Ukrzaliznytsia consumes approximately 400,000 tons of diesel fuel annually, which it, of course, purchases on the market. More precisely, on a tiny trading platform with room for only two or three sellers. Until recently, this was the case: Ukrzaliznytsia's regular suppliers were two Donetsk companies, Ecooil (owned by Nurulislam Arkallaev, a Party of Regions member) and First Fuel Company (owned by Vsevolod Momot, or, more accurately, Oleksandr Yanukovych), as well as companies from the Continuum Group owned by former Volyn MP Ihor Yeremeyev. According to experts, Yeremeyev earned UAH 2,824 billion from diesel fuel supplies to Ukrzaliznytsia in 2013. As early as 2011, meticulous journalists noted that state-owned companies were simply enamored—sometimes with Yeremeyev, sometimes with his fuel. In recent years, everyone has bought gasoline and diesel fuel from him. Ukrzaliznytsia has been especially favorable to Yeremeyev's companies. His companies, Vog Aero Jet LLC, Ukrpostach-Naftotrade LLC, and VK Impex LLC, won Ukrzaliznytsia tenders worth UAH 5,44 billion in 2013-2014. From an economic perspective, it's impossible to explain such passionate love of railway workers for the group of companies, as last year's tender price for diesel fuel offered by Yeremeyev (UAH 11,250 per ton excluding VAT) significantly exceeded market prices.
After the flight of Yanukovych and his "family," the country's new leadership began to restore order in government agencies and state-owned companies. At the very least, they appointed new managers who were supposed to put an end to the persistent practice of embezzlement of state funds. The head of Ukrzaliznytsia was also replaced. On June 2, the newly appointed first deputy head of Ukrzaliznytsia, Maksym Blank, gave a lengthy interview to Ekonomichna Pravda, in which he explained that Ukrzalynichpostach had previously purchased diesel fuel at inflated prices and was now forced to pay because the debt was promptly sold to one of Ukraine's largest banks. However, according to Mr. Blank, the materials on this matter have been transferred to law enforcement agencies. However, fuel prices were inflated before the dollar exchange rate jump. Maksym Blank noted that now (as of June 2), due to the rising dollar exchange rate and the fixing of diesel fuel prices in hryvnia, suppliers are operating at a loss.
"They tried to sabotage supplies several times, but we threatened them with legal action. The situation is quite serious, though. There was one critical day when Ukrzaliznytsia's fuel reserves amounted to a daily reserve. This was already on the brink of a crisis. However, we found a compromise with the fuel suppliers," said the first deputy chairman of Ukrzaliznytsia.
I don't know what compromise was being discussed, but at that time, a lawsuit was already pending in the Kyiv Commercial Court, not from Ukrzaliznychpostach State Enterprise against Vog Aero Jet LLC in Yeremeyevka, but vice versa. The supplier demanded a revision of the contract terms due to the rising dollar exchange rate. On June 25, the court ruled in favor of the plaintiff. On August 18, the Supreme Commercial Court of Ukraine, having considered Ukrzaliznychpostach's cassation appeal, upheld the first-instance decision...
"The terms of the contract concluded between the parties stipulated that the price of the goods specified in the specifications was not fixed and would be changed in accordance with market conditions for the relevant goods, as confirmed by the opinion of the State Enterprise Derzhzovnishinform. Therefore, taking into account the above, the courts rightfully upheld the claim of Vog Aero Jet LLC, whose demands complied with the law and were supported by appropriate evidence," the Supreme Commercial Court ruling stated. However, this ruling could also serve as evidence of abuse, as it also states: "Furthermore, the courts established that, according to the petroleum product acceptance certificates for April 2014, signed by the parties without objection, available in the case file, Vog Aero Jet LLC supplied diesel fuel to the state enterprise at a price higher than stipulated in supply contract No. ЦХП-14-00114-01."
When Ukrzaliznytsia, which intended to purchase 94 tons of diesel fuel for UAH 1,78 billion, invited journalists to the tender on September 18th, it struck me as a new normal. The press release issued by Ukrzaliznytsia's press service quoted Maksym Blank himself: "This is exactly what the new management is striving for—an open, transparent procedure. I came today to ensure that there were no objections to the competitive bidding process and that bids from participants had not been rejected. There is no secrecy in the way Ukrzaliznytsia's competitive bidding is currently conducted."
