September 14, 2020, Kyiv. An online presentation of the report “Anti-corruption and Economic Potential of e-Services” was held. This is the first attempt to comprehensively assess the economic and anti-corruption effect of e-government services introduction in Ukraine in the context of 7 areas. (more…)
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The state does not have complete and unified information about its reclamation systems because of the lack of an effective management system.
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The Ukrainian beer market is facing hard times: since 2011, the production volume has decreased by 1.6 times. Even so, the state budget received more than UAH 4.5 billion from the excise tax on products made last year. (more…)
The draft law No.2698 is aimed at solving key problems of the construction market in Ukraine.
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One of the principles of European Union development is the decarbonisation of the economy.
This is evidenced by the establishment of strict requirements in various sectors: increasing the share of electricity and heat produced from alternative sources, adding biocomponents to motor fuel, reducing CO2 and greenhouse gas emissions, and more.
The EU supports and encourages the implementation of these requirements by neighboring states and partner countries.
As an example, the need to implement European legislation governing these issues is included in the Association Agreement between Ukraine and the EU.
The Green Deal strategy provides for a significant revision of approaches to the functioning of the economy in terms of its impact on the environment.
It includes stimulating the replacement of faulty technologies with environmentally neutral ones, including through increased environmental taxation, reuse of resources, the increased energy efficiency of technological processes, and the RES introduction.
An important component of the EU’s decarbonisation policy is the limited use of fossil fuels, especially coal.
Such a policy has one obvious drawback. The high economic costs for its implementation, and hence the increase in production costs mean a decrease in the competitiveness of EU goods on the world market.
Therefore, the next step of European countries will be to protect their market from faulty goods produced using raw materials and technologies that negatively affect the environment.
What does this mean for Ukraine? Our products may lose access to one of the world’s largest markets. In addition, it is the closest market to our borders, and this makes it a priority market for our country.
Thus, economic integration with the EU is a strategic goal of Ukraine’s foreign policy, so it is very important to prevent the worsening of our position in this area.
The share of coal in Ukraine’s energy balance is very high. About 40% of electricity is generated by coal-fired power stations, which is more than twice as high as this figure in Europe (15% in 2019).
Most EU countries plan to completely phase out the use of coal for electricity generation by 2038 (moreover, some countries, including Belgium, Switzerland and the Baltic States, have already completely phased out it).
There are the same trends in the metallurgical industry, where coal is replaced by other resources, and in other sectors.
Thus, Ukraine is at risk of being included in the list of countries, to the goods of which restrictive duties or taxes on CO2 emissions will be applied after their introduction.
At the beginning of 2020, the Ministry of Energy presented the Concept of “green” energy transition of Ukraine until 2050, which is in the trend of European initiatives. It focuses on gradually reducing the use of coal for energy production.
The concept of “decarbonisation of the economy” provides for reducing air emissions and the transition to a climate-neutral economy by 2070, as well as reducing energy dependence on other countries.
This goal should be achieved through:
However, the Concept may share the same destiny as many other strategic documents ‘on a bright future’ gathering dust on government shelves.
There are the first signs of this scenario. First of all, it is related to the policy of the relevant ministry in the electricity and coal industry.
During the coronavirus crisis, electricity demand has fallen significantly. As a result, there was a decrease in demand for power plant coal, and this led to a reduction in its purchase by power plants from coal mining companies.
But owners of coal mining companies, who, by the way, are also the owners of most thermal power stations (main consumers of coal), resorted to blackmail of the government by miners to maintain the demand for coal.
The government decided to ‘help’ private coal companies, primarily DTEK, at the expense of the state-owned NNEGC “Energoatom”.
Not only is electricity generated by nuclear power plants the cheapest one on the market, but it is also carbon neutral. And this is in line with the decarbonisation concept.
Instead of giving the right signals about the need to reduce coal energy and take the first step towards decarbonisation, the government took a step back.
It is worth mentioning the dubious decisions on electricity imports from Russia, contrary to the interests of Ukrainian energy companies, as well as coal imports from this country. This negatively affects domestic coal production, primarily the state production, in which losses are covered from the budget.
The companies of another oligarchic group were the main beneficiaries of the implementation of these decisions.
There is another aspect of the coal issue: state-owned coal mining companies. The mines, which were not needed by anyone during the split-up of the industry under Yanukovych, are still owned by the state.
