Kyiv Post

Celebrated procuremen­t platform Prozorro at threat of eliminatio­n

- By Oleksiy Sorokin sorokin@ kyivpost.com

Ukraine’s online procure‑ ment system Prozorro has saved the country Hr 190 billion ($7 billion) since its in‑ troduction in 2016, according to their own estimates.

It may not save much more. The system that has been praised as one of the biggest steps in fighting corruption is being gradually dis‑ mantled by the country’s leadership.

“The situation looks worrisome,” says Vasyl Zadvornyy, the director general of Prozorro. “We’re risk‑ ing burying or at least substantia­lly underminin­g one of Ukraine’s most successful reforms.”

The reform directed nearly all government procuremen­t to go through Prozorro’s online bidding platform, making it harder to strike corrupt deals and handpick contrac‑ tors in exchange for kickbacks.

This system, where bidders take months to compete for government contracts, has become inconvenie­nt for President Volodymyr Zelensky and his ruling Servant of the People party, who came to power promising swift improvemen­ts.

So they started letting certain proj‑ ects circumvent Prozorro.

In March 2020, the government passed a decree excluding medi‑ cal procuremen­t from Prozorro and allowing the Health Ministry to buy medical equipment directly from suppliers.

The decision was meant to speed up Ukraine’s reaction to the COVID‑19 pandemic.

“It set a precedent,” says Zadvornyy.

It snowballed from there.

In 2021, parliament exempted several big projects from Prozorro, including a beltway around Kyiv, locomotive­s for state railway and the upcoming Independen­ce Day celebratio­n, leaving them all without public oversight.

“Prozorro allows Ukraine to save Hr 60,000–100,000 on each million spent because of competi‑ tion that drives prices down,” says Zadvornyy. “Leaving out Prozorro creates a potential risk that you won’t save that money.”

Ukraine is at risk of overpaying $300 million on the above three projects alone.

Yet, the government isn’t stopping there. The parliament has registered several bills that, if passed, would further reduce Prozorro’s reach, pushing Ukraine’s procuremen­t back into the shadows.

Despite the explicit attack on Prozorro and one of Ukraine’s most successful reforms, Zadvornyy avoids direct accusation­s and confrontat­ion, opting for passive defense.

Asked by the Kyiv Post whether the agency has direct contact with Zelensky and his office, Zadvornyy says he “saw the president once, maybe twice.” Asked if powerbro‑ kers know about how Prozorro actu‑ ally works, Zadvornyy says “some‑

one definitely knows, but if most people in government know, that’s an open question.”

There hasn’t been a public move‑ ment to defend Prozorro and trans‑ parent procuremen­t.

The reform

Independen­t Ukraine has always had problems with corruption and inefficien­t governance. The intro‑ duction of Prozorro was among the first reforms meant to address that.

After the EuroMaidan Revolution, which ousted President Viktor Yanukovych, demand for transpar‑ ent spending was high.

In 2014, a group of activists began creating a new online pro‑ curement platform. The initial proj‑ ect was financed by the United States Agency for Internatio­nal Developmen­t and supervised by Transparen­cy Internatio­nal Ukraine.

Soon, the Soviet- styled ZovnishTor­gVydav agency, respon‑ sible for printing out government procuremen­t deals, was renamed Prozorro, a Ukrainian word meaning “transparen­tly.”

In 2015, the parliament passed a pivotal bill, “On public procure‑ ment,” finalizing the legislativ­e framework for the Prozorro system. The platform became obligatory for all government agencies, including local ones, on Aug. 1, 2016. In the following years, the system has won global awards as the best procure‑ ment solution.

When Zelensky came to power in 2019, Prozorro experience­d a short boost. In April 2020, the threshold for the obligatory use of the gov‑ ernment procuremen­t system was lowered from Hr 200,000 ($7,500) to Hr 50,000 ($1,800).

Prozorro became a synonym for

government transparen­cy.

The agency is self-sufficient. In 2020, the platform’s budget was Hr 115 million ($4.2 million) which was fully covered by tender fees. The budget is sufficient to cover the sal‑ aries of 60 employees and maintain the servers.

In 2018, a separate platform named Prozorro Sale was launched, allowing the government to sell prop‑ erty and permits online. As of July 1, the platform helped Ukraine make Hr 40 billion ($1.5 billion) through so-called small privatizat­ions.

Corruption goes online

Despite its advantages, Prozorro can’t thwart corruption by itself. The platform lacks the tools to punish tainted sellers and corrupt officials.

Without proper law enforcemen­t agencies and working courts, the system is criticized for its inefficien‑ cy. Zadvornyy says that’s not fair.

“Prozorro’s mission is to open the market and to create a fair and transparen­t playing field, Prozorro can’t become a court, the police or prosecutio­n,” says Zadvornyy.

A minimum of two bidders is required for a tender to be rec‑ ognized. Shady contractor­s often use affiliated companies as spoiler candidates to secure government contracts. Tender trolls cause bid amounts to fall to stall competitio­n or to force buyers to renegotiat­e contracts on unfavorabl­e terms.

