Original text: “Novoye vremya”
Reforms mean, first of all, the regeneration of the system and the reengineering of mentality.
Any changes bring to light a lot of dirt, where the corruption and incompetence of the government are hiding in the “comfort zone”, which is out of society sight. And the system “activates” its resistance to reforms to keep “things suitable for all”. In addition, the system appeals solely on the basis of documents and rules “produced” by itself while absolutely ignoring the fact that a main goal of the government in a democratic society is the welfare and rights of citizens and a main document – the Constitution.
Currently, Ukraine has the highest unemployment rate, lowest salaries in the regions and an extra-low for Europe level of housing provision. However, we don’t see any great efforts to create new enterprises or construct mew buildings. While relying mainly on Soviet principles of total control and planned economy, our officials “have produced” a large number of regulations, the goal of which is to create conditions for chasing the money of businesses and the community, over 25 years of independence.
One of the most popular principles regulating starting a business is to increase a market entry cost not to allow new players to compete with companies paying bribes to these officials. The share participation works on the same principle
One of the most popular principles regulating starting a business is to increase a market entry cost not to allow new players to compete with companies paying bribes to these officials. The share participation works on the same principle. Of course, the government “is hiding” own interest with the help of ideas about the need to develop infrastructure and networks. Probably, it has been true 20 years ago, when the state owned infrastructure companies. It will be a manipulation to say that share contributions are essential for the development of engineering infrastructure of cities. Today, private companies own the most of urban infrastructure. Kyivenergo, Kyivvodokanal, Ukrtelekom, Kyivgas, regional gas and power distribution companies have long been included in the largest financial and industrial groups of our country – the majority of companies are owned by private owners (usually we call them “utility oligarchs”). The principles of ownership have been changed, but not the counter-arguments. It is because there is a profit. It is because this allows manipulating the community: the rates can not be affected as the companies are private, but it is needed to collect money for “infrastructure development”, because they were municipal enterprises 20 years ago.
Having 42% of civilized terms
The abolition of share contribution can not have a significant impact on local budgets – for example, according to the State Treasure Service, it amounts only 0.2% of planned revenues of local budgets in 2016. Thus, Ukraine has collected 793 million UAH of contributions (including Kyiv – 333 mln. UAH, 42% of all budget revenues in Ukraine) with planned 486 million UAH.
Special cynicism is that opponents of the reform often manipulate: they say the share participation is an important source to fill urban development budgets. However, they are not a sole source of development expenses – according to Article 71 of the Budget Code of Ukraine, local authorities determine independently how much revenues will be spent for the development. However, in practice, it is obvious that the urban development is not a priority for local administrations and limited only to share contributions that amount not more than 1.8% of city revenues. It is even less in the most of cities: Kyiv – 1.5%, Lviv – 1.72%, Kharkiv – 0.29%, Mykolayv – 0.02%. As a result, we have a poor visual appearances and conditions of cities and villages.
At the same time, no one neighboring European country has such a concept as share participation and the quality of infrastructure and comfort of living is much higher there, because cities expenses are aimed directly at target functions of local authorities – providing the urban environment and infrastructure, which are comfortable for their residents.
Investor awaits – community suffers
The abolition of share participation means, first of all, the investment attractiveness of the country. The World Bank experts estimated that its abolition could attract 2-3.3 billion dollars of additional investments annually to the country. While defending the abolition of investment tax, pubic servants make use of every Ukrainian. In addition, they will use any arguments to defend own interests.
The second attempt to abolish “investment exactions” in construction (share participation in infrastructure development) in the Verkhovna Rada on October 18 was also a false start. They didn’t have enough time to consider it. And at the same time – the “system” had a respond, because there was a real risk of changing principles and rules, which have been fixed and convenient for officials from the Soviet times.
The share participation in infrastructure development should be abolished. It is necessary to destroy the last rudiments of underdeveloped “transition” economy urgently to create favorable conditions for the business and society development instead of the old familiar clan of officials.
What does a share participation essentially mean? Imagine that you are offered to provide a shopping list in a supermarket and immediately asked to pay from 4 to 10 percent additionally “to purchase a new cashier desk”. Of course, they will add that socially unprotected citizens are exempted from paying this fee. They will give clear reasons – old cashier desks are overloaded and it is necessary to buy a new one for your comfort… Is it absurd and ridiculous? However, essentially, it is the share participation. Having faced such an attitude, you as a buyer will simply go to another supermarket, where an owner will equip and buy cashier desks himself. It is clear that the first supermarket will become a bankrupt quickly. The same situation is with an investor, who will find a more favorable environment for his investments. The competition will win.
The main goal of the draft law 3610 regarding the abolition of share participation is to make our country investment-attractive for developing a new business and create a level playing field for all market participants
The main goal of the draft law 3610 regarding the abolition of share participation is to make our country investment-attractive for developing a new business and create a level playing field for all market participants. First and foremost, consumers and the community will benefit from this. Investments mean more jobs with higher wages, more budget revenues from taxes and so on. In addition, this is a strategic decision to develop the society for many years. After all, a main goal of local authorities in all civilized countries is to improve the well-being of city residents and for this purpose, it is needed to attract investments and jobs to the city. Our officials should understand this fact as well.
Again about ratings
Currently, Ukraine has the lowest position in the Doing Business rating among the countries of the region – the 82nd position at the level of Guatemala, Fiji, Uzbekistan and Tonga. Besides Ukraine, just a few countries in the world impose a share contribution on construction developers. For example, if a potential investor would like to build a factory to manufacture electronics in Ukraine, he will have to spend at least 10% more than in any neighboring country. No wonder that in this situation, neighboring countries get investments and jobs of the world’s leading corporations.
Accordingly, this is reflected in the Doing Business ranking’s element – Dealing With Construction Permits, according to which Ukraine has one of the worst positions among countries of the world (Dealing with construction permits part: the 140th position among 180 possible positions). This is a level of economies of Micronesia and Sierra –Leone. And while our country is ahead of its nearest neighbors in terms of normative periods to get permits and a number of steps necessary for this, we have almost the worst position in terms of an aggregate cost of this process. For example, the cost of licensing procedures in our country is 15.2% of the construction cost, where 10% – the share participation, then this is 0.3% in Poland, 1.6% – in Russia, 0.1% – in Slovakia, 0.4% – in Hungary, 2.3% – in Romania and the average over the region – 4.4%.
Someone pays thrice while the elite negotiate
The maximum rate of share participation for housing construction, which creates a main burden to the infrastructure (87% of all real estate built in Kyiv are residential property), is 2.5 times less than for industrial areas. Moreover, to find out an exact amount of charged share contribution, the developer should personally come to the appropriate official. It will be unnecessary to tell that such a scheme is a direct way to the corruption. As a rule, there are special rules for “the elite” of housing developers – local authorities often exempt them from paying share contributions. For example, recently, the Budget Committee of the Kyiv City Council exempted the Kyivmiskbud company from paying 30 million UAH of share contribution. That is why the share participation has nothing in common with the efficient regulation of urban development, but it is one of the biggest sources of corruption in cities.
According to results of the Rolling review of regulations, it can be reported already in the first stage – the inefficient regulation is in those cases where there are exceptions in contravention of common rules
According to results of the Rolling review of regulations, it can be reported already in the first stage – the inefficient regulation is in those cases where there are exceptions in contravention of common rules. To prevent abuses, it is necessary to create the environment where corruption is impossible. First of all – to remove all grounds for “finding solutions through kickbacks”. The share contribution should be abolished just for this purpose by using the world experience.
