How to Rebuild Eastern Ukraine
Kiev is too corrupt to do the job itself. The reconstruction of the Donbass must be overseen by an independent body.
BY DECEMBER 14, 2016
Nearly two years after pro-Russian separatists wrested large portions of eastern Ukraine from government control, the industrial region — known as the Donbass — remains a wasteland. About three million people still live in the government-controlled areas, and their living conditions are, for the most part, horrific. Numerous roads and bridges have been destroyed, 1.3 million people have little or no access to water, entire cities have been leveled, and thousands of schools, hospitals, and homes are gone.
While ongoing fighting makes reconstruction challenging, it’s imperative that Kiev begin rebuilding the government-controlled areas of the Donbass — both for the obvious humanitarian reasons and to prevent locals’ feelings of abandonment and hostility from growing. This is a serious problem, and the stakes for Kiev are high. Even when clear evidence exists that Russian-supported separatists are responsible for shelling government-controlled areas, locals frequently blame Ukrainian forces instead. And while 55 percent of Ukrainians favor deeper integration with the European Union, in areas of the Donbass controlled by Kiev only 23 percent agree — almost the same number of those who prefer to align with Russia.If it doesn’t do something to show residents of the Donbass that it cares about their problems, Kiev risks losing them to Russia.
The best way forward for Kiev is to meaningfully improve locals’ lives by repairing the infrastructure they depend on. Rebuilding the region will not be cheap. Estimates of the cost run the gamut from $1.5 billion to as high as $15 billion. While Kiev recently allocated $115 million to begin rebuilding schools and hospitals, given the task at hand, further support from the international community will prove critical. There’s a powerful argument to be made that it’s in the interests of the West to help Ukraine rebuild. But in order to make the case, Kiev must first show foreign donors that it can run a clean, corruption-free procurement process.
This will be no mean feat, given the vast levels of graft still prevalent in Ukraine. In fact, drastic measures may be required. The best way to ensure the money goes where it should would be to remove the government from the process entirely, outsourcing all Donbass reconstruction procurement to an independent commission completely free from state control. Surrendering the sovereign right to manage state procurements would be a difficult pill for any government to swallow, but the unique challenge presented by the Donbass region requires thinking outside the box.
Since Ukraine’s independence from the Soviet Union in 1991, the Donbass region has developed an economic structure in which local government, financial, and criminal interests are virtually indistinguishable from one other. Moreover, these networks have continued to function since the war, taking little notice of the line separating government-controlled and separatist territory. “Many of the political and economic elites are working both sides of the border,” says Don Bowser, an anti-corruption specialist working in the region. As a result, he fears, “there are companies whose real owner may be sitting on the non-government-controlled side that could end up winning reconstruction contracts unless the process is carefully managed.”
A plethora of murky power and fuel supply deals illustrate why Bowser’s fears are legitimate. A recent investigation by Ukrainska Pravda found that coal Kiev claimed it was buying from South Africa was really purchased from companies in separatist-held territories. The problem with buying coal from separatist territory, of course, is that it directly funds the very separatists who are battling Ukrainian troops. In 2015, journalists revealed how corrupt Ukrainian officials profited from such deals. And there’s more. A recent Novaya Gazeta investigation discovered that businesses associated with a Yanukovych-era oligarch who now lives in Moscow won contracts to supply the Ukrainian Ministry of Defense with fuel at the exact time Ukrainian forces were fighting for their lives during the 2015 battle for Debaltseve. Given the overlap between business and politicians in the separatist regions, it’s likely some of this $26 million helped separatists buy weapons for use against Ukrainian forces. These experiences underscore the need for Kiev to take drastic measures to ensure that funds allocated to help rebuild the Donbass don’t end up in the hands Ukraine’s enemies.
Luckily for Ukraine, an independent tender commission can mitigate this risk — but only if it is structured properly.First off, all tenders should go through Prozorro, Ukraine’s award-winning online procurement system. This will increase transparency and attract the maximum number of bidders. But while Prozorro has saved Ukraine’s state budget millions of dollars, it’s not fool-proof. Ukrainian media outlet Nashi Groshi recently found signs of corruption in a $20 million tender that was run through Prozorro. Separately, procurement expert Nataliia Shapoval discovered that most 2016 construction tenders in Donetsk oblast had only one bidder — a sign that local firms may have colluded to divide up the business in advance. For this reason, using Prozorro alone won’t be enough — only an independent tender commission will be able to eliminate the remaining loopholes.
