At the beginning of June, Ukrzaliznytsia (UZ) and the Canadian Bombardier engineering corporation signed a memorandum on the establishment of a joint venture to manufacture traction rolling stocks in Ukraine. A bit later, on July 14, the American General Electric Corporation signed an agreement with UZ to test its locomotive at the Ukrainian railways.
The Infrastructure Minister Volodymyr Omelian stated that the General Electric and Bombardier would transfer locomotives for testing to Ukraine this May. He noted that locomotives would operate in experimental conditions from three to six months.
Which locomotives will Ukraine get and where will they be used? The Better Regulation Delivery Office (BRDO) expert Oleksandr Kava’s column for Liga.net.
General Electric will transfer Ukraine a diesel freight locomotive TE33A with asynchronous traction drive, which is produced by the Lokomotiv Kurastyru Zauyty locomotive plant in Astana. This diesel locomotive is developed on the base of the fourth generation Evolution platform for 1520 standard gauge. It is the most modern platform in the General Electric line.
According to the agreement between the national Kazakhstan’s transport operator Kazakhstan Temir Zholy (KTZ) and General Electric (signed in 2006), nearly 300 locomotives of this type were made at the plant in Astana. However, the agreement provided that only first 10 pre-fabricated locomotives should be sent in the US, and the remaining 300 should be fabricated at the new plant in Astana, that General Electric committed to build. KTZ’s acquisition of 300 locomotives line cost $ 650 million. So, we can count that the price of one locomotive was about $ 2.1 million.
Later another contract on delivering 110 passenger configuration locomotives TEP33A was sighed. Two of these locomotives now are working in the Almaty railway depot.
Except Kazakhstan, these locomotives are also used in Mongolia, Azerbaijan, Tajikistan, Turkmenistan, and Kyrgyzstan. In addition, one of these locomotives has been used in the Ivano-Frankivsk Cement enterprise for several years – it carries raw materials to the plant. It’s more than likely that the test locomotive will be used in Ukraine at the Dolynske-Mykolaiv line for grain transportation towards the ports of Mykolaiv region.
Now this is only about the locomotive testing, after what the decision on the next possible purchase will be made. Prototype testing must show benefits and implications of these locomotives for Ukrainian railways. But right now, the benefits of this model include the fuel efficiency and increased distance run between overhauls. It allows using these locomotives with higher efficiency that the existing ones.
Ukrzaliznytsia last bought freight mainline locomotives in 1992. Passenger diesel locomotives were bought in 2008-2009 last time. The standard service life of the most models exploited by UZ stands 30 years, when 75% of the company stock had passed the mark of 35 years long ago. The UZ locomotive stock is old-fashioned and needs urgent modernization.
The most countries of Eastern Europe went this way, but taking into account the age of the current stock in Ukraine, probably, it will be necessary to buy the new equipment. Unfortunately, the control over the Luganskteplovoz factory was lost, and Ukrainian car-building plants do not produce locomotives, so there is no any national alternative to modern foreign locomotives now.
The number of locomotives UZ will actually buy depends on its financial possibilities. Now the UZ management team led by Wojciech Balchun produces a new technical policy for rolling stocks. Quantity index will be developed on this basis. It is clear that considering the highest power of modern locomotives, it is required the less number of locomotives then it is now to meet UZ needs. We can say how much less this number will be after conducting thorough calculations.
As to locomotives buying in the Bombardier Company, it’s more than likely that they will propose UZ the equipment that is produced at their new Russian plant in Engels.
The locomotive repair works (capacity – 150 locomotives per year) was built specifically for RZD needs in 2015. The company developed the dual-mode electric freight locomotive F120MS (TRAXX construction platform) for 1520 mm rail gage (in Russia it was given 2EV120 batch marking) for the Russian market. It was expected that except Russia, these trains would be delivered to the CIS market and to the countries with the 1520 mm rail gage.
Now developmental locomotive is being tested in Russia, but there are no orders from the main Russian carrier – the RZD company. Considering the investments in the Russian plant building, Bombardier is actively looking for customers of this model.
General information. General Electric is an American diversified corporation, a manufacturer of many types of equipment, including locomotives, power plants, gas turbines, aircraft engines. As of 2015, the company took the 9th rank of the Forbes Global public companies list. It took the 13th position in the Financial Times ranking in terms of market capitalization in 2015.
The Bombardier Engineering Corporation is the only company in the world that is engaged in airplanes and trains manufacturing at the same time. The company’s net loss reached $ 5.34 billion in 2015 and that is 4.2 times higher than the rate of loss in 2014.
The agricultural sector is one of the drivers of Ukraine’s development. Read about problems and current state of agricultural sector in Ukraine, the ways of solving problems and export prospects in the interview of the BRDO Food&Agriculture Sector Head Andriy Zablotskyi with the radio “Golos Stolycy”.
– What is a mechanism to reanimate the agriculture sector?
– One of the main ways needed to reanimate agriculture is the investing. Some experts point out that it is needed about 70 billion dollars for this.
– How much do we depend on the US in the agricultural sector?
– We don’t depend on the US in the agricultural sector, because Ukraine is a fully independent state, we are the third largest grain exporter in the world, and the world’s first sunflower oil exporter. And why the US? The point is that grain production methods in Ukraine slightly stands behind leading world standards. If we use technologies of corn production method, which are used in the US, along with French technologies of grain production, Ukraine will be able to produce up to 120 million tons of grain per year next 10-15 years. So, Ukraine will become #1 grain exporter in the world.
Our main partners are the European Union, North Africa, Middle East and Southeast Asia countries. We also export a lot of products to China.
– Where are we exporting or will export agricultural products?
– If we speak about grain, then our main partners are the European Union, North Africa, Middle East and Southeast Asia countries. We also export a lot of products to China – we have a separate agreement, including on corn exports, with China. We are the key corn exporter to China.
– Let’s start with China, and then we will speak about Europe. What are the economic agreements, requests? What terms are we working in?
– China has a very large population, that is why Ukraine is a strategic partner for them in terms of agricultural products export. Ukraine took on obligations to supply China with large amounts of corn in exchange for the credits from China. One part of these obligations is fulfilled; the second one is in the process now. Therefore, the Chinese are interested in us to be a reliable supplier, including disposing of investments to provide us with more guaranteed opportunities of food export to China.
– What is about Europe? At the beginning of the month, we have exhausted wheat quotas. But there is a special story with these quotas – there is a limit, under which we export on low tax rate, and then high special taxes are applied. In addition, there are production standards, which can’t be met by all Ukrainian manufacturers.