In addition, the population and the business pay a tariff, which should include the cost of network development, depreciation and maintenance, for using the infrastructure. However, since there is a statement that local government bodies lack funds to maintain and develop the infrastructure, we can conclude that these local government bodies either established a wrong tariff or spent the money paid for using the networks to cover the cross funding of other items of their budgets. Both cases are an evidence of incompetence of local authorities and can not be a ground for the existence of an additional fee.
In developed countries, the infrastructure development of settlements is carried out exclusively based on property tax instead of the “entry duty” for projects.
In Ukraine, this property tax has been introduced since 2015. And in fact, it is much more effective than fees required by regulatory bodies at the level of 4-10% of the construction cost.
The Center for Economic Strategy estimated that the property tax just for owners of apartments in Kyiv (the area of apartments to pay for is more than 60 sq.m) at a rate of 2.4% would fully compensate the planned revenues from share contributions (plan for Kyiv in 2016 – 281 mln. UAH).
At least, nothing prevents to abolish the principle of double taxation that violates the law rules.
Government is a manager but not a caste of “decision-makers”
Article 13 of the Constitution of Ukraine clearly states: “The State shall protect rights of all property rights holders and economic operators, and the social orientation of the economy. All the property rights holders shall be equal before the law,” and Article 42 says: “The State shall ensure the protection of competition in pursuit of entrepreneurial activity. The abuse of a monopolistic position in the market, unlawful restriction of competition, and unfair competition shall not be permitted”. The Constitution of Ukraine has supreme legal force.
Laws and other regulations are adopted on the basis of the Constitution and should be constitutional. Over 25 years of independence, the government hasn’t yet got used to treat the Fundamental Law of Ukraine not like just a set of declarative thesis, but like a main socio-political agreement between the government and the society. This is a main state employment contract for a caste of officials that regulates rights and obligations. No secondary legal act can conflict with this contract.
One of the government’s arguments in favor of “fairness” of the share participation is that “not everyone will pay since there are many exceptions”. The Law “On regulation of urban development” determines ten categories of facilities, the construction of which doesn’t imply paying share contributions, as well as allows local government bodies to exempt construction developers from paying this share contribution at all or reduce the share contributions amount (the Law sets only a maximum possible amount – 4% and 10% of the estimate cost for housing and commercial construction correspondingly). Thus, the current legislation provides for a possibility for officials to determine how much to pay by themselves (with no clear criteria).
One person can decide who will pay 10% for a new shopping mall and who won’t pay anything at all, because he had a “proper agreement” with the government. The infrastructure and people convenience have nothing to do with this. It is more important that they can use “a pie in corruption feeding trough” in the amount of at least 3.1 billion UAH a year. It becomes clearer why officials defend the preservation of existing procedures while hiding behind the community interests.
The economist of the Center for Economic Strategy Oleksandr Kashko provided some calculation reports.
The President of Ukraine renewed the membership structure of the of the National Reforms Council – a consulting body under the head of the state, which is responsible for developing the key reforms in the economic and political life of the state.
The Head of the Better Regulation Delivery Office (BRDO) Oleksiy Honcharuk joined its members. This is stated in the corresponding Decree #614 “On Ensuring the implementation of a common state reform policy in Ukraine”.
More details of the decree are here: http://www.president.gov.ua/documents/4712016-20650
What documents and norms should be checked in a construction company to not willingly become a victim of a quite expensive prank?
The Better Regulation Delivery Office (BRDO) Construction Sector Head Olena Shuliak shared with Hromadske Radio with legislative subtleties of the construction sphere.
Vasyl Shandro: How did the construction terms change in Ukraine at the level of legislation, standards and requirements?
Olena Shuliak: A lot of documents in this field must be reviewed. Some of them had been adopted in the Soviet Union. The construction starts with the land allocation and finishes with the registration of the ownership right to the property.
The Law “On regulation of urban development” adopted in 2011 is the one of the main laws. But its provisions started to work only from January 1, 2015. It says that now it is impossible to allot the land or change its designated purpose if there is no developed detailed plan for the territory where the land plot is located.
Just about 15% of the territory is covered with the urban planning documentation in Kyiv, and in Ukraine – about 45-50%. Neither the local nor the framework budget provided costs for the development of detailed territory plans.
To allot the land, investors can negotiate a triple contract, and they will refund the plan development. In this case, they will demand the land they are planning to build to be minimally encumbered, i.e. there will be no social facilities there.
That is why some investors cannot allot the lands, so they build without permits with the expectation that when the apartments are sold, no one will be able to demolish them.
People often confuse with two concepts – a buyer of apartment and an investor who shares the risks of a developer and can easily lose the invested money.
Tetyana Troschynska: Does the developer have to bear responsibility for making active development but not providing the social infrastructure for the residents, and schools, kindergartens, clinics located nearby just cannot cope with great amount of people?
Olena Shuliak: There is a so-called investment tax, which the developers call the “legalized bribe”. This is a share contribution for the development of the engineering and transport and social infrastructure.
In addition to building utility facilities at his own expense, every developer must pay 4% of the construction estimate for the residential and 10% for the commercial property to the city.
This tax is one of the most corruptive payments in the construction sector. At the website of the Kyiv City Council we can see that as of October 1, 2016, 381 billion UAH have been already paid. All these funds must be spent on the social services, but I looked through analytical data – only one kindergarten had been put in the service for the last 3-5 years.
It means that the developers pay but the city does nothing with these funds. From the other side, this system is very unattractive for investors because such neighboring European countries don’t have this tax at all.
Vasyl Shandro: What should a potential buyer ask to escape unpleasant surprises post factum?
Olena Shuliak: There are basic rules: if you want to invest in housing, it is important to check the developer’s documents. First, this is a document that testifies the property right or the land use. You also need to verify the way the project documentation was approved, whether it was examined by experts, and whether the developer got a construction permit. Unfortunately, it is very difficult to check the quality of materials the residential buildings are made from.
If we look at facilities, which are being built now, we will came back twenty years. Developers have to correct the price at the cost of quality. It is really offensive to look at this because our children and grandchildren will live in the panel buildings, the great amount of which was built in every district.
Premium and comfort-class residential properties are practically stopped to be built. When people choose the housing, they do not interest in the ceiling height and materials the panels made from – first they look at the price.
Tetyana Troschynska: Why do not foreign investors come?
Olena Shuliak: I think that people buying apartments are our main domestic investors, and they must be protected primarily. The Lawyers calculated that every fifth contract has all the signs of double or triple apartment sale.
Also, it often happens that a person buys an apartment, for example, on the 10th floor, and the project provides 7 floors.
To protect the domestic investors, we propose a mechanism of creating the register, which would be made up based on developers’ data, to the government. When the developer gets all permits and provides legal construction – the sale is allowed only after he formed the register for the apartment sale. It would eliminate the double and triple resale and would not allow the developer to change technical specifications.
The abolition of state price regulation will liberalize the market of notarial services, and therefore decrease the cost of real estate property.
Regulatory system of Ukraine have been formed through the accumulation of illogical and paradoxical decisions for almost 25 years.
We mechanically accept some of them without analyzing them and thinking about consequences.
But these consequences are not only ridiculous – they slow down the development of market relations.
Public services have been enforcing regulations to the business for decades having argued that there was a need to implement international obligations or protect someone’s interests – the state or the socially unprotected social groups.
The citizens have believed these ideas. Regulatory pressure seemed to them like something distant and something related only to the business and big money.
However, the system analysis of common regulatory impact on the market proves that the state regulation is generally hanging over the economy, and certain regulatory decisions even “pick the pocket” of ordinary citizens and promote more corruption.