There are several reasons for such ‘needlessness’: difficult geological mining conditions as well as depletion of formations and reserves, resulting in too high product costs.
These problems have only worsened over the years. Today, state coal mining is a black hole sucking down the state resources and producing regional social tensions that periodically spill into Kyiv.
The cost of coal produced by state-owned mines is not just high: in some companies, it is many times (!) higher than the price, at which this coal is sold. But the difference is compensated by the state, ie by each of us.
However, the state subsidizes not only unprofitable state-owned enterprises. Taxpayers also subsidize fully profitable private companies.
This is done at the expense of unprecedented tax preferences for coal mining companies. In fact, they do not pay rent for the extraction of minerals, which are the property of the people of Ukraine under the Constitution. The rent rate for power plant coal is a meager 0.75%.
Coal is not subject to VAT, and there are no environmental tax liabilities, although these companies are one of the biggest polluters of the environment.
The unprofitability of state-owned mines can be solved by closing them and replacing their products with natural gas. Today, its market price is lower than the cost of most state-owned coal companies.
And this is particularly incomprehensible given the existing differences in the policy of coal and gas taxation. Like the vast majority of other goods, natural gas is subject to VAT, and gas companies are obliged to pay rent payments.
In general, the gas production unit of Naftogaz Ukrainy alone generated budget revenues of UAH 62.7 billion in 2019. As they say, feel the difference!
It is estimated that today the products of state-owned enterprises producing more than 2.3 million tons of coal (that is almost 70% of the total production of state-owned mines) are not as competitive as natural gas in terms of prices, even without taking into account transport costs, the greater environmental damage caused by coal and some technological aspects.
The total losses of Ukraine’s economy from the use of more expensive resources are about UAH 5 billion per year.
In the case of identical gas and coal taxation, it will make no economic sense to produce three-quarters of state coal. If coal is replaced by gas during the heat and electricity production, the economic effect will exceed UAH 6.7 billion per year (this figure doesn’t include budget revenues in the form of taxes).
These funds would be enough to close mines, provide socio-economic adaptation and retraining of employees, as well as reclamation of territories to contribute to the goal of the Concept of “decarbonisation of the economy”.
Actions and decisions of the government, which are contrary to the goals of this document and the economic logic, are the second step back.
We can only say that we are witnessing a favorite game of the authorities: preparing an adequate and promising document on the development of the energy sector and making immediate decisions that do not implement it, but also move the state backward. This will continue as long as the government puts the interests of oligarchs above the interests of society.
Source: Ekonomichna Pravda
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The existing conflicts and legal uncertainty regarding the interpretation of provisions of the Commercial, Civil and Civil Procedure Codes of Ukraine are still the topics of much discussion among the lawyers who support Ukrainian business. In particular, the disputes are related to the interpretation of such terms as “property”, “percent” and “interest”, “transaction” and “deed”, “authorized fund” and “authorized capital”, the definition of an enterprise as a legal object or a legal subject, etc.
Another example: while the Civil Code limits the range of economic entities to business and non-business companies and associations (with the possibility of creating a company of one person), where business associations should be established in the form of business partnerships and cooperatives, the Commercial Code recognizes business organizations, citizens of Ukraine, foreigners and stateless persons, registered as entrepreneurs in line with established procedures, as economic entities.
We decided to ask lawyers of the business whether their activities are hindered by the existing controversial aspects of the Civil, Civil Procedure, and Commercial Codes, and if so, what should be done to harmonize the legislation.
We will be grateful for filling out a short questionnaire: https://forms.gle/wDJRj4yKC8tnXURC9 (in Ukrainian)
Your answers will help to capture data on the main problems of enforcement of these codes, as well as to analyze the appropriateness of the possible repeal of the Commercial Code.
After the Revolution of Dignity, Ukraine is well on its path to move away as far as possible from the remnants of the “Soviet” past to develop a well-functioning economic and social system that is benefiting all of Ukraine’s citizens. (more…)
By signing the Association Agreement with the EU, Ukraine committed to harmonizing Ukrainian laws with EU directives in several stages. These requirements applied to many areas of the economy. They also covered public procurement in construction.
As the state spends a significant portion of the budget on construction orders, the rules under which such services are procured should ensure equal access for all participants and reduce corruption risks during public tenders.