– Yes, if we are speaking about grain, then there is much easier – we have set limits, under which we can export duty free. Including 950 thousand tons of grain, and they were selected.
If we want to export a meat, for example, then our production must conform to requirements of the European Union.
– But is it not so much at the Ukraine’s level? If our aim is to export 120 million tons of grain, and in this case, there is even no a millionth quota.
– It is not so much, but we are speaking about grain now, and we are one of the leaders of grain export to the European Union. Speaking about agricultural products with added value or finished agricultural products, then in this field we also have certain quotas established by the Association Agreement, under which we can export without customs duties (e.g., apple juice, honey, tomato paste, flax, etc. ). But let us suppose, if we want to export the meat, then our production must conform to requirements of the European Union, including HACCP and other requirements. These sanitary and phytosanitary regulations are a key to market access.
– These quotas are related to the most popular Ukrainian goods, aren’t they?
– Of course. But Europe has its own manufacturers, and no one is interested in providing market access for a rather strong competitor with low cost prices, who can drive out European manufacturers.
– As for the scheme of entering the European market – how difficult is it? Getting licenses, warrants, documents of compliance to all these standards, etc. It is clear, that it is not so easy and takes years.
– In the context of bureaucracy, everything is transparently and easy in Europe, it is openly and clearly written: what is needed to do and how, the main thing is to make your “homework” – introduced new technologies, provided production requirements, got certificates…
– Let’s speak again about Europe. What European requirements are difficult for us to meet, and in what way are our meat products different from the European one?
– Here I should say that Ukrainian products including meat are based on the Soviet GOST. It is basically suitable for the Eurasian Customs Union. In Europe, there are other requirements that need the modernization of production, and certain capital investments, time and so on. That is why not all companies chose this way. Many of them built new plants, which conform to these requirements, lots of companies try or tried to launch a modernization process somehow – something worked, and something failed. However, we must obtain the appropriate certification and be inspected by the EU agencies that will issue permits for export. So, starting from January 2016, 10 dairy products manufacturers have been inspected. They had been working at it more than a year and a half, and now have the opportunity to export to the European Union market.
Today the business is afraid of the state and the state doesn’t trust the business. Such relationships require the rebooting and a new standard of regulation. How to restore trust between the business and the government? This problem was a key topic of the panel discussion “Small and medium business capacity building in Ukraine: effective policy, smart regulation and constructive dialogue” that was held as a part of the FORBIZ project presentation.
“We should teach the state to be predictable and explain the business why to introduce rules and persuade that it is done for its benefits. Only then the business will follow these rules and participate in their setting up,” the head of the Better Regulation Delivery Office (BRDO) Oleksiy Honcharuk said during his speech at the discussion. The expert is convinced that creating a comfortable environment for the SME development isn’t possible without this setting up.
The Deputy Minister of Economic Development and Trade Maksim Nefedov also noted that it was a high time to implement new approaches because today the business is suffering from the existing bureaucracy and overregulation. He noted that now it was necessary to give a result instead of the simulation of this result and expressed the hope that the ministry together with the FORBIZ project and the BRDO would be able to present the first joint practices concerning the regulatory environment review, the SME development strategy and others in a few months.
The people’s deputy of Ukraine Viktoriya Ptashnyk also stands in solidarity with the participants of the discussion. She believes that the state’s role in the economy should be minimal and small and medium businesses shouldn’t be burdened with excessive and unnecessary regulatory elements, permits, etc. In her opinion, the effective deregulation requires to start with an analysis of the most problematic issues of the business, communicate with it and, most importantly, listen to it.
Presenting the position of businesses during the discussion, the executive director of the “Union of Ukrainian Entrepreneurs” Katerina Glazkova said that the deregulation – one of the first points that the business listed among urgent issues. That’s why, announced initiatives are required as never before and the professional business community is ready to support their implementation.
The president of the Kyiv School of Economics Tymofiy Mylovanov drew the attention of the audience directly to the capacity of small and medium enterprises. In his opinion, the medium enterprises, among other things, can lead our country to prosperity. That’s why, their support should be a priority for the government.
The Business Ombudsman Algirdas Semeta said that they received about 80% of the complaints directly from small and medium businesses and this fact stressed the importance to improve the regulation and simplify the administrative burden.
Participants agreed to consolidate their efforts to create a comfortable business environment that would allow small and medium enterprises of Ukraine to develop and be an engine of its economic growth. The FORBIZ project and the Better Regulation Delivery Office, the experts of which are working to create the business-oriented regulation, will be a kind of an independent platform for this.
Nowadays it is more rational for Ukraine to invest in energy efficiency measures, instead of subsidies, the Better Regulation Delivery Office (BRDO) Construction Sector Head Olena Shuliak thinks. She expressed this thesis in her speech during the roundtable “Affordable housing can be energy efficient” organized by the State Fund for Support of Youth Housing Construction.
The Ukrainian housing stock is more than 1 billion square meters now, more than 50% of which had been built before 1980 and cannot be considered as the energy efficiency one by modern standards. According to the information given by the Vice Chairman of State Fund for Support of Youth Housing Construction Sergei Komnatnyy, a living price in a new house is much lower than in the old one. The Fund’s representative stated that the main reason of this is a using of modern energy efficient technologies in new buildings. That is why, in modern energy efficient buildings, dwellers economize on heating from 30 to 50% compared to owners of old buildings.
“The system approach to resolve the energy efficiency issues must become a priority of state policy in construction. Now, in Ukraine, there are all conditions to make the transition to energy efficient construction with using the production of national companies. The state must create favorable conditions for affordable energy efficient housing construction by introducing incentive programmes for real estate developers and implementing the effective regulatory policy in this field,” Olena Shuliak stated.
The budget provides for more than 80 billion hryvnias on subsidies for the population for using the energy resources, which is almost 4% of GDP, in 2017. However, construction contribution in the GDP reaches a bit more than 2% and constantly reduces. The state will benefit from the implementation of energy efficient programs in housing construction by reducing the energy consumption, as now the housing and utilities infrastructure of Ukraine consumes more than 40% of state energy recourses.
According to experts, creating the favorable conditions for energy efficient construction development and state support for real estate developers, who will build affordable housing on the energy efficient standards, will not only reduce the costs on subsidies (in fact, on preservation of the old housing stock and almost 10% of budget loss), but also will stimulate the development of the whole construction area and 30 related ones. There are thousands of new workplaces and tens of billions of budget revenues.
