Rebuilding Kharkiv Oblast: Companies to Receive Orders

We continue the series of materials on how reconstruction procurement is carried out in different regions of Ukraine.This time, the DOZORRO project of TI Ukraine project analyzes Kharkiv and the oblast.

The data in the material were summarized in two stages. Firstly, procurement of 2023 related to the rebuilding, restoration, and reconstruction of facilities damaged as a result of Russian aggression in Kharkiv Oblast was downloaded from the professional analytics module. Next, they were manually filtered by DOZORRO analysts.

As of September 6, contracts worth UAH 1.5 bln to reconstruct Kharkiv and the region were concluded on Prozorro. 73% of the total amount of contracts was signed as a result of competitive procedures. However, for the most part, 1 participant took part in the tenders.

The largest number of reconstruction tenders — for UAH 1.1 bln— was announced by the Major Construction Department of the Kharkiv Regional Military Administration. The Department conducted procurement for the reconstruction and restoration of infrastructure facilities and apartment buildings. In particular, the Starosaltivskyi Lyceum will be restored for UAH 186 mln, which suffered the most among the educational institutions of the Staryi Saltiv hromada.

Another UAH 130 mln was allocated for the capital repairs of the administrative building of the Izium City Council. The city was under occupation from early April to 10 September 2022. During that time, Russian troops destroyed 80% of the infrastructure. In addition, Izium was the target of the highest number of missile attacks since the beginning of the Russian war — even higher than in Mariupol.

Another UAH 83 mln will be spent on the repair of the building of the Ruska Lozova Village Council, UAH 69 mln — on the repair of the Center for Primary Health Care of the Derhachi City Council.

The Department for Construction, Repair and Reconstruction of the Department of Housing and Municipal Services of the Kharkiv City Council, which ordered works for UAH 189 mln comes second. The Department concluded contracts for the repair of apartment buildings, educational and health institutions. For example, UAH 22 mln will be spent on major repairs of an apartment building on 15 Metrobudivnykiv Street, UAH 16 mln — on the building of the residential complex Okolytsia-5, UAH 13 mln — 102 Uzhvii Nataliia Street.

The Department of Housing and Municipal Services of the Kharkiv City Council comes third — UAH 81 mln. It concluded contracts for the repair of apartment buildings: UAH 5.6 mln will be spent on the restoration of an apartment building on 54 Valentynivska street, UAH 4 mln — on 80-A Vladyslava Zubenka street, UAH 3 mln — on 2 Yevpatoriyskyi passage.

UAH 211.5 mln will be given to a company associated with former members of the Party of Regions and a company that wanted to design the development of Sarzhyn Yar

The largest amount of orders for the reconstruction of Kharkiv Oblast — more than UAH 200 mln — accounts for PE Construction Company Promteks. This Kharkiv company was founded in 1996 by Heorhii Babii. In 2016, it belonged to Stanislav Brovin, who shared his share with Iryna Yarovan since 2023.

In 2020, PE Construction Company Promteks became one of the founders of the construction consortium Building Group (from 2021, Stanislav Brovin joined the beneficiaries). This consortium has a connection with the group of construction companies Avantazh of Anatolii Denysenko, MP of the 7th and 8th convocations from the Party of Regions. One of the beneficiaries of the Building Group is Stanislav Kyivets, a member of the Supervisory Board of Avantazh Investment Construction Company PJSC, an assistant to Denysenko.

Moreover, Promteks indicated in the documents on Prozorro that it rented equipment from two companies: Rexon LLC and Blaze Invest LLC from the same group of companies. One of the beneficiaries of both is the same Anatolii Denysenko.

Activists from the NGO Kharkiv Anti-Corruption Center have repeatedly written about the overestimation of prices in the contract with this contractor:

•       2023 — for construction materials and equipment during the restoration of the village council building in Ruska Lozova;
•       2022 — on bricks and doors for arrangement of shelters;
•       2017 — for repairs in Sarzhyn Yar.

Law enforcement officers also checked Promteks’ contracts. The company was involved in the case of misappropriation of budgetary funds in orders of the Department of Municipal Services of the Kharkiv City Council, which was opened by investigators of the Kharkiv Oblast police in August 2018. In October 2019, a similar criminal proceeding was opened on suspicion of misappropriation of funds intended for repairs in Kharkiv, in particular — in Sarzhyn Yar, commissioned by Kharkivzelenbud.