Second, given the budgetary pressure Kiev faces, any independent tender commission must be entirely Western-funded. While this may cost millions, it’s a drop in the bucket compared to the billions of dollars that will ultimately be required to rebuild the Donbass. And if it ensures that those billions go where they’re supposed to and avoid enriching Ukraine’s enemies, it will be money well spent.
Third, the composition of the tender commission is critical. We’ve already seen that Kiev officials are suspected of involvement in shady coal deals that funnel money to the separatists. Ukraine’s security services still maintain an economic oversight function they can use to steer procurements to specific companies. For these reasons, the tender commission should include only civil society reformers and Western experts, with no involvement from the Ukrainian government. Moreover, all commission staff should receive advanced training in identifying fraud, collusion, and other forms of corruption. They should also be required to declare any conflicts of interest for any major procurement they oversee.
Fourth — and perhaps most importantly — the tender commission must be involved at every stage of the procurement process from start to finish. At the beginning of each project, staff should closely evaluate the bona fides of all registered bidders. This would involve looking not only at the registered owner of each bidding company, but also identifying any hidden beneficial owners. Ultimately, the commission should develop and maintain a comprehensive blacklist of firms suspected of past corruption or ties to separatists.
It’s also important for the terms of reference for each procurement to be written by independent commission staff. Corrupt officials frequently design tenders with such strict specifications that only one company or type of technology can win, steering the project towards their friends or business partners.
Finally, after the tender commission selects the winner of each procurement, it should remain involved in monitoring how these contracts are implemented. This would not only ensure quality control but would also prevent the winners from subcontracting the work to companies accused of corruption. Tender commission staff could also provide extensive training sessions for civil society organizations and journalists to enable them to help look for any potential misuse of resources.
Outsourcing the rebuilding of an entire region to an independent tender commission would be time and labor intensive. But the stakes for Ukraine could not be higher. A failed process would not only further alienate millions of citizens and enrich Ukraine’s enemies — it would also cost critical goodwill in the West and feed the narrative that the country’s problems are intractable. If managed properly, on the other hand, reconstruction could be the game changer the Donbass and its people desperately need.
Photo credit: ANATOLII STEPANOV/AFP/Getty Images
BY DECEMBER 14, 2016Nearly two years after pro-Russian separatists wrested large portions of eastern Ukraine from government control, the industrial region — known as the Donbass — remains a wasteland. About three million people still live in the government-controlled areas, and their living conditions are, for the most part, horrific. Numerous roads and bridges have been destroyed, 1.3 million people have little or no access to water, entire cities have been leveled, and thousands of schools, hospitals, and homes are gone.
While ongoing fighting makes reconstruction challenging, it’s imperative that Kiev begin rebuilding the government-controlled areas of the Donbass — both for the obvious humanitarian reasons and to prevent locals’ feelings of abandonment and hostility from growing. This is a serious problem, and the stakes for Kiev are high. Even when clear evidence exists that Russian-supported separatists are responsible for shelling government-controlled areas, locals frequently blame Ukrainian forces instead. And while 55 percent of Ukrainians favor deeper integration with the European Union, in areas of the Donbass controlled by Kiev only 23 percent agree — almost the same number of those who prefer to align with Russia.If it doesn’t do something to show residents of the Donbass that it cares about their problems, Kiev risks losing them to Russia.
The best way forward for Kiev is to meaningfully improve locals’ lives by repairing the infrastructure they depend on. Rebuilding the region will not be cheap. Estimates of the cost run the gamut from $1.5 billion to as high as $15 billion. While Kiev recently allocated $115 million to begin rebuilding schools and hospitals, given the task at hand, further support from the international community will prove critical. There’s a powerful argument to be made that it’s in the interests of the West to help Ukraine rebuild. But in order to make the case, Kiev must first show foreign donors that it can run a clean, corruption-free procurement process.
This will be no mean feat, given the vast levels of graft still prevalent in Ukraine. In fact, drastic measures may be required. The best way to ensure the money goes where it should would be to remove the government from the process entirely, outsourcing all Donbass reconstruction procurement to an independent commission completely free from state control. Surrendering the sovereign right to manage state procurements would be a difficult pill for any government to swallow, but the unique challenge presented by the Donbass region requires thinking outside the box.