Although “The concept of the most simplified and transparent procedure of connecting electricity-generating equipment (objects) to electricity supply networks” published on the National Commission for State Regulation of Energy and Public Utilities (hereinafter – NKREKP) website provides a range of progressive innovations, it carries risks of a significant increase of connection costs for customers.
The Better Regulation Delivery Office (BRDO) experts have analyzed the Concept. Generally, the approaches outlined by the regulator are based on the principles and rules worked out by the working group of the Verkhovna Rada Committee on Fuel and Energy Complex, Nuclear Policy and Nuclear Safety and expert organizations. However, some issues covering the final cost estimation methodology are not explained in the Concept. According to professionals, this approach does not allow to speak about accuracy and transparency when determining connection costs for customers and remains certain corruption risks related to the monopolized market of connection to electricity supply networks.
According to experts, another drawback of the NKREKP Concept is that the decision on possible refunding for customer’s actual connection costs by a power supply company moves from working group’s proposals to creating a linear component.
Summarizing the results of the analysis, experts point out that “The concept of the most simplified and transparent procedure of connecting electricity-generating equipment (objects) to electricity supply networks” from NKREKP carriers the risks of:
The experts frequently appealed to NKREKP to provide preliminary cost calculations according to the published “Concept of the most simplified and transparent procedure of connecting electricity-generating equipment (objects) to electricity supply networks”, but the national regulator has not provided these calculations yet.
In view of the abovementioned, BRDO experts cannot support the Concept proposed for consideration by NKREKP despite many positive and progressive moments.
The Legal Committee “URE Club” supported a draft law “On amendments to some laws of Ukraine on improving state regulation of construction”(№4187) developed by the Better Regulation Delivery Office, which provides abolishing the necessity of the declarations registration in construction, during its working meeting.
Two draft laws “On amendments to some laws of Ukraine on improving state regulation of construction” (№4187) and “On amendments to some legislative acts of Ukraine concerning improvement of urban development” (№4733-1) made by D.Y. Andrievsky and other people’s deputies while being designed to improve the urban development regulation were reviewed at the meeting. These draft laws are in diametrical opposition as for changing the system of getting construction permits: while the main idea of the draft law №4187 is the abolishment of the necessity to register construction declarations, the idea of the draft law №4733-1 is to extend the applicability of a licensing regime for construction of facilities related to the third category of complexity.
In spite of the fact, that the draft law №4733-1 was not supported due to its completely unacceptable mechanisms, the idea to extend the applicability of a licensing procedure for some types of construction facilities related to the third category of complexity had its supporters during the meeting. However, it was noted that this prospective reform could be fully implemented at the bylaw level.
BRDO experts are sure that the adoption of the draft law №4187 will significantly improve not only the domestic legal framework in construction, but also the business environment on the whole.
“The economic entities will be able to build their own activity on civilized and predicted principles”, the lead lawyer and author of the draft law Denis Malyuska commented on the draft law.
Thus, according to the draft law №4187, it is proposed to abolish not only the mandatory registration procedure for declarations in construction, but also to make it necessary to get a court decision for suspending pre-construction and construction activities at the request of state architectural and building control agencies.
It is necessary to separately note the innovations, which provide for the exclusion of the possibility to obtain a qualification certificate by persons without a higher education in the required professional certification area. This approach significantly improves the quality and sustainability of the construction works.
Only fundamental changes in the decision-making system can provide efficient reforms in Ukraine. The head of BRDO Oleksiy Honcharuk stated that at the beginning of an expert discussion “The concept of efficient development of the decision-making system”. According to him, it is time to move from fragmentary cosmetic changes in the decision-making system to completely new approaches, particularly, in reforming the regulator policy. The event was organized by the BRDO at the premises of Kyiv Mohyla Business School.
Having opening the discussion, the co-chairman of the Strategic Advisory Group for reforms of the Cabinet of Ministers Ivan Miklosh emphasized the absurdity of the modern decision-making system concerning key issues in different responsibility centers, which often doesn’t reconcile the policy. In addition, he noticed that the reforming is a rather political than technical problem.
Oleksiy Honcharuk presented the Concept of efficient development of the decision-making system prepared by BRDO experts. According to the concept, 10 basic reforms are designed to transform the inert obsolete state regulatory policy control system into an efficient tool for state development. Reforming the control/supervision system, introducing a single administrative procedure, simplifying the market access, refocusing on cyclicality of regulatory policy planning, step-by-step transition to the long term planning and functional reorientation from the papers to the economic policies in the regulatory system are among the main reforms.
“We developed a system vision of changes in the state decision-making process, I’m grateful to representatives of the international Strategy Advisory Group Miklosh/Balcerowicz, the BRDO started to actively collaborate with, for supporting our reformatory beginnings. The today’s discussion confirmed that a “quick wins” period must stay in the past. It is time to determine strategic priorities and form the vision for a long term development planning period,” Oleksiy Honcharuk said.
During the presentation, the Head of BRDO also showed the experts a working prototype of information analysis system for data systematization and regulator policy control called “Prostir”. The capabilities of the system that has been demonstrated with concrete examples caused a lively discussion among the experts and confirmed the importance of further work on creating a single information space for regulators, business and the public.
As a result of this discussion, experts agreed to continue active consultations to improve the concept of effective regulation prepared by the BRDO that will form the basis for developing the already agreed package of system regulatory reforms in the future.
Reference
The expert discussion was organized by the BRDO at the premises of Kyiv Mohyla Business School on June 29. The Head of BRDO Oleksiy Honcharuk was the moderator and general speaker.
The Senior Advisor at the Strategic Advisory Group for Support of Economic Reforms in Ukraine Olexander Shkurla, the head of NBU Process Management Department’s projects and programs Tetjana Dyachuk, the head of the European Information and Research Center Roman Kobets, the head of the Center for Public Expertise Lubomir Chorniy, the member of the All-Ukrainian association of small and medium businesses “Fortress” Olexander Pliva and other lead experts with an experience in institutional reforms of public authorities were among the main participants.
The conditions for the beginning of energy-efficient modernization and the more active use of energy-saving technologies have been created in Ukraine. This thesis became a primary conclusion of the panel discussion “Who and how will insulate our houses? Are Ukrainian manufacturers ready for coming investments in the energy-efficient market?”. The discussion was held in the framework of the “Energy Efficiency Fund – UKRAINE’s Major START-UP” Forum organized by the Ministry of Regional Development, Building and Housing and Communal Services of Ukraine together with the А7 CONFERENCES company. The Construction Sector Head of the Better Regulation Delivery Office (BRDO) Olena Shulyak moderated the panel devoted to the housing and public utilities modernization and the potential of Ukrainian construction materials manufacturers.
