Eggs for 3 hryvnias instead of 17: why this is far from victory over corruption

Author: Tetiana Nikolaienko

The Ministry of Defence now buys eggs at UAH 2.40 per piece, and for the frontline Donetsk region - at UAH 3, even including delivery. This is the data from the latest food procurement tenders held by the State Logistics Operator of rear. And against the backdrop of eggs at 17 each, this is, of course, a victory.

However, in reality, food procurement for the Ministry of Defence remains one of the areas of greatest corruption risks and fraud. This is because there is a catalogue through which they are purchased.

And in fact, a price reduction may be good for the budget, but not for the stomachs of the military.

So let's take a closer look at this story.

Military catering is the third largest item of the MoD's expenditure after arms purchases and social payments.

This is a protected item, for which UAH 12 billion is allocated on a quarterly basis (respectively, UAH 48 billion per year).

The procurement is carried out on the so-called "to-go" basis, when a supplier company sells the Ministry of Defence a set of food that provides three meals a day for a soldier, which currently costs the ministry around 110-120 UAH per day.

No one would eat in any restaurant or even a canteen for that kind of money even once. That's why the ministry is supposedly buying very cheaply. However, no one brings complex breakfasts, lunches and dinners for 120 UAH to the military.

The supplier delivers individual products to each military unit, the price of which is deducted from this mythical "surplus". That's why the scandal with the 17 eggs arose. Although the Ministry of Defence did not pay this money for any eggs, the catalogue itself was regarded as such, which means that there was a scheme for making extra money.

The catalogue was introduced in 2017 as a NATO standard. But with Ukrainian nuances. And within a year, the list of 409 products turned into an instrument of corrupt manipulation. To win a tender, suppliers set very low prices for expensive sturgeon or some sago cereal that no one was going to supply, while the most popular items (meat, eggs, cereals) were priced at high prices.

In other words, the company undercuts the price at the tender to outbid the competitor in terms of the amount, but in fact it continues to supply "marketable" products at fully market prices.

For your understanding: last year, TRADE GRANITE INVEST set a price of UAH 0.01 per 1 kg for a number of products:

• Cauliflower (tender UA-2023-07-10-011275-a-L1, Odesa region);
• Fresh cucumbers (tender UA-2023-07-10-011275-a-L1, Odesa region);
• Fresh raspberries (tender UA-2023-07-10-011275-a-L1, Odesa region);
• Cherry (tender UA-2023-07-10-011275-a-L1, Odesa region);
• Nectarine (tender UA-2023-07-10-011275-a-L1, Odesa region);

Of course, there was no such price anywhere. It was just obvious that the company was not going to supply these products.

According to the analysis conducted by the Defence Intelligence Agency with the support of NAKO, the price difference in the catalogues of different companies was sometimes 900%.

For example:

• Fresh seasonal broccoli, the price difference was 449%;
• Fresh sweet peppers (Bulgarian yellow), the price difference was 901%;
• Fresh sweet peppers (bell peppers), the price difference was 900%;
• The salad was fresh, and the price difference was 900%;
• Fresh seasonal salad, the price difference was 532%;
• Fresh green onions, the price difference was 294%;
• Fresh leeks, the price difference was 449%;
• Fresh sorrel, the price difference was 820%;
• Fresh asparagus, the price difference was 867%;
• The radish was fresh and the price difference was 660%;

That is why, when procurement was returned to Prozorro a year ago and almost UAH 4 billion was saved for the budget, one of the subcontractors told the members of the Public Anti-Corruption Council the following: "You don't have to rejoice. The business will not work at a loss, and they will keep their margin - at the expense of quality."

Later, throughout the year, the members of the Defence Ministry's GAR were convinced of this, receiving complaints about juice without juice, meat from water and stew from veins.

Only a very skilled sourcing manager could "break the arms" of a supplier to get him to deliver the right product.

But often this story turned into something else. Unscrupulous chiefs of departments agreed with suppliers that certain products would be delivered to units only on paper. In reality, they delivered a much cheaper product. For example, instead of buckwheat, they would send pearl barley, and half of the ordered sausage would be delivered.

For example, through one military unit alone, the country's budget was robbed by the companies of Tatiana Hlynianska 's group of companies of UAH 5 million.

At first, the chief instructed the cook to "issue 30 per cent less food to the canteen than the amount indicated in the primary accounting documents". This actually meant that the portion of food for the military in the military canteen was reduced by a third.

And then the "saved" products were sold for money. And then the scheme was upgraded to include the substitution of invoices.

A large-scale procurement reform was planned with the launch of the State Defence Enterprise, but over time, it took a "let's be careful" approach. Especially after the old suppliers staged a demarche, and the State Defence Enterprise was on the verge of disrupting the army's food supply for three weeks.

To date, the DOT has managed to become an intermediary in accepting applications so that it knows what parts are being ordered. However, this cannot 100% prevent the substitution of certain goods in the invoices.

DOT removed from the catalogue the most outlandish items such as sturgeon, asparagus and sago cereal.

This happened after some of the chiefs of departments ordered, among other things, to keep their flows :

- 348 kg of veal, boneless backside frozen (price 215 UAH);

- 765 kg of sturgeon (price 300 UAH per kg);

- 10 kg of flax seeds (price 240 UAH per kg));

- 50 kg of basil (price 450 UAH per kg).