Since Ukraine’s independence from the Soviet Union in 1991, the Donbass region has developed an economic structure in which local government, financial, and criminal interests are virtually indistinguishable from one other. Moreover, these networks have continued to function since the war, taking little notice of the line separating government-controlled and separatist territory. “Many of the political and economic elites are working both sides of the border,” says Don Bowser, an anti-corruption specialist working in the region. As a result, he fears, “there are companies whose real owner may be sitting on the non-government-controlled side that could end up winning reconstruction contracts unless the process is carefully managed.”
A plethora of murky power and fuel supply deals illustrate why Bowser’s fears are legitimate. A recent investigation by Ukrainska Pravda found that coal Kiev claimed it was buying from South Africa was really purchased from companies in separatist-held territories. The problem with buying coal from separatist territory, of course, is that it directly funds the very separatists who are battling Ukrainian troops. In 2015, journalists revealed how corrupt Ukrainian officials profited from such deals. And there’s more. A recent Novaya Gazeta investigation discovered that businesses associated with a Yanukovych-era oligarch who now lives in Moscow won contracts to supply the Ukrainian Ministry of Defense with fuel at the exact time Ukrainian forces were fighting for their lives during the 2015 battle for Debaltseve. Given the overlap between business and politicians in the separatist regions, it’s likely some of this $26 million helped separatists buy weapons for use against Ukrainian forces. These experiences underscore the need for Kiev to take drastic measures to ensure that funds allocated to help rebuild the Donbass don’t end up in the hands Ukraine’s enemies.
Luckily for Ukraine, an independent tender commission can mitigate this risk — but only if it is structured properly.First off, all tenders should go through Prozorro, Ukraine’s award-winning online procurement system. This will increase transparency and attract the maximum number of bidders. But while Prozorro has saved Ukraine’s state budget millions of dollars, it’s not fool-proof. Ukrainian media outlet Nashi Groshi recently found signs of corruption in a $20 million tender that was run through Prozorro. Separately, procurement expert Nataliia Shapoval discovered that most 2016 construction tenders in Donetsk oblast had only one bidder — a sign that local firms may have colluded to divide up the business in advance. For this reason, using Prozorro alone won’t be enough — only an independent tender commission will be able to eliminate the remaining loopholes.
Second, given the budgetary pressure Kiev faces, any independent tender commission must be entirely Western-funded. While this may cost millions, it’s a drop in the bucket compared to the billions of dollars that will ultimately be required to rebuild the Donbass. And if it ensures that those billions go where they’re supposed to and avoid enriching Ukraine’s enemies, it will be money well spent.
Third, the composition of the tender commission is critical. We’ve already seen that Kiev officials are suspected of involvement in shady coal deals that funnel money to the separatists. Ukraine’s security services still maintain an economic oversight function they can use to steer procurements to specific companies. For these reasons, the tender commission should include only civil society reformers and Western experts, with no involvement from the Ukrainian government. Moreover, all commission staff should receive advanced training in identifying fraud, collusion, and other forms of corruption. They should also be required to declare any conflicts of interest for any major procurement they oversee.
Fourth — and perhaps most importantly — the tender commission must be involved at every stage of the procurement process from start to finish. At the beginning of each project, staff should closely evaluate the bona fides of all registered bidders. This would involve looking not only at the registered owner of each bidding company, but also identifying any hidden beneficial owners. Ultimately, the commission should develop and maintain a comprehensive blacklist of firms suspected of past corruption or ties to separatists.
It’s also important for the terms of reference for each procurement to be written by independent commission staff. Corrupt officials frequently design tenders with such strict specifications that only one company or type of technology can win, steering the project towards their friends or business partners.
Finally, after the tender commission selects the winner of each procurement, it should remain involved in monitoring how these contracts are implemented. This would not only ensure quality control but would also prevent the winners from subcontracting the work to companies accused of corruption. Tender commission staff could also provide extensive training sessions for civil society organizations and journalists to enable them to help look for any potential misuse of resources.
Outsourcing the rebuilding of an entire region to an independent tender commission would be time and labor intensive. But the stakes for Ukraine could not be higher. A failed process would not only further alienate millions of citizens and enrich Ukraine’s enemies — it would also cost critical goodwill in the West and feed the narrative that the country’s problems are intractable. If managed properly, on the other hand, reconstruction could be the game changer the Donbass and its people desperately need.
In the photo, a resident of the city of Svatove, in the Luhansk region, walks through rubble of his destroyed house on October 30, 2015.
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