You're reading: Ukraine starts cleaning up dirty business of state procurement

Simply cleaning up the state’s corrupt and non-transparent procurement procedures will mean another $9 billion to $18 billion for Ukraine each year.

While the nation will benefit by adopting a competitive, transparent and open process for government purchases, the fierce lobby in parliament that almost killed the legislation shows that many lawmakers – and the special interests they represent – don’t want to bring an end to shady dealings at the taxpayers’ expense.

But the new law passed on April 10. It was the pet project of Economy Minister Pavlo Sheremeta who wants to turn procurements from a source of corruption to an effective system that meets the state’s needs.

Economy Minister Pavlo Sheremeta is trying to clean up a corrupt system.

Some $18 billion a year gets stolen through fraudulent schemes related to government contracts awarded for various goods and services, Oleksiy Shalaisky, an expert on state procurements, said.
Healthier procedures in the bidding and awarding process, however, now could benefit the nation’s strained budget, since procurement expenditures reach $40 billion or more, according to Shalaisky’s estimates. This year the state plans to receive $35 billion in budget revenue and spend $36 billion.

“I think, (the) new procurement law revision will save up to $9 billion for Ukraine’s state budget yearly through the elimination of various corruption schemes,” added Oleksiy Khmara, executive director for Transparency International Ukraine corruption watchdog.

The previous version of the law was adopted in 2010, but the government under ex-President Viktor Yanukovych’s and former Prime Minister Mykola Azarov’s rule amended the legislation 18 times. “Each of them created more obstacles for getting information about the amount or prices on each tender,” explained Shalaisky.

After the EuroMaidan Revolution toppled Yanukovych’s highly corrupt regime, several experts started developing suggestions on how to improve the procurement law. Representatives of the European Commission and the World Bank have been participating in this process. Sheremeta approved the project and submitted it to parliament in mid-March.

Single-bid contracts – a major source of corruption leading up to the 2012 European Football Championship that Ukraine co-hosted with Poland – have been eliminated. Single-bid contract winners, journalism investigations found, were often tied to incumbent government officials. The contracts were almost always given at inflated or at above market prices.

The new law makes this and other mechanisms susceptible to corruption significantly harder to implement. Furthermore, all prices for purchased goods must now be published in open sources in order to ensure public control over procurements. Washington, D.C.-based lender International Monetary Fund praised the passage of the law. The international financial institution has been giving policy recommendations to the Ukrainian government along with a pending multi-billion dollar bailout package.
According to the government’s official newsletter on public procurement, $24 billion was spent last year to purchase goods and services. It was more than twice less than what Ukraine spent in 2012 – $65 billion when the football tournament took place.

However, Anticorruption Action Center head Vitaliy Shabunin, who participated in drafting the new law, says that amount of money spent on procurements has not changed in 2013 and stayed at the 2012 level. The government simply hid the difference from public control, he added.

“It is all because of the amendments, adopted in 2013 – a lot of procurements were made in the shadow, for example –Turboatom,  Odesa Portside Plant, Kyivmiskbud and many state-owned coal mines,” explained Shalaisky. According to his sources, state company Makiyivvugillya paid $36 million for mining equipment to a company connected to Makiyivvugillya’s management. Moreover, state energy monopolist Naftogaz overpaid $300 million for two offshore drilling platforms. There are many more examples of analogous deals.

It is very difficult to foresee how much money will be spent on procurements this year, but it will definitely be higher than last year’s figure of $24 billion, adds Shalaisky. Prime Minister Arseniy Yatsenyuk has already announced the start of an austerity program which will have an effect on procurement plans.
Nataliya Leshchenko, an analyst for Case Ukraine think tank, said the adoption of the new procurement law is just the beginning of creating a more transparent system of public spending.

In developed countries it took from five to seven years to establish a normal procedure for procurements, she added.

Kyiv Post staff writer Vladyslav Golovin can be reached at [email protected].