Transparent Government Asset Management

Ukraine has a large amount of state owned assets which are in most cases mismanaged or sold via corrupt procedures, meaning a large portion of funds never reaches local and state budgets. ProZorro.Sale developed an advanced electronic auction system, which introduced complete transparency and digitised the state asset management process. Through fair and innovative online auctions, coupled with open data, the system has replenished local and state budgets by $1 billion in 3 years.

Innovation Summary

Innovation Overview

The National state asset sales system in Ukraine has been claimed to be one of the most inefficient and corruption-prone areas due to limited data availability, restricted competition, unclear procedures and no public monitoring. These shortfalls caused restrictions of access to deals resulting in non-market transaction prices and lost revenue for local and state budgets. In order to solve these problems the ProZorro.Sale project was launched in 2016.
The project followed the footsteps of ProZorro, an electronic procurement system for government, which was launched in 2014. It saved millions of dollars by increasing competition and significantly reducing corruption in the sector. Because of its success, the government of Ukraine expressed a wish to implement a similar system for asset sales, as opposed to procurement. With support and direct supervision by the Ministry for Economic Development, Trade and Agriculture the project was first piloted on toxic assets (non-performing loans) of insolvent (bankrupt) banks. A special auction method was developed by the Kyiv School of Economics with the aim to reduce the effects of insider knowledge and increase the level of competition, while maximising the sale price. In comparison with other countries who have had similar issues, Ukraine outperformed most in multiple metrics, as can be seen in a white paper produced by thr Kyiv School of Economics (research materials attached).
At its core, the main innovation of ProZorro.Sale is the two-tier electronic trading system that holistically tackles the biggest problems with state asset management. The system consists of an administrator, ProZorro.Sale (level 1), and commercial marketplaces/brokers (level 2). The administrator never interacts with buyers or sellers, so the entirety of the buy-sell process is handled by the brokers. Once a broker is authorized to use the system, it has access to all of the information on the central database, just like every other broker connected to the system. This is opposed to the structure that was in place beforehand, where there was no centralised database and a single broker with exclusive rights for an asset could be bribed by one of the participants (who wanted to ensure he won the auction) and disqualify other participants, without any explanation or repercussion. Now, all brokers possess the same information on the same auction items, so if one engages in bad acting, any buyer or seller can just switch over to another one. Since the commission is paid only to the broker who attracted the winning bidder, brokers are incentivized to compete fairly between themselves and potential auction participants choose brokers solely by their competitive offering (rates, financing, customer service, integration services etc.), and not based on any other factors i.e. the broker having exclusive rights to conduct an auction, vested interests, insider information etc.
On the other hand, ProZorro.Sale is responsible for the system’s maintenance and support. It develops bespoke software solutions, makes sure the system is aligned with legal and regulatory frameworks, communicates with stakeholders, while gathering, storing and publishing auction data. All auction data including participant’s names and bids is published and available in machine readable format, compliant with the Open Contracting Data Standard, which serves as proof for every stage of the auction process. This is especially important because many auction results prior to ProZorro.Sale were disputed in courts because the entire process was extremely opaque, and the public had next to no trust in how state assets were managed.
The main goal of the project was to tackle the corruption problem that has persisted within the state asset sales sector for a very long time. This was only ever possible with the involvement and support from the public, business and government. The public initiated the drive for change, the government responded by adopting and amending legal and regulatory frameworks, and business provided services for buyers and sellers.
The use of a two-tier electronic trading system for sale and lease of many assets is now mandatory for certain assets in Ukraine. Since the results of the initiative have been very positive, it is expected that more assets will have to be disposed via open and transparent e-auctions. The ProZorro.Sale team is constantly monitoring markets and industries and establishes relationships with stakeholders in order to identify new opportunities for implementing the system, but what's equally important for the project’s long term sustainability is that the government, as well as the market players, initiate a dialogue for change themselves in many cases. Taking this into account, the team firmly believe that this innovation will install deep and comprehensive anti-corruption and transparency principles across many sectors in the future.

Innovation Description

Innovation Development

Innovation Reflections

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Year: 2016
Level of government: National/Federal government

Status:

  • Identifying or Discovering Problems or Opportunities - learning where and how an innovative response is needed
  • Generating Ideas or Designing Solutions - finding and filtering ideas to respond to the problem or opportunity
  • Developing Proposals - turning ideas into business cases that can be assessed and acted on
  • Implementation - making the innovation happen
  • Evaluation - understanding whether the innovative initiative has delivered what was needed
  • Diffusing Lessons - using what was learnt to inform other projects and understanding how the innovation can be applied in other ways

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