The Ministry of Economic Development, headed by Ihor Petrashko, wants to roll back the procurement reform and violate the fair play principle, which is at the basis of Prozorro. The Ministry plans to introduce a non-price “localization” criterion in machine-building purchases.
This way manufacturers proving their “nationality factor” will get an advantage in competitive bidding. The corresponding draft directive has already been published on the Ministry website.
Transparency International Ukraine and other of civil society organizations urge the Government to reject this project, as it contradicts the current legislation and Ukraine’s international commitments. It would also entail corruption risks.
First, the adoption of the proposed resolution would exceed the powers of the Cabinet. The terms “manufacturing localization,” “machine building economic entity” and “equipment in the machine building sector” are not included in the Law of Ukraine “On Public Procurement,” while all changes in the sector must be governed by this law.
Introduction of the “localization” criterion will negatively impact competitive bidding and lead to an increase in procurement prices. If a foreign product proposed at the bidding is cheaper than a domestic one, the domestic one will win despite being more expensive. The difference may reach 30%, with quality put on the back burner.
This initiative violates Ukraine’s international commitments undertaken as part of the Ukraine-EU Association Agreement and the Agreement on Government Procurement within WTO. Under those agreements, Ukraine should not give preference to any participants in public procurement but ensure “equal rules” in procurement for both foreign and domestic companies.
An opaque mechanism for confirming the “degree of localization” can become a corruption risk. To increase the chance of winning the tender, the manufacturer must provide a list of documents to the Ministry of Economic Development. It is the Ministry that will calculate and confirm the degree of localization. However, the information submitted by the applicant is not subject to disclosure.
Finally, the draft resolution does not contain an economic justification. The positive impact on the industry is not confirmed by any calculations. It would make sense to assess the additional burden on the budget if public procuring entities are forced to buy more expensive domestic equipment.
In 2017, it was the Ministry of Economic Development that opposed the draft law nicknamed “Buy Ukrainian, pay Ukrainians,” which also proposed introducing a non-price localization criterion in public procurement. Back then, the draft law was passed provisionally in the first reading but, luckily, not fully enacted.
We call on the Cabinet of Ministers to prevent the adoption of this directive and focus on other ways to support domestic manufacturers.
- Transparency International Ukraine and DOZORRO
- Anti-Corruption Action Center
- Center for Public Monitoring and Research
- Nashi Hroshi
- Institute of Legislative Ideas
- Moloda Cherkashchyna (“Young Cherkasy Region”)
- Council for Protection of Competition and Consumers
- The Antitrust League Project
- Effective Solutions Agency
- Anti-Corruption Headquarters
- Trypilskyi Krai (The Trypillia Region)
- Public Initiative “For Fair Tender” (Rivne)
- New Brovary
- Public Control Platform
List subject to updates