The Head of the Better Regulation Office and heads of sectors talked about their achievements, in particular, regarding the review of the regulatory environment, the introduction of new standards of effective regulation and a number of other initiatives in the regulatory sphere, and outlined the priorities for the next year at the meeting “Results of the Year” held at the Kyiv-Mohyla Business School today.
“Ukraine needs real reforms, but not their imitation. We built our work on this principles in 2016. This fact as well as the support of our partners and the potential of Better Regulation Delivery Office experts allowed to launch a number of important changes and obtain the first results,” the Head of the Better Regulation Delivery Office Oleksiy Honcharuk said commenting on the results of the year.
He mentioned the start of the rolling review of the regulatory environment in 5 key economy sectors among the most important achievements and said that as of today, an inventory preparatory stage was over and they started the review of the effectiveness of regulation in 70 pilot markets. This is a significant step towards re-orientation to the regulation measurability.
The first stage of cleaning the regulatory environment of “garbage” is among the main achievements in 2016. For example, as the result of the “deregulation day”, the Government abolished 367 obsolete and illegal regulations.
In addition, the Government approved 10 decisions that makes the life much easier for businesses at the initiative of the BRDO Office. We are talking about reducing the number of works and services subject to licensing in the fire safety sphere from 17 to 7, abolishing the ban on mixing grain, the minimum cost of notary services, simplifying the procedure to construct mobile communication base stations, improving the procedure to calculate the normative monetary valuation of land plots and others.
A key achievement is the participation of BRDO Office experts in introducing a reform of control and supervision system as well as in reforming the fire inspection, reviewing regulatory functions of the National Bank and reforming the system of medical protocols.
As for improving our position in the Doing Business ranking, there is also a significant progress, although it is not reflected in this year’s results of the ranking. However, a comprehensive draft law developed by the BRDO Office experts and a number of decisions approved this year will allow to expect that we will enter the Top 30 already in 2018.
We are working intensively to introduce the Concept of Effective Regulation supported by the National Council for Reforms and it is planned to submit it for the Government’s consideration next year. We prepared a step by step action plan to introduce it and a project of a new architecture for regulatory environment. In addition, we started the review of regulatory ways and developed a “Green Paper”.
With the active participation of the BRDO Office, the amendments to the method of calculation of fees for connecting to electricity grids of up to 5 MW were developed and approved. This list is partial, we are still developing many initiatives. The BRDO Office will continue to work on their approval and take an active position regarding removing barriers for the business development and introducing a system of effective regulation in Ukraine.
There are the following actions among key priorities: the review of regulations in 70 pilot markets, cleaning of the regulatory environment of ineffective and illegal acts, the review of a panel of regulatory instruments, introducing a comprehensive database of inspections and a system of electronic registration of wood, making urban planning documentations available for access, the simplification of the registration for foreign citizens and a maximum progress of Ukraine in the World Bank’s ranking in terms of ease of doing business and others.
Following the results of the regular meeting of the working group at the Ministry of Regional Development, Construction, and Housing to bring building codes into compliance with internationally recognized principles of setting of standards, a final plan and a list of building codes needed to be reviewed on first priority basis was approved.
It is planned to review and bring at least 28 national building codes into compliance with the modern world standards in 2017-2018. The building codes in the list of high priority are important for the real reforming of the construction sector of Ukraine and have great impact on living standards of the Ukrainian population, the development of settlements infrastructure, the energy efficiency of buildings, security and creation of the barrier-free environment for all citizens.
In particular, the following building codes can be distinguished:
Building code 390-92 “Urban development, planning and development of urban and rural settlements”
Building code B.2.2-15-2005 “Residential buildings. Fundamental principles”
Building code B.2.6-33:2008 “External walls with facade insulation. Requirements to the design, installation and operation”
Building code B.2.5-39:2008 “Heating systems”
Building code B.2.2-24:2009 “Houses and buildings. Designing high-rise residential and public buildings” etc.
The Ministry of Regional Development, Construction, and Hosing, the Ministry of Economic Development and Trade, the Ministry of Health Care, the Ministry of Agriculture, the Ministry of Infrastructure, the State Regulatory Service and others were involved in the bringing the building codes in line with internationally recognized principles of setting standards. In general, 15 ministries and state institutions (departments and agencies) are currently involved in the work.
Currently, the first developments of building codes “Preschool education” and “Planning and Development of Territories” were offered by the Kyiv Ukrainian Zonal Research and Design Institute for Civil Engineering and the Institute “Dipromisto” after Yuriy Bilokon.
The Construction Sector Head Olena Shuliak represents the Better Regulation Delivery Office in the working group.
The Better Regulation Delivery Office Construction Sector experts invite all interested parties to express their proposals and comments about possible changes in the existing provisions of building codes with the aim of taking into account interests of all market participants – the state, consumers and businesses. Please send your proposals and comments by e-mail to [email protected] with the subject “Reform of building codes”.
This topic was discussed at the briefing of the Minister of Infrastructure of Ukraine Volodymyr Omelyan. According to him, a series of “deregulation” decisions designed to liberalize the market of regular suburban, intercity and interregional bus transportation has been prepared.
The Head of the Better Regulation Delivery Office Oleksiy Honcharuk participated in this event. In his speech, he noted that the existing regulation of bus transportation services was complicated and non-transparent and, as a result, almost 60% of the market in the shadow economy. And this means the non-compliance of safety standards, poor quality of services and the non-payment of taxes.
According to him, the introduction of European principles of effective regulation, the refusal of limiting a number of bus trips and the introduction of strict control over the observance of safety standards will allow to legalize shadow transportation services, and most importantly, increase their safety and minimize corruption risks.
