Fistals' Monopoly on «ambulances» in Ukraine
This summer, the state-owned enterprise Medical Procurement of Ukraine ordered ambulances worth UAH 193 million. Three-quarters of this order went to the company Avtospetsprom from Fistals groups, which failed to secure last year's 1,34 billion UAH ambulance contract but was still awarded new contracts. How and why—in the study "Our money».
This story began in the "covid" year of 2020. The Fistali brothers, well-known in the medical equipment market, emerged as one of the largest suppliers of ventilators and proved their ability to respond to challenges. This was appreciated by the part of the Presidential Office responsible for overseeing the "covid" saga: the "great builders" Kyrylo Tymoshenko and Yuriy Golik. At that time, Ukravtodor's guiding principle was to minimize competition. And this guiding principle was reflected in the Ukrainian Medical Procurement Agency, which was tasked by the state in 2021 with updating the ambulance fleet across Ukraine.
The Ministry of Health of Ukraine launched the first series of four tenders worth a quarter of a billion hryvnia on August 10, 2021. As an illustration, let's take this purchase of ambulances expected cost of 92 million UAH (the rest are the same).
The main problem for the participants was the customer's requirement for ambulance delivery by December 15, 2021. Given the timing of the tender itself, the winner would have had a maximum of three months to complete the delivery.
An additional highlight was the phrase “MZU” about prepayment: “can be carried out.”
Fistals' monopoly on ambulances in Ukraine
Fistals' monopoly on ambulances in Ukraine
In the public procurement market, this is a long-established and well-known term, which in many cases means that the customer will provide the desired winner with the necessary advance payment. And to the undesired winner, they will simply say, "The state doesn't have the funds, so pay the manufacturer an advance using your own working capital."
This sparked outrage in the market. The customer received over a dozen requests for a six-month extension of the delivery period due to the global lockdown and mandatory 100% prepayment for imported components. By mid-2021, it was already known that the flood of restrictions was disrupting microchip deliveries from Asia for automotive electronics. Consequently, long lines of buyers formed at auto plants.
At the same time, potential bidders directly stated that they would be discouraged from complying with the Ministry of Health's requirements through corruption and restrictions on competition:
Miesen GmbH & Co KG, Germany: "Our company will not enter into a contract and will be solely dependent on the customer's will regarding possible changes to delivery and payment terms, subject to additional agreements, which can be a potential tool for corrupt practices and unfair cooperation. We look forward to working with you on a transparent and realistic basis.. "
ViDi Unicomers LLC: "Such conditions limit the participation of a large number of participants in tenders and the provision of the most competitive offer to the customer.».
Diatech-Ukraine LLC: "It turns out that during the proposal review stage, the State Enterprise "Medical Procurement of Ukraine" declares inconvenient conditions, which can then be modified individually for the winning bidders. Or they won't be modified if the Customer is unwilling. Why, instead of a clear and transparent procedure, does the Customer conduct a procurement in which key issues are taken outside the tender and will then be resolved individually with the winning bidders? This mechanism raises many questions and suspicions regarding the transparency of the procurement.».
Fistals' monopoly on ambulances in Ukraine
But MZU had one response to all the complaints: we can exercise discretion; we will not satisfy your demands for an advance payment guarantee and an extension of the delivery period.
Fistals' monopoly on ambulances in Ukraine
So it turned out that not a dozen companies, but only four, applied for these first auctions.
To win all auctions, Avtospetsprom dropped 15%—into the world's cheapest medical equipment segment. Not the highest quality, but the cheapest. Which can still be high quality.
Fistals' monopoly on ambulances in Ukraine
And already in October, MZU signed an additional agreement with Avtospetsprom for 100% prepayment and extended deliveries. And the market understood everything. Therefore, in December 2021, no one showed up for the next round of MZU tenders to bother with Avtospetsprom. And Fistal collected a bunch of contracts without any bidding or discounts. In other words, there weren't even any formal savings in the tenders (for example, here):
Fistals' monopoly on ambulances in Ukraine
And then, all the predictions market participants publicly voiced during the August auctions began to come true (see screenshots above). No one even mentioned deliveries before December 31, the deadline MZU had set during the auction. For each of the contracts, MZU postponed the delivery dates for Fistal's company, not even until June, as other participants had requested, but until October-December 2022!
This leniency affected subsequent procurement by the Ministry of Health. This summer, the state-owned enterprise held a series of tenders in which Avtospetsprom had only two competitors, neither of whom even competed very closely at the auctions. Three-quarters of all contracts, worth 146 million hryvnias, were won by Avtospetsprom, which still hasn't been able to deliver ambulances under last year's contracts. Moreover, the price was higher than last year: in dollar terms, the price increased by 3% to 22%. Meanwhile, the Ministry of Health informed Nashi Dengi that the vehicles currently being ordered have exactly the same configuration as last year.