Here is an example. In 1998,the Presidential Decree “On regulation of charging for notarial acts” was enacted.
It contains a provision about the price regulation of private notaries in transactions with the real estate property. Almost 20 years ago, the state regulator established a provision about a minimal service fee for state and private notaries – 1% of the transaction for the acquisition or sale of real estate.
It was made to ensure that state and private notaries did not have to compete, “not to offend” any of them. However, this provision cancelled the possible formation of market rules in the sector of notarial services.
How can it be harmful to the notaries?
First, private notaries are forced to offer a possibility of unofficial return of certain sum of services cost to “trusted” clients.
It means that a notary negotiates with a client that he will return him a part of costs that makes that 1% of the transaction sum back after the agreement execution. The private notary can do it because it is his earnings. In such a way, he provides himself with the “grateful” client who will come to him again.
Second, state notaries become unnecessary because it is more difficult or impossible at all for them to perform this scheme. They are obliged to take a fixed rate of the state duty regardless the sum of transaction and transfer it to the state budget.
When it comes to big sums, the clients are obliged to deal with private notaries and negotiate “market” conditions.
What will be unpleasant for the client-citizen?
It will be necessary to pay one percent of the transaction sum not only in case of buying or selling real estate property, but also in case of the gift contract and housing credit contract. It means that you borrow money for housing in a bank because you don’t have them, but you still have to pay a notary.
The result of such regulation: both sides are not interested in transparent transactions, especially in the secondary market, state notarial offices become unprofitable for the budget, and notaries initiate corruptive actions to stay in the highly competitive market of notarial services instead of providing the legitimacy of transactions.
It turns out that such state cost regulation of notaries’ services does not have any sense. It is focused on the support of certain groups through non-market methods, and that is why it is doomed to turn into the brake for the sector development.
It will lead to the fact that end consumers will not get quality services at an adequate cost. Of course, the market will find a possibility to renew the competition, but only through the violation of law and corruption.
There are many such problems in the construction sector and the real estate market. Corruption in the land allocation for the development, non-transparent calculation of share contribution for infrastructure development, extremely complex and expensive procedures to connect to infrastructure networks are among the most obvious problems.
Due to the ineffective state regulation, every such element creates a wide field for corruption and increases the housing cost: the share contribution – by 4%, connection to networks – by 5-10%, corruption in the land allocation – by 15%.
We compensate all these “overpays” when buying the real estate property at inadequate prices. At the same time, the market does not receive sufficient investments. As a result, one of the basic infrastructure sector, a construction one, had decreased its contribution to the GDP of Ukraine almost thrice for the last 20 years: from 8% in the early 1990s to 2.6% in 2015.
The abolition of state price regulation is one of the steps towards the market liberalization, and thus, towards the reduction of real estate costs and attraction of more investments to fund construction projects.
However, any reforms should be introduced through the deep analysis of consequences. This is my opinion. That is why, we invite all the sides facing with the ineffective regulation to cooperate.
We are ready to discuss all the pros and cons arguments of the preserving the cost regulation for notaries. We don’t want to repeat officials’ steps: they either regulate to madness or reject any supervision over the activity having opened a Pandora’s box of the fraud or unfair business practices.
Our aim is to create an effective regulation that liberalizes the market but first will protect citizens’ interests.
Original text: Ekonomichna pravda
The head of the BRDO Energy sector Oleksiy Orzhel: “It is important for investors to be aware of the cost and time of connecting to electricity supply networks. However, dealing with these issues still takes a lot of time”. This one and a wide range of other burning issues have been discussed at the press briefing “The connection to electricity supply networks: suggestions to the draft law 4493 “On the electricity market of Ukraine”.
The issue of connecting to electricity supply networks is one of the key obstacles discouraging quality investors from Ukraine. The Doing Business ranking, where Ukraine ranks the 137th among 189 countries in terms of getting the electricity, partly reflects this difficult situation. The solution of this problem has been already found and, actually, it is even supported both by license holders and the NKREKP. However, in order to make this reform eventually successful, it is needed to ensure the fulfillment of a number of critical points of the reform.
“Today you need to spend a lot of time, efforts and nerves to at least find out the conditions you can connect. Even money can not speed up this process. In addition, a mandatory condition of today’s connection procedures is a direct involvement of investors in the discussion of complicated technical details they don’t understand by definition. We offer to “lock” the whole process between the license holders. There should be services on turnkey basis. If desired, investors can be involved in the technical process, but consumers should simply visit a licensee’s website, specify a point on the map, where he would like to connect and receive this connection within the given time by default,” a coordinator of the direction “USAID Leadership in Economic Governance Program” Dmytro Boyarchuk says.
“We know dozens of cases where foreign investors refused to build production facilities in Ukraine because of the problem of connecting to electricity supply networks. The problem is completely artificial and independent experts have developed its solution long ago. However, the current situation implying an individual agreement between customers and monopolists bring good “tips”, so nobody is in a hurry to introduce changes,” a former NKREKP member and now a border member of the Business-Council “The Price of the State” Andriy Gerus says.
Independent experts offer to introduce a so-called double-rate method of connection to solve the problem of connecting to electricity supply networks. Its basic idea is that the connection cost is calculated based on two rates – the rate per 1 kWh of connected capacity (at the appropriate voltage type and with consideration of networks load) and the rate per 1 km of power transmission lines. Such an approach makes it possible to answer immediately how much it will cost to connect at the given point and make you aware of time frames this connection can be performed.
“In order to plan their activities, it is important for investors to get an answer to two questions: how much the connection will cost and how long it will take. Unfortunately, it takes a lot of time to address these issues in Ukraine. It is clear that no business planning is possible under such circumstances and investors open the production in jurisdictions, where such problems do not exist. It should be mentioned that a dangerous point of the relationship in terms of corruption risks was getting technical specifications for connections by investors – a new concept implies that there will be no need to get technical specifications,” the head of the BRDO (Better Regulation Delivery Office) Energy sector Oleksiy Orzhel says.
The license holders and NKREKP take into account the offer of independent experts on the double-rate method to connect to electricity supply networks, and now this method is even considered as the one that can serve as a basis on the official website. However, there are still disputes over the rate per 1 kWh of connected capacity. Public representatives insist that the rate per 1 kWh of connected capacity should be calculated based on actual costs and considering the voltage type, transformers load and a peak responsibility factor. NKREKP and license holders offer to calculate the rate based on the value of assets and the average rate for the entire country or region. According to preliminary calculations, the rate per 1 kWh of connected capacity based on the value of assets will be higher than the cost of the connection procedure. The estimation based on real costs will be closer to reality and at the same time, the money received will be enough to carry out quality and timely connection procedures.
“According to our estimates, the method of calculating the rate per 1 kWh of connected capacity offered by license holders and supported by NKREKP may give a slightly inflated rate. It would be better to calculate on the basis of the prime cost of carrying out the works adjusted for inflation. In this case, the funds will be enough to perform the connection and license holders even will officially earn,” the director of the project organization “Power grids and systems” Oleg Playda says.
It is also important that the proposed double-rate method provides the opportunity for getting the connection service online. The calculation of the connection cost based on two rates for a given district electricity supply network known in advance allows to automatically estimate how much the connection will cost if it is performed at the given point by using the online calculator.
A crack at the metro line station “Heroyv Dnipra” as an indicator of “disease” of construction regulation
The construction industry in any country of the world is one of those ones, which are under the significant regulatory influence of the state. And it is quite natural. All stages – from facility designing to operating – influence the safety and human life preservation. Complicated and non-transparent regulatory standards and the outdated technical regulation have at least become a catalyst if not a cause of the extraordinary situation on the capital underground station.
