Georgia established the “glass wall” method for conducting tenders back in 2010 when the public procurement system, which had previously been qualified as corrupt and inefficient, was reformed. Ukraine started the transition to the ProZorro system (i.e., “everyone sees everything”) after the Euromaidan of 2014 and has become a successful model for Eastern European countries in this respect. The Republic of Moldova could gradually switch to an electronic and transparent system of public procurement in 2018, but currently, conducting tenders is an obscure practice.

Tenders behind Glass Walls and Shadowy Interests in Moldova, Ukraine and Georgia

Marina CIOBANU, Viorica TATARU

In 2016, the best country in the transparency ranking for public procurement among Eastern Partnership nations was Ukraine with a score of 55.22 points out of a possible 64 closely followed by Georgia at 53.13 . Moldova ranked third with a transparency rating of 47.53 points.

Transparent Public Procurement Ranking in Eastern Partnership Countries. Source of infographic:

Procurement When “everyone sees everything” in Ukraine

Before the implementation of the ProZorro system began in 2015, Ukrainian authorities used to spend about EUR 10 billion on government procurement, and various indicators showed that nearly 20% of this amount was lost to corruption and inefficient financial management. At one point, Ukraine’s security service announced that it suspected as much as 40% of the financial resources intended for “purchases” were lost.

One of the most high-profile cases illustrating problems with tenders is the case of Boyko’s derricks which involved Yuriy Boyko, the former Ukrainian Minister of Energy. In 2011, the ministry headed by Boyko bought drilling rigs at an excess cost of about USD 150 million for each machine.

Journalists unveiled the scheme for artificially increasing the costs, but after five years of investigation, Ukraine’s Prosecutor General’s Office declared it had not found any criminal offense in the minister’s work because he had not signed any document related to the case. Today, Yuriy Boyko is a member of Ukraine’s Verkhovna Rada.

Yuriy Boiko

The media also publicized smaller scandals that were no less interesting. For example, raspberries were purchased for MPs for USD 100 per kilogram, and simple wooden benches for a Kyiv subway station were bought for USD 80,000.

Practically every day there was talk about corruption in public procurement in various sectors: energy, coal and other fuels, and railway and road construction. In 2014 it was concluded that a transparent procurement system was needed to allow civil society and business representatives to monitor the situation.

At that point, there was a functioning web portal in Ukraine with information about public tender announcements and the technical characteristics of the objects for procurement, tender competitors and winners. These data, however, were not enough to ensure transparency.

The implementation of the ProZorro system started with the idea that “everyone sees everything” and that no information on public procurement, from planning to specifications to the signing of contracts, would be hidden from society.

Viktor Nestulia, expert in public procurement for Transparency International, Ukraine

Viktor Nestulia, a public procurement expert at Transparency International Ukraine and one of the ProZorro electronic procurement system implementing agents, says that today all documentation on technical aspects, on the future contracts, on the tendering authority, and on the amount proposed are available on the website at the time of tender announcements. When tenders are opened, the website shows what economic entities have entered the contest and the amounts they have proposed. The offer of any bidder can be downloaded to examine the documents they have submitted.

Subsequently, after the best procurement offer is named, the contract signed by the parties is published. In parallel, analytical tools have been developed to help aggregate information and present it in as simple a form as possible.

In other words, with just a few clicks one can see the number of state contracts signed by a particular supplier, the value of those contracts, and the authorities an economic entity collaborates with the most. Thus, the profile of any user of the system can be found, any suspicions of cartel agreements or of favoring certain economic entities can be monitored, and conflicts of interest can be identified.
It is an important step in ensuring transparency in spending public money, but it does not mean that the problem has been solved.

Transparency does not mean lack of corruption

“This transparency doesn’t change the mindset and actions of the contracting authority. Behind the screens, despite complete digitization, there are people. So if the country’s legal system doesn’t work, people understand they won’t be punished for abuses of power, so they keep making procurements to the detriment of the state.