The “Energy Efficiency Fund – UKRAINE’s Major START-UP” Forum became a platform for the exchange of views and the dialogue in the sphere of the energy-efficiency between the government, business, international partners, experts, the local self-government and the community. The Prime Minister of Ukraine Volodymyr Groysman, the Vice Prime Minister – Minister of Regional Development, Construction and Housing and Communal Services of Ukraine Hennady Zubko, Government Ministers, people’s deputies of Ukraine, the Head of the Support Group for Ukraine at the European Commission Peter Wagner, representatives of local authorities, leaders of the top 100 Ukrainian and international energy efficiency companies, foreign investors, representatives of international financial corporations and foreign embassies were among the forum’s participants.
As Olena Shulyak mentioned at the beginning of the debate in the framework of the panel discussion, the total housing stock consists of nearly one billion square meters, and the average age of Ukrainian houses is almost 42 years. Most of these buildings are needed to be winterized. This scale requires not only the cash, but also opportunities to fill the market with high-quality and preferably domestic construction materials.
The Deputy Minister of Finance of Ukraine Sergiy Marchenko spoke about the real steps which were developed by the state to support manufacturers and citizens of Ukraine for the purpose of effective implementation of energy efficiency programs. The speech of the representative of GIZ (DEUTSCHE GESELLSCHAFT FÜR INTERNATIONALE ZUSAMMENARBEIT) Mrs. Christiana Hageneder became the next one, and she shared with the panelists not only the information on the possible support of Ukrainian reforms in the energy saving area, but also the practical German experience in this question. The Forum participants mentioned the conformity of the starting situation with the housing stock’s state, which has been already modernized in the FRG, and concluded that the German experience would be extremely useful.
The Vice Prime Minister, Minister of Regional Development, Construction and Housing and Communal Services of Ukraine Hennady Zubko stressed that the created Energy Efficiency Fund was a step to the European standards of energy production, supply and consumption in Ukraine. The panelists knew about real achievements directly from the local authorities – Volodymyr Honcharov, the Deputy of Kyiv City Council and Volodymyr Smoliy, the Dolyna deputy mayor.
Also, Volodymyr Smoliy spoke about a particular experience of the city of Dolyna, Ivano-Frankivsk region, which had one of the most significant achievements in the field of energy efficiency in Ukraine in recent years despite the status of a small district center. The speaker noted that the effective energy management had been introduced in the city due to the implementation of the municipal sustainable development strategy in the field of energy consumption 2020. The local authorities could reduce the use of energy resources by at least 10% without any capital investments. When energy-effective measures have been implemented in state buildings (hospitals, schools, kindergartens, etc.), the level of energy consumption was reduced by 20%. For today, local authorities have been already made the thermo-modernization of 30 high-rise buildings (30% of municipal apartment buildings with 20 000 dwellers). It is planned to increase the level of thermo-modernization up to 60% for three years. Smoliy also shared the experience about forming the legal framework on energy efficiency issues and raising funds from various sources to implement municipal programs.
The lively discussion developed into the question-answer series due to reports of domestic manufacturers and distributors of building materials who were represented by owners and directors of enterprises Nataliya Yeremieieva, Oleksandr Radchenko, Yuriy Tikhonov and Oleksiy Bilenko. Volodymyr Honcharov was actively involved in that discussion.
“The discussion was very efficient, only the exchange of views took 2 hours. And in this case I even didn’t expect such an activity from the participants, the hall was full all time, there wasn’t even enough seats for the audience”, Olena Shulyak concluded.
The BRDO expert also noted that the panel discussion became a representative reflection of the state of the energy efficiency in Ukraine.
“We heard government’s views about strategic reforms, ways of funding and state support, received the visions of our foreign partners and consultants. And the main one is making a platform for direct conversation of the state, manufacturers, market regulators and final consumers. As a bonus, I’ll notice the opening of specific successful case studies on the implementation of energy-efficient technologies in Ukraine at the municipal and corporate levels”, – the moderator summed up the discussion.
Following the discussion, the participants outlined a number of directions for further processing. The realization of the national energy-efficient strategy must be an important element of the successful state. All parties from the state to manufacturers and consumers user are interested in it. At the same time, participants noted that there were certain elements of delaying reforms in this sector. Particularly, only at this moment there are more than 30 bills stimulating the energy-efficient consumption and the production of materials in the Verkhovna Rada. Separately, vectors of improving the regulatory policy in this field (from introducing the marking of materials by energy-efficient classes to reducing the state control by transferring some powers to expert organizations) were outlined during the session. Also, according to experts, it is important to carry out the awareness-raising work advocacy work with regions and directly with final consumers concerning the energy-efficient problems.
Source: liga.net
The state regulation system of Ukraine is overloaded with powers of government authorities. A huge number of government agencies, which have been granted regulatory powers under the guise of protection of consumer rights and state interests, mostly failed to perform these functions, but just produce a huge number of papers and often become corruption centres due to complexity, unsystematic character, and a large number of conflicting rules in various regulatory acts.
Government agencies granted regulatory powers are mostly engaged in punitive inspections instead of regulating the markets to ensure their development. According to the International Finance Corporation, Ukraine and Tajikistan became two countries with a total amount of inspections at the year-end 2013. 95% of economic entities have been inspected every year. There were 594,974 inspections conducted in Ukraine only in 2014 (even despite the moratorium on business inspections introduced in the second half of the year).
The centralized system of establishing rules / standards of professional activities and product requirements is not only a factor hindering the business development, but also a legacy of an outdated regulation system of Soviet times. The constantly growing number of regulatory bodies and their total control over entrepreneurs haven’t contribute in changing quality and efficiency indicators showing significant improvements for consumers over the past 20 year.
The lack of effective activities, low competence, extremely passive response to market demands (both consumers’ and entrepreneurs’ needs), no real objective feedback mechanism between the business community and government bodies and high supervision and control costs of the state are real barriers to modernize both the economy and product standards. In addition, it leads to continuously increasing costs of the state and enterprises to support the inefficient control system.
The world regulatory practice provides for transferring some rights on establishing rules and their control from the state to entrepreneurs or with the community involvement. In such a way, a self-regulatory principle will come into effect – when market participants regulate market activities themselves.
This principle is one of the most effective methods of reducing the state regulation and costs related to control and supervision.