Careless developers and officials put not only the Kyiv transport system, but also the most valuable thing – a human life at risk by using imperfections of the Ukrainian regulatory legislation. The Construction sector head of the Better Regulation Delivery Office Olena Shulyak believes that the review of the regulatory legislation is a time-consuming, complicated and long process, but it should be just the process – the permanent and effective one. The history of modern independent Ukraine hasn’t entered into this process.
“The standards developers and officials use have been created yet in the 60-70s, they don’t take into account current realities. This makes the business and government officials to seek “bypass roads” that would legitimize breaches of safety standards. And we can clearly see the result of this in Obolon,” the expert said.
According to the Better Regulation Delivery Office, the reform of the regulatory field in construction should provide for clear lines of responsibility for actions. This responsibility should be not only clearly defined between architects, designers and developers, but also take into account the responsibility of government employees and officials.
Each breach should have a name and surname. Any case of corruption and deviation of safety rules should have a named respondent. A crack in the underground station in Obolon clearly shows that the regulatory system of the Ukrainian construction sector is “sick”.
The symptoms are alarming:
– the principle of “collective irresponsibility” introduced by state;
– the existence of “bypass” administrative maneuvers on the principle “if the regulation prohibits, but you really want, it is possible to arrange about that”;
– non-transparent rules to allocate construction land plots;
– obsolete national construction regulations; etc…
The worst thing is that this “policy” may affect hundreds of human lives. Therefore, the BRDO experts appeal: the regulation reform should be a national priority. This is not only virtual rankings and outstanding press releases about achievements. This is the safety and human lives!
What should we make to bring the competition to the market with no competition at all due to the existence of a natural monopoly? According to the Head of the Better Regulation Delivery Office (BRDO) Oleksiy Honcharuk, it is required at least a plan of meaningful actions if not a state program aimed at the emergence of this competition. He said that at his speech at the round table devoted to the prospects of competition development in energy.
Oleksiy Honcharuk believes that this is the most difficult task, when it comes to the competition regulation in general. This is a huge and very complicated task for the Anti-Monopoly Committee. He expressed the hope that the Committee had a clear and effective action plan in this regard.
“In our opinion, such a clear plan and roadmaps will significantly accelerate the entry of competition in these markets,” he said and added that the regulation wouldn’t be effective if the business didn’t understand for what it was made and what they were required to do. So, the communication shouldn’t be a main task in this area.
The BRDO Head also stressed that an important element of this process was a regulator. However, it is no more and no less than the element of the entire infrastructure, the whole system of state regulation.
According to Oleksiy Honcharuk, the fact that our regulator is independent doesn’t mean that he is hanging in a vacuum and doing what he wants. He is definitely depending on legal requirements, and the requirements of regulatory legislation are very clearly defined, in particular – by the Law on Main Principles of State Regulatory Policy. It describes the way, in which government authorities have to deal with the business to make it feel the adequacy of the state.
Above all, this is the clarity of rules of conduct, predictability and reasonability. Predictability and reasonability of regulator’s decisions in the energy sector are a guarantee of the entry of competition, inflow of investments, sector’s development and the introduction of new standards of effective regulation.
The Better Regulation Delivery Office (BRDO) welcomes the approval of important decisions in the energy sector. In particular, the adoption of the draft law #2966-d “On the National Commission for State Energy and Public Utilities Regulation” and the support of the draft law #4493 “On the Electricity Market in Ukraine” in the first reading.
As the Energy Sector Head Oleksiy Orzhel said, just a lack of decisions regarding these critically important sector draft laws has been remaining the uncertainty factor in the energy sector. He believes that these decisions will help in reforming the sector and creating the effective regulatory environment in this area.
However, the sector experts pay attention to problematic aspects. In particular, they are referring to a lack of guarantees of the energy regulator’s independence. In their opinion, it is important given the period of “deep” reforming in the sector and developing the subsidiary legislation under the Law of Ukraine “On the natural gas market” and the future law “On the electricity market in Ukraine”. It is because the independence of this arbiter and the formation of balance of interests in the relationship between market players, the state and consumers is crucial in implementing the effective regulation of the energy sector.
The Cabinet of Ministers pondered the issue of effective regulation of food prices and developed a special resolution. Journalists of the website “24” tried to find out in what way it is planned to deal with the price regulation.
The state price regulation in its current form is ineffective and this situation requires some actions. However, there are so many problems accumulated that it is simply impossible to find a fast single tool to solve them. Both the experts and the government understand that these Augean stables should be cleaned step by step.
The Resolution of the Cabinet of Ministers of Ukraine “On the implementation of the pilot project on pricing for goods and services in the production and sale of food products” that will come into force on October 1 was the first such step. According to it, Ukrainian farmers, food producers and retailers will be free from compulsory declaration (actually – permit) to change prices and forced limitations of extra charges.
The expert of the Agriculture sector of the Better Regulation Delivery Office (BRDO) Bohdan Andryuschenko who conducted the regulatory impact analysis and the M-Test regarding the above resolution together with his colleagues explained in comments to the website “24” that there were even several problems with the pricing regulation.
The first one: the basis for price regulation is a very old invention. As for this issue, the current legislation of Ukraine “inherited” these rules and had no significant changes nearly since 20s of the last century.
The second problem: the public administration system has a huge apparatus designed to perform this administration. However, it is legally incompetent: the State Price Inspectorate, which is a special body that controlled the pricing, has been in the process of liquidation for two years.
The third problem – we’ve used to use direct and grossest ones among the whole arsenal of tools to regulate the pricing that exist in the world – fixing prices, limiting the profitability of manufacturers, establishing trade mark-ups and others. They are effective for the state-planned economy, but they are of little use for sophisticated settings of the market economy.
In particular, the fact that both food prices covered by the state regulation and prices of unregulated products are growing almost equally despite of the usage of the existing direct price regulation and this increase correlates with the total consumer price index confirms the doubts about its effectiveness.
We can give an example of the bread prices, which is one of the most regulated products. In recent years, the annual dynamics of bread prices corresponds to the total deviation of inflation at around 2%.
| 2013 | 2014 | 2015 | 2016
(the first half of the year) |
|
| Bread, % of price increase | 2,4 | 26,4 | 45,7 | 13 |
| Consumer price index, % in Ukraine (all group of products) | 0,5 | 24,9 | 43,3 | 16,5 |
Moreover, entrepreneurs who ‘regulate’ the prices in this way and, therefore, own incomes as well have learned how to circumvent these rough requirements. And consequently – the ineffective regulation is harmful, especially for those who want to work legally, moving the business “into the shadows”.
To achieve this – we need to understand which tools of the system of pricing regulation don’t work, which ones are working and which of them, on the contrary, create obstacles.
However, we lack the information to make the relevant decisions.
“This is the reason why the government launches the pilot project. The main idea of this “pilot” is to suspend specific instruments of pricing regulation for a certain period and see what will happen and what consequences it will have. A relevant decision will be made on the basis of the received data,” Bohdan Andryuschenko says.
As the Ukrainian legislation doesn’t imply the possibility to suspend an act and simply announce that “it isn’t applied from today”, we chose such a way as this pilot project. Actually, it is the Resolution of the Cabinet of Ministers “On the implementation of the pilot project on pricing for goods and services in the production and sale of food products”: the requirements existing now and identified by experts as potentially invalid in the current economic environment won’t be applied for hypothetical three months. These requirements are following:
If a manufacturer wants to change it by more than 1% in a month, he has to submit a set of documents about that and prove that it is necessary.
