Thursday, July 26, 2012

Yuriy Onyshkiv (Kyiv Post): Lytvyn signs procurement bill that may fuel corruption

While the country was shocked by the adoption of the language law on July 4, pro-presidential lawmakers passed another law that could end up costing the nation much more. The controversial bill on state procurement further reduces competition and oversight of state purchases, which are already bleeding the budget.

According to, which calculates money spent through state procurements, the share of such expenditures compared to gross domestic product is much higher in Ukraine than in Europe.
According to official statistics, last year the state made Hr 325 billion ($40.6 billion) worth of purchases. This year the figure could go up significantly; in the first six months of the year, state procurement already swallowed Hr 307 billion.
Much money in Ukraine is being spent via tenders that lacked competitive bids. Prices in such tenders are often far above market value.

Even the head of state admits something is wrong. At a June 8, 2011 meeting of the National Anti-Corruption Committee, President Viktor Yanukovych said that corrupt public procurement deals amount to 10 to 15 percent of the state budget, which ends up in the pockets of officials.
“That is, $7.4 billion,” Yanukovych said. “That’s why in the last 15 months we have worked hard on eradicating corruption.”

Examples abound.

Last June, the State Affairs Department bought imported raspberries worth $84 per kilogram.
Another state company, subordinated to the Energy Ministry, recently purchased three housing booths for construction workers worth Hr 934,000 ($116,750) each. This implies a price per square meter of $5,600, a figure close to the average price for a square meter in an apartment in Moscow, one of the world’s most expensive capitals.
If the law takes effect, the legislation will allow state-owned companies to bypass tender procedures in purchasing goods and services. Critics say this will further fuel corruption, making it possible to spend public money without proper scrutiny and with even less competition.
“I do not expect much more money to be ‘siphoned’ as a result of this law,” said Vasyl Yurchyshyn, economic analyst at the Kyiv-based Razumkov Center. “The tenders will be open only to a chosen few.”
He added that the public will lose the most from the lack of competition, because consumers will end up with products that have low quality and high prices.

The law was adopted on July 4, the same day parliament adopted a controversial language law elevating the status of the Russian language. The ensuing protests and international attention over the language law meant the procurement law’s passage went almost unnoticed, fueling criticism that the language law was a smokescreen to divert public attention.
In fact, the procurement bill was passed so quietly that journalists did not notice it became law until early this week.
Even after going on vacation and asking parliament to accept his resignation to avoid the adoption of the controversial language bill, parliamentary speaker Volodymyr Lytvyn managed to sign the procurement law on July 17 and pass it on to President Viktor Yanukovych for consideration.
Lawmakers in the Party of Regions faction, Lytvyn’s People’s Party faction and the Communist Party voted in favor. The Communists, ironically, are campaigning on the slogans of “returning the country to the people” and punishing those who steal.

Nashi Hroshi (Our Money), a news website that monitors state purchases, showed that last year companies owned by Rinat Akhmetov, Ukraine's richest billionaire and a Party of Regions lawmaker, received 11 percent of all state procurement finances.
Other politicians and businesses that make money on providing goods and services to public entities include: Yuriy Ivaniushchenko, a Party of Regions lawmaker; companies affiliated with family of President Yanukovych; Oleksandr Yefremov, head of the Regions' party faction in the parliament; Dmytro Firtash, the billionaire co-owner of RosUkrEnergo; Viktor Pinchuk, son-in-law of Ex-President Leonid Kuchma; Petro Poroshenko, economy minister, and Serhiy Tigipko, deputy prime minister and minister for social affairs.

Razumkov’s Yurchyshyn expects Yanukovych to sign the law. The president's press secretary did not immediately respond whether he will sign the bill. Yanukovych has another week to consider the measure.

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