16:05 19.05.2021

Author ILIYA MIKHAILOV

ProZorro.Sale: How to build markets and trust where nothing is for sure

5 min read
ProZorro.Sale: How to build markets and trust where nothing is for sure

Iliya Mikhailov, Head of Supervisory Board, ProZorro.Sale

To build a state-owned “e-bay” with no budget funding and revenue 38+ UAH billions is a true challenge in Ukraine.

ProZorro.Sale is an electronic trade system with integrated best practice and unique local instruments to effectively manage (sell and lease) state and communal assets. It was built on an open code, integrated with over 40 independent marketplaces and using different auction models to sell assets like real estate, loans, lease rights etc.

It is a two-tier system, where independent electronic marketplaces with brokerage functions are tier one. Tier two is a central database administered by ProZorro.Sale State-owned enterprise, where electronic auctions take place.

ProZorro.Sale received Citi Tech for Integiry Challenge (T4I) Award in 2017, C5 “Shield in the cloud award” in 2018 and Global Public Service Team of the Year award from Apolitico in 2019.

Among key prerequisites of success and reform irreversibility there are political will with transformation mandate, motivated and skilled team with one protagonist and “golden triangle” of state, business, and civil society integration.

Let us jumpstart five years back from now. No market in Ukraine, no transparent rules, millions of different assets, including non-performing loans and real estate. Insider trading, information asymmetry and chaotic efforts to preserve value of assets torn apart by different groups of influence distanced Ukraine extremely far from best practice. In other words – no civilized market with no chance to receive fair price for any assets, no control, no transparency and no trust.

That was the time when idea of ProZorro.Sale project was born.

It started off with a political mandate and responsibility. Then - careful assessment of existing risks, building an architecture of a solution (IT-logics and legal framework) with a small project team. Stakeholder coordination was a must from the very beginning as well. A clear result projection was envisioned at the start in order to be achieved in the future.

Solution build-up and modelling of development scenarios were crucial on the next stage as well as legal infrastructure build-up, establishment of working ties with all participants - stakeholders, team members, key personnel in institutions etc. Transparency International Ukraine owned the electronic trade system from the first day the project started and through all stages of its development before transferring it to the state-owned entity under Ministry of Economic trade and development.

Two principles of success – “golden triangle” and “everyone sees everything” were kindly borrowed from ProZorro.Procurement. To avoid a slight mess-up, we should distinguish two ProZorro projects in Ukraine. ProZorro.Sale runs different asset sales auctions for the state and generates cashflows. Prozorro. Procurement runs procurement procedures and saves budgets for the state.

Want to make an irreversible reform - create a new legal infrastructure within an existing one, gradually reaching from zero to the point when your new infrastructure fully replaces the existing one. A lot of reforms were halted because they were not properly integrated into existing legal framework. We went by the book and created a solid legal framework. Public offerings in sensitive data disclosure segments were used to provide greater legal comfort to the system. Another important element of the system was that transparent auction rules for electronic auctions were developed and accepted by all market players.

Four breathtaking months passed, and pilot stage was completed. We accumulated data and market feedback to assess the efficiency of the system and develop it further. A new truly unique auction model called Hybrid Dutch was created together with Kyiv School of Economics to speed up sales and efficiency (increase search of an asset market price).

To resolve possible disputes, we created a Digital Claims Committee. It was receiving feedback from the market, resolving disputes between different players and monitoring activities of our system. At this stage (2017-2018) the system revenue was 15+ UAH billions.

Small privatization auctions started in our system after amendments to law on privatization and respective sub-laws were drafted and passed.

A three-year project stage was completed by creation of a state-owned enterprise ProZorro.Sale (SOE), taking over electronic trade system administration and development. The system was transferred to state property from Transparency International Ukraine. Project team members became managers of the SOE. Inner build-up of procedures and departments started.

New markets – lease of state and communal property, timber sales, scrap metal and so on were being developed simultaneously.

In line with state corporate governance reform SOE Supervisory board was created in 2019 with main tasks being - protection of owner’s rights, creation of development strategy and further reform expansion. In other words – to build markets and trust.

Some lifehacks worth sharing looking back at a five-year reform marathon. Learn to delegate trust – from day one. Any successful reform starts from political will and transformation mandate. Forget about quick wins if you are looking for serious results (institutional transformations). Reality is far more complicated than in books about success stories. Prepare yourself for a long run marathon. True expertise, professionalism and agility are the key demands to your team members. Avoid simple copy-pasting of existing ideas and solutions. Always be target-oriented.

Believe and you will succeed.

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