Construction of fortifications: one-day firms, “classified” criminal cases and juggling budgets of regional administrations

Public attention to the construction of fortifications was initially sparked by the Russian offensive in the Kharkiv region in May. It was then revealed for the first time that some fortifications existed only on paper, despite the state already spending 38 billion hryvnias on these projects, with a significant portion of these funds being transferred to newly created companies with signs of being shell entities. Now, as the Russians make significant advances in the Donetsk region, similar complaints are emerging about the “complete show and imitation of activity” in fortification construction. BiznesCensor investigated who is responsible for the construction, why all the budgets are classified, and why contractors are implicated in criminal cases over the alleged embezzlement of 20 billion hryvnias.

Amid the scandals surrounding the absence of fortifications in the Kharkiv region, parliamentarians established a Temporary Special Commission in May to oversee the targeted use of funds for the construction of fortifications and the procurement of drones.

The commission was chaired by Mykola Zadorozhniy, a member of the “Servant of the People” party, who previously worked as a showman and event organizer for the “Kvartal 95” agency. Recently, Zadorozhniy was accused by the National Anti-Corruption Bureau of Ukraine (NABU) of soliciting a 3.4 million hryvnia bribe for “not obstructing repair work” in the Sumy region.

Mikhailo Tsymbalyuk from the “Batkivshchyna” faction was appointed as his deputy, and the commission also included 13 other members of parliament. Among them, Mikhailo Bondar from the “European Solidarity” faction was appointed as the commission’s secretary.

At the beginning of the commission’s work, Bondar recounted how, on the eve of the invasion, President Volodymyr Zelensky and MPs visited a single fortification site in the Kharkiv region that had been prepared by local authorities “as a showcase.” In other locations, construction was hurriedly done to create the appearance of progress, while in some areas, nothing was done at all.

“Guys were telling us that when they tried to reach the line where the fortifications were supposedly located, they found pits or had to start digging immediately because it was just empty ground,” Bondar said.

He also promised that if any abuses were uncovered, members of the commission from opposition groups would push for the special commission to be upgraded to an investigative one.

According to Bondar, in May, the government only agreed to create a special commission, which, due to its uncertain status, has significantly limited powers. The findings of the special commission will be merely advisory, and while it can develop recommendations for the government, it has limited access to certain documents.

Since its formation, the Temporary Special Commission has held three meetings but has yet to delve into the specifics, such as contracts and contractors involved in the construction of fortifications. During the commission’s sessions, not the top officials of regional administrations, but other employees, were present—people who were unable to answer questions about either the procurement for fortification construction or the contractors involved.

The meeting scheduled for July 19 was canceled by the commission’s chair, Mykola Zadorozhniy, without any explanation. Additionally, allegedly due to security concerns, all criminal case materials and contracts related to fortification procurement that the commission is investigating have been classified as “secret” or “for official use only.” Consequently, commission members are formally prohibited from disclosing information from these materials, including to the media, even if evidence of wrongdoing is documented, Bondar told “BiznesCensor.”

According to him, it is unlikely that the commission on fortifications will convene before August 20, when the next plenary session of the Verkhovna Rada is scheduled.

“The head of the TSK was ordered to do nothing and delay the process. Mykola Zadorozhniy is currently ignoring all messages in the TSK WhatsApp group,” Bondar said.

Construction of fortifications: how it works in Ukraine

At the end of April, Prime Minister Denys Shmyhal announced that nearly 38 billion UAH had been allocated for fortifications since the beginning of 2024. Additionally, through “redistribution of state budget expenditures,” the government allocated another 8 billion UAH for the construction of fortifications. This brings the total budget for fortifications to almost 46 billion UAH.

According to Mykhailo Bondar, the main entities responsible for managing the funds for fortifications in Ukraine are the Ministry of Defense, regional administrations, and the State Agency for Restoration and Infrastructure Development, along with its regional network.

The Ministry of Defense is solely responsible for the first line of fortifications. Regional military administrations handle parts of the second and third lines of defense.

If a regional administration does not have sufficient funds for fortifications in its territory, another regional administration with available financing is brought in to conduct the procurement and engage contractors. “They coordinate among themselves who builds what and on which section. Who is responsible for what,” Mykhailo Bondar explains.

The General Staff is always the contracting authority for fortifications and is responsible for accepting them from contractors. According to Mykhailo Bondar, the military sometimes rejects these structures due to their poor condition. When this happens, the local authorities that funded the construction transfer these substandard fortifications to their municipal enterprises. Regional administrations explain this by citing a “lack of funds for maintenance” by the military.