“Now this instrument has a very restricted opportunity to be applied. It is based on the findings of the State Price Inspectorate, which has been in the process of liquidation for two years. That’s why the entity that wants to comply with this requirement – can’t do that,” Andryuschenko explained.
We have a rule that a retailer can’t establish a trade mark-up, which is above 15%, for some products. Andryuschenko believes that it means losses for entrepreneurs. A standard trade mark-up to have a premise, pay salaries and others is more/less than 25%. However, the state says – no, it is 15%. What will the entity do? It will find out how to circumvent it. There are a lot of way to do this – from manipulation to shifting the responsibility.
“For example, there is the information that entities that want to supply their products to certain retailers have to pay the difference between the established trade mark-up and the one this enterprise requires. Nominally, everything is great. But in fact – it isn’t,” the expert explained.
“If previously the state owned everything and the State Planning Committee assigned the state enterprises what they should produce and how much and to whom to give it, it would be logical to identify certain standards as a guide. Now, when an enterprise determines itself what to produce and how much – this requirement has a less sense,” Andryuschenko said.
The main task of the above mentioned government’s pilot project is to get information about possible consequences in case they suspend certain regulatory requirements. Experts emphasize – as it is the pilot project, it is limited in time. However, it doesn’t mean that prices will be sky-high. It may even occur in the opposite way – the business will be able to balance the prices of some goods without unnecessary regulation.
This experiment to some extent should result in identifying price regulations that don’t work and prevent the business development in Ukraine.
The process hierarchy is following: the Cabinet of Ministers made the decision to implement the pilot project. But it is sufficient for the current state legislation. Local authorities that adopted regulations – orders that should be suspended – will implement the government’s decision.
Therefore, experts emphasize: a lot of preparatory work should precede a launch of the project. In order to get the results (and information respectively), we need to have an adequate vision of the current level of prices, a starting point and develop the methodology of the monitoring process. Regional administrations and departments of statistics will have to deal with this issue under the guidance of the Ministry of Economy. Then they will track and analyze the information received during the pilot project. Following this analysis, it will become clear which price regulations don’t work or are ineffective. And then the government will make the administrative decision – what to do with the state price regulation: to abolish, change or develop and adopt a new law.
As the expert said, there is a risk that populists who have been trading on this topic and using it as a main tool of pre-election manipulation for years, will start again to create tensions by trading on the issue of possible raising in prices. However, it should be noted that there are many factors that influence the prices and, above all, it is the market and consumers. That’s why this phenomenon is unlikely to be systematic.
“The positive aspect – a manufacturer doesn’t have to deceive consumers in case of no unnecessary regulation: to use various kinds of manipulation such as “holiday special!”, reduce the weight of goods, use law materials of less quality, etc.,” Andryuschenko explained.
Thus, the pilot project on pricing aims to determine in what cases the state price regulation prevents the business development and in what way to change it to make it an effective tool to protect the interests of consumers and not prevent the development of entrepreneurship.
According to Bohdan Andryuschenko, this is the tenth attempt of that kind. But now it seems that there is a high chance that the pilot project will be successful and we start moving towards the effective regulation.
Oleksiy Goncharuk,Head of Better Regulation Delivery Office (BRDO) will participate in the event and will speak in the session “REGIONAL INVESTMENT – MISSION POSSIBLE». Kyiv International Economic Forum UKRAINE: ON THE THRESHHOLD OF THE FORTH INDUSRTRIAL REVOLUTION.
Kyiv International Economic Forum (KIEF) is a permanent international platform where experts together with international businesses and governments try to solve key issues that are on the way to the development of the Ukrainian economy, define the strategies to implement the best international practices, and build new partnerships to promote international trade and global investment.
The subject of KIEF 2016 will be maximally close to the practice of attracting investment to Ukraine and its participation in the Fourth Industrial Revolution, which has become the keynote of this year’s World Economic Forum in Davos.
This year the Forum brings into special focus B2B meetings that give possibility of eventual business cooperation between participants and business partners.
We expect to welcome over 1000 participants from Ukrainian government, Ukrainian and foreign business leaders, successful reformers, prominent economists, ambassadors and scientists. Join us!
Organizers of the Kyiv international Economic Forum are Ukrainian Association for Innovation Development,
K.Fund – VasylKhmelnytsky’s fund, ULIE
More detailsabout theForum,program and speakers is available on website
To participate in the event, please register at http://kmef2016.ticketforevent.com
Organizing Committee: +38 (044) 496-30-36, [email protected]
Source: TV-channel “24”
The FORBIZ project was launched in Ukraine being initiated and funded by the European Union. Its main goal is to create a better business environment in Ukraine for small and medium businesses. It is planned to implement a number of initiatives that will not only support unleashing the potential of Ukrainian small and medium businesses, but also the country’s economic growth as part of the project.
European experts call an overregulated business environment, inconsistent legislation and a low level of legal awareness among Ukrainian businessmen as the main factors hampering the development of a successful and competitive business in Ukraine.
The FORBIZ project under the European EU4Business Initiative was launched to change the situation for the better.
What tasks are assigned
The project will focus on small and medium businesses. It will propose systemic changes to create a favorable business environment. The main task is to reduce the regulatory burden and reduce the risks to the business.
“Small and medium businesses in Ukraine in Europe – this is an element that maintains the economic stability in the country. And the crisis in Ukraine after the events with Russia would be much bigger if there were no small and medium business that was involved in the development of the country,” a key expert of the FORBIZ project Joshua Badakh said.
According to the expert, Ukrainian government circles understand that easening regulations and creating favorable environment for the development of small and medium businesses is essential for the country and that this field should be regulated.
“There are many laws from Soviet times that don’t work in the current context, they should be removed. And we need to consider what laws should be proposed for the business to ensure its development,” the expert emphasized.
In addition, signing the Association Agreement between Ukraine and the EU, on the one hand, speeds up the cooperation process and provides development opportunities for the Ukrainian business, and on the other hand – obliges Ukraine to harmonize its legal framework that, in turn, will increase the attractiveness of our country for international investors.
Who will implement the project
The Independent Analytical Center “Better Regulation Delivery Office (BRDO)” will support the project by a large team of skilled legal experts and analysts specializing in specific business sectors. And, of course, most relevant ministries will be directly involved in the work.
“We would like that ministries don’t see us as a ‘strange’ reform. As an initiative introduced by “predecessors”. Knowing that sometimes the “age” of a minister and his team can be extremely short. But we propose systemic changes that are not possible to implement in a few months, so we would like to become a kind of a ‘ministry of common sense’,” the head of the “Better Regulation Delivery Office” Oleksiy Honcharuk said.
Getting the “soap”
“In Ukraine, more than 70% of documents are adopted with two purposes: to fulfill international obligations and fill the budget,” Oleksiy Honcharuk explained. “If the state doesn’t want anything else, the business will treat the state as a bear in a china shop in the best case scenario. At worst – as a pirate. This is the key issue.”
“In Ukraine, the business is a criminal in the eyes of the state. Since Soviet times, it is regulated in such a way as if it is a part of the state. When Ukraine became independent, the regulation remained the same. There are still old rules that regulate the activities of all companies in Ukraine,” the BRDO expert Oleksiy Dorohan explained.
According to him, an inspector can always find some violations in the company by making a search among the obsolete legislation, which is, however, still active.
“We still have a valid decree of 1923, which is not published on the Verkhovna Rada of Ukraine website while being mandatory – there are relevant letters of ministries, and stipulates what employees should get a laundry soap,” Oleksiy Dorohan surprised us.