“The number of trips on the route from Kyiv to Odessa or Poltava should be determined not by an official, but by the market,” Honcharuk said and added that the BRDO Office provided the expert support in preparing draft decisions and would promote them in the future.
Currently, these drafts are being discussed by the public. Then they will be sent for approval and submitted to the Government for consideration.
It is planned to review 55 pilot markets next year. The corresponding list is approved today by the working group under the ministry chaired by the Deputy Minister of the Ministry of Regional Development, Construction, and Housing and Communal Services of Ukraine Leo Parkhaladze.
The market of non-residential construction, metal construction structures, specialized construction activities, including heating and air conditioning systems and water supply networks, are among the main ones. Also, the regulatory framework of the market of restoration, conservation and renovation of cultural heritage will be reviewed. The market of residential construction, namely, commercial objects and construction activities will be reviewed as well.
The Construction Sector Head of the Better Regulation Delivery Office Olena Shuliak who is a member of the working group notices that this review will be conducted for first time in the history of independence of our country. Its aim is the analysis of the effective market regulation, namely, determining the correlation of regulation costs to the level of gaining the goal, for which achievement the regulation is being used for.
According to Olena Shuliak, if it is determined that the regulation is used inefficiently, the concept of changes will be developed. It will allow introducing the new standards of effective and efficient regulation that will improve the business climate and stimulate economic development in corresponding areas.
The review process will be open and public, anyone will be able to join and provide own proposals. A full list of markets can be found on the ministry’s website.
A list of all pilot markets in the key economic sectors and the corresponding review schedule is published on the Better Regulation Delivery Office website https://brdo.com.ua/instruments/pereglyad-diyuchyh-regulyatsij/#tab_4
For Information:
The working group under the ministry is one of the five groups created under the specialized ministries by the order of the First Vice Prime Minister of Ukraine Stepan Kubiv with the aim of objective estimation of the regulatory framework, inventory and its further cleaning.
From now on, it is easier than ever to find out whether your enterprise will be inspected next year – you just need to enter its name or a business identity code in the search bar created by the Better Regulation Delivery Office experts.
The Inspection Plan for 2017, according to which the search function was created, includes the information on all main regulatory authorities, with the exception of the State Fiscal Service of Ukraine.
And while you are clarifying the future of the company you are interested in, our analysts have already tried this search system and found some interesting details and facts: what inspections the regulatory authorities are planning for Ukrainian businesses next year.
About the amount
The total amount of inspections combined into comprehensive inspections will be 18.258. Interestingly, the number of comprehensive inspections was increased more than twice compared to 2016: 18 258 vs. 8136.
The Silpo chain of supermarkets takes a leading position in terms of planned inspections (for one enterprise) – 228 inspections are planned for its facilities.
Top 5 most frequently inspected enterprises in 2017 are large food retail chains (see the infographic)
About the form
The inspections of the State Service for Food Safety and Consumer Protection include five the largest comprehensive inspections in terms of the amount of planned inspections. What is more, the majority of all addresses planned to be inspected are the addresses of stores. In addition – all inspections are planned for the same day.
Monday is the most popular day to start the planned comprehensive inspections.
The number of inspections is growing from month to month. This can be explained by the fact that according to the Law “On the Main Principles of State Supervision (Control) in the Sphere of Economic Activity” from 05/04/2007, a minimal interval between two planned inspections should be one year. If several regulatory authorities want to inspect the same enterprise, then, in fact, the final inspection date should be determined as the last date among all inspection dates of various regulatory authorities.
About leaders
The State Service for Food Safety and Consumer Protection planned the largest number of activities: the amount of its inspections has increased by 5 times, up to more than 16 thousand. The colleagues-inspectors from the State Emergency Service of Ukraine breathe on its neck – they planned more than 12,000 inspections (see the infographic).
Total
The organizations working mainly in the field of education gained the leading positions in terms of the growth dynamics of the inspections amount: the number of their inspections will be increased by 55 times. In particular, if we talk about the institutions of general education – from 71 to 3900.
It should be noted that the majority of these inspections will be the inspections of schools conducted by the State Emergency Service of Ukraine. Probably, this growth can be explained by the reaction to the school collapse in Vasylkiv that happened on October 11, 2016.
It is worth noting that 20% of these inspections are planned to conduct in Cherkasy region. In most cases, one enterprise will have 2 visits of the State Service for Food Safety and Consumer Protection and 1 visit of the State Emergency Service planned for the same day.
In addition, the State Service for Food Safety and Consumer Protection made another ‘record’: they planned 2 time more inspections than last year.
The search function is available here: https://brdo.com.ua/inspections/
The potential growth of steel construction is based on the multistory housing and industrial construction. These areas have the greatest regulatory burden in the sector. This topic was a key motive of the presentation of the BRDO (Better Regulation Delivery Office) Construction Sector Head Olena Shulyak at the V National Conference of steel construction market participants. The event takes place in the Kosmopolit Congress Hall in Kyiv.
The Minister of Regional Development, Construction and Housing and Communal Services Hennady Zubko, the Deputy Minister Lev Partskhaladze, the First Deputy Chairman of the VRU Committee on Construction, Urban Development and Housing and Communal Services Dmytro Andriyevsky, experts and construction sector representatives presented the reports on the situation and prospects of the sector and specific steps to improve the investment environment to the conference participants. The event was organized by the Ukrainian Steel Construction Center.
The speakers highlighted a lack of investments and the obstacle and ineffective regulation of the sector among the main problems that currently hinder the development of the construction market in general and the steel construction in particular.
According to the results of 2015, the total construction costs in the amount of little more than 42 euro are accounted for one Ukrainian citizen. For comparison, in Germany this figure is almost 2700, and in Poland – 944 euro. In this context, the housing per capita in Ukraine is one of the lowest in Europe with an average age of residential buildings in 42 years – 90 percent of housing have been built before the 1990s.
“Our experts have analyzed the ratio of incomes of the population in different regions to construction costs and found an interesting pattern. The national average figure is 1.83%. At the same time, it reaches 4-5% in the Western region due to low-rise buildings and it barely reaches 2.3% even in Kyiv, which is a leader in construction. This imbalance exists not least because of the overregulation of the multistory housing, which not only creates the excessive administrative burden on developers and investors, but also significantly increases the price of multistory buildings. Taking remedial actions against ineffective regulation can at least double the potential construction market,” Olena Shulyak said after the conference.
Currently, Ukraine takes the lowest position among all countries of the region in terms of “Dealing with Construction Permits” in the World Bank Group’s Doing Business ranking. Only the cost of permitting procedures is 15.2% of the estimated construction costs that is almost twice as large as an average rate of our neighbors.
Source: biz.nv.ua
The state regulation in Ukraine is an extremely important point, which is necessary to balance the interests of the state, businesses and the society.
But sometimes, this regulation can be obsolete and no longer serve any purpose while being determined by laws, some of which have been developed over decades ago.
The Better Regulation Delivery Office evaluate the “working life” of this regulation, not only the existing one, but also the regulation that will enter into force. A good example of the last-mentioned regulation is the creation of a new independent regulator in Ukraine – the National Commission for Regulation of Energy and Utilities (NKREKP), the formation and future regulatory measures of which cause certain concerns.
The new Law “On the National Commission for State Regulation of Energy and Public Utilities” adopted by the Verkhovna Rada is written in such a way that the energy-sector regulator is out of the philosophy of the “adequate” state regulation. This is in terms of not only the mechanism and procedures to prepare regulatory documents, but also the general philosophy. It seems that established provisions on its activity lack the reasonableness. According to the adopted law, the energy-sector regulator is independent to such an extent that it is not obliged to carry out, in particular, the appropriate procedure to approve new regulatory standards.
“If something is too much, it can not be rational”
Actually, a regulator that is not controlled by anyone or anything and doesn’t fall within any procedure is a threat to the business. It can introduce a new regulation for the market and, consequently, for market participants tomorrow or the day after tomorrow. If the business doesn’t accept it and it is unnecessary, costly and burdensome, the business will be no longer able to appeal to the State Regulatory Service to complain on a new document, organize working groups and meetings to discuss everything. This is because now the regulator won’t get approvals of this service.
However, there is also an argument “for” such independence: the regulator should quickly respond to the “challenges” of energy markets and provide an appropriate reaction.
And as it is accepted in the world, the independent energy-sector regulator should really quickly make decisions on tariffs and numbers. In this case, it should really be independent. However, main elements of these immediate decisions are just the tariffs. Previously, the regulator had the right not to adjust tariffs, except one category – the tariffs for the population; the adjustment procedure was time-consuming just like all pricing decisions for this group of customers (there were delays in making decisions, for example, when the Ministry of Justice stopped the rates of standard connection to grids at the level of numbers, but their approval was necessary since it also applied to individuals).
Therefore, being out of procedures for the approval of new regulations means having no control at all. A long procedure to adjust decisions (it takes about three months) has certain arguments “for” in this case. This guarantees a minimal quality of legal documents. But the question is whether we need the quality.
So, we have reduced or no influence of government bodies or market participants, not only the Ministry of Justice and the SRS, but also the business, on decisions made by the regulator. If this regulator is politically motivated – there is even a risk of influencing the energy market to protect one of the market participants and fight with their competitors through the regulator’s activities.
Another example of a possible situation with no control is a licensing issue – the law assigns this activity entirely to the NKREKP. However, as neither the Cabinet of Ministers nor the Ministry of Justice will have any influence on regulator’s decisions, the court will be the only branch of government, which can take decisions on the legality of licensing activities of the energy-sector regulator. I think there is nothing to say about the nature of our court system.
However, this practice is used in the US, there only the judicial authorities remain supreme with regard to the regulator as well. But we can not compare the current state of public consciousness in Ukraine and the US. It is also difficult to compare the American judicial system and ours. Our citizens are often afraid to go to court, and we still don’t have this legal culture. Ukrainian companies don’t believe in the fairness of courts. Moreover, any appeal to the court is a serious time lag. Therefore – the NKREKP’s decisions taken in a rush, which can be questionable, won’t be quickly cancelled.
“House without foundation”
In addition, there are many defects in the process of preparing the legal framework for the independent energy-sector regulator.
You will be surprised, but such a body as the National Commission carrying out the state regulation of energy and public utilities is not provided for even by our Constitution. Those legal acts regulating its activity didn’t take into account all details of its work and ensure the independence of the regulator while promoting the existence of many corruption risks. And now the work was done to provide Ukraine with a relevant law and consequently – with a new energy-sector regulator. The saga of preparing, considering the document in committees, making amendments, submitting to the session hall and voting in the Parliament took almost 2 years. Finally, the law was adopted in this September. As a result of dozens of discussions, more than two hundred amendments were made in the original text of the draft law while it was being developed. And political details concerning whether the regulator should be fully independent or controlled by someone and who it is were the most points of the amendments discussion.
As a result – the law was adopted with compromise decisions, but is it the foundation that will eliminate significant corruption components and keep the balance of interests of the state, businesses and citizens?
Maybe. It is true that the level of responsibility of the NKREKP chairman and members, who are the people making decisions, increases significantly, and there is a problem of the quality of new regulator’s decisions and the effectiveness of our judicial system in case of abuse.
