Interview of Vladyslav Belbas, Director of the SFTE “Spetstechnoexport”
Interviewed by Sergii ZGURETS (Defense Express).
Reposted from Defense Express.
Strictly speaking, there were three reasons for a detailed conversation with the head of the SFTE “Spetstechnoexport”. 1.A front-pager about the victory in the tender of the Ukrainian offer for the supply of An-178 aircraft for Peru. 2.A sufficiently noticeable dynamics of the company’s turnover growth for a fairly short period of time – practically for a year. 3.A whole “magazine” of accusations from various law enforcement authorities on a number of contracts which were carried out by this special exporter in different periods, including the modernization of the An-32 aircraft for India. This contract was inherited by Mr. Belbas from the previous SFTE “Spetstechnoexport” management (Mr. V. Belbas was appointed acting director of the SFTE “Spetstechnoexport” in June 2018, and director in November of that year).
– The information that Ukraine won the tender for the supply of a military transport aircraft to Peru was quite resonant. As far as I know, it was the SFTE “Spetstechnoexport” that achieved this result in Peru?
– Yes, during the tender announced by the Ministry of Internal Affairs of Peru for the supply of military transport aircraft for the needs of police, our offer for the supply of An-178 won. This is the result of a sufficiently long work of our company’s specialists both in the market of this region and directly with the customer. But it’s too early to talk about the decisive victory. Tender committee decision must be validated by the President of Peru. We already notice the manifestations of a campaign to discredit our proposals and capabilities of Ukraine as an aerospace state. Therefore, I hope that, in defending the interests of domestic manufacturers of aerotechnics and the country as a whole, all our authorities, together with high-level politicians, diplomats and special services will lend a shoulder to us. The export of military equipment and weapons has always been a greater task than just business.
– And what does the overall picture of the domestic arms business look like through the prism of your company’s activity today?
– The total income of Ukraine from the export of weapons, military equipment and services in the pre-war period, according to the best indicators, amounted to about $ 1 billion per year. In 2017-2018, export through special exporters, if I am not mistaken, fell to $ 600 million. This is due to a number of factors. At the same time, the indicators of the SFTE “Spetstechnoexport's” total income, on the contrary, increased. If in 2017 the volume of revenues from completed contracts amounted to $ 120 million, then according to the results of 2018 revenue increased by 26% and reached $ 152.6 million. At the same time, the volume of signed contracts increased 2.5 times reaching $ 282.5 million in 2018.
– Will you repeat success this year?
– As for the signing of new contracts, we have already exceeded last year's figures. As of today (seven months of 2019 – ed.), we have already signed new contracts for a total value of $337 million. This is a new record figure for the company over the past 10 years. Now the main thing is that inside the country they put less spokes into our wheel in the process of implementing contracts.
– What business areas provide such revenues and new contracts? Who is the main partner of your company in foreign markets?
– Speaking of countries, our key and longtime partner is, of course, India. Not less active we are working with Turkey, where there are also many projects, including the creation of new joint samples of arms.
At the same time, we do not neglect small-volume contracts for the repair of military equipment and weapons in other markets: Indonesia, the UAE, Saudi Arabia, etc.
– Two Ukrainian companies are operating in the Turkish market: “Ukrspecexport” which, by the way, recently announced the creation of a joint venture with a Turkish partner, and the SFTE “Spetstechnoexport”. Do these two companies interfere with each other?
– No, they do not interfere. We have an understandable coordination procedure with Ukrspecexport both on the subject of projects and negotiations, and on pricing policy. In general, I believe that competition is the engine of progress. The question is whether this is fair competition. Much was done in the “Ukroboronprom” Concern during the leadership of Pavlo Bukin in order to get rid of unhealthy competition.
The regulatory framework currently in force at “Ukroboronprom” allows for the implementation of contracts through various channels. The first stage of coordination is the implementation of marketing research coordinated by “Ukroboronprom”, the second is the coordination of commercial offers, the third is the coordination of contract prices. For the state, this means that special exporters are trying to sell products of Ukrainian manufacturers through various channels, and there is nothing wrong with that.
The exception is only several markets that are clearly assigned to a particular special exporter. For example, only “Ukrspecexport” is authorized to operate in the Pakistan market, and the SFTE “Spetstechnoexport” is authorized to work with India. There are clear and logical explanations for this.
New weapons, new opportunities
– We can often hear from the exporters that the list of products that we can offer to foreign customers is narrowing. What is the situation at SFTE “Spetstechnoexport” in this matter?
– Such a problem really exists. In Ukraine, it is urgent to create conditions for investing in the development and production of new samples of arms within the country. We, as a company that is not a manufacturer, make every effort to establish cooperation between Ukrainian enterprises and foreign partners in order to jointly create new products for customers from third countries. Among the recent projects, for example, the Serdar anti-tank combat module, created in cooperation by Turkish company Aselsan, the SFTE “Spetstechnoexport” and SKDB Luch.