The term ‘self-regulatory organization’ has been used in the US legislation, in the Securities Exchange Act of 1934, under which some associations and organizations of the stock market were given the SRO status, in the days of the Theodore Roosevelt’s New Deal policy for the first time ever. Since then, the legal use of the ‘self-regulatory organization’ term is mostly applied for financial services and securities regulation in Western countries. However, organizations formed by this principle may also exist on other business areas, but this term is not used for them in the law.
There is another situation in emerging democracies of Easter Europe and the former Soviet Union. The SRO concept was formed in different business areas due to the fact that the ‘self-regulatory organization’ term came into practice in many sectors. There is even a clearly observed trend: organizations are considered as self-regulatory organizations, if the sector specific legislation provides for the possibility to create SROs along with certain requirements to them. In turn, organizations having common features with the SRO but established in other sectors don’t have this status.
Today, there is no unified concept of legal regulation of these organizations in Ukraine and, as a result, there is no unified self-regulation model as well. However, certain self-regulation principles are reflected in the sector specific legislation of Ukraine. For example, there is the provision on self-regulatory organizations of professional stock market participants (in current version of 2009) that have been being in effect for a long time (at least since 1996).
As already noted above, Ukraine hasn’t adopted a unified legal act that would regulate specific features of organizations and activities of self-regulatory organizations yet.
A large step towards solving this issue was made in June 2016. The Concept of the basic draft law on self-regulatory organizations (SROs) was presented at a meeting at the EBRD office in Kyiv. The Concept was developed by joint efforts of the Ministry of Economic Development and Trade of Ukraine, the European Bank for Reconstruction and Development, the UN Food and Agriculture Organization, experts and public representatives.
The concept of basic law on SROs in Ukraine provides for the evolution from the law on non-governmental organizations to the legal regulation of representative self-regulatory organizations (i.e. those that can really represent the sector in the interests of all (or the vast majority) market participants). This concept also provides the further transformation of representative SROs and professional associations into the regulatory element with transferring more regulatory powers from the state to these structures in accordance with special laws.
The concept also defines main principles of the ordinary and representative SROs registration and clarifies some principles of their activities. For example, it is proposed to introduce two principles of the representative SROs registration: the procedural and share one. The procedural principle implies that there is a certain time being allocated for other organizations to challenge the registration of a representative self-regulatory organization. The share registration principle requires from the organization to confirm that it is composed of more than 50% sector market participants.
It is proposed to entrust controlling and coordinating SROs activities to the Ministry of Economic Development and Trade, Ministry of Justice and the State Regulatory Service of Ukraine. In addition, functions can be assigned to sector ministries by special laws.
According to the concept developers, the basic law should be composed of four basic sections and must: define general provisions of the law; clarify issues regarding establishing and registering SROs; determine SRO rights, duties and activities; describe requirements to the SRO organizational structure. In addition, the law should specify necessary amendments to existing regulatory legal acts of Ukraine to implement reforms this area.
With the successful implementation, the self-regulation will allow to reduce government costs, control quality of services in a more professional way, move the focus from the state control over performance to the supervision over activity results. The direct involvement of business and public representatives in establishing rules and standards in the sector will help create better regulation in relevant areas. This will ensure the development of business and economy. In addition, increasing the responsibility of market participants for their actions via direct communication with consumers and without the state mediation will be an important factor.
The adoption of the law on self-regulatory organizations is a large step towards ‘smart regulation’ of the market. It is clear that the above-mentioned concept of basic law requires a lot of expert work, but the result of this work of government bodies, experts, business and public representatives can become a real foundation to form a modern regulatory policy. Everyone will benefit – from consumers and manufacturers to the state.
The Food&Agriculture Sector Head of the Better Regulation Delivery Office (BRDO) Andriy Zablotskyi believes that local agri-food markets are an important step towards reducing the shadow food trade. According to him, the time has come to create a system of local agri-food markets in Ukraine. This practice will allow us to introduce a common European practice and fill legal gaps to ensure more civilized and responsible relations between sellers and buyers. In addition, this is a step towards creating an incentive system to reduce the shadow sector of the domestic food trade.
There are currently three main levels of selling foodstuffs:
In such a way, the current concept of local agricultural markets is actually a transitional link for manufacturers, who are ready to produce for not only themselves, but are not yet ready to enter the national level.
Considering this fact, the BRDO is actively involved in developing this direction. We support the concept of creating a system of local markets not just as places of sales, but as a system of trade relations development at the local level. This system should be a set of tools to promote a seller’s responsible attitude to his product, its quality and safety and, of course, ensure other basic civilized requirements. In particular, traceability assurance, non-discrimination and protection of legal interests of all market players.
BRDO experts were closely involved in developing the draft law “On local agri-food markets” initiated by the Ministry of Agrarian Policy, the adoption of which will allow to solve the above problems and have a positive impact on the business environment development in Ukraine. It is hoped that the draft law will be included in the agenda of legislators in the near future and become a progressive innovation of reforms implemented in Ukraine.
The Better Regulation Delivery Office (BRDO) expert Bohdan Andryuschenko believes that we should denationalize enterprises and veterinary and phytosanitary agencies wisely. Denationalization of hospitals and laboratories remained in the system, which practically has no public enterprises that would require an appropriate servicing, rudimentary is a demand of our time. Especially under circumstances, when budgetary expenditures to support them are decreased every year. This year’s funding that doesn’t cover even a fifth of veterinary and phytosanitary needs confirms this fact. The change of regulations in the system, when the state should move to purchasing needed services from authorized agencies of any ownership instead of keeping the network, is also of current interest.
At the same time, the public policy requires that the network of hospitals and laboratories as private institutions will continue to be specialized. Such a comprehensive sphere is, among other things, an essential element of the state security in terms of food safety and preventing the spread of diseases common to animals and humans.
Therefore, privatization of veterinary and phytosanitary agencies can’t be conducted under general rules, but only with certain terms established by the law: keeping the specialization of institutions; the priority right of labour collectives to buy; participation in government monitoring programs, etc.
It is clear that not all institutions should be privatized: in particular, national institutions and a number of central and regional specialized agencies should remain in state ownership to ensure the arbitration, work out methods and rules, and so on.
The Better Regulation Delivery Office supports the idea of such privatization and the need to establish clear and transparent procedures and restrictions in law. We will continue to participate in discussions and work on the recently presented draft law “On Amendments to the Law of Ukraine “On Peculiarities of Property Privatization in Agro-Industrial Complex” to regulate the privatization process of veterinary and phytosanitary agencies. This law is much needed for veterinary and phytosanitary sectors. However, only as a separate law but not as amendments to the existing one.