By the way, this year, it was planned to order new construction in Sarzhyn Yar — a multifunctional center that would occupy 10% of the territory. Funds for this were to be used from the Fund for the Liquidation of the Consequences of Armed Aggression.

The project was to be ordered from PE Pallada, which is also part of the group of companies Avantazh. Until 2017, the head of Pallada, Oleksandr Lysetskyi, was the director of Avantazh Investment Construction Company PJSC, whose beneficiary is ex-MP Denysenko. Pallada also receives an order to inspect the destroyed houses of Kharkiv.After public outrage, the idea was abandoned.

Contractor that overestimates prices in estimates

Slobozhanska Construction Company Sargon LLC received one order for UAH 186.4 mln. The company is quite new; it was founded in September 2021. It received its first contract for Prozorro only in May 2023. Since then, Kharkiv procuring entities have signed contracts with it for UAH 300 mln.

Journalists of the Kharkiv Anti-Corruption Center note that the prices in the estimate of SBC Sargon LLC for the reconstruction of the Starosaltivskyi Lyceum in Chuhuiv district, for which the company will receive more than UAH 186 mln, are overestimated. They recorded too high a price, in particular, for boilers, pipes, crushed stone, artificial turf, linoleum, and other construction materials.

The Kharkiv Anti-Corruption Center found overestimation of prices of this company in another contract — to restore Kremianets Hotel in Izium for UAH 25 mln. The list includes bonding plaster mix, metal-plastic doors, mounting foam, Ceresit mixes.

The sole head and owner of SBC Sargon LLC since June 2023 is Andrii Ovcharenko. In 2022, he managed and had a stake in Promstroytorh Plus LLC, which appears in the investigation of the Main Directorate of the State Fiscal Service in Kharkiv Oblast on tax evasion. The relevant criminal proceedings were opened in 2020.

Before Ovcharenko, the company was owned and managed by Oleksandr Shamarin, who also owns the construction company First Slobozhanska Construction Company; its documents also indicated overestimated prices for budget orders.

Contractor accused by the public of illegally constructing and obtaining land

More than UAH 116 mln under the contracts is planned to be paid to PJSC Trest Zhytlobud-1. Moreover, the Company was the only participant in all competitive procurement transactions in which contracts were signed with it.

The history of the company began in 1947, when the Kharkiv Union Construction Trust was founded. After decades of changes, renaming and reorganization, in 2004, it became an open joint-stock company Trest Zhytlobud-1. At least until 2009, among the founders of OJSC was the Regional Department of the State Property Fund in Kharkiv Oblast.

A majority stake in Trest Zhillobud-1 is owned by Oleksandr Kharchenko, ex-MP of the Regional Council from the Party of Regions, a member of the executive committee, as well as the former chair of the company’s board. At one time, the board of Trest Zhytlobud-1 was also headed by Valerii Arutiunov, a member of the Kharkiv City Council in 2010-2020 from the Party of Regions and the Revival party, a university friend of Kharkiv Mayor Ihor Terekhov.

The register of court decisions contains information on several criminal proceedings, in which this company was or is involved. One of them relates to the illegal acquisition of real estate, opened in 2020, another one concerns pollution or damage to land and violation of water protection rules, opened in 2021. Some of the most recent are court rulings, according to which law enforcement officers were obliged to open an investigation into the alleged misappropriation of funds and tax evasion of PJSC Trest Zhytlobud-1 in Sumy and Kharkiv.

The company is also known to locals for the fact that it built a panel high-rise building in place of an old estate on Myronosytska in the center of Kharkiv. As reported by the Kharkiv Anti-Corruption Center, Trest Zhytlobud-1 purchased a land plot under the estate in February 2016, and in the summer of the same year, it began construction. The 12-storey building was put into operation in 2019.

In addition, in 2014, the Prosecutor General’s Office opened criminal proceedings on the possible illegal allocation of more than 60 hectares of land to the Zhytlobud-1 housing cooperative, which included Trest Zhytlobud-1 OJSC. The applications for the allocation of land plots addressed to the then Mayor Mykhailo Dobkin were submitted by the chair of the cooperative and the owner of Trest Zhytlobud-1 Oleksandr Kharchenko. The documents with the details of the criminal proceedings of the Prosecutor General’s Office were published by Ukrainska Pravda.

As of today, Trest Zhytlobud-1 has 385 contracts on Prozorro for more than UAH 7 bln — mainly in Kharkiv Oblast. Most of them concern construction works.

