08.10.2024 Corruption Tenders

Construction of fortifications in the Pokrovske direction stopped due to corruption

Велике будівництво": витрачено вже понад $10 млрд, - Шмигаль - FINBALANCE

The infrastructure giant is under investigation. “Avtomagistral-Pivden, which was the largest contractor of the Big Construction, has stopped work on the fortifications due to searches by the National Police. The company claims that searches of their office and employees’ apartments led to the seizure of documents that complicated further work. However, the police deny interfering with the work of the fortifications.

Briefly about the main points

“Avtomagistral-Pivden has long been (and still is) the largest contractor of the Big Construction. During its existence, the company has managed to receive tens of billions of hryvnias from the budget. According to the Clarity Project, in 2018-2019 alone, Avtomagistral entered into 979 contracts worth UAH 17.61 billion as a result of its participation in public procurement. At the same time, the funding of the entire Ministry of Culture at that time amounted to 19 billion.

In 2022, the company received about UAH 360 million. Compared to previous years, this is significantly less than the annual average, but in 2023, Avtomagistral received more than UAH 1.1 billion, which is close to the “pre-war” times.

These are absolutely record-breaking figures that hardly anyone will be able to surpass… for now. So who has been lobbying so hard for Avtomagistral-Pivden and why is there so much hype around the company now?

Secrets of success of Avtomagistral-Pivden

Formally, Avtomagistral-Pivden, with an authorized capital of UAH 40 thousand, is owned by Oleh Nalyvanyi and Valerii Korotkov from Odesa.

There have been repeated suggestions in the public space that the company is controlled by Odesa Mayor Trukhanov. However, representatives of Avtomagistralya immediately denied such rumors.

How does Avtomagistral-Pivden earn money?

The lion’s share of the road money (over UAH 3.5 billion) was received by Avtomagistral-Pivden at the very end of 2022. But the appetites were not limited to this. Odesa residents are actively raking in other “non-road” orders.

For example, they received a contract for the installation of modular towns for internally displaced persons in Gostomel and Horenka, Kyiv region, worth UAH 7.7 million. The website of the Kyiv Regional Military Administration states that the modular housing in Horenka was installed with the assistance of the Polish government. However, budget payments were made by the Gostomel Military Administration.

In 2024 alone, Avtomagistral-Pivden participated in public procurement for more than UAH 7.7 billion.

At the same time, the largest counterparties of public authorities that are buyers in relation to the Company are:

  • Road Service in Dnipropetrovska oblast – UAH 13,649,407,036;
  • Road Service in Sumy region – UAH 8,807,157,759;
  • Road Service in Kharkiv region – UAH 8,649,438,054;
  • Road Service in Zaporizhzhia region – UAH 8,483,459,872;
  • Road Service in Odesa region – UAH 5,524,071,236;
  • Road Service in Lviv region – UAH 4,391,475,718;
  • Department of Housing and Construction of the Dnipropetrovs’k Regional State Administration – UAH 3,327,478,700;
  • Road Service in Chernihiv region – UAH 3,112,199,046;
  • Kyivavtodor Municipal Corporation – UAH 2,621,965,056;
  • Road Service in Luhansk region – UAH 2,015,850,368.

Among the largest non-competitive tenders in which Avtomagistral-Pivden participated is the tender for the operational maintenance of the public road of national importance M-05 Kyiv-Odesa, km 274+435 – km 466+700, announced by the Service for Restoration and Development of Infrastructure in Odesa region. The expected cost of the project is UAH 857,458,939.00.

“Avtomagistral-Pivden was the only bidder to take part in the procurement, which is why it won so easily.

Another tender announced by the Road Service in Dnipropetrovs’k region with the subject of construction of the national importance road H-31 Dnipro – Tsarychanka – Kobeliaky – Reshetylivka from Loboikivka village to the border of Dnipropetrovs’k region on the section km 28+600 – border of Dnipropetrovs’k region is also indicative.

