Redcliffe Partners' Ukrainian Space Regulation Review

Over the past decade, the aerospace industry has evolved from a race by countries for kudos into an accelerator of economic and scientific development, where technology travels freely between different industries and generates capital. Space technologies are now widely used in security, navigation systems, information and communication technologies, environmental protection, agriculture, state monitoring and control, and other sectors. The increase in demand for space technology (both public and private) has given impetus to the entry of private companies into the market, leading to the intensification of competition and a reduction in prices. In this article we will examine how Ukraine keeps up with changes in the market, and what Ukraine's potential is in the international "space club". Since independence, Ukraine has established itself as a reliable producer of rocket and space technology: 165 carrier rockets, developed and manufactured by Ukraine and partner countries, were used to launch 345 spacecraft into orbit for 25 different countries. Ukraine has launched 27 spacecraft developed 'in-house'; established the National Centre for Spacecraft Management and Testing, with a considerable ground-based infrastructure; developed a group of promising carrier rockets, "Mayak", propelled with environmentally friendly fuel; and has become a participant in international projects "Sea Launch", "Ground Launch", "Dnipro", "Antares" and "Vega", as well as the International Space Station.

At the same time, the industry has encountered a number of fundamental problems. Ukraine is one of nine countries that possesses a full cycle of aerospace hardware engineering and production, but does not use this potential efficiently. Amongst 18 enterprises managed by the State Space Agency ("SSA"), seven are unprofitable or on the verge of being loss-making, and six are economically inactive. Ukraine incurred losses of about USD1.5 billion within the Sea Launch, the Lybid satellite and the Alkantra spaceport projects. Ukraine still has neither its own Earth observation system nor independent access to space, which were laid down as strategic goals set in the first space programme, in 1993.

Analysing the development of the Ukrainian space industry, one can conclude that Ukraine is an up-and-coming developer and manufacturer of space technology, but its management is inefficient and unprofessional.

Window of opportunity
Repeated failures, however, have created an impetus for significant change: over the past year, the new SSA management presented the concept of industry development, opened the space technology market to private companies, created a start-up accelerator, began the process of inventorying intellectual property, and is developing a corporate reform concept.

Ukraine created for itself a window of opportunity, which, according to industry representatives, is to be open for another four to five years, as long as the technologies previously developed by Ukrainian enterprises remain valuable and competitive. Reform of the aerospace industry foundation is, certainly, a step in the right direction.

Market opening and deregulation of civil rocketry
For Ukraine, the state monopoly in the aerospace industry originated simultaneously with the industry itself. This monopoly survived the collapse of the Soviet Union and was only recently abolished in Ukraine: on 29 January 2020, the law allowing the engagement of private companies in the development, construction and launch of space hardware came into force.

The Parliament simplified significantly the permitting procedure, introducing the mechanism of unilateral notice to the SSA of an undertaking's intention to operate in the space technology market. As for the testing, launch, control and return of carrier rockets and spacecraft, companies are, however, obliged to obtain the relevant permits as these activities are considered dangerous.

To further promote the de-monopolisation of the space technology market, the SSA launched in May 2020 the start-up accelerator Yangel Space Tech, aimed at identifying and supporting teams that develop space technology-related projects.

The aim of these steps is to create an "ecosystem" of public and private companies that will compete and co-operate in an open space technology market. There is no need to create such an ecosystem from scratch; some companies had begun to appreciate Ukraine's space-related potential long before the market was opened, in particular, Progresstech-Ukraine, Elmiz, EOS DA, Space Logistics Ukraine, American-Ukrainian company Firefly Aerospace and British Skyrora (the last two have R&D centres in Ukraine).

Maksym Polyakov, the owner of Firefly Aerospace, for example, has repeatedly stated that the development of Ukrainian space technology is hampered by Soviet laws. Probably, when the ban on private companies operating in the Ukrainian space technology market is lifted, R&D centres will become fully-fledged companies.

Corporate governance reform
The current system of SOE management contradicts OECD principles of corporate governance and goals of the state; it has proved itself inefficient, corrupt and non-transparent. Government officials and SOE management all agree that in order to transform "slow Soviet dinosaurs" into competitive and efficient state-owned companies, it is necessary to reform the corporate governance system.

The chairman of SSA Volodymyr Usov has voiced his vision of merging reformed SOEs under the umbrella of a holding company. This step would ensure the SOEs' compliance with principles of corporate governance, transparency and accountability; facilitate the interaction of SOEs with other companies, including foreign enterprises, through a clear corporate form; and provide the tools necessary for asset use and project management. In addition, the transfer of the management function from the responsible ministry - holding both regulator and owner status that contradict each other at its core - to the holding company will eliminate the conflict of interests within such ministry, as provided for by the OECD Guidelines on Corporate Governance of State-Owned Enterprises.

Another promising direction of corporate reform development is engaging in strategic investments in SOEs. We do not know what method will be chosen by the state in this regard. However, we will receive the initial intimation of this with the adoption of the new law showing the list of SOEs that are not subject to privatisation.

Intellectual property database and sale of intellectual property
Since independence, Ukrainian scientists have developed many technologies that have not yet been organised or inventoried. As a result, SOEs have patents and technical documentation that can be profitable and accelerate the development of space technology, but their existence is unknown to potential buyers.

Given the above, the SSA has established the Centre for Support of Technology and Innovation. Its task is to identify and inventory all space-related intellectual property created by Ukrainian enterprises and organisations, as well as to ensure the proper registration and protection of such intellectual property. Following the inventory, the Technology and Innovation Support Centre will create a special online platform, Space Gate IP-Platform, where anybody may transparently purchase intellectual property or invest in technology that is under development. The SSA is also considering the option of providing free access to intellectual property to companies that plan to locate their production facilities in Ukraine.

The commercialisation of intellectual property will become not only an incentive for further innovation, but will also demonstrate a real demand for Ukraine's existing technological base.

Space awaits
The range of opportunities Ukraine offers to those interested in space technology development is continually growing. The key projects that will become the foundation of the current five-year space programme are the following:

+ Start-up accelerator Yangel Space Tech, aimed at creating an ecosystem of start-ups for the development of the private sector of the space technology market in Ukraine. Both start-ups and interested investors can join the programme;

+ Space Gate-IP Platform, which will provide the possibility for investors to purchase space-related intellectual property on the platform, or invest in technology under development;

+ Satellite Earth Observing System of high and ultrahigh resolution: "Sokil" and Earth Observation Platform "OKO". These projects were established to develop a system for collecting, processing and analysing remote Earth observation data, and to create a platform providing data to state and commercial consumers;

+ SpaceStartUA, or the "Air Launch" project, aimed at building a platform for the launch of light, ultralight and mid-weight rockets, which is planned to be implemented on the basis of a public-private partnership; and

+ Moonkind, the project on the development of the infrastructure for supporting human life on the Moon, established so as to accelerate the development of new technologies and further develop the project of an industrial base on the moon created by Ukrainian scientists;

To conclude, the opening of the space technology market for private players marked a new era for Ukrainian aerospace based on two pillars: the competition between private and state-owned companies in the space technology market; and encouragement in the formation of strategic partnerships. We believe this new vision of the industry may secure Ukraine's place in the international space club as an innovative developer and producer of aerospace technology, having both a strong background and a bright perspective.