Poroshenko's Shipyard to Play Key Role in Rebuilding Ukraine's Navy

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Wed, Sep 23, 2015
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Originally appeared at Business New Europe


A shipyard owned by President Petro Poroshenko, commander-in-chief of Ukraine's military, is taking on a major role in rebuilding the country's decimated navy, as the defence sector gears up to meet the Russian challenge.

The Poroshenko-owned shipyard and engineering plant Leninska Kuznya is taking the first step in rebuilding Ukraine's navy, which was decimated by Russia's annexation of the Crimean peninsula where Ukraine's now-captured naval forces were formerly based.

The Kyiv riverside plant is set to complete two small Gyurza-class gunboats by the end of 2016, marking the first new vessels to be received by Ukraine's navy since 80% of its navy got stranded in Crimea.

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A further eight such new vessels will join the fleet by 2017, with a total of 20 to be completed by 2020, according to recent statements by head of the navy Serhiy Haiduk. Analysts put the cost of the vessels at $5mn-15mn each, according to the level of equipping, making the minimal order volume $100mn through 2020, a substantial sum for Ukraine's cash-strapped military. “We do need these gunboats, we have to rebuild the navy from scratch,” military commentator Yury Butusov tells bne IntelliNews.

Navy spokesman Oleh Chubuk declined to comment on the plans to bne IntelliNews because “it verges on politics”.

Not all the vessels will be constructed by Poroshenko's own shipyard due to capacity limitations, with some of the order likely to be placed in the south Ukraine port city of Mykolaiv, according to an analysis in Ukraine's Defence Review journal.

However, Poroshenko's yard has a head start over state-owned competitors, say analysts, since it is the only one with experience in building such vessels, having already provided two such vessels to Uzbekistan for waterway patrols in 2005 and is now nearing completion of another two.

Previous plans

The current production plans in fact predate the loss of Ukraine's fleet to Russia and Poroshenko's election as president in 2014: they date back to Poroshenko's year as economy minister in 2012, in the administration of ousted president Viktor Yanukovych. During Poroshenko's tenure as economy minister, his Leninska Kuznya shipyard won the order for the first two in a planned series of nine such gunboats, with keels being laid at the end of 2012. After Poroshenko joined the opposition in 2013, Yanukovych cancelled the order, with government inspectors claiming the work had been performed shoddily.

But the plans lay ready for a speedy revival after Poroshenko gained power in May 2014, despite the dramatically changed circumstances regarding Ukraine's naval power. And while Leninska Kuznya lists potential roles for the boat as combating smugglers and poachers, the next vessels will have their armaments sexed up and enough space to act as an infantry landing craft, according to navy plans.

The small size of the gunboats has one big strategic advantage for Ukraine, say military strategists: they can be shipped by rail and road to Ukraine's imperilled Azov Sea outpost of Mariupol, on the eastern outskirts of which are entrenched Russian-backed separatist rebels. Russia controls the entrance to the Sea of Azov, meaning that the only option for Ukraine to strengthen its coastal patrols to counter the rebel threat is for any ships to be moved there over land.

The scaling down of Ukraine's naval aspirations epitomised by the new boats is also shown by one potential source of funding for the acquisition: the planned sale of Ukraine's ill-fated naval cruiser Ukraine, announced by Naval Forces Commander Sergey Gaiduk during joint US-Ukraine Seabreeze exercises in mid-September. Construction of Ukraine was started in Mykolaiv in Soviet times, but was never finished. According to Gaiduk it has no future operational role in Ukraine's scaled-down fleet, and could be sold to another navy or for scrap.

Beyond building the gunboats and selling Ukraine, further plans for Ukraine's navy remain opaque: even the navy section of the defence ministry website is “under construction”. “We are still waiting for the publication of key defence policy documents regarding the navy,” says Oleksiy Melnyk, defence analyst at the Kyiv think-tank Razumkov Centre.

Poroshenko the industrialist

Poroshenko's hand in rebuilding Ukraine's navy is a reminder that he is not just “Ukraine's Willy Wonka” – as styled in the media with reference to his Roshen confectionary concern. Along with finance and media assets, he is also an industrialist in the automotive and shipbuilding sectors. As president he is now eyeing Ukraine's sprawling defence sector as a potential source of economic growth, according to a number of policy speeches, with defence spending currently at 5% of GDP – more than many Nato members manage to spend.

Formally, Poroshenko says he has handed control of his assets over to investment company Rothschild to be readied for sale. He has also said that he sold his stake in the Bogdan Corporation, Ukraine's second largest car assembler, to his partners following the economic crisis in 2009. Bogdan headquarters are in the Kyiv premises of Leninska Kuznya.

Poroshenko has notably now put Bogdan boss and owner Oleh Gladkovsky in a top defence sector post. Gladkovsky took charge of the inter-departmental state commission for defence sector cooperation and export control in 2014, and in February Poroshenko named him first deputy secretary of the National Defence and Security Council, Ukraine's highest security body.

Given that Ukraine's automotive industry has collapsed – August was the first month since independence that not a single car was assembled in the country – the Poroshenko-linked plants are now also diversifying into the defence sector wherever possible.

At the opening of Kyiv's major arms fair “Arms and Defence 2015” on September 22, Bogdan wowed the crowds with a presentation of a new multifunctional light armoured vehicle, the Bars-8, intended for Ukraine's hard-pressed military as well as for export. Bogdan is also producing Hyundai all-wheel drive trucks with dual civilian and military use, the company said earlier.

Leninska Kuznya also displayed its new military vehicle designs at the arms fair: an amphibious armoured personnel carrier Baran designed for use by Ukraine's National Guard, and an amphibious multi-purpose armoured vehicle with attack capabilities, Triton.

Triton will be equipped with Leninska Kuzna's first weapon design, the UAG-40 automatic grenade launcher. Originally intended for export to Africa, Asia and Latin America, the weapon entered production in 2015.

The grenade launcher could also become an export hit, although the plant declined to disclose any sales information to bne IntelliNews. According to documents recently leaked to press by Ukraine's former security service head, Valentyn Nalyvaichenko, controversial Armenian arms broker Mosston Engineering paid €275,000 to a British Virgin Isles firm Intraco Management in June. According to journalist investigations, Intraco is in turn connected to Ihor Kononenko, a co-owner of Leninska Kuzna and a grandee in the Petro Poroshenko Bloc in parliament, although he has denied the connection.

The documents do not specify the purpose of the payment, but, according to its website, Mosston Engineering specialises in trading small arms, ammunition, mortars and light artillery, meaning the UAG-40 weapon could have been the traded item. Mosston Engineering did not respond to enquiries.

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