At one time, functioning problems of collective farms were solved in this way, because it was possible to denationalize them by adopting the Law of Ukraine “On Peculiarities of Property Privatization in Agro-Industrial Complex”. This provided those who worked with an opportunity to get their share of property and land and became a fundamental principle for further activities of enterprises in the market environment. It is needless to say that things didn’t run smoothly, but national rules were established and started to work.
Together with Denis Malyuska
What do reforms and sex have in common? The first thing that comes to mind is, of course, that there is a focus on the process while the result has a minor role in the Ukrainian realities. However, these phenomena have another less noticeable thing in common: we implemented reforms mostly in a random way, in a hurry and without a proper theoretical framework while the methods have been improved with time, the hard way and not all.
However, if humans have been solving problems of a systematic and scientific approach in intimacy for thousands of years (and Kamasutra is a good example here), we start to use the analogical approach in reforming the Ukrainian legislation just now and it is not always done in a proper way.
Undoubtedly, the Ukrainian legal framework needs to be fully refined, because in fact, now it is a kind of a kitsch of totalitarian USSR’s laws, legislative technique’s ‘masterpieces’ of the early 1990s and work results of a ‘mad printer’ of the early 2000s to meet some regular ‘urgent’ and ‘vital’ tactical needs (credits, non-visa regime, elections, appointment of the Prosecutor General, etc.). However, the results of such a rule-making activity are assessed not before but after the adoption of the law in a best-case scenario. In most cases – they are not assessed at all.
Let’s try to see how to turn the Ukrainian legislation system into a clear, transparent and effective system of rules of conduct in a systematic and consistent manner. Fortunately, we are not the first people on this planet facing with this problem and there are certain benchmarks worked out in worldwide practice.
The worldwide practice knows a number of ways to review the outdated and flawed legislation systematically. One of the most common ways is to use the standard costs model (SCM) designed to measure the administrative burden that falls on business due to the implementation of rules. This method involves counting the number of parties that have to perform certain actions (submit reports, register, get inspected, etc.) and their financial costs associated with the implementation of rules (including costs of staff salaries and the need to engage and pay for third-party services). The result of using this method is identifying the most burdensome laws, with, accordingly, should be reviewed with the highest priority. In addition, an array of information created by the state allows it to establish measurable goals (for example, reduce bureaucratic costs of business owners by 30%) and control the progress.
Guillotine method is used when there is a need to review a large array of laws for compliance with certain criteria. In this case, as a rule, an approach, which is loyal to the business community, is applied – the presumption of uselessness of regulation, when business owners don’t need to prove the regulation burden. Instead, each government body has to prove the need of each existing regulation for a special commission, and if it fails to do that, this regulation should be abolished. The guillotine method is mostly used to review the system of permits and licenses (Kenya) and the business regulation (Croatia, Mexico). However, for example, Sweden used the guillotine method to abolish all regulations, which were not registered in a special procedure, in the 1980s. This led to abolishing a considerable amount of laws (for example, about 90% of regulations have been automatically abolished in education). At the same time, it should be also kept in mind that the guillotine method isn’t usually a self-sufficient mechanism. As a rule, it is just an initial reform stage – refining the legislation and creating conditions for using other mechanisms to improve the legal system. Ukraine made the first attempt to use the ‘guillotine’ in 2005.
A bulldozer approach, by contrast, encourages the business to identify the most problematic laws and initiate their abolition. This approach is called the bulldozer, because it allows to abolish the rules the government wouldn’t dare to abolish by joint efforts of many private sector representatives. It is not used for the rolling and comprehensive legislation review. This may concern rather targeted changes in regulatory requirements, and in this case, mostly the experience and impressions of entrepreneurs are used as benchmark. An example of applying this method is creating the ‘Bulldozer Committee’ in Bosnia and Herzegovina that has developed and monitored the implementation of a package of 50 different reformative initiatives. The analogue of applying this approach in Ukraine is the creation of “deregulation plans” composed of the wishes of business communities.
There is a focus on optimizing the procedures during the re-engineering process. First, existing procedures are described and analyzed and then – improved by abolishing unnecessary steps, reducing the list of documents as well as by further introducing the IT technologies. A typical re-engineering example is a ‘single window’ principle and almost every civilized country (including Ukraine) has examples of its implementation, but this approach is also not self-sufficient.
Sometimes a ‘scrap-and-build’ approach is used during the comprehensive transformation of the governance model – that is a full review of the regulatory system, including its basic principles and approaches to interaction between the government and the business community. Typically, the model is used for radical changes in legislation (the whole legislation or a separate package) and to work it out “from scratch”. The result of using this approach is often large codified regulations. The ‘scrap-and-build’ approach is usually the result of reframing the approach to regulation, which is typical for countries changing ideological approaches to the evaluation of economic processes (for example, moving from the planned economy to the market one). This approach requires significant resources to be implemented and it is difficult to implement it in developing countries. Therefore, examples when this principle was successfully applied are often associated with significant foreign expert and resource support for the reform process. The implementation of European directives can be considered as an example in Ukraine.
The staged repeal or automatic revocation implies the scheduling, by which the legislation is either revised or repealed, based on the date of its adoption. The goal of this process is to abolish or amend the outdated legislation for its modernization. This method was typically used in developed countries of the Anglo-Saxon legal system (Australia, Canada, New Zealand).
Special attention should be paid to methods introducing reviewclauses and sunsetclauses. The reviewclause implies that when an act is adopted, it initially includes the clause that it will be reviewed (with possible full abolition) after a certain period of time or event.
The sunsetclause is a bit radical as it implies setting the date, on which a regulation will automatically become invalid. The only chance to ‘save’ this regulation after the expected date of termination is to amend it. In fact, the ‘sunsetclause’ moves the burden of proof from ‘reformers’ to ‘conservators’: those who wish to remain things as they are should prove the effectiveness of the law and convince a majority in parliament. The ‘sunsetclause’ can be applied not only to laws, but also to state agencies or programs. For example, in Texas, institutions (except universities, courts and bodies established by the Constitution) should be automatically liquidated after 12 years of their existence unless the parliament decides to continue their activity. A special commission designed to examine activities of institutions and make recommendations for the parliament to extend the period of their activity for the next 12 years (as a rule, assuming that there will be certain improvements) or liquidate, merge with another bodies or change certain functions (for example, those ones duplicating other bodies’ functions) was established to ensure the proper functioning of this system. A clunky example of applying this method in Ukraine is a ban on the alienation of agricultural land, the abolition of which has a specific date but the legislator always postpones it.
