New draft law on the transport regulator: new form, old problems

During the meeting on January 12, the Government approved amendments to the Law “On Transport” that determine the legal and organizational basis for the creation and operation of a National Commission for State Regulation of Transport.

This is the third government version of the law on the NCRT since the beginning of the newly elected Verkhovna Rada’s work. Unfortunately, all these documents contain the same unresolved issues regarding the constitutionality of the creation and independent operation of such a state body.

BRDO experts have repeatedly provided recommendations to ensure the independent and efficient operation of the NCRT. Additionally, they have prepared a comprehensive draft law that takes into account previous experience in creating regulators in other areas, as well as the recommendations of the EU Directive establishing a single European railway area, and conclusions of the Organization for Economic Co-operation and Development (hereinafter — the OECD). 

Zoya Melnyk, Head of the Transport and Infrastructure Sector at the Better Regulation Delivery Office (BRDO), told the MINTRANS more about the risks of the document approved by the Government.

Special body and its tasks

The practice of creating collegial bodies in areas that involved natural monopolies is not new. Such an institution should regulate tariffs, administer consumer access and other conditions for activities in the area. Today, the domestic transport regulator’s functions are performed by the Ministry of Infrastructure of Ukraine, but the introduction of a special body (the NCRT) is essential to the effective functioning of the transport services market. However, attempts to create it have not been successful for 20 years.

The fully controlled and rubber-stamped National Commission for State Regulation of Transport is a loss for all stakeholders. Instead of long-term predictable regulation, businesses will receive new surprises and fundamentally different courses of regulation with each new Cabinet of Ministers.

Instead of approving equal maximum tariff limits for all entities, natural monopolists (both state-owned enterprises and concessionaires) will receive the unreasonable and non-transparent tariff formation practice that will be different for each entity. Individuals will eventually pay for all these unreasonable tariffs as air, water, or rail transport passengers, or as final consumers of goods delivered by this transport.

The state, however, will continue to spend the money, time, and effort of deputies, members of the Cabinet of Ministers, and civil servants at all levels to find quick solutions and address urgent needs from year to year instead of achieving progressively strategic goals that only strong institutions can do.

What’s wrong with the new government decision?

So, what provisions of the draft law approved by the Cabinet of Ministers will currently prevent the NCRT from becoming an independent and effective institution?

  1. Regulations on the National Commission, the maximum number of its employees are approved by the President; it is subordinate to the President; the Chairman and members of the commission are appointed by the President.

Such provisions are unconstitutional. As the powers of the President and the Verkhovna Rada are clearly defined in the Constitution of Ukraine, additional empowerment enshrined in the laws is unacceptable, and the Constitutional Court of Ukraine has repeatedly emphasized this fact in its decisions: #5-r/2019 of 13/06/2019 (Decision in the case of the National Commission for State Regulation of Energy and Public Utilities); #21-rp/2008 of 08/10/2008 (Decision in the case of the National Commission for State Regulation of Communications of Ukraine).

  1. Lack of independence of the body in decision-making.

Following the above-mentioned EU Directive and recommendations of the OECD, a national transport regulator should be an independent (stand-alone) authority which is, in organizational, functional, hierarchical, and decision-making terms, legally distinct and independent from any other public (government) or private entity. This draft law currently contains provisions that:

— completely undermine the independence of the NCRT regarding the appointment of its chairman and members;

— decision-making, approval, and registration of acts;

— financing of the body from the State Budget.

  1. Additional risks:
  • unpredictability of regulation for business (the draft law contains some provisions that do not comply with the principle of legal certainty and do not allow to predict the consequences of regulation);
  • unclear provisions that allow avoiding public discussion of a regulatory act of the NCRT;
  • there is no liability for non-compliance with the NCRT’s requirements by business owners and no personal liability of NCRT’s members.

What should be the law on the NCRT?  

In case of adoption of the law with unconstitutional provisions, the operation of the newly created National Commission may be partially or completely blocked by the Constitutional Court at any time. The lack of sufficient guarantees of the independence of the body and its members creates the risk that no impartiality and fairness of regulation will be ensured.

Instead of the appointment procedure, the competitive selection process should be completely transparent, as this is a guarantee of confidence in future decisions of the regulator. Moreover, requirements for the professional development and expertise of candidates for the position of NCRT’s members should be higher in comparison with ordinary civil servants and guarantee their complete non-involvement in politics and business. 

NCRT should be able to make its own decisions: on the basis of its own calculations and research and without any control from other government agencies. This means that neither the Cabinet of Ministers nor the State Regulatory Service can revoke its decisions; the Ministry of Justice or the Government Printing Office should not have any tools to stop, disapprove, refuse the registration or publication of a draft regulatory act of the NCRT. 

There should be exhaustive grounds for the dismissal of an NCRT’s member and no chance to dismiss them for political reasons or approve ‘uncomfortable’ decisions. This is a prerequisite for true, not just declared, independence. 

Transparency should be provided at all stages of the NCRT’s decision-making. Businesses, local self-government bodies, and executive authorities should be allowed to engage in a dialogue with the NCRT, so they will be heard and their proposals will be taken into account or reasonably rejected.

The NCRT should be financed through regulatory contributions paid by natural monopolies and related markets to ensure its maximum financial independence. Due to the introduction of regulatory fees, businesses do not have to pay more taxes: the amount of taxes paid should remain unchanged.

Last year, BRDO experts drafted a law that addresses the gaps of existing legal documents in terms of unconstitutionality and non-compliance with European obligations of Ukraine and offers much more guarantees for the sustainable, uninterrupted functioning of the state body.

Strong and independent (structurally, functionally, and financially), transparent, and professional NCRT is an investment in more effective government regulation for years and decades. While the creation of the commission under the current government act threatens Ukrainians with more budget expenditures and the lack of fundamental changes for the better in the transport services market.  

Source: Mintrans