President Volodymyr Zelensky might actually get his wish to be remembered as the president who built good roads.
As part of the president’s large-scale infrastructure program, Big Construction, state road agency Ukravtodor rebuilt 4,000 kilometers of roads in 2020. Only 5,500 kilometers were rebuilt between 2015 and 2019.
Construction on another 4,500 kilometers of roads this year is under way.
Even that total — 14,000 kilometers of rebuilt roads — represents only 8% of the 170,000-kilometer network of roads in Ukraine.
To finance this year’s improvements, Ukravtodor has to attract additional foreign investment and eliminate corruption that costs the budget hundreds of millions of dollars per year.
But in a country where corruption in road construction is entrenched, it remains to be seen whether the road agency can both rebuild Ukraine’s crumbling roads and fight corruption in the industry.
More roads in 2021
Ukravtodor’s plan for 2021 includes launching several large projects: 250 kilometers along the borders, a 150-kilometer beltway around Kyiv, a 1,400-kilometer highway connecting Lviv in the west and Luhansk in the east, and a highway to the Polish border.
The beltway around Kyiv would link three highways west and south of Kyiv and cut the flow of trucks into the capital.
The Turkish company Ozaltın Holding recently won a $100 million tender to connect two international highways and to relieve the beltway of traffic. The beltway would be completed in four years.
Another priority is the front-line Luhansk Oblast. From 2010 to 2019, a mere 133 kilometers were repaired in the region. This year Ukravtodor plans to rebuild 381 kilometers.
Ukravtodor also plans to connect the eastern Luhansk Oblast and the western Lviv Oblast with a single, 1,400-kilometer highway. The project will repair and connect two existing highways that meet in Kirovograd Oblast in central Ukraine.
The agency hopes to finish construction by Aug. 24 — the 30th anniversary of Ukraine’s independence.
Electric vehicles are also on the docket. Along with the European Bank of Reconstruction and Development (EBRD), the state agency is working to develop a plan that will facilitate mass electric vehicle deployment in the country, such as building charging stations.
The National Transport Strategy is targeting an increase of electric transport share in domestic traffic to 75% by 2030.
Road workers lay asphalt in Zaporizhia Oblast on March 11. Ukraine’s road industry is riddled with corrupt schemes to steal money. Sometimes contractors bidding for tenders claim they will purchase high-quality asphalt at a certain price, only to lay a cheaper alternative on the road. (Courtesy of Ukravtodor)
Bringing transparency
Corruption in the road industry in Ukraine is no secret, especially during the bidding and contract procurement process.
Ukravtodor estimates that some 10–15% of road construction funds get stolen through corrupt schemes. It amounted to $300–500 million in 2019.
But it may be even higher than that. Nashi Groshi (Our Money), an organization that analyzes corrupt practices in public procurement, estimates that the corruption margin in the road sector is 20%.
Just last year, the Competition and Consumers Protection Council accused a top Ukravtodor contractor, Rostdorstroy, of colluding with other companies by submitting coordinated price offers in the same tenders.
Oleksandr Kubrakov, head of Ukravtodor, told the Kyiv Post that while they took some steps in 2020 to make the agency more transparent, the changes they made weren’t “sustainable.”
“You can reassign staff as a way of turning things around, but within a few weeks’ time, we found everything was as before, decision making is opaque, contractors aren’t paid, there’s extortion,” Kubrakov said.
To receive the three tranches of a $900 million loan from the EBRD and European Investment Bank (EIB), Ukravtodor has to implement an Anti-Corruption Action Plan to increase transparency in the industry.
Last year, the EIB and EBRD co-financed the reconstruction of the 285-kilometer-long Kyiv-Odesa highway.
As part of the Anti-Corruption Action Plan, the EBRD has contracted a Swiss consultancy, the Basel Institute of Governance, and a Ukrainian law firm to supervise the project and help identify corruption risks.
Ukravtodor, along with the Swiss consultants, plans to finalize the action plan by July 2021. The consultants will oversee the reforms within Ukravtodor and its divisions until 2023.
Kubrakov said that this plan gives Ukravtodor the chance to make these reforms “irreversible.”
Yuriy Nikolov, an editor at Nashi Groshi, doubts these reforms will create fundamental changes in the road industry.
Nikolov says that during the procurement process last year for the reconstruction of the Kyiv-Odesa highway, Ukravtodor shared competitor proposals with the Turkish construction company Onur Group. Onur Group then changed their proposal and won the bid for the EBRD-financed project.
He suspects this scandal may be a reason why the anti-corruption plan arrived this year.
He also cited the arrest of Slawomir Novak, a Polish citizen who served as head of Ukrainian state road agency Ukravtodor from 2016 to 2019, for corruption connected to procurement tenders held by Ukravtodor.
Onur Group and its Ukrainian branch, Onur Group Ukraine, are suspected of colluding with Novak in large-scale corruption schemes at tenders for road repairs.
What worries Nikolov is that the same players accused of wrongdoing are still in the game.
“Why should I think something has changed if they’re working with the same companies?” he says.
But Oleksandra Azarkhina, director of the Reform Support Team at Ukravtodor, told the Kyiv Post that this project is different from others, because “Ukravtodor itself initiated the inclusion of the Anti-Corruption Pilot Project in the loan agreement.”
If Ukravtodor is successful, its experience can be a blueprint for how other government agencies can partner with the EBRD and EIB.
“Ukravtodor is the experiment, we are the ones who are tasked with learning how this partnership could become a working model for the rest of the country,” Azarkhina says.
Attracting investment
Tymofiy Mylovanov, a former economy minister and currently a top aide to Zelensky’s chief of staff, says that it’s too easy to focus on corruption in Ukraine.
Instead, he says, attention should be paid to how efficiently the money allocated to road projects is spent.
This year the government allocated $5.4 billion from the state budget to the State Road Fund, a $718 million increase from the previous year. In contrast, it allocated just $790 million for the fight against the coronavirus.
In 2018, the government created the State Road Fund for road construction, accumulating funds with taxes generated from fuel and vehicle sales.
According to Kubrakov, Ukravtodor is also looking to attract an additional $1.5 billion to pay for its road projects.
“Since last year, Ukravtodor began to attract funds under state guarantees, but big infrastructure projects require cheap long-term loans that are still missing in Ukraine,” Kubrakov said.
To attract more financing, Ukravtodor plans on working with the EBRD to create a joint stock company that will issue infrastructure bonds in order to generate capital to pay for roads.
Last year, the Cabinet of Ministers extended $840 million in state guarantees to Ukravtodor. In turn, the state road agency sold $500 million worth of bonds to three state banks: Ukreximbank, Ukrgasbank and Oschadbank.
Ukravtodor also hopes to generate additional funds through public-private partnership (PPP) projects, or concessions.
Concession projects at Port Olvia and Port Kherson in southern Ukraine last year were the first PPP-style initiatives in Ukraine — both ports were bought by foreign companies for generous sums, generating millions of dollars in investments for the country.
A study by the International Finance Corporation says that concessions could help Ukraine attract potential investments worth around $2 billion in the roads sector through 2023.
Ukravtodor wants to fund the construction of a 280-kilometer highway between Rivne and Krakovets on the border with Poland through this type of partnership.
Azarkhina from Ukravtodor describes this highway on the Polish side as a “beautiful” two-sided, three-lane road that disappears once you enter Ukraine, with one lane in both directions and of a completely different quality.
“It’s a literal image of how Europe ends at the Polish border,” Azarkhina said. “We want to rebuild this corridor between Poland and Ukraine so that Europe extends into Ukraine.”