Company whose owner may be involved in tax evasion

The fourth in terms of the amount of orders is the Uman PE Construction and Design Company Forsyte. The company is to receive more than UAH 100 mln for the restoration of the hospital in Kharkiv, as well as the outpatient clinic, administrative service center, and the building of the village council of Staryi Saltiv. The company was registered a year ago — in August 2022. The owner and manager is Roman Movchan, who allegedly ran for the Kharkiv Regional Council from Batkivshchyna Party in 2015.

A person with the same name and year of birth from the village of Slobozhanske, Kharkiv Oblast, also manages PE Kharkiv-Enerhostroikontakt. This company was involved in an investigation into the possible misappropriation of funds for the electrification of the Poltava-Kremenchuk-Burty railway section in 2013, as well as tax evasion, opened in 2015.

Journalists of the publication Nashi Groshi have already found an overpayment in the estimate for construction work in Staryi Saltiv, in particular, on water heaters, tanks, power cables, and putty.

As for other orders, the Uman company has no contracts, except for the institutions of Kharkiv Oblast. To date, it has such contracts for UAH 138 mln.

Another developer with connections to the authorities involved in high-profile investigations

Additional Liability Company Zhytlobud-2 received orders for more than UAH 72 mln — the actual competitor of the above-mentioned Trest Zhytlobud-1. Both companies even have their own women’s football clubs in Kharkiv, which also compete with each other. Likewise, Zhytlobud-2 was the only participant in the tenders conducted under the open procedure.

Zhytlobud-2 also dates back to the post-war period. In 1943, after the liberation of Kharkiv from German troops, the Kharkiv Department of Military-Industrial Construction of the Holovvoyenprombud resumed its work. After a series of renaming in 1964, the Department was named Zhytlobud-2.

In 1993, the Ministry of Justice registered the company Zhytlobud-2, then its head was Yurii Krolenko. Since 2003, he became the Chair of the Supervisory Board, and since 2010, he became a member of the Executive Committee of the Kharkiv City Council. At the same time, in 2003, the head of the company was Oleksandr Koniukhov, who in 2010 was elected to the Kharkiv City Council from the Party of Regions.

In 2011, instead of a joint-stock company, the company changed its legal form to a company with additional liability. Currently, its head is Dmytro Anosov, and the chair of the supervisory board is Dmytro Krolenko, the son of Yurii Krolenko, who died in 2020. According to YouControl, Zhytlobud-2 belongs to the Group of the Krolenko family, which includes at least 28 companies in total.

Over the past 10 years, the company was repeatedly featured in journalists’ investigations into the illegal acquisition of land and cheating in tenders. In total, more than UAH 660 mln worth of contracts were concluded with the company through Prozorro. The lion’s share of them is in Kharkiv Oblast. In addition, the specialized department of the Poltava Regional Military Administration has to pay about UAH 40 mln for construction in the field of territorial defense.

Conclusion

If we compare the reconstruction of Kharkiv Oblast and Irpin, which we analyzed earlier, there are both common and different aspects.

In both cases, large orders are often received by companies that are involved in criminal proceedings or investigations of journalists, have links to government officials and former nominees of the Party of Regions.

In Kharkiv Oblast, the approach to the announcement of procurement for restoration is surprisingly different; 2/3 of the tenders were launched as competitive. Surprisingly, because as a frontline zone, this region has the right to sign contracts directly. However, there was practically no real competition in procurement. Sometimes the winners were the only participants in the relevant tenders. This is most typical for the procurement of construction giants Trest Zhytlobud-1 and Zhytlobud-2.

As for these companies, it is logical that reconstruction should be ordered from companies with decades of experience. They offer sufficient equipment, qualified employees, and customized logistics processes. Law enforcement officers, in turn, must bring the investigation into the alleged facts of illegal development, misappropriation of budgetary funds, and other criminal proceedings to a logical conclusion.

Only three procurement transactions relating to the companies mentioned above were conducted by procuring entities under competitive procedures with two participants. In both cases, competitors did not reduce their initial bids.

We also reviewed the requirements for tenders to reconstruct Kharkiv Oblast. There are some comments on them as well. The requirements are not explicitly discriminatory, but in several cases, procuring entities specified that participants should familiarize themselves with the projects to determine the scope of work. To this end, they must contact the Departments and request access to the documents. In practice, companies that are unwanted by the procuring entity often do not receive such access and do not have the opportunity to win or even participate.

This publication was prepared with the support of the USAID/UK aid project “Transparency and Accountability in Public Administration and Services / TAPAS”.