Security Industry

Ukraine's fire and security market

Revising the role of the State

Please note: Following any link in this article will open an additional browser window.

Olexander Krasnopiorov, Editor-in-Chief of Security.UA magazine and Anatolii Dolynnyi of the Ukranian Security Industry Federation (USIF) provide an inside look at the evolving nature of Ukraine's security and fire sectors.

Ukraine is an independent Eastern European country with a population of 46m and emerged after the collapse of the USSR in 1991. Ukraine equals France by area and its GDP per capita is approximately $6,500 (US) with an average income figure of about $300. The country's economy is still on its way from a command to market type and depends on international financial institutions, as its foreign debt estimated figure is 93.5% of GDP.

The international financial crisis that began in 2008 led to a 15% GDP reduction in 2009 and alongside with the unfavourable conditions listed above this reduced direct foreign investments figure from $9 billion in 2008 to $5 billion in 2009 and $4 billion in 2010. The infrastructure build-up for the UEFA Euro 2012 championship that was previously expected to attract 80% of the necessary investment had now become 85% state-sponsored.

2010 saw the beginning of the state's investment policy revision that calls for the change of the entire government system. The creation of a State Agency for Investment and National Projects Management that currently spans the development of 11 national projects marks the beginning of this shift. For further information on this move see this PDF file at ukrproject.gov.ua and for more about Ukraine on Wikipedia.

Defining the sectors

The principal segments of Ukraine's security industry are: fire safety and technological security; guarding services; and alarm systems. Each segment has its own internal organization as well as ways of regulation. The market for fire safety and technological security is among the most well-organised segments within the framework of security industry. It is regulated by the Ministry of Emergencies with the support of the leading professional union, Ukrainian Union Fire and Technological Safety (UUFTS) and other public organizations.

During the last seven years many EU harmonised standards have been adopted, particularly EN 54 standard series. Ukraine is expected to introduce new State building codes by 2011. Entitled 'Engineering equipment of the buildings: fire safety systems', these codes will regulate design, installation, operation and maintenance of fire and technological security systems.

This segment's influential feature is a de-facto monopolistic Ministry of Emergencies State certification centre. In Ukraine, certification is obligatory for fire detectors, fire alarm and alert systems and their components, fire control and indicating equipment, control devices, monitoring and alarm receiving centres and other fire-prevention products. Complete product list with respective standards (in Ukrainian).

In 2011 the TC 25 technical committee of standardisation is likely to share its responsibility for the development and implementation of new fire and technological security standards and regulations with TC 165, the latter being supported by USIF and UUFTS.

Licensing requirements

In Ukraine, fire-prevention services are subject to licensing. Depending on the facility's fire risk category – high, medium or low – businesses are provided with various licence types. It should be noted that insurance companies in Ukraine do not regulate the fire-prevention market as well as the adjacent markets in a proper manner. Economic methods of security management are not developed either and the majority of business activities are consequently regulated by administrative measures.

Currently, there is no existing marketing research to illustrate Ukraine's fire safety market. However, its size can be indirectly demonstrated by the following official figures from the Ministry of Emergencies:

1. Number of licensed companies working in the field of fire-prevention – around 1900.
2. As of 2009, 360 000 facilities were equipped with fire automation systems, 30-40% of which were in service, with 7% of the facilities under central fire monitoring control.
3. 12,277 facilities were equipped with fire automation systems in 2010, 9,440 of them on monitoring and alarm receiving centres.

With the fire control average cost at 25€/month, the potential annual market size of the monitoring service itself equals 110 million euros. The total fire safety market size is therefore estimated to be 12-15 billion euros.

2010 saw a steady trend of regulative fire and security technology merging. For instance, the former head of the Fire Safety Department was put in charge of the newly created State inspection measures for security technology. The first step here was the creation of a central fire control system as an element of System 112, a preparation measure for UEFA Euro-2012. Similar arrangements have applied to the regulative and technical issues relating to monitoring technology.

Guarding service market

The guarding market in Ukraine has developed until recently without appropriate legislative provision. The obvious reason for this has been the role played by the Ministry of the Interior, which continues to provide the population with a paid guarding service. The overall size of the guarding service in 2009 was estimated at 0.72 billion euros, with the Ministry of the Interior's element reaching 33% of this.

This market's structure is determined by the fact that 15% of companies with annual income up to 15 million euros hold 80% of the market, with the remaining 75% of companies earning 100,000 to 1 million euros per year.

Licensing is now being introduced in the guarding market, in the form of a Basic Guarding Business Law – at the end of 2010 the Ministry of the Interior and market participants agreed to hand the duties of the licensing authority to Public Security Department of Ministry of the Interior. However, these duties are still being carried out by State Guarding Service of the Ministry of the Interior State Guarding Service of the Ministry of the Interior. The major public organization within the guarding market is the Ukrainian Federation of Professional Security.

Alarm systems sector

This segment of the Ukrainian security industry has received fresh impetus to its development as a result of standards development carried out since 2007 by the Ukrainian Security Industry Federation (USIF) and, since 2009, by TC-165 (the secretariat of which is performed by USIF). Dozens of EU harmonized standards of series EN 50131, 50132, 50133, 50136, 50518, and CEN/EN 14383 'Prevention of crime' are currently being planned or developed as a result (for details see ufib.com.ua/eng/ and tc165.com.ua/en/).