We also actively promote new products of Ukrainian private enterprises, which allows them to be financed by foreign customers. For example, a start contract for the supply of “Ukrspecsystems” unmanned systems for one of Middle East countries was implemented. Thanks to the first supply, it became possible to improve the product and begin the supply of other drone versions.
– And what about the loud information message concerning electromagnetic weapons – is this project moving forward?
– Yes, this is indeed our joint project. The SFTE “Spetstechnoexport” has found foreign partners who were ready to invest in Ukrainian development, and concluded a corresponding agreement with a defense company from one of the Southeast Asia countries. The funds received were directed to the creation of scientific and technical documentation and the production of prototypes. Such electromagnetic weapons create powerful electromagnetic radiation which leads to the failure of electronic equipment. In 2019, we fulfilled all obligations towards the foreign customers and continue to develop cooperation in this direction. Active communication of this project has attracted the attention of new interested parties, now we are conducting a dialogue on this issue with the United States and three other countries of the East.
– The SFTE “Spetstechnoexport” was the first company to start the export promotion of the State Kyiv Design Bureau Luch latest products. I mean coastal anti-ship system with Neptune cruise missile and Vilkha (Alder) high-precision multiple-launch rocket system. Are these projects a separate preference for the SFTE “Spetstechnoexport”?
– Not exactly. Our main “preference” is our activity and our willingness to take responsibility. We initiated the issue of presenting these systems to foreign partners. With difficulties, but still we decided with the Ministry of Defense the question of their positioning on the international market. For the first time we showed models of Neptune and Vilkha systems at an exhibition in the UAE in February this year. There is an effect from the debut: a number of countries already have firm intention on these projects.
– That is why you decided to show in course of time to a number of military attachés not the models, but practical test launches of Neptune and Vilkha, bringing them to the training ground? Although this is usually not practiced...
– In this situation, we are in tandem with General Designer, who supports or does not support our proposals knowing the complexity of one or another stage of testing. At the same time, the SKDB Luch management is well aware that external orders will greatly simplify and reduce the cost of these systems serial production. In fact, the procurement of such weapons for our army is very limited due to the financial capabilities of Ukrainian Armed Forces.
– I have heard that the Tavazun company is considering the use of Vilkha missiles on their impressive, in terms of size, MLRS system.
– Technically, this is possible. We are currently negotiating with Tavazun, let’s say, about the organization of joint production.
– And what about the “air-to-air” missiles? If I'm not mistaken, a couple of years ago the SFTE “Spetstechnoexport” has signed a contract for the supply of R-27 to Poland. Is it executed?
– In 2016, we signed and completed a contract between the SFTE “Spetstechnoexport” and Polish company WB Electronics for the supply of 40 R-27R1 air combat missiles for the needs of Polish Air Force. Work in the missile sector for front-line aircraft continues.
– And how successful it is?
– Well, look, recently in the media, with reference to the Export Control Service, information was published that Ukraine has exported 78 R-27 missiles over the past 5 years. And so, more than half of them were exported by SFTE “Spetstechnoexport”.
– Are there any more customers for this rocket, in particular, from India, your longtime partner?
– Without going into details, I will answer this way: our products are of great interest to them. One of the important contracts that was signed with India before my appointment as director of the SFTE “Spetstechnoexport” is a contract for modernization of Indian An-32 aircraft fleet. The peak of this contract is already behind, only spare parts are being delivered on our part. But recently, we have significantly expanded the range of work with this country in new areas – now we are working on more than 90 projects. Moreover, most of them are carried out taking into account the government program “Make in India”.
– What are the key areas?
– For example, electronic warfare complexes to protect aircraft, sonar buoys. They were very interested in our new meter range radars. Although, when we included these topics in the negotiation list for the commission on military-technical cooperation, then everyone around us said that this is a waste of time, Indians have all these items. It turned out that in the form we have they do not have. When the Indian military found out about the possibilities of Ukraine in this area, they became very lively.
This is one of the main competencies of special exporters – to convince all interested parties of the feasibility of a project. Indeed, a special exporter is strong and interesting when it brings added value to a project. This is either a monetary resource, or brains, contacts, the ability to persuade, organize cooperation. Now is such a time of technologies that any information is distributed in a flash, and all the necessary contacts must be at hand. There are probably seven thousand contacts around the world in my phone. Plus the work and contacts of our specialists in the company’s departments. Therefore, the result in our sphere depends on speed and grip. If you took the project, you need to deal with it in full force until you finish squeezing it. Only in this case a positive effect is obtained.
– But there is the dominant presence of Russians in the Indian market. What to do with this?
– Yes, there is such a reality. I will give an example. We had a large project for the repair of IL-76 aircraft, the supply of spare parts, repair of units and so on. This is a good amount of work. But the Russians have blocked us since 2016 under the pretext that we do not have legal grounds and authority to repair the IL-76. Although the legal basis for the repair of Soviet aircraft at our plants still exists. Now we are trying to restore our position.
– That is, is there real counteraction?
– In the Indian market, it is crazy. But I will tell you this, the external struggle for markets is an indispensable part of our work, which has always been and always will be. The bad news is that most of our time and energy is spent on solving internal interagency conflicts, and not external. Although it should be the other way around!
