PROZORRO.SALE REFORM AIMED AT ERADICATING CORRUPTION IN PUBLIC SALES VIA TRANSPARENT E-AUCTION PLATFORM Oleksii Sobolev, CFA
PROCUREMENT LEADERS Done with the same team and technology that won 2016 world procurement awards Backed by Transparency International Ukraine
HISTORY GOVERNMENTS REGULATE, CONTROL, OWN, …THEY DON’T NEED OR ABUSE AND SELL THOUSANDS OF SMALL AND MEDIUM SIZED ITEMS (<$100m) FOR EXAMPLE • UA NPL, up to REAL ESTATE • LAND 22% of GDP • USED CARS • COMPUTERS & FURNITURE Non-core assets of UA State Owned • CONFISCATED/BANKRUPT Enterprises PROPERTY $0.6bn • SCRAP METALS • LICENCES (BROADBAND, NATURAL RESOURCES) Area leased out by State Property • NON PERFORMING LOANS (NPL) Fund • LEASE CONTRACTS 4mn sq.m
CORRUPTION IN ASSET SALES SELLING AT A DECREASED PRICE NOT SELLING AT ALL EXAMPLES NOT PAYING MISUSE AND ABUSE BACK THE LOAN (e.g. when oligarchs stop (a secret lease for cash of a publicly owned car, or paying back the loans to state banks: not selling them = no even a factory, personal use of a car, etc.) money)
HOW DO GOVs SOLVE THAT? SOME TRY ONLINE AUCTIONS GOV BUILDS OWN WEBSITE HIRES A PRIVATE PROVIDER EXAMPLE EXAMPLE Federal Deposit Insurance Corporation - DebtX U.S. General Services Administration www.debtx.com https://disposal.gsa.gov U.S. Department of the Treasury - CWS Marketing Group http://www.cwsmarketing.com EACH PROVIDER IS IN FACT A MONOPOLY FOR SALES OF A PARTICULAR ITEM / ASSET TYPE / GOV. AGENCY
THERE ARE SEVERAL PROBLEMS WITH THAT RESTRICTED DECREASED COLLUSION ACCESS COMPETITION Assets are here But buyers are here Businesswise thousands of Where there is only one A single operator knows who government items are in the will come up for an auction such operator it may refuse government portal, but all the to register bidders for an and may sell this information buyers are with the nation’s auction for spurious reasons making it possible to corrupt biggest b2b e-platforms like the process Alibaba or Amazon It is hard for general public to monitor results on various INTRICATE websites MONITORING
HOW DOES PROZORRO.SALE SOLVE THAT? THROUGH INNOVATIVE TWO TIER STRUCTURE A state owned central database GOV BANK LOCAL (CDB) connected to private e- platforms through a secure API CDB In order to sell something the government just enters the description of an asset for sale into the database API The information gets instantly disseminated to all e-platforms connected to it Consumers can see the lots on all the websites and place initial bids via them BIDDER 1 BIDDER 2 BIDDER 3
INNOVATION & INTERGRITY: SINGLE AUCTION MODULE FOR MULTIPLE PLATFORMS The central database also GOV houses a real time auction BANK LOCAL module meaning that all the bidders from different platforms CDB compete in one place, increasing the prices AUCTION After the auction ALL the data MODULE is disclosed and published as open data through a public API So, everybody sees everything EVERYBODY SEES BIDDER 1 BIDDER 2 BIDDER 3 EVERYTHING
PUBLIC PORTAL & BUSINESS INTELLIGENCE MODULE PUBLIC BUSINESS PUBLIC PORTAL INTELLIGENCE MODULE We also have a public non-commercial portal with google- We also have an interactive state of the art public business like search at https://prozorro.sale/en where anyone could intelligence module available for everyone at check auctions http://bi.prozorro.sale showing statistics for tens of thousands of auctions Within 3 clicks users could look up the successful auction with bidder names, contracts or all the information disclosed This increases public trust