One of the necessary solutions is the introduction of a legislative possibility to hold architectural competitions during procurement. Currently, the majority of architectural design contracts in the ProZorro system are purchased through the open tender procedure, where the only criterion is the price of the lot. I.e., roughly speaking, during the auction, an architect is first selected, and then does he/she propose a project of a certain building or complex. Thus, the contracting state often buys a “pig in a poke” without being able to evaluate a future development project at the tender stage.
Instead, being a common practice for Europeans, architectural competitions allow assessing the creative component at the initial stage of project selection and, in addition to a reasonable price, to choose the best architectural proposal. For example, thanks to open architectural competitions, Khreshchatyk Street was rebuilt after the war in 1944, and the Memorial of the Heaven’s Hundred Heroes and the National Museum of the Revolution of Dignity will appear in the center of Kyiv soon.
If you look at the procurement statistics in construction, their amount is growing year by year in all areas. At the same time, non-competitive procurement methods for architectural design services still prevail over competitive methods both in terms of the number of lots and in terms of cost. Thus, in 2018, the contracted cost of such services under non-competitive procedures was 5 times higher than under competitive ones.
In Ukraine, the international practice of architectural competitions is still not developed, although there are some positive dynamics. For example, in 2010-2017, only 65 architectural competitions were announced, and in 2016-2017, their number increased almost threefold. As for procurement funded by the budget, the situation is worse. Since 2016, there were only 8 negotiating procedures based on the results of architectural competitions. Currently, the state, acting as a customer, still focuses exclusively on price and can not assess in advance the quality of the proposed architectural solutions of tender participants.
A striking example of the unsuccessful selection of contractors without competitive tendering is the project of a health complex on Raiduzhna Street in Kyiv, which has provoked extensive public discussions. The project was strongly criticized after the architectural design of the future building was announced. The project owner was completely satisfied with the price criterion, but the citizens and the professional architectural community, mildly speaking, were not impressed with the author’s creative approach.
Source: delo.ua
Why Ukraine is losing its position in the fishing industry and how regulatory changes can help. (more…)
For the last two weeks, the draft law No.3618 “On realtor activities in Ukraine” has been discussed by everyone interested, including anti-corruption activists, economists, lawyers, and realtors themselves. The authors of innovative ideas argue that the draft law does not oblige Ukrainians to use the services provided by realtors, but rather protect citizens from unscrupulous real estate agents, whose activities also lead to a loss of revenues to the state budget. Opponents say the draft law will oblige Ukrainians to use the services provided by realtors on a fee-paying basis in case of sale or lease of real estate while duplicating the scheme related to a paid evaluation database (infamous “Yatsenko’s platforms”), but now it is related to realtors.
Lawyers and analysts of the Better Regulation Delivery Office (BRDO) have analyzed the text of the draft law, the explanatory note to it, and arguments of the drafters, and offer an expert assessment of the regulation proposed.
Why is this draft law needed and what problems does it solve?
Having analyzed the arguments of the drafters, we concluded that the draft law aimed to address the following issues:
We did not analyze the scale, dynamics, and severity of these problems and did not determine their causes. We also did not find this analysis in the supplemental materials and explanations of the drafters, who promised to provide an analysis of effects and their calculations later. At the same time, I emphasize that this analysis of problems and their causes is a key element because the effect of the draft law cannot be measured without assessing its impact on the problems it has to solve, as well as without comparing this assessment with the assessment of its implementation costs and negative side effects it creates.
For example, the drafters argue that the draft law is aimed at making the provision of real estate services official and increasing revenues to the state budget of Ukraine. However, no documents state the current level of the shadow economy in the sector and the expected level that will be achieved as a result of policy implementation. There are also no specific figures regarding the growth of state budget revenues. Finally, it is not specified which executive body will be responsible for implementing this policy.
The draft law and supplemental documents do not contain answers to the questions, which are important for market participants. Will consumers of real estate services pay more in case of real estate transactions? Will real estate agents be forced to increase the cost of their services due to the need to gain access to the profession (as mandatory certification and professional accreditation of realtors are introduced)? What is the expected cost of entering the profession? How will this affect the cost of real estate services? The lack of answers to these questions does not allow us to fully assess the advantages of adopting the draft law.
Additionally, the introduction of some regulation in the sector where there were no state rules before requires constant close consultation with stakeholders, such as market participants, consumers, and realtors. This is a fairly simple but effective principle for effective public policy: nothing for me without me. Taking into account the maximum number of positions of those who will be affected by the regulation, it is possible to avoid unwanted mistakes, improve the market situation, legitimize the rules for those who should comply with them. It can be concluded from this report that no such consultations were held.
