Рубрика | Oilreview

«War On Kickbacks!»

The public procurements system is being ironed out

On March 30, 2012, addressing a roundtable on the implementation of the ‘Open Government’ Partnership initiative, Prime Minister Mykola Azarov said: «Over these two years there have been changes in terms of openness. Here, for example, the subject of procurement at tenders and, in general, the subject of public procurements, have been mentioned. While the situation earlier was deplorable, now we only register a few examples [of violations], due to the fact that these procedures are fully transparent and open. The public and the government have established an effective mechanism to oversee tenders.»

Amazingly, but five days prior to that, Azarov’s first deputy, Valeriy Khoroshkovsky, stressed that the tender committees created under the «very interesting» law on state procurement, are «a shelter for corruption.» Whom should we believe? Apparently, to Valeriy Ivanovych [Khoroshkovsky], as Mykola Yanovych [Azarov], after having heard public organizations’ readiness to bring evidence of budget losses estimated at billions of dollars, immediately offered to «jointly develop a plan of action to stop the abuse.» And why not?

The legal and economic framework for the procurement of goods and services using public funds is fixed in the Law of Ukraine from June 1, 2010, No. 2289-VI «On Public Procurement.» The purpose of the law was to create a competitive environment in the area of public procurements, prevent corruption in that sector, develop competition, and ensure the efficient and effective use of public funds. But, as practice shows, the approaches proposed by the law do not guarantee the achieving of the declared goals. They often lead to a distortion of competition, the emergence of corrupt schemes, the artificial aggravation of relations in the area, and additional expenses of budget funds. The main problems of public procurement on the fuel market are:

  •  the absence of a single database that would allow initial purchasing prices to be determined. At present at least seven central and all local executive agencies are conducting their own monitoring of petrol and diesel prices. However, most of the information systems they support are characterized by imperfections in methodological approaches and insufficient reliability of primary data. As a result, state procurements of fuel are often conducted at prices that are significantly higher than the market ones;
  • a fixed price under a contract, which cannot be adjusted and, as a result, there is a probability of the failure of contracts accompanied with a high uncertainty of the results, the inability to take into account changes in prices in long-term contracts;
  • not clearly prescribed limitations and, as a result, the risk of buying excessive amounts of oil products, or buying petrol and diesel fuel of either better or poorer quality, as well as unnecessary services;
  • admission of any legal entity or individual to trade regardless of their qualification and production capabilities and, as a consequence, the emergence of risks that «fly-by-night» firms that do not guarantee and are not responsible for fuel supplies, the non-conformity of the supplier’s qualification for the work performed, and firms that supply commodities and services of inadequate quality may participate;
  •  the lack of transparency of procedures for the admission of companies to trade and, as a result, the exclusion of certain vendors from tender procedures;
  •  the authorization of the customer to formulate their own terms of reference, determine qualification requirements and accept goods or service and, as a result, the discrediting of unwanted suppliers by creating artificial obstacles to the acceptance of products, as well as the possibility of shortlisting a supplier beforehand;
  •  the use of a tender-based system for the procurement of goods and services whose characteristics are determined at the time of use (non-standard, non-interchangeable) and, as a result, higher risks of their being of poor quality

You can read full article in  journal «Terminal: Oil Review» №16 (602) 23 Apr 2012

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