The Chinese Company China Harbor Engineering Company Ltd. implemented three projects to dredge Ukrainian port waters, receiving UAH 2.054 billion ($ 74 million) from the state budget. Subsequently, these projects drew attention of the Ukrainian anti-corruption authorities.
Ukraine’s seaports play an extremely important role in the Ukrainian economy, funneling over 60% of Ukrainian exports. In recent years, the Ukrainian port industry is experiencing a real boom – cargo handling has reached 150 million tons for the first time in the last 10 years. The top 5 Ukrainian ports in terms of annual transshipment are: port Yuzhny (42.7 million tons), Mykolayiv (29.2 million tons), Odessa (21.7 million tons), Chornomorsk (21.5 million tons), and Mariupol (5.9 million tons). To increase its export potential, the state invests in dredging port areas and channels. The greater the depth, the bigger the ships that can enter the ports.
China Harbor Engineering Company LTD (CHEC) was the first Chinese company to win a public procurement tender in Ukraine.
“The success of the project adds to our confidence that the tender was conducted on a transparent and fair basis. This is a great victory for us,” said China’s Ambassador to Ukraine Wei Doo during the signing of a contact between The Ukrainian Sea Ports Authority (USPA) and CHEC.
The USPA is supposed to manage state property in the country’s seaports, as well as create mechanisms for attracting investment in port infrastructure. In addition, the agency is responsible for maintaining port water passport depths and ensuring the safety of navigation. But in reality, USPA is very corrupt, and its reform or liquidation has been constantly emphasized by different heads of the Ministry of Infrastructure.
In 2017-2018, the Chinese company received two contracts from USPA for dredging the port of Yuzhny – the largest Ukrainian port by volume of transshipment. The first project involved the deepening of the approach channel up to 21 m by 19 m near berths # 5, 6. Its cost was UAH 586 million ($ 21 million).
The second project, which implied the creation of water approaches with a 19 m depth and an operational water area with a 16 m depth in the area of berth # 25, was even more expensive – UAH 1.064 billion ($ 38 million).
The success of the Chinese in the tenders received a positive response from the authorities.
“The winner is a Chinese company, which is in the world’s top 5, the savings on two tenders for dredging amounted to more than UAH 400 million ($15 million)”, said
the Minister of Infrastructure of Ukraine at the time Volodymyr Omelyan.
CHEC received another contract at the port of Chornomorsk. During an open tender, the Chinese company offered to dredge the approach seawall for UAH 87 million, and estimated the operations in the operating area at UAH 317 million ($ 12 million). It was the best price.
But the local press raised great doubts about the transparency of the Chinese contracts. In particular, business media claimed that the losses to the state from dredging operations carried out by CHEC at the port of Yuzhny could amount to UAH 273 million ($ 10 mln).
“A contract was signed with a Chinese company that, at the time of signing, did not contain confirmation of any component of the contract price, estimates”, the article states. The piece notes that after the signing of the contract, USPA and CHEC struck two additional deals in which the price of some of the works increased significantly. These documents, according to the authors, also contained corruption risks.
CHEC completed the works in the Black Sea three months ahead of schedule. However, at the end of last year, the National Anti-Corruption Bureau (NABU) and the Security Service of Ukraine (SBU) conducted searches at one of USPA’s contractors.
According to a NABU press release, the searches were conducted as part of an investigation into possible abuses by USPA officials in the procurement of construction services for sea infrastructure, in particular, granting illegal privileges to a foreign company.
USPA denies NABU allegations about possible violations in the implementation of dredging projects in the Southern and Black Sea ports by CHEC.
“All three intergovernmental tenders, the winner of which is a Chinese company, were conducted in the ProZorro e-procurement system with strict observance of the current legislation,” USPA’s press service said.
CHEC also responded to these events. According to their Facebook post, the company is deeply disappointed and embarrassed by the anti-Chinese stance of the Ukrainian press and its dissemination of cynical allegations against the company.
“In a statement which refers to Ukrainian state investigation materials, our group of companies was accused, in particular, of stealing funds during dredging at the port of Yuzhny. The companies of our group are mentioned in the Ukrainian press in a very scornful way with the imposition of fictitious or distorted circumstances and facts”, the statement reads. The company considers such allegations to be baseless and “are preparing a campaign to protect their business reputation”.
Responding to a request, NABU said that the investigation was ongoing and no suspects have been reported. The agency refused to provide details of the case.
In Ukraine, the dredging sector is riddled with corruption. Large-scale works are often accompanied by scandals, with USPA officials always at their heart. NABU detectives exposed a scheme to raise prices for dredging at the ports of Berdyansk and Mariupol. “Every day USPA unreasonably overpaid from $ 9,000 to $ 19,500 for the lease of each vessel. They also overpaid for the use of these vessels. For example, they overpaid $ 622,024 for the ship “MILFORD”, the case reports
. At that time, former USPA officials inflicted the state UAH 247 million ($ 1 million) worth of losses.
Former Infrastructure Minister Volodymyr Omelyan noted that the USPA has served as a goldmine for certain individuals for years. There are serious doubts about the dredging, its quality and real depth.
However, Omelyan himself was later suspected of illegal enrichment and failure to declare his property.
The China Harbor State Engineering Company Ltd. was established in 1980. From the start, the company’s main activity was the construction of harbor facilities, including terminals, moorings, bridges, dry docks, etc. Dredging has been and remains an important component of CHEC’s business.
In 2005, the company merged with China Road and Bridge Corporation, which specializes in road and bridge construction. The merger resulted in China Communications Construction Co., Ltd. (CCCC). Its subsidiaries, including CHEC, have retained their profile functions.
The US-based Engineering News-Record named the CCCC the third largest contractor in the world, though in 2014 it ranked 9th.
About 90% of China’s large and medium-sized terminals were built by CHEC. The first projects for foreign clients were completed in the 1980s. They included the construction of a dry dock in Malta and the deep-water port of Nouakchott in Mauritania. In the 1990s, China Harbor Engineering Company began operations in Asia and Africa, and in the 2000s entered South America. The company has nearly 60 overseas offices serving clients in 80 countries.
However, there were scandals. In particular, in 2015, CCCC was ranked among the most notable examples of major global corruption by Unmask The Corrupt. This initiative was created by the international non-governmental organization Transparency International.
The project, later reported by Ukrainian media, noted that CCCC was suspended from participating in World Bank-funded bridge and road construction projects from 2011 to 2017 for fraud while working on the project in the Philippines.
In 2015, a $ 150 million project to construct an airport in Guyana was discontinued by the government over fears that the contract price would be much higher than initially agreed.
Other examples of corruption are also cited.
Read more about the Chinese companies in: