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Comments made by lawyer Andrey Mikonin to an article titled “Electronic failure” published by “Kommersant”

9 April 2010

The electronic trading system used by Smolny to make purchases with budget funds, brought discredit upon oneself as an anticorruption method of state order placement. At reverse auctions, an increasing number of winning companies are those offering their services at a price of 1 copeck, or even those willing to pay for Smolny’s consent to accept the said services. Moreover, sometimes this is so much the case, that the results of an auction are simply falsified.

Some years ago when launching electronic trade, officials in the Committee for Economic Development, Industrial Policy, and Trade (КERPPТ), felt free to speak with pathos about the new system, describing it as the most transparent, efficient and misuse-proofed method to place the state orders. However, experience shows that officials’ hopes failed. Just in 2 yrs the electronic trading site of Smolny degenerated into a site where shady transactions are carried out using forged electronic documents.

In late March this year, the Saint-Petersburg Tariff Committee held an electronic auction on a lot “Assessment of economically justified profit and expenses, forming tariffs for thermal energy supplied in 2011 by Inter RAO UES OJSC, Severo-Zapadnaya TEC to consumers located in the territory of Saint-Petersburg”. The starting or maximum price of the reverse auction was 350 thousand roubles. The six companies-participants of the auction were SZEА LLC, BVМ Audit LLC, Alfa-Nedvizhimost LLC, the Institute for Enterprise Issues LLC, Prof Konsalt LLC and Finansy SPb LLC. From the look of it, all the participants of the auction were eager to assess profit and expenses of Severo-Zapadnaya TEC, based on which the Tariff Committee would then determine the cost of thermal energy supplied by the station in 2011. Anyway Alfa-Nedvizhimost has won the auction — the company proved to be interested in order award insomuch as they not also expressed willingness to carry out the audit of the station for free, but also to pay 5 roubles for the right to render this service. This being said, BVM Audit company, the principal competitor of Alfa-Nedvizhimost at the auction, has only lost 1 rouble, since this company offered to pay extra 4 roubles for the tender.

The defeated participants of this auction make no bones about their bewilderment and irritation. “Any commercial organization operates so as to derive profits from its activities. Judge by results of auction aimed to assess the tariff are charitable organisations and they are willing to pay extra money for execution of the said work. It would be interesting to look at these funds transferred to the budget and to results of the work involved”, — said Evgeny Porkhunov, the CEO of an audit firm Finansy SPb LLC. “Winners of such auctions are definitely aware of their purpose when they make such transactions, and officials do know what for such auctions are conducted”, — commented Vladimir Romanovsky, Chairman of the board of the Institute for Enterprise Issues. Interestingly, organizer of the auction are also surprised by the result. “The Committee shares the surprise felt by journalists as to results of the auction and is bound to mention, with great concern, that price dumping cases occur in the course of purchasing”, — told Ivan Boltenkov, the First Deputy Chairman of the Tariff Committee. As he said, “now Alfa-Nedvizhimost shrinks away from signing the government contract and the committee plans to carry out necessary actions to put this company on the list of unfair suppliers”.

Another auction ended up in an even more explicit scandal. On April 6, 2010 the protocol of an open electronic auction for carrying out design works for reconstruction of the Anichkov Palace cinema hall was posted on the government contract website. The state educational institution “St.-Petersburg State Palace for Young Creativity” (GOU SPb GDТU) acted as the Customer. 7 firms participated in the auction, while Scena pod Klutch LLC which offered the contract price of 1 copeck was pronounced the winner. Orantus LLC, the competitor who lost to them, has offered a price of 10 copecks on the second last step, as is specified at the website for state orders.

Elena Bernik, Deputy Director General of GOU SPb GDТU has informed “Ъ” that contract shall be awarded to the winner at the total auction price. Should the winner refuse to make/ perform the contract, they shall be put on the list of unfair suppliers. We are seriously concerned about the total price however, the law does not stipulate the floor value at conducting auctions. Perhaps, the winner struggled up to the end, willing to approve themselves in the market. However, we are very likely to waste our time and will be compelled to replace the contract.”, — commented Madam Bernik. Officers in tender department of Scena pod Klutch have informed “Ъ” that the company is willing to perform the contract for 1 copeck, however they refused to explain motivation of doing this work free of charge, referring to “commercial secret”.

Orantus, in their turn, made a quite startling statement. The company declared that they have a screenshot from the state contract website (at disposal of “Ъ”), made immediately after the auction, which demonstrates that the last stake (1 copeck) and second to last stake (10 copecks) were placed by Scena pod Klutch. Maksim Rybnikov, director general of Orantus, said that “During auction we knocked price from 626 down to 50 thousand roubles. However, at this moment Scena pod Klutch “has unexpectedly reduced it to 10 copecks, then — to 1 copeck (currently, the offer of 10 copecks is for some reason attributed to Orantus on the state contract website”. —“Ъ. It should be mentioned that both Scena pod Klutch and Orantus are real players at the construction market, and not some dummy companies.

Experts specify series of reasons which make participants bid for dumping prices at the state contract auction. According to Oleg Kolomiychenko, head of UFAS (Office of the Federal Antimonopoly Service) of St.-Petersburg and Leningrad region, such mechanism is used by winners to withdraw from a contract while maximally reducing the price for the second to last participant. M. Kolomiychenko confirmed, that “There are no statutory bars to the use of such scheme”. Yesterday the press-service of KERPPT (the Committee for Economic Development, Industrial Policy and Trade) reported that “norms which would protect customers from dumping at auctions are not stipulated by law”.

Another reason to win the auction by way of dumping is the opportunity to obtain reward from the third party. For instance, in the case of the Severo-Zapadnaya TEC the price of the issue is high enough — the station thermal power rates and consequently enterprise’s revenue, depend on auditors’ work. In 2009 the station earned, out of sale of thermal energy, 184 million roubles while the tariff was 203 roubles per 1 Gkal, this being said, this year the station tariff already attained 241 rouble per 1 Gkal. Consequently, at equal heat supply, the profit made by thermal station this year will increase by 20 %, or by 36 million roubles, i. e. will be 100 times greater than the starting price at the auction of the Tariff Committee. INTER RAO UES, the owner of the station, has refused to comment the situation. “Ъ” also failed to obtain any comment from Alpha Nedvizhimost.

The St.-Petersburg situation with the state purchases is not unique. “A short time ago a tender was won by certain participant offering to pay an extra amount for being granted the contract; the auction was organized by the Supreme Arbitration Court of the Russian Federation, which ordered “information and technical support of operation of bundled software meant to provide information on arbitration courts of the Russian Federation in the Internet”. The said tender was brought into challenge by one of the losing participants, but FAS (Federal Antimonopoly Service) of the Russian Federation sided with the customer and legitimized tender procedure and its results”, — said Andrey Mikonin, a lawyer in the law firm S&K Vertical. As he said, depending on situation, such transactions can be “colorable”, used to conceal some purpose of participants, other than the tender, including illegal one. “But such conclusions can be made only based on investigation, which falls within competence of FAS of the Russian Federation ", — summarized M. Mikonin.

“Kommersant SPb” no. 61 (4361) of April 08, 2010.


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