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THE refor guiTHE reforms guide


THE reforms guide The book for

understanding seventeen key reforms in Ukraine The publication was prepared by the Internews Ukraine NGO with the financial support of The Finnish Embassy in Ukraine

Kyiv — 2017


Any part of this publication can be used, whether partly or fully only after previous agreement with NGO Internews Ukraine and under the condition of source reference. Dear readers, you have the Reforms Guide in your hands, and it is going to help you to figure out the tricky labyrinth of reforms started with the Revolution of Dignity. The government took responsibility to reform 62 projects and fixed it in The Strategy for Sustainable Development “Ukraine 2020”. After the survey, we’ve chosen 17 projects society was most concerned about, and then analyzed background, current situation and main ‘betrayals’ and ‘wins’ for each of them. The Reforms Guide will lead you through little but very important part of the history of the Ukrainian country. The history of the fight for freedom, national identity, economic and territorial integrity as well as the human rights and freedoms. Read this Reforms Guide to know not only what the government has to do for us, Ukrainians, but also to see what we can do for our country. The Reforms Guide is also an informational and analytical site — reformsguide.org.ua where you can review all the materials about reforms online. We sincerely thank the Embassy of Finland in Ukraine for financial support which enabled us to create the project and the Reforms Guide. Editor in chief Anna Kyslytska Editorial board Nataliia Pedchenko, Andrii Kulakov Team of authors Bohdan Butkevych, Iryna Mokrytska, Dmytro Zinchuk, Kramarenko Oleksandr, Zoia Zvyniatskivska Expert board Yevhen Radchenko, Yuliia Kyrychenko, Oleksandr Liemienov, Zoia Zvyniatskivska, Volodymyr Kuprii, Roman Kuibida, Mykola Khavroniuk, Volodymyr Dubrovskyi, Andrii Zablotskyi, Valentyn Badrak, Hlib Kanevskyi, Zoriana Chernenko, Oksana Kuziakiv, Olena Pavlenko, Vitalii Kravchuk Design and page proofs Yuliia Chernous Editing and correction Iryna Chyrkova Also worked on project: Nataliia Sad, Tetiana Matychak Photo materials Photographs used in the publication were provided by the government portal and regional representative offices and departments. This edition is created with financial support of the Embassy of Finland in Ukraine. Contact us NGO Internews Ukraine 04112, Kyiv-112, Ryzka str, 15 e-mail: info@internews.ua +38 044 458 44 40 +38 095 85 707 13 www.internews.ua ISBN 978-617-502-108-8


From the editor The Guide is the most important book for a traveler, a helper for the one who came to the country for the first time, and is still wandering strange streets, and meeting people he or she has never seen before. So the first mission of the guide – to introduce a new world. Thinking about the project of the Reforms guide and this book particularly, we thought as travelers or even explorers: so, we see a new country, strange streets, and unknown faces. All this, young and fresh, was pushed from darkness to light by ourselves three years ago. So we, the Ukrainians, became creators of the new. New processes, changes, speed, and scale of which are impossible neither to embrace nor comprehend if we are alone. And that is the second mission of the Guidebook – to show the common way in the new world. The reform process is never simple: widespread truism “quickly, quality, cheap – choose two of the options” perfectly describes the very essence of any reform. Also, the truth is we cannot build our country with another hand. Reforms started with the Revolution of Dignity, changes we owe to ourselves, to our children and our parents; depend not on the people in cabinets but on us – creators and consumers of these changes. That’s why we have to put up with a pace so those we have chosen to rule the country don’t turn our Changes into other promises, failed attempts, lost possibilities. The book you have in your hands is only a tiny part of the great movement, the millions’ will. We hope, you’ll understand the sense of reforms better, research reform processes deeper, and watch local power responsible for the execution of changes while reading it. But the most important – you’ll become changes yourself.

About the project of the Reforms guide

An informational and analytical project about seventeen key reforms, which helps to understand the complicated process of the political and social changes started in Ukraine in 2014. The project consists of an online part – website: reformsguide.org.ua, where journalists collected information about the progress of reforms in the country during more then 7 months; and paper edition you hold in your hands. The project is provided by NGO Internews Ukraine due to support of the Embassy of Finland in Ukraine.

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The project’s experts

Yevhen Radchenko — the development director of NGO Internews Ukraine, main expert of the group of Reanimation Package of Reforms on issues of election laws. Yuliia Kyrychenko — the head of projects on a constitutional right in the Centre of Policy and Legal Reform. Oleksandr Liemienov — the head of anti-corruption reform group in the Reanimation Package of Reforms, the head of the coalition department of non-government organizations ‘Declarations under control’. Zoia Zvyniatskivska — co-creator of the non-government organization ‘Parental control’ Volodymyr Kuprii — a member of the Commission on issues of the highest body by the National Agency of Ukraine on Civil Service. Roman Kuibida — the deputy chairman of the board of the Centre for Policy and Legal Reform, a member of the Public integrity Council and the Judicial Reform Council. Mykola Khavroniuk — the science development head of the Centre for Policy and Legal Reform. He represents interests of the Supreme Court of Ukraine in the Constitutional Court. Volodymyr Dubrovskyi — a senior economist of the Centre for social and economic researches CASE Ukraine, an expert in reforming tax and budget spheres in the Reanimation Package of Reforms. Andrii Zablotskyi — a head of the ‘Agriculture’ sector, Better Regulation Delivery Office, an advisor of the law firm ‘Sayenko Kharenko’. Valentyn Badrak — a director of the Center of army, conversion and disarmament studies. Co-author of the first in Ukraine book about weapon business ‘Cult: weapon business in Ukrainian style’ Hlib Kanevskyi — a head of corruption prevention department in the public organization the ‘Eidos Centre for Political Studies and Analysis’. Zoriana Chernenko — a head of the board of the Ukrainian medical and legal association. The leading expert on issues of medical reform in the Reanimation Package of Reforms. Oksana Kuziakiv — an executive director of the Centre for Contemporary Society Studies, a structural unit of the Institute for economic research and policy consulting. Olena Pavlenko — a president of the analytical center DiXi Grouр, founder of the site Ukrainian energy. Vitalii Kravchuk — a senior research fellow at the Institute for economic research and policy consulting.

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About Internews Ukraine

A non-government organization providing democracy and civil society development via support of independent and pluralistic mass media. The mission of Internews Ukraine — promote spreading European values in Ukraine by making successful media. Main Internews Ukraine goals are the empowerment of independent and pluralistic mass media, improving standards of journalism; making the legal basis of media regulation in Ukraine better; promoting the use of new media (online ones and social networks); achieving efficient cooperation between media, NGOs, and power as well as supporting of European integration for Ukraine. To achieve these goals Internews Ukraine effectively helps to develop proper democracy and civil society in Ukraine. Current Internews Ukraine projects and events are on the site Internews.ua.

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rrupm The g nance nov and ant co tion re The governance renovation and anti-corruption reform. Preconditions

Corruption could be considered a disease of the Ukrainian politics if it wasn’t its typical feature. Authoritative international organization Transparency International gave this term a definition – ‘corruption’ is an abuse of power for personal goals. At the end of 2016, Ukraine had no political leader who was more trusted


tion goverrevation tiorrupeform than mistrusted. Social survey results provided by the Ilko Kucheriv ‘Democratic initiatives’ funds, from December 2016, tell us so. The Transparency International statistics on Ukraine from 1998 is undeniable proof of stable high performance of corruption at the time of independence.


Transparency International Corruption Perceptions Index Place of Ukraine in rating

Quantity of countries in rating

1998

69

85

1999

75

99

2000

87

90

2001

83

91

2002

85

102

2003

106

133

2004

122

146

2005

107

159

2006

99

163

2007

118

180

2008

134

180

2009

146

180

2010

134

178

2011

152

183

2012

144

174

2013

144

175

2014

142

175

2015

130

168

2016

131

176

Year

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In 2016, Ukraine was on 131st out of 176 places in corruption level, along with Russia, Kazakhstan, Iran, and Nepal. That year, the first place was given to the Kingdom of Denmark. Meanwhile, according to the Eurostat data, the quantity of people who use the Internet to communicate with state services – 88%. It’s the highest index among the European Union countries. And it is not a coincidence. Countries demonstrating low indexes of corruption in authorities usually have high indexes of e-government using. As the less a citizen contacts with state servants and the more processes are done by an objective computer program, the fewer chances there are for officials of any level to use their positions for personal benefits, manipulate with state finances or demand bribes.

Place in rating ‘Corruption Perceptions Index’ *

Quantity of people using the Internet to communicate with public services **

Denmark

1

88%

Norway

6

85%

Finland

3

82%

Sweden

4

78%

Netherlands

8

76%

Country

* Transparency International data in 2016 ** Eurostat data in 2016

place out of 176 places Ukraine was in corruption level, along with Russia, Kazakhstan, Iran, and Nepal in 2016

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The real part of people involved in corruption relationships: 2015 2011

72,4% 70,7%

It should be noted that high corruption level is demonstrated in all the ex-Soviet republics. The reason is command centralized system of government management, which grew several generations of officials who are used to their privileged position in society. On the other hand, a deficit of everything made the working class with no privileges be sly to get material benefits. So, the system where people were forced to support corruption for authorities and feed officials with bribes. Those, in their turn, multiplied legislative collisions and maximally complicated all the administrative processes to hide power abuse. The system didn’t disappear with the fall of USSR, vice versa, business mixed with politics creating remarkably durable symbiosis. Sociological public opinion researches on the level of corruption in different government bodies show not only mistrust of society, but also services people are used to bribing, and use personal contacts to get help from, so called ‘nepotism’.

60,6% of recipients

think the president is the most responsible for fighting corruption

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As for the level of trust in government in 2015, the lowest indexes show: Prosecutor's office 3,5% Committee on

corruption prevention 6,1%

National anti-

corruption bureau

6,9%

Lustration Committee

7%

Security Service of Ukraine 7,7% Court system

3%*

Verkhovna Rada of Ukraine

5% **

Cabinet of Ministers of Ukraine 5,9%*** Regional authorities 6,4%**** President

10,3%*****

Of course, the Ukrainians’ opinion on general corruption level and its tendencies are changing. Some think bribery is continually growing, other believe this relationship system is stable, and some even suppose the fight for the honest government didn’t go in vain. Percent of these categories of people in the last years changed the following way: Anyway, most of the adult Ukrainian people (85,5%) are convinced that corruption is spread too much in society.

* in 2011 this index was 7%; ** in 2011 — 7,7%; *** in 2011 — 9,2%; **** у 2011 — 10%; ***** in 2011 — 14%

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The most corrupted state institutions, in people’s opinion (leaders of rating almost didn’t change through the years of research which is evidence of how deep corruption got in these fields):

2007

2009

2011

2015

49%

59,3%

60,3%

66%

Police

54,2%

65,4%

59,1%

63,1%

Prosecutor’s office

42,9%

51,6%

51,1%

62,4%

Medical institutions

54%

54,2%

60,3%

58%

42,8%

38,6%

42,1%

53%

Court system

Customs

According to data for 2015, 65,5% of people experience corruption at least once a year. In fact, there’s good news too: this index dropped from 2007 on. So, people experienced corruption in:

2009

2011

62,5%

60,1%

These numbers are given in the research ‘Corruption situation in Ukraine. Comparative analysis of nationwide researches: 2007, 2009, 2011 and 2015’, performed by Kyiv International Institute of Sociology in July-October 2015. Sad statistics say all the previous efforts to fight corruption have been unsuccessful. And there have been a lot of them in the years of independence. In May 1993, the Verkhovna Rada issued a decree ‘About high priority measures for fighting organized crime and corruption’, which should have been followed by a bunch of laws for fighting corruption in different fields. But, a part of them was issued only in 2002, and none of them was efficient. In the next years, there was a row of the president’s decrees about fighting corruption in different fields signed, as well as about establishing investigation groups and demand to declare income for officials, and other anti-corruption measures. But the first big anti-corruption program was the National program of fighting with corruption confirmed in April 1997 by the then president

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Leonid Kuchma. This program was the first to confirm the previous attempts to fight corruption had failed, laws passed before didn’t work, and bribery was such a big problem it became a danger to national security. It should be noted that corruption was considered as a part of organized crime for a long time and only the program of 1997 confessed the existence of high-level corruption. In the Concept of fighting corruption in Ukraine ‘On the way to virtue’ approved by the president Viktor Yushchenko in September 2006, also systematic nature of corruption and unsuccessful attempts to fight it in the previous years were confessed. The next anti-corruption program, approved in October 2011 by the then president Viktor Yanukovych was even sharper in judging highlevel corruption. This is about the National anti-corruption strategy for 2011–2015. It’s important to mention the concepts were improved, and every time description of problems from corruption, its forms and methods became more and more concrete. Although programs were created with international institutions recommendations, they had no solid plan of measures, monitoring systems and results’ evaluation.

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Current state of reform

In October 2014, a new Anti-corruption strategy for 2014–2017 was accepted, where generally were written elements the previous programs were missing: execution indexes of anti-corruption measures, monitoring, and control system. The strategy points out the following problems, related to corruption. The inefficiency of anti-corruption bodies. In fact, the Security Service of Ukraine, the Prosecutor General's Office, and the National Police have anti-corruption functions. Also, the National agency on corruption prevention, the National anti-corruption bureau of Ukraine, the Specialized anti-corruption prosecutor’s office has been created. Besides, there’s the Verkhovna Rada Committee on Corruption Prevention and Counteraction and the National Council for Anti-Corruption Policy; the Cabinet of Ministers has its government commissioner on anti-corruption policy. But functions of anti-corruption fight participants’ do not match with international standards. These institutions are not completely independent from political influence, and some of the anti-corruption measures are not controlled by any office. Also, the public doesn’t take part in anti-corruption policy execution. Corruption-prone elected people. People’s servant who came to government in a dishonest way, by bribing people and garbling election results, has shady data about politic party financing and campaign, and in the end, he lobbies his own business interests and ignores state and people’s interests. Dishonest elections – the first and most important phase where corruption has a chance to get into a state machine. Legislation regulating political parties financing has to minimize all the ways for corruption to get into bodies of power along with dishonest people. You can see details of this in the part ‘Election laws reform’.

functions of anticorruption fight participants’ do not match with international standards

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Dishonest public servants. Standards of going to public service and serving should be improved to not let public servants abuse power given by the government. Also, classification of positions, delimitation of political and administrative positions, salaries, and discipline responsibilities should be reformed. To make the Ukrainian legislation closer to international ones, they adopted a new law in December 2015. The absence of transparency in central executive authorities works as well as in state enterprises. In fact, the public lacks information about their activity. Also, now there’s no monitoring of anti-corruption measures done by these structures. See more about that in parts ‘Public administration reform’ of and ‘Management of state property reform’. Corrupted courts, the prosecutor’s office, and internal affairs bodies. If we take anti-corruption reform as mostly reform of ideology and conscience, a physical foundation for it is court reform and police reform. To renew trust for the court system, to build independent and fair court system can be a guarantee of compliance with laws, whether it is a public servant or an average citizen.

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Anti-corruption strategy has exhausted itself in three years

Adjusting laws regulating prosecutor’s office and internal affairs bodies work in accordance with international standards is important, too. See more about that in ‘Judicial reform’. Join of business and power. Corruption in Ukraine is going to last until politics are still businessmen, either directly or indirectly through their relatives and figureheads. And until business influences political processes with the power of money, especially legislation. It is possible to divide politics and business by creating proper laws, providing transparent use of public resources, free competition, transparency of business, and property relationships etc. The invisibility of corruption. Access to information is the most efficient way to fight corruption; it allows journalists to conduct independent investigations and activates society. Current law about access to public information is confirmed progressive by international experts, but its execution is on rather a low level. As a matter of fact, access to public information is really limited. Reversal of punishment for corruption. In May 2014, they passed a law ‘About making changes to some legislative acts of Ukraine in the sphere of state anti-corruption policy due to the Plan of actions on the European Union liberalization of visa regime for Ukraine’. Due to this law, the system of prevention and counteraction was improved and now it mostly matches international standards. But current legislation base is missing proper implementation. Public tolerance to corruption. Corruption blossoms, maybe, primarily because of Ukrainian society tolerance to the fact of its existence; people agree with power abuse and breaking laws if the result of it – citizen’s just a midget profit. That is why forming people’s negative attitude to corruption is essential in the Anti-corruption strategy and in the whole anti-corruption reform, as without society hostile to corruption, it will not be possible. Unfortunately, the Anti-corruption strategy has exhausted itself in three years. It should have been structurally changed, given new approaches, and again, guaranteed with the implementation of new laws. For example, the law about access to public information is progressive and relevant, but human factor puts the brake on its implementation.

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Corruption increased: 2015 2011 2009

56% 42%

34%

Corruption level didn’t change: 2015 2011 2009

29% 39% 45,5% Corruption level dropped: 2015

5% 11%

2011

2%

2009

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Inform about the fact of corruption

0-800-507-001 — the Prosecutor General's Office of Ukraine hotline on violation of rights of individual entrepreneurs and business entities 0-800-501-482 — the Security Service of Ukraine hotline on especially dangerous violations against the country 0-800-507-309 — the government phone hotline (044) 256-11-10 — the Ministry of Internal Affairs of Ukraine reception (044) 256-00-31 — the National Agency of Ukraine on Civil Service direct phone line Also, there’s a list of phone numbers of regional services to inform about corruption violations on the Anti-corruption portal acrc.org.ua. In 2016 the European Union decided to give about 16 million euros for anti-corruption measures in Ukraine. At the same time, in April 2017 the International Monetary Fund once more approved the program the Ukrainian government accepted to fight corruption, and informed, that, unfortunately, now there are no concrete results achieved, and corruption level, according to international organizations data, is increasing. As well as society displeasure.

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Specialized anti-corruption bodies and field if their competence There’s a process of reforming old and creating new anti-corruption bodies and state structure components going on, as a part of anti-corruption reform. These processes don’t go smoothly because of scandals and intrigues, attempts of manipulation, multiple violations and conflicts of interests between organizations and representatives of the judiciary, the prosecutor’s office and the highest authorities.

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Supreme Anti-corruption Court

In July 2016, they passed a law ‘About the judicial system and status of judges’ which provides creating of the Supreme Anti-Corruption Court. The new court must have started till March 2018, this obligation is set in a memorandum with the International Monetary Fund. For now, this process is paused as there some laws need to be passed. It’s curious one of the IMF demands is the presence of international experts in qualification board choosing judges to the team of the Supreme Anti-Corruption Court. Results of work of the Special anti-corruption prosecutor’s office and the National anti-corruption bureau depends on the functioning of the Supreme Anti-Corruption Court, so until it’s created, work of these bodies are vain. Also, the EU representatives and a head of the EU anti-corruption initiative supported the idea of creating the Supreme Anti-Corruption Court. On the other hand, the Supreme Anti-Corruption Court is just a part of structure fighting corruption, as well as the National anti-corruption bureau and the Specialized anti-corruption prosecutor’s office. And this structure is yet to be built.

Specialized anti-corruption prosecutor’s office

In February 2015, they changed the law about the prosecutor’s office and allowed forming of this special division in the system of the Prosecutor General's Office of Ukraine. According to the law, functions of the specialized prosecutor’s office are the following: to monitor the National anti-corruption bureau keeping within the law while holding judicial investigation; to support the prosecution on behalf of a state in corresponding cases; to represent citizen’s interests or the state ones in the court in cases, provided by this law and connected to corruption or corruption violations. The IMF and the Ukrainian government have some arrangements on the Specialized anti-corruption prosecutor’s office, which has to provide independence of the anti-corruption institution. They have been written in the law passed in January 2016 about changes in the law ‘About the prosecutor’s office’– about providing transparency in work of the Specialized anti-corruption prosecutor’s office according to the IMF recommendations. Head of Specialized anti-corruption prosecutor’s office Nazar Kholodnytskyi subordinates directly to the Prosecutor General of Ukraine and, he is his deputy. Official page of the prosecutor’s office on Facebook: www.facebook.com/sap.gov.ua.

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National anti-corruption bureau of Ukraine

In April 2015, the president signed a decree about creating the National anti-corruption bureau. It is law enforcement agency which has responsibilities to investigate and prevent corruption violations committed by authorities. The current head of NABU – Artem Sytnyk. On May 2017, the bureau has been investigating 333 criminal cases. Bureau reports effective work which stops being effective on the phase when criminal cases get into judicial institutions, where they hang about for months. The bureau phone hotline — 0 800 503 200, website — nabu.gov.ua

National agency on corruption prevention

In October 2014 they passed a law ‘About corruption prevention’, which, among other things, provided creating of the National agency on corruption prevention. But officially, the NACP started working only in August 2016, and under pressure. The most important function of the agency is checking public servant’s declarations and revealing information about the fact of corruption operations. The NACP is the agency providing the Only state register of declarations. The NACP should be a preventive institution, but it is not now. The head of the NACP – Nataliia Korchak, website — nazk.gov.ua

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State bureau of investigations

The law about the State bureau of investigations was passed in November 2015, but anti-corruption law-enforcement agency able to investigate crimes of the highest level still doesn’t exist. According to the Criminal code of Ukraine, it must be done until November 2017. SBI will do authorities crime investigations: judges, ministers, military servants, enforcement officers, workers of the NACP, the Specialized anti-corruption prosecutor’s office etc. After creating the SBI they will pass prosecutor’s office investigation functions to it. Ukrainian experts unanimously tell us that creating the SBI is essentially important for fighting corruption on the highest level, but to be effective it must be independent. Up to date, functions of the SBI are done by the Prosecutor General's Office of Ukraine.

There's a process of reforming old and creating new anti-corruption bodies and state structure components, as part of the anti-corruption reform

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Renovation of power

In 2014, going by society’s demand, Verkhovna Rada passed the law ‘About cleaning of power’. Some of its points were already in laws passed before the Revolution, but generally, it is a unique document for Ukraine, the first of its kind. This law defines rules of leading lustration among people whose actions or inactions helped the president Yanukovich to usurp power imperiled the national security of Ukraine and violated people’s constitutional rights and freedoms. The law is used to the government workers, it lists reasons for the government worker to be subjected to lustration. Public deputies and judges do not get under this law. The process of checking will last ten years from the day the law takes the action. Order of inspections and list of inspection bodies are approved by the Cabinet of ministers of Ukraine decree from 16th of October 2014 – ‘Some issues on realization the Ukrainian law “About cleaning of power”’. Current inspections and their results are published on the government portal kmu.gov.ua. The Ministry of Justice takes responsibility for lustration process. In May 2017, the head of Department on lustration of Ukraine, Anastasiia Zadorozhna, informed in an interview to Deutsche Welle, that power is 98% clean. As she said, there should have got 5000 people under lustration after the law took the action. But how much power has really been cleaned is still a rhetorical question, an average citizen feels corruption lowered on examples: while drawing up documents for building, or while communicating with power representatives – enforcement officers or patrolmen.

The process of checking will last ten years from the day the law takes the action

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1993 May

the Verkhovna Rada passed a decree ‘About measures of high priority on fighting organized crime and corruption’

1994 August

the Ukrainian president’s decree ‘Issue of strengthening the fight of corruption and other crimes in economy’

1995 October

1998 April

the Ukrainian president’s decree ‘About the Concept of fighting corruption for 1998–2005’

2006 January

the Ukrainian president’s decree ‘About the Plan no measures of responsibilities and obligations of Ukraine appeared from its membership in the Council of Europe’

September

the Ukrainian president’s decree ‘About the concept of fighting corruption in Ukraine “On the way to virtue”’

the law ‘About fighting corruption’ came into effect

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2010 2015 February

the Ukrainian president’s decree ‘About creating the National anticorruption committee’

2011

April

the National anticorruption bureau of Ukraine was created

September

the specialized anticorruption prosecutor’s office by the Prosecutor General's Office of Ukraine was created

October

the Ukrainian president’s decree ‘About the national anti-corruption strategy for 2011–2015’

2014 October

the Anti-corruption strategy for 2014–2017 approved, as well as anti-corruption laws “About the National anti-corruption bureau of Ukraine”, ‘About corruption prevention’ etc. the National Council on anti-corruption policy was created as an advisory body for the President of Ukraine

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rm Cons t nal r fo Constitutional reform. Background

The Constitution (June 28, 1996) regulates the rights, freedoms, and duties of a person and a citizen, holding of elections and referendums, the activity of the Verkhovna Rada, the President, the Cabinet of Ministers and other supreme executive bodies, the activity of courts, the territorial organization, and local self-government. Work on the Constitution of Independent Ukraine began with the adoption of the Declaration on State Sovereignty on July 16, 1990. In October 1990, in order to establish the Basic Law, the Verkhovna Rada of Ukraine established a constitutional commission, headed by

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nal r f stitutioreorm the then-chairman of the Ukrainian SSR Leonid Kravchuk. The first version of the concept of the Constitution included the establishment of a bicameral parliament and presidential republic, but this project was not supported by either deputies or civil society. In October 1993, the committee introduced a new concept; however, due to political disagreements between different parties, this version was also not supported. In November 1994, a new constitutional commission was created and headed by the newly elected President Leonid Kuchma and the Chairman of the Verkhovna Rada Oleksandr Moroz.

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Since the future form of the government was the main issue of concern, the chairmen of the commission could not reach a common agreement. The concept proposed by Leonid Kuchma gave significant rights to the president and it was not supported by the parliamentarians; only a document developed by a special working group of the commission was finally put to a vote and approved. According to the Constitution of 1996, Ukraine has become a presidentialparliamentary republic with broad powers of the president. This form of government was retained until the amendments in December 2004. During this time, several attempts were made to amend the Basic Law in order to reduce the power of the president, but none of them proved to be successful. In April 2000, on the initiative of President Leonid Kuchma, who was re-elected for a second term, an all-Ukrainian referendum was held to strengthen the presidential power. It was suggested to vote for the following proposals: the formation of a two-chamber parliament (supported by 81.68%); broadening the grounds for early termination of powers of the Verkhovna Rada of Ukraine (84.69%); restriction of parliamentary immunity (89%); decrease in the total number of people's deputies from 450 to 300 (89,91%). 79% of the citizens took part in the voting, but neither the results of the will of the people nor the high turnout (in some regions more than 100%) did not help to introduce any of the proposed changes. The president's initiative was criticized as unconstitutional. The opposition deputies applied to the Constitutional Court with appeals. In the end, the results of the referendum were translated into a sphere of sociological research. According to the decision of the Constitutional Court, no amendment to the Basic Law could be made without parliamentary support. In 2000-2001, Leonid Kuchma's rating was steadily falling: the "cassette scandal" and the killing of journalist Georgiy Gongadze were directly linked to the president. The opposition and civil society organizations launched a series of protests — "Ukraine without Kuchma". In December 2002, a temporary special commission of the Verkhovna Rada was established in order to process draft laws amending the Constitution. On December 8, 2004, one of these bills was adopted, providing the reduction of the president's powers. Such an about-face is explained by the fact that Leonid Kuchma's second presidential term was reaching the end, and he wanted to strengthen his influence on the political situation in the country after leaving the presidential armchair. Ukraine became a parliamentary-presidential republic.

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The Revolution of Dignity and the overthrow of the Yanukovych led to another significant change in the Constitution The change of power led to another attempt to change the law, which is traditionally considered the most stable. In December 2007, on the proposal of the new President Viktor Yushchenko, a National Constitutional Council was created. But the concept developed by the council was not supported by the Parliament, after that the council itself has ceased to exist. However, an attempt of the next Ukrainian President Viktor Yanukovych was successful. In September 2010, at the request of 252 people's deputies, the Constitutional Court repealed the amendments introduced to the Basic Law in December 2004 and reinstated its previous version. Thus, the previous Constitution was restored. It should be noted that the authority to amend the Constitution is the exclusive competence of the Parliament and the Ukrainian people and is not the authority of the Constitutional Court. In March 2014, the Prosecutor General's Office initiated a criminal proceeding for the seizure of power by Viktor Yanukovych in 2010. The explanation to the case says: "It was established that the Constitution of Ukraine was changed by Viktor Yanukovych in 2010 through unconstitutional means, thereby seizing the power." So, in 2010, Ukraine returned to the presidential-parliamentary form of government with broad powers of the president. During the presidency of Viktor Yanukovych, the Constitution of Ukraine was facing challenging times. Thus, in February 2011, the term of office of the President, deputies of the Verkhovna Rada and deputies of local councils was extended to 5 years. In September 2013, regular changes were made in the part of the regulation of powers of the Accounting Chamber. As a result, it received the right to control the funds flow to the state budget, and not only its expenditure. The Revolution of Dignity and the overthrow of the Yanukovych led to another significant change in the Constitution: on February 21, 2014, the Verkhovna Rada recognized the decision of the Constitutional Court of 2010 unconstitutional. Practically, the Constitution of 1996, as amended in 2004, 2011, 2013, and 2014, was restored. The form of government was again changed to the parliamentary-presidential.

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The current course of the reform

The Strategy for Sustainable Development “Ukraine-2020”, presented by the government in January 2015, identifies constitutional reform as one of the 62 necessary reforms. According to this document, the ultimate goal of the reform is the adoption of a new Constitution and the appropriate changes to all legislation. As a result, the form of government and the administrative-territorial structure should be changed. This is the so-called reform of the power triangle (president — government — Parliament): delimitation of their responsibilities and a list of duties, as well as decentralization of power. Moreover, constitutional reform is identified as a top-priority in the treaties concluded between Ukraine and the European Union, the European Atomic Energy Community and their Member States. That is, the implementation of this reform is one of the conditions for Ukraine's accession to the EU. In March 2015, Ukrainian President Petro Poroshenko signed a decree on the creation of a constitutional commission. Volodymyr Groysman, the Speaker of the Verkhovna Rada, has been nominated as Chairman. In June 2015, this commission agreed on a draft Constitutional Reform on Decentralization. Actually, since the end of 2014, the creation of amalgamated territorial communities has begun, and the first elections of the heads were held. That is, the reform of decentralization has begun. But there is no constitutional ground for these actions, as the corresponding changes to the provisions of the Basic Law on the administrative-territorial division of Ukraine, local self-government and the executive organization on the ground have not been adopted yet. In June 2016, constitutional changes in the area of justice were adopted, which is the basis for judicial reform and reform of the Constitutional Court. Today, the parliament is working on legislative regulations of these constitutional changes. In addition, the Constitutional Commission has developed a draft amendment to the Constitution as regards the human rights. In May 2017, the President instructed the Constitutional Commission to initiate work on the drafting of amendments relating to the status of The Autonomous Republic of Crimea.

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Constitutional reform

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The power triangle and the distribution of powers

The Revolution of Dignity has made a lot of demands for power as such. In particular, it was about the governance reform and the redistribution of powers of the president, parliament, and government, which have to democratize the power in Ukraine and bring it closer to the best standards of the EU member countries, where officials of any rank serve not their personal interests, but interests of each person, as the whole government does, and the power belongs to the people and can’t be usurped by state bodies. So far, no constitutional changes in the powers of the Parliament, the president, the government have been implemented. Let us consider what powers they have now.

The powers of the President

The President is the head of the state and the guarantor of the Constitution, the term of his authority is five years for no more than two consecutive terms. According to the current Constitution, the main powers (and hence the area of responsibility) of the President of Ukraine are as follows: • To represent the country in international affairs, to manage the foreign policy activities of the state, to conduct negotiations and sign international treaties. • To decide on the recognition of foreign languages. • To appoint and dismiss heads of diplomatic missions of Ukraine. • To decide on the holding of an all-Ukrainian referendum on constitutional amendments. • To decide on holding early parliamentary elections. • To terminate the powers of the Verkhovna Rada. • To make a submission on the appointment of the prime minister, on the proposal of the coalition.

The Revolution of Dignity has made a lot of demands for power as such

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• To appoint and dismiss the Prosecutor General with the consent of the Verkhovna Rada of Ukraine. • To appoint and dismiss one-half of the council of the National Bank of Ukraine. • To appoint and dismiss the High Command of the Armed Forces and other military formations, to administer the national security and defense sector. • To head the National Security and Defense Council of Ukraine. • To appoint a one-third of the composition of the Constitutional Court. • To sign laws passed by the Verkhovna Rada. • To veto laws adopted by the Verkhovna Rada (except constitutional amendments), and their subsequent return for reconsideration.

The powers of the Verkhovna Rada

The Verkhovna Rada is the sole legislative body of Ukraine. Under the Constitution, the Parliament consists of the 450 people's deputies of Ukraine; their term of office is 5 years. People's deputies of Ukraine may not possess any another representative mandate, be in the civil service, hold other paid positions, be engaged in other paid or business activities (except for teaching, scientific and creative activities), to be a member of the governing body or supervisory board of a profit making enterprise or organization. In the Verkhovna Rada, according to the results of elections, a coalition of parliamentary factions is formed. It includes the majority of people's deputies from the constitutional composition of the Parliament. The coalition offers the president candidates for ministers and the prime minister. The main powers of the Verkhovna Rada: • Amendment to the Constitution. • Adoption of laws. • Appointment of a referendum. • Approval and control over the implementation of the State Budget. • Definition of domestic and foreign policy. • Approval of nationwide programs for economic, scientific and technical, social, national cultural development and environmental protection. • Convene the Presidential elections in Ukraine. • Declaration of the state of war and peace on the proposal of the President; approval of the president's decision to use the Armed Forces of Ukraine. • Removal of the President of the state from office via impeachment. • Consideration and decision-making on approval of the program is the action of the Ukraine’s Cabinet of Ministers. • Appointment on the proposal of the President and decision on the resignation of the Prime Minister and other members of the Cabinet of Ministers of Ukraine; control over the government activities. • Adoption of decisions on granting and procurement of loan and economic assistance, control over its use.