“All this is an empty show, not tied to the terrain. (…) positions are being dug wherever it is convenient for excavators,” Yuriy Butusov, editor-in-chief of Censor.NET, recently told about the construction of fortifications in the most difficult Pokrovsk sector, “In an open field. Sometimes concrete dugouts are built, but they are not buried in the ground, they are built like ancient pillboxes, in the open, which are very clearly visible, not camouflaged. These positions are not covered by drones. All these positions that are being dug there are a complete show and imitation. The troops do not occupy these positions, only sometimes they are occupied by enemy assault groups when they sometimes need to escape from our fire, during the next roll, when they go on the attack. This is a sad reality.”

According to Bondar, regional administrations have already reported to the parliamentary commission that all fortifications are at least 85% complete. The Security Service of Ukraine has different information, having opened 30 criminal proceedings on the facts of construction abuses. The cases involve the alleged embezzlement of about UAH 20 billion. The funds were misused through the purchase of materials at multiply inflated prices and construction of facilities that took place only on paper. Under the contracts with the OVA, contractors usually received more than 70-80% of the cost of building fortifications in advance.

Cases disappear from the register, prices remain inflated

In February of this year, the Security Service of Ukraine initiated a criminal investigation into the overpricing of timber purchases for fortification construction in the Kharkiv region. By June, the rulings related to this case were publicly accessible in the State Register of Court Decisions, but they have since disappeared, according to the Kharkiv Anti-Corruption Center.

The now-vanished case involved several contracting companies, “controlled by a single group of individuals,” that purchased timber from state enterprises, including the State Enterprise “Izyum Forest Farm,” at a price of 970 UAH per cubic meter of coniferous wood (pine) with a diameter of 15-19 cm and a length of 3-4 meters.

These companies then resold the timber to the Kharkiv Regional State Administration’s Department, responsible for constructing the fortifications, at a price of 4,100 UAH per cubic meter. The losses from this scheme may have cost the state budget around 150 million UAH in just the first three months of this year.

However, as recent procurement records on Prozorro have shown, criminal investigations have not deterred officials from purchasing timber for fortifications through dubious intermediaries at massively inflated prices.

For example, BiznesCensor found the following procurement of timber in Donetsk region in June.

The Ocheretyn village military administration bought round coniferous timber with a volume of 15-24 cm and a length of 4 m from Investinprom LLC for UAH 6.5 thousand/m3.

At the same time, Pokrovske City Council purchased timber from Investinprom for UAH 12.89 million at a similar price.

In April 2024, Investinprom sold edged coniferous sawn timber (pine) 25-30 m long and 3-4 m thick to Pokrovsk and the district for UAH 11 thousand/m3.

In total, Investinprom supplied timber to Donetsk region for almost UAH 26 million. Although this is a completely new line of business for this company, last year Investinprom specialized in renting special equipment for the Kherson City Council.

Investinprom LLC was established in Kyiv last year and was initially registered to a resident of Boyarka, Volodymyr Petukhovsky, who had previously been prosecuted for manufacturing drugs. In April 2024, the company was re-registered to Tetiana Petrivna Sapiehina, also a resident of Kyiv region.

As for timber procurement in Kharkiv region, according to BiznesCensor’s estimates, the Department of Kharkiv Regional State Administration recorded in the electronic system the procurement of timber for fortifications for a total of more than UAH 415 million.

Out of this amount, only UAH 30.6 million, or less than 10% of the total procurement amount, was ordered by the Kharkiv Regional State Administration directly from a branch of the state enterprise “Forests of Ukraine”, the lion’s share was purchased through intermediary companies with signs of fictitiousness.

For example, Gerc Industry, which was established a year ago, sold more wood to the Kharkiv Regional State Administration this year than all state forestry enterprises – UAH 52 million. In the past, the company sold timber in the Kharkiv region for UAH 57 million.

Recovery service or regional administration

Despite the fact that there are supposedly certain rules for financing procurement for the construction of fortifications, in practice, each region organizes them in its own way.

For example, in Donetsk region, BiznesCensor found tenders of the local Service for Restoration and Development of Infrastructure, which was engaged in the construction of strongholds and made procurements for almost UAH 474 million in March-April this year without specifying the estimates and the contractor.