INTEGRITY & SCALABILITY: COMPLETELY OPEN SOURCE We are fully open source, so anyone could check that there is no hidden functionality in the auctions. It also means that it is easy to implement in other countries Public API http://dgf.api-docs.openprocurement.org/en/latest/index.html Github https://github.com/openprocurement/openprocurement.auctions.dgf
PARTNERS NPL sales in several European countries (e.g. Greece, EBRD Cyprus) EBRD will recommend using ProZorro.Sale within the “Vienna” initiative KPMG KPMG is integrating its deal room www.kpmgdealroom.com with ProZorro.Sale in December 2017 DONORS
IMPLEMENTATION: SWIFT UKRAINE SUCCESS FROM ZERO TO PRODUCTION IN 3 MONTHS US$32bn OF ASSETS AVAILABLE RIGHT NOW 50 E-PLATFORMS CONNECTED (incl. Ukraine’s biggest b2b platform and biggest bank) US$300m ALREADY SOLD
IMPLEMENTATION: PROGRESS 2018 2016 2017 JAN AUG-DEC MAR OCT APR-AUG SEP JAN-DEC Launching First auction Creating a Adoption of Decree on Launching of Signing a of product for leasing pilot project for state Dutch auctions universal tool Memorandu First auction CDB First auction (Ukrposhta) assets sales by KMU for DGF for EBRD m MEDT and for state for NPL sales (expansion TI for state asset sales abroad) assets sales Launching of Single cabinet Transfering of Prozorro.Sale for DGF ProZorro.Sale is mandatory Signing a Scale up First auction Launching of to the State for DGF sales Memorandum for a fair in asset registry since with the Kyiv for DGF Adoption of Order on 1.02.2017 government pilot project for small privatization by State property fund
DEPOSIT GUARANTEE FUND OF UKRAINE CASE STUDY MAX PRICE INCREASE DURING AN AUCTION: 23x VS 4x 13m2017 to 13m2016 SALES INCREASE BY 77% DEPOSIT GUARANTEE FUND CUMULATIVE SALES, UAHm 6 000 2016 – BEFORE PROZORRO.SALE 5 000 2017 – WITH PROZORRO.SALE 4 000 ProZorro.Sale is obligatory for 3 000 all asset sales of the DGF 2 000 1 000 - J J F M A M J J A S O N D
WHAT WAS THE PROBLEM? 1 000 000 -10% 900 000 Expensive 810 000 -10% 763 637 Optimal 729 000 656 100 +30% 590 490 Cheap, but risky
SOLUTION HOW TO OPTIMIZE AUCTION DESIGN? KSE WHITE PAPER ROGER MAYERSON DISCUSSION NEW AUCTION DESIGN IMPLEMENTATION
SOLUTION: HYBRID DUTCH AUCTION RESULTS DESCENDING CLOCK EVERY 5 MINS THE PRICE 10:00 100 UAH DECREASES BY 1% 15:50 31 UAH CLOCK STOPS 16:00 31+ UAH SEALED BIDS 16:15 39 UAH SEALED BIDS DISCLOSED 16:17 BEST BID FOR WHOEVER 40 UAH -16:30 STOPPED THE CLOCK
PRELIMINARY RESULTS US$20m SOLD 8.2% SUCCESSFUL AUCTIONS VS 1.9%
IMPLEMENTATION: NEXT STEPS JAN APR-AUG SEP OCT MAR DEC New law on state MVP is lease auctions is SOE launched in Privatization by-laws passed by the ProZorro.Sale a foreign are approved by parliament established country CMU 2018 The system is Draft law on Law on transferred to the state unified auction privatization First auction on system passed by minor submitted to the the privatization Parliament Parliament
LEASE AUCTIONS CASE STUDY EVERY SECOND AUCTION AVERAGE PRICE INCRESE: 77% UKRPOSHTA IVANO- FRANKIVSK AUCTION: STARTING PRICE UAH 5k LESSEE BID UAH 35k ESTIMATED MARKET SIZE: UAH 3bn+
POTENTIAL MARKETS: CHANGES IN PROGRESS UKRAINIAN RAILWAYS: ASSETS AND RAILCAR AUCTIONS LAND LEASE AND SALES AUCTIONS: UAH 270bn ASSETS OF STATE FISCAL SERVICE: UAH 1bn TIMBER AUCTIONS: UAH 7bn BANKRUPTCY: UAH 3bn
AWARDS AND RECOGNITION Win in the competition of anti- Anticorruption award from C5 Accelerate and USA corruption start-ups Institute of Peace “The Shield in the Cloud CitiT4IChallenge Innovation Challenge ”
Contacts PROZORRO.SALE THANK YOU! FACEBOOK.COM/PROZORRO. SALE BI.PROZORRO.SALE
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