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• Appointment and dismissal on the proposal of the President of the Chairman of the National Bank of Ukraine and half of the composition of the National Bank Board. • Appointment and dismissal of members of the Central Election Commission on the proposal of the President. • Approval of the overall structure, size, and functions of the Security Service of Ukraine, the Armed Forces of Ukraine and other military units established in accordance with the laws of Ukraine and also the Ministry of Internal Affairs. • Granting consent for the appointment and dismissal by the President of the Prosecutor General; expressing distrust to the Prosecutor General, resulting in his resignation from office. • Establishment and dissolution of districts, establishment, and change of borders of districts and cities, changing the hierarchy position of settlements to cities, naming and renaming of settlements and districts. • Appointment of regular and special elections to local self-government authorities.

Powers of the Cabinet of Ministers

The Cabinet of Ministers is the supreme body of the state executive power, subordinated and accountable to the Verkhovna Rada. The Prime Minister, as well as the Minister of Defense and the Minister of Foreign Affairs, is appointed by the Verkhovna Rada on the proposal of the President. The main powers of the Cabinet of Ministers are: • To maintain the state sovereignty and economic independence of Ukraine; implementation of the internal and external policy of the state. • To make provisions for the protection of human and civil rights and freedoms. • To ensure the implementation of financial, pricing, investment and tax policies, policies in the areas of labor and employment, social protection, education, science and culture, environmental protection, environmental security and environmental management. • To develop and implement national programs of economic, scientific and technical, social and cultural development of Ukraine. • To manage the objects of state property in accordance with the law. • To develop a draft law on the State Budget and ensure its implementation. • To direct and coordinate the work of ministries and other bodies of executive power.

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Adoption of laws in Ukraine

According to the Constitution, the right of legislative initiative in Verkhovna Rada belongs to the President, People's Deputies and the Cabinet of Ministers. After the Parliament adopts the law, it is sent to the President for signature. The Head of State within fifteen days after the receipt of the law signs it and officially promulgates or returns it with his motivated and formulated proposals to the Verkhovna Rada for reconsideration. If the president did not return the law for reconsideration within the established term, the law is deemed adopted. If during the reexamination, the law was again approved by the Verkhovna Rada by at least two-thirds of its constitutional composition, the President is obliged to sign it and promulgate it within ten days. In case this law was not signed by the President, it will be promptly promulgated by the Chairman of the Verkhovna Rada and published with his signature.

According to the Constitution, the right of legislative initiative in Verkhovna Rada belongs to the President, People's Deputies and the Cabinet of Ministers

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Forms of government in the world

A presidential republic is a popular form of government among Latin American and African countries, where authoritarianism has led to low living standards and numerous human rights violations. Practically the only exception to this rule is the United States of America. The US Constitution gives broad rights to the President in terms of appointing and dismissing civil servants of all ranks, as well as concluding international treaties. The noteworthy presidential election system takes place through indirect voting. That is, Americans choose not the future president, but state representatives, who will vote for the candidate elected by the community. In fact, there have been only 27 amendments to the Constitution of the United States adopted in 1787; none of them concerned the change of the form of the government. The semi-presidential republic is characterized by equal rights of the Parliament and the President. States with this form of government are often in a transitional phase with a tendency toward the gradual transfer of powers to the Parliament. As well as Ukraine, France is also a semi-presidential republic. The president doesn’t need parliamentary approval to appoint the prime minister and, on his proposal, other ministers. He has the right to impose the state of emergency, and under certain conditions dissolve the National Assembly (one of the houses of the bicameral Parliament of France). Compliance with the Constitution of France is ensured by the Constitutional Council, whose members are elected for 9 years without the possibility of re-election. One-third of the Council is renewed every three years. The Council’s decisions are not the subject of an appeal by any government agency. Parliamentary republic. Finland is one of the states which at the end of the 20th — early 21st century began to gradually limit the power of the president, giving more powers to the parliament. The Constitution of Finland was adopted in 1999. At that time, the Republic switched from the presidential to parliamentary form of government. The Finnish president is elected by direct vote for 6 years. He has the right to veto, legislate, and exercises executive power jointly with the government of Finland — the Council of State. The Eduskunta (Unicameral Parliament of Finland) consists of 200 deputies. The position of Speaker of the

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Parliament gets the leader of the second largest party. Eduskunta elects the Council of State, adopts laws and the state budget, and has the full right to the constitutional control. That is, in Finland, there is no judicial body to declare the law unconstitutional. When the law contravenes the provisions of the Constitution, it is changed in favor of the latter. The parliamentary form of government also has the following European countries: Estonia, Austria, Bulgaria, Greece, Iceland, Italy, Germany, Poland, Croatia, Czech Republic and others. However, the scope of the presidential powers in these countries is not the same. For example, in Germany, which is also a parliamentary republic, the functions of the president are purely representative, he has no real power. He is elected not by popular vote, but by deputies of the parliament and representatives of local councils.

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1996 June 28

adoption of the Constitution of Ukraine

2004 December

the Constitution was amended; Ukraine became a parliamentarypresidential republic

2010 September

the changes of 2004 were canceled, the previous version of the Constitution was restored; accordingly, Ukraine again became a presidentialparliamentary republic

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податкова система Constitutional reform

2014 February

the Constitution of 1996 was restored; the form of government was changed again to the parliamentary-presidential

2015 June

the Constitutional commission agreed on a draft constitutional reform on decentralization

2016 June

constitutional amendments were adopted in the sphere of justice


Constitutional податкова система reform

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REFORM JUDI CIAL JUDICIAL REFORM Background

When it comes to judicial authorities, the Ukrainians have almost the same associations — skepticism, distrust, and sometimes disappointment. It is not surprising because, despite the fact that the courts are a separate branch of power, their independence was almost always neglected by the “judges” themselves: either deputies, or presidents, or oligarchs, or those who have more money in their pocket "to get things done. " The history of the courts reforming dates back even before Ukraine's independence. In particular, the Declaration on State Sovereignty of 1990 consolidated the provision that state power in Ukraine is exercised through the division into legislative, executive and judicial. After independence, in 1992 the Parliament approved the Concept of judicial

FORM JUDI042

податкова система


REJUDI- FORM reform in Ukraine, which was aimed at establishing a truly independent court and implementing its specialization, adopting new legislation, and, the most important — ensuring citizens' right to a fair trial. Before the adoption of the new Constitution in 1996, the Verkhovna Rada of Ukraine managed to adopt only a number of laws, which partially ensured the functioning of the court. Only 2001 was the beginning of the first judicial reform in Ukraine, which in pundit circles was called "small" since changes were adopted not by means of new complex laws on the judicial system, but by the minimal changes to the existing legislation.

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At the same time, during a year the Parliament has barely adopted a new law "On the Judiciary of Ukraine," and in 2004-2005 deputies even managed to adopt a new Civil Procedure Code (to replace the Code of 1963) and the Code of Administrative legal proceedings of Ukraine. However, all these changes have had no effect. Public distrust increased. The next President of Ukraine Viktor Yushchenko picked up the baton of changing the judicial system, who in 2006 has declared his intention with the Concept for improving the legal system to ensure a fair trial in Ukraine in accordance with European standards. Actually, this document ended on the bookshelf because no changes occurred. Only after Viktor Yanukovych came to power, the court system has undergone significant changes and was controlled by Bankova. The court system Ń hanges in 2010 have become evident, but their ultimate goal was completely different from that required by society. In particular the realization of the right to a fair trial. The Law "On the Judiciary and the Status of Judges" ignored international standards and aimed to create a court dependent on the state’s key persons. Europe condemned the negative aspects of Yanukovich’s judicial reform, in particular, the European Court of Human Rights (the case "Alexander Volkov v. Ukraine"). The courts continued to mire in corruption schemes. Court bureaucracy became routine for Ukrainians, as the proceedings could have lasted for years, mutual responsibility was legalized, resulting in the judges, prosecutors and law enforcement agencies cooperated not for the implementation of the principles of the rule of law but for the benefit of the interested persons. The Institute of public trust in the courts gradually leveled off.

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the new government is putting judicial reform at the forefront in its “Strategy2020”

At the time of the Revolution of Dignity, the juridical branch once again confirmed its absolute dependence on the regime and approved verdicts depriving the liberty without a reasonable evidence base, deprived activists of driving licenses; throughout Ukraine judges prohibited peaceful assemblies, that provoked even greater distrust. However, even after the overthrow of the regime, it is not so easy to eliminate the effects of Yanukovych's pseudo-reform, because the resistance to the old political elite is still felt and, at the same time, there is the inexpugnable desire of the new government to take advantage of the "manual" justice for their own needs. Therefore, in 2014-2015 there were only certain piecemeal changes that did not produce a placebo effect. At the same time, the new government in the person of Petro Poroshenko is putting judicial reform at the forefront in his “Strategy2020.” For this purpose, he even created a special Judicial Reform Council, headed by Oleksiy Filatov, the Deputy Head of the Presidential Administration of Ukraine. The chosen pace of judicial reform in 2015 needs to be more dynamic. The only change of that year was the adoption of the law "On ensuring the right to a fair trial." Besides, delaying and flagrant disregard by the Parliament for the appointment/dismissal of about 800 Yanukovych’s judges have cost Ukrainians about UAH 250 thousand a day. According to the international human rights organization Freedom House, over the past 8 years, the effectiveness and independence of the Ukrainian judicial system has deteriorated or rather stuck at the 2013 level. In 2016, the GFK research commissioned by the USAID "Fair Justice" project, once again revealed that 69% of Ukrainians do not trust the judicial authorities. However, there is rather high society's demand for cleaning the judiciary. Moreover, foreign investors have emphasized that the main obstacles to investments in Ukraine are large-scale corruption and distrust of the judicial system. This is evidenced by the results of the poll conducted by the investment company “Dragon Capital” and the European Business Association on the eve of the judicial reform in 2016. Changes were inevitable.

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Key bodies responsible for the implementation of judicial reform The Supreme Council of Justice (formerly the High Council of Justice, the law of December 21, 2016) — a new collegiate, independent, constitutional body of state power and judicial administration in Ukraine, which has the final decision in the dismissal of judges, and upon its recommendation the President appoints judges. The High Qualifications Commission of Judges (HQCJ) is a state body of judicial administration responsible for the formation of judiciary establishment, the transfer of judges, and ensuring their proper qualification level. The Public Council of Integrity is a public collegial body created to assist the HQCJ in determining the suitability of judges (candidate for the position of a judge) for the criteria of professional ethics and honesty with the purpose of qualification assessment. The National School of Judges is a state institution with a special status that provides training for highly skilled personnel for the judicial system and conducts research activities. The State Judicial Administration of Ukraine is a body of judicial power that carries out the organizational and financial provision of the legal authorities within its authority limits.

A three-level judicial system of Ukraine:

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instance

instance

the district economic courts, district administrative courts, district general courts, the Supreme Court on Intellectual Property, the Supreme Anticorruption Court

commercial courts of appeal, administrative courts of appeal, general courts of appeal

JUDICIAL REFORM


instance the new Supreme Court, which consists of 4 cassation courts: commercial, civil, criminal, administrative

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What does the reform envisage?

– to create a truly independent judicial branch of power, henceforth judges will be appointed by the President upon submission of the High Council of Justice; – Turn the four-level judicial system into three-level, creating local courts — appellate courts, the new Supreme Court, which includes the Grand Chamber, the Administrative Court of Cassation, the Commercial Court of Cassation, the Criminal Court of Cassation, the Civil Court of Cassation). All other higher courts — the economic, administrative, specialized court for civil and criminal cases are liquidated, the specialization of legal proceedings remains; – the introduction of a competitive selection of judges according to new qualification requirements for judges (a judge shall be a citizen of Ukraine, who is not younger than 30 years old and has 5 years of experience in the field of law, assistants of judges with 3 years of experience can also become a judge). From now on, professionals outside the system with an appropriate work experience may become higher-level judges, and appointments are perpetual; – filling by judges the declaration of integrity and declarations of family ties; – creation of a Public Council of Integrity; – creation of the Higher Anti-corruption Court and the Intellectual Property High Court; – a new procedure for the establishment of the High Council of Justice; – restrictions on judicial immunity, in particular, a judge caught in a serious crime may be detained without the consent of the Parliament and the High Council of Justice; – judges’ remuneration significantly increased; – expansion of grounds for judges’ dismissal (if the illegitimate source of their property is proved); – enlargement of the grounds for disciplinary liability of judges, qualification assessment; – constitutional complaint — henceforth any citizen of Ukraine may apply to the Constitutional Court; – the gradual introduction of lawyer's monopoly on representation in courts.

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From now on, professionals outside the system with a suitable work experience can become higher-level judges

JUDICIAL REFORM

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Realization of judicial reform: the current situation

Fact 1. Filtering of the Judiciary staff. After the adoption of new legislation on the judicial system, the Ukrainian Themis experienced significant personnel losses. The massive resignation of judges began. Only in JulyAugust 2016, about 1,000 judges have filed letters of resignation, which were approved by the Parliament in September. Probably the judges tried to avoid anti-corruption checks and re-certification. Besides, resignation provides judges with lifelong financial allowance. Fact 2. Dismissal for oath breaking. Judicial reform has officially begun on September 30, 2016. On September 29, the Parliament met in an extraordinary session to dismiss 20 judges who took decisions against the Maidan activists. Among the dismissed judges there were Judge Svitlana Volkova (released the “berkut” officer Sadovnik, who is suspected of murdering 39 Maidan activists), Alla Demydovska and Andriy Makukha (they made a decision on activists’ detention). The President of Ukraine supported the trend of filtering the Judiciary from unjust judges by signing the release of Oksana Tsarevych, an odious judge in times of the Revolution of Dignity. Fact 3. An attempt to block the reform. It is impossible to ignore the fact that after the start of judicial reform, judges of the current Supreme Court of Ukraine appealed against it to the Constitutional Court of Ukraine. In particular, they appealed against the liquidation of the current Supreme Court of Ukraine and the fact that judges appointed for life, should pass the competition. But the most interesting thing is that despite the appeal of judicial reform, they still applied for the contest to the new Supreme Court.

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JUDICIAL REFORM

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Competition to the Supreme Court

On November 7, 2016, the High Qualifications Commission of Judges announced a competition for the replacement of 120 vacant positions in the new Supreme Court. According to optimistic forecasts, the Supreme Court should have been started its work in April this year, but the process was delayed. It is noteworthy that the nominees for the positions of judges could be professionals outside the system, including lawyers and scholars. 846 candidates submitted their documents for the participation in the contest to the Supreme Court, and more than 60% of which are current servants of Themis. After the examination, 653 candidates continued their participation in the competition. Afterward, candidates were expecting for an individual examination (in particular by anti-corruption authorities). In February, 643 candidates passed anonymous testing and wrote a practical part (a court decision). The examination of the case study of the judges significantly delayed the contest to the Supreme Court. During this period, NGOs picketed the HQCJ for them to release a dossier of candidates. Even after the publication of the results of the written practical part of the competition to the Supreme Court the HQCJ could not escape manipulations. As the points for the practical part of the competition were not high, they decided to summarize them with scores for anonymous testing. Thus, another 44 candidates received a "new lease of life" for participation in the competition. 382 candidates have passed moral and psychological tests, while neither the practical work nor the methodology of their assessment was not released by HQCJ, which gives a reason for doubts in the transparency of the competition. It should also be noted the importance of the work of the Public Council of Integrity, which analyzed activity, lifestyle and the candidates’ income, and assessed integrity according to the rules of judicial ethics. Out of the 382 candidates who were admitted to interviews, 140 of them received a negative conclusion, which means public’s "veto" to their further participation in the competition. After the interviews with the candidates, the HQCJ agreed only with 25 negative conclusion of the Public Council of Integrity, which means that these candidates automatically stopped their participation. A total of 308 applicants were successfully interviewed, and 115 of them received negative conclusions of the Public Council of Integrity.

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The HQCJ considered the cases of these candidates in plenary meetings, where members of the HQCJ should get 11 out of 15 votes to overcome the conclusion of the Public Council of Integrity. The HQCJ does not support the conclusions of the Public Council of Integrity since only 16 out of 69 already examined candidates have ceased their participation; others will be included in the general ranking. Candidates who rank first are likely to become new judges of the Supreme Court. Therefore, one should not be surprised if only the “ minor repairs” will be carried out in the new Supreme Court, since the actual chances of becoming a judge still, have the current chairman of the Supreme Court Yaroslav Romanyuk (stood up for draconian laws on January 16), the Head of the Council of judges Valentyna Symonenko (known for her ties with Occupied Crimea, and being on the post of Head of the Council of Judges counteracted judicial reform), as well as Judge Pavlo Vovk (who has close ties with political circles, especially with Serhiy Kivalov and the curator of the legal system from the Petro Poroshenko Bloc — Oleksandr Hranovsky). Unfortunately, there is no common vision of how the work of the new Supreme Court will look like and how the court cases will be handled because the Parliament delayed the consideration of the new procedural codes, in which the key points of transition to the three-level judicial system should have been outlined.

nominees for positions of judges could be professionals outside the system, including lawyers and scholars

JUDICIAL REFORM

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The selection of judges for 600 vacant posts

Starting from April 2017, the HQCJ announced the selection of candidates for local court judges. Since the judicial authorities have a significant shortage of Judiciary staff (one-third of justiceships are vacant) and about half of the courts are understaffed, dragging on the litigations and becoming irrelevant, the selection of new judges is extremely important. However, there are a few admonitions. Despite the fact that lawyers above 30 years of age with 5 years of experience in the field of law can take part in such a selection, which envisages an upgrade of the judiciary, in fact, deputy judges above 30 years old with 3 years of experience in this position take part in the same selection. Interestingly, both categories of candidates must be selected and trained at the National School of Judges. The biggest manipulation is hidden in the fact that deputy judges will study at the school of judges only for 3 months, they say they have a much better understanding of the judiciary, and lawyers — for 12 months including training in courts and independent work. According to many experts, such unequal access to the judiciary and the long process of the contest may hamper the rapid renewal of the judiciary, which is so much expected by the society.

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unequal access to the judiciary and the long process of the contest may impede the rapid renewal of the judiciary

NGOs

• CHESNO movement, CHESNO campaign. Filter the judiciary! • Centre of Policy and Legal Reforms • All-Ukrainian Public Organization "AvtoMaydan" • Judicial group of the Reanimation Package of Reforms • Center for combating corruption

JUDICIAL REFORM

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2014 2016 October

president Petro Poroshenko created the Judicial Reform Council, which was supposed to develop the necessary laws to launch the judicial reform

20142015 functioning of the Interim Special Commission for the Verification of Judges of General Jurisdictions of the High Council of Justice. The commission was created within the framework of the law "On restoring confidence in the judiciary"

2015 February

the Verkhovna Rada adopted a law "On ensuring the right to a fair trial"

8 April

the Verkhovna Rada approved the law "On restoring confidence in the judiciary" (law on lustration of judges)

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податкова JUDICIAL REFORM система

June

the law "On the Judiciary and the Status of Judges" and the amendments to the Constitution in terms of justice were adopted

JulySeptember

purification of the judiciary (341 judges were released for oath breaking, 1320 voluntarily resigned) / renewal of the judiciary (218 judges appointed by the President)

September

launch of judicial reform through amendments to the Constitution in the sphere of justice

November

competition to the Supreme Court has began the Public Council of Integrity was formed judges began to fill out the declaration of integrity and the declaration of family ties


NovemberDecember

submission of candidates' documents to the Supreme Court checking the compliance of candidates' documents

December

the Law "On the High Council of Justice" was adopted

20162017 DecemberFebruary

special examination of candidates for the Supreme Court

2017 February

anonymous testing of candidates for the Supreme Court — the first stage of the written part of the competition to the Supreme Court practical work — the second stage of the written part of the contest to the Supreme Court, on which the candidates write a court decision

FebruaryMarch

verification of the practical part by the members of the HQCJ

April

the HQCJ announced the selection of candidates for the positions of local court judges

The beginning of April

testing of moral and psychological qualities of candidates for the Supreme Court, interviews with psychologists

April-May

candidates for the positions of local court judges could submit their documents for participation in the selection (5336 candidates)

April-July

interviews with the candidates to the Supreme Court, and holding plenary sessions with the candidates who received the negative conclusions from the Public Council of Integrity

June

the Verkhovna Rada of Ukraine adopted the first reading draft amendments to the procedural codes

податкова JUDICIALсистема REFORM

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tem

Refo the nation curity defen sy Reform of the national security and defense та system. Background

In 1991, after the dissolution of the Soviet Union, Ukraine gained capable army with a relatively modern armament and developed infrastructure: about one million military servicemen, more than twenty thousand of land-based units and more than ten thousand air force equipment, a separate air defense army, as well as its own

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податкова система


defe s orm of nal sey and nse ystem nuclear weapons. Thus, Ukraine became the third most powerful nuclear country in the world after Russia and the United States. Ukraine had 176 intercontinental ballistic missiles, more than 2500 units of tactical nuclear weapons, and dozens of strategic bombers. Except that the suitcase with the red button was in Moscow, but the Ukrainian government could solve the problem. In 1995, after the division of the Black Sea Fleet of the USSR, Ukraine received about 18% of its capacity.

податкова система

059


Thus, only 25 years ago, Ukraine had one of the strongest armies in the world and could adequately respond to any external threat. At the same time, this was also the problem: the million strong army was simply unnecessary for the young state, which has chosen the path of democratic values. Moreover, it was an incredible economic burden. Also, none of the superstates wanted a new competitor: after the Cold War, the world took an official course on disarmament. Ukraine has fulfilled its part of the deal — disarmament and the surrender of nuclear weapons — unlike Russia and the United States. In the coming years, other countries have only increased their military potential. On December 5, 1994, the President of Ukraine Leonid Kuchma and the Presidents of the United States, Britain and Russia signed the Budapest Memorandum on Ukraine's non-nuclear status. Under this document, the parties promised to respect the independence, sovereignty, and borders of Ukraine; refrain from threats or use of force, do not use any weapons against Ukraine, refrain from economic pressure, do not use nuclear weapons against Ukraine, and pursue urgent assistance from the UN Security Council in the event of Ukraine being subjected to military aggression. Ukraine, in in turn, refused not only to manufacture, use and store nuclear weapons in its territory, but also to withdraw from membership in any military bloc. This beautiful and important step as a symbol of improvement in relations between nations was made in exchange for peace guarantees for our country, destroyed by Russia 23 years later. The non-nuclear status of Ukraine remains unchanged. In March 2016, President Petro Poroshenko confirmed the chosen course. As for the regular army, by 2014, there were at least three attempts to create a professional army. However, the reforms each time ended with a delay or termination of their implementation due to lack of funding. A fullfledged contract army was never created, the new military equipment was not procured in sufficient quantity, the old ones were wearing out, and educational institutions were closing. Due to the corruption and low discipline in the unstable system, the level of trust and the status of servicemen were on the downward trend. Young Ukrainians began to massively avoid military conscription, which became a national trend. The reluctance to serve in the Armed Forces of Ukraine created another possibility for the growth of corruption in all related areas: from public administration to medical institutions. It came to the point that in October 2013 the then President of Ukraine Viktor Yanukovych completely canceled the conscription from 2014, in accordance with the State Program on Armed Forces reform until 2017, which provided for another attempt to create a contract army. The regular army was actually repealed. Following the annexation of the Crimea, already in April 2014, the decisions that led to the loss of the Ukrainian Army’s combat readiness were transferred to the General Prosecutor's Office, the military service was restored, and the program of the previous reform was canceled. With the outbreak of hostilities in Ukraine, it became clear that the army was absolutely not ready to protect the borders of the state and its citizens from the military aggression of Russia.

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Reform of the national security and defense system


Reform of the national security податкова and defenseсистема system

061


Volunteer Movement

The spontaneous recovery and maintenance of the Ukrainian Army began with the Revolution of Dignity, and to a large extent remains a merit of a large-scale volunteer movement. In May 2015, the founder of the "People's Project" platform, the Coordinator of the Volunteer Council at the Ministry of Defense, David Arakhamia, stated that 14,500 volunteers and more than 2.5 thousand organizations are constantly helping the army. In March 2015, the law "On Volunteer Activity" was adopted, legalizing fundraising by volunteers, in particular for the needs of the army. At the beginning of December 2014, GfK Ukraine conducted a study on the state of the volunteer movement in Ukraine. It turned out that:

62% 81% 85%

believe that volunteering helps to strengthen peace of people tend to consider volunteering as an obligatory part of civil society

of Ukrainians recognize the role of volunteers in last year's political changes

062

billion UAH

billion UAH

raised by volunteers for the needs of the military during two years of war (as of April 2016)*

amount of war tax (1.5%) that has been collected since August 2014

податкова Reform of the система national security and defense system


Also, from the beginning of the conflict, there are public organizations active in assisting the IDPs, providing psychological support to the soldiers, taking care of the wounded, the disabled, and families left without breadwinner because of hostilities, organizing searches for the deceased and helping to exchange captives. Volunteers work in close collaboration with the new government: in October 2015, the Council of Volunteers was created under the Ministry of Defense of Ukraine. By the presidential decree, the council was given the right to dispose of budget funds for the financial support of the army. Also, participants of volunteer movement joined the Reform Project Office, established in 2016 under the Ministry of Defense of Ukraine. The biggest volunteer organizations and associations: “People's rear,” “Come Back Alive,” “Wings of Phoenix,” “Army SOS.” Since the beginning of hostilities, about 100 thousand volunteers have joined the ranks of the Armed Forces of Ukraine, reported Defense Minister Stepan Poltorak in March 2017. This significantly influenced the composition of the troops and the attitude of the civilian. Serving in the army became honorable, in a short time, the ordinary warrior became the hero of Ukrainian society. Thus, the new reform of the Ukrainian Army began spontaneously, not by the adoption of a new doctrine, but with the Revolution of Dignity and the creation of volunteer battalions to participate in military actions in the east. Officially, the reform of the Armed Forces of Ukraine began with the adoption of a number of key documents: National Security Strategies (May 2015), Military Doctrine (September 2015) and the Strategic Defense Bulletin (May 2016).

million UAH brought into the Ministry of Defense by fundraising through SMS-service 565, which lasted until October 2015 (the message to this number cost UAH 5)

*According to Vitalii Deineha, head of the volunteer group "Come Back Alive"

Reform of the national security and defense system

063


The objectives of the new reform in the main State documents National Security Strategy of Ukraine:

Restore the territorial integrity of Ukraine. For this purpose, powerful Armed Forces of Ukraine equipped with modern weapons and military equipment, as well as other effective intelligence, counterintelligence and law enforcement agencies should be created. Creation of an effective security and defense sector by improving the legislation, effective centralized management, upgrading the state system of strategic planning, the introduction of an integrated system of education and training, improvement of budgetary policy, improvement of the system of democratic civil control, strengthening of parliamentary control, development of the system of military patriotic education. Increase the state's defense capability. First of all, it is modernization and priority development of the defense-industrial complex, the production of competitive weapons and military equipment, import substitution and increase of own production of critical components and materials; deepening of cooperation with other states, first of all, NATO member states, the EU; achievement of full independence from Russia in terms of the production of military equipment; actual defense reform and creation of a powerful military-trained reserve. According to the Strategy in the medium-term perspective, the Armed Forces of Ukraine will be staffed on a fixed principle with the gradual increase of the contractual component of the army. The Strategy also provides for the creation of a Military Police and the transfer of majority law enforcement functions from the Security Service of Ukraine to law enforcement agencies, except for combating crimes against the basis of national security. To deprive the Ministry of Internal Affairs of unusual control and permissive functions and turn it into a civil central executive authority. Give more rights and responsibilities to the National Guard to increase its capabilities for providing public safety and supporting the operations of the Ukrainian Armed Forces in a crisis environment. Develop the State Border Guard Service of Ukraine as a military formation. Create a State Bureau of Investigation responsible for conducting criminal investigations.

064

Reform of the national security and defense system


Reform the prosecutor's office in accordance with the norms and standards of the European Union. Reform the system of public administration with the new quality of anti-corruption policy. Reach the full compatibility of the security and defense sectors with the relevant structures of NATO member states and ensure the future NATO membership. The top priority of Ukraine’s foreign policy, according to the document, is the strategic partnership with the USA as a guarantor of international security in the Euro-Atlantic area by Ukraine-US Charter on Strategic Partnership of December 19, 2008. The Strategy is the main document for the strategic planning, on the basis of which all other papers in the field of national security protection are developed.

Military doctrine of Ukraine:

Repulse the armed aggression of the Russian Federation. Ensure the defense capability of Ukraine. Ukraine’s participation in the implementation of the common security and defense policy of the European Union. Decent perception of Ukraine at the international level. Compliance with the criteria for EU and NATO membership. Eliminate illegal Armed Groups. Restore the credibility of military service. Provide social guarantees to servicemen. Improve state information policy. Increase the effectiveness of the domestic military-industrial complex. In the face of the real threat of aggression, preservation of mixed principle of manning the Armed Forces of Ukraine with a gradual increase in the number of soldiers serving under the contract. Integration of volunteer formations into the Armed Forces of Ukraine, the Ministry of Internal Affairs and the National Guard. Prevention of new armed conflicts, systemic strengthening of the national defense capability, increase of Ukraine’s role and image on the international stage. Maintaining the level of defense capacity, which, alongside with taking the full advantage of the opportunities for a peaceful settlement of interstate controversies, will correspond to the level of military threats and will ensure military-strategic parity in the region. Restoration of military infrastructure, redeployment of military units and defense forces, taking into account the strengthening of the permanent military presence in the eastern and southern regions of Ukraine.

The Strategic Defense Bulletin:

is a roadmap for the reform based on the Military Doctrine and in line with the objectives of Ukraine to meet NATO requirements.

Reform of the national security and defense system

065


Authorities responsible for the reform implementation President of Ukraine as the Supreme Commander-in-Chief of the Armed Forces of Ukraine. National Security and Defense Council of Ukraine, which is responsible for coordination and monitoring of the activities of executive bodies in the field of national security and defense. The Ministry of Defense and the General Staff of the Armed Forces. According to the Euro-Atlantic norms and standards, the duplication of functions of these bodies will be excluded by 2018. Also, by 2020, it is planned to establish separate positions "The Commander in Chief of the Armed Forces of Ukraine" and "Chief of the General Staff of the Armed Forces of Ukraine."

066

Reform of the national security and defense system


Military budget of Ukraine In 2015, the provisions of the National Security Strategy of Ukraine and the Military Doctrine of Ukraine provided for the annual allocation of budget funds of at least 5% of GDP to finance the security and defense sector, including at least 3% of GDP for defense. In previous years this indicator was as follows:

2004 1,8% 2005 1,4% 2006 1,2%

2009 1,1%

UAH 6 billion

UAH 6 billion

2007 1,3% 2008 1,2%

UAH 6 billion

UAH 9 billion UAH 12 billion

UAH 10 billion

2010 1%

UAH 11 billion

2011 1%

UAH 13 billion

2012 1%

UAH 14 billion

2013 1%

UAH 15 billion

2014

1,7%

2015

UAH 27 billion

2,6%

2016 2,5% 2017

UAH 52 billion UAH 59 billion

2,7%

UAH 69 billion

Reform of the national security and defense system

067


The current situation

According to the Strategy for Sustainable Development “Ukraine-2020”, the reform of the national security and defense system is of paramount importance. Since the beginning of hostilities in the east, 2,629 servicemen were killed (officially). More than 600 thousand people were forced to abandon their homes and leave the war zone in the Donetsk and Luhansk regions, and about 20 thousand — from Crimea and Sevastopol. Therefore, the situation requires strong and urgent action from the Ukrainian government. The system changes began with the introduction of the three-level command system of the Armed Forces of Ukraine: General Staff, Cross-sectoral Institutions’ Management and Military Unit Command. These changes helped to manage army administration. There is a gradual increase in the technical base. In 2015, under the state defense orders, the army received 1711 units of weapons and equipment, more than 400 thousand units of missiles and ammunition. In 2016, the State Concern "Ukroboronprom" handed over to the army more than 6,200 units of military equipment. At the beginning of 2017, a record number of military contractors were registered in Ukraine — more than 70 thousand people. In order to get rid of corruption in the system of government orders, the Ministry of Defense uses the electronic procurement system from 2015. Also, some success had been achieved in the reform of the food supply of the army: in October 2016 a new concept of the food system was developed. So far, it has been experimentally introduced only in two military units. The gradual transition to a new food system is scheduled for 2017-2020. The number of training operations and joint training of Ukrainian military personnel with servicemen of other countries and NATO has significantly increased. Since 2014, the number of military personnel has been increased to 250 thousand. According to the international rating Global Firepower-2016, Ukraine ranked 30th in the world and 8th in Europe in terms of military power. According to this rating, Russia ranks 2nd in the world. In 2016, Ukraine has risen in the overall ranking of militarization from the 23rd place in 2015 to the 15th. This is evidenced by the Global Militarization Index (GIM). Also, in 2016, Special Operations Forces and a training center were created. Even today, Ukraine can independently supply the needs of the army by 40%, earlier this figure was 8-12%. And to a large extent — thanks to private companies. However, the government which monopolized the market is not interested in their development. Hands-on management of the security sector is also a big problem. At the beginning of the war, this was well grounded. However, after three years of the war it only hinders the reform development, makes it almost

Even today, Ukraine can independently supply the needs of the army by 40%

068

податкова Reform of the система national security and defense system


impossible to resolve such issues as system rearmament and system military cooperation. This is a huge white spot that does not allow taking steps in all directions of the reform: the concept of the army, the defense industrial complex, military-technical cooperation. Also, due to the lack of definition of the Army's concept and refusal to create a professional army, we actually get a situation where the front line troops almost do not receive modern weapons and do not have the proper social security. Considering that Ukraine embarks on the course of the creation of a Western-type army, this is unacceptable. In order the reform actually took place, it is necessary to abandon the hands-on management and to adopt a number of laws, under which the defense-industrial complex will be developed, a system of rearmament will be created. Despite the fact that all issues related to the development of the army and the defense industry have to be resolved by the Government, today they are taken outside the Government, where there is only one profile deputy minister of the Ministry of Economic Development and Trade. It is extremely important to eliminate the "Ukroboronprom" created by the team of former President Yanukovych, where managers hold two offices at the same time as officials and businessmen. This situation contributes to the fact that the contracts concluded are not advantageous to the army, but those which are beneficial to financial and industrial groups. It is necessary to change the situation with monopolization of the arms market, which prevents private companies from developing and attracting foreign investors. The reform is also significantly hampered by the lack of parliamentary and public control.