And the Department of Donetsk Regional State Administration purchased only certain materials for these defense structures. In particular, the Department of Civil Protection, Mobilization and Defense Work there purchased a spiral security barrier of the Egoza type, or barbed wire, for almost UAH 360 million from the notional Ukrbudinvest group, which is associated with the family of the former chief of police in the currently occupied Donetsk, Maksym Kirindiasov.

At the same time, some village councils in Donetsk region held tenders for the purchase of materials for fortifications. For example, the Hrodivka ATC in the Pokrovsk district and the Illinivka village council in the Kramatorsk district purchased PZ-1 barrier pyramids from the S.K.S.M. Trading House LLC, owned by Kharkiv businessman and former MP Anatoliy Denysenko. For 1790 – 1960 UAH per piece (Pokrovskyi district bought more expensive).

At the same time, in the Kharkiv region, the local Service for the Restoration and Development of Infrastructure was not involved in fortifications at all. Its largest tenders concerned road maintenance, which cost a total of UAH 8.66 billion in expected value and were divided between the road favorites of the Great Construction period – Avtomagistral-Pivden LLC, Avtostrada Group LLC, and Rostdorstroy LLC.

In Kharkiv region, the centralized procurement of fortifications was handled by the Department of Housing and Communal Services and Fuel and Energy Complex of the Kharkiv Regional State Administration, which, by an unclear logic, initially did not classify its contractors for fortifications, but classified all estimates.

For example, in January, the Department of the Kharkiv Regional State Administration conducted a Prozorro procurement of wood from Epicenter K LLC (in the contract, the Department even indicated the actual location of the company and that the wood was to be supplied for the fortifications on the first line) for UAH 36.22 million (in the specification, it was for UAH 38 million). The Department has classified what exactly it paid such funds for, i.e. the subject of procurement and the cost per unit of goods.

Except for a fairly large contract with Epicenter, the procurement of materials for the construction of fortifications in Kharkiv region is dominated by firms with signs of fictitiousness.

The situation is different in the procurement of “construction of fortifications,” where the Department of Kharkiv Regional State Administration recorded UAH 6.4 billion in expenditures in the electronic system.

The Prozorro system lists contractors for all fortifications in the region, which allowed BiznesCensor to calculate the top 10 largest recipients of funds for fortifications in this region.

Rating of the largest contractors in Kharkiv region

The first place is held by Trest Zhytlobud-1 PrJSC, owned by Oleksandr Kharchenko, who is a member of the executive committee of the Kharkiv City Council, with UAH 996.80 million;

The second is Tech-Incom LLC, which is associated with Andriy Rudenko, a longtime deputy mayor of Kharkiv responsible for defense issues who was dismissed in April 2024, with a total of UAH 545.71 million;

The third is Stroy UA LLC, owned by Victoria Didyk from Dnipro, worth UAH 375.26 million;

Fourth – PE “Construction Firm “Promtex”, associated with former MP from Kharkiv Anatoliy Denysenko – UAH 333.30 million;

The fifth is Zhilstroy-3 LLC, owned by Kharkiv residents Yuriy Melnyk and Oleksandr Maleev – UAH 303.57 million;

The sixth is Project Alliance LLC, one of the owners of which is Andriy Kolos, former director of the Department of Economics and International Relations of the Kharkiv Regional State Administration, former city council deputy from the Nash Krai party, member of the executive committee of the Kharkiv City Council – UAH 266.39 million;

In seventh place is Vitaliy Kravchenko’s Business Project LLC from Chuhuiv district – UAH 237.49 million;

The eighth is Remtehnnaladka LLC from Poltava, owned by a local entrepreneur, a representative of the beauty industry, Yevhenia Kornberg. Until September 2020, the owner was Oleksandr Yarovenko. In January-November 2021, the company was managed by Volodymyr Medyanyk, a former deputy of the Poltava City Council, with a total value of UAH 177.68 million;

The ninth is Alliance Transbudservice Construction Company LLC, a Cherkasy-based company established in 2023 and registered to Vitalii Okhota, which, in addition to fortifications in Kharkiv region, managed to win tenders for the construction of shelters in the Shevchenkivskyi district of Kyiv – UAH 149.98 million;

The tenth is ROSTDORSTROY LLC, known since the Great Construction, a company of former Odesa City Council deputy Yuriy Shumakher and Yevhen Konovalov – UAH 142.37 million.

Olga Prokopyshyna

Tags: corruption corruption in Ukraine investigation Kharkiv Russia russia ukraine war Ukraine Ukraine government