Konstantin Ushchapovsky
In early October, a letter from MP Anton Gerashchenko to Interior Minister Arsen Avakov appeared in Ukrainian media. In it, Gerashchenko requested an investigation into price gouging in procurement tenders held by the state-owned company Ukrenergo. Specifically, regarding one specific tender – for a project to build a 750 kW power transmission line and substation near Kyiv to supply power from the Rivne and Khmelnytskyi Nuclear Power Plants. According to Gerashchenko, Ukrenergo's corrupt management stole approximately 140 million hryvnias from this tender.
We were intrigued by this seemingly ordinary tender. We conducted a brief investigation and uncovered a number of interesting facts. It turns out that Ukrenergo has recently undergone several audits and financial inspections, including by the Security Service of Ukraine (SBU), related to this tender. Here's our story:
In the spring of 2014, Ukrenergo, the company managing Ukraine's energy grid, underwent a management change. Konstantin Ushapovsky, a unique individual, was appointed director. He had worked at Ukrenergo for many years, holding leadership positions several times, leaving them, returning, and then leaving again. It's difficult to count how many governments and energy ministers Ushapovsky has outlived. And judging by the fact that he is now an advisor to Prime Minister Yatsenyuk, he will outlive many more. He fears neither regime change nor revolution. He always rises to the top.
One small detail: Mr. Ushapovsky is the son-in-law of the former head of KyivEnergo, Serhiy Serdyuk, who is a member of the cohort of the equally unsinkable Yuriy Prodan:
As soon as Ushapovsky assumed the director's chair, the aforementioned tender was added to the annual procurement plan, with the already familiar bid price of UAH 350 million. Notably, this line had already been built by Ukrenergomontazh, a company with a rather scandalous reputation that could easily have been replaced. Therefore, a repeat tender for the current project shouldn't have caused much surprise or attracted undue attention.
Five companies participated in the competition, which lasted a very long time. A Croatian company, a long-standing player in the Ukrainian energy market and the most powerful of the participants, unexpectedly submitted an application. Three bidders, including Europeans, advanced to the second round. Their offer was the most expensive – UAH 237 million. The cheapest bid came from a Ukrainian company – UAH 130 million.
Five months later, the tender was cancelled without compelling reason. The bids from the European and Ukrainian companies (the one with the lowest price) were deemed unacceptable. And since only one company remained (it offered a price of 154 million), the competition, in accordance with tender legislation, was terminated.
The presence of a European company, which always operates transparently and whose activities are closely monitored by the European Bank for Reconstruction and Development, threw Ushapivs'kyi management into disarray. Tender participants were forced to formulate their proposals without kickbacks. Ushapivs'kyi management failed to secure the desired UAH 350 million.
At the end of 2014, when Ushapovsky was facing another layoff, the tender was announced again. A list of equipment worth UAH 95 million was added to the terms and conditions. The purchase price, however, remained unchanged at UAH 350 million. Here's a little math: if you add these UAH 95 million to the lowest bid in the first tender, you get a price very close to the European company's offer—UAH 225 million. Further proof of the Europeans' sensibility.
But seriously, considering inflation and additional equipment worth 95 million, it's safe to say that Ukrenergo's management initially planned to swindle at least 200 million hryvnias. The 140 million figure Gerashchenko claimed in his letter to Avakov is more plausible for a repeat tender. However, the organizers of this "scheme" also failed to secure it. A few days after the publication of the repeat tender, Ushapovsky was removed from his post. The new team skimmed off all the profits. And the company that initially offered the lowest price won the tender.
Immediately after his dismissal, Ushapovsky became an advisor to Deputy Prime Minister Valeriy Voshchevsky. Later, he became an advisor to Yatsenyuk himself. He remains comfortable in this position to this day. Tellingly, the new government is well aware of his schemes. Moreover, Ushapovsky's ties to DTEK and Rinat Akhmetov are no secret in the energy sector. He himself makes no secret of representing the holding's interests in the energy sector.
And now the most important thing: DTEK owns the majority of coal-fired power plants in the country. Everyone is well aware of the dire coal situation in Ukraine today. In fact, the national energy sector is constantly teetering on the brink of collapse due to the fact that coal could run out at any moment.
The high-voltage power line and substation, for which Ukrenergo announced the tender we are familiar with, could have unlocked the potential of the Rivne and Khmelnytskyi Nuclear Power Plants, significantly relieved the burden on the Ukrainian energy grid, and increased Ukraine's energy security. However, it would have also reduced the profits of Rinat Akhmetov's company.
But let's return to the main results of this scam: even the six-month construction delay due to the cancellation of the first tender worked in DTEK's favor, allowing it to earn several hundred million hryvnias, because coal-fired power plants operated for those six months instead of nuclear ones. Simple math suggests that every Ukrainian ended up overpaying for heat and electricity several times over, since coal-fired energy is exactly three times more expensive than nuclear power.
In fact, whoever perpetrated the Ukrenergo tender scam didn't just rob the country of 140 million hryvnias—even if he never got his hands on the money. He also jeopardized Ukraine's energy security at a time when our country is embroiled in a war with an adversary that, among other things, is destroying our energy sector. Worst of all, both the prime minister and the former deputy prime minister are well aware of this. Yet, law enforcement agencies are still doing nothing.
Interestingly, with each new tender, Mr. Ushchapovsky significantly increased his wealth, which was reflected in the purchase of real estate, cars, and the creation of accounts in foreign banks.
But more about this in the next publications.
Andrey Ivolgin, especially for ORD
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