The ProZorro system brought transparency so that all attempts at corruption and abuse of power are very easy to analyze, especially since there are a lot of non-government organizations and a lot of lawyers analyzing tenders, identifying illegalities, and formulating appeals to law enforcement agencies. But what happens after an offence is identified? Unfortunately, in only very few cases are criminal investigations started. Most of the time, appeals are not taken into consideration,” Viktor Nestulia explains.

For seven years the online portal Nashi Groshi [Our money] has been analyzing how money from the public budget is spent for state purchases. Yuriy Nikolov, editor-in-chief at this outlet, says that with the appearance of the ProZorro system, Ukrainians began to be interested in where the state’s money goes and understood that they need to constantly keep track of tenders because lawbreakers always take advantage of this process.

Yuriy Nikolov

“An important success for all those who monitor tenders was achieved two years ago when a scheme used to embezzle EUR 64,000 for the purchase of transformers for the state was revealed. Then, we had to involve foreign consuls to personally attend tenders and to monitor the correctness of the process. As a result, fraud on this scale is decreasing. While the Boyko’s derricks scheme was intended to purchase oil extraction equipment at double the price,

i.e. USD 400,000, now schemes just steal 20% of the purchase price so as not to be quite so visible. The important thing is that people have started speaking about these things,” Yuriy Nikolov says, suggesting that cartel arrangements might also be used to artificially increase prices. An obvious example is the arrangement among agents importing gasoline from Russia. The agreement among businesses in this market has generated an increase in prices.

Oligarchic monopoly – the challenge

There are also areas, such as the production of steel, that are monopolies. “All factories belong to Rinat Akhmetov. What can we do? Rails for railways are produced by a single entity, Akhmetov, at the price he dictates. European manufacturers can’t participate in tenders organized by Ukrainian railways because requirements for bidders are very strict, and they face bureaucracy,” Yuriy Nikolov says. According to him, the areas where most of the state’s money circulates are divided into spheres of influence by Ukrainian oligarchs.

Rinat Ahmetov

Mr Nikolov claims that the energy and metal industry sectors are controlled by oligarch Rinat Akhmetov, that the most important name on the gas supply market is Dmitry Firtash, that Ihor Kolomoyskyi holds a monopoly in extracting oil, and that Ukraine’s state-owned company Ukrnaftа is still under the control of his intermediaries.

Dmitry Firtash

At the same time, a journalist at Nashi Groshi says that President Petro Poroshenko, whose close friend is Prime Minister Volodymyr Groysman, controls the administrative resources in all branches of industry in Ukraine.

Petro Poroshenko, Volodymyr Groysman

One of the most high-profile scandals in Ukraine related to fraud with public money is Rotterdam+. This is the name given to the electricity bill calculation scheme, the author of which is Dmitry Vovk, Chairman of Ukraine’s National Energy Regulatory Commission. Vovk argued that Ukraine must reduce dependence on coal mines located in the occupied territories and must look for new sources of raw materials. Although coal continues to be extracted from these same territories in eastern Ukraine and is not imported, Vovk increased the electricity tariff so that the new price is equivalent to the amount that would be paid for energy if coal was brought in from Rotterdam.

Dmitry Vovk

“To the price of coal in the port of Rotterdam, Vovk added transportation costs (delivery at a distance of 6,500 kilometers by sea including port and rail transfers), and based on this hypothetical figure, the electricity tariff was increased,” explained Alexey Kucherenko, former minister in the housing and utilities sector. He added that the Rotterdam+ scheme became a source of enrichment (“feeder”) for certain groups and an additional burden on the population which he estimates at about EUR 481 million annually.

Alexey Kucherenko

The implementation of the Rotterdam+ methodology highlights a clear connection between President Poroshenko and Rinat Akhmetov, the richest Ukrainian oligarch, Nikolov claims.

“I don’t know what we are paying for because we are now not independent in terms of coal-based electricity since we get it from the aggressor state. We don’t get better service, we just pay more. It is the president’s decision in favor of oligarchs. They are richer, we are poorer,” Nikolov explains noting that so far there have been no charges in the investigation initiated by the National Anticorruption Bureau of Ukraine.