Reform of the national security and defense system

069


Interesting Facts

According to the new Military Doctrine of Ukraine, adopted in September 2015, Ukraine will deepen its cooperation with NATO to achieve full compatibility with the Alliance's forces. This means that for now Ukraine retains its non-aligned status and focuses on creating conditions for membership in the future. The active process of training and exchange of experience between Ukrainian and NATO military is underway. According to a survey conducted by the Kiev International Institute of Sociology at the end of 2016, the church and volunteers are the most trusted among Ukrainians:

070

Reform of the national security and defense system


government

church

8,7%

58,8%

president

volunteers

16,8%

57,6%

media

32,3%

Reform of the national security and defense system

071


The Attitude of the Ukrainian Population towards the entry of the state into NATO: Date

For

Against

2011 April

25 %

60%

IFAK Ukraine

2012 April

15 %

62%

"Democratic Initiatives" Foundation

19 % 15 %

66% 60%

Sociological group "Rating" "Democratic Initiatives" Foundation

2013 October

20 %

66%

Sociological group "Rating"

2014 March

44 %

47%

«1+1»

April

36 %

48%

May

37 %

42%

"Razumkov Center" and sociological group "Rating" "Razumkov Center"

June

47 %

36%

Gorshenin Institute

June

41 %

40%

"Razumkov Center"

July

44 %

35%

Sociological group "Rating"

March

44 %

September

52 %

19%

The Democratic Initiatives Foundation together with Kyiv International Institute of Sociology GfK

October

53 %

34%

Gorshenin Institute

November

51 %

25%

Sociological group "Rating"

2015 March

43 %

33%

March

43 %

31%

Kyiv International Institute of Sociology "Razumkov Center"

March

47 %

29%

Sociological group "Rating"

May

37 %

36%

June

53 %

32%

Kyiv International Institute of Sociology Pew Research Center

June

41 %

30%

International Republican Institute

August

64 %

28%

2016 May-June

44 %

38%

2017 June

43%

30%

"Democratic Initiatives" Foundation together with "Razumkov Center" Kyiv International Institute of Sociology Sociological group "Rating"

October December

072

Agency

Reform of the national security and defense system


Reform of the national security податкова and defenseсистема system

073


2013 October

cancellation of the conscription in accordance with the new State Program for the reform of the Army until 2017

2014 March

national Guard of Ukraine was re-established — military formation with law enforcement functions (established in 1991, disbanded in 2000)

April

the conscription was renewed, and the previous reform of the Armed Forces of Ukraine was canceled

2015 March

the Law "On Volunteer Activity" was adopted

May

the National Security Strategy was adopted

September

a New Military Doctrine was adopted

October

a Volunteer Council was created at the Ministry of Defense of Ukraine

2016 May

the Project Office of Reforms under the Ministry of Defense of Ukraine was established, the Strategic Defense Bulletin was adopted

August

a nationwide military revenue of 1.5% of personal income was introduced. Taxation will be continued until the decision of the Verkhovna Rada on the completion of the reform of the Armed Forces of Ukraine comes into force

October

February

the Ministry of Defense has started a fundraising campaign for the needs of the army "Support the army, save the country: call 565"

074

податкова Reform of the система national security and defense system

the structure of the Ministry of Defense of Ukraine was changed, which allowed to renovate the management of the department and bring it closer to NATO standards


2017 February

president P. Poroshenko has promised UAH 9 billion to finance the development and purchase of new weapons and military equipment for the Ukrainian Army in 2017

March

the law "On the Unified State Register of Persons liable for military service" was adopted, which would prevent evasion from the call

Reform of the national security податкова and defenseсистема system

075


Rem Law force nRef Law Enforcement Reform . Background

After the collapse of the USSR, the system of the Ministry of Internal Affairs, the main element of which was militia, in fact, did not undergo significant changes from 1991 until 2014. The biggest problem was the repressive activity and the paramilitary format of the militia, and not the law enforcement activity and civil format, as in the civilized world. The other problem was that the Ministry of Internal Affairs remained an interdepartmental monster, which combined the functions starting from the migration service and to the fire department, which undoubtedly was a Post-Soviet rudiment. The state wanted to control every step of a citizen and tried to centralize as much as possible of the governance of

076

податкова система


Refo w En- r society in several huge enforcement bodies. In addition, this situation has led to duplication of many functions between the various structural units of the Ministry of Internal Affairs and the staff overages. Tellingly, by 2014, the militia continued to be guided by the Law "On the Militia," which was adopted in 1990, during the Soviet times. In addition, the structure and number of militiamen were regulated by a separate Law of Ukraine "On the general structure and size of the Ministry of Internal Affairs of Ukraine", the issue of disciplinary proceedings and punishment for violations – by the Law "On the Disciplinary Statute of the Internal Affairs Institutions of Ukraine".

ement

form податкова система

077


078

Law Enforcement Reform


Besides, there was no depoliticization of this body. Every new Interior Minister became a toy in the hands of the then president. The Ministry of Internal Affairs increasingly began to serve the current authorities, which quickly led to the deprofessionalization and corruptness of the body. Militia turned into a kind of "oprichnina," which purpose was to keep society in leash to suit the prevailing authorities. All attempts of reforms — which were announced up to 9 times with different ministers — in fact, reduced to the renaming of units or departments, in no way relating the essence of the system. Apparently, the most failed were much-publicized reform over the course of two cadences of the MIA’s head Yuriy Lutsenko in the 2000s, during the presidency of Viktor Yushchenko. The process of militia degradation took particularly grotesque forms during the presidency of Viktor Yanukovych. Events in the town of Vradiyivka, and later in the Independence Square in November 2013 — February 2014, showed that the militia lapsed to the point when it was hard to call it a law enforcement agency anymore. The main symbol of this process was the atrocities of the special division of the militia "Berkut" (now formally disbanded, but renamed) and their final chord — the shooting of unarmed protesters on February 20, 2014. Another evidence of the complete ineffectiveness of law enforcement bodies was the collaboration of a large part of the militia with a Russian aggressor during the annexation of the Crimea and aggression in the Donbass. Whatever political force came to power, they all used a simple and effective method — constant underfunding of law enforcers, especially in terms of salary. According to experts, at the best times, the Ministry of Internal Affairs was financed by 50-60%, at the worst — by 20-30%. Instead, there was cultivated the so-called "corruption in the law" — that is, the militia had to raise at least half of finances for its functioning by themselves. Consequently, bribery, extortion, and abuse of power have become codified principles of the Ministry of Internal Affairs system. At the same time, the professional level of the MIA as a body of criminal justice was consistently falling every year. All mentioned above also can be extrapolated to the Security Service of Ukraine, which has not undergone any “deKGBizing.” In addition, it became the object of increased attention of the Russian intelligence services, which actively incorporated into its ranks their agents. Of course, this body became the most politicized of all law enforcement bodies, sometimes acting as political police. The whole tax militia was born and lived with a “birth corrupted trauma.” The Migration Service got used to earning on every issued piece of paper and document. An analog of the FBI of the United States has not yet been created, although this was discussed during the first term of Leonid Kuchma in the mid-1990s. The anti-corruption struggle was spread among all law enforcement agencies, and, in fact, was reduced to the arrest of the "buck passers." Therefore, the creation of the appropriate body, which had to combine these functions, had become more crucial than ever. As a result, in 2014, Ukraine had a situation of almost absolute distrust of citizens to their own law enforcement agencies. And after the Revolution of Dignity, they were perceived as enemies.

Law Enforcement Reform

079


080

Law Enforcement Reform


Key authorities The Ministry of Internal Affairs of Ukraine still considers itself the successor of the Ministry of Internal Affairs of the USSR. Created on December 20, 1990. Currently, it is a civil governing body of the law enforcement agency. The State Border Guard Service is the central executive body within the Ministry of Internal Affairs, which implements the state policy in the field of integral control of the state border. The State Migration Service is the central executive body within the Ministry of Internal Affairs system, which implements the state policy in the field of combating illegal migration. The State Emergency Service is a central executive body within the Ministry of Internal Affairs, which implements the state policy in the field of civil protection of fire safety and emergency protection. The National Guard — military formation in the system of the Ministry of Internal Affairs with the functions of ensuring law and order. The Security Service of Ukraine — created on March 25, 1992, a special purpose state law-enforcement paramilitary agency, which guarantees the state security of Ukraine. Subordinated to the President of Ukraine. Financial Intelligence Service — a law enforcement organization in the field of protecting the economic security of the state is under formation. The purpose is to counteract economic crimes. It should be subordinated to the Cabinet of Ministers. The successor of Tax Militia. National anti-corruption bureau of Ukraine (NABU) – is a law enforcement agency with broad coercive powers, responsible for the prevention, detection, termination, and disclosure of corruption crimes. It was created by the President of Ukraine on April 16, 2015, and headed by Artem Sytnyk. The Bureau investigates corruption cases involving civil servants of "A" category.

The Ministry of Internal Affairs of Ukraine is a civil governing body of the law enforcement agency

Law Enforcement Reform

081


IMPORTANT GOAL OF REFORMS — The introduction of a European model of training and advanced training of personnel

Objectives of the reform

(according to the Concept of the priority measures of reforming the system of the Ministry of Internal Affairs and the Strategy for development of the internal affairs bodies of Ukraine) – demilitarization of the Ministry of Internal Affairs; – reduction of many institutions, units, and services with related tasks and functions; – ensuring effective coordination of activities and coordinated interaction between the National Police, the National Guard, the Border Guard Service, the Migration Service, and Emergency Service under the political guidance of the Ministry of Internal Affairs; – legislative definition of the updated general structure of the Ministry of Internal Affairs, structure and number, tasks and powers of the bodies of internal affairs and other conditions of their activities, whose priorities are the fulfillment of social service functions; – de-politicization of the activities of bodies and services subordinated to the Ministry of Internal Affairs, their autonomy and optimization; – elimination of function duplicates of establishments, departmental enterprises, institutions, and organizations; – the introduction of a European model of training and advanced training of law enforcement personnel, application of common unified standards of law enforcement training, aimed at increasing the effectiveness of interaction between the internal affairs bodies of different European Union member states; – development of effective means and mechanisms for monitoring the activities of the law enforcement agencies and a separate law enforcement officer; – increase of public confidence in the activities of the internal affairs bodies, as well as the authority of the internal affairs officers; – enhancement of the role of civil society institutions and local self-government bodies, in measures of enforcement of rights and freedoms of the population; – establishment of close cooperation with the society and local communities.

082

Law Enforcement Reform


Challenges for achieving the goals:

– full re-certification of personnel; – change of management of central and regional departments of the Ministry of Internal Affairs; – reduction of administrative apparatus (city departments); – reorganization of the special assignment unit; – creation and deployment of patrol police as a full-fledged structure of public order recurrence; – formation of a unit for fighting cyber crimes based on new principles; – reorganization of the unit for combating economic crimes; – liquidation of the unit for combating illicit drug trafficking; – creation of an expert service independent of regional and district chiefs vertically, that is, fully subordinated to the minister; – the reform of the National Guard, which will be completed based on professional requirements and composed solely of volunteers; the transformation of the MIA’s volunteer battalions that emerged in 2014, into professional staff units of the Ministry of Internal Affairs or joining of fighters to other MIA’s staff units; – creation of a municipal militia, with transferred functions of public order protection; – wage increase and improvement of the social package for the Interior Ministry staff to reduce corruption risks and encourage the best personnel to serve in the police and departmental services.

Law Enforcement Reform

083


084

It is illustrative that the latest news on the "Reform" thematic page on the official website of the Ministry of Internal Affairs dates from December 2015. Similarly, the only non-active page in the MIA’s structure on the same website is the implementation of the reform податкова система


Implementation of the reform According to experts, today it is possible to speak if not about a complete failure, then about the serious slowdown of the reform of the Ministry of Internal Affairs. Due to the vague time frames (according to the Concept, the reform should be completed by the end of 2018), many processes were delayed, but the MIA's management can maneuver, appealing to citizens with references to war and lack of money. In addition, certain pitfalls have not been eliminated at the very beginning. For example, the independence of the head of the National Police from the Ministry of Internal Affairs in personnel matters was not ensured. That is why the head of the National Police still cannot approve the estimates, the structure of the central office, appoint and dismiss heads of regional departments and their deputies, etc. That is, the primary condition of the reform was bungled — the depoliticization of the body. However, the main problem is a lack of political will to change radically the system of law enforcement and actual sabotage of reform by current law enforcement chiefs. This was repeatedly stressed by the members of the Attestation Commissions at the Ministry of Internal Affairs, who was forced to walk out in protest (, activists Roman Synytsyn, Kateryna Butko and journalist Olha Khudetska). Many experts associate the final slowdown of the reform with the resignation of the Head of the National Police Hatiya Dekhanoidze. At the same time, the MIA’s leadership in the person of the Minister Arsen Avakov repeatedly stated that the reform is implementing in accordance with the adopted concept.

Law Enforcement Reform

085


The reform of the Ministry of Internal Affairs was started in April 2015. The Cabinet recommended 4 key bills for Parliamentary voting — "On the bodies of internal affairs," "On the National Police," "On services and service centers of the Ministry of Internal Affairs of Ukraine," "On Amendments to certain legislative acts of Ukraine on improving the regulation of relations in the field of ensuring road safety." During July-August 3 out of 4 documents were approved by the Verkhovna Rada and signed by the Cabinet. The process of police creation was underway during September-October, and finally, on November 7, 2015, the militia turned into police, as a new profile law took the course. In addition, personnel certification process was launched in autumn 2015. 71,828 police officers passed the competency tests. According to the results of the certification commissions, 4.160 employees were dismissed from the police service due to incompetence. Thus, only 5.8% of the old law enforcement officials were dismissed after the certification process. In addition, according to the ex-head of the National Police, Hatiya Dekhanoidze, the certification was blocked by the courts. Experts also note that the favorite tactics of bypassing attestation and lustration are the transfer of an employee to a similar position in another office. Most of the law enforcement officers involved in crimes against members of EuroMaidan successfully passed the commission. The investigation of crimes committed by the MIA’s officers during the Revolution of Dignity came to a dead end. This was stated by the head of the Department of Special Investigations of the GPU Serhiy Gorbatyuk in an interview with "Ukrayinska Pravda." According to him, the half of the “Berkuts” who beat the students on November 30, 2013, continued to work in the police. Moreover, only 10 persons out of the 15,000 law enforcement officers who "passed the Maidan," testified to the investigators. Most of the “Berkuts” continue to serve in similar departments of separate special detachments of militia under the MIA’s regional departments.

As for progress

086

cities

thousand people

introduced the new patrol police

work in the new structure in total. Most of them are new employees

Law Enforcement Reform


Also, the process of establishing Service Centers of the Ministry of Internal Affairs is underway. The road traffic police are created. The salaries of police officers and the National Guard were significantly increased. The reform of the Migration service was launched and its eventual transfer to the Ministry of Justice is scheduled. The Border Guard Service has increased its numerical strength, received heavy weapons and disposed of its status of a civil service, considering the military conflict with the Russian Federation. The National Anti-Corruption Bureau of Ukraine, the main body fighting corruption, was formed. Although it is still difficult to determine the result of its work, the fact is that this body began to act vigorously and has already become a significant factor in law enforcement sector. The tax police were disbanded and the next body — the Financial Intelligence Service — should be removed from the MIA’s control and placed under to the Cabinet instead. Although, the process of its creation slowed down due to legal casuistry. The Department for Combating Organized Crime and the Department for the Suppression of Illegal Drug Trafficking was disbanded, although it is worth considering the enormous growth of these types of crimes, as stated by the high officials of the Ministry of Internal Affairs. Apparently, most of the innovations were launched at the beginning of the reform. The patrol police became a ”spokesmodel” of a new reform, say former members of attestation commissions under the Ministry of Internal Affairs from Public Organization "AvtoMaydan" and Combat-UA. However, the reform did stop there. When you look at what has been done from the stated by the concept, then there is no progress on most points, as evidenced by the expert of the Center for Policy and Legal Reform Oleksandr Banchuk. The key issue with the identification of the police is still not resolved. The system of a single document flow of the Ministry of Internal Affairs has not been created; the system of police education is not reformed, they are still trained at the Soviet by their essence and spirit academies. Although from July 4, 2016, the automatic fixing system for traffic violations with the help of video cameras on the road was launched in the test mode, still it does not operate in a constant mode. The structure and work of the police have not yet been improved and the number of employees has not been reduced. There is a constant manipulation of terms of the reform and their scope. Thus, it can be stated that at present the process of changing the system of the Ministry of Internal Affairs is close to a deadlock. As for the reform of the Security Service of Ukraine, it has not begun yet. Although all experts stress the need for this body to concentrate on counter-intelligence and anti-terrorist functions, the SBU’s workflow remains almost unchanged since the pre-war situation.

regions a special force unit KORD has been established since November 2015

Law Enforcement Reform

087


2014 October

the Cabinet of Ministers approved the Concept of Priority Measures for the Reform of the Ministry of Internal Affairs System for 2015-2016

2015 April

the Cabinet reviewed and approved 4 bills on the reform of the Ministry of Internal Affairs: "On the bodies of internal affairs", "On the National Police", "On Services and Service Centers of the Ministry of Internal Affairs of Ukraine", "On Amendments to Certain Legislative Acts of Ukraine on improving the regulation of relations in the field of provision of road-traffic safety ".

088

податкова Law Enforcement система Reform

July

the Verkhovna Rada voted in the second reading on a draft law 2822 "On the National Police". This bill defines the legal principles of the organization and activities of the National Police of Ukraine, the status of police officers, as well as career structure in the National Police. On July 4, the work of the first patrol police is initiated in Kiev

August

president of Ukraine Petro Poroshenko signed the law "On the National Police," and on August 6, the law was published in the parliamentary newspaper "Holos Ukrayiny." The law came into force as of three months following the day of publication


September

the Cabinet of Ministers of Ukraine by resolution established a central executive body — the National Police of Ukraine, subordinated to the Ministry of Internal Affairs of Ukraine. After the creation of the National Police as a separate body, the MIA performs the functions of political governance, political coordination and, to a certain extent, assuring day-to-day operations of this body. That is, the Ministry of Internal Affairs has turned from the Ministry of Militia to a civilian body. An actual division of the National Police and the Ministry of Internal Affairs takes place the Prime Minister of Ukraine Arseniy Yatsenyuk stated that the Cabinet of Ministers passed a decision on liquidation of all territorial units of the Ministry of Internal Affairs, and in their place, the territorial units of the National Police will be established

November

the Law of Ukraine "On National Police" and the Regulations on the National Police, approved by the Cabinet of Ministers on October 28, 2015, entered into force. From that day on, the militia in Ukraine officially ceased to exist

Law Enforcement податкова система Reform

089


on rerm Pub administ on refo Public administration reform. History

Ukraine has suffered 72 years under a communist totalitarian regime. In the last years of the empire, during the “perestroika,” there were attempts to change one-party command system, adding elements of civil society, a multi-party system, and market relations. But all the reforms of the then government were doomed to failure because they had neither the political time nor economic space left for their implementation.

090

податкова система


trao blic r tratiorm In 1991, with the proclamation of Ukraine's independence, a patriotic and somewhat spontaneous construction of a new state began, which had room for everything: both the remains of the Ukrainian SSR, the workers' movement, dissidents, new democrats, and old Communists. It is indicative that the Communist Party was banned only in December 2015, until then it continued to be an influential part of the political process and the system of public administration. One way or another, since independence and until now the new system of public administration is constantly changing under the pressure of harsh criticism of society.

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091


Labor strikes preceding the collapse of the USSR were temporarily halted, but eventually resulted in massive unprecedented protests: because of the massive falsifications during the 2004 presidential election, the Orange Revolution took place, and the refusal to sign the Association Agreement with the EU led to the Revolution of Dignity, initiating fundamental changes in all spheres of life of the state and its citizens. Whatever authority, trust in state institutions and politicians have always been extremely low. So, according to the Razumkov Center research on the level of Ukrainians' trust in the government in 2000-2015, the authorities were supported:*

December 2000 December 2001 December 2002

10,3% 6,3% 5,6%

December 2003

5,3%

December 2004

13,6%

December 2005

8%

December 2006

9,2%

December 2007

12,2%

December 2008 4,3% October 2009

5,6%

November 2010 December 2011 December 2012

13,2% 4,6% 5,9%

March 2013 December 2014 March 2015

8% 5,1% 4,5%

December 2016 1,7%

*the study was carried out by the Ilko Kucheriv Democratic Initiatives Foundation together with the sociological service of the Razumkov Center

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At the same time, according to the corruption index from 1 (the lowest indicator) to 7 (the highest indicator), statistics on Ukraine for 1999-2017 according to Freedom House are as follows:

1999–2002 2003–2011 2012–2013

6.0 5.75 6.0

2014 2015–2016 2017

6.25 6.0 5.75

The low level of trust combined with high level of corruption shows the fundamental problems of the state apparatus and the lack of communication between authorities and citizens. At the same time, trust in institutions of state power is a cornerstone of the effectiveness of these institutions and their efficiency.

Public administration reform

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Current state

According to the “Ukraine-2020” strategy, the objective of the reform is to build a transparent, professional and effective public administration system using the latest e-government technologies. The provisions of the reform are agreed with the European standards and reflected in the Association Agreement with the EU. The complexity of the reform is that the state apparatus must reform itself. In December 2015, a new law "On Civil Service" was adopted. For its effective implementation, the staff of the National Agency of Ukraine on Civil Service has been increased by 30 employees. In May 2016, the Cabinet of Ministers of Ukraine set up the Coordination Council of Public Administration Reform, approved the Reform Strategy and created working groups. In August 2016, the Departments of Public Administration and Strategic Planning and State Policy Coordination were set up within the structure of the Secretariat of Cabinet of Ministers. Aside from the Secretariat of the Cabinet of Ministers and the National Agency for Civil Service, the implementation of the Strategy is entrusted to the Ministry of Economic Development and Trade, the Ministry of Regional Development, the Ministry of Finance, the Ministry of Social Policy, the Ministry of Justice and the State Agency for E-Governance. An important stage of the reform process is the continuous monitoring of international and domestic legislations and international obligations of Ukraine within the framework of agreements with the IMF, the EU, the World Bank, EBRD, and other international organizations, as well as the involvement of international and independent experts for appropriate consultations. One of the main aspects of the new reform is the increased demands on the civil servants’ professionalism: under the new conditions envisaged by the Law "On Civil Service," in 2016 the competitions for announced vacancies for state bodies were held. In addition, in cooperation with the World Bank, the gradual filling of the modules of the information management e-system of human resources have begun.

The complexity is that the state apparatus must reform itself

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Public administration reform


There have also been changes in the field of civil servants' wages. In the budget for 2017, the payroll fund for civil servants amounts to UAH 29.7 billion (against UAH 19.2 billion in 2016). EU financial support under the new budget program "Support to Implementation of Public Administration Reform" in 2017 foresees an additional UAH 300 million for the remuneration of civil servants in key positions, which have the most influence on the successful implementation of all reforms. Although the reform does not include an ambitious transition plan to e-government, some steps towards improving administrative services are still observed. One of the most significant achievements of the reform is the creation of a network of Centers for the administrative services provision. At the beginning of 2017, 682 centers were created. Currently, such centers provide the most popular administrative services among the population. They include registration of residence, real estate, business, issuance of extracts and certificates from the land cadastre. Soon, it is also planned to transfer the authority for registration of civil status acts, land plots, vehicles, as well as the issuing driver's licenses. The Administrative Services Centers (CNAP), under the reform plan, should receive even more opportunities through the decentralization of power (for more details see the chapter on decentralization). It is planned that soon centers will provide many services electronically.

Public administration reform

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The Ministry of Economic Development and Trade with the participation of the Office of Administrative Services is developing 15 administrative services, which are intended to be optimized: birth registration, child support assignment, residence registration and drop registration, issuance of family composition certificates, a passport of a citizen of Ukraine (ID), foreign passport, a taxpayer card, driver's license, state registration of land with extracts from the State Land Cadastre, state registration of rights in real property, state registration (re-registration) of vehicles, registration of a declaration of readiness of an object exploitation, assignment of a housing subsidy, state registration of a legal entity, a person intending to become an entrepreneur, a permit for non-standard vehicles to participate in road traffic. The Unified State Portal of Administrative Services poslugy.gov.ua has started its work on the test mode, and there is already a possibility to apply for the registration of about 20 documents related to construction, foreign economic activity, and land title. However, online you can receive only a confirmation of the right to receive a document, the very procedure of submission and receipt remains unchanged: on the first-come-first-served basis. The situation with an online service of child care assistance is very indicative: you can undergo the entire procedure online, but you need to have an Electronic Digital Signature, and to get it you should visit one of the offices of the Accredited Keys Certification Center. Another innovation is also working only in the test mode. This refers to Bank ID (id.bank.gov.ua) — an electronic identification of citizens through Ukrainian banks for the provision of administrative services via the Internet. Bank ID is set up within the National Bank of Ukraine. But it is supported only by a few state institutions: The Ministry of Justice, the Unified State Administration Services Portal, the Public Services Portal, the Lviv City Council, the Public Project “Budget of City Initiatives" and the independent platform of civil initiatives MiyGolos.org. ua. All services and facilities provided by Bank ID or any of the above mentioned online services are insignificant and are more of a consultative and informational nature: which documents are necessary for obtaining a certificate, where exactly a document can be obtained? Unfortunately, none of the services does obviate the need for direct contact with public services.

An important step in the reform process is the continuous monitoring

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Public administration reform


In other words, the reform of public administration in Ukraine Still continues. And while the world is rapidly approaching the introduction of Electronic government, our country is also Gradually making minor steps in the direction of e-government

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097


E-Governance in Ukraine

In September 2016, the Ukrainian government approved the Provision on Electronic Interaction of the State Electronic Information Resources. It is about creating a virtual data exchange system between different registries of various public institutions. In the long run, this will allow automating the processes of verification and comparison of data so that the user of the services had no need to receive the certificate in one institution to submit it to another, which would reduce the opportunities for corruption. In November 2016, the Concept of the electronic services provision was approved, defining the list of services and their priority, the stages of introduction and the basic principles of functioning. The exchange of electronic databases is carried out between the Secretariat of the Cabinet of Ministers of Ukraine, central executive authorities and regional state administrations. Work on synchronization of the basic state registries has also begun. The 2017 budget includes UAH 235 million for the implementation of the program "E-Governance and the National Informatization Program." Last year for this purpose was allocated only UAH 2 million. In 2017, the allocated funds are planned to provide the full-fledged work of electronic interaction between the authorities, the state portal of open data, and the national register of electronic information resources; to improve the e-governance portal, to create the basis for the implementation of a single format of the electronic document and the integrated electronic identification system (ID). An integrated electronic identification system is a person identification procedure that, in the future, when the full-fledged electronic system to be created, will allow the state institutions services to be used online for maximum comfort. Issuance of ID-cards has already begun, gradually they replace internal civil passports. But for the time being it is impossible to use all the capabilities of ID-card, the system is not ready yet.

International organizations

Creating an efficient, transparent and reliable electronic government system is one of the essential requirements of the EU-Association Agreement, as well as agreements with the European Atomic Energy Community and their Member States, the International Monetary Fund. Following the international agreements, the Ukrainian authorities should ensure reliable access to electronic services and electronic identification. The state pledged to implement this reform by 2020, in accordance with the Concept for the development of the electronic identification system in Ukraine. The partners and consultants of Ukraine in this reform are the member states of the EU, where the electronic systems have been successfully and widely implemented.

098

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Public administration reform

099


Interesting Facts

The obligation to carry out the reform of public administration is enshrined in the State Building Contract with the European Commission, the Strategy for Sustainable Development “Ukraine-2020”, the Coalition Agreement, and the Program of Activities of the Cabinet of Ministers of Ukraine. The biggest problem of civil service is that the ministries manage the enterprises: issue permits, regulate activities. This is not typical of a democratic system and gives rise to corruption. Because of the reform, the civil service should remain as a policy-making body, and all regulatory functions should be transferred to state agencies. The introduction of the post of State Secretary of the Ministry is aimed at differentiating political and administrative positions in the central executive authorities. According to the new law "On Civil Service," the civil servants of the highest “A” category have no right to be members of political parties, to hold positions in the governing bodies of political parties or to be deputies of the local councils. Also, for implementation of the reform, the expert support is provided to the ministries and the Reforms Office under the Cabinet of Ministers. Additionally, an EU Advisory Group on Public Administration Reform was established in 2016, comprising high-level European experts on public administration.

E-government in the world

100

place

place

ranked Ukraine (out of 193 countries) in list of the five e-Government world leaders: Great Britain, Australia, South Korea, and Finland*

ranked Ukraine (out of 191 countries) in In the ranking of e-participation. The leaders are Great Britain, Australia, Japan, South Korea and the Netherlands.*

Public administration reform


million EUR the EU decided to allocate in support of public administration reform in October 2016. Ukraine received the first tranche of EUR 10 million in May 2017 *According to the E-Government Development Index for 2016, the five e-Government

Public administration reform

101


2016 December

the Financial Agreement with the EU was signed to support Ukraine’s public administration reform

June

the Strategy for Ukraine’s Public Administration Reform for 2016-2020 was approved

May

the new law "On Civil Service" came into force

September

the government has decided to join the International Open Data Charter

November

a memorandum on the implementation of the EGOV4UKRAINE project between the State Agency for E-Governance of Ukraine and the Estonian E-Governance Academy was signed

102

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2017 February

the service “Online Justice House" was presented

March

an electronic service for the assignment on child care assistance was presented


Public administration податкова система reform

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reElec laws Election laws reform. Preconditions

For almost seven decades the Ukrainian people had been living in conditions of political monopoly. Elections in the USSR were held as voluntary-compulsory practice and were not a civic responsibility or the right of free will but a demonstrative ceremonial event aimed to show how much every Soviet citizen worships Communist party. Up to 1989 the elections have been held in negative mold: a person had to cross out names or parties in a ballot he or she doesn’t vote for, leaving just one option ‘I agree’. But Soviet ballots had just one option

form 104

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for ction s rem indeed: depending on a district, voters got just one candidate, and there was no need to even put a mark against his name. That kind of elections had no real sense, but this farce was an important national holiday, which the person wasn’t allowed to miss as it was dangerous. That is why a presence on the election was always very high, and it is typically for authoritarian regimes, where ‘people’s choice’ is unanimous. In 1988 Perestroika got to election laws: they allowed alternatives to other parties besides Communist one. Elections for a new executive power body, the Congress of People's Deputies of the Soviet Union,

have been already held on a competitive basis. But that freedom was also just declaratory. One-third of candidates run for positions on behalf of nongovernment organizations, they were chosen by allunion councils from those unions. So, people, in fact, couldn’t influence results, as heads of unions had more than one vote at once. Elections were organized in the majoritarian voting system in singlemember districts in two rounds. In the first tour they had to have more than 50% votes, in the second – just get the majority. The elections were valid if not less than half voters voted. The Ukrainian election law started with this law.

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105


The following editions of this law reflected evolutional changes in society and the country. In March 1994, they held other elections, supported by a new law: keeping the majoritarian voting system, elections went in two rounds, 50% barrier was there as well. But now a candidate had to get an absolute majority of votes in both runoffs. For these conditions, after the parliamentary elections of 1994, the second Verkhovna Rada could get only two-thirds of constitutional seats. But there were positive changes as well. Besides, the new law had fixed supervisors’ participation, international ones too. In 1997 they passed a new long-suffering law, which was given to revision more than 10 times. The law canceled condition of an absolute majority of votes and changed election system to mixed-member proportional one, so half of the deputies were chosen by a proportional system, and half were chosen by majoritarian one. Parties or blocs had to cross 4% barrier in the multi-member nationwide constituency, also, 225 mandates were ‘played’ in single-member electoral districts. After results of the elections, 8 political forces representatives out of 30 parties who registered for the elections got to the Rada. The Communist party got most of the seats (84), People's Movement of Ukraine got the second place (32), and the Electoral bloc of the Socialist Party of Ukraine and the Peasant Party of Ukraine got the third place (29). In 2001, the Verkhovna Rada passed the law which stated using the proportional system only, but the president interposed a veto on it a couple of times. So, the system didn’t change in the end. Anyway, they put a row of some other crucial changes to the law to make the election more democratic. For example, they bought in multiparty representation at the polls and proportional distribution of polls electoral commissions between representatives of different political forces carefully fixed supervisors’ rights, simplified appealing procedures, expanded access to media etc.

