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School buses, oil rigs and raspberries: corruption in Ukraine

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Rampant corruption among government officials is a given for most Ukrainians. A recent scam involved the purchase of school buses, which were so defective that fatalities were avoided only by a miracle. But without the political will at the very highest level, there is no chance that this case will go to court and the criminals be punished, says Natalia Sedletska

Natalia Sedletska
10 September 2012

Government procurement is perhaps the most corrupt of all areas of activity in Ukraine. Each government department has its own budget, access to which is often the main reason for a politician coming to power. Lining one’s pockets from public money is something that unites many officials and there would be plenty enough instances of suspicious, dubious or straight corrupt expenditure of public funds for a regular supply of material to my weekly programme on TVi.

The systems chosen by officials are fairly similar, differing only in the particular area that those in power select for their self-enrichment. The Ministry of Fuel and Energy and the government corporation NAK Naftogaz, for instance, ran a scam through a British shell company relating to the purchase of a drilling platform for more than double what it would have cost on the world market. Ministerial catering departments buy raspberries for 100USD a kilo, which is 10 times as much as they would cost in the market.

'Government procurement is perhaps the most corrupt of all areas of activity in Ukraine.'

Another typical way for an official to make a pile out of government procurement is by granting a contract to ‘his man’, which involves turning down rival proposals at the tender stage ruthlessly and unreasonably. It is no secret that the biggest government contracts in financial spheres such as the coal industry are distributed among firms with direct links to high-ranking personages in the presidential Party of the Regions.

The new law

But now there’s not even any need to be particularly cunning about it, because all the rules and regulations have simply been removed from the officials’ favourite game, which has been christened the 'carve-up'.

President Viktor Yanukovych signed the scandalous law no 9634, passed by the Rada [Parliament], which places all state enterprises outside the law on tenders. Put more simply, state enterprises now no longer have to organise any tenders: they dole out state funds at their own discretion when ordering goods or services. There is no competition to establish the best or cheapest proposal, nor will officials be accountable for their disbursements, which are published in the official publication 'Government Procurement Bulletin'. Tenders now only have to be held for money from the state budget or local authority budgets, which accounts for less than a third of all disbursements of Ukrainian public money. Experts have calculated that approximately 45 billion of the 65 billion USD a year will be disbursed non-transparently i.e. without tenders or publication of information.

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Ukrainian Public Procurements website: according to a new law, state enterprises no longer have to go through obligatory tendering processes (state and regional authorities are not covered by the law). The expectation is that a large chunk of Ukrainian public money will now be disbursed without a trace of transparency.

Take NAK Naftogaz, for instance. The company sells gas to national grid; it also has affiliated state companies with access to state subsoil resources, which fact they attempt to exploit to make money, or manufacture some kinds of essential goods or products.

Chernomorneftegaz [Black Sea Oil and Gas] is exploring the offshore for oil and gas. This area is state property and, therefore, belongs to each and every Ukrainian.

Officials might decide gas production should be moved to a new level, for which purpose a new state of the art oil rig is needed. Previously this would have had to go out to tender: the winner would have been selected and accounts rendered for the money spent. Now that the law has been passed, it can all be done with no tender and no public announcement about who won the contract.

'Experts have calculated that approximately 45 billion of the 65 billion USD a year will be disbursed non-transparently i.e. without tenders or publication of information.'

In other words, previously journalists could discover from their reading of the official Bulletin that the final purchase price of 400 million included an extra 150 million USD. Now officials can do what they like with monies earned from exploiting the offshore, even to the extent of paying them all over to a British shell company. It will at the very least not be reflected in documents accessible to the public and the press.

How this law of obfuscation got through Parliament is another story. Campaigners for transparency of government procurement had actively opposed it for 5 months, but the pro-presidential majority got it through on the nod on the day that the Rada passed the outrageous language law confirming the status of Russian in Ukraine. At that time the attention of the public and the press was entirely focused on the language question and the mass confrontations between those who disagreed and the siloviki [the men in uniform]. The passing of the tender law in Ukraine has been described without exaggeration as the achievement of corrupt Ukraine officials' wildest dreams.

