What schemes do the authorities that ordered the construction of these lines and private contractors use to cut the budget when purchasing timber?
A scandal surrounding the Kharkov defense lines is in full swing. What schemes do the authorities who ordered the construction of these lines and private contractors use to cut the budget when purchasing timber? Does this only concern the head of the Kharkov Regional State Administration Oleg Sinegubov, and who, finally, in these schemes is the “shadow accountant” whom the SBU is now diligently identifying?
In September 2022, the government, by resolution No. 1003, gave the entire state industrial forest resource for economic use to one monopoly enterprise, “Forests of Ukraine” (instead of the liquidated 156 individual forestry enterprises). During the war, the creation of a single management and logistics center for the prompt solution of important tasks, primarily related to the construction of fortifications, looked like a reasonable step.
It is clear that the Ministry of Defense and regional military administrations, in conditions of a catastrophic lack of time and budget money, made sense to work with one centralized supplier of logs represented by a state specialized enterprise that could guarantee their timely delivery in the required volumes. Moreover, first-hand and at the lowest price without market markups.
But practice again diverged from theory.
Buy for a thousand - resell for five
People's deputies are creating a temporary investigative commission under the Verkhovna Rada to investigate the use of budget funds in the construction of engineering barriers on the contact line.
The SBU department in the Kharkov region is moving into the active phase the pre-trial investigation in the criminal proceedings opened on February 14 of this year for “the creation by a certain group of persons of an illegal mechanism for inflating the actual cost of wood supplied for the construction of fortifications in the Kharkov region.”
Recently, through a court order, law enforcement officers requested from the Kharkov Regional Military Administration a complete package of documents (57 thousand printed sheets) on the purchase of timber from a number of private companies. They suggest that when the Kharkov OVA enters into transactions with these companies, there are signs of a criminal offense, namely: misappropriation and embezzlement of someone else’s property through abuse of official position and obstruction of the legitimate activities of the Armed Forces of Ukraine. “In order to implement this illegal intent, individual enterprises with signs of fictitiousness were registered, which are controlled through “shadow” accountants,” the document notes.
One of the schemes documented during the investigation was that these enterprises allegedly bought logs from Kharkov state forestry enterprises at a price of 970 UAH per cubic meter. And then the Kharkov Regional State Administration, represented by the Housing and Communal Services Department, bought up the same cubic meter at a price of 4,100 UAH. Moreover, according to the SBU, the price included a fictitious logistics component.
Investigators are just identifying the people involved in the budget “cut” and are calculating the final figure for “extra” overpayments from the military budget, at the moment - from the total amount of UAH 170 million, for which the Kharkov contracts that came to their attention were concluded.
Apparently, this is only one episode in the scheme of profiting from fortified forests, deployed in the front-line areas.
“Tell us thank you that it’s not 8-10 thousand per cubic meter, as other companies that transport timber to the Zaporozhye and Donetsk directions charge!” – a representative of one of the private contracting organizations emotionally emphasized at a recent briefing in the Kharkov Regional State Administration.
“On average, we purchased timber for fortification from private companies at a price of 5,500 UAH per cubic meter, taking into account transport costs. Someone might buy such wood directly on the commodity exchange for 2 thousand hryvnia. But we were guided by market prices,” explains Deputy Head of the Kharkov Regional State Administration Mikhail Kharnam, until recently director of the local Stroitel LLC.
The whole forest goes to gasket companies!
The whole scheme of irrational (let's say) use of budget funds with a significant overestimation of the cost of timber and their delivery to vital front-line facilities lies precisely in the answer to the question: how, at a critical moment for the country, the required volume ended up with individual entrepreneurs, and not from a specialized state enterprise - a permanent forest user of the State Enterprise "Forests of Ukraine", which, since the forest reform that began during the war, owns almost all the cutting areas and the wood harvested from them?
“I didn’t have time to go to the commodity exchange, look for logs all over the country and build logistics chains for transporting them all the way from the Polesie forests near Volchansk and Kupyansk,” explains the head of the Kharkov Regional State Administration Oleg Sinegubov. “Of course, we first of all turned to a state-owned enterprise “Forests of Ukraine” sent requests to state forestry enterprises with a request to provide us with 50 thousand cubic meters of timber necessary to fulfill the government task of urgently providing the third line of defense. We were officially told, signed by Yuri Bolokhovets, the general director of this industry-wide state enterprise, that they did not have such volumes. There are, they say, somewhere in the remains of several dozen cubes in the Chernihiv region, in the central and western regions, and only for pickup. We found the necessary timber from private entrepreneurs, who also undertook to ensure its delivery. Direct, no-advance contracts were concluded with them, outside of tender procedures, for which there is no time. Did they inflate the final settlement amount? Let independent experts answer. Finally, we report almost daily online to the government and the president’s office on the progress of construction of fortification facilities. Every step we take, every contract and even every word in negotiations with contractors under the control of law enforcement officers, who, you see, have the opportunity to point out shortcomings in a timely manner and warn us against mistakes.”