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Election law in those times was rather weak which laid in dimly fixed responsibility forElection thelawviolation of it in those times was rather weak which laid in dimly fixed responsibility for the violation of it. For example, the law wasn’t coordinated with the Administrative code to ensure putting sanctions for violation of the law. Voters’ lists became an important factor which influenced the snap elections to the Parliament in 2002: there were no centralized registers, mistakes in lists became a good target for ‘dead souls’ manipulations. These cases were brightly covered in media and were a subject of international supervisors’ complaints, but the elections were validated in the end. Post factum, experts from Democratic Institutions and Human Rights by the Organization for Security and Co-operation in Europe recommended developing Election code to unify and agree on the procedure of the elections of all kinds with other legislative acts in Ukraine. In elections of 2002, 33 parties took part in the nationwide multi-member constituency and 6 of them crossed the barrier. Viktor Yushchenko’s bloc ‘Our Ukraine’ got most of the seats in the Rada (70), the Communist party (59), and then political alliance ‘For United Ukraine!’ (35). In 2005, the Rada passed another law, accepting a proportional system, independent candidates weren’t allowed to stand for elections, and only parties existing more than a year before elections were to submit lists. Soon additional terms have been added to the Constitution: a parliamentarian couldn’t leave the party and be at the Parliament in independent status at the same time. The passing barrier was lowered to 3%, and they counted invalid ballots and ‘against all’ votes which were contrary to international experts’ recommendations. They put a limit term for making changes in election law: not more than 240 days before the elections. But, this term was soon excluded. Also, according to the new law, the term of the Rada was prolonged up to 5 years. In the elections of 2006, 5 out of 45 registered parties passed 3% barrier: the Party of Regions got 186 seats, the Yulia Tymoshenko Bloc – 129 seats, ‘Our Ukraine’ bloc – 81, the Socialist Party of Ukraine – 33, and the Communist Party – 21.

Election laws reform

107


International experts rigidly criticized the elections of 2012 because of many falsifications For the political crisis of 2006–2007 caused by disagreements between the president Viktor Yushchenko, prime minister Viktor Yanukovych and the leader of opposition Yuliia Tymoshenko, the president dissolved the Parliament and called snap elections for September 2007. Crisis reflected election law as well, they put a bunch of important corrections there: citizens lost the possibility to vote with an absentee certificate, it was forbidden to create new foreign polls, they changed rules of voting by location (earlier, if a person wanted to vote for location, she or he had to give documents proving a state of health or invalidity, but in the elections of 2007 a statement with the request was enough). This addition created good conditions for falsifications and manipulations with people’s votes.

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Also, before elections of 2007 voters didn’t have access to information about candidates for deputies which is very important for making minds, such as education, origin, work experience, income, and property declarations, and expired criminal records. Besides, the law about the Central Election Commission was changed. Particularly, the CEC could be discharged after the motivated president’s demand. The next elections to the Parliament of 2012 were held with a new law and once more changed the system, this time mixed one: list of 225 deputies in the multi-member nationwide constituency, and 225 – by majoritarian system. They put 5% barrier and forbade blocks (alliances) of parties to take part in elections. These changes reflected serious changes happening in political life of Ukraine: Viktor Yanukovych won in the presidential elections in 2010, the Party of Regions got the parliament majority, the Constitution was changed to the president-parliamentary republic (as it was till 2006), the leader of the opposition, Yuliia Tymoshenko, was put to jail, international experts openly spoke about falling of democracy in Ukraine, the country got between Iraq and Israel territories by the level of freedom of speech. So, direct correlation of election laws and leading political forces was once more demonstrated: the law was changed again by wishes of the strongest part. International experts, Ukrainian independent supervisors, and opposition representatives rigidly criticized the elections of 2012 because of many falsifications. The then president has also admitted the elections were held with violations, and passed the case to the Prosecutor’s office for analysis. Media spread information about rather high support for the president among prisoners and psychiatric hospitals patients; they sometimes were even higher than general party statistics in regions. In December 2013, they organized re-elections in five constituencies. 2014 was a crucial year for Ukraine. Snap presidential and parliament elections have been held; they changed the mix of the political elite. The main election law wasn’t really changed, although there were discussions about giving political blocs right to take part in the elections back, and about having a proportional system. But, changes to the Constitution have been canceled, Ukraine became Parliament republic again.

2014 was a crucial year for Ukraine: it became Parliament republic again Election laws reform

109


Local elections in Ukraine In July 2015 they passed current law ‘About the local elections’. According to law paragraphs: — village councils deputies are chosen by a majoritarian system of a relative majority in single-member constituencies; — town/city heads are chosen by a majoritarian system of an absolute majority in the only single-member constituency; — village, town (in ones where a number of voters are less than 90 thousand) heads are chosen by a majoritarian system of relative majority in the single-member constituency; — united territorial communities heads are chosen by a majoritarian system of relative majority in the only single-member constituency of the united territorial community; — the Verkhovna Rada of the Autonomous Republic of Crimea, region, district, town, district in town councils are chosen by proportional election system in a multi-member constituency with lists of fixed territorial candidates.

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Election податкова lawsсистема reform

111


Current situation

After the elections of 2014 election law reform was the requirement of time. It was announced with other reforms along in 2015, but up to May 2017, it has never been executed. There are several variants of reforms, law projects, but none of them has been revised in the Verkhovna Rada yet. Law project about people's deputies of Ukraine elections No 1068 from 27.11.2014 The initiator – Yurii Miroshnychenko, the ‘Opposition Bloc’ party. According to this project, they offer proportional election system with closed parties lists and 1% barrier, having party blocs take part in elections again, as well as the demand to publicly inform about sources of finance, make party lists public not less than 7 days before the constituent assembly. The Main Scientific and Expert Department noted in its conclusion on the project, that using of ‘proportional election system with “closed” parties lists (either in parliament or local elections) showed a bunch of crucial disadvantages numerously criticized by lawyers and experts inside and out of the country’. The main disadvantage of the aforesaid system (especially visible while having elections in the only nationwide multi-member constituency) is the absence of direct communication voters and deputies. In this basis, we think, changing proportional system with ‘closed’ lists to the one with ‘open’ lists would be the better alternative. In the end, experts recommended rejecting the project. Law project about people’s deputies of Ukraine elections (with open party lists) No 1068-1 from 02.12.2014 Initiators: Yuliia Tymoshenko, Serhii Soboliev, Ivan Kyrylenko, Ivan Krulko, Ihor Lutsenko, Borys Tarasiuk, Alona Shkrum, Hryhorii Nemyria, Vadym Ivchenko, Vladyslav Bukhariev, Oleksii Riabchyn, Oleksandra Kuzhel (all from the All-Ukrainian Union "Fatherland" (Batkivshchyna). The project offers to hold elections by the proportional system with a nationwide voting list and with candidates fixed to territorial constituencies, and 5% barrier.

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Election laws reform


Expert department recommends sending his project to revision, as, according to the project, ‘voter, in fact, doesn’t make a choice among some alternative candidates, but he or she just support the only candidate fixed to a respective constituency, and that doesn’t make offered system the proportional one with open lists’. Law project about people’s deputies elections of Ukraine No 1068-2 from 11.12.2014 Project initiators: Viktor Chumak (non-factious), Nataliia Ahafonova, Nataliia Novak, Pavlo Rizanenko (the Petro Poroshenko bloc), Leonid Yemets (the ‘People's Front’ party). Deputies offered the proportional system with nationwide and regional voting candidates’ lists. That is the system international experts advised as it allows joining high demands to candidates and needs to represent regional interests. The Main Scientific and Expert Department recommended taking this project as a basis (considering advice).

experts think codification of an unstable part of legislation doesn’t make sense Project of Election code of Ukraine No 3112 from 16.09.2015 The initiator – Valerii Pysarenko, deputy group ‘Revival’. The project offers the Parliament election system, similar to the local election system, which is said to be proportional but has no open lists. According to the Main Scientific and Expert Department conclusion, ‘offered model doesn’t allow voters to choose a candidate from the party list because party offers just one candidate in a territorial constituency with no alternative. So, the election system in the project cannot be seen as proportional one with open lists’. Also, experts think codification of an unstable part of legislation doesn’t make sense. The project is full of other complaints, so experts recommend sending it to revision. Project of Election code of Ukraine No 3112-1 from 02.10.2015 Initiators: Andrii Parubii, Leonid Yemets (the ‘People's Front’ party), Oleksandr Chernenko (the Petro Poroshenko Bloc). The project offers a new model of the parliamentary election system: personified voting which allows the voter to vote for a particular candidate included into regional party list. The expert department thinks the project can be taken as a basis (considering advice). All the projects mentioned above were presented more than a year ago but passed to the Verkhovna Rada just in March 2017. And the process didn’t move further.

Election laws reform

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After the elections of 2014 election law reform was the requirement of time

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Voters activity 1991 an All-Ukrainian referendum on the Act of Declaration of Independence of Ukraine and the presidential elections – 84,32% (percent of voters who got ballots relating to the general voter's quantity in the voter 's list of constituencies) 1994 people’s deputies of Ukraine elections – 76,07%. 1994 presidential elections – 70,62% (the first runoff), 71,74% (the second runoff). 1998 people’s deputies of Ukraine elections – 71,21%. 1999 presidential elections – 70,19% (the first runoff), 74,92% (the second runoff). 2002 people’s deputies of Ukraine elections — 69,39%. 2004 presidential elections — 74,56% (the first runoff), 80,44% (the second runoff), 77,20% (repeated second run off). 2006 people’s deputies of Ukraine elections — 67,58%. 2007 snap people’s deputies of Ukraine elections — 57,94%. 2010 presidential elections — 66,76% (the first runoff), 69,15% (the second runoff). 2012 people’s deputies of Ukraine elections — 57,98%. 2014 snap presidential elections — 60,29%. 2014 snap people’s deputies of Ukraine elections — 52,42%.

Election laws reform

115


1989 October

1996

1993

1997

UkSSR (the Ukrainian Soviet Socialist Republic) election law about people’s deputies was passed. It has been valid until November 1993, was edited 4 times

November

a new election law about people’s deputies of Ukraine passed. The law had 9 editions

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податкова Election laws система reform

June

the Constitution of Ukraine (aimed to replace the Constitution of 1978) was passed; as the Constitution took effect the law of 1993 lost its validity

September

a new election law about people’s deputies of Ukraine was passed, it had 9 editions


2001 2011 October

a new election law about people’s deputies of Ukraine was passed, it had 7 editions

November

a new election law about people’s deputies of Ukraine was passed. The 13th edition of this law is now in action \ valid

2004 2017 March

a new election law about people’s deputies of Ukraine was passed, it had 14 editions

March

three election law projects and two Election code projects on first reading were passed to the Verkhovna Rada

Election податкова lawsсистема reform

117


ment rm Dece lizatio and the te manageme r Decentralization and the state management reform . Preconditions

In Ukraine, discussions about the necessity of the administrative-territorial reform started right after the Declaration of Independence in 1991, taking into account local special features of each region. There was and now is a division of Ukraine into regions and districts was not only obsolete but also deliberately created in order to blur ethnic and traditional lines. New regions

118

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na entraon the sta na ent reform were often created only because a number of ruling party members became too big for the “average district committee”, so had to create another one, and then another district committee, district executive committee and the whole “pack” of other bodies, district departments, district courts, etc. You can still find so called “matryoshka doll”-like structures to this day in Ukraine when towns and villages are being an internal part of the city. This means during the election inhabitants elect two town or village heads, or one village head and one town head, and deputies of the village, town and city councils.

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there is a lack of workable population in villages and towns capable of creating the additional value, GDP/GRP and income for budgets of all levels

But, the main thing is that since the 90’s, for almost more than a decade, the system of strict power decentralization inherited from the Soviet Union had not been changed in any way. However, in spite of the existence of local councils and declared selfgovernment, the real power of budget funds allocation was held by the district and regional state administration apparatuses, heads of which were appointed directly by the president from the capital since 1995. The very approach to the budget formation itself was being profoundly changed almost yearly. This had lead to the further empowerment of the centralized government and dependence of local self-government on “the center� and the policies enacted at the time.

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All of the tax money first was directed to the general “treasury” in Kiev. After that, the funds were, in fact, manually allocated by the Verkhovna Rada and the Cabinet of Ministers. This system provided possibilities to create artificial difficulties in financing. A huge amount of local cultural, healthcare and education institutions that were maintained by the state were severely underfunded. Most importantly, this system made mayors effectively “trained” and allowed to “give to this one, and give nothing to that unpolite one” like in that children’s tale about Crow-piet. “Politeness”, of course, meant unconditional loyalty. This system had lead to a total absence of correlation between city or territory economic advances and its local budget’s funding. Thereby, the lack of local elite’s interest in developing the economy and drawing investments had finally affected the whole country’s economy. The whole regions became a subsidiary, a number of small towns and villages became economically depressive. The situation got a little better in 2002 after the Budget code was approved, however, it did not create the system which allowed those who effectively draw investments and facilitate economic development to have more resources for development. Those problems were “heating up” due to the flaws of the administrative-territorial system described above. There is a difference between the administrative-territorial system and changed the reality of economic and social relations, and totally different manufacture structure. This all was accompanied by a growing urbanization of the country during the last fifteen years. In the beginning of the 50’s Ukraine was mainly agricultural, but the majority of the population had moved to cities until the end of the twentieth century. During the first decade of the last century, the migration processes had spread to the small towns either. Those processes had happened at the same time with the swift change in the age structure of the population of some territories. Therefore, there is a lack of workable population in villages and towns capable of creating the additional value, respective economic product (GDP/GRP) and income for budgets of all levels. Villages in a lot of regions simply extinct. It’s clear that the weakened economy is not only unable to sustain the bulky bureaucratic system of numerous bodies, but also has troubles maintaining low capacity schools and hospitals that do not cure, but rather account for each “housing bed space”. Gradually the lack of funds for the local needs of education, healthcare institutions, roads, communal infrastructure, cultural activities, and institutions were established. The image of “the Capital” taking away all the money from regions and returning only crumbs was clearly engraved into the public consciousness. This stereotype was in its turn exploited by the Russian aggressor in 2014. Centralized governance also had one special treat: very small amount of horizontal relations not only between regions but also between neighboring villages, since there was no need for cooperation — all major managerial decisions were not made locally. The majority of village councils were not the only subsidiary but also absolved from any real authority. It’s worth mentioning that low activity of local communities did not make the situation any better: centralization, paternalism, expecting “the Centre” to be guilty of everything existed like one of the mindsets and traditions. Thereby, in 2014 Ukraine had an archaic, unique and ineffective system of local self-government and governance of the regions. Every attempt to carry out this reform was incomplete and never achieved any noticeable progress before.

Decentralization and the state management reform

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The reform’s course

In fact, the reform was started on the 1st of April 2014, when the Cabinet of Ministers approved the Concept of local self-government reform by its order No333-r. The reform gained a legal basis when the Rada approved the law “About cooperation of territorial communities” in June 2014. The essence of the reform was described in the article by the prime minister Volodymyr Hroisman: “Authority, resources, and control are three whales effective model of local self-government is based on. Our efforts are concentrated on those three directions today. Communities must be able to take wide authority in local problems solving on their own. After having the appropriate economic instruments (taxes and deductibles) they have to gain all the required resources for themselves… In order to save the Ukrainian village we have created the mechanism of voluntary association of communities that will stimulate the development of new territories.’ So, the declarative essence of the reform is providing local self-government bodies with the financial basis for solving their local problems. Finally, the legislator created an environment that allowed to convert outcomes of economic development into incomes of local budgets by approving changes to the Budget code. At the same time, the process of change in administrative-territorial system was started, it allowed not only increasing of income to budgets but also using it more efficiently since the enlargement of communities optimized the bureaucratic apparatus. Simple example. Take the smallest village council in Ukraine in 2015 consisting of only 89 people. Obviously, this community has to elect the head of the village and 12 representatives. This council also had to have three employees. Therefore, every fifth person including infants and seniors had a direct relation to governing authority, having absolutely no resources for its enactment. Is this efficient? The reader is able to tell for him or herself. Is school or healthcare facility viable in this community? How to create and maintain infrastructure if incomes are not even sufficient for maintenance of the head of the village? There are also the same problems on the regional level. Thereby, the smallest district of Ukraine has the population of 6.5 thousand people, whereas the biggest — 180. Naturally, it is hard to imagine how such region is able to be subsidiary and earn enough to maintain the whole managerial superstructure. Consequentially, It is planned to reorganize the sub regional (district) level. In expert discussions, there are several options for this to be paid out, from the complete abolition of the district level of government (it is impossible to implement without changes to the Constitution of Ukraine) to its consolidation, by creating 3-6 larger regions or counties per area. In the longer term, it is also about the possible enlargement of regions to the level of economically sound regions such as NUTS 1 Euroregions, but this issue is not even being developed in legislative documents. The main problem is that public consciousness is not ready to accept these changes. Reforms of the administrative-territorial system are not limited only to the "redrawing of boundaries". This is a complex of changes,

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the local governments mainly used funds to solve current problems. which can cause problems in future including a possibility of creating a municipal guard or police within the communities — a structure that should monitor compliance with the rules of improvement, the management of solid domestic waste, parking rules, building, and public order. Those structures will obviously not be carrying out the functions assigned to the National Police, particularly crime investigations. Instead of DSA (District state administration)/RSA (Regional state administration) system, the mechanism of state prefects has to be created in order to control the law abidance. The local budgets had already received the first portion of grant funds in 2015. As a result of fiscal decentralization and the tax database reform, the incomes have increased by 50% on average.

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The local budgets held in the incomes from personal income tax and from income tax for utility enterprises. Also the local budgets received the income from the provision of administrative services in local authority bodies and from state taxation, increased the percentage of enrollment of environmental tax from 35 to 80%, the retail sale tax of excisable goods at a rate of up to 5% of the value of the goods sold, land payment, a single tax, property tax, etc. The result was instantly tangible.

The reformation process is a difficult one; there is a place for compromise for both “central power� and local communities

billions uah or 49.6% increase in revenues of the general fund of local budgets during first 10 months of 2016 in comparison to 2015 *

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However, according to the polls from the Ilko Kucheriv “Democratic Initiatives” fund, carried out in 2016, the local governments mainly used those funds to solve current problems. While almost nothing is given for the long run, which can cause problems in future. However, if the process of transferring of new funds was perceived very upbeat, the process of community unification was slowing down significantly. The “Democratic Initiatives” fund research also found out that local bodies that acquired a significant profit are not in a rush to associate with smaller less well off neighbors. It is about the big cities that have significant revenue sources or large enterprises located within its borders. Not all local heads are interested in the unification of local communities since the unification could lead to new elections and to them losing their current positions. The fear of losing job also increases the resistance among regional unit officials (district administrations and council officials) and the deputies of regional councils, since if the unification and regional enlargement are carried out, they will be out of a job. But the process of reforming goes on regardless. At this time, 1970 communities function the old way, and 410 of new unified communities are created. Also, almost 200 are in the different stages of reforming, and if they proceed, the process of reforming of the country becomes irreversible. There is a number of bills registered in the Verhovna Rada that allow for the abolition of the regions where the whole territory is covered by a unified community, there are also the project acts that will create the ability to unify communities around the cities of the region. The reformation process is a difficult one; there is a place for compromise for both “central power” and local communities. So in 2017, the local communities not only obtained bigger budgets, but also additional tolls that were never in order before. The obligation to pay the utility bills for education and healthcare facilities was particularly hard to perceive at the local level, just as the obligation to pay salary to tech staff. The government argued this will allow local communities to use funds more efficiently. Secondly, paying utilities will pursue the responsible attitude towards spending of energy and the implementation of energy efficient technologies and active participation in energy efficiency programs. The decision either to insulate the school walls or to heat up the air in the vicinity for the taxpayer’s dime will be made exactly on the local level.

billions uah Residues on community deposit accounts comprised* *according to the Ministry of Finance

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There is a lack of success stories in the implementation of decentralization policy The decision to put the tolls of subsidies towards some categories of people was also met critically. Sadly, today we can speak about the reform slow down because of the lack of legislative support. The tempo of legislative base formation slowed down significantly. In the beginning of 2015, the prime minister announced the approval of a row of bills: “About administrative-territorial system of Ukraine”, “About local self-government”, “About local government bodies”, “About local referendums”, “About self-government bodies”, etc. Later the changes from those bills had to be added to the Constitution of Ukraine. However, those bills are yet to be approved. Some are declined by the parliament, some are sent on refinement, some are unable to make it through because there are too many versions of them from different political powers, which make those bills impossible to finalize. The local unified territorial communities have no understandable legal background for further unification and enlargement. Moreover, the communities are spooked by a simple inability to govern their lands outside the borders of their settlements and to plan their territorial development. Also, due to the lack of a clear solution of some debatable moments, the Central Election Commission was forced to deny carrying out elections in 28 already created unified territorial communities that unite the communities from different regions. We hope that recently approved bill will change the way the Central Election commission looks at this question.

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The State budget 2017 is also partially responsible for the slowdown: subvention for community-based infrastructure fell twice, while the number of communities increased. The Verhovna Rada could only return to reviewing this question only the day before the holidays. The state fund for regional development has in fact been shrunk from 3.5 to 1 billion hryvnias. Besides, the fund itself is not even guaranteed anymore — it’s been divided to general and special by the changes to the Budget code. A significant problem is the lack of skilled staff for newly created territorial communities and their associations. Even the employees of local selfgovernments and district state administrations are often not competent on some issues. In particular, considerable problems arose in the area of decentralization of the architectural and construction control systems. Some communities cannot be responsible for those subjects only due to the lack of qualified specialists. There is a lack of success stories in the implementation of decentralization policy (even though they certainly exist) that could show the benefits of the reform. In relation to this, it is important to conduct information campaigns and establish quality feedback between authorities and population. Positive feedback is delivered to people much less frequently than overall negative coverage, which mass media accompanies almost every government reform with.

The majority of Ukrainians did not feel any noticeable changes caused by the increase of local budgets during one and a half year of financial decentralization: * 8% felt changes for the worse

16% 67%

felt changes for the better of Ukrainians did not feel any noticeable changes from usage of new funds

*the research of the“Democratic initiatives fund”

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Interesting facts

It’s worth noting that according to polls the Ukrainians support the idea of decentralization. The poll conducted by the Kyiv international institute of sociology, which was commissioned by the European Council Program in September-October of 2015 showed that the majority (59%) of the Ukrainians consider the self-governance reform necessary.

43% More than 40%

of the Ukrainians expect the situation in Ukraine to get better after the reform is carried out consider the reform to be helpful in resolving the conflict in the East of the country

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Another study by TNS company, together with the National Council for Reforms at the end of 2015, showed that most Ukrainians believe that decentralization will solve the problem of poor local infrastructure development. In the second place, there was uneven funding of the regions: 47% of citizens believed that decentralization would eliminate this problem. About a third of respondents indicated that decentralization would overcome the problem of the village decline, destroy corruption schemes in funding allocation and simplify a procedure for obtaining documents. At the same time, 14% of respondents believed that decentralization would not solve any existing problem. More than half of the respondents called a lack of agreement between the authorities on the implementation of reform one of the problems on the way of decentralization.

according to polls the Ukrainians support the idea of decentralization

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1990 2005 December

the Verkhovna Rada of Ukraine adopted the Law of Ukraine "About local councils of people’s Deputies and local and regional self-government"

1997 May

the Verkhovna Rada of Ukraine adopted the law " About local self-government"

April

the President of Ukraine issued Decree No. 706/ 2005 "About the National Council on issues of public administration and local government »

2009 July

the Cabinet of Ministers adopted the Decree No. 900-р ‘About ‘the Concept of local Self-government reform’

1998 2012 July

the President of Ukraine issued Decree No. 810 (810/98) "On measures for implementation of the concept of administrative reform in Ukraine"

June

2000 May

the Cabinet of Ministers passed a resolution number 521 "About the development of small cities"

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the Verkhovna Rada of Ukraine adopted the Law of Ukraine No. 5003-VI ‘About amendments to the Land Code of Ukraine and other laws of Ukraine on land works related to the establishment and modification of the borders of villages, settlements, cities and districts’


2014 2016 April

the Cabinet of Ministers of Ukraine adopted the Order No. 333-p ‘About approval of the concept of reforming local self-government and territorial organization of power in Ukraine’

March

the first elections of deputies of village, town, city councils and corresponding villages, towns, city mayors happened in 25 unified communities

June

the Verkhovna Rada of Ukraine adopted the Law No. 1508-VII "About cooperation of territorial communities"

December

the Verkhovna Rada of Ukraine adopted Law No. 79-VIII "About amendments to the Budget Code of Ukraine on the reform of intergovernmental fiscal relations"

2015

2017 February

the Verkhovna Rada of Ukraine adopted series of Laws: Regarding the Status of Old-Age Villages, Settlements; regarding the acquisition of authority of village, settlement, city mayors; concerning the voluntary adoption of territorial communities; concerning peculiarities of voluntary unification of territorial communities located on the territories of the adjacent areas"

February

the Verkhovna Rada of Ukraine adopted Law No. 156-VIII "About principles of state regional policy"

November

the Verkhovna Rada of Ukraine adopted the Law No. 3490 "About amendments to the Budget Code of Ukraine regarding peculiarities of the formation and implementation of budgets of the unified territorial communities"

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on Refor the sta perty g and pr vatizat Reform of the state property management and privatization. Background

Since the Soviet era, there is a stereotype prevailing in the society — the states means nobodies. The absence of the physical owner produced the corresponding attitude: if I steal, the state will not grow poor. Ukraine experiences the effect of such an attitude to this day. This is most evident with respect to the state enterprises.

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and p va rm of ate promanagement rition Re Numerous studies that cover different countries, not only post-Soviet ones, confirm that the state is the ineffective owner. The World Bank's research "Bureaucrats in Business: The Economics and State Administration Policy" has brought a close to this issue. Therefore, it becomes clear that the problem of state property is not a peculiarity of Ukraine. When it comes to enterprise development and investment, there are solutions based on intuition, and they are always risky.

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The general inefficiency of the state-owned enterprises requires radical changes. The first step is privatization All current decisions concerning enterprise management and its development — not mentioning innovations where it is impossible to foresee anything at all — are too risky. It is hard to substantiate certain business movements and give them a clear explanation since it is impossible to prescribe the way of taking a decision. Therefore, if the decision is taken by bureaucrats who are not responsible for the consequences with their own property, in most cases it is not successful, or it is not made up at all since bureaucrats are people who avoid risk. With rare exceptions, this is the reason for the decline of state-owned enterprises, and it works all over the world, regardless of the "quality" of the state. So far, people in Ukraine consider state-owned enterprises as nobody’s but on the other hand — as public, "peoples," and accordingly, they grudge selling them cheap. This attitude is crucial for understanding what people think about the privatization and management of the state-owned enterprises. Both first and second statements are true, this property is a "nobody’s" and "public," but these are different aspects of property rights. Ownership rights have at least four aspects: legal possession when the person is the owner, and the documents certify it; the disposition right; the right of operational management; the right to receive property income. In the case of state-owned enterprises, there are two problems: de jure, they belong to the state, and de facto, to those who control it. The people of Ukraine have no possession rights to the state-owned enterprises and possess these enterprises only to the extent they control their own state. In its turn, the state has title rights, but, in fact, it does not manage the property. At least until 2014, there was a massive practice when at all state-owned enterprises there were "supervisors,” “directors" or representatives of clan groups who received these companies to pump out funds. In fact, the right to manage and, accordingly, the right to receive income has been usurped until now and remains to be usurped by such groups. Thus, people do not own these enterprises, not only because they cannot control the state, but also because the state does not control these enterprises as well. This situation existed even during Soviet times: the population did not control the Soviet state, and the state did not control the "red" directors. Accordingly, during the privatization of the 90s, people had not lost anything, since they did not have anything. Such management conditions are favorable for soaring corruption, the scope of which has only recently been measured in numbers. According to the National Anti-Corruption Bureau of Ukraine, only in 35 state-owned enterprises, of which 15 are among the top 100 stateowned companies by the assets volume (according to the Ministry

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of Economic Development and Trade), the losses from corruption offenses exceed UAH 20 billion. The most corrupted are companies of fuel and energy complex, agro-industrial complex, mining and metals sector, chemical industry, and transport industry. Among the most resonant investigations, it is worth mentioning cases involving the following companies “Ukrgazvydobuvannya,” “Zaporizhiaoblenergo,” the State Food and Grain Corporation, the Odessa Port Plant, and others. Existing schemes of corruption and withdrawal of funds from the State Enterprises are not too intricate: selling products or providing services at low prices; carrying out deliberately unprofitable operations; providing prepayment for goods and services, following which the contractor disappears or becomes bankrupt; the purchase of goods and services at overvalued prices; reduced Bank deposit rates, etc.

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In addition to the chemical industry, all sectors have shown positive dynamics of net income

At the same time, the state in relation to the loss-making assets followed the philosophy of "a bag without a handle": it is hard to carry, but impossible to throw it away. There was not enough political will, understanding of the problem, or skilled personnel for radical reforms. State property and financial flows of state-owned enterprises became another "honeypot" for sticky fingered dealers and officials. It should be noted that the total cost of keeping the strategic stateowned companies afloat until recently was enormous. NJSC “Naftogaz” received the biggest amount of subsidies from the state, which in 2014 amounted to UAH 110 billion. However, with the beginning of the reform of the monopolist its financial situation began to improve, the NJSC ceased to be a "yoke" for the state. In 2015, the deficit of the state-owned enterprise was reduced to 0.9% of GDP from 5.6% in 2014. According to the results of 2015, NJSC had a net loss of UAH 25.1 billion (in 2014 this figure amounted to UAH 90 billion) and received operating profit of UAH 4.5 billion for the first time in six years. Already in 2016, “Naftogaz” received a net profit of UAH 26.5 billion for the first time in the last five years. However, the improvement of “Naftogaz’s” performance was mainly because the company was obliged to supply gas to the population (and not only to the population) at bargain prices. Since this situation was improved, it is natural that “Naftogaz” began to get profits. If we talk about the largest state assets, then the total loss of the top 100 largest enterprises in 2015 decreased to UAH 42.6 billion from UAH 119 billion in the previous year. Already in the first half of 2016, this group of state companies showed a profit of UAH 31.6 billion. In addition to the chemical industry, all sectors have shown positive dynamics of net income. Following the results of 2016, it is expected to receive UAH 20-23 billion of profit. This indicator was based on the NJSC’s indicators (due to price rises for energy products and tariffs for the appropriate services). The general inefficiency of the state enterprises functioning requires radical changes. The first step is privatization. However, the privatization policy in Ukraine over the past three years can be considered a failure. For the third consecutive year, plans for obtaining UAH 17 billion from the state property privatization (funds will be sent to the state budget) are postponed for the next year. The nominal reason is the non-compliance with the privatization revenue plan. Thus, privatization revenues to the state budget in 2015-2016 amounted to UAH 151.5 million (3 times less than in 2014) and UAH 188.9 million (+ 25% by 2015), respectively. The actual reason is the disruption of privatization tenders and their delay. The privatization of Odessa Port Plant and other large energy facilities was postponed until 2017. The privatization of the Oblenergo in 2016 (“Kharkivoblenergo,” “Zaporizhyaoblenergo,” “Mykolayiv Oblenergo,” “Khmelnytskoblenergo,” “Ternopiloblenergo” and

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“Centrenergo”) did not take place due to advisers' recommendations to sell the company only after the adoption of new laws in the field of electrical energy industry (adopted in April 2017). It is to be recalled that privatization by 2005 (the Rubicon was the sale of “Kryvorizhstal” for USD 5 billion) was carried out under nontransparent rules, the applicants for one or another asset were already fixed, the competitions were fictitious, with the participation of affiliated members who gave the appearance of competition. All of this influenced the value of state assets, which was not a market value. Privatization helped to form oligarchic groups; however, they already had substantial assets at that time. Another way is to eliminate the state enterprise. In Ukraine, there are about 3,500 state enterprises, and only about 1800 of them are functioning. This figure does not include the separate assets of different state-owned companies but includes enterprises in the ATO zone and Crimea. About 1300 companies are in the process of elimination or on the verge of bankruptcy. At the same time, the Ministry of Economic Development and Trade had no data on more than 300 state-owned companies. Now, within the IMF requirements, the government is preparing for a large-scale privatization or liquidation of unprofitable and formally existing state companies. However, this will not engage the enterprises of the military-industrial complex.

there is a list of state-owned objects that are not subject to privatization, but they could be corporatized

One more way is the corporatization of state-owned companies, which can be considered as preparation of the state enterprises privatization. In 2015, the Ministry of Economic Development planned to corporatize all the stateowned enterprises from the top 100, later the mandatory corporatization of all public enterprises, except government facilities was mentioned in the coalition agreement. However, there is a list of state-owned objects that are not subject to privatization, but they could be corporatized, that is, there is a modification of the management form of state-owned companies. In the draft law "On the list of state property objects that are not subject to privatization," approved by the government in April 2016, among 705 stateowned objects, 394 are subject to corporatization, that is, to the creation of a new transparent and publicly accountable management structure. In November last year, the Cabinet of Ministers has passed a package of decisions regulating the procedure for the corporatization of state-owned companies. It includes the appointment of independent supervisory boards, the procedure for the competitive selection of the state companies’ heads, the improvement of the management structure, etc. Corporatization will affect the 46 largest state enterprises. In addition, there is an option with a concession, in which the Ministry of Economic Development considers 362 companies, including the two major airports in the country – “Boryspil” and “Lviv,” possibly also “Ukravtodor.”