There are several alarm systems licensing centres in Ukraine providing product certification (which has been obligatory). But from 1st January 2011 Technical Regulation 2009/785/UA relating to EMC, confirmed by the Ukrainian government (implementation of Directive 2004/108/EC) means the technical regulation system has began to shift towards voluntary certification and greater commonality with philosophy common in the EU.

The above mentioned Basic Guarding Business Law foresees the introduction of licensing for design, installation and maintenance means of security activities on specific facilities. But this measure is strongly rejected by the vast majority of the professional community due to its inability to improve market regulation under the existing levels of corruption.

There is no systematic or reliable information on the size or structure of the alarm systems market available in Ukraine at the moment. By its activities category the market structure comprises around 20 security manufacturers, about 20 distributors, up to 10 major system integrators and one to two thousand small installation companies.

Market capacity and temptations

According to the Ukrainian Ministry of Emergencies (MOE), today in Ukraine 356,477 premises are equipped with automatic fire fighting systems, but fire threat monitoring is carried out at only 27,174 of these sites (7.6% of the total number of equipped facilities).  With the average cost of monitoring one facility amounting to 250 hyrivnas per month, the fire threat monitoring market is worth more than a billion hyrivnas annually.  The value of the “undeveloped” market, without taking into account new facilities coming into service, amounts to 988.2 million hyrivnas.   

According to MOE statistics, during the 10 months of last year, property totalling 45 million hyrivnas was saved as a result of fire threat monitoring.  At the same time, in the accounts of businesses which carry out fire threat fire monitoring, funds amounting to 1.5-2 times that amount were accumulated.

The commercial attractiveness is caused by the increased interest in fire threat monitoring from both government and commercial entities. 

In the days when the fire department operated within the Interior Ministry system, the subject of fire threat monitoring was a kind of “taboo” – it was only spoken about in whispers in closed offices.  Naturally, without the help of officials, a small monopoly was established in the market. In Kiev, for example, one company, D, monitored (or pretended to monitor) about 20,000 premises.   

The democratic unrest in 2004 brought fire threat monitoring out from the shadows.  D had its licence revoked.  Business began to initiate the development of a suitable regulatory framework, since the existing State Building Standards (SBS) were vaguely worded: “If technically possible”.  According to Yury Zozul, now an adviser to the Minister of Emergencies, but in the past an active market operator, fire threat monitoring “…is currently most developed and the market now has an almost absolute certainty of how the system should interact with other services and what standards it should meet” (fire threat monitoring regulations are included in a separate section of the draft SBS entitled “Fire protection systems”).   

Microeconomics    

The historical survey of the fire threat monitoring market described above is necessary to understand how pricing occurs in the market today.  According to the management of Venbest, the policies of regional offices of the MOE could significantly affect the cost of fire threat monitoring services.  This view is shared by almost all the market participants, and some of them make even stronger statements.  For example, the director of the Lviv based company Meldetechnik Ukraine, Irina Gizaleva, says that “control over the income and expenditure of companies is in the competence of other known bodies,” whereas, according to her, “it’s not cash flow that should be controlled, but the quality of work”. 

Sometimes, unscrupulous fire safety inspectors provide serious competition to sales managers of companies engaged in fire threat monitoring.  They convince the owner of a facility that it is more profitable and safer, for example, to give him an envelope containing 1000 hyrivnas and to forget about the existence of the fire service for the entire year than to pay “for no reason” a monitoring company 2000 hyrivnas and still expect an inspector to visit.

Nevertheless, there are objective economic calculations of the cost of services.  Fire Threat Monitoring Donetsk presented its calculations to Security UA, according to which the minimum cost of fire threat monitoring in the monitoring of 300 sites can be no less than 348 hyrivnas, and in the monitoring of 900 sites 185 hyrivnas. 

Other market operators agree with the Donetsk based company.  According to experts at Venbest, spending on modern high-tech communication services and a stable high-speed Internet connection can be much higher.  In addition, experts highlight the need to bear the operating costs for special technical systems (lightning protection, earthing etc),  testing and maintenance of measuring equipment, special training for staff, and updating the regulatory and technological fund.  However, in their view, these costs do not drastically these figures.

We can conclude that for most companies to offer fire threat monitoring services for less than 250-300 hryvnia is almost to confess to deliberately deceiving the customer and / or violating the requirements of the licence conditions.  It cannot be excluded, with regards to the policies of the regional offices of the MOE, that the minimum price of fire threat monitoring may be higher by 20-30 and even 40%.     

Based on the assessments of Security UA, the fire threat monitoring market is in a partially frozen, unstable state.  Few can predict what the market will be like tomorrow.  The imbalance of the situation is causing the unfinished work to establish the fire service segment of the national emergency services line, uncertainty about methodological approaches in the field of technological security, staff uncertainty and a process of adaptation at the top of the MOE.

In such circumstances, MOE analysts are no longer hiding the fact that the current state of fire safety in the country is a real threat to the population and national economy.  According to their estimates, if appropriate measures are not taken urgently, direct and consequential damages from fires in 2011-2015 will amount to more than 8 billion hyrivnas.  In the last nine years, 55,370 people in Ukraine have been killed or injured in fires.  Against this background, the problem of dumping in the fire threat monitoring market seems insignificant.  Nonetheless, every day, 329,300 sites - houses, offices, hotels, schools, clubs, factories, etc – could be damaged by a fire.  But monitoring of the automatic fire fighting systems in these premises, coupled with normal economic means of safety management, can and should prevent this. 

Source: http://security-ua.com/?news=948