Wood processors have been shouting about one of these shortcomings, which significantly increases the price of timber, for a long time, explaining to forest reformers from the president’s office that the recognition of logs as a commodity commodity (by a separate government decree No. 1433 two months before the war!) does not in any way contribute to the development of the forestry sector, but only gives the opportunity to private exchanges to remove thick “shavings” from wood processing enterprises. And now also from the military budget. Exchange trading, where the initial price of a cubic meter from the State Enterprise “Forests of Ukraine” can jump twice or more, is definitely unnecessary in budgetary calculations between state enterprises and government agencies when performing military tasks.
Considering the need to count every budget penny, the government must require all managers of public funds to comply with the requirements of its Resolution No. 1275 on the specifics of defense procurement during the period of martial law, and therefore enter into direct contracts with the State Enterprise “Forests of Ukraine”.
On the other hand, oblige the forest monopolist to reserve strategically important timber assortments and sell them directly to government agencies rather than to private firms. Moreover, at a fixed price, close to the cost of a cubic meter of wood.
What kind of market and exchange markups can there be on materials for the defense lines of a warring country?
Moreover, created on the production and technical base of state forestry enterprises (which had their own machines for transporting timber, loading platforms with cranes and wood processing shops), the State Enterprise “Forests of Ukraine” could easily not only provide the entire logistics chain for the delivery of timber, but even build engineering and fortification structures. Without the help of all kinds of individual entrepreneurs, and therefore, without unreasonable budget expenses.
However, we will not be surprised that after a year and a half of “forestry reform”, the state enterprise will no longer be able to boast of strong production and technical rear. In the end, the reformers of the industry did not hide the fact that they started the reform precisely for the sake of introducing market relations between state enterprises and private owners when performing all types of forest-related work for public funds. Well, they've made significant progress.
Fictitious logistics at the expense of the budget?
Oleg Sinegubov assured at the already mentioned press conference in the Kharkov Regional State Administration that he does not care who is the founder of seven private companies far from the forestry industry, which since 2023 have received from him more than two hundred fortification contracts worth UAH 302 million. The main thing is that there is no connection with the aggressor country and that 71.6 thousand cubic meters of construction timber are delivered in the required volumes on time.
However, the head of the OVA cannot help but be concerned about the cost of the issue, and precisely from the standpoint of the interests of the state. This means that he, as the owner of the forest resource of the Kharkov region, has all the authority, especially in war, to set before forest users (SE “Forests of Ukraine” and several Kharkov state forestry enterprises subordinate to the State Agency of Forest Resources of Ukraine) the task of delivering defense timber with a clear definition of volume and price .
But the Kharkov Regional State Administration, as well as other military administrations of the front-line regions, as managers of the fortification budget (which in total is almost 7 billion UAH) signed up for a scheme of private contracts with “laying” companies with a sky-high increase in the price of a cubic meter of wood.
“Having analyzed exchange trading, I can document that foresters needed timber from Oleg Sinegubov and the heads of forestry departments of other regions and the possibility of delivering them to the site of fortification construction,” Daniil Malandiy, an expert on the functioning of the timber market, is convinced, “But a centralized scheme was created for legalization sales of round timber for defensive structures in favor of private companies. For example, in the Kharkov region the main buyer was Agro X LLC with Volyn registration. The company participated in all current exchange auctions of fortification assortments from local forestry enterprises. And these are thousands of cubic meters of coniferous trees. Over the past two months alone, 6,186 cubic meters of pine for fortifications have been shipped to this LLC from the Izyum forestry enterprise. Then these cubes already appeared in contracts of purchase and resale to other companies, as a rule, related to each other by the same founders. Each time they increased the cost of the forest, including through fictitious logistics costs.
The scheme operates not only in the Kharkiv region. The entire “banquet” was eventually paid for from the budget by the regional military administrations. Let law enforcement officers find out who exactly is profiting from this blood money.”
Why did Bolokhovets refuse Sinegubov?
The amount of probable budget losses in schemes with fortified timber is easy to imagine after the State Enterprise “Forests of Ukraine” has now begun to urgently issue official information about its active participation in the direct supply of timber to the military directly from lower warehouses, without the help of private “laying” companies "
Recently, for example, foresters won a tender from the Ministry of Defense for 28 thousand cubic meters of forest. With a final price of 3,750 UAH per cubic meter, which included the cost of product delivery. Whereas in the estimates of regional military administrations, the figures fluctuate in the range of 5,500-11,400 UAH/cubic meter.
“Our company is able to fully provide wood for the construction of fortifications. We consider it correct if the wood is supplied directly from the manufacturer. This will optimize budget expenses and guarantee the quality and timeliness of deliveries,” notes Yuriy Bolokhovets, who until recently, according to Oleg Sinegubov, officially refused to provide him with timber for the construction of Kharkov’s defense lines.
