Wrong Government decree caused a loss of about 4 billion drams to our economy

Wrong Government decree caused a loss of about 4 billion drams to our economy

After suffering a loss for two years, the government decided to lift the maximum demand of 15% in the procurement to Eurasian Economic Union countries

It required nearly 2 years for the public procurement responsible for understanding that the Government decree dated 30 January 2015 was wrong.  While after the adoption of this decree, the experts were declaring, gentlemen, your decision is wrong and Armenia will suffer from it.  The matter was the conformity of the public procurements with the requirements of the Eurasian Economic Union.  At that time, the government defined with a new decree, “If the sum of the maximum price and the quantity required for the purchase of given commodity presented by the bid shall not exceed the 70-fold of the base unit of procurements, then during the evaluation and comparison of the bids for this procurement, the participants who offer commodities of the Eurasian Economic Union member countries produce, have a 15 percent price advantage.”

Procurement expert Artak Manukyan, referring to the publication of “Aravot” on 31.01.2015 “The advantage will be given to 15% more expensive EaEU commodities in the state procurements”, said that in the case of 70 million-dram offer if a company is registered in the EaEU and presents the commodities of the Eurasian Economic Union countries, the price of which will be more expensive by 15% than the European or American commodity offered by other company, then our government will give the preference to 15% expensive commodity produced in the Eurasian economic Union.  While in Armenia, in the 99.9% of cases, local companies are participating in the public procurement which actually are the Eurasian Economic Union member state companies.

By this Government decree, the following takes place: if 2 Armenian companies are participating, let’s say, in the tender to buy new tires for the vehicles of the President’s staff, and if one of the companies presents European production tires and the other of Russian production, and the Russian will be 15% high in prices than the European, then the president’s office will buy the expensive Russian option.  Now, Finance Minister Vardan Aramyan assures that the requirement of 15% advantage will be lifted.

Economist Artak Manukyan, in an interview with Aravot said that this 15% price preference had no economic reasoning, and although the responsible of the then sphere were saying that therewith, the domestic manufacturers will benefit but the worst way to assist domestic manufacturers is the price priority.  “In the countries throughout the world, domestic manufacturers are assisted with finding a market, marketing support, logistics support, good credit terms, but never with a price advantage.  Unfortunately, it took 2 years to understand this but as they say, better late than never.”  In other words, the expert said that the reasoning of the government’s decree in those days was a myth.

Artak Manukyan assured that by his approximate estimates, during these 2 years, by using this 15% price advantage our economy loses about 4 billion drams, “Obviously, we have paid a higher price for the fact that it was produced in the Eurasian Economic Union member states. Furthermore, instead of the domestic manufactured product, we have greatly purchased Russian products.”  In other words, mainly the suppliers of Russian-origin products get the advantage of this price preferences.

One day, the responsible of public procurement realized that this decision should make them pay more money to other companies at the expense Armenian taxpayers.  Such a response was given by the Minister of Finance during the recent seminar on public procurement system, in response to the question of “Aravot” whether the 15% price advantage does not harm domestic companies to participate in the state procurements, and whether this advantage should not be lifted.  Mr. Aramyan noted that no discrimination should be applied even by the demand of international organizations, “The requirement of 15% price advantage was made for all EaEU member countries.  We saw that it does not serve its purpose, with the same instrument I give an advantage to EaEU companies and buy from them at 15 percent more price.  Why if I can buy the same quality European product and be happy with the price and quality.  It was not a good tool, we are not helping local companies and could also help EaEU companies.  Therefore, we decided to lift this requirement,” said Mr. Aramyan.

Note that recently the Cabinet made a decision to lift the requirement of the 15% advantage in public procurement.  Procurement expert Artak Manukyan opines that the public procurement system should be an initiator of the demand for innovations.  In other words, according to the expert, the government should try to stimulate the public procurement system with new ideas which unfortunately is not seen, “I am mentioning this because, in addition to standard products where it is normal that the price is the only criterion for the selection of the winner, we equally obtain non-standard products.  Let’s say, if the standard is bread, petroleum, and paper, here it is difficult to imagine an innovation, then why the innovation is not promoted in other cases,” noted the expert.  As a result, according to Manukyan, the public procurement system by large is not attractive, especially for SMEs, as a result we have an average of about 1.7 participants for years.

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