It is more exotic to introduce ‘OneIn – OneOut’ or ‘OneIn – TwoOut’ methods, according to which the regulation imposing an additional financial burden on business can’t be adopted without abolishing the existing one that imposes the same (or even twice as much) burden on business. This principle is currently used in the UK.
The idea of a rolling review of legislation is attractive in terms of a ‘reformer’s’ public image and therefore, it have been already used by Ukrainian authorities for several times. The first attempt of this review was made immediately after the Orange Revolution to implement the decrees of the President of Ukraine “On liberalization of entrepreneurial activities and state support of entrepreneurship” and “On some measures to secure implementation of state regulatory policy”. This review was often called ‘regulatory guillotine’, although it has very little things in common with the real guillotine method known in the world practice. As a result: (1) the ‘guillotine’ was actually conducted by every government body (or local government body) issuing the relevant regulation instead of an independent institution; (2) no one proved either the viability or unviability of each act; (3) the review was conducted on vague criteria of ‘compliance with state regulatory policy principles’; (4) the review was conducted simultaneously at all state vertical levels: i.e. lower levels inspected the compliance of their acts with higher level’s acts while having no idea whether this higher level’s act will be abolished as well. As you might guess, this ‘regulatory guillotine’ has virtually no impact on the real life, although it was reported about a huge number of abolished regulations in keeping with the best bureaucratic traditions. Since then, the tradition to measure the effectiveness of regulatory policy by quantitative indicators instead of the quality ones has become an essential part of the Ukrainian state’s life.
They tried to solve the problem after the next presidential rotation in the same way (and with the same results). At the end of 2010, the Law of Ukraine “On accelerated review of regulatory acts adopted by local government bodies and officials”, according to which it was expected once again that a non-commissioned officer’s widow would give herself a spanking and local government bodies were instructed to review own regulatory acts to ensure compliance with state regulatory policy principles, was drafted and adopted. The authorities were surprised to learn that not all local government bodies understood these principles and even fewer understood what a ‘regulatory act’ is. No wonder that no one except those who carried out the regular ‘guillotine’ noticed real changes, and there were no assessments of the reform impact conducted.
Theoretically, the current assessment of the effectiveness of regulations and their review should be conducted now in Ukraine according to the Law of Ukraine “On basic principles of state regulatory policy in the sphere of economic activity”. However, generally speaking, the implementation of this law, at least in terms of its review, comes to empty formalities performed by government officials without any result.
A lack of an effective mechanism for rolling review of regulatory legislation has led to numerous initiatives on applying various legislative review methods occurred chaotically. For example, it is traditional for Ukraine to work out already mentioned regular deregulation plans of the government providing for abolishing a specified percentage of regulations set by legislation. Such a goal was established both at the time of Yanukovych (to abolish 50% of economic activity types that should be licensed) and in the relatively recent past (Strategy of 2020, Deregulation plan). What consequences does such a goal have? The answer is obvious: as the state apparatus is always taking the path of least resistance, the implementation of government plans comes to searching and abolishing the permits existing only on paper, but are not issued in real life or abolishing the permits, which are the least problematic for business.
Another favorite method of lawmakers is not to abolish a licensing procedure but to rename it that allows to declare the reduced number of permits or licenses without mentioning the fact that they were simply renamed, for example, as certificates. Therefore, there is a paradox, which is widespread in our country: many permits were abolished – but the business didn’t feel any ‘improvements’.
Some attempts to approach the legislation review systematically have been made over the last year. Thus, the ‘scrap-and-build’ concept with ‘sunsetclause’ elements was supported by a certain amount of people. They registered the draft law #3766 “On changing the system of economic regulation”, according to which it is proposed to abolish provisions of 90 laws concerning the economic activity, in the Verkhovna Rada. At the same time, the Cabinet of Ministers is invited to work out and submit draft laws that would introduce a new regulation to the Parliament.
However, the abolition of a large number of existing laws to replace them with new ones will hardly be a panacea. The state simply doesn’t have resources to work out a huge amount of new quality laws and learn to use it in a very short time.
A certain kind of the above mentioned concept is the draft law #4650 “On amendments to the Law of Ukraine “On Legal Succession of Ukraine” regarding the abolition of the USSR acts on the territory of Ukraine” offering to remove some laws (the Soviet ones) as new laws have been already developed and brought into force.
Calls for conducting the ‘guillotine’ were very loud again. Even the President of Ukraine regretted that the ‘deregulation guillotine’ hasn’t fell on the heads of bureaucrats when he named the cabinet. We are not sure whether the president really had in mind a concrete way of the rolling review of legislation or just chose a good metaphor to emphasize his desire to reduce the regulatory burden that falls on business.
Anyway, now we have the following results of the chaotic regulation in the context of the ineffective regulatory system:
– extremely poor regulatory framework, the effectiveness of which can’t be estimated, and where we can see ‘regulatory mirages’ (when even institutions exist only on paper and not in real life, or when the state regulates relations that don’t exist in reality) and ‘regulatory werewolves’ (when there are several different regulations existing as a single regulation);
– regulators often suffering from the ‘regulatory schizophrenia’ (when the state / regulator doesn’t understand its role and, as a rule, serves both as a regulator, an asset owner and a market player entering into relations with itself);
– the system suffering from chronic ‘regulatory tachycardia’ (the system operates constantly accelerating the pace, but the ‘patient’ feels worse because of this).
The worst thing in this situation is that more than one ‘generation’ of young public servants have been brought in this partially fake regulatory system, so its conditional and artificial nature is taken for granted. The real meaning of the system – effective regulation – is actually lost and replaced with ‘deregulation’, the model of which measures the effectiveness by the number of abolished documents or permits.
Using the SCM methodology and setting a goal to reduce business costs in bureaucratic procedures (compliance costs) would be much more effective step in this case. Although it is much more difficult to use this criterion (as any other criterion assessing the quality of regulation) and requires significant state capacity.
Despite the weak points of domestic reforms described above, a certain positive point is that the leadership of the Ministry of Economic Development and Trade and the State Regulatory Service understands the need to restart the regulatory system. A number of important steps taken last fall confirms this fact:
– the above mentioned institution – the Better Regulation Delivery Office (www.brdo.com.ua) entrusted with the task to strengthen the state capacity in the process of regulatory system’s transformation have been created with the support of the government of Canada, the World Bank Group and the European Commission;
– the procedure of draft regulations assessment (the SME-test method was approved) in terms of implemented regulation costs was improved. But the most important thing that happened is a change in discourse. The ideology of effective regulation – focus on quality indicators instead of quantity ones – is returning to the state leadership’s agenda slowly but surely.
