Ukraine's Defence Procurement Agency purchased weapons through specialised importers at inflated prices
Ukraine's Defence Procurement Agency (DPA), established in mid-2022 in line with NATO standards to ensure transparency in arms purchases and prevent corruption, has entered into contracts with special exporters who have significantly overcharged, missed deadlines or failed to fulfil orders altogether. As a result, these exporters have run up millions of dollars in debts to the state, all while the Armed Forces of Ukraine faced urgent shortages of weapons.
Source: Ukrainska Pravda investigation Defence Intelligence goes shopping. How Ukraine is overpaying tens of millions of euros for delayed weapons deliveries
Details: Ukrainska Pravda journalist Mykhailo Tkach notes that when the DPA was established, NATO recommended liquidating the so-called special importers – companies that used to sell Ukrainian weapons abroad and are now responsible for purchasing them from abroad for Ukraine.
Tkach’s investigation focuses on the State Self-Accounting Foreign Trade Enterprise SpetsTechnoExport, which was removed from the jurisdiction of the Defence Ministry and reassigned to Defence Intelligence of Ukraine (DIU) in mid-2022 at DIU’s request.
Quote from Mykhailo Tkach: "Numerous Ukrainska Pravda sources familiar with arms procurement have said that SpetsTechnoExport sometimes sets records for the highest prices, driving up prices for certain types of weapons from all other suppliers. Furthermore, this state-owned company is increasingly finding itself in disputes with the state, represented by the Defence Procurement Agency, over financial matters."
Details: At the end of the first year of the full-scale invasion, Volodymyr Pikuzo was appointed as the first head of the new Defence Procurement Agency.
Ukrainska Pravda sources say Pikuzo signed contracts worth over UAH 50 billion (roughly US$1.2 billion) with SpetsTechnoExport during his tenure.
As a special importer, SpetsTechnoExport received 3% commission from the state on each contract.
"As a result, SpetsTechnoExport’s commission during Volodymyr Pikuzo's year and a half in charge totalled over UAH 1.5 billion (US$36.4 million). The contracts signed between the DPA and SpetsTechnoExport – that is, Pikuzo and [SpetsTechnoExport chief Oleksii] Petrov – require particular scrutiny. More precisely, the price at which the weapons were purchased requires attention," the investigation says.
On 27 October 2023, SpetsTechnoExport signed a state contract with the DPA for the supply of 80,000 120mm mortar bombs. The contract was worth UAH 2.3 billion (US$55.8 million), translating to a cost of about €640-680 per piece. The rounds were to be manufactured in India and supplied through a Czech company, Excalibur Army.
Ukrainska Pravda sources in defence procurement say this is the highest price in any contract signed since the start of the full-scale Russian invasion. The average cost of a 120mm munition is between €520 and €560.
"So €11 million of public money could potentially have been lost on this contract alone," Tkach said.
Under the terms of this contract, Ukraine’s defence forces should have received 36,000 120mm mortar bombs by the end of August. But Ukrainska Pravda sources within law enforcement say that as of September, no deliveries had been made.
SpetsTechnoExport received an advance payment of almost UAH 700 million (US$16.9 million) under the contract at the beginning of this year. The company is now being sued for UAH 81 million (US$1.9 million) for non-fulfilment of this contract.
An interesting aspect is that several controversial and unfulfilled contracts between the DPA and SpetsTechnoExport were signed on the same day. For instance, on 27 October 2023, another state contract worth over UAH 4 billion (approx. US$97.1 million) was signed for the supply of 24,000 125mm high-explosive fragmentation rounds at a unit price of around €4,000. These rounds were also to be manufactured in India and also supplied through the Czech company Excalibur Army.
The contract was half completed as of September this year. An Ukrainska Pravda source in the defence sector says that similar munitions are available from a Ukrainian manufacturer at a price of about US$2,400 per piece. Accordingly, the potential loss of public money under this contract could be over €40 million. So far the DPA has transferred UAH 2.7 billion (US$65.5 million) to SpetsTechnoExport.
On the same day, 27 October 2023, DPA and SpetsTechnoExport signed another state contract worth nearly UAH 9 billion (US$218.5 million) for the supply of almost 50,000 152mm shells for D-20 howitzers. The unit price is about €3,960.
Ukrainska Pravda's sources in the defence sector report that so far, only 20,000 shells have been delivered – less than half. Other special importers say that Bulgarian-made ammunition is being supplied to Ukraine for €2,300-€2,500 – almost two times cheaper.
This means that about €80 million of public money may have been lost under this contract alone. A UAH 42 million (approx. US$1 million) claim brought by the DPA against SpetsTechnoExport is currently being considered.
On 18 December 2023, another contract was signed with SpetsTechnoExport for the supply of 70,000 rounds of 155mm ammunition worth over UAH 9 billion (approx. US$217 million). Once again the cost of ammunition was inflated, and once again the company failed to fulfil the contract. It was supposed to deliver 36,000 units to begin with, but only a few thousand rounds have been delivered. A UAH 500 million (US$12 million) claim brought by the DPA against SpetsTechnoExport under this contract is currently being heard by the Kyiv Commercial Court.
Ukrainska Pravda sources say that despite the company’s failure to fulfil this contract, on the insistence of DIU, the DPA signed another new contract with the same supplier for the same ammunition in the spring of this year, this time for UAH 10 billion (US$241 million).
The new contract was signed after a new head of the Defence Procurement Agency, Maryna Bezrukova, was appointed in early 2024.
After his dismissal, Volodymyr Pikuzo became an official adviser to the head of SpetsTechnoExport, Oleksii Petrov.
Ukrainska Pravda has analysed more than ten contracts that Pikuzo signed with SpetsTechnoExport and found that the discrepancy with market prices for certain types of weapons may be over €200 million, or about UAH 10 billion (US$241 million), for contracts signed during 2023 alone, and that’s just the contracts the journalists were able to get hold of to review.
Despite all this, dubious contracts were still signed between the DPA and SpetsTechnoExport in 2024. Ukrainska Pravda has details of at least two such contracts.
In late September, Defence Minister Rustem Umierov announced the idea of liquidating the DPA by merging it with the State Logistics Operator, which purchases non-lethal items for the defence forces.
Yet the day before the Ukrainska Pravda investigation was published, Minister Umierov unexpectedly announced that SpetsTechnoExport would be transferred back from DIU to the Ministry of Defence in two years, without any explanation of this decision.
"We are reforming the defence procurement system," Umierov said. "SpetsTechnoExport is being transferred from Defence Intelligence of Ukraine to the Ministry of Defence. I have set the task of completing the process of cleaning up the procurement system in close cooperation with the law enforcement and anti-corruption agencies."
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