“Brothers of such independence”
In Ukraine, there is an example of such “independence” of the regulator. This is the National Bank. If the NKREKP is independent to an extent that it is not controlled by either the Cabinet of Ministers or the Ministry of Justice when it comes to adopting regulatory decisions, there will be some aspects existing now in the NBU.
The first aspect. If the regulations become effective after their registration in the Ministry of Justice, you can found them in this registry and learn – when exactly some or another regulation becomes effective. There are no NBU’s acts in this list – as it is independent of the Ministry of Justice. So, it is difficult and burdensome to understand when this regulation came into force.
The second aspect. The Ministry of Justice has a clear procedure for registration and inspection of regulations for the compliance of a new regulatory document with a body that it adopts. In addition, professional methodologies who understand the mandatory attributes that legal acts should include are working in the Ministry of Justice. If the document has these defects – the ministry sends it back for revision. And finally, the Ministry of Justice checked the documents for grammatical defects, and the NBU’s acts and President’s decrees, which are not approved by the Ministry of Justice, contain grammatical errors in the text of documents very often. In particular, there is a very famous life example, when the NBU reported about a good news on cancellation of a passport in currency transactions in the evening. The next mornings, banks received a new instruction, where it was put down in black and white that a passport should be shown. Then it turned out that a rapid decision just lost a particle “no” and they needed to amend it.
The third aspect. According to the adopted Law on the energy-sector regulator, this body will have its own rules to publish and approve new regulations. Will the regulator follow these rules and take into account reasoned comments and proposals – this is an open question.
So, we face with the question again – can we afford this full and unconditional independence?
Probably, we can, but only from the time, when there is a healthy competition on energy markets and transparent tenders, no thefts of funds when implementing investment programs of energy companies, when controversial decisions in the energy sector just like, for example, decisions on transformers for Ukrenergo or Rotterdam + formulas, become a thing of the past. After all, we pay out of pocket for these decisions – all these things affect a final cost of energy resources.
And most importantly, when the regulation is predictable and quality, when its effectiveness is determined even at the time of its introduction, when this regulation is balanced both in terms of businesses and consumers and the need for its implementation is reasonably shown in public.
Finally, an independent regulator is an example of the Western model of regulation of natural monopolies, which has been developed on energy markets for a long time and approved that it could be effective only if the regulator’s decisions are not subject to any influence, while being professional and balanced. Everyone concerned should ensure the control over the regulator – whether they are energy market representatives or consumers of energy resources, who we all are. It is possible to achieve a positive outcome only this way.
The Food&Agriculture Sector Head Andriy Zablotskyi became a member of the Working Group on improving the phytosanitary situation in Ukraine that will function under the Ministry of Agriculture and Food. The working group consists of representatives of the ministry and a number of departments, local authorities, NGOs and international organizations, businesses, experts and scientists.
The main task of the Working Group will be the development and implementation of an action plan to improve the phytosanitary situation, in particular, using an example of several areas.
The Better Regulation Delivery Office is planning to concentrate on preparing proposals in the field of plant quarantine, the maintenance of an appropriate level of safety of plant products and the implementation of mechanisms to track each group of plant products from the field to the port.
Recently, the Government has approved the decision to simplify the approval of construction of mobile-communication base stations.
This process have been accompanied by a lot of “barriers” and accumulated of corrupt elements in the past few years. Particularly, base stations of mobile operators are placing their equipment in existing real estate facilities, such as on the roofs of buildings (satellite dishes or industrial air conditioner are installed on the same principle). However, starting from April 2011, they started to implement the “Procedure of execution of preparatory and construction works” and the “Procedure of putting finished construction facilities into operation”, which are used for construction of real estate on land plots with relevant certificates of ownership or land use.
In fact, the process of placing the equipment and putting it into operation was increased on the average by one month, a number of intermediary companies that offer a quick resolution of issues, appeared.
The Better Regulation Delivery Office expects that the decisions adopted by the Government will be enacted in the nearest future. This is because, according to various estimates of experts and market participants, the “quick” resolution of issues related to the construction and putting facilities into operation has cost more than 150 million hryvnas for businesses in the past two years!
On December 2, 2016, the reform of technical regulation of the construction sector in terms of the review of state construction regulations was launched.
This reform was launched at the first meeting of the working group at the Ministry of Regional Development, Construction and Housing and Communal Services of Ukraine that approved the decision to start the review and bring the existing state construction regulations (DBN) in line with internationally recognized principles of setting of standards.
The working group includes representatives of 10 ministries and civil services, experts of international organizations on regulation, law and investments, and representatives of the construction sector and research institutes.
The Head of the Construction sector Olena Shulyak represents the Better Regulation Delivery Office in the working group.
“The review of technical regulation in construction is a step towards a deep reform of the sector. I hope that this process will be irreversible. This is like re-railing – you can slow down, but it is very difficult to turn around,” Olena Shulyak commented.
According to the expert, members of the working group have already developed an action plan on brining the Ukrainian DBN in line with existing international practices. This plan includes both reviewing existing DBN and drafting a number of new laws. In general, the plan covers activities at least for two years in prospect. Currently, an indicative list of state construction regulations that should be reviewed and adapted to current realities on first-priority basis was defined.
The Better Regulation Delivery Office proposes its vision of both the list of DBN for the first-priority review and specific amendments to the existing regulations. We believe that the regulation should be discussed openly and be a result of the inclusive dialogue between the government, businesses, experts and citizens.
The list including the proposals of the working group, the BRDO Office and stakeholders is provided below. Please send your suggestions and comments by e-mail to [email protected] with a subject “Reforms of DBN”. Join us!
Last week, the National Bank of Ukraine presented a plan to implement a new process of regulatory activities at the meeting of the Task Force on Financial Sector Reforms (TFF).