So, if you ask an entrepreneur whether he fully complies with all requirements and standards, a businessman will either say “not all” or have doubts – all of them or not. After all, any entrepreneur has neither the time nor the opportunity to learn a large variety of regulations and other acts existing in our country as they often contradict each other and an entrepreneur doesn’t understand why they are needed. However, it is impossible to overcome the state in this matter. Therefore, it is cheaper for the business just to do nothing.
How to achieve desired goals
The BRDO team will make a technical examination existing legislation in the priority sectors: agriculture, construction, energy, transport and infrastructure, control and supervision, international trade and information technology.
“There is no sense to adopt certain draft laws. We believe that the problems can’t be solved with the help of the “pothole repair”. We proposed a systematic approach,” Oleksiy Honcharuk said.
Experts have developed a plan to solve this situation – a system of “roadmaps” for specific business sectors.
“Let’s take some businesses: restaurateurs, taxi drivers, catering companies, in other words, very specific markets, where competitors are clear, where you can calculate the market’s volume and build a dialogue between the state and each specific market. For example, let us take a taxi: gather real taxi drivers together, talk about the problems and analyze the market with the help of experts. We will find out that the market’s volume is such and such, 45% – in the shadow economy (although we estimated that in the case of taxi services, in the shadow economy – from 70%). Why do not you pay taxes? What to do to make it better? And this work will be in cooperation with the Ministry of Transport, the tax agency and so on. It is important to make it public,” Honcharuk explained.
“So, we can quickly achieve the results – to show a success story,” the expert says.
How long the project will take
The project is designed for three years. But, as Joshua Badakh said, project objectives – to launch a system that can be used even for those laws and regulations, which will be adopted in the future, in order to define their effectiveness.
Oleksiy Honcharuk added that they set themselves a cautious task to review more than 70 markets in the above described manner during the next year and a half. However, this work will be done in cooperation with ministries and they have to decide where to start and how to develop the work.
“Working with each market is an individual market. And we offer about 70 projects of such a type. If at least half of them are successful – this will be a huge victory. However, we are cautious in forecasts because the work will largely depend also on the people, who work in the ministries,” Oleksiy Honcharuk explained.
What results are planned to be achieved
Generally speaking, the FORBIZ project has three focuses: the regulation targeted at business interests (support from the authorities at all levels to improve the regulatory policy in priority sectors), support for policies for SMEs and a dialogue with the small and medium business community.
So, the project goals: to work out clear and accurate “rules of the game” for entrepreneurs, reduce an administrative burden on them.
The work is at an early stage yet, but project leaders and participants promise interim results in the near future.
The source: “Business.ua”
The market remains unattractive for the carriers despite the optimistic statistics.
Ukrainian industry of passenger air transportation shows the growth during three quarters. Ukrainian airline companies have carried 25% more passengers in comparison with the similar period last year.
There are two main reasons for such growth: “Ukraine International Airlines” (UIA) transfer flights and the surge of the charter flights to Turkey.
Transport operations of Ukrainian airline companies are growing due to the UIA airline company (takes more than 70%) and that network model it has been developing for some years. Transfer passengers arriving by the international flights to the Boryspil Airport and changing UIA planes there take up to the half of the passenger traffic flow instead of the Ukrainian passengers. That is why the airline company attracts foreign passengers.So, the growth of this segment has not any attitude to the state of local market and the country’s economy, and based on the foreign passenger traffic.
The second factor is a charter segment. This year Turkey provided very attractive prices for the holidays for Ukrainian tourists. The absence of the vacationers from Russia, the number of terrorist attacks and the coupd’etat attempt scared the tourists from other countries and lead to the fact that Turkish tour operators had to increase their resorts’ occupancy rate at any cost. The hotels engaged in predatory pricings, and the airports provide unprecedented discounts to the airline companies.
So, this summer the traffic in Turkey reduplicated in many Ukrainian airports. It is more likely that is a single effect. If there are no motivators of such a kind next tourist season, the costs of the package tours (in dollars) will return to previous levels, and the most Ukrainians can’t again afford such trips.
In general, the Ukrainian air transportation market remains unattractive for the carriers. This is evidenced first by the fact that new airline companies do not hurry to enter our market. And those ones who had flied to us earlier but reduced the flights in recent years resume them carefully. The aviation is essentially very reactive. It depends on the economic state, effective demand and business and citizens expectations. It is very difficult with it now.
In September, the air transportation rates of growth will start slightly decrease, as the mass holiday season in Turkey is running out. Of course, the common traffic indexes will grow (or probably will renew as the competitive base of last year is the level of 2008). It will be not at the local market cost and Ukrainian citizens’ flights, but due to foreign passengers from other countries.
The state must simultaneously fulfil two important tasks: to guarantee the safety and not allow the excessive regulatory pressure on businesses. The First Deputy Prime Minister Stepan Kubiv said about that during the briefing “From Deregulation to the Effective Regulation”.
He also mentioned that some regulatory acts have been in force since the Soviet period, but the efficiency of most of them is doubtful or not measured at all. This situation interferes with the business, hampers the economic development and creates the possibilities for corruption and abuses.
According to Stepan Kubiv, the situation will change to the better if they make the system review of the regulatory framework. In other words, when they analyze the need and the benefit of a particular type of regulation and assess the effect of each process or decision.
“The processes that cannot be fully released from the regulation, as we speak about the safety, and here the deliberateness and caution are needed,” Stepan Kubiv stated.
He reminded that working groups with the task to review a particular sector in terms of effective regulation were created in 4 Ministers by his order. The work of these groups will include the contact with certain businesses or business process.
“The task is to assess the efficiency of regulation through the regulatory processes and aims instead of the documents correctly and accurately,” Stepan Kubiv stated. He added that the Better Regulation Delivery Office (BRDO) created by the Ministry of Economic Development and with the assistance of European specialists and experts was involved in the systematic review of the regulatory environment.
The Deputy Minister of Economic Development and Trade of Ukraine Maxim Nefyodov said that the systematic review of regulatory framework had to rely upon the real necessity instead of being carried out because of momentum. “We want to analyze the practicability of state regulation and decide what kind of regulation is needed, for what it is and what effect it has.”
He also added that European experts were involved for this purpose, and they would review more than 70 markets together with the Better Regulation Delivery Office (BRDO) specialists to assess the effective regulation during next year.
“We will report not on the amount of abolished papers, but on the quality of deregulation work. First of all, how we have reduced the costs and saved the business money for reinvestment,” Maxim Nefyodov explained the expected effect of the regulatory framework review.
The Head of the State Regulatory Service Ksenia Lyapina also mentioned the inexpediency of the deregulation effect’s measurement by the amount of abolished documents. According to her, the effect of such an approach is very doubtful, as it does not provide notable savings for the real business.
“Deregulation and effective regulation is when it is cheaper to conduct entrepreneurial activities and when the biggest business effect can be achieved with the minimal costs,” Ksenia Lyapina explained.
The Head of the Better Regulation Delivery Office (BRDO) Oleksiy Honcharuk reminded that over the past 25 years of independence, the regulatory rules have been far from business interests while having been written “to order” stimulating the corruption.
“That is why it is necessary to shift to new standards and approaches in relations between businesses and the state, where the both sides will seek the understanding. Now we are proposing not only the review tactics, but also are going to make a kind of “measurement” for the further strategic planning for the next 2-3 years,” Oleksiy Honcharuk added and focused on the existence of political will for this including the active support of the Ministry of Economic Development in the process of implementing the effective regulation.
The Head of the Better Regulation Delivery Office (BRDO) added that business should learn to trust the regulator and actively participate in the improvement of regulatory environment and implementation of new rules.
