SHAMEFUL AND SCARY.

SHAMEFUL AND SCARY.

SHAMEFUL AND SCARY

Authors: Alexander Krasnoperov, Antonina Filonenko , «Security UA»

The situation in which the domestic security market has found itself can figuratively be called «revolutionary»: both the state regulator (which is also the dominant player in the market) and private security companies are almost every day are convinced that the current regulatory system has outlived its usefulness and does not allow anyone to progress. Security UA took the liberty of forecasting the situation for the near future. Shame and fear: alternatives to civilized security market development. The current situation in which the Ukrainian security market finds itself can be called revolutionary: the state regulator (a market player at the same time) and private security companies are convinced that the existing regulation system is outdated and therefore, it hinders progress. SECURITY.UA dares to make a prognosis on the most probable scenario. The Market. The Beginning of the Path

Any forecast has every chance of failing if it is not tied to retrospective. Therefore, let us dwell on the early stages of the formation of the security market.

It is known that back in the late 80s of the last century, the Technical Committee of the non-departmental security of the USSR Ministry of Internal Affairs developed a model for building a state security service headed by a civilian director. At that time, a similar model had already been tested in the Baltic republics, however, for obvious historical reasons, the matter was not completed. After 1991, each former Soviet republic began to look for its own path.

In Ukraine, two years after gaining independence, the Cabinet of Ministers issued Resolution No. 615, which legalized the State Security Service under the Ministry of Internal Affairs of Ukraine. This Resolution gave the Ministry of Internal Affairs the go-ahead to earn money on a contractual basis by protecting property and citizens.

The founders of the State Security Service were aware of the harmfulness of such an approach, but they could do nothing: the Ministry of Internal Affairs, like other structures at that time, was struck by the virus of financial insolvency. But the founding fathers reassured themselves that the State Security Service was a temporary structure, because their next idea was to privatize security departments, turning them into private enterprises (but “from below”, not “from above” — as was done later when creating JSC Okhorona-Kompleks). In addition, with the development of legislation on municipal police, all armed units of the State Security Service were supposed to be transferred to city authorities, and the monitoring and, partially, response functions were to be farmed out to private security firms. And the Service itself was intended to carry out exclusively coordination and control functions.

It just so happens that nothing is as permanent as something temporary. The stage called «GSO» dragged on. The created structure never became an authoritative coordinating body. Moreover, the Security Service «head over heels» went into making money. Service veterans recall how in the mid-90s it got to the point that police squads officially, under contracts, guarded the leaders of organized crime groups.

Lacking a powerful state ideological core, the GSO system was made dependent on the will and mood of one or another ministry leader. More precisely, on the ability of an official endowed with power to resist the temptations and corrupting factor of big money.

Years later

According to statistics, the number of security companies in Ukraine increased from 1,005 in 2001 to 3,818 in 2009. Last year, almost a third of the companies, 28%, were registered in Kyiv, 8% in Donetsk, 6% each in Odessa, Lviv and Dnepropetrovsk. The rest were more or less evenly distributed throughout the country. However, official statistics do not reflect the real picture, since up to ten companies can be registered per person in one region, which can be considered the desire of the owners to receive additional guarantees of business continuity in the event that one of the companies loses its license.

In general, to date no one in Ukraine has conducted a comprehensive and large-scale study of the structure, capacity and dynamics of the security market. The only reliable study can be considered the work of the Industrial Marketing Agency, whose specialists estimated the integrated «white» income of the private security market for 2009 at 4.77 billion hryvnia (which, by the way, is approximately 5 times more than in 2002).

According to the Agency, the market structure is such that, based on the results of the last financial year, 5 companies (excluding the State Security Service) cover 14% of the total market turnover. 71 enterprises, earning from 10 to 100 million UAH per year, are responsible for 34% of the annual turnover. Almost the same amount was earned by 587 companies with an annual turnover from 1 to 10 million UAH. The remaining 19% of the market is accounted for by almost three thousand security companies (see diagram).

According to the Ukrainian Institute of Public Policy, the annual volume of State Security Service services is about 1 billion UAH. According to Security UA, this amount is underestimated by more than 2 times, and a more accurate figure may be 2.4 billion.

Thus, it can be assumed that the «white» volume of the security services market in Ukraine today is approaching the «1 billion dollars» mark. If we take France for comparison, then in 2008 the annual turnover of the security market there was 18 billion euros (this figure is given by the US Department of Commerce on the website buyusa.gov). France with its 65 million population can serve as a certain indicator of the potential total, «white» and «black», capacity of the Ukrainian market and lead researchers to the figure of 15 billion dollars.

The figures cited explain the long-term delay in adopting the rules for dividing the security «pie.» And the crisis, which forced the oligarchs to count every million, has exacerbated this delay. But this cannot continue indefinitely. One of the public leaders of the security industry has already publicly declared his readiness, if necessary, to organize street protests. It is already obvious to Security UA that 2011 will put many things in their place, and the market will develop according to one of the scenarios below.

