The biggest failure in the procurement of the “State Logistics Operator” of the Ministry of Defense occurred on the largest need that passes through the department of Arsen Zhumadilov - products for the military.
“DOT” failed to persuade retail to make purchases of 45 billion hryvnia per year. And then the old suppliers took the military by the throat and generally refused to participate in the auction, where they were given strict conditions for supplies.
As of now, the situation is as follows. The current contracts for food for all (!) Armed Forces of Ukraine expire on March 31, that is, in two weeks. Under these conditions, DOT began to enter into direct contracts (outside Prozorro) with members of the same cartel of suppliers who refused open tenders. We expect detailed information from the bunker on Friday. We will see under what conditions, with whom and at what prices “DOT” will contract. We will also see whether DOT, with the political will of the Ministry of Defense, will be able to create conditions for large retail to appear at its auctions in the future, and whether this will help oust the current monopolists.
The main corruption schemes on Ministry of Defense products look like this.
Reducing portion weights and replacing good foods with bad ones
Suppliers, in collusion with the military units' supply chiefs, include in the invoices that they brought 1 ton of potatoes to the soldiers, but in fact they only deliver half a ton. Also, instead of good quality products, they bring old/rotten ones. You can see such things on vegetable trays, when in one box there is a normal tomato for 50 hryvnia, and next to it in the box there are already spoiled ones for 20. The shortage of food is solved by simply reducing the portions for the soldiers.
There is also another way to replace expensive with cheap. This is when the documents include canned porridge “buckwheat with beef” for 120 hryvnia, but in fact they feed the soldiers “wheat porridge with chicken” for 80 hryvnia. The food chief receives 5 hryvnia for each kilogram of substituted food. As a result, very decent flows are formed - millions from each individual military unit. And this is per month, not per year.
Corruption catalog
NABU has already confirmed the corruption of the food procurement scheme, which began to be implemented in the Ministry of Defense in 2016. The point is to weed out unwanted market participants thanks to the collusion of suppliers with the chief producers, and the supply of cheap goods at high prices.
The catalog included more than 400 types of products, including chilled sturgeon and oregano, which of course are not sold to soldiers. Of this entire list, the lion's share of more than 80% of actual deliveries is made up of only three dozen items. However, bidders must include the prices of all 400 products in the total bid price. And only that participant who knows that the food chief of a military unit will never order sturgeon and flax seeds for him, writes down the prices of these hundreds of products in his proposal, and inflates the price of dozens of popular items. In turn, a normal participant indicates real prices for everything, and thus loses the price competition. Because his catalog estimate is definitely more expensive precisely because of the real price of sturgeon and all sorts of oregano and flax.
Corrupt relations between food chiefs and suppliers
The ease of such conspiracies is achieved by the fact that the breadwinners of the Armed Forces of Ukraine have established connections with the middle management of the Ministry of Defense. For example, in the company “Aktiv Kompani” from the group of the owner of Croatian hotels Tatyana Glinjana, former heads of regional military trade worked. That is, these people were well versed in their connections with major-colonels, who form the basis of the corrupt deep state of the Ministry of Defense.
Presidents, prime ministers, ministers change, but they remain. Only sometimes the market is divided between different food groups. Under Ezheli-Yanukovych, the market was divided into four, under Poroshenko-Biryukov, they were first narrowed to three, then they left one “Volunteer Service”.
Then, under Zelensky, the “Belotserkovites” of Glinyanaya were allowed to return to most of the contracts. The Dnepropetrovsk team also regained their market share. And there were even all sorts of strays like the Lviv residents Grinkevich, who “magically” received billions for body armor and food for the military and appeared on the set of “Kvartal-95.”
As a result, when the state allowed the military to hide their purchases during the invasion, it turned out that the degree of greed among these people went through the roof. And so, in the contract of one of the companies from the Glinyanaya group, eggs for 17 hryvnia appeared, Glinyanaya herself acquired hotels in Croatia, and the SBI suspected that the head of the food department from the Logistics Forces of the Armed Forces of Ukraine was raking in kickbacks so that his family emptied ATMs in Khmelnitsky for millions of hryvnia.