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The current situation

The reform was launched in May 2015 after the Cabinet approved the Strategy for Efficiency Improvement of the Business Entities of the Public Sector of the Economy. The main provisions of the approved strategy are as follows: – to increase the level of transparency of the business entities’ activity (disclosure of information, financial audit by independent auditors); – to strengthen the budgetary supervision; – to segregate functions of the Cabinet and the ministries as a management entity of the state property objects and the regulator; – to improve the corporate governance by business entities; – to align the interests of executive staff and owners of business entities; – to introduce the supervisory boards and independent directors; – to arrange detailed restructuring plans for business entities that are the subject to the highest fiscal risks. A significant impetus to the process of reforming the management of state-owned companies was the so-called law on corporate governance adopted in June 2016, which contained the following innovations: – it could create supervisory boards in unitary state companies and objects of community property before the corporatization; – an Institute of independent directors was established, forming most members of the supervisory boards of all state companies; – the requirement for a mandatory independent financial audit of state companies was introduced, and more demanding standards of information disclosure about the state companies and their management were established. Under the memorandum with the IMF, by the end of June 2017, independent supervisory boards should be appointed in the 15 largest Ukrainian state enterprises. According to the estimates of the Ministry of Economic Development, by the end of 2016, new supervisory boards with mostly independent members were required for 41 state companies (where the assets volume exceeds UAH 2 billion, and the revenue exceeds UAH 1.5 billion). At the same time, the agency reported on the completion of the necessary regulatory framework. On the other hand, in April 2017, the Cabinet abolished the ratification of supervisory boards of state companies, including with the Ministry of Finance and the Ministry of Economic Development, that is, the state enterprises received more powers. Other important changes include the introduction of a transparent process for the appointment of state-owned enterprise executives through competitive selection with the involvement of independent experts and the establishment of a market level of compensation. The current remuneration system and financial incentives do not

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correspond to the level of responsibility, assumed by the top managers of the state companies. At least in some state-owned companies (“Naftogaz,” “Ukrposhta,” etc.), changes have already begun. In 2016, Ukraine has improved the conditions for privatization to attract more buyers, including foreign investors. Now selling 5-10% of shares on the stock exchange before the auction is not mandatory. In addition, it is planned to sell unprofitable and small state-owned assets through ProZorro system, but it has not yet come to the "big" privatization, and if it will, it would be considered as a great victory. Unfortunately, now that is not the case. It should be noted that according to the recommendations of the Organization for Economic Cooperation and Development, the concept of the National Holding Company was developed to differentiate the functions of forming and implementing the state policy with the management function of state-owned objects, that is, for transferring responsibilities from the ministries and departments. The processes of reforming the management of state property provide that objects of critical infrastructure will remain in state ownership, including natural monopolies in the railway and energy sectors, defense and national security sector, and strategically important enterprises.

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The current situation is convenient for politicians whose corrupt interests are combined with political ones

By reducing the number of state-owned objects and increasing the operating efficiency of the remaining ones, the state will be able not to scatter the existing investment resources, but to focus them exclusively on strategic projects of state and regional importance, which, due to low investment attractiveness, will not be appealing to private companies. Now the Government is forced to privatize in very unfavorable conditions: low assets value, low level of trust of potential investors, push back from the government departments who do not want to part with their assets, etc. To remove part of these obstacles, the Cabinet simplified the procedure for transferring property to the State Property Fund of Ukraine (SPFU) in January 2017: from now on, the absence of some individual documents cannot be a reason to suspend privatization. However, despite a slight increase in macroeconomic indicators, there is no reason to expect a significant improvement in the investment climate. The obligation to conduct privatization is "here and now," so the Cabinet must demonstrate to investors the political will, maximum openness, and transparency to increase the level of trust. The current situation in this area is characterized by the fact that the IMF considers privatization as one of the three key reforms to be implemented urgently. For its part, the government recognizes delay in the reform of public property management and privatization, and the need to accelerate this process. To provide legislative support to the process of reforming the management of state property and privatization, many normative documents have already been adopted. In addition to the mentioned above, it is worth noting the Resolution of the Cabinet of Ministers "On Certain Aspects of the Audit of Business Entities of the Public Sector of the Economy"; on conducting a competitive selection of the heads of business entities of the state sector of the economy; bills on amendments to the laws "On Privatization of State Property," "On the List of state property objects that are not subject to privatization"; a resolution on protection of the investors' rights, etc. At the same time, it is also necessary to adopt a new law on the state privatization program and create a regulatory framework for the implementation of corporate governance of the state enterprise. In addition, the State Property Fund of Ukraine, with the help of international experts, has already developed a new privatization law, which, if approved, will contribute to improve the mechanism for determining the initial price of the state property and proceed to the market pricing of state-owned assets. Large privatization objects will be sold with the involvement of an investment advisor. The advisor will study the demand for the facility and offer the SPFU the starting price. The winner of the bidding will be determined in a two-stage auction. The change of people’s attitude is necessary for conducting a successful and transparent privatization of the State Enterprise. The current situation is convenient for politicians whose corrupt interests are combined with political ones.

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Privatization is not a popular reform; therefore, its implementation means a reduction of public support and voters' votes. It is about choosing between a populism that is nice to hear and a reality that is sometimes difficult to accept

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International obligations

International Monetary Fund. At present, the primary factor in the reform of state property management and privatization is Ukraine's commitment to the IMF to receive another loan tranche from the fund. At this stage, the IMF's pressure on the Government is the most effective driving force for privatization. The memorandum of March 2, 2017, states the following: 1. Supervision of fiscal risks of state-owned enterprises. Within the Ministry of Finance will be strengthened the financial risk management unit, whose task is to monitor and analyze fiscal risks. It is planned that a comprehensive report on fiscal risks of the state-owned enterprises’ sector will be included in the 2018 budget documentation. 2. Governance and reform of state-owned enterprises. — Governance. After the adoption of the law on corporate governance of state-owned enterprises, the Cabinet of Ministers will adopt decisions regulating the creation of supervisory boards. By the end of June 2017, the appointment of independent supervisory boards in the 15 largest state companies and writing of audit reports will be completed. Also, there will be explored options for the creation of a single national holding company, whose task will be to manage strategic commercial state enterprises. — Classification of all state enterprises. Public enterprises without clear national strategic interest will be privatized or liquidated. By the end of August 2017, the Cabinet of Ministers will approve the classification data and transfer state enterprises to the State Property Fund of Ukraine (SPFU). 3. Liquidation of the state enterprises. Based on the results of the classification, it is planned to centralize the liquidation of non-operating state companies under the direction of the SPFU. A draft law is currently being prepared, which will allow the SPFU to simplify the liquidation procedure of the state companies with zero assets or with assets that are lower than liabilities. In addition, an analysis of the Law "On Bankruptcy" regarding the state enterprises will be carried out, and the necessary changes will be introduced (the approval of the bill by the Verkhovna Rada is planned by the end of June 2017).

At present, the primary factor in the reform is Ukraine's commitment to the IMF

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4. Privatization. — Improving the legislative framework. The Verkhovna Rada will approve amendments to the Law “On Privatization” to improve transparency and further optimize the process of privatization of medium-sized enterprises by the end of August 2017. — Broadening the range of enterprises for privatization. Based on classification and approval of the legislation on the reduction of the list of companies banned from privatization (expected by the end of June 2017), a schedule for the transfer of additional state companies to the SPFU will be developed. — Acceleration of privatization of small public companies and small-scale assets (real estate, equipment). The implementation is planned to be held via the electronic auctions through the "ProZorro.Sales" system. It is expected that the first auctions will be carried out by the end of June 2017. — Privatization of large state enterprises. The key task is the privatization of Odessa Port Plant (whose sales competition fell apart twice in 2016). For this purpose, the necessary measures on settlement of balance deficiencies were taken to attract international investors (the completion of privatization is scheduled for the first half of 2017). In addition, the privatization of many state enterprises will be initiated by the end of September 2017: “Centrenergo,” “Turboatom,” whose shares were already transferred to the SPFU, and regional energy distribution companies, Oblenergo, whose shares will be transferred to the SPFU. To conduct the privatization of “Ukrspirt” SE, it is necessary to approve amendments to the legislation so that the competitive sale could be completed by the end of September 2017.

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The problem of privatization of state-owned enterprises

From the politico-economical point of view: the politics are driven by interests of those who control the financial flows of enterprises. There is also an appropriate term — "privatization of financial flows." This is a very profitable business, and the one who is "sitting" on these flows has a very high interest so that the enterprise was nowise privatized. On the other hand, there is the interest of the state to get money and plug the budget hole. In addition, there is an interest of the future buyer — who pays the market price for the company and receives marketing profit on invested capital. However, for him, this business is much less profitable than for those who have not invested anything. Accordingly, privatization of state-owned enterprises takes place in two ways: non-transparent, as it was during the presidency of Leonid Kuchma when the right people received assets for the trifling sum; or when the state is strong enough to put the public interest above the personal interests of the "directors." In Ukraine, such a fair privatization happened once — in the case of "Kryvorizhstal."

In Ukraine, such a fair privatization happened once — in the case of "Kryvorizhstal"

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NGOs

Independent experts from various organizations closely monitor the implementation of the reform of the administration of the state property and privatization, among which the following can be noted: • Center for Social and Economic Research CASE-Ukraine — case-ukraine.com.ua • Center for Economic Strategy — ces.org.ua • Independent analytical platform VoxUkraine — voxukraine.org • Non-profit organization EasyBusiness — easybusiness.in.ua • Center of Reform Support — csr.kiev.ua • Institute for Economic Research and Policy Consulting — ier.com.ua

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2015

2016

the Strategy for Sustainable Development “Ukraine2020” was adopted

the Verkhovna Rada approved the Law "On Amending Certain Legislative Acts of Ukraine on the Management of StateOwned Objects" ("On Corporate Governance")

January

May

the Strategy for improving the efficiency of business entities of the state sector of the economy was approved

June

June

the Supervisory Board for the reform of state-owned enterprises was created

146

податкова Reform of the система state property management and privatization


2017 March

a memorandum was signed with the IMF, in which one of the obligations of Ukraine is the reform of state property management and the privatization process

April

the Government approved the Medium-term Plan of Priority Actions for the Government until 2020

Reform of the state property management податкова and privatization система

147


ment

De lation entr pr ship develop Deregulation and entrepreneurship development. Background The economic and political conditions created after the Revolution of Dignity and the Ukraine's assumption of obligations under the Association Agreement with the EU and the IMF program, create

148

податкова система


la Deregun and re- sh reneurpment huge space for the economic reforms. It is necessary to reform all the regulatory burden that was acting since the days of the former USSR. Excessive regulation is one of the biggest problems for investors in Ukraine. According to a survey of the American Chamber of Commerce, 97% of business people consider corruption as the biggest problem, another 92% — an inefficient judicial system. Along with this, top 5 investors' problems include taxes, excessive regulation, and bureaucracy.

податкова система

149


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Deregulation and entrepreneurship development


And according to a survey by Dragon Capital and the European Business Association, the top 10 obstacles to investment in Ukraine include complex tax administration and unmanageable and unstable legislation. According to the data provided in the Deregulation Concept, developed by the Ministry of Economic Development and Trade in 2015, Ukraine annually loses up to USD 30 billion of investments due to the unfavorable regulatory environment. However, these complex losses are caused by unfavorable investment climate, and not because of regulatory norms in particular. Deregulation is a very broad concept. It provides for removing obstacles to business development, eliminating inefficient regulatory procedures, obsolete legislation, abolishing unnecessary licensing, facilitating the administration of business procedures, etc. Deregulation is related to the introduction of changes to sectoral legislation. Among other things, the reform involves liberalization of mobile towers installation, simplifying the rules in the oil and gas industry, lifting the ban on blending grain types and obligatory obtaining a quarantine certificate for domestic grain transportation, etc. Working groups in 4 ministries are working on changes to the sectoral regulatory field: the Ministry of Agrarian Policy, the Ministry of Regional Development, Construction and Housing, the Ministry of Infrastructure and the Ministry of Energy. In total, in 2017 it is scheduled to review the regulations of about 70 markets. The business development is closely related, but not limited to deregulation. The simplification of the regulatory environment, the reduction of state control over business and the elimination of corruption are integral components of the business and investment climate in the country. The government believes that the criterion of deregulation is Ukraine's entry into the international ease of Doing Business index, which is being prepared by the World Bank. Thus, in the medium-term plan of priority actions for the Government until 2020 in the field of "Economic Growth," the key performance indicators of achieving this goal are as follows: rank among top-30 of Doing Business index and the top-50 of the global economic competitiveness index. According to the World Bank experts, one point in the Doing Business rating brings the state about USD 500-600 million investments. There is still room for improvement of Ukraine’s rating. In “Doing Business 2017” Ukraine ranked 80th among 190 countries of the world, which is three positions higher compared to the previous study. Compared to 2016, Ukraine also improved its position by the following indicators: the registration of enterprises (from the 30th to the 20th place), the connection to the electricity grids (from 137th to the 130th), taxation (from the 107th to the 84th). But some indicators have deteriorated or remained unchanged: dealing with insolvency problems (from 141st to 150th place), international trade (from 109th to 115th), registration of property (from 61st to 63rd), access to loans (from the 19th to the 20th) and obtaining construction permits (unchanged). Comparison with the neighboring countries also shows that Ukraine has the potential to improve its position. Thus, in “Doing Business 2017,” Romania is at 36th place, Belarus at 37th, Moldova at 44th, Russia at 40th, Turkey at 69th. The Ministry of Economic Development and Trade believes that in 2018 Ukraine will enter the top-50 of “Doing Business” providing the adoption of 15 bills, simplifying the business activities in the country. In particular, in terms of simplifying the connection to the electricity grids, registration of VAT and Single Tax payers, introducing an application principle of obtaining building permits, abolishing the mandatory use of seals, simplifying the use of the residential property as commercial real estate, and abolishing developer’s share participation in infrastructure development. Some of the above-mentioned decisions have already been adopted: the seals have been canceled, state price regulation for socially important food products have been eliminated, etc.

Deregulation and entrepreneurship development

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Key authorities The Cabinet of Ministers of Ukraine is the highest body in the system of executive power of Ukraine. The Ministry of Economic Development and Trade of Ukraine is the successor of the Ministry of Economy established in May 1991 by the law of the Ukrainian SSR. After a series of renaming, the current title was issued by Presidential Decree in December 2010. The State Regulatory Service of Ukraine was established in December 2014 through reorganization of the State Service of Ukraine for Regulatory Policy and Entrepreneurship Development.

Deregulation and entrepreneurship development is one of the most important reforms of the Strategy for Sustainable Development “Ukraine-2020�

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Deregulation and entrepreneurship development


Deregulation and entrepreneurship development

153


The current situation

Deregulation and entrepreneurship development is one of the most important reforms (62 of them in total), which implementation is described in the Strategy for Sustainable Development “Ukraine-2020”. This direction is selected as one of the 10 priority. According to the plan of the Ministry of Economic Development, the strategic goals of the reform are as follows: — reduce the number of regulatory procedures, inspections, and reasons for contact between business and government, as well as their cost; — to strengthen the barriers ahead of creating new, excessive and economically unjustified rules; — to create and ensure the functioning of an efficient regulatory environment. According to the government, the medium-term goal of reforms in this area is to create a favorable environment for doing business, developing small and medium-sized businesses (SMEs), attracting investments, facilitating international trade and improving labor market efficiency. It is necessary to reduce the number of permissive documents in the area of economic activity and types of economic activity which are subject to licensing; to abolish regulatory acts, complicating business activity; to reduce the number of state supervision (control) bodies; to provide services for citizens and business in electronic form. As part of the development of SMEs and competition, the government plans to achieve the following quantitative indicators by 2020:

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Number of employees in SMEs: 2017

6,7 million people

2020

7 million people

The ratio of enterprises operating in markets with a competitive environment: 2017 2020

55% 50% The ratio of SMEs in value added (in terms of production costs): 2017 2020

70% 60% Deregulation and entrepreneurship development

155


In order to expand and simplify the access of Ukrainian goods to the markets of the EU member states, it is necessary to bring the system of technical regulation in line with European requirements and to complete the reformation of the system of state control over the safety and quality of food products. In order to support investment activity and protect the rights of investors, it is necessary to ensure effective protection of the private property rights, including through judicial authorities; to harmonize the Ukrainian legislation on the protection of the rights of domestic and foreign investors and creditors, and the protection of economic competition with the EU legislation; to introduce incentive mechanisms of investment activity, relying on a successful world’s experience. It should be noted that deregulation proceeds at a lower pressure from Western partners and the IMF then, for example, pension and land reform. Moreover, the authorities themselves are interested in creating a favorable investment climate. In 2016, as a result of deregulation, more than 360 acts were canceled. None of them have been replaced with new ones. Already this year more than 100 normative acts, which do not meet the requirements of the current legislation or have lost their relevance, were canceled. In April 2017, the Ministry of Justice proposed a rather radical measure. According to a document already approved by the Cabinet of Ministers

Overall, international experience shows that successful deregulation brings spectacular results

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and to be considered by the Verkhovna Rada, all by-laws should be terminated within 6 months, all laws of the Ukrainian SSR and the USSR, which are currently in force in Ukraine, expire within 1 year, and all codified acts of Soviet times should be canceled within 3 years. At the same time, the implementation periods provide sufficient opportunities for the development of a regulatory framework that should replace the abolished legislation. As for changing the business climate, recent developments include adopting amendments to the law on inspections in order to increase transparency and effectiveness of companies’ inspections; abolishing mandatory registration of foreign investments; simplifying registration of medicines and export of services; introducing a “single window” system in customs clearance of goods and vehicles, control over 30% of declarations is carried out electronically; creating the institution of private executors; adopting a number of laws on the reform of supervisory (control) bodies. In addition, recently the Cabinet of Ministers has adopted a series of decisions, abolishing a large number of regulatory acts, in particular in telecommunications and agricultural areas. It should be noted that the IMF lending conditions, on the one hand, involve deregulation, and on the other hand — limit the opportunities for business development and increase the pressure on it. Thus, the government promises to the IMF to accelerate the reform of the tax administration, including strengthening the requirements for the simplified taxation regime and lifting the moratorium on tax audits and labor inspections of small businesses; increasing fines for off-the-book employment and improving the quality of inspections. More changes to the legislation on deregulation of the economy should be adopted soon. At the same time, the significance of already conducted deregulation should not be exaggerated. Part of the abolished norms was obsolete, that is, it was not executed and controlled by no one. The abolition of such standards does not lead to a significant improvement in current business conditions. For example, until recently, some documents regulated sales, volumes, and prices for hay, regulated supervision over compliance with Soviet standards that had already been abolished a long time ago, and others. There are also some pitfalls in operating the policy of deregulation. The main problem is the necessity to coordinate drafts of normative legal acts with state authorities, including those whose interests are affected by deregulation innovations. They are not always aimed at the proposed innovations. At the same time, there are delays in consideration of bills already submitted to the Verkhovna Rada (several dozens are registered). The main reason for delaying the adoption of certain amendments to the legislation in the part of deregulation is the disorganized work of the Cabinet of Ministers and the Verkhovna Rada.

Deregulation and entrepreneurship development

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In addition, it's still impossible to convince business people of the true achievements of deregulation. According to USAID's annual business climate assessment (ABCA), a major challenge for small and medium-sized businesses in Ukraine remain high tax rates and complex administration, as well as frequent changes in economic legislation. More than 73% of surveyed company executives did not feel any effects of deregulation activities that took place in 2016. It becomes clear that it takes some time for the business to see the actual effects of deregulation. On the other hand, experts say that it is not about the real result, but the expectations of entrepreneurs. Although the effect of deregulation did not meet their expectations, actually there are following results: the time of most regulatory procedures has been reduced, their cost has decreased. Challenges remain in simplification of tax regulation and accounting. According to polls, the most expected change is the reduction of the number of documents they have to work with; then – simplification of tax administration. At the same time, absolute measures have increased, which means that deregulation is badly communicated with business. The biggest difficulties among the 15 reviewed scopes of regulation for the medium-sized business are currency regulation, land use, price regulation, customs clearance and connection to electricity networks, to a lesser extent — registration. Here, after 2014, Ukraine has made visible progress — both at the legislative level and in practice. For small and medium-sized businesses to experience deregulation, this should primarily concern tax administration and accounting. This also concerns labor legislation: the labor code of 1971 has many excessive bureaucratic demands.

The effect for Ukraine can bring billions of dollars of foreign direct investment

In order to introduce e-governance, the procedures should be as clear and precise as possible. The cooperation of infrastructure is also needed for data transfer. It is impossible to provide all services electronically if there is no access for everyone. It is necessary to teach those who provide these services and those who receive them, paying attention to the part of the population that does not have enough technical skills. For a period of time, the paper-based processes should remain alongside with electronic form of governance. E-governance to become a way of life for all entrepreneurs in 10-15 years. Overall, international experience shows that successful deregulation brings spectacular results. The effect for Ukraine as a country with a highly regulated economy can reach 10% of GDP by 2020 and bring billions of dollars of foreign direct investment. The overall effect of the deregulation strategy will be around USD 25 billion by 2020. The adoption of foreign ready solutions isn’t going to work. Firstly, each system describes certain laws and practices of a particular country. Secondly, there is an institutional difference, a difference in values, and public opinion.

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This is not only about deregulation, but also about the best practices of regulation. New areas of activity and new professions will appear and would require regulation. It is necessary to create rules of the game, but not multiple new unnecessary obstacles


the government periodically reviews regulatory burdens in In all branches of the economy

International obligations

The European Union. The provision of macro financial assistance in the amount of EUR 1.8 billion (signed in May 2015) in terms of deregulation envisages the reduction of the number of permits and licensing procedures and the simplification of their issuing based on a thorough analysis of their value for enterprises and benefits to society. International Monetary Fund. Ukraine's commitments to the IMF (according to the latest memorandum) envisage approval of the law on the electricity market (approved in April 2017). The remaining items will be implemented following the commitments under the action plan. At the same time, the government periodically reviews regulatory burdens in energy, infrastructure, construction, and agriculture. The government planned to approve concrete proposals on reforming each of these areas by the end of April 2017. Also, it is planned to take all necessary steps to ensure that the Unified State Register of Legal Entities and Private Persons was fully operational by the end of June 2017.

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NGOs

Independent experts from different organizations closely monitor the implementation of the deregulation program, including the following: • Center for Social and Economic Research CASE-Ukraine — case-ukraine.com.ua • Center for Economic Strategy — ces.org.ua • Independent analytical platform VoxUkraine — voxukraine.org • Non-profit organization EasyBusiness — easybusiness.in.ua • Center of Reform Support — csr.kiev.ua • Institute for Economic Research and Policy Consulting — ier.com.ua

Deregulation and entrepreneurship development

161


Fighting corruption is useless as long as officials take bribes and entrepreneurs give them

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Deregulation and entrepreneurship development


Interesting Facts

Fighting corruption is useless as long as officials take bribes and entrepreneurs give them. According to the EY research (among 41 countries) on the level of corruption, Ukraine is at the lowest position:

37% 88% of respondents believe that corruption is at an unacceptably high level

of the respondents are ready to offer a cash reward in exchange for the conclusion or prolongation of the contract

Deregulation and entrepreneurship development

163


2015

March

Cabinet of Ministers’ resolution "On Approval of the Action Plan for Deregulation of Economic Activities" was adopted (expired)

January

strategy for Sustainable Development “Ukraine-2020” was adopted Cabinet of Ministers resolution "On certain issues of deregulation of economic activity" was approved

September

better Regulation Delivery Office was created

December

February

the Verkhovna Rada adopted the Law "On Amendments to Certain Legislative Acts on Facilitation of Business (Deregulation)"

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податкова Deregulation система and entrepreneurship development

the Road Map for Deregulation was approved by the Cabinet of Ministers’ ordinance (The Cabinet’s Order "On Approval of the Plan of Action for the Implementation of Best Practices for Qualitative and Effective Regulation, reflected by the World Bank Group in the Doing Business Ranking Methodology")


2016 August

Cabinet of Ministers’ ordinance "On Approval of the Plan of Action for the Deregulation of Economic Activities and the Recognition of some Decisions of the Cabinet of Ministers of Ukraine as invalid" have been adopted

2017 March

a memorandum was signed with the IMF, where one of the commitments of Ukraine is further deregulation

the National Council of Reforms approved the Concept of Effective Regulation

November

the road map of deregulation was updated (Cabinet of Ministers’ regulation "On Amendments to the Decree of the Cabinet of Ministers of Ukraine of December 16, 2015, No. 1406")

Deregulation and entrepreneurship податкова development система

165 165


urePubl m Pro ment Refo Public Procurement Reform. Background

In Ukraine, the purchase of goods, works, and services using budgetary funds was a problem area of the public administration system under any government. Reallocation of the budget flows into their own pockets — is a sad Ukrainian tradition. This is the source of corruption at all levels of government — from local to national. The difference is only in the amount of funds stolen from the state. And there is something to redeploy. The volume of public procurement in Ukraine is about 13%

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податкова система


Ref

lic ocureof GDP per year. In 2016, the potential volume of public procurement was about 250 billion UAH. Experts of the Ministry of Economic Development and Trade estimate the corruption component at 50 billion UAH per year. In past years, the cost of government contracts was often artificially overestimated. A large part was used for "kickback" to officials who directly decide on the purchase of goods or services from a company. So, the selection of suppliers was carried out on a noncompetitive basis. According to the Transparency International, in 2012 the amount of "kickbacks" reached 60%.

orm Public податкова система

167


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Public Procurement Reform


The public procurement reform and harmonization of Ukrainian legislation with EU legislation in this area are among the conditions under the EU Association Agreement

At the same time, the Ukrainian government has almost never been interested in reforming the public procurements system, they only changed beneficiaries of this or that "carve-up" of budget funds for those with whom they had to share "kick back". Despite the change of political colors, every new official quickly mastered the practice of his predecessor: the old schemes were adopted by new "underbosses", other curators ran financial flows. After the Orange Revolution, the system of public procurement was not changed at all. Governments led by Viktor Yanukovych and Mykola Azarov did not consider it necessary to make any radical changes in this area. Only the Revolution of Dignity has changed the situation in this matter. The new government has demonstrated its readiness for reforms; moreover, they were strongly demanded by the public and Ukraine’s international partners. Under so much pressure, it was simply impossible not to start radically changing the system. Since then, public procurements have become one of the reforms indicators for international partners of Ukraine. Looking ahead, we can say that Ukraine has created a product setting an example to other countries. The public procurement reform and harmonization of Ukrainian legislation with the EU legislation in this area are among the conditions under the EU Association Agreement and the agreement on EU MacroFinancial Assistance to Ukraine up to 1.8 billion EUR (signed on June 18, 2015). Improvement of public procurement procedures is one of the most important reforms (62 in total), which is described in the Strategy for Sustainable Development "Ukraine 2020", adopted in January 2015.

Public Procurement Reform

169


Reform objectives

• To minimize corruption in public procurements, and ensure transparency of the entire tender process. • To simplify tendering proceedings by switching them to online mode, fiscal austerity and time-saving. • To involve businesses in public procurements, raising the level of competition. • To ensure transparent public procurement procedures; provide the public with free access to all agreements for analysis and control. • To harmonize Ukrainian legislation with the best European practices.

The implementation of the public procurement reform began in 2014

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Public Procurement Reform


Key authorities The Ministry of Economic Development and Trade of Ukraine is the successor to the Ministry of Economy, established in May 1991 by the law of the Ukrainian SSR. After a series of renaming, the ministry received the current name by presidential decree in December 2010. State Enterprise "ProZorro" was created by renaming the State Enterprise "Zovnishtorgvydav" and is managed by the Ministry of Economic Development. Antimonopoly Committee of Ukraine (appeals against decisions) was created based on the relevant law in November 1993.

Public Procurement Reform

171


New system

The implementation of the public procurement reform began in 2014 with the Law of Ukraine "On State Procurement". The key innovations are: the law reduced the list of grounds for the use of the non-competitive procedure, adopted procurement procedures to the European practice, and reduced the list of cases (from 44 to 10) which are not subject to the law. On February 12, 2015, the ProZorro public e-procurement system (ProZorro 1.0) was launched in the test mode. The system allowed companies to submit their offers electronically and attracted a wider range of suppliers to the public procurement. Initially, state institutions and state enterprises made their own decisions whether to join the system or not. To popularize ProZorro system among civil servants and potential suppliers, numerous seminars, training, and online courses were held. In September 2015, the Verkhovna Rada adopted, and the President signed the Law "On Amendments to Certain Laws of Ukraine concerning the Public Procurements for bringing them into line with international standards and implementation of anti-corruption activities" (No. 679-VIII). The main fundamental changes to the above-mentioned law was as follows: 1. The introduction of the innovative electronic tendering system. 2. The increase of the minimum purchase cost for mandatory tendering: goods and services — from 100 thousand UAH to 200 thousand UAH, works — from 1 million UAH to 1.5 million UAH. 3. Customers are not obliged anymore to send an annual plan and changes to it to the State Treasury. 4. To take part in tender participants are not obliged to submit information and certificates that are in the public domain. 5. Now verification of references and other documents on the tender qualifications is required only for the winner. 6. The number of state bodies intervening in the tendering procedure has decreased. 7. The opening of the bid after the end of the bidding and free access to the assessment of the offers. On December 25, 2015, the Verkhovna Rada adopted the Law "On Public Procurement". The president signed the law on February 16, 2016. The main innovation is: procurement via electronic systems became mandatory in 2016 (for the purchase of goods and services amounting to more than 200 thousand UAH, and works — over 1.5 million UAH): from April 1 — for central executive bodies and state monopolies, and from August 1 — for local authorities and public utilities. Other important changes in the procurement system should also be noted: 1. The tender committee of public procurement may include professional purchasers. 2. The introduction of the concept of a central purchasing organization, which is created in the case there is several customers, simplifying the procurement system. 3. Verification of the final beneficiary of participating companies.

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4. Legal entities are denied participation if they do not have an anticorruption program or authorized person to implement the corruption program, while the price of the tender exceeds or equals 20 million UAH. 5. Public procurement procedures are divided into open tendering, competitive dialogue and negotiating procedure. 6. Open tendering is conducted in the form of an auction, considering non-price categories. 7. The customer should necessarily provide a report on the conducted procurement without the use of the electronic system if the cost of the contract tendered is from 50 thousand UAH to 200 thousand UAH. The current practice of ProZorro work has shown that the adoption of necessary laws and launching of the system is not the end but rather the beginning of public procurement reform. To minimize corrupt practices, the ProZorro system is constantly improving. Thus, a library of specifications for goods and services was created, a minimum amount and a purchase period were set (expected value — not less than 3,000 UAH, duration of the tender — not less than two days), additional tools for procurement monitoring are introduced, payment control function was implemented, etc. ProZorro 2.0 (launched on April 1, 2016), has made it possible to contest the tender results electronically. The system tool allows monitoring online not only the correctness of customer actions but also competitor’s activity. During the tenders, the system allows considering not only the cost performance of the different suppliers’ offers but also nonprice criteria: the attractiveness of payment terms, the term of contract performance and warranty service, etc. However, only the implementation of the system cannot eradicate all corruption: it cannot be eliminated either by regulatory acts or by increased criminal liability or by modern IT systems. The bidders are facing challenges that were also typical of the past procurement practices: prescribing conditions for a single supplier, groundless bidding cancellation or disqualification of the supplier (for example due to “incorrectly completed documents”, non-conformance with the " tender specifications " or other formal reasons), low professional level of workers responsible for procurement procedures, low competition level, connected with the certain barriers to participation in tenders, in particular the need to obtain references in power structures and low level of trust between business and public procurement area, etc. However, ProZorro makes such violations noticeable. For example, the system discloses information on procurements where the requirements are prescribed for a specific supplier. This enables other tender participants to fight for their rights through appeals. The ProZorro system will be further developed. The main problem is below-threshold bidding, which is almost half of all government procurements in the country. Therefore, it is necessary to transfer the below-threshold procurements on a competitive basis, reducing the number of speculations. Moreover, the ProZorro system needs to be integrated with the open state registers. As part of the harmonization with EU legislation, the provisions of Directive 2014/24 /EC and Directive 89/665 /EEC as amended by Directive 2007/66 /EC, as defined in Annexes XXI-B, XXI-C to the EU Association Agreement should be implemented in the legislation of Ukraine.

