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European Union suspends aid to Ukraine over procurement law

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Feb. 23, 2011, 9:37 p.m. | Ukraine — by Reuters

Reuters

The European Union will hold up about 100 million euros in aid allocated for Ukraine until the former Soviet republic amends its law governing purchases of goods and services by the state, an EU diplomat said on Wednesday, February 23. The suspension concerns budget support programmes under which funds are managed by the Ukrainian side, Jose Manuel Pinto Teixeira, head of the EU delegation to Ukraine, told reporters.

"All the programmes of this type will be interrupted until we have guarantees that public procurement is done in a transparent and accountable way," Teixeira said.

Only one disbursement of about 30 million euros has been suspended so far, he said. For the whole of 2011, Ukraine's cash-strapped government was due to receive about 100 million euros in budget support.

Ukraine adopted a new law on public procurement -- purchases by government bodies and state-run companies -- last June in what the government said was a demonstration of its commitment to reforms.

Teixeira said the law was initially compliant with EU standards. But several amendments introduced in the second half of 2010 have limited its scope by introducing a number of exceptions to normal procurement procedures.

Public procurement is often used by corrupt officials across the former Soviet Union to extract personal gains by rigging tenders in favour of affiliated suppliers, making purchases at inflated prices and receiving kickbacks from businesses.

Ukraine is no exception and the country's public procurement system, according to the latest periodical investment report by the U.S. State Department, has been plagued by corruption for years.

But Teixeira said he hoped the government and the parliament would soon improve the procurement law. The EU continues to support Ukraine through programmes where funds are managed by other entities such as the European Bank for Reconstruction and Development. "It is not an exceptional situation for us," he said. "I am convinced we are going to resolve this issue."
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