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Saturday, August 4, 2012

Careful what you wish for

All the time you hear the antagonism: why can't government spending be conducted like private business? Who needs all that protest and red tape? Government has buying muscle; use it, and let the devil take the hindmost.

Well, Ukraine has evidently bought into that mantra. We might wonder how that will work out for them.


State spending moves further into shadows with new law
Ukrainian President Viktor Yanukovych on Aug. 1 signed a controversial public procurement law that will shield from public oversight tens of billions of dollars in government spending each year.

Pro-presidential lawmaker Oleksandr Yefremov of the Party of Regions defended the law. Yefremov told the Kyiv Post that the procurement bill will allow state-owned companies to compete with the private sector on equal footing since the private sector is not required to conduct competitive bids.

The bill exempts state-owned companies and taxpayer-financed enterprises from holding competitive bids. It furthermore excuses them from having to publish the dollar amounts of their orders or the winning bidder.

Pro-presidential lawmakers say the legislation will make government-owned companies more competitive. “Privately-owned companies don’t have to conduct tenders, so this bill levels the playing field for government enterprises. This will help improve the performance of our (government-owned) companies,” said Yefremov in a phone conversation.

The law was adopted in parliament on July 4, the same day a controversial language law elevating the status of the Russian language was passed. The ensuing protests and international attention over the language law meant the procurement law’s passage went almost unnoticed, fueling criticism that the language law was a smokescreen to divert public attention.

In fact the procurement bill was signed by Speaker Volodymyr Lytvyn so quietly that journalists didn't notice it until a week later.

According to z.texty.org.ua, which evaluates state procurement spending, the share of such expenditures as a proportion of gross domestic product is much higher in Ukraine than in any European country.

Watchdogs say bribery and kickbacks eat away at the state’s budget. in which insider rackets exist for government contracts. Nearly three-quarters of Ukraine’s budget spending goes toward public procurement, according to official data.

Nevertheless, such companies as gas monopoly Naftogaz Ukrainy, rail monopoly Ukrzaliznytsia and road builder Ukravtodor, to name a few – state-owned, money-losing enterprises that are heavily reliant on billions of dollars of taxpayers’ money to stay financially afloat – can now choose with which companies they want to do business on a no-bid basis and not disclose their financial transactions.

In December 2010, a Naftogaz subsidiary overpaid $150 million for an offshore oil rig, according to investigative news reports, a charge denied by government officials.

Taxpayers also now won’t know that a Naftogaz subsidiary pays some $2 million a year to fly, rent and service a helicopter for Ukraine’s president, according to a Nashi Hroshi investigation.

The same company also recently purchased three housing booths for construction workers worth Hr 934,000 ($116,750) each. This implies a price per square meter of $5,600, a figure close to the average square-meter price for an apartment in Moscow, one of the world’s most expensive capitals.

In June, the State Affairs Department bought imported raspberries worth $84 per kilogram at more than twice the market value.

Nashi Hroshi stated that last year companies owned by Rinat Akhmetov, Ukraine’s richest billionaire and a Party of Regions lawmaker, received 11 percent of all state procurement orders.

According to Nashi Hroshi, other politicians and businesses that make money on providing goods and services to public entities include: Yuriy Ivaniushchenko, a Party of Regions lawmaker; companies affiliated with the family of Yanukovych; Oleksandr Yefremov, head of the Regions’ party faction in parliament; Dmytro Firtash, the billionaire co-owner of RosUkrEnergo; Viktor Pinchuk, son-in-law of Ex-President Leonid Kuchma; Petro Poroshenko, economy minister, and Serhiy Tigipko, deputy prime minister and minister for social affairs.

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