Public Procurement податкова Reform система

173 173


encountered corruption: * before advent of ProZorro after advent of ProZorro

29% 54% ProZorro system ensures: * 57% 68% 80% simplicity of documents handling* largely solves the problem of openness, accessibility, and clarity of tender details* largely solves the problem of openness, accessibility, and clarity of choice of the winner *

* an opinion poll of entrepreneurs supported by USAID in May-June 2016

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Implementation results During the pilot stage, the ProZorro system has saved about 600 million UAH of public money in the year (February 2015 — February 2016). The total sum of tenders (about 50 thousand) announced during the year amounted to 9 billion UAH. In 2016 there were already 366 thousand procurements for the total amount of 274 billion UAH. 101 thousand of them were above-threshold (22 thousand passed through ProZorro system), 136 thousand – below-threshold and reports on another 128 thousand procurements were downloaded into the electronic system. Total budgetary savings amounted to almost 10 billion UAH. One of the most important tasks of the reform was changing of business attitudes towards participation in government procurement. The Respro research conducted at the end of 2015 showed that 71% of businessmen did not consider themselves to be potential state suppliers, and only 12% tried to bid through ProZorro system (functioning in the test mode at that time). However, the main motivation for those who were ready to try was assistance in combating corruption in the country, rather than profit from increased sales. Suppliers reasonably considered the state to be not the best partner for business. The business sector was afraid of corruption, delayed payments, cross-checks with power and controlling bodies, difficulties in appealing against unlawful actions of unscrupulous customers, and evasion of officials’ responsibility for misconduct. In May-June 2016, there was taken an opinion poll of entrepreneurs supported by USAID, showing that the use of the ProZorro system reduced corruption in public procurement:

significantly

partially

27%

53%

In addition, the reform of the public procurement system has opened doors to Ukrainian suppliers of works and services to the relevant markets of other countries. On March 16, 2016, the Verkhovna Rada adopted a law under which Ukraine has joined the WTO’s Government Procurement Agreement. This decision opens the public procurement market of all participating countries, which is estimated at 1.7 trillion USD per year.

Public Procurement Reform

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NGOs

Experts, journalists, and the public are closely following the implementation of public procurement reform. Among the organizations which are monitoring the implementation of the reforms, the following can be distinguished: • Independent analytical platform VoxUkraine — voxukraine.org • Civic Platform "Nova Kraina" — novakraina.org • Civic Organization "Center for Political Studies and Analysis" Eidos "

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Public Procurement Reform


Interesting Facts

The ProZorro project was launched as a volunteer initiative, that is, by efforts of civic activists, and only subsequently it has gained significant support from the management of the Ministry of Economic Development and the international donors. ProZorro's success has not gone unnoticed by the international community. Last year Ukraine ranked first in the world in government’s openness and received an annual Open Government Awards 2016 for implementing the system. Moreover, in 2016 ProZorro won the most prestigious international award in procurement area “World Procurement Awards 2016”. Already this year, ProZorro has been rewarded in the Davos Awards 2017 contest in the nomination Trust of the Future. In other words, the ProZorro success is confirmed by international recognition. Several states have expressed their interest in using ProZorro as the basis for developing their own public procurement systems. Development of the system based on open source software was carried out in a partnership of authorities, business sector, and the civil society; at the first stage, it was administered by “Transparency International Ukraine”. In December 2015, all ownership and relevant intellectual property rights for ProZorro system have been “transferred to the people of Ukraine (state)”, namely to the state enterprise “Zovnishtorhvydav”; later it was renamed to the State Enterprise "ProZorro", managed by the Ministry of Economic Development and Trade. The ProZorro system was created and launched only due to the donor but not the public funds. The following donors should be pointed out: the European Commission, the EBRD, the United States Agency for International Development (USAID), Western NIS Enterprise Fund, UK Department of International Development (DFID), “Transparency International Ukraine”, the International Renaissance Foundation, etc. Also, there has been received a significant amount of free assistance such as consulting, training, work, and resources. Within the system, there were created related projects. For example, a monitoring portal Dozorro was created to monitor procurements and report suspicious transactions. Also, there was launched a "ProZorro. Sales" system — a platform for selling property of insolvent banks and state enterprises.

Public Procurement Reform

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2014 March

the first meeting of the initiative group on the creation of public e-procurement system

April

the Verkhovna Rada adopted the Law "On Public Procurement" (the law ceased to be in force by the Law of Ukraine on December 25, 2015, No. 922-VIII).

July

a working group on implementation of the public e-procurement system was set up in the Ministry of Economic Development

2015 January

strategy on Sustainable Development “Ukraine2020” was adopted

February

launch of the ProZorro pilot version

March

ordinance of the Cabinet of Ministers “On experiment use of electronic means in a procurement negotiated procedure” (was repealed under the ordinance of the Cabinet of Ministers No. 610-r of August 23, 2014); a pilot project on above-threshold procurements for the Ministry of Defense

September

the Verkhovna Rada adopted the Law "On Amendments to Some Laws of Ukraine in the Field of Public Procurement for bringing them into line with International Standards and Taking Measures to Combat Corruption" (No. 679-VIII) the President signed the law No. 679-VIII

December

the Verkhovna Rada adopted the Law "On Public Procurement" (No. 922-VIII); the people's deputies voted for amendments to the law on February 4, 2016, and it was sent to the president for signature

November

during the meeting of WTO Committee, it was decided for Ukraine to accede to the Government Procurement Agreement

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податкова Public Procurement система Reform


2016 February

the President signed the Law "On Public Procurement". the Cabinet adopted a resolution on the functioning of the e-procurement system and the authorization of electronic platforms

March

the Verkhovna Rada adopted a law under which Ukraine joined to the WTO’s Government Procurement Agreement

April

all purchases of central executive authorities and state monopolies were transferred to the electronic platform

August

all purchases of local authorities and public utilities were transferred to the electronic platform

Public Procurement податкова Reform система

179 179


Rerm Fin cial Se Financial Sector Reform. Background

A trigger to the financial sector reform was the signing of the Association Agreement with the European Union. The key document of the financial sector reform is the Comprehensive Program of the Ukrainian Financial Sector Development until 2020, which was approved in June 2015 and updated in January 2017. The program is based on the following fundamental principles: — European integration; — Liberalization of financial markets and gaining a regime of the internal market with the EU in the field of financial services;

Refo

180

податкова система


tor Re nanfo Sector — Balance of economic interests through the establishment of a competitive market environment; — Independence and efficiency of regulators’ operation, supervision based on risk assessment; — Transparency and high standards of information disclosure by financial sector participants and regulators; — Responsibility and trust between financial sector participants and regulators; — The integrity of the financial system, the comprehensive protection of the rights of creditors, consumers and investors.

orm Fi податкова система

181


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Financial Sector Reform


The adoption of the program has given a real start to the banking system reform, which must revitalize the economy and create a competitive environment under EU standards, restore the confidence of Ukrainians in national banks, renew lending, make non-cash payments attractive, affordable and secure. The program includes measures in the following areas: financial stability and sustainable development, financial sector infrastructure, consumers and creditors protection, and institutional capacity of regulators. A comprehensive program plan contains a list of specific items regarding measures, actions, start and completion dates, responsible persons and institutions. The program will be implemented in three stages: I. Purification of the financial sector: the cardinal solution to the problem of "ballasts" of the past, withdrawal of unscrupulous players from the market, the disclosure of shareholders of financial sector participants. II. Reloading of the financial sector: ensuring transparency and equity in the "shareholder — management — client" chain, removing all administrative constraints caused by the crisis, increasing the capitalization of financial sector participants, strengthening of the rights protection of borrowers, lenders, and investors. III. Creation of prerequisites for long-term sustainable development of the financial sector: ensuring the sustainability and reliability of the financial sector in the long-term, approximating the standards of solvency regulation and liquidity of banks to the recommendations of the Basel Committee, the introduction of accumulative pension provision, stimulation of the market of insurance and other financial services and development of infrastructure and financial sector instruments, the creation of additional guarantees of financial reliability in case of economic recession, increasing the reliability of systemically important banks, increasing the institutional capacity of regulators. The IMF carefully assesses the course of financial sector reform. In the last memorandum (March 2017) a significant part of the activities is devoted precisely to this aspect. It should be noted that measures for the 1st stage have already been implemented and the realization of the 2nd stage is under way. The banking market got rid of "ballasts." For 2014-2016, the number of banks in Ukraine decreased from 180 to 100. In 2016, more than 20 banks, mostly small, were recognized as insolvent, while in 2015, 33 financial institutions left the market. With the closure of insolvent institutions in the country, the consolidation of the banking system kept going. If in 2013 top 10 banks accounted for 54% of assets, in 2016 — already 72%. Following the results of the first quarter, after the consolidation and nationalization of “PrivatBank,” the share of state-owned banks exceeded 50%. Such a situation is abnormal, but the government plans to sell at least 20% of “Oschadbank” and “Ukreximbank” shares to international financial institutions (for example, the EBRD) by the middle of 2018.

Financial Sector Reform

183


The IMF carefully assesses the course of financial sector reform

Key authorities The Ministry of Finance of Ukraine was created in 1991 and is the successor of the Ministry of Finance of the Ukrainian SSR. The regulation on the Ministry of Finance was approved by the presidential decree in April 2011. The National Bank of Ukraine. The Central Bank of the State was created based on the Ukrainian Republican Branch of the State Bank of the USSR. The legal basis was the law "On Banks and Banking," adopted by the Verkhovna Rada in March 1991. The National Commission for Regulation of Financial Services Markets (NCFS) was established by a presidential decree in November 2011, in compliance with the law "On Financial Services and State Regulation of Financial Services Markets" instead of the liquidated State Commission for Regulation of Financial Services Markets of Ukraine. National Securities and Stock Market Commission (NSSMC) was established in June 1995. In November 2011, it was reorganized based on the State Commission on Securities and Stock Market. Deposit Guarantee Fund (DGF). The institution carries out special functions in the field of guaranteeing deposits of individuals and the withdrawal of insolvent banks from the market. DGF was created within the framework of the Presidential Decree of September 10, 1998. The functions of the Fund were sharply expanded in 2012 with the adoption of the Law "On the system of guaranteeing deposits of individuals." That’s when the DGF became responsible for managing the insolvent banks.

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Financial Sector Reform


Financial Sector Reform

185


The current situation

The reform of the financial sector is one of the most significant reforms (62 in total), its implementation is described in the Strategy for Sustainable Development "Ukraine-2020". Based on the current realities, the primary task of reforming the financial system is to restore confidence in the banking system, lending setup, strengthen the rights protection of financial services consumer, etc. The next steps towards the financial sector reform will be a gradual, but steady fulfillment of obligations under the IMF memorandum. The passing of submitted bills in parliament is still a sticking-point of the reform. In January of this year, the NBU has updated the Comprehensive Program of Ukraine Financial Sector Development by 2020. The main changes can be divided into three directions: new measures and actions were added in response to the challenges arising in the financial market, the detailed and consolidated measures of the program, as well as the revised timing of the implementation of certain measures. ĐĄhanging of program implementation period was also caused by a delay in the adoption of bills. Among the least successful projects are the creditor rights provisions, the resolution of bad debts and the implementation of the project on NCFS functions redistribution. In 2017, the National Bank should present a strategy for development and a road map for harmonization of banking regulation with the recommendations of the Basel Committee and EU directives; complete the development of a new bank liquidity standard following the Basel III recommendation. And in the future, the development of the capital market should be ensured by the adoption of the law on derivative financial instruments and regulated markets, approval of the law on the consolidation of the functions of state regulation of financial services markets, the creation of a new currency legislation with the ongoing course for currency liberalization, ensuring an efficient financial restructuring process. Along with the reforms aimed at banking sector problem-solving, it is imperative to bring to the world standards the pensions and insurance systems. The balance sheets of insurance companies require "purging" of toxic assets no less than banking. It is necessary to legislatively ensure the creation of a transparent market for insurance services. The draft revision of the law on insurance proposed by the people's deputies from February 2015 is under consideration by the Verkhovna Rada, and in March 2016, the first reading took place. A transfer of regulatory functions from the NCFS Ń an have a negative impact on the insurance reform. The question of how the market will respond and whether its own regulatory and oversight procedures will be improved remains open. The problem of reforming non-state pension funds is also very important. It is necessary to provide conditions for the development of non-state pension provision through the introduction of incentives for legal entities and individuals, and the introduction of European standards of governance, transparency and reliability in non-state pension funds.

186

Financial Sector Reform


Financial Sector Reform

187


International obligations

The European Union. Conditions for granting macro financial assistance in the amount of EUR 1.8 billion (signed in May 2015) in the part of financial sector reform envisaged the adoption of a regulation on the recognition of individuals and legal entities associated with banks on the basis of determined features (approved in May 2015) and the creation of a central credit register at the NBU (in the process). International Monetary Fund. Ukraine's commitments to the IMF (according to the latest memorandum) include the following: 1. Events involving the “PrivatBank.� The focus area is the restructuring of the bank's debts. For this purpose, PrivatBank signed an agreement with a consortium of international companies headed by Rothschild & Co to negotiate a restructuring of loans of former bank owners. The next step should be an approval by the bank's supervisory board of the restructuring strategy of the loans mentioned above, which is scheduled to be completed by the end of June 2017. The restructuring will provide for raising a level of provision or collection of "PrivatBank" bad loans. Full completion of the audit and drawing conclusions on possible offenses in the bank before its nationalization is scheduled for the end of September 2017. 2. General banking supervision. Further actions are planned to monitor banks activities, which primarily include the submission of restructuring plans or the assessment of the level of their recapitalization. Also, efforts will be made to strengthen all the banks remaining in the banking system. The diagnostic studies of remaining banks will be completed by the end of September 2017. And by mid-July 2017, all banks will have a minimum authorized capital of UAH 200 million. Banks which cannot meet this requirement will be removed from the market. It will also be provided a strict compliance by all banks with the goals of reducing and limiting the volume of transactions with related parties. It is planned to establish a list of measures necessary for the implementation of the basic Basel principles, by which a plan of action will be prepared up to the end of 2019. 3. Proceeding with the establishment of a credit register in the NBU. To this end, the Verkhovna Rada should provide the NBU with powers to obtain information from banks by the end of September 2017 and, by the end of December 2018, start to provide information to improve the efficiency of lending.

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Financial Sector Reform


4. The work of state-owned banks. The implementation of the reform strategy for the state banking sector will be continued (approved in February 2016). The bill will be submitted to the Parliament, promoting adoption of a new approach to corporate governance of state banks. A memorandum of understanding will be prepared by the end of June, determining the structure of relations between the Cabinet of Ministers and state banks. The supervisory board of each bank will be selected in accordance with the above-mentioned strategy. 5. Work of the DGF. A bill will be submitted to the Verkhovna Rada, which will strengthen the ability of the DGF to work with assets. By the end of June, it was planned to sell assets at the amount of at least UAH 10 billion on international platforms. 6. Consolidation of the regime for corporate debts restructuring and protecting the rights of creditors. By the end of September, it is expected that the Verkhovna Rada will adopt amendments to the law "On restoring the debtor's solvency or recognizing it as a bankrupt" to facilitate the restructuring process and increase the effectiveness of the liquidation process, and the law, which strengthens the legislative provisions on the automation of collection and enforcement of the debt. It is also planned to make changes that will allow to write off bad debts without initiating or completing the procedure. 7. Creation of a legal framework for the functioning of the financial market. It is planned to introduce bills, which will increase the powers, independence and institutional capacity of the NSSMĐĄ. The National Commission also must reform its internal structure and procedures. The responsibilities for supervision of a range of financial intermediaries will be transferred from the NCFS (to be liquidated by the end of 2017) to the NBU and the NSSMC. The NBU will be responsible for the regulation and supervision of insurance and leasing companies, credit unions, and credit bureaus and other non-bank lenders, pawn shops, etc.; and the NSSMC will be responsible for regulating and supervising private pension funds, issuers of mortgage certificates, Ń construction financing funds and real estate funds. A new law on auditing and a revised accounting law developed based on EU standards will also be approved (by the end of July 2017).

Further actions are planned to monitor banks activities, which primarily include the submission of restructuring plans or the assessment of the level of their recapitalization

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Interesting Facts

In January 2015, the National Bank of Ukraine established the Financial Stability Board, the first meeting of which took place on January 12, 2015. At the same time, President Poroshenko signed a decree on the creation of the same-name body within the National Bank only in March 2016. The Financial Stability Board is an interdepartmental body. It is composed of the head of the National Bank of Ukraine, the Minister of Finance, the chairman of the NSSMC, the chairman of the NCFS, DGF managing director, one of the deputy chairmen of the NBU and the Deputy Minister of Finance. The Board decisions are recommendatory, and its task is to minimize the risks that threaten the stability of the banking and financial system of Ukraine. Dissolution of "ballasts" (in accordance with the implementation of Phase I of the Comprehensive Program of the Ukrainian Financial Sector Development until 2020) has not proceeded the way it was expected. Banks began to resume their activities through the courts. As of May 1, 2017, the courts decided to restore the activities of 12 financial institutions. According to NBU estimates, all these actions reduce the efforts aimed at improving the Ukrainian banking system.

the restoring the activities of financial institutions. reduce the efforts aimed at improving the Ukrainian banking system

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Financial Sector Reform


NGOs

The implementation of financial sector reform is closely monitored by independent experts from various organizations, among them are the following: • Center for Economic Strategy — ces.org.ua • Independent analytical platform VoxUkraine — voxukraine.org • Non-profit organization EasyBusiness — easybusiness.in.ua • Institute for Economic Research and Policy Consulting — ier.com.ua • Ukrainian Federation of Insurance — ufu.org.ua

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2015 January

the Strategy for Sustainable Development “Ukraine2020” was adopted the Law "On Amendments to the Law of Ukraine" On Financial Services and State Regulation of Financial Services Markets "on the Disclosure of Information” was adopted

March

the Law "On Amendments to Certain Legislative Acts of Ukraine on Responsibility of Persons related to a Bank" was adopted

May

the Resolution of the NBU "On Approval of the Regulation on the Identification of Persons related to the Bank" was adopted

June

the Comprehensive Program of Ukrainian Financial Sector Development until 2020 was approved the Law "On Amendments to Certain Legislative Acts of Ukraine on the Development of the Institutional Capacity of the National Bank of Ukraine" was adopted the Law "On Financial Restructuring" was approved

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податкова Financial Sector система Reform

2017 March

a memorandum was signed with the IMF, where one of the commitments of Ukraine is the further implementation of the financial sector reform

April

the Government approved the medium-term Plan of Priority Actions for the Government until 2020


Financial податкова Sectorсистема Reform

193


rem Tax Tax reform. Backgrounds

The modernization of the tax system began with the independence of Ukraine. In every approach to tax reform, the stakeholders’ (process participants) motives were a set of very controversial interests. For example, the main factor was the attempt to get maximum budget revenues. The second key point was the attempt to create or retain certain "holes" in tax legislation. The third main factor is an attempt to reduce the tax burden. In general, businesses and citizens were interested in this issue, but their efforts by 2014 were diffused and not structured. The most negative factor in the development of Ukraine’s tax system was and remains its subordination to the provision of the growing appetites of the state — without considering the requirements of

194

for податкова система


for

x rerm economic growth, the needs of sustainable development. For this reason, the requirement of approval of any tax changes by July 1 is constantly ignored, preceding January 1 — when these changes should be implemented. In addition, a good illustration of this approach is the regular adoption of a certain list of tax changes in one package with the budget law for the next year. Therefore, the Ukrainian tax system is one of the most burdensome in Central Asia and Eastern Europe — 51.9% (taxation of business establishments with various taxes, according to Paying Taxes research, conducted jointly with World Bank and PwC — Former PricewaterhouseCoopers).

податкова система

195


From decrees to the Tax Code 1991–1996

The Law of the Ukrainian SSR "On the Taxation System" was adopted even before independence. It was introduced on June 25, 1991. At the same time, the following nationwide taxes, fees, and compulsory payments were initiated: 1) Profit tax; 2) Tax on income of foreign legal entities for the activities in the Ukrainian SSR; 3) Turnover tax; 4) Excise duty; 5) VAT; 6) Export-import tax; 7) Income tax; 8) Collective farmers payroll tax; 9) Citizens’ profit tax; 10) Charge for natural resources; 11) Land fee; 12) Income from timber; 13) Ecological tax; 14) State duty; 15) Vehicle owners tax; 16) Duty (for goods crossing the state border). For example, the corporate income tax was 30%, while the personal income tax was 28%. High rates and double taxation were largely offset by non-payment of taxes. The system was weak, and therefore unable to charge such high taxes. Also, a wide range of privileges was introduced for enterprises with foreign investments, which subsequently gave the opportunity to use these privileges to avoid excessive tax burden. During its operation, this law additionally introduced a system of charges on payroll and contributions to the Chornobyl and Pension Funds, the Employment Fund, and other social funds. All of this put heavy pressure on business and citizens and contributed to the development of inflation. The situation has become critical, which had led to early presidential elections in Ukraine. Since July 19, 1994, Leonid Kuchma ran for this office, who immediately initiated negotiations with the International Monetary Fund to support Ukraine. In October 1994, the IMF approved

196

Tax reform


for Ukraine the first loan of the Systemic Transformation Facility (STF) of about 392 million dollars for system transformations in the economy. In the framework of Ukraine's commitments under the Memorandum, for example, export duties should be abolished as a general tax instrument. This law, with significant amendments, was in force until the Tax Code of Ukraine entry into force in 2011. According to this law, value added tax was introduced in Ukraine on January 1, 1992 (Law “On Value Added Tax) at a rate of 28% (22% for products sold at regulated prices). This law has been in force only since June 1993 — and was replaced by the Cabinet’s decree "On Value Added Tax" of December 26, 1992, according to which the VAT rate was reduced to 20%. The Law "On Corporate Profit Tax" of December 28, 1994, was the most modified tax law. Over six years of its operation, it was amended by more than 140 laws of the Verkhovna Rada and decisions of the Constitutional Court of Ukraine. In the first revision, the standard tax rate was 30%, and rates for some activities were set at 45% and 60%. Of course, it could not last too long. Therefore, the rate was reduced — for the first time since January 1, 2004.

The Law of the Ukrainian SSR "On the Taxation System" was adopted even before independence

Tax reform

197


1997–1999

In 1997, the Law of Ukraine "On Amendments to the Law of Ukraine" On the Taxation System "was adopted, which introduced a new version of the Law" On the Taxation System." According to the new version, national taxes and duties (compulsory payments) consisted of the following: 1) Value added tax; 2) Excise duty; 3) Corporate profit tax; 4) Personal income tax; 5) Duty; 6) State duty; 7) Real property tax (real estate); 8) Land fee (tax); 9) Rental payments; 10) Tax on owners of vehicles and other self-propelled machinery and mechanisms; 11) Crafts tax; 12) Fee for geological exploration, performed at the expense of the state budget; 13) Fee for the special use of natural resources; 14) Environmental pollution charge;

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Tax reform


15) Duty to the Fund for implementation of measures on elimination of the consequences of Chornobyl catastrophe and social protection of the population; 16) Duty on compulsory social insurance; 17) Duty on obligatory state pension insurance; 18) State Innovation Fund Tax; 19) Fee for a trade patent for certain types of business activities. In addition, a list of local taxes and duties (mandatory payments) was regulated. Local taxes: 1) Advertising tax; 2) Council tax; Local duties: 1) Hotel tax; 2) Car parking charges; 3) Market charge; 4) Fee for the issuance of an authorization certificate for an apartment; 5) Resort fee; 6) Fee for participation in horse races; 7) Fee for winnings in horse races on racetracks; 8) Fee from the persons who take part in the pari-mutuel betting on the racetrack; 9) Fee for the right to use local symbols; 10) Fee for the right to conduct cinema and television filming; 11) Fees for conducting local auction, competitive sale, and lotteries; 12) Fee for the transit on the territory of the border areas of motor transport going abroad; 13) Fee for the issuance of a permit for the placement of trade objects and services; 14) Levy from dog owners. This system, with some modifications, lasted up to 2010. Actually, because of the new edition of the law on the taxation system, the Law of Ukraine "On Value Added Tax," which came into force on July 1, 1997, was adopted. This law was repealed pursuant to the new Tax Code of Ukraine dated December 2, 2010. However, the most powerful influence during this period had the Decree of the President of Ukraine "On the Simplified System of Taxation, Accounting and Reporting of Small Business Entities" dated July 3, 1998, No. 727/98. According to it, taxpayers pay a single tax (instead of a series of taxes and fees) and have the right to simplified accounting and reporting procedures. For employees, these enterprises must pay a personal income tax and a unified social tax (UST). The introduction of a simplified system — a single tax — compensated pressure from corrupt auditors on small business and significantly reduced reporting costs. Due to the simplified system, the Ukrainian economy quickly began to recover after the financial crisis of 1998. Among the most powerful steps in the development of the financial infrastructure was the introduction in 1997 of the Taxpayer Identification Number. The numbers began to be issued from January 1, 1998.

accounting and reporting procedures have become much simpler Tax reform

199


2000–2010

This period is characterized by cosmetic changes and the final dismantling of specific privileged regimes. For example, since January 1, 2004, the corporate profit tax rate was reduced from 30% to 25%, according to the Law "On Amendments to the Law of Ukraine" On Corporate Profit Tax "of December 24, 2002. Dismantling touched, or rather, liquidated tax holes, which emerged due to the introduction of too massive privileges for enterprises with foreign investments (hereafter — Joint Venture). The prime of tax schemes with the participation of enterprises with foreign investments in Ukraine began with the adoption of the Law "On Foreign Investments" of March 13, 1992. At the beginning of the 2000s, the current regime of granting privileges for enterprises with foreign investments was established by the Law of Ukraine "On the Regime of Foreign Investment" of March 19, 1996. However, with the adoption of the Law of Ukraine "On the elimination of discrimination in the taxation of business entities created using assets and resources of foreign origin" of February 17, 2000, schemes with the use of JV started to go out of use. Powerful JV groups even resorted to obtaining decisions of the Constitutional Court, but they could not help it. Another phenomenon appropriate for this period was the gradual increase and narrowing of the application sphere of the simplified taxation system of small businesses.

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cosmetic changes and the final dismantling of specific privileged regimes took place

Tax reform

201


Attempts to codify the tax legislation occurred in the early 2000's, but only at the end of 2010, this matter was accomplished. During the final approval of the Tax Code of Ukraine, there was an unprecedented confrontation between small business and government


2011–2013

Mykola Azarov's government steamrolled many anti-business norms into the draft Tax Code, which have led to the Tax Maidan — mass rallies and protests in Ukraine against the adoption by the Verkhovna Rada of the new draft Tax Code. Under the pressure of protests, the approved by the Verkhovna Rada Tax Code was vetoed by President Viktor Yanukovych and returned to the deputies with remarks. The requirements of the Tax Maidan were partly considered. Most importantly, the simplified taxation system was maintained, although its value for business was increased, and the scope of application was narrowed. According to Tax Code of Ukraine, the national taxes include: 1) Corporate profit tax; 2) Income tax; 3) Value Added Tax; 4) Excise tax; 5) Ecological tax; 6) Rent; 7) Duty. Local taxes include: 1) Property tax; 2) Single tax. Local duties include: 1) Car parking charges; 2) Tourism tax.

the Verkhovna Rada has adopted more than 50 legislative acts with amendments to the Code

Despite the negative standards, the adoption of the Tax Code was still a step forward — at least due to a significant reduction in the number of taxes and fees. Although the Tax Code of Ukraine could not avoid the frequent disease of the Ukrainian tax legislation: since the entry into force (January 1, 2011), by the end of February 2014, the Code has undergone significant changes — the Verkhovna Rada has adopted more than 50 legislative acts with amendments to the Code. In the same period, the Ministry of Incomes and Charges of Ukraine was created through the reorganization of the State Customs Service of Ukraine and the State Tax Service of Ukraine, and their integration into a single body. The Ministry of Incomes and Charges was established as a central executive body under the Decree of the President of Ukraine on December 24, 2012. During this period, the tax system was transformed by the Azarov-Yanukovych government into a distorted fiscal double taxation system. That is, the business was forced into "platforms" to allow a significant part of the turnover to be taxed at shadow rates during the companies’ cash out transactions. The flow of funds through the "platforms" formed the movement of shadow "taxes." The system of "platforms" was completely formed after the establishment of the Ministry of Income and Charges, headed by Oleksandr Klymenko. However, Klymenko, while being a head of the State Tax Administration and his predecessor in the chair Vitaliy Zakharchenko laid the basis for the systemic "shadow" taxation of the Ukrainian economy.

Tax reform

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Key players, reformers, and interested parties

At the time of the victory of the Revolution of Dignity, the Ministry of Income and Charges acted not only as an executive and as a service provider for taxpayers but also in a certain way – as changes ideologist. This selfsufficiency of the fiscal superstructure laid the foundations for the growth of repressive functions and rapid increase of the tax burden on the economy. Of course, all this happened in close cooperation with the Ministry of Finance, which, however, did not really fulfilled the functions of the body that shapes the policy in the field of public finance, taxes, and fees.

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податкова Tax reform система


The role of the Ministry of Finance was reduced to the development of the next budget plan and control over the implementation of the already approved law on the state budget. The head of the tax superstructure took care of fiscal policy. The Prime Minister personally or his first deputy carried out the coordination between the two departments. Draft laws were sent to the Verkhovna Rada and the people’s deputies were simply kept out of them — the Ministry of Income and Charges was the real author of the texts that were presented as a legislative initiative of the Cabinet. The presence of a controllable majority in the Verkhovna Rada gave an opportunity to steamroll almost any bill without much resistance. The introduction of punitive norms in the tax legislation could have been prevented by direct actions — let us remember the Tax Maidan in 2010. The situation has changed dramatically after the Revolution of Dignity. The most important thing was the establishment of the State Fiscal Service instead of the Ministry of Income and Charges, which was already subordinated to the Ministry of Finance. The first post-revolutionary Finance Minister Oleksandr Shlapak and the head of the State Fiscal Service Ihor Bilous were engrossed just in the maintenance of the efficiency of the public finance system. However, Natalia Jaresko, who was the head of the Ministry of Finance in late 2014, proceeded with the implementation of the tax reform. Volunteers and various non-governmental organizations set up an active assistance to the high-ranking officials. For example, the role of entrepreneur’s associations — the Ukrainian League of Industrialists and Entrepreneurs, the Federation of Employers of Ukraine, and the Association "Fortetsya"— has increased. Also, a large contribution has been made and continued to be made by the "Reanimation package of reforms," etc. The American Chamber of Commerce and the European Business Association quite often joins in with the work on the draft laws. Perhaps for the first time, business and taxpayers have gained the opportunity to become co-authors of tax changes. The recovery of the composition of the Verkhovna Rada during the elections in autumn 2014 has also contributed to this. The Government's cooperation with the International Monetary Fund has a significant impact on the reform. Unfortunately, the influence is not always positive. On the one hand, the obligations assumed by the government in the IMF Memorandum contribute to more rapid work of the pro-government deputies in favor of changes. On the other hand, the government sometimes takes the path of least resistance: it does not hold back the growth of irrational expenditures of the state but suggests increasing the tax burden. The settlement of such disputes formed the progression towards the tax reform.

Perhaps for the first time, business and taxpayers have gained the opportunity to become co-authors of tax changes

Tax reform

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2014-2017: new reform

On April 30, 2014, after the Revolution of Dignity, accession to power of a new Government and the fulfillment of the preliminary conditions, the IMF approved granting Ukraine a new Standby loan of USD 16.5 billion. By the end of the summer of the same year, Ukraine received tranches; however, the tax reform stipulated by the IMF Memorandum has never started. After the 2014 parliamentary elections, a new government provided an opportunity to reload the reform efforts. In view of Russian aggression, it was necessary to introduce a war fee charged from salary. Also, the government has introduced incentives for unshadowing: subject to fulfillment of certain norms, the company could pay unified social tax with a reduced coefficient of 0.4. This experiment was implemented for a year and has not been renewed, because, from January 1, 2016, a new rate of unified social tax was introduced. The parameters of the tax reform were revised, and they have been included in the next Memorandum. On March 11, 2015, the IMF approved the replacement of the "stuck" Stand by Program for a new four-year Extended Fund Facility Program. The first tranche of USD 5 billion under the new EFF program was received immediately after its adoption. On July 31, 2015, the IMF Board of Directors approved granting of the second tranche of USD 1.7 billion. Accordingly, the first serious approach to tax reform took place in 2015. In the second half of 2015, there was a rather tough dialogue between the Minister of Finance Natalia Jaresko and the relevant committee of the Verkhovna Rada. For example, a draft law 3357 — a rather radical tax reform from people’s deputies and an expert environment — was prepared and preliminarily recommended for inclusion in the session’s hall. However, the government, in the person of the Minister of Finance, refused to take it as a basis. Principal positions of Jaresko and the chairperson of the Verkhovna Rada Committee on Taxation, Nina Yuzhanina, have not changed during three months of the debate around the reform. The committee insisted on the taxation of distributed profits, on the reduction of VAT rates and personal income tax. It was also planned to eliminate the part of the unified social tax (3.6%), which is charged directly from the employee, and establish a single rate for a part of the unified social tax paid by the employer. As envisioned by the relevant committee, the simplified taxation system had to be limited, but not substantially. Changes were limited mainly to the revision of the annual turnover limits and gradual rates increase for entrepreneurs of the third group. Yuzhanina also insisted on the introduction of a new, supposedly "softened" system for entrepreneurs reporting and paying a 10% tax on net income.

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In her turn, Jaresko supported a conservative option, which provides for an increase of tax burden. However — along with the reduction of the basic rate of the unified social tax to 20% and the abolition of the unified social tax paid by employees. Nevertheless, Jaresko toughly demanded the total elimination of the single tax (simplified system) as such in one or two years. The government bill initially offered to significantly increase the rates of the single tax, as well as introduce total control of costs and incomes, by the introduction of cash registers for all groups of businesses within 2016-2019. There was a requirement to ban the application of a single tax to legal entities from January 1, 2016. In the end, there were changes that from January 1, 2016, have made it possible to significantly reduce the burden on the wages fund. The unified social tax was reduced from 36.76-49.7% (the size depends on the level of occupational hazards, paid by the employer) to the unified rate of 22% except for the payment of part of the unified social tax to be paid personally by the worker (3.6% of the payroll). The government finally managed to introduce a series of anti-corruption measures on VAT — but this case was under the control of the new Minister of Finance Oleksandr Danyliuk (from April 2016). A system of automatic VAT refunds was introduced under his leadership. Although there were serious complaints about the advancement of VAT refund, in general, the system significantly reduced the possibility of irregularities through the formation of fictitious VAT. Already in 2017, an electronic VAT invoicing system was introduced — it became fully operational from July 1, 2017. Tax reform

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Components of tax reforms in 2014-2017 Date З 1.01.2014

Tax

What has been done

Corporate profit tax

The corporate profit tax was reduced once again. It was 18% after 19% in 2013, 21% in 2012, and 23% in 2011.