Scenario 1. Shame

Let us assume that, despite criticism, indignation and even street protests, the odious Law “On Security Activities” was adopted in its current form. Having become a “legal monopolist” and the legal “breadwinner” of the ministry, the State Security Service will confidently take over about 70% of the market. In this, it will certainly be helped by the expanded powers of the Ministry of Internal Affairs in the sphere of licensing. Considering the growing role of the technical factor, considerable cash flows promise income from voluntary-compulsory certification of security equipment. At the same time, certification will not fulfill its main function — protecting consumers from unscrupulous manufacturers, and businesses — from unfair competition. Market regulation will be carried out in “manual mode”. The Expert Council prescribed in Art. 20 of the bill will work “to the tune” of the Ministry of Internal Affairs, since the business of its members from the public will be 100% dependent on the orders of officials. There will be what the head of the Ukrainian Union of Industrialists and Entrepreneurs Anatoliy Kinakh recently called “an unprecedented scale of corruption and ‘plucking’,” promising to bring the “security” issue to the attention of the National Anti-Corruption Committee under the President of Ukraine.

Scenario 2. Scary

In the «scary» scenario, the state admits that it has made unforgivable mistakes in regulating the security market and reorganizes the State Security Service. The response units will be transferred either to the municipal police or to the patrol and guard service. The material assets of the State Security Service will be privatized by one of the oligarchs close to the ruling party through clever schemes. Having quickly written the necessary laws and standards «for himself», this oligarch will be able to control up to 85% of the security market through his commercial structures. At the same time, the issue with weapons will be resolved very quickly, but it will be extremely difficult for the remaining 15% to obtain them, since politics will be directly involved in the economy: security firms will become the armed detachment of the ruling party.
Agree, against the background of this seemingly unrealistic scenario, all the round tables, coordination councils and clarifications of “who is the main dumper on the market” look like children's games in a sandbox. But is this scenario really that unrealistic? Scenario 3. Civilized, but risky

Privatization of security is a global trend. This is confirmed by such authoritative sources as the reports of the European Commission and the United Nations Office on Crime and Drugs. In many countries, private companies are taking over the protection of state facilities that are traditionally considered especially important.

For example, in the USA, «privateers» guard both nuclear power plants and prisons. In Great Britain, Germany, and Sweden, the ministries of internal affairs include in their budgets the costs of private security services. In these and other countries, regulatory functions that the state had previously tried to perform are delegated to professional market associations.

Ukraine, in principle, does not fall out of this trend: both government officials and many businessmen are consciously leaning towards the idea of ​​self-regulation. The draft Law «On Self-Regulatory Organizations» promises SROs such powers as training specialists, voluntary certification, development and approval of standards, issuance of permits for the right to engage in professional activities, etc.

The President of the Ukrainian Federation of Security Industry Oleg Baran recently noted that, having relied on the state, the market did not receive clear and transparent norms and rules for doing business. The head of the UFIB expressed confidence that today or tomorrow self-regulation mechanisms will already be launched, and that the competitiveness of companies will be determined not in closed offices, but in a transparent professional format.

Mr. Baran's colleague, the President and Chairman of the Board of the Ukrainian Union of Fire and Technogenic Safety Boris Platkevich, apparently also places great hopes on self-regulation. At the International Conference held in Yalta in early October, this topic was repeatedly raised as a subject of keen discussion with colleagues from Germany, Poland, Hungary, the Czech Republic, and Slovakia. In Yalta, Boris Stanislavovich initiated the development of a standard for his industry as one of the future main SRO regulations, and the majority of market participants supported it.

It would seem that scenario #3 is a panacea. But there are side effects. If large, systemically important enterprises of the market suddenly refuse to join the self-regulatory organization, then this scenario could turn into a disaster. In addition, based on the traditions of Ukrainian business, one of the main threats to self-regulation should be considered the creation of a new, but already public, corruption model.

An equally dangerous threat to self-regulation is sabotage by inert and dishonest officials. By the way, neither the Ministry of Internal Affairs nor the Ministry of Emergency Situations of Ukraine have yet officially expressed their position on the possible receipt of the above-mentioned liberties by their licensees.

Interim conclusions

No matter how shameful and scary it is, conclusions must be drawn. And they are as follows:

1. The security market has become «overripe» in the tiresome expectation of fair and unambiguous rules of the game; understanding this, the state will very soon turn its attention to regulating the security business. It is possible that the State Security Service Department under the Ministry of Internal Affairs of Ukraine will be reorganized into a state security company for (as an option) subsequent privatization in whole or in parts. If the described option has the right to exist, then the future real owner of the security monopoly will somehow show himself before the end of this year. For example, he himself or through someone at the top will act as the «locomotive» of the implementation of the 112 System and/or initiate a certain State Telecommunications Development Program.

2. Considering that the privatization of the security sector is not only a pan-European but also a global trend, the state will create the appearance of self-regulation in certain segments of the security industry. Most likely, the relaxations will affect the sector of technical means of security purposes, while the security activity itself and the issue of weapons will remain under the close attention of those in power.

3. The self-organizing energy of many professional public associations of the security industry will remain unclaimed until better times.

STOP panic

However, these interim conclusions should in no way panic true professionals of the security market (especially since even 15% of 15 billion is, after all, 2.25 billion dollars).

People's desire to live better and safer is difficult to curb. Even communists are unlikely to want to live by the standards of the USSR. Therefore, little by little, regardless of the scenarios given, the Western model of the security business will develop in Ukraine — with the prevalence of technical means of protection over physical, with mandatory insurance of material liability and the provision of a number of related services — legal, analytical, personnel and even cleaning. Market realities will force security firms and small firms to think about merging. Larger structures will inevitably become shareholders of medium and small companies and transfer their services to the network category. And then, God willing, no one will be afraid or ashamed.