A rolling review of markets under the responsibility of the regulator will be carried out during the reform. It is also planned to improve the regulatory instrument panel and implement new approaches to making decisions that will be based on predictability and efficiency.
The Better Regulation Delivery Office, the Independent Association of Banks of Ukraine and the National Bank of Ukraine actively cooperate to implement this project.
For information:
The NBU Board has previously approved the project “Transformation of the National Bank of Ukraine: reform of the regulatory function” and supported the creation of a special working group. The main goal – to improve the quality of the NBU’s regulatory function.
Source: Novoye vremya. Biznes
More than 800 unfinished construction projects. 4.5 million square meters without owners. 78 square meters – an average apartment size according to the statistics of new builds delivered in 2016. At a minimum – 58,000 defrauded families, who have invested own funds in construction and have every chance not to ever get a desired and hard fought house and home.
At the beginning of 2015, there were 2118 unfinished apartment buildings in Ukraine (according to the State Statistics Service that hasn’t collected the information about unfinished construction projects since 2015). 864 buildings covering about 4.5 million square meters have been no longer built. They are suspended. These figures are official and partly confirmed by the market experts.
The official statistics takes into account the legal construction that is the one carried out on a legally registered land plot under all the rules and regulations. But unofficially – there are much more unfinished construction projects, which have a chance to never become residential buildings. Just one example of the Ukrainian experience: the Ukogrup real estate developer (“Voitsekhovsky’s fraud scheme”) has constructed 40 accommodation facilities in Kyiv without permits. Therefore, 800 unfinished buildings is a very rough figure.
The Elita-Center’s fraud set Ukraine in turmoil 10 years ago. 1443 defrauded investor filed complaints on frauds. This is the first big fraud publicly recognized. Experts estimated damage from this fraud in almost 400 million hryvnas (80 million dollars).
Over 9 years, only 267 defrauded investors received apartments (as of mid-2015). According to preliminary estimates of experts, as of 2015, it is needed to build 2.2 million square meters of housing and allocate more than 100 hectares of valuable capital’s land just in Kyiv in order to provide all victims of unscrupulous market participants.
Taking into account the fact that less than 1.4 million square meters of housing were brought into use in Kyiv in 2015, it is necessary to give defrauded investors everything that is built to provide them with apartments… And in fact – even 100 years won’t be enough for this. However, examples of fraud schemes with newly constructed residential buildings can be found almost in every corner of Ukraine – in Dnieper, Lviv, Odesa, Berezhany in the Ternopil region…
A snowball of the unresolved issue regarding the protection of investors’ property rights gradually covers more victims. Those who not interested in this issue (for various reasons) came up with the statement that this is a matter of entirely private contractual relationships between clients and contractors. However, the state plays a key role in this scheme: it acts as a regulator and sets the rules.
The state “invents” and “gives its blessing” for schemes, in which real estate developers can attract private funds of citizens in construction projects. If these schemes are tricky and unclear and don’t protect investors – the state is fully responsible for these funds of the Ukrainians, and so – for discreditable practices with them performed by real estate fraudsters.
Therefore, this problem has no longer been a matter of just contractual relationships between investors and real estate developers. Hundreds of thousands defrauded families are the basis for a social explosion. Actually, we are talking about one of the fundamental principles of the Ukrainian mentality – the family housing.
After the scandal with Elita-Center, in 2006, the Parliament amended the Law “On investment activity”, which prohibits construction companies to attract funds directly through the conclusion of various investment agreements. Today, investing and financing the housing construction projects with the use of private funds raised from individuals and legal entities is carried out entirely through the construction financing funds (CFF), real estate funds and collective investment institutions by issuing targeted bonds of enterprises (part 3 of Art.4 of the Law of Ukraine “On Investment Activity”).
Investments in construction through the creation of CFF seem to be safer for investors on the one hand, but on the other – it leads to growing prices of construction projects, because there should be a fee paid to a director of such a fund. Investing through targeted bonds and collective investment institutions are also very specific tools, the maintenance of which requires special knowledge and additional costs.
Moreover, the Ukrainians investing their hard-earned money into residential buildings may still face with a number of risks: dishonest real estate developers can change the specifications of construction projects, resell the same facility or challenge the future apartment ownership. In this case, an average citizen can’t understand and keep track of ll details without a lawyer.
Therefore, legislative changes of 2006 don’t address the problem of unscrupulous real estate developers-fraudsters in an holistic manner and can’t fully protect Ukrainian families.
The legislator must realize that just the “Voitsekhovsky’s fraud scheme” increased the “army of defrauded investors”, by estimate, by 25,000 “new angry bayonets”. So, this issue should be addressed immediately and in a holistic manner. This is because its further neglect will cause the “snow avalanche” effect: the indignation based on the legislators’ indifference to the interests of defrauded investors will just crush the ineffective regulation of relations in the sphere of housing construction.
The relevant amendments were made to the Order of the Ministry of Agrarian Policy and Food of Ukraine #661 from 13/10/2016. The Cabinet of Ministers approved this decision last week.
Due to the unreasonable ban, our farmers suffered significant losses while being deprived of $8-10 per each ton of grain, which, in its turn, led to a significant reduction in liquidity of domestic enterprises.
The Better Regulation Delivery Office experts estimated that the economic effect of the abolition of this ban would be more than 10 billion dollars by 2020. Logistic losses will be significantly reduced (by a minimum of 12%), the capacity of elevators, the ports load and, revenues to the budget will be increased.
We hope that this decision will be adopted according to all procedures of approval at an early date.
The source: UNIAN
The head of the Better Regulation Delivery Office (BRDO) and member of the National Council of Reforms told about how to create a favorable business environment in Ukraine, why the deregulation doesn’t solve all the problems and when we can enter the top-20 of the DoingBusiness ranking in the interview to UNIAN.
