How Transparency Attracts Foreign Contractors to Construct Roads

Regardless of all its disadvantages, the Ukrainian road industry does not stand still. Moreover, today we have several pilot cases that are breaking the old system. Therefore, the main task of Ukrdorinvest is to further the transparency of the national road sector.

Recently, the thesis that we need to obtain funds from abroad has become rather an accepted fact, than a phenomenon that requires special attention. However, when approaching the issue from the perspective of critical thinking, one may see that the foreign loans and investments remain the only means to facilitate the restart of the economy of our country.  Even more, it is especially fair in terms of the national road sector, which is in the state of devastation today.

What Do We Need to Know about Ukrdorinvest?

For many years our country has been cooperating with international financial institutions (hereinafter IFIs) such as the World Bank (IBRD), European Bank for Reconstruction and Development (EBRD), and European Investment Bank (EIB). IFIs require from their partners to show the highest level of the good faith and transparency. For example, if the country receives credit resources to implement the specified projects, there should always be Beneficiary responsible for the realization of the initiatives. To be more precise, it is the Beneficiary who should direct the implementation of the projects, hold tendering procedures, be responsible for the procurement procedures and evaluation of the quality of work performed by the building companies.  In general, Ukravtodor has been selected to be such a Beneficiary. However, the provisions of the loan and project agreements for joint projects with the EBRD and the EIB presupposed the creation of a completely new separate structure. It is the way how the Project Implementation Unit (PIU) – Ukrdorinvest was established. The responsibilities and powers of the organization include:

– an ongoing management and monitoring of investment projects;

– arrangement of a project financial management, financial reporting, auditing of financial statements in accordance with the IFIs conventions and the current law of Ukraine;

– arrangement of biddings for procurement of works and services and preparation of contracts with winners of international biddings;

– monitoring and control over the performance of contracts in accordance with IFIs’ requirements;

– monitoring of construction works (supervision and an ongoing control);

– preparing reports on the projects in compliance with IFIs and state authorities in accordance with the current law of Ukraine, including the final report on the results of project;

– coordination of Ukravtodor’s interactions with other organizations and institutions involved in the projects and with IFIs for the preparation and implementation of projects.

What road projects in Ukraine are now being financed by the IFIs?

Today Ukrdorinvest accompanies the implementation of three major projects:

1) Subject to the “Second Roads and Safety Improvement Project” being realized by Ukravtodor and the World Bank, the major repairs of sections of the road M-03 Kyiv-Kharkiv-Dolzhansky are carried out, having the total length of 157.2 km, 84.4 km and 20.8 kilometers. Furthermore, the project includes the repair of section of t M-12 Road between Khmelnytsky and Vinnitsa with a total length of 40.8 kilometers. Remarkably, it was a part of the project of the repair of the highway M-03, subject to which Ukravtodor terminated the contract with the foreign contractor in August 2016. The reason was the systematic failures made by the company, as well as the low quality of the final results on several stages. In addition, the project includes the construction of the bypasses of settlements Pokrovskaya Bagachka, Krasnogorovka, and Poltava.

2) “Road Sector Development Project” is another initiative being realized together with the IBRD. It includes rehabilitation of the several sections of the road M-03 Kyiv-Kharkiv-Dolzhansky, rehabilitation of the road M-14 at the section Kherson-Mykolaiv-Kropyvnytskyi and the creation of the draft for the future rehabilitation of the road section Lvov-Kherson. Among the types of work presupposed by the project one can list reconstructions, major repairs, bypasses of settlements, the construction of the new road section and rehabilitation of the already existing road sections. Moreover, the project includes agreements of the operational maintenance of public roads on the basis of OPRC contracts on the section of the road M-06 Kyiv-Chop with a total length of 398 km, as well as of the section of the road M-03 Kyiv-Kharkiv –Dolzhansky with the total length of 191.85 kilometers.

3) The third project has a very ambitious name – “Pan-European Corridors Projects” and it is co-financed by the EBRD and the EIB. The project presupposes the improvement of the operational status of the road approaches to Kiev. The implementation period of the contract is 7 years. The amount of funding resource equals to 450 million of euros from the EBRD and EIB.  The total length of all parts of the road included in the project is 567 kilometers. Besides, it also encompasses the OPRC contract for the maintenance of another section of the M-06 Kyiv-Chop, with a total length of 187 kilometers.

The company which had built a tunnel under the Bosporus: foreign contractors are no longer afraid to come to Ukraine

For the realization of big infrastructure projects, it is very important to establish trusteeship relations between the state and the contractors. During long periods, foreign companies had been seriously feared to take part in our local projects for the sufficiently long period. Primarily, they were deterred by the possible corruption risks. It is clear that the foreign company will not even dare to give a bribe because it could hurt its reputation on the global market. On the other hand, if the management clearly understands that in a particular country it is impossible to do business in circumvention of corruption schemes, they will not even consider any projects related to such state.

Today we may see a high level of competition between foreign companies for the implementation of projects in our country. A more specific example is the reconstruction of the Zhytomyr bypass. Within a week of the publication of the invitation for the pre-qualification rounds for the participants of reconstruction of Zhytomyr bypass, we received more than 40 applications from the companies all over the world who would like to participate in the tender. It has never happened before, and it is an unprecedented case for Ukraine. Usually, the index did not rise above 5, or maximum 10 interested firms.  About 25% of the companies are from Turkey, and the most of them are very big and has a lot of experience in performing truly complex projects. For example, we received and application from the participant of a joint venture (JV) Taisei / Kumagei-Gama-Nurol . This JV was engaged in the erection of the most ambitious infrastructure project of Turkey, a tunnel under the Bosphorus, with the total budget, equals to nearly $ 3.5 billion.

Another important factor is that the intention to take part in the reconstruction of Zhytomyr bypass was expressed even by those companies which had never appeared on the domestic market before. To be more precise, the companies willing to take part in the tender are based in Slovenia, Poland, Macedonia, Italy, Azerbaijan, Belarus, Turkey, Czech Republic, Hungary, Israel, and China.

Undoubtedly, it is a good initial achievement, and it opens tremendous opportunities for further cooperation and development between Ukraine and foreign enterprises.