The paradox of the Ukraine justice system

It is no secret that in Ukraine the role of the justice system in dealing with the problem of corruption is totally selective. Take the case the ex-minister of the Interior in Tymoshenko's government, Yury Lutsenko, for example. He is in prison for 4 years for embezzlement and abuse of office during the financial crisis. The Minister's department arranged celebrations for the Day of the Police at the taxpayers' expense, though a Cabinet of Ministers' resolution had banned this from the onset of the world financial crisis.

Minister_Tabachnik

Natalia Sedletska interrogates Ukrainian Minister of Education and Science, Dmitry Tabachnik. Tabachnik, one of the most prominent government politicians, had nothing to say about the bus corruption scandal.

This same resolution forbids state organisations from buying new cars. But the 'Government Procurement Bulletin' is awash with announcements about the organs of state updating their car pools at the taxpayers' expense. It recently emerged that Parliament has acquired a new (2011) armour-plated Mercedes S-600, though the ban on the purchase of new cars has been in operation since 2008. The National Bank recently acquired 15 new (expensive) Toyotas.

When ex-minister Lutsenko broke the law in a similar way, the Prosecutor General investigated the case and managed to get the opposition politician punished through the courts. Today the Prosecutor General's office isn't interested in any of Yanukovych's similar infringements of the law and, what's more, the office itself actually acquired 8 Toyota Camry saloon cars of the most expensive premium range!

The Prosecutor General's office is one of the so-called 'power [Rn silovye] departments', whose function it is to identify cases of corruption in the authorities. Yet it broke the same rule which put the ex-minister, now member of the opposition, Lutsenko in prison. When it's the Prosecutor General's office itself that commits the crime, then the burden of investigation falls to the Security Service. But nothing will happen.

Kickbacks on children's money

Recently I completed a journalistic investigation which unexpectedly turned up a big scam at the Ministry of Education. But of that more anon.

In 2010 the Ministry of Education and Science announced a tender for the purchase of school buses, apparently knowing in advance that the winner would be the Kherson Motor Works, AntoRus. Other submissions were thrown out, including one from the Borispol Motor Works, whose price was 3 million USD lower. The official reason was that their documents didn't include a statement to the effect that the factory representative had a clean police record.

'In 2010 the Ministry of Education and Science announced a tender for the purchase of school buses, apparently knowing in advance that the winner would be the Kherson Motor Works, AntoRus.'

A year later this refusal to accept a cheaper price provoked an inspection by the Audit Office. We happen to have a copy of the chief Audit Office inspector’s conclusion: ‘The failure to provide a certificate from the Ministry of the Interior’s Information Department does not furnish sufficient grounds for refusing the tender proposal submitted by the Borispol Motor Works. The Ministry procedures for purchasing school buses for an overall total sum of 33 million grivna were, therefore, in contravention of the law relating to procurement.’

But the people responsible for organising the deal have, according to our information, creamed off at least 3 times as much. We managed to uncover exclusive details pointing to a kickback of 10 million grivna [1.25 million USD].

At the end of October 2010, the Ministry of Education transmitted from the state budget to the account of the tender winner, the AntoRus Works, a sum of 33 million grivna [approximately 4 million USD], for the buses. A few days later the AntoRus Works transmitted a sum of 10 million grivna to the accounts of six shell companies. We have documentary evidence of these deals: in the job completion reports the sums are described as payment for ‘consultation’ and ‘software services’ etc etc.

Before the arrival of this considerable tranche of money from the state budget, the accounts of AntoRus had not had any such large sums, because they had no large orders – except from the Ministry. So the government money went through the Kherson Motor Works in transit to companies existing only on paper. I checked all the companies and can say with confidence that they are front organisations, and, moreover, that they’re all interlinked.