The Better Regulation Delivery Office (BRDO) was established more than a year ago at the initiative of the former Minister of Economic Development Aivaras Abromavicius with the support of foreign donors.
A main purpose of the organization as an advisory body at the Ministry of Economic Development and Trade is to develop measures to improve the state regulation and conduct the deregulation that will allow creating a favorable business environment and improving Ukraine’s positions in the DoingBusiness ranking.
However, despite the government’s ambitious statements on the plans to enter the top-50 and the top-20 of the ranking, Ukraine has just advanced by one position during this year, taking now the 80th place.
UNIAN discussed with the BRDO Office’s head, who is the member of National Council of Reforms since recently, why the result was unsatisfactory, which initiatives have been already implemented and are being developed at that moment, what to do with the state regulation in general to allow small and medium businesses to develop smoothly.
You have been heading the Better Regulation Delivery Office for more than a year. It is funded by European donors. Why did the international partners choose the deregulation field for their investments? Is this issue so important for Ukraine now?
Ukraine has many different projects supported by international organizations. The European Union, the US, Canada and other countries provide technical support for such projects, and the regulation reform, or more usually, the reform of the state itself as an instrument to regulate the business is one of them.
Our partners consider that it is necessary to make Ukraine an effective modern regulator, because today we still have a lot of fragments of the old system. These fragments prevent the development of the domestic economy. Therefore, providing support for reforms in this area is the transformation of Ukraine into a civilized and equitable regulator and player.
The deregulation have been actively started already by the former government. There were the ideas to cancel employment record books and abolish thousands of Soviet state standards (All Union State standards). For example, the former Prime Minister Arseniy Yatsenyuk announced that all European technical standards would be approved and 15 thousands of old standards would be abolished by the end of 2016. However, 2016 is drawing to a close, but we still have employment record books and the abolishment of standards is extended till 2019. Why did they delay?
Political plans and the reality do not match in most cases. When you are assigned to the post, you think that all changes can be carried out quickly, but in reality, you need to do a lot, nothing can be done quickly.
In addition, we lack specialists. The reforms cannot be implemented without an adequate civil service. The Government hoped that the civil service reform would be implemented in less time and there would be effective and motivated civil servants, but the quality civil service resource they expected has not appeared yet. Therefore, the prediction made two years ago has not proved to be fully correct.
Speaking specifically about the “All Union State standards”, this really requires major efforts. It is impossible just to say that from tomorrow we will use something else. It requires a certain time and specialists to refocus and prepare new solutions.
Skeptics believe that the deregulation can have more negative effects than the positive ones. For example, when we reduce the state control, we rely on market mechanisms of self-regulation. However, the state institutions that should ensure the normal market relations are not functioning properly. In such circumstances, businesses can abuse, and citizens only lose.
The deregulation can not be an end in itself for sure, it can be a way to solve certain problems. There are two classic cases where the deregulation is needed. First, when regulatory instruments are not used correctly and only bring a harm. Second, if the procedure to apply them is too cumbersome, and the positive effect is less than the negatives they create.
It is a superficial approach to call the regulatory policy the deregulation. For example, the deregulation definitely won’t be helpful in a case of natural monopolies, and we have a lot of problems with them. This is not only the connection to electricity grids or the creation of a gas market, it is also about the “Ukrzaliznytsya”, “Ukrtelecom” and so on. It is obvious that the deregulation is not a solution in this case. Instead, we need to create adequate instruments to regulate monopolies.
The deregulation could be a priority at a certain point, when the government, which came after the Maydan, wanted to reduce the burden on businesses drastically and quickly. However, today, this can’t be a top priority, just one of them.
It is necessary to create adequate instruments to regulate monopolies.
Why do you mention reducing the burden on small and medium businesses when talking about the deregulation? Will large businesses benefit from this?
These concepts are often associated with each other, but the abolition of rules does not lead to improving the business environment by itself, since there are many problems that can not be resolved in this way.
Who is there the focus on small and medium businesses? Because a large business, theoretically, has sufficient resources to build its relations with the state independently. It has legal departments, GR-specialists and sometimes lobbyists, can pay money to order the analysis of regulations conducted by experts and defend its interests in court. In addition, the large business is represented both in the Parliament and other government agencies, and the same can’t be said for small businesses.
This means that if you want to change the whole regulatory system, first of all, it is necessary to think about how this system affects those, who are not able to defend themselves.
Recently, the Ministry of Economic Development and Trade presented a program for the development of SMEs till 2020. Did your BRDO Office participate in its drafting?
We were not directly engaged in its drafting, but we submitted our proposals. We paid most attention to the section dedicated to the regulation and are planning to continue submitting reasoned proposals to provide it with content.
There were many such strategies in Ukraine. The improvement of the business environment is included to the priorities every year. The President and the Prime Minister promise again and again that Ukraine will enter the top 50 or even the top 20 of the World Bank’s DoingBusiness ranking of the ease of doing business. However, there is almost no progress for the second consecutive year, we are still at the 80th position increasing our ranking just by one-two points. Why?
The progress was really small last year. And the then Minister of Economic Development Aivaras Abromavicius set the task to analyze why it happened and develop a plan, the implementation of which would allow to enter the top 50 and then in the top 20 of the ranking.
We have developed the plan, it was taken as a basis for the Resolution of the Cabinet of Ministers approved last December. It consists of more than 50 initiatives for the current year. 90% of them – the development and adoption of laws, because almost everything has already been done at the government’s level.
The Government has prepared more than ten relevant draft laws, some of which were registered in the Parliament, while others were waiting for the approval of the government or the parliamentary groups.