Excise duty

The first high increase of excise duty rates. Starting from January 1, 2016, the government systematically raised the rates of excise duty on tobacco and alcohol in view of Ukraine's commitment within the framework of the Association Agreement between Ukraine and the EU.

Excise duty

According to the Law of the Verkhovna Rada of December 28, 2014, No. 71 "On Amendments to the Tax Code of Ukraine ...", an excise tax on the retail sale of excisable goods (beer, alcohol drinks, tobacco products, petroleum products, liquid gas, etc.) and the fee for the development of viticulture, horticulture and hop growing is canceled.

Unified social tax (UST)

On December 28, 2014, the Verkhovna Rada adopted, and on December 31, the President signed the Law No. 77-VIII, aimed at legalizing the wage fund through the application of a coefficient of 0.4 to the UST rate, on condition of unshadowing.

VAT

According to the Law of Ukraine "On Amendments to the Tax Code of Ukraine and Other Legislative Acts of Ukraine" of July 31, 2014, No. 1621-VІІ, the system of electronic administration of VAT (SEA VAT) was introduced.

З 1.05.2014

З 1.01.2015

Real Property tax

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Tax reform

The Law of Ukraine of December 28, 2014, No. 71-VIII "On Amendments to the Tax Code of Ukraine and certain laws of Ukraine on the tax reform" introduced changes in taxation of real estate, other than land. That is — the taxation of residential property and other personal property has been introduced.


Date

Tax

З 1.01.2016

VAT

The VAT privileges for agricultural producers were reduced.

UST

The UST rate has been reduced to 22%, but the maximum surcharge base of the UST has been increased to 25 times of the living wage of an able-bodied citizen.

З 1.01.2017

What has been done

Personal income tax

The personal income tax ceases to be progressive. Instead of a scale of 15/20%, a single rate of 18% is introduced.

VAT

Substitution of VAT allowances for agrarian business on direct budget compensations.

UST

The increase in the minimum wage from 1600 to 3200 UAH — thereby raising the minimum assessment base of the UST — up to 3200 UAH.

VAT

On 20.12.2016, the Verkhovna Rada of Ukraine adopted the Law No. 1791-VIII, according to which using of payment transactions recorders (cash registers) and issuing of fiscal checks from May 8, 2017 is obligatory for all sellers of "technically sophisticated household goods": household appliances, computers, smartphones and other electronics, regardless of their income or type of business.

VAT

According to the Decree of the Cabinet of Ministers of Ukraine of 30.01.2015 No. 20 "On Amendments to the rules of order of the Unified Register of VAT invoices," the working operating mode of the VAT invoice registry (blocking VAT-invoices) was introduced, which made impossible to generate a fictitious tax credit. Including — due to so-called "twists."

З 8.05.2017

З 1.07.2017

Tax reform

209


Failures and successes

It must be admitted that the quality of the tax system consists of two factors: the administrative complexity and the level of tax rates. Unfortunately, the complexity remains high. Researches of the World Bank and the PricewaterhouseCoopers Audit Company show that Ukraine's tax system continues to be one of the worst in the world. Although the amount of time required for paying taxes decreased in 2017 to 356 hours compared to 491 in 2013. The total tax burden on the economy is most often measured as the ratio of revenues to the consolidated budget, considering pension and other social funds — on the one hand, and GDP — on the other. In 2017, considering the abolition of tax privileges and doubling of the minimum wage, the indicator is expected to be 42.3%. It is significantly higher than in 2016 when the economy felt relieved due to the reduction of the UST rate — last year this figure was 38.1%. That is, we roll back to the level of 2015 — 41.5%. In fact, this indicator varied in the range of 39.742.8% in the period of 2005-2014. Although it was not always like that, in 2004 — 34.4%. Conclusion — under the chairmanship of Viktor Yushchenko, the country has tasted populism; therefore, it cannot go off the rails of unlimited increase of expenditures, and therefore — is afraid of a radical reduction of the tax burden. There remains the corporate income tax — complicated, incomprehensible, and very risky in terms of generating corruption. It is proposed to replace it with the tax on withdrawn funds, but so far, the government resists, claiming that there is a risk of a possible failure of budget revenues, even though in 2017 the consolidated budget is over-fulfilled in terms of revenues. Therefore, in 2017, the key challenges of the reform are: — Tax on withdrawn funds instead of income tax; — Lowering the payroll budget burden; — Maintaining a simplified taxation system for small businesses.

210

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211


rem Hea care Healthcare reform Background During the years of independence, Ukraine hasn’t been able to create

a health care system that could effectively provide the population with quality and affordable medical services, respond to the current challenges related to the rising death rates and spreading of AIDS, tuberculosis or hepatitis C, and to carry out effective preventive measures. Today, despite high state expenditures on the medical sector, citizens are forced to pay for expensive treatment on their own. For the disadvantaged population, the payment of medical services is often excessive. As for the other problems, medical facilities do not have enough equipment for examination and treatment of patients, drugs, or qualified personnel. In addition, very low salaries provided by the state for medi-

for th 212

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fo althcal workers has led to the corruption in this area. The results of a survey conducted by “TNS-Ukraine” in 2016 indicate that the medical sector is the most corrupted one. This was stated by 61% of respondents. Also, according to a study of the anti-corruption organization “Transparency International,” in 2016, 33% of respondents have made informal payments in a medical institution. During Soviet times, in Ukraine, there was a health model, developed by Academician Semashko, which provided all citizens with the right to free medical care. The basis of this system was the idea of increasing the number of doctors, nurses, and beds. The doctor’s salary depended only on the qualification and doctor's degree, and not on the number of his patients.

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213


Patients, in their turn, could not choose a doctor because they all belonged to a certain district, and therefore could apply only to their district doctor. The biggest problem with the functioning of this model was the inappropriate use of budget funds, reduction of the doctors’ salaries, and, as a result — the growth of informal payments in hospitals, which became a common practice in the "patient-doctor" relationship. The elements of the Semashko system are still present in many countries of the former USSR, including Ukraine. Given the transition to a market economy, the economic crisis, and the non-compliance of this system with the demands of our time, this has led to a deep crisis in the health system. With the collapse of the Soviet Union, significant changes in the health care system did not actually take place until 1996 when the Constitution of Ukraine was adopted, confirming the right of all citizens to free medical care and voluntary health insurance. In the same year, the Law "On Insurance" was approved, which legalized the field of health insurance and created the basis for the first insurance companies. Also, in 1996 an attempt was made to introduce a payment for some medical services. The Cabinet of Ministers approved the resolution "On approval of the list of paid services provided in state healthcare institutions and medical schools." However, already in two years — in 1998 the Constitutional Court found such a decision unconstitutional, and official payments were canceled. Later, in 2002, there was one more attempt to consider this issue in the Constitutional Court, but the decision on the illegality of payments for medical services remained unchanged. Among the important changes of that time, it is worth mentioning the adoption in 2000 by the Cabinet of Ministers of the decree on the procedure for obtaining charitable (voluntary) contributions and donations to budget institutions, including health care facilities. This contributed to the fact that the hospitals received additional financial resources, but did not help to get rid of informal payments.

in 2002, the first Integrated Program "Health of the Nation" for the period of 2002-2011” was approved

214

Healthcare reform


The period of the 2000s was marked by the development of several documents that tried to outline the ways of development and changes in the health care system, although it did not proceed further than the general proposals. Thus, in 2002, the first Integrated Program "Health of the Nation" for the period of 2002-2011� was approved. The program was aimed at strengthening the health of the population, maintaining working ability, improving the demographic situation and the effectiveness of health care. However, the document did not specify the ways to achieve these goals. During the presidency of Viktor Yushchenko in 2007, the Cabinet of Ministers approved a resolution "On Approval of the National Plan for the Development of the Health Care System for the Period until 2010". This document was like the 2002 Program and mostly contained suggestions. So, matters never come to the real changes. The reforming of the medical sphere started to be discussed again in 2011. Just then the Law "On the Procedure for Reforming the Health Care System in Vinnytsia, Dnipropetrovsk, Donetsk regions and the City of Kyiv" was adopted, launching a pilot reform from January 1, 2012. It provided for the creation of a system of separate medical institutions that provide various types of medical services, the establishment of hospital districts, the financing of medical institutions on the contractual basis, the differentiation of expenditures on health care between local budgets, etc. Patients also have got the opportunity to choose their own family doctor. It was planned that because of the reform, five types of medical care to be introduced: emergency care, primary, secondary, tertiary and palliative care. By separating the primary and secondary levels of medical care, it became possible to see the positive and negative aspects of this division. Many hospitals, particularly in rural areas were restructured; newly established centers of primary health care ran short of family doctors; doctors had to change their qualification. On the other hand, there were medical facilities established in many villages. It also turned out that some approaches to the reform are justified only for large cities. For example, assignment of patients to a doctor was done manually — no procedure was prescribed. Similarly, the nursing staff was manually redirected from the primary level to the secondary and vice versa. However, this was a gradual process. In the last year of the reform, the relevant law has been suspended. And this was the most important stage — the secondary level of health care provisions had to be reformed.

Healthcare reform

215


The current course of the reform

After the Revolution of Dignity, a new attempt to reform has been launched, aimed at changing the existing health care system. On December 26, 2014, at a meeting of the Healthcare Committee of the Verkhovna Rada of Ukraine was presented the project of a national strategy for creating a new health system in Ukraine for 2015-2025 years. Nevertheless, during the 2015-2016 years, several important steps have been taken to improve the situation. The system of medicines procurement has been changed, aiming to overcome corruption in this sphere and make the procurement process transparent. Now, this process occurs through the independent international organizations such as the United Nations Children's Fund “UNICEF,� the United Nations Development Program (UNDP) and the British Crown Agents. Also, in 2017 the population has got an opportunity to track the availability of state procured medicines in hospitals of their region via the online service "Available Medication." Available health care products can be obtained in medical institutions for free. Despite the process of reducing the number of beds that last since independence, Ukraine is still among the leaders in the number of beds per 1000 people. For example, in 2012, Ukraine ranked third in the world with an indicator of 9 beds per 1 000 people, that is, 90 per 10 000 respectively. It should be noted that this situation is typical for the former Soviet Union countries. To change the situation when budget funds are used to support hospitals and a certain number of beds, and not to the treatment of the actual number of patients, in early 2016, the Ministry of Health Care issued an order to reduce the number of beds to 60 (out of the current 87.9) at 10 000 people.

In some districts, there is no pharmacy that would have entered into an agreement of the "Available Medication" program

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Healthcare reform


Another important step was the launch of the "Available Medication" program. From April 1, 2017, Ukrainians suffering from cardiovascular diseases, asthma or type II diabetes, on the prescription of their doctor can receive necessary medicines for free or for a small surcharge in pharmacies of the city. The list of cut-rate prescription drugs included 167 healthcare products. As of June 2017, nearly 6,000 pharmacies throughout Ukraine have already joined this program. A similar pilot project on hypertension drugs has been functioning since 2013. Then the doctors did not know which drugs were eligible for reimbursement, to get the medicine at the pharmacy for free. For their part, the local authorities introduced "rules of the plan," indicating how many recipes should be implemented for a certain period. Today these problems are repeated. As then, the state has debts to some pharmacies due to such programs. The worst situation is in small cities. In some districts, there isn’t any pharmacy that would have entered into an agreement. In addition, it is not legislatively approved that the pharmacy with which such an agreement has been concluded is obliged to keep an appropriate set of medicines. This additionally weakens the program.

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The purpose of the reform

First, the reform of the health care system involves changing the paradigm: from financing a medical institution to financing the services provided to the patient. Previously the state allocated money for the maintenance of hospitals and a certain number of beds; now these funds will be used for services provided to patients. A number of bills should change the existing system of health care financing, including the Draft Law "On State Financial Guarantees for the Provision of Medical Services and Medicines" (No. 6327), which was adopted as a basis on June 8, 2017, by the Verkhovna Rada. It is worth mentioning another important for medical reform law No 2309a-d, which was adopted in April 2017. Under this law, the hospitals received financial and managerial autonomy. It is planned that they will transform into non-profit enterprises that will be able to receive financing from different sources. Article 18 of this law introduces the principle — "money follows the patient," according to which hospitals and private doctors will receive direct payments for the treatment of a patient and his medical case. By November, the Ministry of Health should accept all relevant documents, approve the costs of medical services, the number of such services, etc. But for three months, no movements have been made in this direction. Meanwhile, contracts need to be not only developed but also concluded. Because of this, there may be serious delays not only with the implementation of the principle of "money following the patient" until December or January but also delays in funding of hospitals. The medical services and medicines provided to patients should be entirely or partially paid by the state through the state insurance system, which will cover all persons living in Ukraine. It is not about insurance as such, but about another model of budget financing, because the issue is not about certain contribution, but a reallocation of budgets. Its specificity lies in the fact that the population will not have to pay any additional insurance contributions, as the financial provision of obtained medical services will be received from taxes. Thus, all who live in Ukraine are automatically insured as they pay taxes. This bill should be perceived within the system of description of medical care guaranteed to the patients.

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Mortality rate in Ukraine (per 1000 people) 1990 12,1 1992 1994

1991

12,9

13,4 1993 14,7

1995 1996

14,2

15,4 15,2

1997

14,9

1998

14,3 1999

2000

15,3

2001

15,3

2002

15,3

2003

16,00

2004

16,04

2005

16,6

2006

16,2

2007

16,4

2008

16,31

2009

15,3

2010

15,2

2011

14,5 2012

2013

14,6

2014

14,7

2015

14,8

14,5

14,9 Healthcare reform

219


Number of hospital beds (per 1000 people) 1990

13,01

1991

12,96

1992

12,72

1993

12,47

1994

12,30

1995

11,89

1996 1997 1999

10,84 9,37 1998 8,95 2000

8,82

2001

8,74 2003

8,8

2005

8,7 2006

8,7

2009

8,7 2012

UAH per year the state plans to allocate for one patient. The doctor’s norm will be 2 thousand patients.

220

9,04

Healthcare reform

9


With the transition to a new system, the salary of a doctor will depend directly on the number of patients who apply to him. On average, the state plans to allocate UAH 210 per year for one patient. The doctor’s norm will be 2 thousand patients. For pediatricians, the number will be 800-900 patients. They will receive more for one patient — about 270 UAH, taking into consideration the greater amount of work and workload. The same applies to doctors who will work with elderly people. Such information is provided by the Ministry of Health. However, there is no decision that can be referred to confirm these figures. Payment will be received monthly. The patient can still choose a doctor, but now the specialist who has more patients must be paid primarily. However, the corresponding mechanisms are not yet sufficiently spelled out. It may happen that an institution that provides services to more patients will receive more funding. Instead, a doctor who works in this institution and has many patients will not receive bigger pay. A new authority — the National Health Service of Ukraine – will administer budgetary funds allocated for financing the services. This structure will procure medical services for the population, sign contracts with primary health care providers. Such services are available in almost every country in the world. One of the most controversial subjects within the framework of health care reform was the formation of hospital districts, aiming to regulate the existing network of hospitals. The population fears that, because of this process, hospitals in small towns and paramedic-obstetric stations in villages will be closed, and to receive medical care, it will be necessary to apply to medical establishments located many kilometers away. At the same time, there is always a problem of Ukrainian roads. Many regions refused to provide information on hospital districts. And there are already a lot of nonsenses in the submitted documents. For example, in a newly created district for an ultrasound examination, the patient is offered to go to Kyiv for 8 hours.

A new authority — the National Health Service of Ukraine — will administer budgetary funds allocated for financing the services

Healthcare reform

221


The need for the establishment of hospital districts is the lack of the possibility to obtain high-quality specialized assistance on the ground, but only in regional centers and some cities. The reform should contribute to the creation of one hospital of the second level of intensive care in each hospital district. According to the acting Minister of Health Ulyana Suprun, the Ministry of Health does not plan to close the hospitals, but on the contrary, is interested in increasing the number of multi-field hospitals. This is necessary for patients to have better access to these hospitals and so there won’t be any need to go to the regional center to receive the services they should receive in their hospital district.

the essence of Medical reform remains unclear to the population of small towns, villages

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The establishment of hospital districts and the distribution of functions between hospitals takes place at the local level, as they have better knowledge of the needs of their population. For these purposes, the members of the hospital district set up an advisory body — the Hospital Council, which develops the district development plan for five years, reorganizes and re-profiles medical facilities, appoints and dismisses heads of medical institutions. The Hospital Council has no authority as a body. It does not have any leverage that would exceed the influence of district authorities. We can deal with the fact that nobody will negotiate on any issue. Hospital districts envisaged enlargement of the regions. However, each district remains the owner of these hospitals and the recipient of funds. The hospital district should include at least one multi-specialty intensive care hospital of the first and/or second level and other health care facilities. The intensive care polyclinic of the first level will admit not less than 120 thousand people, and of the second level — not less than 200 thousand people. Thus, the hospital of intensive care will be the most powerful in the region, and the other hospitals will be restructured. The boundaries of the hospital districts will be formed in such a way as to ensure the access of all residents of the district to the secondary (specialized) medical care. The administrative center of the district is a city with a population of more than 40 thousand people with intensive care polyclinic of the second level. Consolidation of areas is very important for medicine. But territorial areas should be created at the region level. Such a system proved to be good both in financial management and in technical equipment. Unfortunately, on June 8, 2017, the Verkhovna Rada rejected the supportive bill number 6329, which provided for amendments to the Budget Code to ensure the implementation of health care reform. The residents of large cities are acquainted with the main thesis of medical reform. However, its essence remains unclear to the population of small towns, villages, even when it comes to doctors.

Healthcare reform

223


Statistics

According to the World Bank, Ukraine is among the leaders in mortality rates. In 2015, the country ranked second in the world with an index of 14.9 deaths per 1,000 population. Since 1960, the highest rate for Ukraine was in 2005 — 16.6 per 1 thousand people. 2015:

Bulgaria

15,3

Ukraine

14,9

Lesotho

14,693

Serbia Swaziland

14,6 14,485

Latvia

14,4

Lithuania

14,1

The CAR Chad Angola

14,088 13,799 13,424

The situation with the life duration is not much better

years was the average life expectancy of Ukrainians, which is almost ten years less than in most European countries *

224

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place Ukraine ranked in the world in the life expectancy rating as of 2015* * World Health Organization data

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225


Poll

In May 2017, the Sociological Group "Rating" conducted a sociological research, which showed that only 9% of respondents believe that the quality of public health services has improved over the past two years. According to half of the respondents, the situation has deteriorated. Another third part believes that nothing has changed, and 11% have not been able to come up with the answer. The research also showed that the population was increasingly supporting initiatives under medical reform, except for the introduction of compulsory health insurance, the conclusion of contracts between patients and doctors, and the introduction of strict control over public funds. The biggest support has the initiative to reimburse the cost of drugs for diabetes, asthma and cardiovascular disease — 88%.

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Healthcare reform


Many bills introduced a system of medical self-government

Interesting Facts

Due to the pressure of activists last year, the Ministry of Health issued a corresponding order, allowing the relatives’ admittance to all resuscitations 24/7. Many bills introduced a system of medical self-government. It involves the provision of individual licenses, the right to practice, as it works in Europe. Most clearly it can be seen on the example of dental activity. Two bills on this issue have already been created. The system of medical self-government takes away many functions from the Ministry of Health, which is not appropriate to it. For example, every 25 years the Ministry of Health required retraining.

Healthcare reform

227


2015 March

the Law No. 269-VIII was adopted, which facilitated the procurement of medicines and medical products through international organizations

April

the Verkhovna Rada adopted the Law "On Amending the Tax Code of Ukraine regarding the Tax Remission of Certain Pharmaceuticals and Medical Products" (No. 332-VIII)

September

the Cabinet of Ministers authorized the Ministry of Health to create a new Public Health Center by reorganizing (merging) existing institutions in this area. This is the first important step in building a new public health system in Ukraine. The new Center is intended to replace the Soviet model, whose rudiment remained the old Sanitary and Epidemiological Service (SES). De jure it still exists. Its reference to the Public Health C enter is currently unknown. In November-December, the process of preparing institutions for reorganization began.

228

податкова система Healthcare reform

2016 November

the Cabinet of Ministers of Ukraine with the adoption of the Decree No. 1013-p "On Approval of the Concept of Health Care Financing Reform" approved the Concept of Health Care Reform, and the Ministry of Health jointly with the interested central and local executive authorities in the monthly term was entrusted to develop and submit for consideration a draft plan of measures for the implementation of the Concept. The same day, the Cabinet of Ministers passed a resolution approving the procedure for the establishment of hospital districts


2017 April

the Government's "Available Medication" program was launched, which provides for the patients to be able to receive medicines from cardiovascular diseases, type II diabetes and bronchial asthma for free or with a small additional charge

the Verkhovna Rada of Ukraine adopted the Law "On Amending Certain Legislative Acts of Ukraine on Improvement of Health Care Legislation" (No. 2309a-d), which provides for the autonomy of medical institutions and their transformation into a kind of non-profit enterprise

June

the Verkhovna Rada adopted in the first reading the bill "On State Financial Guarantees for the Provision of Medical Services and Medicines" (No. 6327), which will change the system of financing medical services. The law was voted only from the second attempt eHealth Electronic Healthcare System has begun its pilot operation. The first service of the system — the registration of primary care institutions — was launched

податкова Healthcareсистема reform

229


rem Edu tion Education reform. Preconditions Education reform belongs to the bulkiest systematic reforms. To change the education system, it is required to develop the basic concepts and new state standards of education, new curricula, and new handbooks. Moreover, it is necessary to educate new teachers, ideally – change the whole system of their training. At the same time, it is required to secure funds for this by changing the patterns of financial relations between the participants of the education market. Despite all the difficulties and significant spending,

form 230

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fo uca-

m

the education reform is periodically conducted by every developed country, even a developing country which undergoes serious ideology and economic changes. Considering that our country has experienced some tremendous changes in economic, socio-political, cultural, geopolitical and, eventually, mental spheres, it is no wonder that this reform has happened almost instantly, at least on the paper. It is necessary to note, that education reform has two inseparably intertwined constituents. The lack of either prevents the reform from happening, those constituents must be agreed upon only simultaneously. The first constituent is the conceptual one. What is the goal of education? What are we going to be? What person do we want to bring up? What

re-

kind of skills do we want him or her to acquire? What kind of society are we preparing him or her for? What function in society the person has to perform? The answer to all of those questions is important while developing fundamental principles of education. It is necessary to simultaneously develop the second constituent of the reform – many positions that determine the legal and financial relations between main participants of the education market: pupils, teachers, and parents. Those are the forms of studying, the level of the autonomy of schools, the school subordination, etc. Ideally, the financial and organizational conditions in the state schools should facilitate the fullest embodiment of its basic goal and conceptual principles.

податкова система

231


232

Education reform


the professional community realized that life needed a change

Ukraine met the declaration of independence with fresh, almost hot law “About education” that was adopted in July 1991. This law described essentially a Soviet school that was strongly integrated into a multi-stage bureaucratic system of reports and subordination, the school that did not have its own money and the ability to spend them on its own, the school where a teacher was the main actor and a pupil was only a cog in the huge education system. Herewith, the professional community realized that life needed a change; they even knew what kind of change it had to be. In November 1993, the Cabinet of Ministers approved the national program called “Education” (“ХХІ century Ukraine”) — the outcome of joint work of education researchers and practicing teachers. This was very progressive, almost revolutionary document that fundamentally revised the basic principles and the goal of education. It was strongly opposing the Soviet system and it brought the newly created state closer to the democratic society values. If the positions of this document were implemented at least for 50%, the question of educational reform today would not be as acute. The thing is, that the Soviet system was outdated even at that time, and was based on so called class-lesson system, that was combined with the idea of learning of a certain volume of information and the one-sided communication — a teacher speaks, a child listens or answers the question. This system was reputable during the industrial age when it was required for a big number of students to learn a volume of basic knowledge that was necessary for employment. The abilities to concentrate, to sit still for long periods of time while completing the accurate tasks that cultivate memory and attentiveness were some of the key components of the system. Figuratively speaking, this system prepared students for working on a big production line, regardless of the purpose: whether it was the factory, science institute, library or housing maintenance office.

Education reform

233


During the time of independence, a lot of handbooks were rewritten, since the country itself was changing rapidly However, back then it was obvious for the best members of the society, that the life was changing, industrial age was getting over and being replaced by the post-industrial digital society where totally different skills are valued the most. Creative thinking, ability to create something new, flexibility and readiness to work in a group are now getting to the forefront. Moreover, the internet is developing very fast, handbooks are ceasing to be the only source of information. The function of handbooks is changing. Their function is to teach how to work with information, to teach critical thinking, analysis, and selection of necessary facts among the endless sea of information The concept of national “Education” program back in the distant 1993 was taking into the account the major part of these new factors. It provided the decentralization of education management (local communities should have taken care of it), the individualization of the educational process, continuity of learning throughout the lifetime and a large variety of curricula and programs, and finally — reorientation of education towards prioritizing one’s personal development. Sadly, this document became only another piece of paper, since for its implementation no conditions were created. Some practical steps made only towards relative modernization of secondary education structure. In 1999 the law “About general secondary education” was approved, that particularly covered the transition to 12-year secondary school (that advanced Ukraine towards so called Bologna system), introduced twelve-point grading system and divided the studying process into three stages: I — Elementary school (1-4 grades) II — Basic school (5-9 classes) III— Senior school (10-12 classes) The doctrine of national education development was based on the bill of 2001. The state standard of Basic and Senior school developed within it, was approved in 2004. Even though the basic principles of the education system and its financing stayed mainly Soviet, the system was formally modernized, moreover, this came to be a great pretense to finally write new congruent handbooks published by one standard. During the time of independence, a lot of handbooks were rewritten, first among the humanitarian subjects, and this was weird since the country itself was changing rapidly. During the first decade of independence there were three consecutive options of a school program for the “History of Ukraine”, every three years in average, whereas the handbooks were changed even more frequently.

234

Education reform


New officially reformed handbooks made their first appearance on 1st of September 2004, and then gradually, year by year those handbooks were implemented in the bigger number of classes. Simultaneously the first experiments on External independent evaluation (EIE) were held, they were made to replace the usual graduation exams. EIE became the big step forward that allowed them to substantially shake, if not altogether eliminate corruption during the enrollment to universities creating social lifts for provincial school graduates, giving them the real access to higher education. From 2008 passing external independent evaluation is a mandatory condition for entering the higher education facility. The reform should have been completed by 2013 when the whole system had to transfer to 12-year school period. But, a man proposed something that God did not dispose of. In 2010, the reforming actions planned back in 2001 were unexpectedly stopped and canceled. Another huge education reform of Ukraine was started instead. This was a bright result of the weakness of the system, after all, one of the key problems of Ukrainian education and its reforms was that every reform was considered the personal project of the Minister of education and could have been stopped or altogether canceled by his or her successor. This is unacceptable for the branch, where the full reform usually happens during a cadence of a few ministers. The initiative of new “extraordinary� reform often connects with the name of at the time minister of education Dmytro Tabachnyk (put on the wanted list in July of 2015 by the Investigative Department of the Security Service of Ukraine)

Education reform

235


The new program and new handbooks were criticized by teachers under the radar and by parents in mass media

The new reform of secondary education started with canceling the active 12 years system and returning to the 11-years one by leading in the new changes to the legislation dated 6th of July 2010. Besides changing the length of secondary school, the State standards of education were changed for basic, full and secondary education alike. Adepts of the new reform stressed on a number of new positive changes: studying of the first foreign language from the first grade, introduction of the second foreign language in the fifth grade, studying of computer science from the second grade, etc. On top of that, new standards, curricula, and abruptly written handbooks were lead in without any approbation. This resulted in unacceptably low print quality handbooks riddled with typos and mistakes. New State standard and handbooks were implemented on the 1st of September 2012 for elementary education and on the 1st September 2013 for basic school. Full implementation of secondary education standard is planned on the 1st of September 2018. The new program and new handbooks were criticized by teachers under the radar and by parents in mass media right after their appearance. The article “Words starting with the letter “H”, or the new primer published on the website of “Ukrainian Truth” (Ukr. Ukrayinska Pravda) in November 2012 caused wide social resonance. Several press conferences were organized, particularly with the compilers of the primer; this topic was rapidly caught by mass media, teachers and parents. Discussions about the quality of handbooks and the education system, in general, had transformed in public argument, the focus of which has rapidly shifted from the quality of handbooks to the quality of the educational system in general, to its correspondence with the challenges of time. During the discussion it was found out, that everyone — parents, teachers, pupils are dissatisfied with the situation, however, it seemed impossible to change something before the Revolution of Dignity.

236

Education reform


In fact, without changing the methods of the old Soviet in-class system this lead only to increase the academic load of pupils that started to have 7 or 8 45-minute classes a day. The content of education that was getting obsolete never changed

податкова система

237


New reform

After the Maidan public activists in education, teachers-innovators who demonstrated their abilities during the last two years got to hope for real changes, moreover, Lilia Grinevich became the new minister of education and she totally shared the opinion that “Tabachnyk’s reforms” were inadmissible. Under the guidance of the Lady Minister a concept of the “New school” was developed during the meeting of the Cabinet of Ministers in December of 2016. Conceptually the new concept develops and complements the previous ones creating the conditions for bringing up human that can be competitive within the world of a new post-industrial creative economy. The key skill of this modern human must be not the ability to understand orders and perform monotonous work, but the ability to set and resolve the creative tasks, think out of the box, working in a team, and think in projects. The concept of the “New School” suggests the goal of the new education is not providing knowledge, but providing competence, meaning the complex of knowledge and understanding and skill, that is going to help in using the information received during school days in life. The new competencies required by XXI century, like the “ability to study”, “environmental literacy” or “adventurousness" are added to those described earlier. But, if competencies were described in different Ukrainian education concepts as early as 1990’s, completely new branch of skills is incorporated in the “New School” program for the first time. Those are so called “cross-cutting skills” that also need to be taught in schools and are required in real life regardless of his or her occupation. Among those are critical thinking, the ability to express one’s opinion, teamwork, creative approach, etc.

The fundamental change to the education system can only be brought only by total reforming of the state schools

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Definitely, those things are impossible to teach within the existing class system. Realization of that has led to a soaring of private schools that practice alternative systems of working with pupils. Free communication and thought exchange, project approach to mastering the school curriculum, those are the things that normally differentiate modern institutions from state schools. However, it is extremely hard for those schools to acquire the license for issuing the state certificate, moreover, those schools are paid, and the tuition fee there is rather high. It’s no wonder that despite an obvious spike in the increase of the amount of these schools, less than one per cent of Ukrainian pupils study there. The fundamental change to the education system can only be brought only by total reforming of the state schools. The new bill “About education� was prepared in order for this reform to happen. The new edition of this bill was approved by the parliament in October 2016, the bill was then sent for refinement. Since then more than 1600 amendments have been made, not all the revolutionary changes made it through, but the principle things were kept.

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Principal’s authority is increased, schools become more independent Among the important innovations which make the change possible are decentralization and effective management that will provide schools with the real autonomy. According to the new bill, 50 per cent of the financing are being allocated to local communities that are free to decide how to use funds. Principals must be appointed by the results of competition during which they are to present their programs for school development, the financial one. Principal’s authority is increased, schools become more independent. Equality of all forms of education and legalization of so called “alternative” private schools are laid into the new bill. This will obviously cause increasing of private schools amount; therefore will effectively drop the tuition fees. There is one more point regarding fees for education — the revolutionary principle for our system “money follows the child”. The state yearly allocates a certain sum for each child education in the state school. The funding of the school depends on the number of pupils willing to study in this school, and if a child goes away from the school, he or she takes the money with him or her to the next school. Even if the child is at the private school, the allocated state funds may make up for part of the tuition fee. This principle becomes essential for inclusive studying, that is also one of the most important innovations in the new bill. Children with special needs and certain mental issues now can study in regular schools, moreover, they are very welcome there since the amount of money allocated for the child with special needs greatly surpass the amount for the ‘regular’ one. The secondary school will be 12 years long again, which will bring Ukraine closer to the EU standards fixed after the Bologna Declaration, giving the ability to optimize the system. The last three years of school will determine a vector of further education of a child — whether he or she chooses academic direction orientated for university education, or settles for the professional education targeted for the work market needs and acquiring the profession.

240

years

years

years

will be long the elementary education

will be long the basic education (gymnasium)

will be long the profiled basic (lyceum or the professional education facility)

Education reform


A significant attention in this bill is paid to teachers. On one hand, the reform requires their further education (separate funds are allocated for this purpose), on the other hand, the bill authors had taken care of the prestige of the pedagogue occupation, meaning an increase in salary. Moreover, the bill offers 20% premium for those who pass certification, which will become the instrument of motivation for self-development of the best teachers, mastering of new methods and approaches. Another important innovation of the new bill is inclusive education meaning including people with special needs into studying process, providing them with normal socialization. Moreover, the bill has a concept of inclusive studying environment, which is directly related to providing the quality education. Voting for the bill “About education� is scheduled to the 11th of July. If it is voted for, it will start education reformations in Ukraine scheduled to be implemented fully in 2029. This reform will quite literally help the country and its citizens not to get behind.

