joining the DOT). The goal was primarily to change the leadership of the agencies to a loyal one. Only thanks to timely and unambiguous positions NATOinternational partners and public pressure managed to save both agencies.
In addition, the Ministry of Defense delayed the creation of independent Supervisory Boards in the Agencies for almost 9 months, also contrary to requirements NATO. The Alliance demanded as early as July 2024 immediately creation of Supervisory Boards that will ensure independent management and strategic oversight.
Since Minister Umyerov failed to establish complete control over billions of dollars in flows through a loyal leader in the joint agency, he chose another path: illegal changes to the agencies’ Statutes. Therefore, on December 16, 2024, the day before the start of the work of the Supervisory Board of the AOZ, the Minister of Defense by his order approves the new editions of the Statutes of both agencies. These changes make it possible to manually manage the Agencies and the purchases themselves “from the mountain” bypassing their management or Supervisory Boards.
The Supervisory Board publicly criticized these changes and officially appealed to the Ministry of Defense. We will remind the price of this issue exceeds 550 billion hryvnias per year of our taxes with you.
Another lie of the Ministry of Defense and why changes to the Statutes are illegal
You can find it by following the links texts of the newly adopted Statutes of AOZ and DOT.
Lie 1: The Ministry of Defense justifies illegal changes to the Statutes with the obligation to bring the Statutes into compliance with the requirements of the Law.
Refutation. The following changes to the statutes of the agencies do not bring the Statute into line with the Law, but directly contradict it.
So, p. 6.3. Statutes ostensibly within the framework of determining measures to neutralize threats to national security (hereinafter referred to as measures to neutralize threats), the Ministry of Defense grants illegal rights:
- to appoint heads of agencies bypassing the Supervisory Boards, which contradicts p. 4 hours 1 Art. 6; h 7, 8 of Art. 11-2 and p. 7 hours 1 Art. 11-4 of the Law “On the Management of State-Owned Objects” (hereinafter referred to as the Law); h 6 Art. 73 of the Economic Code of Ukraine (hereinafter – GKU). According to the law, appointment and dismissal of heads of Agencies is the exclusive competence of Supervisory Boards (if they are created);
- appoint or dismiss agency officials (members of Supervisory Boards, deputy heads of agencies, chief accountant, heads of departments and their deputies) contradicts the powers granted to the Ministry of Defense by Article 6; h 7, 8 of Article 11-2 of the Law, as well as part 3, 5 Art. 65 and ch. 6 Art. 73 GKU. After all, the procedure and conditions for appointing and terminating the powers of members of the Supervisory Boards are determined by law and acts of the Government, and heads of agencies must have the right to make personnel decisions in the enterprises they lead;
- provide binding instructions or orders directly to any employee of the agencies – bypassing direct management, which contradicts by the authority granted by the Ministry of Defense of Art. 6 of the Law, ch. 7, 8 of Article 11-2, as well as part 3, 5 Art. 65 and ch. 6 Art. 73 GKU.
The Ministry of Defense granted itself other illegal rights in the Statutes, here are the key ones:
- coordinate the decision of the Supervisory Board on the appointment or dismissal of heads of agencies with the Ministry of Defense (p. 8.1. Statutes), that contradicts p. 4 Art. 6, clause 7 11-4 of the Law, as this is the exclusive competence of the Supervisory Boards.
- “further approval as necessary” of any procurement contracts (paragraph 2 p. 6.2. Statutes), that contradicts p. 4-2 h. 1 Art. 6 of the Law (according to the law, the ministry has the right only to provide consent to conclude expensive contract or a contract with interest until the moment of their signing). However, this provision of the Statutes implementation everyone already concluded procurement contracts are fully dependent on the decisions of the Ministry.
In addition, illegal changes to the Statutes will in the coming month block the activities of the country’s largest arms purchaser, the Defense Procurement Agency, as the MOU contract with the agency’s current director expires in January. According to the law, the Supervisory Board must decide whether to extend the contract, whether to appoint TVO director, or to appoint another manager. But the norms of the new Statute of the AOZ, approved by the order of the Ministry of Defense, against the law grant Minister Umyerov the right to independently appoint or dismiss a manager at any time and without any procedures. That is, already this month, the conclusion of new contracts for the purchase of AOZ weapons will be blocked, and the current ones will be at risk of failure.
