Fatal eggs: What's wrong with the MoD's food procurement, outside of the food price
In an effort to justify questionable tenders, it is important to understand when to stop in order not to harm yourself even more
For the third day in a row, a huge scandal involving corruption in the procurement of food for the army has been raging in Ukraine. The Dzerkalo Tyzhnia published an article comparing the prices in the contract signed by the Ministry of Defense for basic food products with the cost of their counterparts in retail. And they found a two- to threefold difference in prices.
The contract worth UAH 13.16 billion was signed on December 23 for catering services in 2023 for military units dislocated in Poltava, Sumy, Kyiv, Zhytomyr, Chernigiv and Cherkasy oblasts. The contractor is Active Company with an authorised capital of UAH 1,000. The contract was signed by Bogdan Khmelnytsky, Director of the Public Procurement Department, who was previously the subject of a corruption investigation.
Of the 400 items the most stunning was the cost of chicken eggs; they were to be purchased for the Ukrainian army at 17 UAH per egg, according to the paper. The article was published on Saturday morning, and by noon it had already moved offline, becoming a top story.
The first official comment from the MoD came a day and a half later, and it boiled down to the classic " those who oppose us are Kremlin agents." "The Ministry of Defense is preparing materials for the Security Service of Ukraine to investigate the dissemination of deliberately false information that harms the interests of defence in a special period," the ministry said in a statement.
The article was also criticised for not including a comment from the Defense Ministry itself.
The author, journalist Yuriy Nikolov, explained that he had made every effort to obtain the official position of the Ministry of Defense of Ukraine. He literally knocked on doors, asking someone to clarify the striking figures.
The material was also deliberately postponed – it was published after the meeting of the Contact Group on Ukraine's Defense (the so-called Ramstein-8) had ended.
Monday, January 23, was entirely marked by information sparring between the Ministry of Defense and Dzerkalo Tyzhnia: the former presented new arguments, while journalists refuted them step by step. As of Monday evening, the Ministry's position had deteriorated significantly compared to the morning. This happened through its own fault: each subsequent excuse made it sink deeper and deeper instead of strengthening it.
Mind underlines that we consider the Minister of Defense to be one of the most competent members of the current Cabinet, albeit with an inherently low base for comparison. But this is also confusing: if even a recognized professional has such a chaos in the office entrusted to him, what is the situation in other agencies?
Let's analyse the scandal around food procurement by the Ministry of Defense using the case of the infamous eggs.
Has the Defense Ministry refuted the fact of the contract and the figures cited? No, not directly, which allows us to conclude that the document is authentic.
The argumentation of the department is based on its interpretations.
Is the egg price of 17 UAH per egg really present in the contract? Yes, it is.
How does the Ministry of Defense explain this inadequate price level, which the minister himself admits to be inadequate? According to Oleksiy Reznikov, this is where an unfortunate technical or typographical error occurred. The inaccuracy is related to the measuring units – it is about the price per kilogram of eggs.
"It was, in fact, a simple technical error made by the supplier. Eggs are the only category from the catalogue that is calculated in pieces in the appendix to the contract. The supplier indicated the price not for pieces, but for the weight of eggs when copying the data from one table, where everything was converted to a unit of measurement by weight, to another table," Reznikov wrote.
What does the supplier, Actyv Company, say? The company said on Monday morning that it did not consider the prices to be inflated. The company claims that comparison with the price of food in supermarkets is incorrect because the price includes logistics, including the delivery to the war zone. The journalists immediately point out in the article that the delivery is specified in the contract as a separate line.
The argument about the inaccuracy in the measuring units of eggs was not suggested by the supplier, although it might seem that it should have been, given the special attention to the egg nomenclature. This makes us suspect that the "witty" version with kilograms came up later, when Oleksiy Reznikov made a refutation.
Can eggs be counted in kilograms? Yes, they can, if you want to whitewash the institution.
However, the State Statistics Service, which is commonly relied on and who seeks to unify all categories of goods under one scale, excludes eggs and presents data on their production in millions of pieces.
The standardised weight of an egg is 57.75 g. Although it is not a market benchmark, we will keep it in mind.
In Ukraine, the price per ten eggs is traditionally used at the consumer level. This practice developed well before the cost of this product increased tangibly. In the United States, for example, the standard format is the price per dozen.
If the contract really provided for kilograms of eggs, should the "alarm" be cancelled then? No, it shouldn't. This raises even more questions.
Judging by the average weight of an egg of 57.75 g, as verified by the State Statistics, a kilogram contains just over 17 eggs. The MoD is ready to pay 17 hryvnias for them, which brings the price of a ten egg tray to less than 10 hryvnias. As a reminder, the current price of eggs in supermarkets starts at 60 UAH/10 pcs.
No contract at a price six times lower than the market price can exist a priori, as it would be economic suicide for the supplier.
What about other items – is there the same price spread? Surprisingly enough, most prices, however significantly different from retail prices, can be economically justified. The Ministry of Defense could have easily done this if it hadn't obviously fallen into hysteria and started threatening the journalist with the SBU's attention and changing versions on the fly.
Yes, since procurements are planned throughout the year, and prices inevitably rise over 12 months, there should definitely be a lag. The current prices have been adjusted for the forecasted inflation rate. That is why the figures in the contract differ from the current ones.
Last year's inflation rate was 26%, so assuming a comparable level for 2023 is reasonable. For example, for some items, the MoD's price clearly does not fit into this version (for example, potatoes at 22 UAH/kg versus 9 UAH/kg in the market). But here we could refer to pessimistic expectations about the supply of certain categories of goods. In the case of food, this is more plausible, given that the acreage under almost all crops will inevitably decrease this year, and quite significantly.
The price of eggs can also be fitted into the inflationary theory, albeit with great reserve; last year they rose to a record high (almost twice) price in September and February: from 25 UAH/10 in summer to 60 UAH/10 in winter.
Yet, no, it was easier to start threatening the media with an SBU investigation.
Can we expect the scandal to die down all by itself? It is unlikely. The Ministry of Defense has done everything it can to spin it as much as possible.
The National Anti-Corruption Bureau (NABU) and the Specialized Anti-Corruption Prosecutor's Office (SAP) announced that they have opened an investigation into the Defense Ministry's procurement of food for the military. "We would like to inform you that the information provided is known to the NABU and the SAP, and is being examined as part of criminal proceedings initiated on our own holdings before it was published in the media," the statement said.
The law enforcement officers, in particular, are checking procurement for more than UAH 13 billion.
Mind will continue to closely monitor the progress of this story and the conclusions that will be made by all the authorities involved.
UPDATED:
After the story was published, it became known that Deputy Defense Minister Vyacheslav Shapovalov resigned. He was responsible for the logistics of the Armed Forces of Ukraine. Minister Oleksiy Reznikov accepted his resignation.
"Vyacheslav Shapovalov asked to be dismissed in order not to pose a threat to the smooth supply of the Armed Forces as a result of the accusation campaign related to the procurement of food services. Today, the Minister of Defense supported Vyacheslav Shapovalov's request for his dismissal and made a corresponding proposal to the Cabinet of Ministers," the Defense Ministry said in a statement.
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