And then the minister resigned and the entire structure of the Cabinet was changed. The new Government had very little time to submit this draft law to the Parliament. After all, the ranking takes into account only the changes adopted by May 31.
So, is this reason a technical one?
If we discuss why we have such a slow progress in general, it is an imperfect system. The Parliament and the Government do not play the roles appropriate for them. In a normal parliamentary-presidential republic, a parliament forms a cabinet of ministers and then this cabinet forms a policy. It is obvious that this policy should be supported by the parliament, or else the parliament simply has to dissolve the government.
In our case, the deputies form the Cabinet of Ministers, and then compete with it for the title of best reformer. A good example is the statistics of draft laws registered in the parliament. Less than 10% of them are government’s initiatives. In other words, the deputies elected the Cabinet and then develop a large amount of draft laws, including the economic ones.
Imagine that you are a Prime Minister and have a parliament that adopts some laws without your knowledge. And you have to think not only about how to change the situation in the country, but also deal with everything, which is happening in the parliament.
If you add the Presidential Administration, which is the third pole of influence on many issues, you will get a system, where it is virtually impossible to implement reforms effectively.
So, what progress in DoingBusiness should we expect this year? What decisions, which were not calculated for the index, were adopted after May?
This year I predict a better result, it may be 20 or more positions, but we need to work for this purpose. Preconditions have been already formed up, and perhaps, the progress will be even greater. We have a realistic estimate of 15-20 positions at this moment.
What exactly has been approved?
A single social contribution was reduced. Now we continue to process the tax reform and we may expect the further easing out of the tax burden on businesses.
There is also a reform in the field of connecting to electricity grids, which can provide a significant progress by 10 and more positions. But this will depend largely on whether we implement these changes or not. Because the World Bank that forms the DoingBusiness ranking takes into account not the things written on paper, but their real effect. A survey of real businesses will be conducted.
What else should be adopted to improve our positions in the DoingBusiness ranking based on the results of this year?
The draft law on seals (it abolishes the mandatory use of seals in business activities – UNIAN) has been already adopted in the first reading and now we should go through with it.
The draft law “On mediation” (alternative (non-judicial) mechanism for dispute resolution) was also adopted in the first reading. This will also add 1.-1.5 positions in the ranking.
There are all the preconditions to increase our position by 15-20 points based on the results of this year, it depends on their quality implementation.
And what steps would increase our position by 5 or more points at once?
For example, the cancellation of share contribution in construction. This could increase our position by 6-8 points.
This draft law has been already registered in the Verkhovna Rada…
Yes, the document has been registered and is being discussed now. It is at a cross-point of interests of local authorities and construction developers.
Now developers should make a contribution to the development of the area they are building on. Is this norm so burdensome or discriminatory for businesses?
The problem is how it is done. First, this creates barriers to enter the market. Second, it creates huge corruption preconditions, as the calculation method allows to calculate differently in every individual case.
A normal approach is when you come to the local authorities and say that you want to build a certain facility. And they answered you that you also have to build a certain infrastructure in addition to this.
Today, the developer says that he wants to build something, but receives the calculation of how much he should pay for a permit in a non-transparent way. This leads to the fact that companies are trying to bargain to pay less, but to the pockets of officials.
What are other initiatives to improve the business environment?
It is necessary to restore the system of alternative methods for dispute resolution. I have already mentioned the draft law on mediation, but, frankly speaking, it is not so important.
There is an arbitration system operating in Europe and other civilized countries. This system has been used in Ukraine, but it was discredited in the first half of the years of 2000 – 2009, because they started to carry out illegal seizures and property transactions with its help. Now we should restore it.
The court of arbitration allows not to spend large amounts of time and money on still ineffective Ukrainian court system.
Another initiative that can increase our position in the DoingBusiness ranking is the trust ownership. Today, when you loan money to someone to buy apartments, cars, etc., you can secure the obligation with the help of a mortgage or collateral. And if this loan is not repaid, you go to court and take this property. The problem is that the process of recovering debts in the court is a complicated and expensive option.
We offer a European instrument. If you get a loan from me and purchase certain assets, they are immediately registered in my name. And when you repay the loan, the property is automatically re-registered for you.
The effectiveness and predictability of the state regulation is a key to a good investment and business climate.
Does a person who purchased the property on credit funds manage i
Yes, you are using it. But I am the owner. If you stop paying on the loan, I don’t need to prove in the court that I own this property. And it is more difficult to take this property without repaying the loan than it is within the current model. That’s why, there will be much less frauds.
Are there any other important initiatives being prepared?
I listed all the global initiatives, there are also about a dozen cosmetic changes, which, however, also affect the ranking. For example, we need to make registries public. Not all registries in Ukraine are as available as it is in Europe.
Also, the World Bank recommends to make the registries electronic allowing the possibility to receive a certificate remotely. We increased our position in the DoingBusiness by 1 point and almost a part of this increase was based on the fact that the option of paying a court fee online has been introduced.
Recently, you have become the member of the National Council of Reforms. How effective and needed is this body?
We understand that it is impossible to resolve the problems that currently exist at the level of this government. It is needed to negotiate with the President and the Parliament. From this point of view, the creation of the National Council of Reforms is a right step – there should be at least some communication.
Another thing is the way it is functioning now. The National Council of Reforms is now a body approving a final decision. To my mind, the National Council of Reforms is an additional opportunity to promote systemic economic reforms in Ukraine. I believe that the deregulation is a good thing, but this is a kind of reflection.
To succeed, we need to draw a model of Ukraine, as we want to see it in 2020, and move towards this model. We have such a model, our Concept for effective regulation demonstrates the way this model should look in terms of business regulation in a few years. Its draft has been already presented to the National Council, and we are planning to present it to government officials and submit for approval on December 13.