Ultimately, the register of proposals included Avtomagistral Pivden LLC (offer UAH 10,629,999,998.00) and ONUR TAAHHUT TASIMACILIK İNSAAT TİCARET VE SANAYİ ANONİM SİRKET (offer UAH 10,630,000,000.00). The advantage was given to Avtomagistral-Pivden LLC solely because of the difference of UAH 2.

Thus, the company, through lobbying and cartel schemes, receives tenders with minimal competition.

Currently, Avtomagistral-Pivden not only services, maintains and builds roads in Ukraine, but also builds fortifications, in particular on the most difficult Pokrovske direction. The latter, according to company representatives, have been halted due to harassment from law enforcement.

Partnership with Rostdorstroy

According to journalists, Avtomagistral-Pivden and Rostdorstroy have a stable business relationship. They “hire” each other for subcontracting when, for some reason, one company formally wins a tender but does not use the funds itself, giving the order to a formal competitor. For example, they hired each other to repair the M-05 Kyiv-Odesa highway at km 15+600 – km 17+740 in Kyiv region, the M-15 Odesa-Reni highway (to Bucharest), km 119+000 – km 124+300 (additional works), Zabolotnoho Street in Kyiv (here, AP won the tender from Rostdorstroy), and the H-14 Oleksandrivka-Kropyvnytskyi-Mykolaiv highway at km 165+000 – km 172+000 in Mykolaiv region.

“Rostdorstroy also wins public procurement tenders announced by the Infrastructure Restoration and Development Services without any competition. Among the recent victories is the future provision of services for the operational maintenance of public roads of national importance and artificial structures for a total amount of UAH 967,499,000.00.

Following our complaint about law enforcement inaction in ignoring the investigation into Rostdorstroy’s monopolization of public procurement, the investigating judge of the Prymorskyi District Court of Odesa in case No. 522/14659/24 ordered the authorized persons of the Odesa Regional Prosecutor’s Office to enter information into the URPTI.

Actions of security forces – justice or pressure?

Avtomagistral-Pivden announced the suspension of work “due to the actions of the National Police”.

It is noted that “security forces raided their office,” searched employees’ apartments and seized important documentation related to critical infrastructure.

The company also stated that “the police actions led to a malfunction of the computer network and electronic document management,” and the seizure of communication equipment made it difficult to coordinate the work of the units.”

The contractor believes that “disputes over pricing and tender procedures should be resolved in court”. Although the investigation has reported possible losses, an examination of the matter has not yet been conducted, Avtomagistral-Pivden said.

The National Police responded to the Odesa company’s allegations as follows: “Investigators have seized design and executive documents for certain critical infrastructure facilities to examine them for deliberate overstatement of the cost of work. However, no documentation on fortifications, including those on the Pokrovske direction, was seized. No electronic keys or other technical means that could cause operational failure in the company’s work were seized, and no interference with the company’s computer network was carried out.”

In our opinion, these searches are actually the result of work we have been doing for a long time. Earlier, we found that Avtomagistral-Pivden monopolized the market through cartel collusion, winning billions of dollars in tenders for road repairs and protection work for the power grid. This scheme operated through artificially limiting competition on Prozorro, allowing the company to win the largest contracts in different regions.

We have repeatedly filed complaints with the relevant law enforcement agencies: SBI, SBU and NABU. However, law enforcement often ignored our appeals, covering up the actions of Avtomagistral-Pivden. Then we decided to go to court. As a result, we received a number of rulings from investigating judges that obliged law enforcement to launch an investigation into the company’s corruption schemes.

We also succeeded in opening several criminal proceedings against other companies that operated similar schemes in the construction and infrastructure sectors. In particular, the Odesa Regional Prosecutor’s Office registered a pre-trial investigation under Article 212(1)(b) of the Criminal Code of Ukraine under the number 42024160000000123.

Thus, we continue to observe the war of influence between the road giant and law enforcement. We have re-filed complaints to speed up the investigation of the initiated proceedings.

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