Prozorro.Sale - Observatory of Public Sector Innovation

ProZorro.Sale is an electronic auction system aimed at transparent sales of state and local government assets. It involves a central database that conducts auctions and stores all the information about the transaction and commercial platforms connected to the database via Application Programming Interface (API). After the transaction all the information becomes public.

Innovation Summary

Innovation Overview

The Ukrainian state has vast amounts of assets in ownership, but the non-transparent process of state assets sales leads to the problems with auction data availability and to a limited number of bidders. Moreover, inefficient bidding process creates even more opportunities for corruption. Assets are sold for lower prices than they could have been and the state loses its potential revenue. Therefore, there is a dire need for a transparent and efficient auction system integrated with an assets register providing full accessibility, equal conditions for all the participants and increased accountability.

In 2015 the civil society group with support of donors, businesses and volunteers launched a pilot e-procurement platform named ProZorro where assets can be offered by companies and bought by authorities within the online auction. Drawing on the successful experience from ProZorro public e-procurement system, the team of civil activists initiated to implement the ProZorro.Sale system to handle the state assets sales process. Since the launch of the Project, the Deposit Guarantee Fund has managed to sell above EUR 315m of assets. According to ProZorro.Sale estimations, an effective sale of public assets could save billions hryvnas yearly to Ukraine’s economy.

ProZorro.Sale is the only e-auction state assets sales system of its kind in Ukraine. ProZorro.Sale is a “hybrid model” e-auction system, which means the information is stored in one central database, but bidders and sellers can access the data from a number of different platforms, choosing the one that best serves their needs. Using an API, these interfaces are connected to the central database. Finally, the key participants in the project play their own role in what is called the “golden triangle of partnership”. Government is responsible for setting general rules and protecting information; businesses are responsible for providing services to the bidders and sellers; and civil society is responsible for monitoring and developing risk-management methodologies. After a quick successful pilot stage in 2016 the Fund made ProZorro.Sale obligatory for all asset sales since early 2017.

One goal is to electronically conduct all sales of the Fund in a transparent and efficient manner, thereby increasing the budget revenue. The following are the platform’s distinctive features: Firstly, all information related to the selling process, including bids, can be accessed and monitored by everyone. The system is open source, and all data is structured in line with the Open Contracting Data Standard, making cross-country data comparison and analysis possible. The Project has received national and worldwide recognition.

Prozorro.Sale won the price of the best anti-corruption start-up by Citi Tech for Integrity Challenge in 2017 and C5 Accelerate & USA Institute of Peace in 2018 (“The Shield in the Cloud Innovation Challenge” program). In Ukraine, the Project became the main implementor of state assets sale in such an important field like small-scale privatization, land leasing rights and assets of state enterprises. Additionally, the sale of liquidated banks assets is obligatory only through Prozorro.Sale platform.

Innovation Description

What Makes Your Project Innovative?

ProZorro.Sale has a large potential to improve the current system, and as it is successfully implemented in Ukraine, it could set an international precedence for how to efficiently manage sales of government assets. The Project will lead to an increased transparency in public asset sales and leases, improve market access, increase trust among business, government and civil society, as well as generate additional revenue to the budget.

Through its collaboration with Transparency International, ProZorro.Sale might replace underdeveloped systems internationally, and could lead to a reduction in corruption not only in Ukraine, but around the world. Monitoring the success of the system, some of the European countries are already considering to take on the experience. The system is fully open source that allows to easily scale up to other countries: governments could just copy the code, no royalties or permissions are needed. Moldova is in the process of testing and preparing the base to make a similar platform.

What is the current status of your innovation?

At the moment, the Project is in process of transferring to sustainable state enterprise. The institutionalization will ensure the solid reform results in long-term period. For the 2 years of operating, the Project earned about UAH 10 billion or USD 384 million, notably replenishing the state budget. Now the main anti-corruption initiatives, required by international partners of Ukraine, are executing through Prozorro.Sale. The Project has launched a very important nation-wide process – the small-scale privatization electronic auctions. As well as about to launch land-lease rights, carriages leasing rights of Ukrainian Railway, fossils extraction rights and forest. All these streams have significant economic and social effect as it allows to significantly eliminate corruption.

Innovation Development

Users, Stakeholders & Beneficiaries

The project has started on June 24th 2016 with the signing of a Memorandum of Understanding (MoU) between the Deposit Guarantee Fund, the National Bank of Ukraine, the Ministry of Economic Development and Trade and Transparency International Ukraine. In the MoU, all the project participants agreed to abandon their intellectual property rights over the system and confirmed the plans to transfer the system to the Ukrainian government. The main beneficiaries of the Project are Ukrainian citizens.

Innovation Reflections

Results, Outcomes & Impacts

As of the end of August 2018, the system generated revenue of UAH 10 billionor USD 384 million with an average price increase of 13% per auction. The number of participants surpasses 7400. The number of auctions reached 184 800, which could be seen and tracked via business intelligence module.
This innovation should significantly decrease the average time it takes to sell an asset as well as leading to higher prices.

Challenges and Failures

Transfer to State Enterprise – to establish the state enterprise and reach sustainability, the Project needs to develop all necessary legal documents package, attain commercial and financial independence, and set the full set of business processes.
The scale of Electronic Trading System – the continuous launching of new streams requires considerable increase of the system capacities. Additionally, the system needs constant technical enhancement and scaling.

Conditions for Success

The system is a fully open source that allows to easily scale up to other countries: governments could just copy the code, no royalties or permissions are needed. The following are simple steps for countries to take when implementing the system:
-Sign a MoU with the government;
-Copy and modify code, launch sandbox;
-Connect banks and B2B (business-to-business) platforms;
-Develop and approve new regulations;
-Launch product central database.
Execution of each Project vector involves amendments and changes to be made to the regulations and by-laws.
Currently, different auction types on various platforms require a number of legal documents and acts to be followed. The project team aims to unify the existing regulations and service level agreements (SLAs) and to create the single legal document for various procedures. To successfully replicate the system the appropriate legal environment should be lobbied for.

Replication

The topic of transparency and corruption risks in public asset disposal should be of interest to any country as it seems that regulations and policies are usually still incomplete in this field. A research conducted by the Norwegian Business School showed that most countries do not have a comprehensive legislation to regulate sales of public assets. In most cases, the legal and technical framework used to handle regular sales processes is insufficient. The state-owned assets are very valuable but as The Economist stated, even ‘advanced countries have been slow to sell or make better use of their assets’. Various assets, starting from surplus equipment, subsoil resources, utilities and real estate to banks and companies are to a big extent controlled by the governments. Disposal of some of these assets could improve the country’s financials, reduce the national debt and make their economy thrive.

Lessons Learned

There is a corruption risk that the buyers of state assets that have lost bids at ProZorro.Sale system will use judicial system (courts mainly) to block or reverse the results about the winner of a particular trade deal done through ProZorro.Sale. To overcome the risk of corruption in the courts, good legal support is needed to ensure the protection of the winning bidder in the courts. Also, every corruption case must be covered in the press and social media to attract public attention to such cases. There is a political risk that the implementation of the Project might require some changes to be made to the regulatory framework of Ukraine, such as: Acts of The Government of Ukraine and the Law of Ukraine as well. To account for this risk, we need to reach the consent from the following stakeholders: the State Property Fund, the Ministry of Economic Development and Trade, the Government of Ukraine, and the Parliament of Ukraine. The process of implementing changes is complicated and bureaucratized.