Does the government share your vision?
Yes. For example, our initiative, the so-called “guillotine”, was supported on November 23. The Government abolished 367 regulations in agriculture, transport, construction, energy and IT fields at once.
In our opinion, the guillotine is the right step in the deregulation, which can be used, but it should be prepared carefully. Now we are developing another 12 decisions on quick deregulation.
However, as I mentioned before, the deregulation itself is not a panacea. It can solve 20% of problems, all the rest require the effective regulation.
If the deregulation can solve 20% of problems, what do with the rest?
We should establish the effective regulation, without which we can not trade with civilized countries. This means, in particular, the standardization as well. So, the deregulation is not what is needed in this case, rules can not be canceled. Instead, they should be improved and we call this the effective regulation.
How to improve them?
The BRDO Office insists that the regulation should be predictable for business.
Today, everything is changing rapidly. We call it the regulatory tachycardia, when the reform processes are constantly accelerated, but there is no benefit. It is because the changes of the regulatory filed are too fast for the business to follow, it is true especially for small and medium companies, which have no legal departments to monitor the changes in regulations.
We propose to introduce a regulatory season, when in spring, the government reforms the economy, and from July 1, all reforms are over and the business knows for sure that all adopted rules will apply from January 1 next year.
If the Verkhovna Rada doesn’t change anything during this period…
This should be a model for the whole country. We can discuss the dates, but the principle should be formed in that way.
In addition, it is important to make the decisions measurable. For example, when a grand master plays chess, he records all moves to analyze own actions later. Ukraine is a country that hasn’t been recording its moves for 25 years.
The system of recording moves for the state is a regulatory system. This is a system, when we can measure the effectiveness of some regulation amended seven years ago. Today, it is not impossible in our country, because the system is only the simulation: tons of papers accompanying regulatory acts are fake, they don’t contain any analysis. According to form, everything is fine, but in fact – the imitation.
According to the World Bank, 32 economic reforms have been implemented in Ukraine over the past 10 years, this is 3.5 reforms per year. In terms of a number of the reforms, we take the 11th position in the world, in terms of their quality – we even won’t talk about that.
Why so? Because nobody measures their effectiveness. For example, let’s take the inspection activity. In our country, the effectiveness of fire inspections is measured not with decreasing in the number of fires, but in the number of successful inspections, that is the number of fined business entities.
This is something we still live with. And while it doesn’t change, there will be nothing good. The effectiveness and predictability of the state regulation is a key to a good investment and business climate, and consequently, the economic development.
Source: ABCnews
On Wednesday, November 23, the Cabinet of Ministers of Ukraine abolished 367 regulatory acts, which, according to the Prime Minister Volodymyr Hroysman, slow down the process of deregulation and improvement of the investment environment. It is expected that this decision will help Ukraine to increase its position in the Doing Business ranking by a few dozen points and, therefore, will attract new investors to the country. In addition to the abolition of acts, the Cabinet of Ministers approved provisions, which allow to automate the calculation of a normative monetary value of land plots, and amended a Standard land lease agreement. The expert of the Better Regulation Delivery Office Oleh Pylat told the ABCnews about how the Government’s decision will affect the land market in Ukraine.
Changing the calculation of a normative monetary value of land plots and simplifying this procedure will lead to several positive changes. The first one – due to the adopted resolution, there is a way for the full automation of the calculation of the monetary value. This means that it won’t be possible to underprice a land plot in a “manual” mode. When records on the land value are receiving, a corruption risk is excluded and those who took advantage of these schemes won’t be able to use them. In its turn, this will lead to increased revenues to the local budgets and the entrepreneurs won’t have competitive advantages based on corruption mechanisms.
Second, the process of obtaining data on the land evaluation will be accelerated. While now it is needed to calculate the value of land plots manually and three working days are given for this procedure, as a result of the automation, it will be possible to obtain the calculation of the monetary value the same day it is requested. And if a full electronic service is implemented later, an applicant can receive the necessary data in a few minutes on a personal computer.
The third positive consequence of changes should be the publicity of data on the normative monetary value. According to the law, the information on the normative monetary value of land should be public. To the extent allowing to see an average monetary value of one square meter of land in any locality or area of Ukraine.
It is natural that the above possibilities do not appear all at once. There is a necessity in a number of software and technological developments, and we should collect and organize the necessary data sets. We have a lot of work ahead, but it is now possible and should be implemented.
Another positive change relates to the simplification of the Standard land lease agreement. Due to making amendments to the law of Ukraine “On Land Lease” (it was amended in February of 2015 – Ed.), the provisions of the Standard land lease agreement don’t meet it any more. Many citizens filed agreements for registration of land lease rights under the law, but still received a refusal and had to change them again according to the requirements of the Standard land lease agreement. And if we are talking about one or two lease contracts in construction, it wouldn’t be so difficult to change them. But if we are talking about 150-200 contracts on agricultural lands, the process is much more complicated because of the large volume of documents.
Moreover, when simplified land lease agreements were concluded, there were the cases when one party had a reason to terminate it prematurely. And if it came to disputes, one of the parties often used an argument on the non-compliance of the concluded contract with the Standard agreement to justify its claim. In other words, this conflict has become a formal reason to start the litigation.
In general, due to amendments to the Standard agreement, there will be less problems with the registration of land lease rights and less grounds for starting lawsuits and the preparation of land lease agreements will be simplified significantly. This will reduce a number of refusals in the state registration of land lease rights – now there are about 20 thousand refusals. Per year. In addition, it won’t be needed to add necessary supplements to the contracts in 4-5 copies, duplicate the provisions of the law in the text of agreement and prepare a third copy of the agreement.