No sooner had a new state-owned enterprise, responsible for logistics support for the Armed Forces, started operating in Ukraine than many questions immediately arose regarding its work, “worth billions of hryvnias.”
In recent days, the Internet has been literally ablaze with innovations brought about by the new State Enterprise created by the Ministry of Defense. A structure called the “Defense Procurement Agency” (SE “State Logistics Operator”) was headed by career official Arsen Zhumadilov, who publicly promised not to “purchase eggs for 17 UAH” and to build “completely different procurement strategies.” Procurement strategies became clear already in January, when the Zhumadilov Agency began announcing the first multi-billion dollar tenders through Prozorro
“Not savings, as promised, but price increases. Not competition, but promotion of specific suppliers. Not transparency, but outright schematosis. Of course, under the slogans of the fight against the mafia. According to the old recipe, it seems that it will end with this mafia being led,” said former editor of Economic Pravda Sergei Lyamets, who, like many other experts, analyzed the innovations.
Below we provide an explanation of what exactly the Defense Procurement Agency under the leadership of Zhumadilov is accused of.
The same Sergei Lyamets refers to an official document - a memo from one of the officials of the Ministry of Defense, addressed to the Deputy Minister of Defense. The note was obviously supposed to be secret, but it ended up in public space. The point is that inside the Ministry of Defense itself, someone conducted a very thorough analysis and warns about the numerous risks and shortcomings of tenders held according to Zhumadilov’s rules.
Clearing the market for “their own”
Despite the fact that Zhumadilov promised transparent and equal conditions for everyone, the new conditions for food tenders say that participants must have at least 25 storage facilities in one cluster (a cluster is the united geographically close regions of Ukraine).
In effect, this means that a supplier that meets all the requirements, but does not have 25 premises in the vicinity of military and field units (because there was no reason to have them), cannot participate in the competition. Most likely, one of the bidders has exactly this number of premises, so the conditions were written specifically for him.
At the same time, there is no requirement that these warehouses/stores must operate after the conclusion of the contract, and therefore it is not clear what the requirements were then for. One of the options is to narrow the circle of applicants.
A very large market player can afford to have 25 objects in a “cluster”. Other potential participants, who have, for example, one warehouse in each region, even a very large one, cannot in any way offer their services for feeding the army.
Consequently, the military food market may be once again being divided into the hands of retail giants.
"Competition? What kind of competition? Unrealistic artificial requirements for participants that exclude most participants from participating in the tender, except for large retail chains,” says Lyamets.
His opinion is confirmed by former MP Borislav Bereza. He believes that such a requirement can only be fulfilled by a “selected circle” - exclusively large retail chains and no one else. Everything is written for them.
“And also, the guys were in such a hurry that they prescribed conditions with holes. For example, they forgot to indicate the required warehouse area. It turns out that the owner of 25 sheds in the Kyiv region can supply goods to Kharkov. And the owner of several warehouses of 2 thousand square meters in the Kharkov region is no longer there,” Bereza noted.
The state will lose 11 billion UAH per year
According to the new conditions, the most important thing is growing - the earnings of the future supplier, analyzed political scientist and teacher Evgeniy Magda.
According to him, if previously “the service of organizing meals for one serviceman” cost 107 hryvnia per day, now it costs 137 hryvnia. This also seems to be specially done for new winners.
Consequently, out of the blue, this additional delta will cost the budget 30 million per day, 900 million per month, and almost 11 billion UAH per year.
Plus the delivery price, which the state must now also pay. Previously, this was the responsibility of the supplier, recalls Borislav Bereza.
“Creating” in only two tenders – UAH 1.5 billion
A number of media outlets and analysts drew attention to the last two tenders announced by the Defense Procurement Agency in February - in the amount of UAH 3.76 billion and UAH 3.06 billion. The prices for meal kits there are already inflated.
The difference in the cost of one set does not seem to be great. But thanks to the massive scale of procurement, these two tenders as a whole became more expensive by UAH 1.5 billion.
According to political expert Andrey Zolotarev, from this amount, Agency officials under the leadership of Zhumadilov received a personal gain of 28 million UAH.
“New schemes are in action, and it’s scary. I don’t want to use the word “gaskets” in relation to the GP, but in my mind I still think how many drones can be bought for UAH 28 million,” analyst Oleg Posternak supports his opinion.
Where the mentioned “fat” comes from – we will explain a little below.
Billions of dollars in advances for potential “gray” schemes
New conditions from Zhumadilov suggest that the state gives food suppliers a 50% advance for three months, although this was not the case before. For example, if the amount of a recent tender was about UAH 3 billion, then the state gives the supplier an advance of UAH 1.5 billion. Experts are sounding the alarm because this creates “excellent conditions for “gray” schemes.”
“They took government money, swindled it, earned excess income, and did not fulfill their obligations,” warns Lyamets.
Or another potential scheme: the supplier takes an advance from the state and can “quietly go into the woods” with the billion-dollar “loan” received.
“After all, now the leadership of the Ministry of Defense has decided to remove the rule on mandatory compensation for the cost of undelivered goods. A very convenient story for “respectable gentlemen,” Bereza explains.
The fact is that according to the new rules, someone can win a tender, but in case of failure to comply with the conditions, they will not bear any responsibility. This, we emphasize, concerns the nutrition of Ukrainian defenders! Big money means minimal responsibility. The risks remain exclusively for the Ukrainian Armed Forces and the budget.
Lyamets warns that according to Zhumadilov’s rules, the fine for non-delivery is reduced from 100% of the cost of the goods to 20%. And the penalty for late delivery is from 20% to zero.
Schemes with body armor
The newly created Defense Procurement Agency is engaged in purchasing not only food for the Armed Forces of Ukraine, but also other necessary goods for logistics support. Among them is ammunition.
The January tender for body armor with a total value of more than UAH 2 billion showed that the Agency significantly inflates prices for body armor. For example, in October, the Department of State Procurement of the Ministry of Defense bought them for 24,930 UAH per piece, and already in January, the Agency under the leadership of Zhumadilov takes the same “armor” from the same supplier, but for some reason much more expensive - 26,570 UAH per piece.
What is the benefit for Zhumadilov from inflating prices?
At the very beginning of the creation of the Defense Procurement Agency, a business mechanism for its financing was laid down. From each contract, the state enterprise receives 0.4% for its needs. If contracts worth several billion are tendered, officials receive tens and hundreds of millions of hryvnia. The higher the prices of the lots, the more millions go to the budget of the Agency’s employees, which must reform procurement for the Armed Forces of Ukraine.
“Despite the promised new approaches to defense procurement, the only new approach, according to the announced February tenders, is a change in the name of the customer: it was the Department of Public Procurement of the Ministry of Defense, now it is the Agency. At the same time, the Department received only salaries, the Agency received 0.4% of the contract amount,” writes Facts.
There have already been waves of indignation on social networks about the amounts that this Agency spends on its own needs. For example, 29 million UAH for business trips for employees. Ukrainians must pay these officials out of their own pockets for hotels, planes, buses, car rentals and unnamed “similar services.”
Where are the procurement reforms?
This is one of the main questions that is now being heard in the new enterprise of the Ministry of Defense. This year, Zhumadilov’s agency is expected to allocate UAH 95 billion for logistical procurement for the army. From all of the above, we can conclude that the money of Ukrainian taxpayers will be distributed according to discriminatory rules in order to clear the market and make money for the elite.
The worst thing that can happen is if only 2-3 suppliers are included in the select club, who, in extremely difficult combat conditions, will not cope with food supplies and will not bear responsibility for this.
Needless to say, this could affect the combat effectiveness of the Ukrainian army.
