Every year, the Ukrainian government spends billions of hryvnia in taxpayer money on public procurement. In 2012, the figure was Hr 428 billion, according to the State Statistics Service. But much of this money ends up in the pockets of corrupt officials and associated businesses, whose dealings are regularly exposed by journalists and watchdogs, but stubbornly ignored by the law enforcement bodies.
Poor legislation remains one of the reasons for lack of oversight of government tenders. As a result, many tenders remain below the public radar. Even when violations are discovered, agencies that make the discoveries often lack powers to pursue cases further and are unable to punish the guilty. Because many in government and in parliament benefit from the status quo, officials are reluctant to make changes.
The margin of profit from shady deals in government procurement could be about 25 percent, according to co-editor of Nashi Groshi public procurement watchdog Yuriy Nikolov. That means that over Hr 107 billion of public funds could have enriched private individuals because of excessive markups and kickbacks.
“According to official data, corruption on public procurement costs taxpayers about 10 to 15 percent of budget expenditures every year. But the real situation is even worse. The biggest part of losses is hiding in the shadows now – after the ruling majority in the parliament relieved state-owned enterprises from the need to conduct procurement tenders (in the summer of 2012),” Batkivshchyna lawmaker Lesya Orobets says.
Huge waste though public procurements caught the attention of the Security Service of Ukraine, head of the board of the Anticorruption Action Centre Vitaliy Shabunin says. According to Dzerkalo Tyzhnya newspaper, in April SBU head Oleksandr Yakymenko wrote a letter to Prime Minister Mykola Azarov about losses through procurement. They were estimated at about Hr 35-52.5 billion per year, the newspaper said.
One agency that has some powers to dig deep into the government expenses is the Accounting Chamber of Ukraine, a parliamentary financial controller. But its discoveries are modest. According to its annual report, in 2012 Hr 12.94 billion was spent in violation of the budget law. Violations of public procurement procedures account for a quarter of that amount.
But even when the Accounting Chamber discovers the shortfalls, it has no power to punish the guilty. For example, in March the chamber published a report on the use of public funds during preparation for last year’s European football championship. At least Hr 3.7 billion was spent in violation of law, but auditors were not able to punish those responsible for the waste.
“The effectiveness of the Accounting Chamber is zero. For example, in last year’s report on public procurement they wrote about Hr 18.8 billion that was split up without justification through the procedure of single-bid procurement. As a result, no one was punished, no penny was returned into the state budget, no recommendations from the report of the Accounting Chamber have been taken into account,” Shabunin says.
There are other government agencies that have a slightly more impressive mandate, such as the State Financial Inspection and the prosecutor’s office. The agency recently released a report boasting that in the first 8.5 months of 2013 the institution prevented waste of nearly Hr 1.25 billion of public money.
By auditing a number of state-owned companies in the first half of 2013, it issued more than 11,600 protocols on administrative violations. Only 647 of those were related to public procurement and made it to court, though.
The State Financial Inspection has powers to stop the violations and go to court. But it only received this power a couple of weeks ago through new regulations, so it’s too early to evaluate.
The General Prosecutor’s Office also has powers of oversight, investigation and prosecution. In 2011-2012, it submitted to court 245 criminal cases related to public procurements.
Ukraine’s Unified Register of pre-trial investigations has 350 entries about cases related to violations in public procurement since November of last year, but less than 50 of them have been sent to court, the general prosecutor’s office wrote in its response to a Kyiv Post query. It also said that in the past 1.5 years, more than 2,000 government officials were prosecuted for such violations, but without elaborating on the details, including the types of punishment.
Curiously, the general prosecutor does not pursue some of the most scandalous allegations of waste of public money, preferring instead to go after smaller fish. For example, one of the cases it investigated recently was Ukrzaliznychpostach, a company related to national railway carrier Ukrzaliznytsia that specializes in supplies. In 2009-2010, it spent Hr 28.5 million in public funds.
At the same time, there is no investigation into allegations related to oil rigs purchased in 2011, also known as “Boyko’s Rigs” because Yuriy Boyko was the energy minister then and allegedly coordinated the purchase. Opposition members and journalists discovered that an oil rig bought in 2011 by Chornomornaftogaz, a Naftogaz subsidiary, for $400 million, actually costs $250 million. Rather than face investigations, Boyko got promoted to deputy prime minister last year.
The civil soceity sector is trying to pick up the slack. The Anticorruption Action Centre alone investigated 185 corruption cases and saved about Hr 1 billion worth of state funds by challenging tender results and referring other types of cases to the prosecutor’s office, with the help of the opposition.
In one case, it stopped Ukrzaliznytsya from wasting Hr 835 million through attracting extremely expensive loans. Some of their ongoing cases are related to suspicious tenders by state-owned Ukrzaliznychpostach, Ukrtransgaz and Donbasenergo, which was sold recently.
But even if public procurement violations are caught and reversed, it is rarely followed up by a guilty verdict for individuals involved. Glib Kanevsky, an expert of the Center of Political Studies and Analysis, says most commonly people end up with meaningless administrative punishment like fines and reprimands.
Experts say Ukraine needs a single supervisory body with a full mandate to investigate and punish corruption. It also doesn’t help that procurement standards are written out in a way that officials have room to interpret it their own way and benefit personally, without breaking the law, Kanevsky explains.
Kyiv Post staff writer Kateryna Kapliuk can be reached at [email protected]