Import and judicial affairs
– As for imports – what is their fate in the company’s work?
– As a percentage, the volume of imports decreased compared to 2017. Now, imports are approximately 15% of the total turnover. At the same time, the level of profit under contracts with the Ministry of Defense and other law enforcement agencies is limited to three percent for us.
– In 2016 the SFTE “Spetstechnoexport” together with the American company AirTronic USA, began a project for the supply of PSRL grenade launchers for the needs of Ukrainian power units. Is there any continuation of this work in 2019?
– This contract was carried out on the basis of the export license DDTC DSP-5 of the US Department of State and the relevant agreement of Ukrainian government bodies. We completed the implementation of this contract for the National Guard of Ukraine last year. This year, together with partners from AirTronic, we are participating in the American selection of new active protection systems for their tanks.
– Then I will continue the American theme. At first there were optimistic reports that the SFTE “Spetstechnoexport” was fulfilling a contract for the supply of parachute systems from the Airborne Systems North America company for our air assault forces. Then it was announced about the disruption of the delivery time and penalties. Please clarify.
– The main challenge of import contracts is the difficulty and, at times, unpredictability in obtaining a license from our foreign partners for the purchase of goods ordered by the Ministry of Defense. In the situation with parachutes – like in a drop of water – all the bottlenecks of import contracts implementation for the Ministry of Defense were reflected. Without going into details of the delivery, I will say this: despite all the difficulties, we delivered two-thirds of the products to Ukraine earlier than the customer required, and one-third with a three-day delay. And here the military prosecutor’s office revealed the “crime”, the failure of the contract, and so on... As for me, this is enough to understand the situation.
– Well, by the end of the year the Ministry of Defense is going to undertake the import function. So they, as I understand it, will have the opportunity to resolve the questions of arms purchases on their own..
– And what is the situation today with the accusations of law enforcement agencies on the implementation of the contract for the modernization of the An-32 aircraft for India? You even went to the investigation cell in this case.
– Statements by the Prosecutor General’s Office about losses for the state, as the trial showed, turned out to be groundless. We completely denied the materials of the prosecutors by examinations and testimonies. Also, there is no evidence that I had anything to do with this contract.
To make you understand, the charges were brought under article 191 – it is very serious, it is a waste on an especially large scale. But in fact, the examination of the prosecution showed that in the case file there is no word “peculation” at all. No losses. In fact, prosecutors arrested a “group of organized criminals” because they took the order from a private enterprise and transferred it to a state-owned enterprise. Despite this, unfortunately, the case has not yet been closed; the materials will be submitted to the Anti-Corruption Court. A knowledgeable public understands that this case is clearly political in nature.
– But there are accusations on another topic. We are speaking of supplies for the State Border Guard Service of the pendant early warning system from Mr. Pasternak’s American company Aeros, through the SFTE “Spetstechnoexport”. Eight of these systems were purchased from Worlwide Aeros Corp for more than $ 6.7 million. Prosecutors believe that officials took possession of these funds through breach of trust, which caused damage to the state.
– This is an absolute untruth. I feel funny and bitter at the same time. We made a separate public statement on this subject.
– And what is the impact of publications in Ukraine with a negative mention of your company on positions in the foreign market?
– It is poor. In the countries with which we work everything is quickly and closely monitored. In fact, we are speaking not only about India. We had canceled meetings in Latin America due to the publication of the director’s detention, official visits of Middle East countries to negotiations in Ukraine and a number of other episodes were canceled. There was even a case of our payments arrest in Europe due to publication in the media. The military-technical cooperation is still a cautious and sensitive sphere, where the knock is transmitted faster than sound. On the whole, our reputation was spoiled by more than a dozen million dollars.
– Let's all the same talk about the future. More and more domestic companies – both public and private – get the right to independent foreign economic activity. Will there be work for special exporters?
– The ability to sell weapons and military equipment and their real sale are very different things. In Ukraine, there are enterprises that have all the necessary permits for foreign economic activity long ago, but work only through special exporters, since most markets - in Asia, Africa, the most adaptive for our products – are very specific. “Hit-and-run” entry is impossible.
But in course of time, I think, competition at the level of ideas and services quality will increase. The competencies of exporters and the added value brought by them will come first. For example, very often we sell products of Ukrainian manufacturers much more expensive than they themselves planned.
Therefore, the market itself will subsequently adjust everything. And the role of the state will be to ensure conditions for fair competition within the country and to protect the country's image from “black” or “gray” illegal transactions.
As for Spetstechnoexport in particular, now all our key problematic issues have been created inside Ukraine, we have no problems with foreign partners.
ABOUT SPETS TECHNO EXPORT
State Foreign Trade Enterprise “SpetsTechnoExport” is a fully state-run entity incorporated by the Government of Ukraine in 1998 for export-import activities at foreign armaments markets.
7, Stepana Bandery Avenue
Kyiv, 04073, Ukraine
tel: +380 44 5685070
fax: +380 44 5685068
New Delhi, India
Tel: +380 (44) 5685207
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