While the public waits for the analysis from the drafters, we can analyze at least the content of its provisions and assess whether they meet the declared purpose and what potential risks they contain.
Does the draft law really protect consumers of real estate services from unscrupulous realtors?
Yes, the draft law contains some rules to protect the rights of consumers of real estate services:
Some of these suggestions are useful, while others create significant risks, which are discussed below.
Does the draft law impose the use of realtor services in case of the sale or lease of real estate?
Part 1 of Article 1 of the draft law extends its effect, in particular, to legal relations arising in the process of real estate transactions related to the purchase, sale, lease (rental) of real estate.
The draft law does not contain a direct obligation to use the services provided by realtors to buy or rent real estate. At the same time, certain provisions of the draft law still make it impossible to conclude a real estate transaction without contacting a realtor.
Article 34 of the draft law states that the condition to sell or lease the real estate to a new owner is the inclusion of information about the property and registration of its information card in the Unified Information Database.
When entering such information into the Unified Information Database, real estate units are assigned with an individual registration number. The draft law provides for including such a registration number in the essential conditions (agreements on the alienation, sale, or lease of real estate). Moreover, a notary will not have the right to certify such a transaction without obtaining an extract from the registered information card of a real estate unit contained in the Unified Information Database.
Thus, any real estate unit, for which a person intends to enter into a sale or lease agreement, should be included in the Unified Information Database with the assignment of an individual registration number. A person cannot conclude real estate transactions without entering information on a real estate unit into the Unified Information Database.
However, the draft law does not directly provide property owners with the right to enter information about real estate units into the Unified Information Database independently: only realtors or “other persons authorized by law” have the right to enter information about real estate units into the Unified Information Database.
This text can be interpreted in several ways: 1) a person authorized by law (realtor or other person authorized by law to enter information), 2) a representative of the person entitled to enter information (representative of a realtor or other person authorized by law to enter information). Since no law explicitly provides for the right of anyone other than a realtor to enter information into the system, the owners will not have such a right.
Therefore, although the provisions of the draft law do not explicitly stipulate the obligation to use the services provided by realtors in case of the sale or lease of real estate, it will not be possible to conduct such transactions without entering information about real estate into the Unified Information Database. Since only realtors have the right to perform such actions, property owners will be forced to contact a realtor and conclude an agreement in the provision of real estate services to enter information about a property unit into the Unified Information Database.
Does the draft law really transfer the control over realtors to a “real estate chamber”, which the entire market will pay to?
According to the draft law, a single non-governmental regulator (National Federation of Realtors) will appear on the real estate services market. All business representatives required to pay contributions should become members of such an organization. Each realtor should undergo professional training in an accredited institution and be attested/certified/accredited by the Qualification and Certification Commission within the National Federation to be included in the federation. When realtors receive a positive assessment, information about them will be included in the Unified Register of Individuals, Legal Entities and Professional Associations in Real Estate maintained by the Federation. And only after this procedure, realtors will be able to legally provide their services. Realtors should improve their qualifications by applying to the commission on a paid basis every two years.
The National Federation undertakes to control the quality of services provided by realtors and may impose disciplinary sanctions in case of violation of the rules approved by it.
The idea of professional self-management, or rather self-regulation, could be a stimulus for market development. However, the model of its implementation selected by the drafters carries the risk of an uncontrolled monopoly.
There are several aspects raised by these issues:
Does the draft law harmonize Ukrainian legislation with EU legislation?
Ukraine has no European integration obligations regarding legal relations in the real estate services market. By the way, mostly real estate agents of EU member states act as intermediaries in real estate transactions, providing consulting services, property valuation services, trust property management, document preparation, etc.
Summarizing the above, contrary to the intentions, the draft law provides for an unreasonably burdensome procedure for providing real estate services during the alienation and lease of real estate, which will lead to the increased prices for selling and leasing such property. Despite the drafters’ idea to establish transparent rules of the game in the real estate services market, the draft law may lead to market monopolization by a single non-governmental organization, and this carries additional corruption risks and calls the competitive principles of market development into question. However, the draft law contains some provisions that improve the protection of the rights of consumers of real estate services. The analysis of the experts of the Better Regulation Delivery Office (BRDO) shows that the support of the draft law No.3618 in the proposed version may have a negative impact on both consumers and providers of real estate services in Ukraine.
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