A relevant case showing that the legal system does not punish corruption or the embezzlement of public money is the one related to the Ministry of Internal Affairs. Minister Arsen Avakov bought Mitsubishi hybrid cars worth one billion hryvnas or USD 40 million without soliciting alternative offers, meaning there was no competition for the winning company.

Arsen Avakov

“Civic activists reacted immediately, warning that prices had been increased by about USD 10 million, that the procedure was inconsistent with the law, that there were a lot of violations, and therefore that the tender was illegal. Experts at Transparency International Ukraine appealed to all relevant institutions, including law enforcement agencies. The authority competent to act in this case is the State Audit Service. Two months later it issued a reply, admitting there had been violations and that the contract was illegal and had to be terminated. Just seven hours after Transparency International published this reply, the Audit Service issued another letter stating that it had received new information from the Ministry of Internal Affairs according to which the contract was legal,” the expert noted.

After the scandal broke, the minister announced publicly that he had managed to obtain a discount of USD 5 million for that contract so there was no reason for dissatisfaction. Viktor Nestulia, however, claims that the price was still too high,

and no one has been punished to date. The only hope of civil society is the National Anticorruption Bureau which has recently launched an investigation requesting access to the work-related telephone conversations of ministry employees.

“The problem is that in Ukraine some institutions employ people that represent the old system and refuse to accept reforms. The only thing that has changed is the fact that these schemes are used transparently. If business people see and disagree with such conditions, they can complain to the Antimonopoly Council which can force the authority in question to make changes to the procurement specifications,” Viktor Nestulia explains.

Currently, in Ukraine there are over 20 non-government organizations monitoring procurement and publicly reporting violations. The authority that monitors the legality of tenders is the State Audit Service, but it has not been given the necessary powers to control tenders because the draft law that adjusts the legislation in this regard has been in the Verkhovna Rada of Ukraine for over six months but still has not been approved.

“MPs are probably not interested in the efficient monitoring of state procurement. Accordingly, when law enforcement agencies appeal to the State Audit Service for consultations in cases concerning

the legality of purchases made by state agencies, the service claims it has no power because the draft law has not been adopted yet. It is a deliberate lapse,” Viktor Nestulia claims.

Transparency as a Pilot Project in Moldova

A transparent e-procurement system similar to the one in Ukraine might work in Moldova beginning in 2018 as currently it is being implemented as a pilot project. Until then, the only information available to the general public is the announcements of tenders, conditions for participation, the names of economic entities who sign contracts with public institutions, and the amount of the contracts. This limits the role of civil society in monitoring procurement with public money.

Moreover, the online register of public procurement——does not require the publication of data on low-value contracts signed by public institutions. Low-value contracts do not exceed EUR 3,800 for goods and services and EUR 4,700 for works.

With the signing of the Association Agreement with the EU in 2014, Moldova began the process of reforming the public procurement system. Despite the reforms announced by authorities, in terms of adjusting to the best European practices Moldova still lags other countries in the region, and gaps in the system continue allowing cartel arrangements and price inflation thus inefficiently using state financial resources.

The following example can serve to illustrate the situation in Moldova. In 2013, paid parking facilities in the Moldovan capital were to be arranged under a project financed by the European Bank for Reconstruction and Development (EBRD). After two years of delay, the public contest was won by an Austrian company that had been created just a month before the tender, and the contract was signed by the deputy mayor without being approved by the members of the city council.

A criminal investigation was started in connection with this case leading to the suspension and indictment of the Mayor of Chisinau. The deputy mayor, the head of the Public Transport and Communications Department, the millionaire businessman whose company won the tender, and three company managers who contributed to faking the tender were also accused. It was established that the specifications contained unjustifiably strict requirements for bidders so that out of 16 candidates, the company affiliated with the Moldovan millionaire was favored.

