What had Happened to the Coronavirus Fund in Ukraine?
Alex Wright 01.29.21
In 2020, Europe and the United States collectively donated millions of dollars to Ukraine to fight COVID-19. Unfortunately for the donor countries and advocates of good governance, almost half of the funds slipped into the pockets of Ukrainian construction cartels and foreign contractors.
The coronavirus pandemic continues to spread around the world and Ukraine is no exception. There are reports of overcrowded hospitals, problems with hospitalization, and lack of necessary medicines and oxygen supplies. In the spring of 2020, authorities created a fund totaling $2.3 billion specifically to fight the pandemic and its consequences. The fund consisted of money from the Ukrainian government, the European Union, and other donors.
According to open sources, international assistance amounted to $462 million, or at least 20% of the Ukrainian coronavirus fund. What is more, the EU agreed on an additional $1.5 billion lending program due to the pandemic.
In November, a scandal broke out in Ukrainian media. Igor Umansky, former finance minister, said that some of the money from the coronavirus fund was allocated for the construction of roads under a program called, “Great Construction.” On the threshold of a new lockdown and, as a result, a new wave of financial pains by average Ukrainians, authorities allocated $1.3 billion to the project. At the same time, only $364 million was reserved for social payments, $570 million for healthcare, and $94 million for law enforcement.
The Great Construction was started in March of 2020. The goal of the program is the construction and general maintenance of 6.5 thousand km of roads, 137 educational institutions, 116 kindergartens, and 122 sports facilities. The planned budget together with money from the coronavirus fund is $4.4 billion. President Volodymyr Zelensky actively used the project to increase his own approval rating and the popularity of his political party in the run-up to local elections in late October of 2020. President Zelensky visited every region of the country, where among other things, he inspected construction sites. Such actions as the head of state angered both the opposition and public organizations. Alexei Koshel, Chairman of the Committee of Voters of Ukraine, noted that technically the president cannot be prosecuted for this, but his actions nevertheless undermined the principles of democratic elections.
Large contracts for local oligarchs
Igor Umansky reported large-scale corruption schemes associated with the project. The conditions were changed that only a limited number of companies or members of the so-called “road cartel” could bid on any projects. The former finance minister noted that six companies appropriated money from the coronavirus fund. Ukravtodor, the agency in charge of roads, pushed back against any allegation of corruption.
The agency said that for the first time in Ukraine, tender documents were not worked out for specific contractors, but for companies that have the appropriate experience, equipment, employees, and financial support. In 2020, it allowed more than 60 companies to work on Great Construction sites. As of November 13, 20 contractors were involved in contracts worth $35 million. Ukravtodor claims that this fact completely excludes the possibility of a cartel.
Ukravtodor’s statement does not refute the existence of the cartel, which was mentioned by Igor Umansky. In spite of the fact that the conditions of tenders have become more transparent for smaller firms, “road giants” still win the lion’s share of tenders.
Companies of the Odessa Mayor
One of the largest road construction and repair companies in Ukraine is Avtostrada-South. According to July data, the company won contracts totaling $220 million. Formally, the company belongs to Odessa residents, Valery Korotkov and Oleg Nalivanny. At the same time, local media reports that it is controlled by the inner circle of Hennadiy Trukhanov, Odessa’s mayor. The connection was revealed accidentally during one of the bids. Many participants took part in the tender, and one of them, Kyivshlyakhbud, filed a letter of guarantee where it accidentally entered the title of the Avtostrada-South Company. Among the beneficiaries of Kyivshlyakhbud were Yuri Schumacher – a deputy of the Odessa City Council, a member of Trukhanov’s political party, and the famous businessman Alexander Zhukov.
Another major road company from the list is Rostdorstroy LLC or RDS. From the beginning of the year until July of 2020, the contractor won tenders totaling $63 million. The beneficiaries of the company are Evgeny Konovalov and the previously mentioned Yuri Schumacher. The supplier of Rostdorstroy is Squo Company, which is controlled by Trukhanov’s daughter. Rostdorstroy appears in a number of criminal proceedings in Poltava, Cherkasy, and Nikolaev regions.
The road cartel also includes the Avtostrada Company. According to information published by Nashi Groshi, the company won tenders totaling $161 million. Last year, Avtostrada was accused of a series of arson attacks on a competitor’s equipment. The director of the damaged company, Poltavabudcenter, then stated that corruption in the industry is supported by the central government, and Avtostrada is allegedly a contractor close to officials.
In the Vinnytsia region, the company was accused of violating road construction standards and cost overruns. During the investigation, investigators found that no crimes were committed and the case was closed. Local media attribute this to the fact that the top manager of Avtostrada was Anatoly Vakar, who previously worked in the transport department of the Vinnytsia region administration. The company also received most of the contracts in this region. Avtostrada declines any allegations of using an administrative resource.
Ukrainian oligarchs also benefited from the Great Construction. In November, it became known that tenders for road construction in the Carpathian region were won by PBS Company, which is closely connected to Igor Kolomoisky, one of the most influential businessmen in Ukraine. The founder of PBS is a resident of Ivano-Frankivsk, Galina Nepik. Earlier, Nepik worked at the famous resort Bukovel, owned by the Privat Group which belongs to Igor Kolomoisky.
The total amount of the bids under the Big Construction program in the Ivano-Frankivsk region amounted to $125 million. About $32 million of them were allocated directly from the coronavirus fund.
Coronavirus Fund for Turkish Firms
Builders of the Great Construction were not only prominent Ukrainian businessmen and oligarchs but also foreign companies with questionable reputations. Two Turkish companies, Onur and Ozaltin, won significant contracts from Ukravtodor in 2020.
Onur is a group of Turkish construction companies, which includes its Ukrainian division, Onur Construction International. The company is one of six members of the cartel and, according to July data, won tenders totaling $91 million. The beneficiaries of Onur Construction International are Turkish citizens Onur and Ihsan Chetinjeviz. The company has been building and repairing roads for decades.
The Onur Group has a questionable reputation. Law enforcement officials and public organizations have questioned the work of the company. A number of criminal cases were instituted in Ukraine against the company. Most of them were initiated over the embezzlement of state money, illegal mining of materials, and forgery.
Another large foreign company involved in the Great Construction is the Ozaltin company. According to July data, the Turkish contractor won tenders worth $38 million, but little work has been done.
In September, journalists of the Perviy Zaporizhzhskiy visited a section of the М18 highway between Zaporizhzhia and Melitopol which is being constructed by Ozaltin. The company won a tender for the repair of 55 km of highway in the spring. In early autumn, the contractor removed only 17 km of the old asphalt and only 1 km was completely repaired. In addition, half of the company’s employees are foreigners while Ukraine grapples with high unemployment numbers.
Ozaltin set up shop in Ukraine only recently. The company did not submit leasing agreements for equipment, papers confirming the employment of some workers in the tender offer. However, Ukravtodor ignored violations and allowed the Turkish constructor to commence work.
In December, the U.S. Congress approved a coronavirus “relief bill” which includes $453 million to support Ukraine. The European Union also started a €1,5 billion soft loan program for Kyiv. At the same time, Zelensky’s office worked out the new Great Building 2021 plan.
Since 2019, the cost of road construction and repair in Ukraine has doubled. Experts say it is a direct consequence of the road cartel. At the same time, Ukraine’s Antimonopoly Committee and the police refuse to prosecute large-scale corruption. As we’ve seen over the last year, there’s a strong possibility that the money from around the globe allocated to fight the pandemic has gone to corrupt road contractors. That’s why foreign countries should consider whether to keep pouring taxpayers’ money into Ukraine while corruption is so rampant.