If you want to buy a house and are ready to invest money to a new building, you have to know what exactly is waiting for you eventually. A buyer of the apartment may face with a house with 15 floors instead of 10… and it will be legal. The Better Regulation Delivery Office (BRDO) Construction Sector Head Olena Shuliak told the PRAVDA information agency under which laws the construction field works today, which risks investors may face with, and what changes the developers expect to have.
– The construction industry was always considered to be a key for the development of the country’s economy and gave the essential increase in GDP. What is the situation with the construction in Ukraine today?
– According to the forecast, by the end of 2016 it is expected that the part of the field in the GDP structure will amount to 2.5%. It was 2.2% last year. In comparison, in 2001 this amount was 4.7%, and in the long 90th it reached 8%.
Surely, the field has a tendency to minimize the volumes. An index of production of building materials decreases, there is a runoff of employees. 2014 was a peak of downfall. At the same time, it is needed to say that the certain stabilization appeared according to all indexes. From the other side, the indexes are approximate because the business (including the construction one) has been in the sidelines last years that does not give an opportunity to get the real indexes of the field’s work.
In recent years, the commercial real estate property (especially offices) became unattractive for investors. Today, the development of the field is based on the residential real estate property building.
– What is the current situation at the commercial and residential real estate market?
– In recent years, the commercial real estate property (especially office ones) became unattractive for investors. Today, the development of the field is based on the residential real estate property building. Certain factors influenced it. However, the situation at the banking market when a great amount of banks were liquidated because of certain reasons. So, there was no wide range of investment opportunities. Western markets are incomprehensible and unacceptable, a stock market in Ukraine does not work, and deposits became an unreliable tool. Everything came to small investments in the real estate property, which also fell in price. These critical factors contributed to the development of the residential real estate property segment – today housing investments are one of the most attractive types of the of citizens’ financial investments.
Although, in reality, we don’t speak about large investment sums. Also, there are certain differences by regions. The most active construction rates are fixed in five regions: Kyiv, Kyiv region, Ivano-Frankivsk region and in Odessa region.
In all another cities, the situation with the housing construction is rather sad than inspiring. Generally, not so many facilities are being built and have been built in recent years. Nowadays, in Ukraine 1 billion square meters are being exploited: about 300 thousand high-rise buildings and 6 million of private houses. Thus, 80% of this fund had been built till 1980. Only 10-12% had been built for last 15 years.
– With what factors do you associate active development of construction in Lviv, Ivano-Frankivsk region?
– The location is closed to the border. Also, better conditions are created for the tenants. For example, last year, in Lviv rent rates had been stabilized. And what is more, a trend of its increasing began to establish. Why? Business ran to these regions, the interest in the real estate has grown. For example, many IT-companies decided that it would be easier for them to do business in Lviv than in Kyiv or somewhere else.
Besides, mentioned regions have good potential for the industrial parks’ development, where production targeted at EU countries would be manufactured. Great value for the developers in these regions is that the local authorities are loyal and ready to support investors’ initiatives.
– How exactly do local authorities support?
– There is a moment that essentially restrains the construction process, especially, as for commercial real estate properties. I mean the share participation in the development of engineering, transport and social infrastructure.
This year the index of share participation, for example, in Kyiv amounts to 10% from the cost of all object construction.
According to law, local governments have the right to regulate this percent. In comparison, in Zaporizhia the fee for the commercial real estate property is 1.1%. It is 0.1% in Kryvyi Rih, and in Mariupol it is defined as 1 UAH. There the local authorities understand that the less the investor is burdened, the more benefit the city would get.
Now it is difficult to say that these conditions essentially influenced the investments taking into consideration the location of the same Mariupol. Now we are monitoring the situation in Zaporizhia – it is interesting how comfortable it is for developers and real estate developers to work in the given conditions.
Western companies in Ukraine do not construct in practice. If there are single cases, then the management can be under the auspices of Western companies, but the hands, the engineering bodies are ours.
– Is the real estate today being built mostly by Ukrainian or Western companies?
– Western companies in Ukraine do not construct in practice. If there are single cases, then the management can be under the auspices of Western companies, but the hands, the engineering bodies are ours. Nowadays we are a supplier of cheap labor. If it is possible, they engage managers from abroad.
If we speak about the construction funding, more than 50% is the costs of the citizens, 30-35% belong to the developers, and the state provides only 2-3% for the construction.
In Kyiv only 12-15% of the territory is covered by such urban planning documentation. And there is less than 50% across the whole Ukraine.
– How much permits are should be prepared today to begin the construction process?
– The construction is impossible if there is no land. To allot the land in Kyiv, for example, you should prepare 55 (!) paper documents and meet with the officer or surveyor about 17 times according to the BRDO experts.
In this case, we are speaking about a simplified scheme of getting the land. It is about the land plots where the certain real estate exists or they are in use, and it is needed to change the designated purpose or get the land for the social housing construction.
Generally, the process of land allocation in the capital takes 2-3 years.
There are mechanisms allowing to reduce the term and the amount of papers. Now we need to automate the process and implement the electronic services to submit documents in digital form, and simplify procedures.
For example, in accordance with the legislation, before approving the permission for getting the land, the project should pass two sessions of the City Council. First, you have to get the permit for the development of the land planning, and then the permit for the rent. In this context, it would be important to gain one session, when the deputies vote for the decision to allocate a certain land plot for rent. This procedure could shorten the term of land allocation by one and half-twice.
It is essential. In any project time resources have their value.
The market is changing, so it is unacceptable to freeze money in the project for a significant period of time.
A long procedure of land allocation is not the only factor that complicates the work of developers. We can speak about the getting permits for the land rent for the construction only with the condition of having developed plans with the territories detuning – TDP (territory’s detailed plans). It is regulated by the Law “On the Urban Development Regulation” from 2011, or more specifically, a concrete provision, the effect of which was transferred on January, 2015.
In Kyiv, only 12-15% of territories are covered by this planning documentation. There are no more than 50% across all Ukraine. Unfortunately, State Budget, local budgets do not have costs for the development of such documentation.
When a certain developer-investor who really wants to build and is ready to develop this documentation at his own expense appears, local government usually negotiates a tripartite contract. There is an investor paying for the documentation development. There is a customer appearing as the Department of Architecture of the City Council. There is a compiler – an organization that can perform such services for 6-7 months.
There is an interesting moment. Even if the investor developed the documentation, paid for it, it does not give a guarantee that he will be allowed to build. He has to pass mandatory public hearings. And sometimes this procedure turns into the making money for the certain organizations pretending the worried public and officials.
If the investor managed to pass all these circles of hell, his further territory plan is proposed to local governments again. This is time, nerves and money.
On average, we counted that with luck the development of detailed territories’ plans would take a year. After it, the above-mentioned procedure of land allocation starts.
– Were there any attempts to speed this process up?
– They were. This year the deputies tried to transfer the effect of the named provision of the Law “On the Urban Development Regulation” to the beginning of the 2018 explaining this with the necessity of the construction while there is a market. Unfortunately, nobody heard them.
Personally, I believe that postponing of this question is fundamentally wrong. Even in the context of the sector development.
– Today there is a decentralization process, in the framework of which the local government gets more mandates, in Ukraine. Will the territorial communities have a right to develop detailed territories’ plan itself?
– We have the only hope that incorporated territorial communities will understand how important it is to take a participation in the process of territory strategy development, and develop that part of documentation, which will be necessary for the further land allocation. This will become a basis for these territories development.
But still there have not been any the pilot projects. We hope that the situation will change soon.
