An oligarchic redistribution of contracts: Yermak pushes Yuriy Golik out of “Big Construction”

14:48, 11.11.2021

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An oligarchic redistribution of contracts: Yermak pushes Yuriy Golik out of “Big Construction”

Vladimir Alexandrovich directs contractors’ excess profits to the “family.”

Andriy Ermak’s influence over “Big Construction” had until now been largely formal. The head of the Presidential Office had his share of the glory, but operational control and the collection of market data were handled by Ermak’s deputy Kiril Timoshenko, Infrastructure Minister Aleksander Kubrakov, and “Big Construction” coordinator Yuriy Golik under the protection of the “Shefir” umbrella. But the balance of power is changing, and the first tectonic shifts clearly suggest that Vladimir Zelenskiy and Andrey Yrmak have begun getting rid of unnecessary mouths to feed, writes the Center for Investigative Journalism.

But first, a few words about margins. A margin is the amount a contracting authority adds to the expected tender value above the normal or market price of goods and services. At Ukravtodor, the margin is usually spread across inflated prices for asphalt and other construction materials, which is precisely why tender estimates and the way expected prices are calculated are kept secret. Important! A margin is not a bribe or a kickback. It is simply a certain percentage intended for subsequent “development.” At Ukravtodor, it ranges from 10% to 50%, depending on the size and state significance of the project.

If the contracting authority is a sucker and the contractor is greedy, the contractor will pocket the entire margin. If both are “in the know and have a stake,” the margin is “converted” and divided into envelopes for distribution among the participants in the scheme. Law enforcement agencies also claim their share of the margin: they occasionally open criminal cases but never bring them to completion because they receive their own envelope.

One of the simplest ways to combat excessive margins is through genuine competitive bidding, in which “outsider” or “non-deal-making” companies continue bidding as long as they see an economic rationale for taking on the contract. This is a scenario Ukravtodor strongly dislikes. Here, discounts at tenders usually amount to 2–4%. Here are two examples.

The most interesting developments took place not directly at Ukravtodor, but in agencies recently taken over by the Timoshenko, Kubrakov and Golik team. Two major tenders demonstrated their loyalty to President Zelenskiy and Ermak, expressed in very concrete sums running into billions.

The first was a tender within the Infrastructure Ministry system for the construction of an airfield in Dnipro, which was won by Onur LLC for UAH 5.64 billion. Many saw it as a financial gesture to Vladimir Zelenskiy personally. Six months earlier, the same contract had gone to a completely different company, Altis. It won the tender for UAH 3.95 billion, back when Vladyslav Krikliy was infrastructure minister, and eight genuinely powerful construction companies had been admitted to the airfield tender. But first, the local authorities sabotaged the land decisions, and then the Antimonopoly Committee of Ukraine, loyal to the Presidential Office, suspended all payments to the contractor for two months. As a result, Altis, having invested UAH 100 million of its own money in preparatory work, did not receive a single kopeck from the contracting authority. And when Kubrakov moved from the chair of Ukravtodor chief to the ministry, the contract with the contractor was terminated altogether for failure to fulfill the agreement.

After the contract was terminated — a contract in which Altis had effectively reduced its margin to zero — a new tender was announced with the same expected amount of UAH 5.7 billion. It was precisely from this figure that Altis had dropped to UAH 3.95 billion at the tender six months earlier — and even with such a discount, it had not planned to work at a loss.

Initially, it was assumed that the contract would be handed to Avtomagistral-Yug. Sources noted that this was Kiril Timoshenko’s favorite company and that Dnipropetrovsk region was its stronghold. It was here that Avtomagistral-Yug began taking its first billion-hryvnia contracts during Golik’s time as the “tender” adviser to the local governor.

On the one hand, Ermak was waiting for them. On the other hand...

The move to a new level of opportunities slightly disrupted the plans of Vladimir Zelenskiy’s favorites. Malicious tongues whispered that the Timoshenko youngsters, already from their ministerial positions, had begun showing contempt for the president’s old friends. Allegedly, they could tell Serhii Shefir to his face exactly what they thought of his talents. And Shefir is family, not merely business. At this point, Vladimir Alexandrovich apparently also lost his temper and promised Timoshenko’s head to Ermak, who had his own plan for taking the lead at Ukravtodor. In particular, former SBU officer Ivan Draliuk, who is close and understandable not only to Ermak, found refuge in Ermak’s back office. Draliuk, previously known for his shared past with the controversial Pavlo Demchyna, is now actively building a common future with the head of the Presidential Office, specifically in the road construction sector.

So Timoshenko’s nouveau riche once again had to demonstrate their personal loyalty to Zelenskiy. And the fact that Avtomagistral-Yug did not even enter the tender for the Dnipro airfield was precisely such a demonstration. The contract was taken with a cynical 1% discount by Onur Construction International LLC, without any resistance from the other participant, Rostdorstroi LLC (yes, this time nobody else showed up for the bidding).

Let us recall: at the previous tender, Avtomagistral-Yug fought Altis until the very end, losing to it by literally a few thousand hryvnias. In other words, the company of Oleksandr Boiko also planned to build the airfield in Dnipro for UAH 4 billion. But this time it did not even show up to bid. And it allowed Zelenskiy’s Turkish associates to pocket UAH 1.7 billion in margin — the same associates whose hotel in Antalya he used to visit with Kvartal when he was not even president yet, and whom, after winning the election, he publicly proposed should receive construction contracts without tenders at all.

Let us make this clear. Construction of the Dnipro airfield by the president’s friends will cost UAH 1.7 billion, or 30%, more than the winners of genuine competitive bidding had promised. This is the percentage of the “Great Embezzlement” by Zelenskiy’s bad boyars within Zelenskiy the good tsar’s “Big Construction.”

And then there is the second case — the completion of the Darnytskyi railway bridge over the Dnipro in Kyiv. Here, Avtomagistral-Yug did submit a bid, but did not even try to compete with its sole rival. The latter, favorites of Ermak, won the tender for UAH 1.1 billion with the same tiny discount as Onur in Dnipro. In other words, no margin reduction, no savings for the state budget. But what a sign of respect from the cartel leader to the head of the Presidential Office, who, during “Big Construction,” lost all sense of proportion while controlling up to 30% of the entire road contracting market.

Although... Respect is respect, and billions are billions. Despite all these demonstrations at the Infrastructure Ministry and Ukrzaliznytsia, Avtomagistral-Yug continues to rake in billions through the Ukravtodor system, with UAH 32 billion secured in less than nine months. In other words, giving up one billion hryvnias on a bridge and even almost UAH 6 billion on an airfield are not critical breaches that cannot be recovered in less than a month. If only President Zelenskiy does not become genuinely angry and drive a sanctions wedge into the plans of Timoshenko and Golik’s favorites.

Let us recall that the split among Ukravtodor’s favorites began this spring.

According to sources cited by the publication Nashi Hroshi, the changes at Ukravtodor are directly linked to the strengthening of Andriy Ermak’s position. He secured the expulsion from the security service of Andriy Naumov, who was close to Ivan Bakanov, and this became a signal to the security officials that the favoritism of 2020 was no longer relevant. And that sooner or later Ermak would take control of all the flows within the Presidential Office. Including taking the supervision of “Big Construction” away from Kiril Timoshenko, which serves as one of the Presidential Office’s main sources for replenishing its “budget.” And eventually, he would also strip Serhii Shefir of control over the collection of funds for the expenses of the “Servants of the People.”

Moreover, Andriy Borysovych has his own advisers from among former SBU officers. And these advisers have their own preferences among Ukraine’s road contractors, which differ from those of Kiril Timoshenko.