That is, instead of demanding that Avtospetsprom deliver the ambulances it owed the state at a lower price, MZU awarded the company an additional order at a higher price. And, tellingly, more than half of the vehicles under these more expensive contracts had already been delivered within two months (see MZU's commentary). in our news). While for last year's contracts, fulfillment as of the beginning of October amounted to only 12%.
Why was no one able to compete with Fistal at the recent auctions? Firstly, because no one in the market, with the exception of the favored Avtospetsprom, had the opportunity to order a ton of stuff from foreign manufacturers just a year ago; no one had such a financial cushion. So, after a year of war and a lack of orders, competitors are practically fading away.
Should the state combat market monopolization? Of course. And it was easy to do. Even if we assume that Fistal won a ton of contracts last year through price dumping purely out of greed. Or even that he genuinely intended to crush competitors through lack of funds. So the state had an excellent tool at its disposal: penalties for contract breaches.
Okay, so if you're a month late with deliveries in the midst of a pandemic. Okay, two months late. But why, instead of triggering contractual penalties, does the customer instead resort to additional agreements to defer deliveries? Wait a minute. If the penalties specified in the agreements between the Ministry of Health of Ukraine and Avtospetsprom had been applied for the breached contracts, the state-owned enterprise would have received up to 400 million hryvnias in penalties from the beginning of 2022 through October.
This is how we counted.
Let's take one of the August 2021 tenders, RU-2021-08-10-012727-a, for which, according to MZU's response to Nashi Dengi's inquiry, not a single vehicle had been delivered as of October 6.
Fistals' monopoly on ambulances in Ukraine
The contract contains a clause stating that it is valid until December 31, 2021.
The contract also stipulates that the customer has the right to refuse delivery if the delivery is already two weeks late. We also provide the option to extend the delivery deadline one or two times under certain circumstances, which could indeed occur during the Christmas holidays.
Let's assume that on February 1st the customer's patience was to run out and he was to activate sanctions: a penalty of 0,1% of the price of the ambulances NOT delivered plus a 7% fine for more than a month's delay.
From February 1 to October 6, 248 days passed. For each of these days, we take 0,1% of the price of undelivered vehicles, amounting to UAH 79,45 million, resulting in a penalty of UAH 79,450 per day.
Thus, over 248 days, penalties would have accrued to the tune of UAH 19,703,600. Adding another seven percent for more than a month of delivery delays, that's another UAH 5561500.
A total of UAH 25,265,100 in penalties was levied for just one disrupted deal worth UAH 79 million. As of early October, there were 13 completely unfulfilled deals worth UAH 1 billion. Avtospetsprom fully fulfilled only the two smallest contracts, worth UAH 52 million. Partial deliveries for three more contracts worth a quarter of a billion hryvnias, only recently began.
That is, ideally, the state treasury should be replenished by 328 million hryvnias from fully unfulfilled agreements, and another fifty million should come from partially fulfilled ones (table with calculations at the end of the text).
The state signed six additional agreements with its preferred supplier to extend delivery deadlines (the last one was extended until October 21, 2022), thereby "crediting" the preferred supplier with 100% prepayment. It also allowed the company to secure new contracts with increased "fast" prices.
Fistals' monopoly on ambulances in Ukraine
Moreover, a look at Avtospetsprom's contracts with other regional suppliers reveals that the company used this "credit" scheme with almost all its clients. Additional agreements extending delivery deadlines were signed with at least 11 emergency medical care centers. And there's no mention of any attempt to fine the supplier, which had amassed contracts as the ultimate monopolist to drive competitors out of the market and then began delivering at its own convenience, not the state's.
So let's repeat, for the record.
Last year, the state-owned enterprise "Medical Procurement of Ukraine" ordered 815 ambulances from Fistal for UAH 1,34 billion. Delivery was scheduled for the end of 2021, but as of October 6, Avtospetsprom had delivered only 97 vehicles, or 12% of the required amount. The customer officially extended the delivery until October-December 2022, which allowed the supplier to avoid penalties that could have amounted to up to UAH 400 million. However, the state did not collect these funds, but instead signed new contracts with Avtospetsprom for the supply of the same ambulances for UAH 146 million, at a price that, even in dollar terms, is up to 20% higher than last year's price.
And we'll cement it. The entire scheme appears legal. Every single action by MZU appears legitimate. Every decision will be explained as the customer's attempt to buy "fast" vehicles cheaper and save the state money.
But the sum of these actions has hardened an artificial monopoly using state money and administrative resources, with the Antimonopoly Committee excluded.
translation Skelet.Org
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