Two years after the signing of the contract arranging car parking facilities in Chisinau, the project has not even started as those who should have been implementing it have certain interests.

To arrange the tender, the head of the Public Transport Department, Igor Gamretki, allegedly asked for EUR 2 million or 26% of the shares in the capital of the company that was to win, prosecutors say. Through his nephew in Germany, he is said to have founded a company in Cyprus that was included in the list of shareholders of the company that won the project. Igor Gamretki was sentenced to two years in prison with a suspension after he fully admitted his guilt. Judgments have not yet been issued to the other persons involved in the case. Mr Gamretki told the law enforcement authorities that he was to share the 26% with the Mayor of Chisinau who is his former classmate.

Igor Gamretki

There is also little transparency in the management of the funds of the National Health Insurance Company according to economic expert Roman Chirca. “In my opinion, the biggest lack of transparency comes in procurement and in the performance monitoring system. Although the new public procurement law is in line with international practices, it is still implemented the Moldovan way. For example, many countries use the anonymous electronic system of participation in public procurement, and the task is quite complex. In our country the focus is on the lowest price, but it doesn’t mean that a minimal level of quality will be ensured as it isn’t even precisely described. Our studies on importing medicines have confirmed that there is an overcharge of 100% to 150%.

Roman Chirca

We found it when we compared the prices listed by the factory that produces the medicines with the price at which medicines are registered by the Medicine Agency of Moldova. We know what happens after entry into the country, but the outside segment, where there are many intermediary companies, is not regulated. Embezzlement takes place outside of Moldova, too,” Roman Chirca says.

Public procurement was and is one of the most attractive and easy sources of money for companies. In 2016, the total volume of public procurement in Moldova, excluding low-value contracts, was over EUR 358 million or 5.6% of GDP. The most money was spent on construction, repairs, medicines, and petroleum products.

In the context of existing problems, the situation became even more dramatic when the creation of the National Authority for Solving Complaints (NASC), the only option for economic entities dissatisfied with tenders to appeal in court, was delayed from May 2016 to September 2017. The leading position in the newly established institution was given to a person well-known to the system: Viorel Mosneaga,

the former head of the Public Procurement Agency (PPA).
Mr Mosneaga resigned from the PPA shortly after January 2016 when the Journalistic Investigation Center and the investigative newspaper Ziarul de Garda published an investigation that revealed that the company belonging to his family, Aldos Grup SRL, won PPA-managed tenders worth nearly EUR 1.6 million over the course of two years.

Viorel Mosneaga is the head of the National Agency for Resolving Complaints. The newspaper Ziarul de Garda wrote that when he was head of the Public Procurement Agency, the company owned by his family won tenders worth EUR 1.7 million.

The highest value tenders awarded to this company were challenged by competitors, but in most cases PPA representatives rejected their claims. When the investigation was published, the National Anticorruption Center took note of the situation and started monitoring Mr Mosneaga. A criminal investigation, however, was not initiated on the grounds that the investigators failed to prove that Mr Mosneaga somehow influenced the signing of contracts between his sister’s company and the contracting authorities. The background of the head of the newly created NASC thus raises suspicions about his independence and fairness.

Iurie Morcotilo, an economist at the Independent Analysis Center Expert-Grup in Chisinau, has repeatedly emphasized that efforts to increase transparency and efficiency in the procurement system are insufficient as long as there is no functional, independent authority for managing challenges and disputes. The expert claims that in the absence of a genuine mechanism, any success achieved in adjusting the legal framework to European standards and in increasing transparency under the new system of e-procurement will be very fragile.

Iurie Morcotilo

The Ministry of Finance has stated that beginning in 2018 the pilot program of e-procurement, MTender, will be applied in all public procurements so that gradually paper will be excluded from the entire process. International experience shows that the transition to a fully electronic system saves 10–15% of the annual budget. So far, in ten months of piloting the MTender system, 117 announced procedures have taken place and over EUR 16,200 have been saved.