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2016 December

during the meeting of the Cabinet of Ministers the “New school” concept is approved developed by the Ministry of education

October

the bill “About education” is approved on first reading and sent away for refinement to the committee. The bill is still waiting to be approved

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2017 July

consideration of the bill “About education” is scheduled on second reading in the Verkhovna Rada


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orm Agr cu t re form Agriculture reform. Background

During the Soviet times, the only landowner was the state. Consequently, the prerequisites for the agrarian reform were laid down by the principles of land ownership. In 1990, the Land Code of the Ukrainian SSR was adopted, establishing the existence of land title in the form of lifetime-inherited possession, permanent possession, as well as permanent and temporary use. However, inherited possession is not equal to the right of ownership, since the right to dispose of land was reserved to local councils. The first step towards real reform was the adoption by the Verkhovna

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for

riulturem Rada of a resolution "On Land Reform" in March 1991. The purpose of the document is a redistribution of lands to create conditions for the balanced development of various business patterns in the rural areas. This became the impetus for the transition of land to the private ownership of citizens, agricultural enterprises and other users under certain conditions. Another important step was the adoption in January and March 1992 of the law "On land ownership" and the new edition of the Land Code, respectively. These documents introduced three equal forms of land ownership: private, collective and state. In addition, all landowners could legally lease it.

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Due to the adoption in the same year of the Law "On the peasant (farmers) economy," privatization of the average land share which is accounted for one tenant on the respective territory, became possible. The further implementation of the reform became possible due to the adoption of presidential decrees on its acceleration (November 1994), on the procedure for land parceling, transferred to agricultural enterprises (August 1995), on land lease (April 1997), etc. Finally, according to these documents, a real denationalization was carried out. That is, the lands were disposed of for the collective and private property to produce agricultural products. Land parceling was also carried out. Certificates confirming the right to land share (portion) were issued. Thus, 7 million Ukrainians received agricultural land in private ownership. The owners of the certificates could freely dispose of them, including the right to conclude sales contracts (was canceled later). In 2000, the process of replacing land certificates with Certificate of Title under the Land Transfer Act was started. It should be noted that the new draft of the Land Code has been ready already in October 1996, and the Cabinet sent it to the Parliament. Then, as now, the launch of the land market was a prerequisite for prolongation of Ukraine’s international assistance program. However, despite the pressure from the World Bank and the IMF, in March 1997, the draft was rejected by the Parliament. The government and the president followed a different way. In 1998-1999, the land denationalization through the system of the above-mentioned decrees began. At this time, it was possible to sell the land, but this did not last long — until 2001. The completion of the land market forming at that stage of Ukraine’s development was the adoption of a new version of the Land Code (October 2001), which is significantly different from the previous document. Thus, a legal basis for the use of land as a pawn, its sale, and land use restrictions was created. In addition, the list of forms of ownership was changed: private (population and legal entities, including the form of joint ownership of the land plot), communal and state. Moreover, the new version of the document established the norms for the free transfer of land plots to citizens, the conditions for acquisition of the right to land (property rights or rights of use) by the population and legal entities are considered. At the same time, the Land Code made it impossible to concentrate land in private ownership and set a ban on agricultural land ownership for non-residents. The restrictions were set until the necessary laws for the effective functioning of the land market were developed. That is, the moratorium was planned as a temporary solution, but it just so happened that it is a constant norm up to now. The central element of agrarian reform in modern conditions is the land reform, which has two goals: the creation of a real land sales market and associated infrastructure, as well as the development of farming.

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Key authorities The Ministry of Agrarian Policy and Food of Ukraine — is the successor of the Ministry of Agrarian Policy created by the presidential decree in June 2000, and in December 2010 it was reorganized in its current form. State Service of Ukraine for Geodesy, Cartography, and Cadastre (land cadastre support) — established in September 2014 by reorganization of the State Agency of Land Resources of Ukraine, which existed since 2011.

The main aspect of the reform The cornerstone of the land reform is a moratorium on sale or another way of alienation of agricultural lands. To regulate land use, the Verkhovna Rada adopted a new Land Code in 2001. At the same time, a ban on alienation of agricultural land and a change in their designated purpose (moratorium) was introduced. This restriction was originally set before January 1, 2005. However, since then, the moratorium has constantly been extended.

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In November-2015, the Verkhovna Rada adopted a law on amendments to the Land Code, which extended the validity of the moratorium until January 1, 2017. In October 2016, the Verkhovna Rada again prolonged the moratorium for one year — until January 1, 2018. President Petro Poroshenko signed the law passed by the Parliament, although earlier he stood up for the cancellation of the moratorium. That is, in fact, the Ukrainian land market is in a state of legal uncertainty for more than 16 years. The moratorium is valid until the entry into force of the law on the circulation of agricultural land. As early as in 2015, the Deputies obliged the Cabinet to draft this bill by March 1, 2016, but such a document was not adopted. The land reform in Ukraine is a 16-year history of permanent moratorium prolongations, a history of unused opportunities, primarily — investment. Because of the reform, land should become a commodity and a subject of a pledge, which will allow receiving bank loans. Rented land for obvious reasons cannot be used as a pledge to receive financing. Agrarians, especially small and medium-sized agricultural enterprises, are complaining that they cannot attract bank financing at the current level of credit rates. However, large agricultural holdings often lack working assets too. At the same time, large agricultural companies have more opportunities for product development and higher profitability than small farms. The average yield in agro holdings is two times higher than that of small farms, but the latter mainly give the job to most of the rural residents employed at the agro-industrial complexes. At the same time, the figures of agro-industrial complex development in Ukraine show positive dynamics. The production of agricultural products is increasing (by 6.1% in 2016, including agricultural enterprises by 9.8%); harvesting record grain crops for the last few years (in 2016 — the largest cereal harvest during the period of independence — 66 million tons, which is almost 6 million tons more than the result of 2015), while agricultural exports make up about 40% of its total volume. Despite the availability of black earth and a favorable climate, Ukraine has low yields: on one-hectare farmers grow crop production less (at least 20-30%) than in Europe. The reason is underdeveloped agro technologies, lack of investment and the pending issue with the land market. Significant grain production is not due to the high yields, but due to the large size of the area. In addition, low efficiency of Ukrainian agro-industrial complex is that our products are quite cheap compared to European ones. A major problem for the agricultural sector is the significant domination of exporting raw materials in comparison with the specific weight of finished products, which create value added. Thus, Ukraine requires huge investments (hundreds of billions of hryvnias) to make the agro-industrial complex more effective through introducing modern agro technologies, expanding of the processing capacities and infrastructure, and the first step is liberalization of the land market.

the Ukrainian land market is in a state of legal uncertainty for more than 16 years Agriculture reform

249


Nevertheless, the heightened tension around the issue suggests that this reform is sensitive in the political and electoral sense, but important in view of the economic impact. The International Monetary Fund calls land reform one of the three top-priority


The current situation

Land reform is one of the most important of the 62 reforms, which are described in the Strategy for Sustainable Development “Ukraine-2020,� approved in January 2015. At the same time, it is not included in the priority list.

In 2015, the Ministry of Agrarian Policy presented a Single Integrated Strategy for the Development of Agriculture and Rural Areas for 2015-2020, in which, according to the Minister, all priority directions of agricultural sector reform were reflected. The National Council of Reforms supported the strategy, and the European Union has allocated 3 million euro for its implementation. However, the only real achievement so far is the consideration by the relevant committee of the Verkhovna Rada, which took the strategy to the notice. At present, the Strategy for the Development of the Agricultural Sector for the period until 2020, dated October 17, 2013, signed by Mykola Azarov, remains in force. In 2015-2016, the government made several positive steps towards the land market. The requirements for renting state land through auctions were strengthened. The access to the state register of rights to real property and land cadastre was opened. The notaries have been provided with functions for property registration and lease. The electronic provision of extracts from Land Cadastre and land evaluation was established. The government has an obligation on liberalization of the land market to the IMF, as stated in the memorandum dated March 2, 2017, and should be approved by the Verkhovna Rada in the draft law on agricultural land circulation by the end of May 2017.

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Formally, the 2017th is the last year when it is possible to carry out the land reform. The next chance will appear only after the presidential and parliamentary elections, and not one of the Ukrainian politicians want to take a risk. Meanwhile, according to the Ministry of Agrarian Policy, Ukraine has lost approximately USD 43 billion since 2004 due to the lack of a free market of agricultural lands. Consequently, the government must submit a bill to the Verkhovna Rada in the short run (there are already two draft bills on this matter), but people's deputies may not vote for it. Political statements of the party leaders represented in the Verkhovna Rada predict the complex consideration of the draft law submitted by the Cabinet of Ministers. It should be noted that 297 deputies voted for the extension of the moratorium at the end of 2016, which is almost 2/3 of the Parliament. Moreover, some political forces even have planned to collect signatures against the cancellation of the moratorium, although it would be too difficult to implement this plan. That is, the subject of moratorium cancellation is too politicized and is the basis for populism and gathering of political points in the eyes of the electorate.

in one form or another, the Ukrainian agro-market is enlarging. However, the level of consolidation is far from over

However, to settle all land issues, in addition to the Act on the circulation of agricultural land, it is also necessary to make an inventory of land by ownership and economic entities, to clarify the validity of entries in the land cadaster (imposition of borders of adjacent areas, nonconformity of coordinates) and register of rights to real property, etc. Many politicians and experts say that Ukraine is not ready to launch the land market. In the context of the unfinished land reform, the expectation of lands being bought up by foreigners, large agricultural holdings, and speculators, as most small farms have no funds for it and will not have in the nearest future. Meanwhile, in one form or another, the Ukrainian agro-market is enlarging: production is increasing, agro holdings’ land banks of cultivated areas are increasing. However, the level of consolidation is far from over. There are more than 38 thousand farmers in Ukraine (during last five years their number has decreased by approximately 10%), and 72% of them have up to 100 ha in land tenure. According to official statistics, the farmers cultivated only about 10% of all agricultural land (total area of Ukraine’s cropland is more than 40 million hectares), and large and medium-sized agricultural holdings — 15%. The absence of a legal market significantly reduces the land price and makes its owners less competitive compared to large capital. In general, 41 million hectares (more than 96% of agricultural land) of Ukrainian lands fall within a scope of the moratorium.

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At the same time, some parliamentarians, who understand the possible resistance to the cancellation of the moratorium, went a different way. In February 2017, 55 people's deputies sent a petition to the Constitutional Court with the demand to cancel the moratorium on the sale of land, which violates the rights and freedoms of citizens. However, according to the rules of the Constitutional Court, proceedings may be held only six months later. Authorities are seeking various "compromise" alternative for land reform: the possibility of selling the rights for its lease, setting limiting size of land ownership of 200 hectares, and the sale of land only to residents, etc. Realizing that this issue is sensitive for many Ukrainians, the government does not want to carry out radical changes and agrees only to gradual ones, which would not change anything in the agro sphere. If the government is tinkering at the margins of the land reform, which could satisfy the Verkhovna Rada and people, but for large agricultural holdings, whose land bank counts tens and hundreds of thousands of hectares of land, such a reform will create additional difficulties. For example, they will be forced to renew lease agreements with owners of plots up to 200 hectares. Large agribusiness will find ways to continue its activities, but Ukraine's land market will remain nontransparent and investment-unfriendly, and most importantly, such a reform will not have the expected economic effect on the country. The existing moratorium hinders development of the agro industrial complex, since it hampers the transfer of land to more efficient owners and producers; reduces the rental price and owner's income (now rental payment for the agricultural land is one of the lowest in Europe and the CIS); limits the possibilities of fund raising on the security of land. With its withdrawal, providing the establishment of the appropriate regulatory framework, one can expect an increase in the land value, an increase of lease payments, obtaining the opportunity to give land on a gage, the creation of a large mortgage market, increase of investments and revenues to the state budget. However, the success of the land reform depends on the overall investment climate in the country. If the conditions for business remain non-transparent, the secondary land sale will be complicated, so banks will reluctantly grant loans on its pledge. That is, alongside with the liberalization of the land market, it is necessary to provide qualitative improvements of the overall investment climate in Ukraine. It should be noted that the land reform is an element of agrarian reform, which requires parallel implementation of a number of other measures: improve the tax system and create favorable conditions for the development of the industry; deregulation; improve sectoral legislation; harmonize Ukrainian standards of product quality with international ones; improve the efficiency of state land management; create the food security systems; develop the value added chains in agriculture; increase competitiveness of domestic agricultural enterprises, etc.

it is necessary to provide qualitative improvements of the overall investment climate in Ukraine

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International obligations

International Monetary Fund. At present, the main factor of the land reform is Ukraine's obligations to the IMF to receive another loan tranche from the fund. In a memorandum dated March 2, 2017 (this commitment was taken from the previous document), the following actions are indicated: — Liberalization of the land market, including the sale of agricultural lands; — drafting a bill on the circulation of agricultural land (the Verkhovna Rada's approval of this document is expected by the end of May 2017), which will allow the current moratorium to expire at the end of 2017; — Launching a public awareness campaign to explain the benefits of this reform.

The main factor of the land reform is Ukraine's obligations to the IMF

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NGOs

Independent experts and journalists are closely monitoring the implementation of the land reform. Among the organizations that monitor the implementation of the reform, the following can be noted: • Better Regulation Delivery Office — brdo.com.ua • Independent analytical platform VoxUkraine — voxukraine.org • Non-profit organization EasyBusiness — easybusiness.in.ua

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Ordinary Ukrainians have controversial views on the land issue. only one in six Ukrainians approves lifting the moratorium

Interesting Facts

During the permanent prolongation of the moratorium, the politicians acted contrary to their own convictions. In October 2004, this decision was supported by the lefts and nominally rights the newly elected President Viktor Yushchenko. However, at the end of 2006, when the Rada once again extended the moratorium, Yushchenko vetoed this decision, but the parliament was able to override it. President Petro Poroshenko also signed the law on the extension of the moratorium passed by the parliament in late 2016, even though earlier he stood for its abolition. Ordinary Ukrainians have controversial views on the land issue. According to the results of the sociological survey conducted by the Kiev International Institute of Sociology in September 2015, more than half of Ukrainian citizens and one-third of landowners understand the benefits of the possibility of buying and selling agricultural land, although only one in six Ukrainians approves the lifting of the moratorium. The main concerns of landowners are the low prices of land, the pressure regarding land sales and fraudulent acquisition schemes.

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1991 March

the Verkhovna Rada adopted the Resolution "On Land Reform"

1992 January

the law "On forms of land ownership” was approved

March

the Land Code of Ukraine was adopted (it replaced a similar document, which Ukraine inherited from the Ukrainian SSR)

1994 November

the president signed a decree "On urgent measures to accelerate land reform in the sphere of agricultural production"

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податкова система Agriculture reform

1995 August

the president signed a decree "On the procedure for land transferred to the collective ownership of agricultural enterprises and organizations"

1997 April

president signed a decree "On land lease"


2001 2015 October

a new edition of the Land Code of Ukraine was approved

January

strategy for Sustainable Development “Ukraine2020” was adopted

November

2011

single and Comprehensive Strategy and Action Plan for Agriculture and Rural Development in Ukraine for 2015-2020 was approved

July

the law "On the State Land Cadastre" was adopted.

2017 March

a memorandum with the IMF was signed, where land reform is one of the obligations of Ukraine.

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nergy m Ener Indepen dence m ram Energy Re Energy Independence Program and Energy Reform. Background The policy of "cheap gas," that took place in 1990-2004, slightly relaxed both Ukrainian authorities and consumers of blue fuel. Despite the appropriate priority of state policy, enshrined in legislation at various levels, including the Law of Ukraine "On Energy Saving" of 1994, in practice, no measures have been taken to reduce consumption, to introduce the energy-efficient technologies and to develop own production. The situation remained unchanged even in 2009 after the

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Energ Ref rgy ne Progm and y Reform signing of a leonine contract for the supply of Russian gas to Ukraine, under which the price of “blue fuel” for Ukraine exceeded its cost for European consumers. It should be noted that for the last 15 years the gas price was an element of Russia's geopolitical pressure to promote its own interests in Ukraine. Persistently blaming Ukraine for stealing gas, Russia has carefully formed the negative image of Ukraine in the eyes of Western countries.

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Starting the energy reform in 2015, Ukraine has stopped buying gas directly from Russia; accordingly, this pressure tool was leveled. However, cooperation with Russian fuel suppliers can be resumed by Ukraine on an as-needed basis. The real implementation of energy independence measures began only after the increased tension between Ukraine and Russia due to events in Crimea and the Donbas. At the same time, all external conditions were extremely unfavorable: the economic decline and loss of the opportunities to invest in own production, the loss of the productive capacity of “Chernomornaftogaz” (up to 2 billion cubic meters of gas per year), the closure of shale gas projects, etc. On the other hand, volumes of gas consumption decreased significantly due to the loss of the Crimea and part of the Donbas, as well as the declining output of large enterprises — consumers of natural gas. Until recently, Ukraine has not been dependent on other countries, except for coal mining and electricity areas (not including the import and disposal of nuclear fuel). But here there were a lot of problems too: loss-making state mines required constant billion-hryvnia subsidies which were distributed and spent non-transparently. It should be accompanied by a low level of security, remarkable illicit production and a devastating impact on the environment. Due to the conflict in the Donbas and blockade on coal supply from the temporarily occupied territories, it turned out that the "continental" Ukraine became dependent again. This led to the introduction of a state of emergency in the energy sector under the NSDC decision, which is regularly extended, and energy operators are forced to import thermal coal from Russia as well. The energy sector is equally problematic: cross-subsidization through cheap atomic energy, high capital intensity amid the lack of investment opportunities, dependence on foreign fuel suppliers, low percentage of alternative energy sources (in 2016 — 1,26%), etc. However, the latter figure should increase exponentially now. In 2016, Ukraine ratified the Paris Agreement, committing itself to reduce its greenhouse gas emissions by 40% from 2012 till 2030 to the level of 1990. Energy will play a decisive role in this process, and replacement of traditional generation with renewable sources should reach 25% by 2035 (according to the draft of the new Energy Strategy of Ukraine).

The main problem of the energy market was and remains political speculations and populism, applying primarily to gas of domestic production

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Energy Independence Program and Energy Reform


A major factor in achieving energy independence is energy efficiency. At present, the average index of energy intensity in Ukraine is 2-3 times higher than the average index in the world, and 5-6 times higher than in the EU countries. Achieving European indicators means energy savings, including gas. Reduction of energy consumption in the residential sector will lead to a decrease in benefits and subsidies, for which the state budget has already allocated UAH 47.1 billion in 2017, and by the end of the year, this figure is likely to increase by at least a third. The main problem of the energy market was and remains political speculations and populism, applying primarily to gas of domestic production. It has always been a guarantee for maintaining low utility tariffs (they say, it is cheap, and it goes to the needs of the population). But within the framework of the liberalization of the sector and the introduction of competitive markets, and under the IMF arrangements, recently the difference in gas prices for various categories of consumers has been practically abolished. Such a decision has led to the fact that

utility tariffs will no longer be constant but would change according to the dynamics of prices for imported gas. This is payback for ignoring energy reforms over the past decades. After all, non-market gas prices for the population cost the state too much: USD 53.6 billion was spent on subsidized gas in 2005-2015.

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From May 1, 2017, gas prices for the population were as close as possible to the market prices (regulated gas prices for the population amounted to 84-96% of the market in April-July 2017), that is, industrial consumers receive it almost for the same money. In the future, this will help to avoid long-term corruption and abuses, when the cheap gas of own production was sold to industrial consumers at a higher price, and the difference was in the pockets of those who were involved in the organization of such schemes. Also, fair pricing will prevent the cross-subsidization, contributing to the financial stabilization of state enterprises of the fuel and energy complex, the unshadowing of this market, the availability of funds for capital investments and the increase in revenues to the state budget. However, the current situation is difficult and continues to deteriorate. Almost half of the population faces difficulties paying for services. Thus, in March 2017, subsidies were received by 43.6% of households. The total debt of the population of Ukraine for housing and utility services amounts to more than UAH 18.8 billion (according to the State Statistics Service in the first quarter of 2017). In the first quarter of the current year, the number of subsidies for housing and utility services increased by UAH 14.6% to 2 billion compared to the same period in 2016. Energy independence of Ukraine is a factor of national security.

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Energy Independence Program and Energy Reform


According to various estimates, our country is about 50-60% energy-dependent. However, the effective implementation of the planned measures, adoption of the relevant legislation and opening of the energy market for investments will help to offset the negative effects of such dependence податкова система

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Key authorities The Ministry of Energy and Coal Industry of Ukraine was established in December 2010 by reorganizing the Ministry of Fuel and Energy of Ukraine and the Ministry of Coal Industry of Ukraine. The State Agency on Energy Efficiency and Energy Saving of Ukraine was created in April 2011 by reorganizing the National Agency of Ukraine for Efficient Use of Energy Resources (established in December 2005) and the State Inspectorate for Energy Saving (established in May 1996). National Commission for State Regulation of Energy and Public Utilities (NKREKP) was established in August 2014 by merging of functions of the National Energy Regulatory Commission (NERC, established in December 1994) and the National Commission for State Regulation of Public Utilities (“Natskomposluh,� founded in 2011).

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Energy Independence Program and Energy Reform


The main task of energy reform is to provide energy security and the energy-efficient consumption of energy resources

Energy Independence Program and Energy Reform

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The current situation

Energy independence of Ukraine has many aspects: stimulation of own gas production, more effective introduction of alternative energy sources, energy efficiency improvement, etc. So, in April of this year, the government approved the Medium-Term Plan of Priority Actions until 2020, its section "Energy and Housing and Communal Services» defines the following areas of reform: 1. Implementation of the Third Energy Package of the EU. 2. Development of housing and communal services. 3. Reform of coal industry. 4. Development of renewable energy. 5. Energy efficiency and energy saving. In any case, the implementation of the principles of energy independence is one of the most significant reforms (62 in total), which is described in the Strategy for Sustainable Development "Ukraine 2020". It is chosen as one of the ten priority directions. The main task of energy reform is the provision of energy security and the transition to energy-efficient use and consumption of energy resources through practical implementation of innovative technologies. The main goals of state policy in this area are as follows: — Reduction of energy intensity of GDP (by 20% till the end of 2020) by providing full energy consumption accounting, the transition to the energy efficient technologies and equipment, including the implementation of development projects for the alternative energy sources; — Diversification of ways and sources of energy supply (oil, gas, nuclear fuel, an increase of own energy production, the introduction of transparent rules for the development and use of energy resources); — Liberalization of electric and thermal power markets, coal, and gas, transition to a new model of their functioning; — Reorganization of NJSC "Naftogaz" according to the Third Energy Package of the EU; — The reform of the pricing and tariff system for energy and fuel (revision of the mechanism for the balance of the energy resources, renunciation of cross-subsidization and state subsidies);

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— The coal industry reform, privatization of perspective and liquidation of unprofitable mines (Arseniy Yatsenyuk's government action plan, approved in 2014, provides for the liquidation of 32 loss-making mines, the preservation of 24 mines, the privatization of 37 mines), etc. Also, an important area of energy reform is a reorganization of energy markets and the implementation of European energy legislation by the Energy Community Treaty, improving the legislation and regulatory environment to attract private investment in the energy sector. The policy of the energy independence increase is gradually taking the form of strategic documents and concrete actions. Thus, in May 2017, the Cabinet of Ministers presented a draft of the new Energy Strategy of Ukraine until 2035. Priorities: to minimize import dependence by optimizing domestic consumption and energy efficiency, to maximize own production of different types of fuel, to establish strategic reserves, to diversify sources and ways of energy supply, etc. Developers suggest stimulating the energy efficiency improvement by monetization of subsidies with a gradual renunciation of subsidies. In general, this strategy repeats other documents on reforming the energy sector. Soon, it is planned to create an Energy Efficiency Fund (the relevant law has already been adopted), which will allow a systematic approach to the thermo-modernization of multi-apartment houses. The problem is as follows: about 90% of high-rise buildings in Ukraine need to be thermo-modernized, which, according to rough estimates, could cost more than UAH 300 billion, but the actual lending level (insulation of a house or apartment and the replacement of gas boilers with solid fuel boilers) by state-owned banks remains insufficient (more than 120 thousand loans for insulation amounting to more than USD 2 billion). The fund is aimed at the complex measures on improving energy saving and energy efficiency in the housing stock, unlike selective "warm loans," and is expected to save 1.5 billion cubic meters of gas annually. This project will involve not only public funds but also funds of the European Union and the German government. At the same time, the introduction of energy-saving technologies at state enterprises continues. In 2016 “Naftogaz� and companies subordinated to NJSC have saved 240 million cubic meters of gas, 25.6 million kW of electricity and 105.960 thousand Gcal of thermal energy. The total value of saved fuel and energy resources over the past year amounts to UAH 1.6 billion.

One of the main factors in achieving energy independence is to increase its gas production

Energy Independence Program and Energy Reform

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One of the main factors in achieving energy independence is to increase its gas production. From overall production of 20.1 billion cubic meters in 2016, 14.6 billion cubic meters accrue to the state production "Ukrhazvydobuvannya." According to officials’ estimates, its own production should grow up to 27-28 billion cubic meters by 2020 (“Ukrhazvydobuvannya” — 20 billion cubic meters) and almost entirely provide Ukraine with its own gas. For this purpose, within the framework of the Ukraine-2020 strategy, there were identified six key areas of the PJSC “Ukrhazvydobuvannya” reforming, aimed at increasing the company's economic efficiency: increasing production and stockpiles, improving operational and investment efficiency, etc. The Law "On the Electricity Market of Ukraine", which was adopted by the Verkhovna Rada on April 13, 2017, implementing the norms of the Third Energy Package of the EU, including the division of the companies according to the areas of distribution and transmission of electricity, was an important element for further development of the Ukrainian energy

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market. The law creates the necessary basis for the transition to a new model of the market: moving away from a single buyer practice and the introduction of market pricing mechanism, which provides for the elimination of cross-subsidization. This law will liberalize the electricity market for thermal power plants starting from the second half of 2019, and for nuclear power plants and hydroelectric power plants — starting from the second half of 2020. Electricity production companies will decide on the price for most of the produced electric power. Also, it will be possible to switch to direct contracts between electricity producers and suppliers to the final consumer. The law eliminates the current structure of the energy market (State Enterprise "Energorynok") and allows increasing competition and optimizing the mechanism of money flow from consumer to producer. Due to the elimination of cross-subsidies, the electricity price for the population will become equal to the tariffs for industrial users. This means that it will be increased 1.5-2 times compared to the current level. On the other hand, the industry will overcome the burden of subsidizing the population and will be able to win in terms of the competitiveness of Ukrainian production. An important element of strengthening the institutional capacity and independence of the National Commission, which regulates energy and utility services was the adoption of a relevant law which came into force at the end of 2016. The document reduced the President's influence on the NKREKP and ensured the rotation of the Commission members for the renewal of its composition. It should be noted that it is still a long way off the legislative and regulatory finalizing procedures and reforms in energy and energy independence. Soon, it is necessary to implement a lot of elements of European legislation, to approve the draft of the updated Energy Strategy of Ukraine until 2035 and the new edition of the Code of Ukraine on mineral resources, to implement the Concept of reforming and development of the coal industry for the period until 2020, to implement in practice recently adopted laws "On Energy Efficiency of Buildings "," On Commercial Accounting of Utilities ", etc.

an important area of energy reform is the implementation of European energy legislation

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International obligations

International Monetary Fund. At this point, the key motivation for the energy reform of Ukraine is its commitments to the IMF for receiving another tranche from the fund. The memorandum of March 2, 2017, indicates the following: 1. Increasing of social assistance targeting, encouraging households to save and spend within budget limits. Since May 1 this year, the norms of gas and electricity consumption for individual and centralized heating have already been reduced. By the end of July 2017, other parameters of the system of utility subsidies for households will be revised to improve targeting. Revision of social norms will be introduced in off-peak months during the heating season; gas and heating distribution tariff based on capacity will be applied, allowing to transfer part of the cost to the summer months. Thus, this will give an opportunity to limit expenditures on subsidies for the utility costs to UAH 47 billion in 2017. 2. Improvement of the gas sector. Ukraine undertakes the commitment to adjust the prices for indigenously produced gas every six months so as its price would be parity with the price of imported gas. The price revision is carried out in the case of changes in the prices for imported gas by more than 10%. The interim adjustment mechanism will be in effect until the tariffs are fully liberalized. Moreover, by the end of August this year, there will be adopted a resolution of the Cabinet of Ministers on monetization of assistance in the framework of subsidies for housing and communal services at the level of utility companies. Thus, private gas traders will be able to compete with "Naftogaz” in gas deliveries. Also, the scheme, which allows non-subsidized households to receive a payment delay of 12 months will be abolished.

NGOs

Independent experts from various organizations closely monitor the implementation of the energy independence program and energy reform, including the following: • DiXi Group Analytical Center — dixigroup.org • Better Regulation Delivery Office — brdo.com.ua • Independent analytical platform VoxUkraine — voxukraine.org • Non-profit organization EasyBusiness — easybusiness.in.ua • Center for Economic Strategy — ces.org.ua • Energy Research Center — eircenter.com • Association on Energy Efficiency and Energy Saving — energy-efficiency.in.ua • Civic Network OPORA — oporaua.org • National Ecological Center of Ukraine — necu.org.ua

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Interesting Facts

On September 7, 2016, the Ministry of Economic Development and Trade changed the charter of “Naftogaz,” pulled out of its management “Ukrtransgas,” and transferred the company under its own control. “Naftogaz” stated that this decision was not agreed. EBRD also spoke out against the decision. In less than two weeks, the Prime Minister Volodymyr Groysman revoked the decision of the Ministry of Economic Development and Trade.

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According to Prime Minister Volodymyr Groysman, Ukraine will become energy independent after 3-4 years. However, the importance of the statements of politicians should not be exaggerated. Providing the economic growth, the consumption of gas by industrial users will also increase. Therefore, a gradual increase in the indigenous production may fail to meet growing demands. Moreover, the importance of reduction of gas consumption is somewhat exaggerated in Ukraine. In 2014-2016, gas consumption in Ukraine reduced by 16% to 42.6 billion cubic meters, by 21% to 33.7 billion cubic meters, and by 2% to 33.2 billion cubic meters respectively. The largest reduction was in the industry — by 22% to 15 billion cubic meters, by 19.2% to 11.4 billion cubic meters, and by 12% to 9.9 billion cubic meters of gas (for the same period). Consequently, the decline in gas consumption was not due to the introduction of energy efficient technologies, but due to the loss of industrial capacities of the Crimea and Donbas, as well as due to the decrease in production caused by the deterioration of the economic situation in 2014-2016. The Law "On the Electricity Market of Ukraine" approved in the first reading in September 2016 and the adoption of the Law "On the National Commission for State Regulation of Energy and Public Utilities" was the price for receiving the next tranche of EUR 600 million of macro-financial assistance from the EU.

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2009 2015 September

the EU's Third Energy Package came into force

January

sustainable Development Strategy “Ukraine-2020” was adopted

March

2010

the Gas Sector Reform Action Plan was approved

April

September

Ukraine signed the Protocol on Accession to the Energy Community Treaty (was enacted in February 2011)

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the Law "On the Natural Gas Market," which implements the EU’s Third Energy Package, was adopted


2016 July

2017

September

April

the Law on Ratification of the Paris Climate Agreement, which was signed by Ukraine in April 2016, was adopted

March

Ukraine signed a memorandum with the IMF, where energy sector reform is one of Ukraine's obligations

the Law "On the National Commission for State Regulation of Energy and Utilities" (entered into force in November 2016), which implements the EU’s Third Energy Package in the part of the functioning of the national regulator, was adopted

December

the Concept for the development of Ukraine's gas industry was approved the Draft Energy Strategy of Ukraine until 2035 was presented for discussion

the Government approved the Medium-term Action Plan until 2020 the Law "On the Electricity Market of Ukraine," which implements the EU’s Third Energy Package, was adopted

May

the Concept of the Coal Industry Reform and Development for the Period until 2020 was approved

June

the laws "On the Energy Efficiency Fund," "On the Energy Efficiency of Buildings," " On Commercial Accounting of Utility Services" were adopted

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content

introduction ................................................003 The governance renovation and anti-corruption reform ................ 006 Constitutional reform ....................028 JUDICIAL REFORM ..........................................042

Reform of the national security and defense system ...............................058 Law Enforcement Reform ..................................................................076 Public administration reform.................................................................. 090 Election laws reform ......................... 104 Decentralization and the state management reform .............................118 Reform of the state property management and privatization...................................... 132 Deregulation and entrepreneurship development .................................................. 148 Public Procurement Reform ...................................................................166

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Financial Sector Reform .................................................................. 180 Tax reform ....................................................... 194 Healthcare reform ................................. 212 Education reform .................................... 230 Agriculture reform ..............................244 Energy Independence Program and Energy Reform ............................................260

Путівник по реформах

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Analytical publication The Reforms Guide 2017 The publication was prepared by the Internews Ukraine NGO The chairman of the board — Konstantin Kvurt Executive Director — Natalia Pedchenko Director of Program Activities — Andriy Kulakov The editor in chief — Anna Kyslytska The design and layout of the edition — Julia Chernous


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