But this is definitely not the end of the reforms.

In April, DOT managed to survive the fight against the "food mafia" and even contracted other suppliers (who were often subcontractors of the old ones), but the "old guys" returned to the bidding for the third and fourth quarters.

On 30 July, Atomservice won the tender to replace the failed suppliers. This season, Tetiana Glyniana's group is operating under the "Meat Prom" brand name. "Trade Granit" continues to participate in tenders and sue everyone. The Hrynkevych Group has stayed in the game through its main contractor, "Buskyi Cannery".

Let's take a closer look at the prices set by Atomservice in its catalogue. When it comes to olives and olives, the price has been lowered from UAH 185 to UAH 126 compared to the price offered by DOT. When it comes to fresh seasonal broccoli, the price has been reduced from UAH 80 to UAH 48. Fresh cauliflower has been reduced in price from UAH 90 to UAH 54. Fresh sorrel has been reduced from 180 UAH to 120 UAH. Chilled trout has been reduced in price from UAH 450 to UAH 360.

Now let's look at what is likely to be supplied. First-grade eggs with a marginal price of 3.1 UAH will be supplied for 3 UAH. The price of premium eggs will be reduced by 22 kopecks. Long vermicelli (durum) at the maximum price of 31.5 will be supplied at 30.6. Less than a hryvnia difference. Horns and pasta also fell in price by only a hryvnia, from 22 to 21 hryvnia. But noodles, which are clearly not going to be supplied, have been lowered in price by 27 UAH.

Table salt was priced by Atomservice at only UAH 1.5 cheaper than the ceiling price. It dropped from UAH 12 to UAH 10.5. Extra salt is 4 hryvnias cheaper. This is because it is unlikely to be transported.

Now let's look at meat. Here, the supplier always makes a profit, because frozen pork, beef and chicken can be pumped with water, and so the product will be heavier.

However, both chilled and frozen chicken fillets dropped in price by only one hryvnia compared to the ceiling price - from 130 to 129 UAH. Pork thigh, both chilled and frozen, dropped in price by as much as UAH 3 - from 150 to 147. Canned pork and beef did not change in price at all - UAH 240.

"Atomservice has long had good relations with the procurement departments. Therefore, it will most likely not have any "surprises" in the form of 500 kg of fresh arugula in November. Or 19 tonnes of sweet cherries in July. Therefore, he reduces prices on the part of the catalogue that he will not be able to deliver. And almost never discounts what will be in the order.

In early August, "Kontrakt Prodreserve" also replaced a failed supplier in the 0.7 billion lot. Its olives fell in price from UAH 185 to UAH 130. Fresh seasonal broccoli was reduced in price by the supplier, as was Atomservice, from UAH 80 to UAH 48.

But seasonal tomatoes remain at 22 hryvnias, as they were priced by the DOT. As well as fresh cucumbers at 60 UAH per kilo (seasonal cucumbers are priced at 25 UAH).

Long vermicelli (hard varieties) with a ceiling price of 31.5 will be supplied at 30 UAH. Horns and pasta - at the maximum price of 22 UAH. Canned pork and beef products like Atomservice's will cost UAH 240 each. Chilled and frozen chicken fillets will cost UAH 130 each.

But the price of smoked ground paprika (the author does not understand why this particular spice is used in military kitchens) can be reduced from 330 to 200 UAH in the catalogue. And oregano - from UAH 250 to UAH 170.

"Trade Granit" has lowered the price of oregano to 150 UAH, while the price of canned pork and beef is the same as that of other market participants - 240 UAH. Chilled and frozen chicken fillets are also priced at UAH 130. Prices for pasta are almost the same.

That is, they do not reduce prices for goods that the Ministry of Defence's contractors are supposed to supply. They reduce prices significantly only for those items that they are confident they will not be ordered. And there are plenty of items in the catalogue that can be used to reduce prices further - from noodles and trout to oregano with Korean carrot seasoning.

DOT has indeed managed not only to keep the price of lots at the level of the previous year, but also to reduce prices for some items. Last year, eggs were contracted at UAH 6, but now they are contracted at UAH 3. And chicken is contracted at UAH 130, not 150. Buckwheat dropped from 40 UAH to 20 UAH. The price of pasta has also fallen.

Only stew prices are stable.

But despite this, market participants note that if you don't have a contract with the chief of the department, you have a very high chance of failing to deliver. From not knowing what to deliver to surprises in the form of huge batches of not-so-selling goods.

Another point is the rise in electricity prices and the inability to revise prices. The contract stipulates that the DOT can revise the ceiling price if the State Statistics Service price has risen or fallen above 4%. But this does not mean that the price can be revised upwards for the supplier.

So, if a supplier sees a 6 million loss in one week, it will simply stop supplying. By showing an empty warehouse.

Or he will make a deal with the head of the department and transport third-rate goods (here, the increase in inspections from the DOT is very appropriate).

At the same time, the chiefs of procurement have their own pain (they are not always the embodiment of evil, after all) - under the new contracts, suppliers pay only 0.1% for shortages. That is, if they fail to deliver 20,000 hryvnias, they will pay only 20 hryvnias. The superintendents complain that it is now more expensive to write the act than to benefit from it.

Therefore, eggs at 3 hryvnias are good, but the catalogue system and some aspects of the contracts leave a wide field for abuse.

Tetiana Nikolaienko, Censor.NET