Officials sometimes phrase their demands for contractor­s in a way that excludes some companies and favor others.

“There are records (of violations) which can be moved to courts and be used to punish offenders, but the question is whether the authoritie­s have the competence to do it,” says Zadvornyy.

“It’s the job of law enforcemen­t agencies to react to those viola‑ tions and it’s the biggest problem of Ukraine that it doesn’t work.”

According to him, there are mul‑ tiple areas in which procuremen­t has been hijacked by deceitful contractor­s.

“The largest area where money is spent is constructi­on; a lot of contracts are signed in the energy sector,” says Zadvornyy. “These are the juiciest areas for corrupt officials.”

For example, a tight-knit group of companies —the Turkish Onur Group, and Ukrainian Rostdorstr­oy, Avtomagist­ral-Ug and Avtostrada— have banded together, allegedly colluding on state-issued road con‑ struction tenders, keeping prices high.

In 2019, only two companies — Onur and Avtomagist­ral-Ug — com‑ peted for a road constructi­on offer in Zaporizhzh­ia Oblast worth Hr 643 million ($23.8 million). The companies placed a similar price on Prozorro, with Onur beating its competitor by Hr 120 ($4).

“There are dozens of rigged ten‑ ders, with inflated prices, each cost‑ ing millions of hryvnias,” says Yuriy Nikolov, an investigat­ive journalist and editor for the investigat­ive jour‑ nalism outlet Nashi Groshi.

According to Ukraine’s existing procuremen­t laws, Prozorro officials, buyers and sellers are limited to filing a complaint to the State Audit Service. There are around 15,000 appeals annually.

“They act maybe on every fifth complaint,” says Zadvornyy.

Dismantlin­g Prozorro

Instead of solving these problems, officials saw a chance to get rid of the system altogether.

In March 2020, during the early stage of the pandemic, countries were competing for medical supplies.

According to Zadvornyy, Prozorro, together with the health and economy ministries decided to exempt purchases of medical equip‑ ment from having to go through the system.

Soon, the health ministry began bypassing Prozorro to buy other items as well.

“Buyers on the spot began saying we need to prepare a hospital for COVID‑19, so we need to buy fur‑ niture and so on,” says Zadvornyy. “It started with buying critical drugs and ended with couches, office sup‑ plies and practicall­y anything.”

A total of $1.2 billion was spent without public oversight because of this clause.

Now other state players are also skipping Prozorro and transparen­cy.

In May, Ukraine signed a nearly $1 billion contract with French com‑ pany Alstom to buy 130 Prima T8 locomotive­s for $8 million each. The government used a legal loophole to sign a direct deal — the contract was embedded in a loan agreement.

In June, parliament pushed through an amendment that exempt‑ ed contractor­s from having to trans‑ parently bid for the upcoming $3.5 billion Kyiv beltway project.

Ukravtodor, the government road constructi­on agency, justified this decision by saying that Prozorro doesn’t allow the so-called EPC+F contracts, meaning paying a fixed price for the project from engineer‑ ing to constructi­on.

“It’s a lie,” says Zadovrnyy. “You can sign any contract you wish.”

Zadvornyy said Ukravtodor never contacted Prozorro to clarify wheth‑ er the contracts they needed could be done through Prozorro.

Weeks later, a $200 million pro‑ curement deal for projects related to Independen­ce Day celebratio­ns was exempted from Prozorro with the excuse that there was no time for a proper tender.

Recently, state-owned gas com‑ pany Naftogaz said it wants to be exempt from the Prozorro system.

A bill exempting local govern‑ ments from the need to go through the system has also been registered in parliament.

“Each year, Ukraine signs con‑ tracts worth Hr 600–700 billion ($22–25 billion), pocketing even 1% of that sum, many would want that,” says Zadvornyy.

Yet, Zadvornyy is very cautious to point fingers, saying that top officials might simply lack time and knowl‑ edge to understand the benefits of Prozorro.

“Using the procuremen­t system correctly is like maintainin­g a proper diet, it’s harder than just going to McDonald’s,” says Zadvornyy point‑ ing to the fact that many top officials prefer to arbitraril­y handpick a com‑ pany — not always looking for a kick‑ back but often because it’s easier.

“Online transparen­t procuremen­t is longer and requires knowledge, many don’t want that.”

 ??  ?? Vasyl Zadvornyy, head of the online procuremen­t agency Prozorro, talks to the Kyiv Post in the agency’s office in Kyiv on July 16, 2021. Prozorro, which according to its own estimates saved Ukraine over $7 billion since its establishm­ent, has been struggling to defend its existence as more and more state agencies circumvent it.
Vasyl Zadvornyy, head of the online procuremen­t agency Prozorro, talks to the Kyiv Post in the agency’s office in Kyiv on July 16, 2021. Prozorro, which according to its own estimates saved Ukraine over $7 billion since its establishm­ent, has been struggling to defend its existence as more and more state agencies circumvent it.

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