These schemes began to be broken in 2023
After the Zerkalo Nedeli investigation about Reznikov’s eggs, military purchases were returned to Prozorro and prices immediately fell. But not to market level. If in a store in the frontline region eggs cost 6 hryvnia, then in contracts with the Ministry of Defense they cost 6.60 hryvnia. Together with the under-delivery of goods and the substitution of good for bad, this gives 30-40% profitability. And since we are talking about contracts weighing up to 50 billion UAH per year, we have about 20 billion UAH of margin, from which we can roll back the top five to all sales managers, and the law enforcement supervisors wear as much as necessary so as not to interfere.
The new leadership of the Ministry of Defense went further. The “State Logistics Operator” was launched under the leadership of Arsen Zhumadilov, a well-known reformer of medical procurement. This was his plan. Gradually switch to separate procurement of logistics services and products for individual product groups. It's logical. But to do this, you actually need to abandon the catalog altogether, which scares virtually everyone in the Moscow Region.
Therefore, during a war, it is easier to switch to cooperation with large retailers that can both supply and sell products. It can give much more interesting wholesale prices than the current food industry, which gives “retail+” prices. Chains like “ATB”, “Varus”, “Fora” do exactly that every day: they deliver products to their stores in front-line regions.
To do this, we need key information from the top food chain from the Armed Forces of Ukraine - how many tons of what kind of food should be transported to this or that region. But they didn't give it. The strangest excuses were heard - from the fact that the document management system was hacked by Russianists to “we simply don’t have a consolidated one, but there are a bunch of separate pieces of paper.” This was the case under Reznikov-Zaluzhny, and this continued under Umerov-Sirsky.
It is quite logical that Zhumadilov initiated the transition to a new scheme for collecting this information. If previously the food chiefs directly submitted applications to food suppliers, now the “State Rear Operator” began to demand that the food chiefs submit applications to him. And “DOT” would transfer requests to suppliers and would control the situation “what, how much, where”. Thus, in just a month or two, DOT could obtain a database of regional supply volumes for normal retailers.
Reactionary reaction
And then something began that all of Ukraine had already seen. First, the old suppliers challenged the quality requirements of the suppliers in the courts. They didn’t like that “DOT” demanded that suppliers have warehouses with poisoned rats and working freezers for perishable goods. And then, again, they wanted to appeal through the courts the high fines for delivery failures. And when this failed, they simply left the auction, and tenders for food for the military from April 1 had to be canceled altogether three weeks before this date.
Thus, the food mafia killed a bunch of birds with one stone. The Ministry of Defense (read DOT) is simply forced to negotiate with terrorists and conclude direct agreements with them, bypassing tender procedures, due to extreme necessity. Of course, this will keep the old supply rules in place for another quarter. And we’ll see how “DOT” manages to collect orders from the military.
Solution
To solve the problem of the chief food mafia, a high-ranking political decision is needed - this is the leadership of the Armed Forces of Ukraine. The food chiefs will be obliged to carry out specific orders from Umerov-Sirsky, including reducing the notorious catalog of products.
For quick and high-quality negotiations with large retailers (and these are companies whose income in 2023 was in the top 10 in Ukraine), you may need a level of guarantees even higher than the Ministry of Defense. Because it is necessary that law enforcement officers do not try to scare retailers and the Ministry of Defense with crime for retreating from the food mafia. And this is definitely the Ermak-Tatarov nomenclature.
Otherwise, we will leave the corrupt in one of the largest cash flows in Ukraine. And they will definitely increase the price of eggs as soon as they discredit the buyers of the Ministry of Defense and the bunkers to the level of “screw them, they didn’t live well - let’s not even start.” People are tired of both war and corruption. People want a dress and something for their arms. Therefore, now is the only chance to achieve real change.