One of the firms receiving the funds is called Languedoc and was founded by one Valery Atamanenko. At the firm’s registered address in a settlement near Kiev we met his mother, who lives in a small, inexpensive house. She told us that her son was only nominally head of the firm i.e. his signatory authority had been bought by other people.

Another firm is called Mivant. It is allegedly a partner of AntoRus for the school buses contract and was established by a 25-year old Kievan ‘businessman’, Aleksandr Shapoval. His signature is on the payment orders, though in all probability he knows nothing about it. His neighbour told us that Aleksandr had got into debt, sold his flat and taken to drink.

Among other people who have set up companies, which served as transit vehicles for the government funds, there are two relatives and several people from the same village. All the firms have bank accounts in one bank, Bank Boguslav. There is quite a simple explanation for this number of coincidences: all the firms are shell companies and belong to one conversion centre. This was the instrument used by the organisers of the deal to siphon, as it were, 1.25 million USD from the budget for the purchase of school buses.

The consequences

It would appear that, in their quest for illicit profit, the officials sacrificed the safety of school children. The Kherson Motor Works, AntoRus, build their model ‘Anton’ using a Chinese chassis. But the buses for Ukrainian schoolchildren had the 2007 model of chassis, rather than a new one: the purchase price in China was obviously cheaper for AntoRus. Secondly, when the apparently new buses were distributed across various regions in Ukraine, it quickly became apparent that many of them had significant defects.

The Audit Office report for various district state administrations included various defects: non-functioning speedometers and air pressure sensors in the brakes, bald spare tyres, broken heating systems….to name but a few.

'When the apparently new buses were distributed across various regions in Ukraine, it quickly became apparent that many of them had significant defects.'

When the guardians of the law realised that the children were supposed to travel in buses of unbelievably poor quality, they picked one bus at random and sent it for expert analysis. The official Consumer Standards Office concluded that the ‘bus does not meet the requirements for vehicles to transport children, and puts the lives of the passengers at risk.’ For some this may just be a formula of words, but certainly not for the schoolchildren from Ivankov village, who only managed by a miracle to get out of their bus when it caught fire.

Nadezhda Stepanenko, a teacher, was travelling on that bus with the children. She told us ‘It was a completely new bus. We hadn’t gone far before we noticed thick smoke seeping into the interior. The driver stopped and we quickly got out: within 8 minutes there was nothing left of the bus and, indeed, of our things, which we had left behind, so keen were we to evacuate the children.’

The official version

The other day the Minister of Education and Science, Dmitry Tabachnik, stated at a press conference that the blaze had been the fault of the driver. ‘To put it bluntly, the driver disconnected the clutch and didn’t insulate the ends of the wires. The alternator wire shorted. It could have been faulty as a result of unwarranted meddling with the electrics of the bus.’

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Photos from police files showing the extent of damage to the Ivankov village school bus. Children on board escaped serious injury by a matter of seconds when the bus caught fire; officials have been accused of putting kickbacks before safety

To avoid having to provide the school with a new bus, the Minister read out the experts’ conclusions, which had been paid for by the AntoRus Works. But the local prosecutors carried out their own checks and refused to accept the incrimination of the driver, as they found nothing reprehensible in any of his actions.

As for the 10 million USD kickback, the Minister refused to comment.

The Security Service of Ukraine is already in possession of all these facts and, what’s more, the files of the criminal case in respect of disbursements of state assets by Ministry officials are gathering dust on its shelves. But without the political will at the very highest level, there is no chance that these cases will go to court and the criminals be punished. In this case there is no such political will.

What next?

Other such revelations of corruption are increasingly frequently the result of investigations by journalists, rather than investigators. But Ukrainians are so used to the rampant corruption of their politicians that they are no longer surprised by anything. The new law will mean that journalists and public organisations will find it much harder to track where public funds are going.

Nevertheless, Ukrainians do hang on to hope. They believe that however long the current government manages to hang on, sooner or later these exploratory investigations will form the basis for criminal cases which will be satisfactorily and successfully resolved in court.

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