The press release noted that the efficient use of energy resources, which account for up to 21% of the railway industry's operating costs, is one of the priority areas of work.
As it turned out, the market was only able to offer the railway workers 63,8 tons of diesel fuel, or two-thirds of the required quantity. Instead of three, two lots were put up for auction: 30 tons and 33,8 tons.
Three Ukrainian companies participated in the competition: VK-Impex, Vogue Aero Jet, and Element-Oil. All three competed for the first lot, while VK-Impex and Vogue Aero Jet (both part of the Eremeev Group) competed for the second lot.
The state-owned enterprise Ukrzaliznychpostach was ready to pay 18,99 thousand UAH per ton of diesel fuel, but suppliers offered a higher price: the company Element Oil was ready to supply fuel at 21,3 thousand UAH per ton, VK-Impex at 29,67 thousand UAH, and VOG Aero Jet at 28,2 thousand UAH.
According to Ukrzaliznytsia's press service, a fuel supplier for the rail industry will be selected after reviewing the competitive bids for a service contract, which will be announced later. Journalists were assured that the tender results will be announced within 20 business days. Ukrzaliznytsia's management promised to invite the press to the announcement. Oleksandr Lozinsky, head of the state-owned enterprise Ukrzaliznytsiapostach, noted that "the company wants to avoid the mistakes of previous management and accusations of discrimination or unfair selection of winners."
Everyone left, satisfied. The journalists printed the good news about a fair tender in their publications. And that was it. Since then, silence. Total silence. So who actually won the competition? Neither 20 days later nor later were the journalists informed, despite the promise to publish the results with no less fanfare than the opening bid. But the inquisitive can find the answer in the "Government Procurement Bulletin." Logic dictates: the lowest bidder won. Far from it. Element-Oil's bid, which was advantageous for Ukrzaliznytsia, was rejected because its application was not properly completed. For example, the provided copy of the company's balance sheet (form No. 1) as of June 30, 2014 and a copy of the financial results report (form No. 2) for the first half of 2014 did not contain a mark on the acceptance of the statistics department; no confirmation from Ukrposhta or e-mail on the submission of the reports was provided.
And the tender was won, as you've probably already guessed, by Yeremeyev's company, Vog Aero Jet—an old, reliable supplier that, admittedly, had been supplying fuel at an exorbitant price and then won a lawsuit against the state-owned enterprise Ukrzaliznychpostach. But these are, of course, minor details...
However, the winning company scaled back its bid and offered a price of UAH 21,204 per ton, or UAH 636,120,000 for each lot. Today, the indicative market price for a ton of imported diesel fuel is UAH 17,000. This means the winning company makes an additional UAH 4204 on each ton. Yeremeyev's companies will earn over UAH 252 million on the entire volume. This enormous sum—over a quarter of a billion hryvnias—is no small amount for a country devastated by the "family" and war, practically paying for nothing. That's if, of course, the contract with the "old reliable" supplier is actually signed (this event is expected on November 8).
And this fuel price isn't final. The contract states: "2.4. The price of the Goods specified in the specifications is not fixed and will be changed in accordance with market conditions for the relevant goods, as confirmed by the conclusion of the State Enterprise "Derzhzovnishinform" (doesn't that sound like a quote from a court decision?). Changes to the price of the Goods and the contract price are formalized by the parties by signing an additional agreement.
2.5. The purchase volume and contract amount may be changed by the Customer due to changes in actual financing and the Customer’s plans, which is formalized by additional agreements to this contract or by sending a letter to the Supplier.”
To me, this whole hoopla of inviting the press to the auction process is reminiscent of a magician in a circus. He, too, performs all his tricks before the eyes of the astonished spectators. And try to guess how and when he'll trick you.
Finally, I'd like to quote Maxim Blank from that same interview with Ekonomicheskaya Pravda: "I believe that the tender process itself is not a way to combat theft. I used to represent both the manufacturer and the service provider, participated in numerous tenders, and I can say that cartels are always possible. Price gouging is always possible, especially when there are no more than ten manufacturers. It's always possible to gather around the table and go to the tender with a coordinated position. A tender is, rather, a kind of sanctioning of outright theft. As terrible as it may sound, there should be jail time. There should be people who will answer for accepting inflated prices. If an official isn't afraid, they'll look for a way to steal."
Roman Volynsky, Information resistance
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