Lie 2: There is a direct rule in the legislation that requires officials to take preventive measures during martial law. According to Part 7 of Article 11-2 of the Law, the management bodies of state-owned enterprises are obliged to monitor existing or potential threats to national security and take measures to neutralize them. The Minister of Defense can fire anyone if threats to national security are identified (link to the interview of the head of the procurement policy department H. Kanevsky here).
Refutation: “Direct rule” does not give the Ministry of Defense the right to act contrary to the law or in excess of authority.
According to the Law, the IOU is indeed obliged to approve measures to neutralize threats during wartime. As an example, the law provides: change of place or mode of work. The law does not contain an exhaustive list of measures, but establishes that measures are mandatory should be aimed exclusively at neutralizing threats to the company’s activities. Ch. 7 Article 11 of the Law, does not allow to violate other provisions of the same law, or to override the legal powers of the Supervisory Board, for example, to appoint or dismiss heads of agencies. As indicated above, the Ministry of Defense in p. 6.3. Statutes, under the guise of measures to neutralize threats to the enterprise, gives itself the rights that contradict the law and were adopted by Minister Umyerov in excess of authority.
Supervisory boards AOZ and DOT have already addressed the Ministry of Defense with questions regarding the illegality of changes to the Statutes. Why the Ministry of Defense answeredwhich is clarified in the ministry which specifically refers to potential threats to national security. In fact, the illegality of the Statutes is not related to the question of what exactly refers to “potential” threats. This is just an eye candy from the head of the Department of Procurement Policy of the MOU, Kanevsky Hleb.
Lie 3: The Ministry of Defense noted that the purpose of changes to the Charter is to ensure clarity and transparency of management processes, effective monitoring of threats to national security and prompt response to them, as required by the Law of Ukraine “On Management of State-Owned Objects”.
Refutation. As indicated above, an opportunity is being created for the manual management of the Ministry of Defense by the agencies, which will destroy the logic of enterprise management and create significant risks, up to the halt in the near future of weapons purchases by AOZ.
It will become a real possibility of groundless dismissals of “disobedient” and appointment of “necessary people” by the ministry. The Ministry of Defense will also be able to determine with instructions with whom it is necessary or not necessary to conclude a multimillion-dollar contract for the purchase of weapons. It will even be possible for the Defense Department to block expensive procurement contracts concluded “with the wrong suppliers.”
Such risks and illegal changes to the Statutes, which transfer the main purchasers for the army – AOZ and DOT – contrary to NATO recommendations, to unlimited manual control during wartime and are threats to national security.
What is the threat of illegal Agency Charters in the near future?
To repeat, all this creates a convenient field for manual control by the Secretary of Defense over the 550 billion defense budget. In addition, it is critically important to maintain the trust of foreign partners in Ukraine’s ability to procure weapons efficiently and without corruption. The “Danish model”, according to which international partners transfer money to Ukraine for the purchase of weapons from Ukrainian manufacturers, is at significant risk due to the messy and harmful decisions of the Minister of Defense, who does not stop trying to bring the defense budget back under manual control.
But, most importantly, if the illegal changes to the Statutes are not canceled and they are not immediately brought into line with the Law “On the Management of State-Owned Objects”, the activities of the largest purchaser of arms AOZ will be blocked already this month. The conclusion of legitimate contracts for the supply of weapons will be at great risk of disruption, and ongoing contracts may end up in the courts.
The anti-corruption center appealed to the Cabinet of Ministers of Ukraine, in accordance with part 6 of Article 21 of the Law “On the Cabinet of Ministers of Ukraine”, to immediately cancel the illegal acts-orders of the Ministry of Defense, which amended the charters of the procurement agencies of AOZ and DOT.
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Our international partners are well aware of the problems described above, because NATO’s top experts deeply analyzed the situation with defense procurement in Ukraine in the spring of 2024 and based on this they made an extensive list of recommendations.
The rollback in defense procurement cannot be hidden from the world media behind the veil of lies from the Ministry of Defense. The price of undermining the activity of procurement agencies in the defense sector is not only 550 billion of our taxes, which should be efficiently and responsibly spent on the country’s defense. It is also a threat of losing the trust of our key foreign partners and arms donors. International partners are closely watching the President’s reaction to Minister Umyerov’s yet another daring attempt to raise multibillion-dollar defense budgets during a major war.
The column is a material that reflects exclusively the point of view of the author. The text of the column does not claim objectivity and comprehensive coverage of the topic it raises. The editorial office of “Ukrainian Pravda” is not responsible for the reliability and interpretation of the given information and performs exclusively the role of a carrier. The point of view of the editorial office of UP may not coincide with the point of view of the author of the column.