Let’s return to the algorithm of the preparation to the construction. After two main conditions are done – there is available urban development documentation and the leased land, can we start the project?
If everything is alright with the intended purpose, then it is necessary to start the design phase, collect the documents to get the architectural workshops, and begin to work with the project institutes or create your own object – first on the paper at least.
If the object has IV-V consequence categories, then it is necessary to undergo the state examination of construction works. In the case of I-IV categories, you just need to lodge a declaration to SABI (State Architectural and Building Inspection) and start the construction after its registration.
Every fifth deal with residential real estate in Kyiv falls into the category of doubtful ones.
– Do the developers follow the mentioned rules?
– I shall start with the example. On paper, there is a project of a building with 10 floors, and factually 15 floors are being built. How do they do it? The developers exactly know that the residential house with 15 floors distinctly falls under the IV category object. This is the situation when it is necessary to bring a lot of documents, coordinate and solve. Corruptive component is added here. In such cases, the developers often consciously use a scheme, when the construction of the building is divided into porches, in stages, and is being brought under the III category for a simplified procedure of getting permits. And later, the additional floors and others appear. Such a scheme is completely legal. We need to change it. And legislative initiative is already here – there is the relevant legal act registered in the Verkhovna Rada.
Besides, some important issues also require an attention. First, the illegal buildings.
The second point is the double or triple resale of the housing at the primary market. Lawyers say that every fifth deal with the residential real estate in Kyiv ant the region falls into the category of doubtful ones. An unfair developer can sell the housing several times. Then the company turns bankrupt, and next some “owners” of the same flat meet in the court.
The third one point is that the claimed project of a house where people buy a residential property must correspond the building people get in the final result. For example, the developer promises a flat in a 10-floored house with the pram storage room. As a result, a flat in the 25 floored house with the hairdresser instead the declared pram storage room is introduced into service.
The Better Regulation Delivery Office (BRDO) position at these issues is simple: when the developer prepared the construction documentation, got all permits for it, he must register the object in the state registrar. Only those meters which are in the project and have clear purpose get into the registry. If the developer does not register, the criminal responsibility appears. It regulates the question of flats sale, it would be impossible to sell twice the flat had not been built yet and change the characteristics. Superstructures and other surprises will not get into the registry. We are working at the implementation of this provision.
– Will the government support these initiatives?
– This is an open question. The draft law concerning the registration the right of property to be built in future has not been submitted for the Parliament discussion yet. We were working with the lawyers and specialized lawyers. The project is prepared, it is planned to approve it with the Ministry of Justice because it would be their work to register all the investors. I think that is the question of the autumn.
– Is it important today to improve the norms of the construction inspection? Who must do it?
– SABI works with all control issues. It determines whether the construction is done in accordance with the project or not. Exactly there the project documentation is being approved and tested; its appropriateness is also checked. They build on the basis of the working documentation. When SABI representatives come, they reconcile if the project documents correspond those ones the builders work with.
Often the working documentation can differ from the project one. Then SABI reacts. There were cases when the construction was closed because the shed did not hang at an angle 90 as it was declared in the project, but it was at an angle 60.
I personally had a story. Round columns were laid according to the project, and when we started to build, it was very difficult to make the frames. And we started to saw the square columns using the same approach. The arguments that it did not affect the structural and load-bearing properties in no way had not worked. They prohibited. SABI had been acting by rules.
It seems that rules are not the equal for all. There are examples of frankly illegal buildings where the authorities just shrug their shoulders. It is a nonsense and paradox for me.
– We discussed legal issues and construction control questions. Now let us look at the sector work from the side of developers. What problems are the most actual for them now?
– The issue of electricity supply network connection is in the first flight. For example, when the land is allocated in Europe, all the networks have been linked up with it yet. What happens in Ukraine? The developer gets a land in use, but there are no networks there. It is necessary to go to a monopolist – to a heat and power authority. As it is known, they belong to a private capital, and according to the existing minds, developers must connect to the electricity supply networks at their expense. The heat and power authority give not only the documents for it, but a so-called TS (technical specifications), which usually have significant encumbrance. The result: all developers must construct the network infrastructure for the monopolists to connect their object finally. It turns out that the private capital in the form of the developer finances another private capital building networks for them. This is, you see, one more nonsense.
– Is it legal?
– Yes, the heat and power authority has no any obligations to build such networks. Our experts work at the relevant law on amendments in the part of electricity supply network connection. But there is another aspect. The situation is the next: the networks are built, the connection happened, and the developer does not want to serve them – he wants to transfer them to the balance of the heat and power authority. And so what? Transfer process sometimes delays for years. Let us say, that the network was built at the cost of 20 million UAH, and they want to take at a lower cost at the balance. If you take on the real value, then the heat and power authority will have problems with the tax agency.
Every hryvnia leveraged in the construction stimulates the related industries (furniture production, transport, building materials, etc.), gives additional 4.7 UAH
– Taking into account the current situation, what perspectives of the sector development can be expected in few years?
– Recently we counted the investment multiplier for the construction industry, it was 4.7. It means that every hryvnia leveraged in the construction stimulates the related industries (furniture production, transport, building materials, etc.), gives additional 4.7 UAH. I do not speak about that every place in the construction creates 3-4 workplaces in the related spheres.
The sphere to be developed strong political support and powerful lobby in the parliament are needed. For example, this is observed in the agricultural sector. The relevant ministry should pay more attention to the sector where the construction has not been in priority for a long time. First place is the regional development, housing and utility and so on… This idea is clearly illustrated by the fact that there has not been even the relevant deputy minister being responsible for the sector more than half a year.
It is not easy to expect the improvement of the indexes at such conditions. It will be very difficult to keep head above water and not lose the rate of development without the political will and the activity from the state.
Only a lazy local politician isn’t speaking now about the simplification of business conditions in our country. At the same time, this process has become almost an end in itself for many of them. However, if we look at the European countries, it is clear to all that the goal of state policy there is much different from objectives declared by our country.
This difference is quite simple – the goal of European politicians is not the ridiculous simplification of business conditions, but the growth of prosperity of citizens and the economy in general as well as reducing unemployment. Probably, this definition will seem to be similar for many people, but, in fact, the difference is significant.
We must realize that the economy gets a good stimulus for growth only with the properly set tasks. In our reality, the situation is often different – a big business that used to obtain unjustified profits due to deliberately created gaps in the regulatory field is trying now to get conditions that are even more favorable by taking advantage of this situation and not to care about the welfare of citizens and the state budget revenues.
The big business has perfectly learned how to influence the state apparatus when it comes to defending its own interests. A good example of this fact is our railway system, which forced by the decision of the officials to de facto subsidize certain economy sectors annually due to artificially low tariffs on transportation of certain goods. The volumes of these subsidies amount to tens of billions of hryvnyas per year.
At the same time, it should be noted that most of these sectors are export-oriented and sell their products in foreign markets at market prices. However, they receive additional income at the cost of the state railway system and ordinary citizens of Ukraine, who have to travel by old passenger cars and terrible commuter trains due to the aforementioned subsidies.
Currently, the amount of de facto subsidies to certain sectors of Ukraine’s economy can be compared with the cost of buying more than 1,000 new passenger cars per year even at current prices.
Undoubtedly, the legal framework plays a key role in economic development, the growth of welfare of citizens and reducing unemployment. However, regulation focuses should be shifted from the unconscious formula “simplification of business conditions” to a smart state regulation aimed at implementing effective regulation for small and medium businesses as well as restraining wants of the big business and protecting the interests of citizens and budget from them. Only then, the country can succeed and its citizens – feel the improving of their well-being.