More lots, better competition, greater savings: The State Operator for Non-Lethal Acquisition (DOT) improves fuel procurement

The State Operator for Non-Lethal Acquisition (DOT), the Ministry of Defence’s procurement agency, is enhancing fuel procurement mechanisms, broadening business participation, and boosting competition in the bidding process. To advance the regional model, the next step was to strengthen it by increasing the number of lots. This decision focuses on attracting more participants and boosting the effectiveness of fuel procurement for the military.

“The state allocates substantial funds to supply the Armed Forces of Ukraine with fuel and lubricants. Specifically, in 2024, the DOT procured fuel and lubricants worth UAH 28.2 billion. Enhancing the regional-based model ensures an uninterrupted supply of fuel to the military,” said Glib Kanevskyi, Director of the Procurement Policy Department of the Ministry of Defence of Ukraine.

To recap, the DOT implemented a regional-based fuel procurement model last year, anticipating greater interest from market players due to the specificities of logistics chains in different regions. 

Under this model, the supplies were divided into four regions: Eastern, Southern, Central and Western. 

Each region is further divided into the following oblasts:

• Eastern region (Zaporizhzhia, Dnipropetrovsk, and Kharkiv oblasts);
• Southern region (Vinnytsia, Kirovohrad, Mykolaiv, Odesa, and Kherson oblasts);
• Central region (Zhytomyr, Kyiv, Poltava, Sumy, Cherkasy, and Chernihiv oblasts);
• Western region (Volyn, Zakarpattia, Ivano-Frankivsk, Lviv, Rivne, Ternopil, Khmelnytsky, and Chernivtsi oblasts).

The number of bidders and the level of savings during the reverse auctions validated the effectiveness of this procurement model. That is why the State Operator for Non-Lethal Acquisition (DOT) is further developing the regional-based model to enhance competition and optimize logistics for potential suppliers. Previously, each region covered between four and six supply points. From now on, the number of lots will be increased twofold: instead of four large regional lots, there will now be eight smaller ones, each with fewer supply points (between one and two).

“The fuel market in Ukraine faces significant security risks due to the ongoing threat from russia. Therefore, suppliers refrain from storing large volumes in Ukraine. Deepening the regional-based model helps mitigate security risks for businesses by lowering the fuel volume required for bidding. This opens up opportunities for new market players and increases the level of competition, which, in turn, positively impacts the cost of products for defense needs,” said Maryna Yeremieieva, Director of the Fuel and Lubricants Program at DOT.

As a result of the Arctic diesel fuel procurement biddings, the average savings compared to the expected cost was 2.7% for lots with only one participant and 7.5% for lots with more than two participants. This resulted in additional savings of UAH 15.8 million in monetary value. The overall savings in the Arctic diesel fuel auctions totaled more than UAH 82 million.

It is important to note that Arctic diesel fuel has a higher tolerance to low temperatures compared to winter diesel fuel and is less prevalent in the Ukrainian market. At the same time, starting in April, the State Operator for Non-Lethal Acquisition (DOT) will begin supplying summer fuel, which, according to our forecasts, should increase the participation of other market players in the auctions.