AntAC Newsletter

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1. The most burning successes and challenges of the anti-corruption reform in Ukraine

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3. The most crucial and fresh cases of corruption investigations and revelations from journalists and law enforcement agencies of Ukraine

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Yours, Anti-corruption Action Centre

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Караємо зашкварених мажоритарників

Holding those responsible for syphoning money from procurements.

Watchdogging for public procurement of drugs.

Map Ukrainian Politically Exposed Persons (PEPs)

Foreign partners condition Ukraine to fight corruption. We are monitoring how Ukraine implements these obligations.

Exploring corruption and learn to fight it.

Helping to return the money stolen by corrupt officials back to Ukraine.

Breaking Procurement Schemes Using Intermediary Companies. Intermediary Companies – in Agony

International organizations and with them – seriously ill with hemophilia and child oncology, trapped suppliers using intermediary companies, who won tenders for the supply of medicines and for a month now haven’t signed the contracts.

The rest of transfers through international programs haven’t had problems – the medicines have been shipped long ago because the winners of the tenders are manufacturers who are concerned about the fastest implementation of goods possible.  In return, the brokers are dreaming of a return to the old patterns – purchasing without international companies.

Today, most of the drugs for pediatric oncology programs and hemophilia purchased through internationals are dead weight that is either laying in the warehouses of the manufacturers or stuck in Ukrainian customs!

Then, there is no hurry to collect them because the Ministry of Health is bargaining: distributors, who for years received profits for paperwork or repackaging the drugs, are blackmailing the international organizations and demanding contracts be terminated with the state enterprise of the Ministry of Health, so that they can carry out a customs clearance on the drugs.

Actually, to preserve this scheme some Ukrainian distributors are fighting – companies from the “Bahriya Group” and LLC “Ludmila Pharm”.  They, before the transfer of procurement through international organizations, won 96% of the tenders for their programs each.

Procurement results for 2014:

Ціна питання

Not only was the very purpose to sabotage international procurements, but also these intermediary companies engaged in tenders and offered the best price.

Now the distributors, through various pretexts delay the signing of contracts, so as to ultimately destroy their accumulated years of making such schemes on the ground level.

It looked like this – Ministry of Health – announced a tender, the distributors of the medicines corrupted officials in the Ministry of Health and received a green light to win the tender; then – bought medicines from manufacturers at an UNKONWN price, imported them to Ukraine, cleared them with customs, already for others, at times at a higher price than sold domestically at that time – Ministry of Health itself won the tender.

Схема_1

Everyone profited – Ministry of Health officials received their corrupt margins and the intermediary companies – the profits.

With the transfer of procurement of drugs from officials to international organizations, the stable scheme of profits can be destroyed.

In accordance with the contracts of international organizations, that were part of the tender documentation and were available for review by all the participants in the procurement process since December of last year, the supply of goods should be done in accordance with DAP Incoterms 2010’s terms.   This means that the distributor must deliver the goods to the warehouse specified by the buyer.

Thus, the tasks of the distributor – just bring the goods through the customs into the territory of Ukraine and transfer the goods to the buyer – an international organization.  In its turn, the international organization attracts an authorized state enterprise for clearance for the Ministry of Health.  They continue to do all their own work – customs clearance, VAT exemption, the delivery of drugs to patients and others.

The distributors are not satisfied with this work for two reasons.

Firstly, with these schedules an opaque pricing of medicines will be exposed.  The imported goods of the distributor, together with the account from the producer, go directly to the authorized company of the Ministry of Health, where the real black and white prices of the drugs will be given, where in Ukraine everyone dreams to see who fights with corruption in this sphere for many years to come.

Public and patient organizations offered distributors a compromise – to voluntarily disclose their contracts with manufacturers and show the real prices at which they buy the drugs.  So far, no one has taken the compromise and it is clear why.  If the purchase prices shown will be many times lower than that which was offered in the tenders, such as “Lyudmila Pharm” or other companies from the “Bahriya Group”, they will instantly find themselves blacklisted and will substantively investigated by law enforcement authorities.

This is what the issue price looked like in 2014:

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While the distributors are not publicizing their contracts with manufacturers, the prices of the drugs and other conditions (bonuses, free packaging of the products), the pressure is on international organizations, the Ministry of Health and anti-corruption activists and will last because of the struggle to maintain excessive profits and profitable conditions for themselves, and there will be no movement towards transparency in the conduct of pharmaceutical business.

Secondly, the distributors have always cleared their goods through customs independently, and on the documents were considered the suppliers of the goods.

Here is “exclusive” LLC “Lyudmila Pharm” (data from 2014):

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And this – the list of drugs, which in Ukraine are officially sold only by the “Bahriya Group” company (2014):

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The procurement procedure of drugs through international organizations has left them no more room!

Now the manufacturer brings the drugs to the border of Ukraine, then from there clears customs where the public company subordinated to the Ministry of Health works in the interests of the international organization procurement.

The international organization holds the tender and chooses the winner-manufacturer, then brings the drugs to the border itself where the Ministry of Health receives it, clears customs and distributes it to its institutions.  Now useless intermediary companies aren’t needed, that used to transfer paper from one table to another and was then “dealt with” in the Ministry of Health.  They didn’t even handle deliveries as that all fell on the shoulders of the manufacturers.

These intermediary companies have no more room on the public procurement market, at least while the procurement of drugs is handled by internationals.

Therefore, contracts are still not signed and the drugs are sitting in storage, while the hospitals are full of sick and dying children.

There is a solution to the problem.

The international organizations should not wait to sign the contracts with the distributors but should conclude contracts directly with the manufacturers of the drugs.  The goods are already packed, sitting in storage because the tender happened a month ago.  Thus, a repeat of the declared tender is not needed and all can be decided by negotiating a shortened procedure.

Delivery of the drugs by the manufacturers to the patients is honest and quicker, rather than feeding the distributors, who have never lived the difficult life of a seriously ill patient.

Moreover, one more key task for the government to do for the international organizations, which is and was then, is to oust the distributors from the market and buy the drugs directly from the manufacturers.

We are just one step away from this victory.