Lack of Participation in Tenders in Georgia

Many international organizations have found the reform of the public procurement system in Georgia conducted in recent years to be positive. Due to the changes implemented, this country’s system is considered to be one of the most transparent in the world.

Before 2010, corruption and the inefficient use of money from the state budget were typical of tenders and were an acute problem. After the launch of a package of reforms, at the end of 2010 the system was modernized with the transition to an exclusively electronic system. The risks of corruption were minimized.

According to statistics, Georgia spends about 10% of GDP on procurement. At the same time, only 18% of the total number of companies registered in Georgia participate in tenders, and another 38% have never participated. In areas such as engineering, construction, transport, logistics, furniture delivery,

food, and beverages, tenders remain quite problematic. In these contests the number of bidders is very small. The reports of international institutions show that this lack of participation is generated by an insufficiency in human resources and a dearth of information on tenders, among other things.

Nino Bakradze, investigative journalist at the online outlet iFact in Tbilisi, argues that although there is an exclusively electronic system, she has witnessed cases that prove there are many ways to falsify tenders. “The government can participate through various methods such as direct procurement in corrupt transactions with friends, close relatives, or business partners. There are quite a lot of examples when tenders were won by people who made donations to the governing party or by friends,” she explains.

Nino Bakradze, investigative journalist for the online publication iFact, Tbilisi

Ms Bakradze also mentioned situations when companies were founded several days before tenders were announced with the sole purpose of winning contracts with the state. Another scheme that is quite well known in Moldova and Ukraine consists of tailoring participation requirements to a certain economic entity.

Law enforcement agencies may start investigations after the media reveals these links, but as the journalist emphasizes, most of the time cases are initiated by the current government against people from the former government who were part of Mikheil Saakashvili’s regime. As in Moldova and Ukraine, high-ranking officials in Georgia who are loyal to the Georgian Dream governing party headed by oligarch Bidzina Ivanishvili are not targeted by law enforcement investigations.

Bidzina Ivanishvili

Recently, one of the funniest cases illustrating how tenders continue to be corrupt and how the guilty escape punishment is the case involving Minister of Education Alexandre Jejelava. Natia Koberidze, journalist and representative of the National Committee of the International Press Institute in Georgia, says that the company belonging to Jejelava’s wife won a tender with the ministry worth USD 300,000 without actually participating in the contest.

Alexandre Jejelava

“Obviously, Jejelava won’t be sentenced to prison or otherwise punished because one hand washes the other. High-ranking officials have been given carte blanche by Bidzina Ivanishvili to steal from the budget,” she says.

Natia Koberidze, freelance journalist, representative of the National Committee of the International Press Institute of Georgia

Independent media such as the Monitor Studio which conducts investigations on topics of corruption, justice, and public money, revealed numerous corrupt schemes and illegal actions by the current government, but as in Moldova, there has been no reaction from

responsible authorities. Moreover, although there are reasonable suspicions that a certain official manages a business under the table, law enforcement agencies refuse to investigate those relationships arguing that no company officially belongs to that person.

Nana Biganishvili, editor-in-chief of Monitor Studio, says that the company belonging to Ioseb Makrakhidze, an MP in the parliamentary majority, has won a tender worth EUR 6.2 million.

Nana Biganishvili

“We made a program about it, and he himself told us about it in an interview: ‘I’m allowed!’ Our law works like this,” she noted mentioning that the situation will not improve as long as the institution that monitors tenders does not become independent and efficient.

Even with more transparency in procurement using public money, all three countries continue losing resources and credibility because of dubious transactions, obscure relationships, and corruption. These illegal activities are often committed with the approval of governing officials who block the work of responsible institutions or exert political influence on law enforcement agencies in criminal investigations.

“It is worth revealing and publicizing such facts because sometimes information can come at the right time in the right place or to a person who can change something. It would be wrong to say that after the publication of articles that disclose the embezzlement of public money something changes radically. It is a long process,” says Nino Bakradze, investigative journalist at the online outlet iFact.