Ukrainian army food procurement scandal corruption

Ukraine's Deputy Minister of Defense Viacheslav Shapovalov resigned on 24 January 2023 following the food procurement controversy. He said public resonance was provoked by unproven manipulations but decided to resign in order to not create threats to the stable work of the ministry. 

Ukrainian reforms

Editor’s Note

The Ukrainian Ministry of Defense denies media accusations of inflated prices for food procurement for soldiers in 2023, claiming that details of the contract were misinterpreted. Ukraine’s National Anti-Corruption Bureau will also check controversial military contracts while MPs from the defense committee propose to partially open registers on military procurement even during martial law to enable public control and transparency, despite the war.

Accusations of inflated food procurements in the Ministry of Defense: the facts 

On 21 January 2023, Ukrainian journalists of ZN.ua stirred a scandal by publishing what they said was a contract of Ukraine’s Ministry of Defense on food procurement for 2023 with prices considerably higher than market prices.

Journalists claimed that eggs were contracted at a 2.5 times higher price than current supermarket prices in Ukraine, potato procurement prices were 2.6 times higher, and other products were on average 1.4 times costlier.

Speaking at a specially convened session in parliament, Ukraine’s Minister of Defense Reznikov responded, claiming that the comparison is incorrect. He explained that prices in the contract also include delivery of the products to any place in Ukraine where units are located at a given moment, be it a separate small unit stationed on the frontline or moving around. “The food follows soldiers,” the minister claimed. In some cases, the price also includes “cooking and delivery of fuel for cooking to field kitchens near the frontline,” according to the contract. The minister also added that the cheapest products can not always be contracted because of bad quality.

Finally, the contracted price is already fixed for the entire 2023 year regardless of the inflation rate, therefore it can’t be compared with current supermarket and seasonal prices. Should inflation be higher than expected, contracted businesses will lose money which is an additional risk during wartime.

I will emphasize the word ‘services,’” Reznikov said. “The Ministry of Defense does not purchase individual products. The Ministry of Defense buys a comprehensive food service. That is, the delivery of a certain set of products to each military unit, and in some cases, cooking. The subject of the procurement is the daily ration for a serviceman which has clear criteria for calories.

Reznikov emphasized that it is necessary to compare the overall price of a contracted daily meal for soldiers to avoid speculations. One daily soldier’s meal contracted for 2023 is worth UAH 145.8 ($4) according to the contract. The 2022 cost of a daily meal was UAH 120. The increase is even smaller than the inflation during 2022 which was 26.6% on average and considerably higher for food. The price of $4 for food per day is normal for Ukraine, especially given that soldiers are usually receiving bigger than average portions.

Reznikov also said that the most outrageous price for eggs shared by journalists was a “technical mistake” since what journalists published was a draft contract and several prices were corrected there later.

The mistake… was noticed at the end of December 2022, as well as some technical errors in other contracts. After that, the head of the department was dismissed. I emphasize – at the end of December… de jure, the document published in the mass media does not yet exist, it is not registered yet,” Reznikov said.

When summoned to the parliament, he showed original contracts on 23 January 2022, MP Mariana Bezuhla said.

The peculiar part of the controversy is that all prices in the contract are calculated per kilo, including prices for bread, water, and even eggs, because of old bureaucratic norms; this is separately emphasized in notes. Journalists failed to notice this before publicizing the contract, which led to false interpretations.

Ukrainian minister of defense Oleksiy Reznikov speaks in the Ukrainian parliament. Source: bukvy.com.ua ~

Ukrainian minister of defense Oleksiy Reznikov speaks in the Ukrainian parliament. Source: bukvy.com.ua

MPs urge to return to transparency even during martial law, to avoid mistrust

The next day after accusations were spread in the media, unleashing a scandal, Minister of Defense Reznikov was summoned to the parliament to demonstrate the contracts. They were checked by Ukraine’s key anti-corruption body, the National Anti-Corruption Bureau, as well as by the State Bureau of Investigations and Security Service. So far the agencies haven’t published their final conclusions.

Meanwhile, the parliamentary committee initiated a “partial opening of the information about military procurement during martial law.” Lawmakers started preparing the relevant law.

Before the full-scale war, all Ukrainian state procurement was conducted through the Prozorro system. Prozorro allows for open procurement auctions where any company can apply, proposing lower prices than competitors. This removed corruption risks related to state procurement from companies linked to the government.

However, with the start of Russia’s full-scale invasion on 24 February 2022, the system was temporarily closed for military procurement, in order to not allow Russians to spy on the real amount of military goods purchased by Ukraine. Civic activists criticized the step, as it made corruption risks possible again.

Essentially, although allegedly “inflated prices” in the food contract of the Ministry of Defense are largely a misunderstanding by journalists, the company contracted to provide food services for 2023 is actually the most disturbing.

While the sum of the contract is UAH 13 billion ($310 million), enough to feed approximately 250,000 soldiers during the year, it was concluded with the “Actyv company” which has a nominal capital of only UAH 1,000. This indicates a risk of possible money laundering. The company is likely currently being checked by anti-corruption agencies.

Following the food controversy, deputy minister of defense Viacheslav Shapovalov decided to resign on 24 January 2023 “in order not to create threats to the stable provision of the Armed Forces of Ukraine as a result of the campaign of accusations.”

In his resignation request he writes that “due to public resonance provoked by unproven manipulations, the risks of destabilizing the supply of the army were created…The priority in this situation is to ensure stable work of the team of the Ministry of Defense of Ukraine and create conditions for conducting transparent and impartial inspections by law enforcement and other authorized bodies. Therefore, I decided to leave the current office.

The need for procurement professionalization “because any mistake will be perceived as a corrupt act”

Stepped into office in 2021, Defense Minister Reznikov said that only one company supplied food for the military, as a result of which money was lost due to its monopoly status. He expanded the total number of companies to eight and showed all contracts to the parliament. However, a complex reform of military food procurement is necessary, the Minister recognized, with open procurement of weekly menus. This is what the ministry plans to introduce starting next year, according to the minister.

After analyzing the available information, Arsen Zhumadilov, an expert in state procurement working in Ukraine’s medical procurement, concluded that while the allegations of corruption are unsupported by facts, this enormous procurement through one contract was designed inefficiently. A reform of the military procurement is overdue, he believes:

Professionalization of the procurement function in the Ministry of Defense, as well as in other departments, is an overdue issue. Any mistake in our conditions will be perceived as a corrupt act, which will undermine the efforts of the entire country in the fight against the Russian Federation.

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