The gradual shift from the ‘deregulation’ to the ‘better regulation’ model (for example, see Regulatory Policies in OECD Countries. From Interventionism to Regulatory Governance, OECD, 2002) will allow to make the system more stable and predictable.
The European REFIT could be a good example of this combined program.
Of course, all possible initiatives are not limited to the aforementioned ones, and it may seem that their implementation could lead to ‘slowing the reforms’ in Ukraine. However, if these initiatives are properly implemented, they will give us confidence that such ‘reforms’ are not another type of ‘improvements’ and allow to create the conscious regulation and this, in turn, will help increase its effectiveness every year and build trust as the basis for doing business in Ukraine.
Original publication: “Dzerkalo Tyzhnia”
Up to 10% of regulations in the agricultural sector are illegal. The Better Regulation Delivery Office (BRDO) experts made this conclusion while conducting a rolling review of regulations. The head of the BRDO Food & Agriculture sector Andriy Zablotskiy said that during the panel discussion “State innovations in the agro-food sector” held in the framework of the “Ukrainian Agri & Food Innovation Forum ’16”.
According to him, now there are nearly 1.4 thousand various laws, resolutions and other regulations to control the agricultural sector. 152 regulation of them have been adopted in the USSR. About 10% of the total are illegal. Another 25% need to be revised immediately.
“The analysis of Ukrainian legislation we regularly conduct in accordance with the best EU practices has shown that the interests of all economic stakeholders – the society, business and the state – are often not taken into account when drafting and adopting the regulations,” the expert said.
Andriy Zablotskiy said that in most cases, there were no calculations on the regulation impact on the agriculture sector at all and added that the Better Regulation Delivery Office is working on proposals to eliminate these ‘gaps’ in legislation. He emphasized that BRDO experts were always open to suggestions from businesses, ready to work on them, inform the relevant ministries and departments about own position and participate in drafting relevant legislative initiatives.
“Today there is a need for an innovative approach to implement smart regulation in the agricultural sector. There were several deregulation waves, which abolished or significantly simplified more than 30 regulatory instruments, in the agricultural sector. However, hasty deregulation wasn’t good for the market in some cases. So it is important to it in a systematic and smart way now,” the expert said.
In addition, Andriy Zablotskiy said that Ukraine as a leading grain exporter in the world simply doesn’t not have the right to use the existing regulation adopted in the days of the Soviet Union. In most cases, this regulation is outdated and needs to be revised immediately, especially considering the fact that the Free Trade Agreement between the EU and Ukraine entered into force.
The expert encouraged to submit suggestions to improve the state regulation not only on the agricultural sector. After all, there are more than 9,000 regulations of various types, which have a direct impact on doing business in Ukraine, in five economy sectors monitored by the BRDO experts.
Source: Delo.ua
Illegal forest cutting and timber sales, theft and smuggling of wood products are a serious problem for Ukraine. Ambiguous laws and a huge corruption problem just aggravate the situation. A real volume of today’s illegal cuttings is hundreds of times more than officially recorded volumes, which, according to the State Forest Resources Agency are 24.1 thous. m3. This is another evidence of ineffective regulation of the sector leading to the criminal misuse of this natural resource.
According to different sources, about 16-17% of the total country area (about 10.6 million hectares) are forests that is much lower than the average in Europe (35.4%). Therefore, unlike many European countries, the forest performs mostly ecological functions in Ukraine and the government policy should be aimed at increasing the forested area. By the way, this position was declared once again in the Coalition Agreement (among other things, this document provided for giving the power to make the state forest policy back to the Ministry of Ecology and Natural Resources) signed in the Verkhovna Rada of Ukraine. However, the Ministry of Agrarian Policy and Food is still responsible for making the forest policy and its goal is primarily to develop the production but not to protect the forest as an ecosystem.
The annual volume of forest restoration averaged 50 thousand hectares (for example, 60.4 thousand hectares of forests, which includes 2.5 thousand hectares of forest planting areas, were restored in 2015) over the past few years. However, it was not enough for the growth in its amount due to illegal cuttings. About 8,000 cases of illegal cuttings were recorded last year. Destroyed and damaged forest stands are 32.3 thous. m3. This is an extraordinary scale. These figures were almost doubled compared with 2014. According to the State Statistics Service, the damage from illegal forest cuttings was increased from 47.6 million hryvnas in 2014 to 114.2 million hryvnas in 2015. However, we should understand that this statistics includes mainly illegal cuttings made by the local population, so these data can’t be expected to be very accurate. As a rule, official figures are artificially low.
Forestry problems and their solutions
If you wish to understand the reasons of this, frankly speaking, ‘unhealthy’ situation in the sector, you need to look closely at the current practice of forest management and legal realities. There can be many weak points. The first of them is poor regulation.
In Ukraine, the penalty rates for ‘forest’ crimes are inadequate and have not been changed since the effective date of the Criminal Code, despite the increase in illegal timber in recent years. This is especially true for fines for illegal forest cuttings, which currently range from 850 to 1700 hryvnas. In addition, there are no effective mechanisms to prosecute the officials involved in illegal forestry activities. The preventive liability function is still not implemented.
However, improving the liability is just one aspect of the problem. An important legal instrument for preventing illegal cuttings is to strengthen the control over the timber trade and introduce a system of electronic timber inventory. Ukraine is planning to record all cuttings, including the illegal ones, for many years, but a required system, the implementation of which began in 2013, is still not functioning properly. This is despite the fact that the electronic timber inventory is a virtually only possible way to effectively monitor tree cuttings in forest enterprises and their further transportation – both within the country and abroad. The main problem to implement this system is the fact that it includes only some of forest users. Overcoming this problem will make it impossible to sell illegal timber, because special bar codes will contain all necessary information about timber: wood species, timber size classes, type and details of who and when cut it down. In such a way, any timber block without a bar code will be automatically considered as a result of illegal cuttings.
Thus, timber tagging will make it easier for the forest services and law enforcement officers to identify illegal wood materials. Ideally, it will be impossible to sell a tree without a bar code or related documents after this system is completely implemented.
A forest certification system will also complicate the stolen timber sale. The certificate will guarantee not only the ecological health of timber, but also confirm that the forest cutting was authorized. In addition, the certification will enable buyers and fiscal authorities to understand where the goods came from and who sold it. It should be mentioned that the certification system existing in Ukraine for more than 10 years can’t solve the fraud problems during forest cuttings – it is again because of its fragmentary nature. Today, the area of certified forests is 3.147 million hectares or about 30% of forests. Ideally, when the certification covers the total forest area of the country, it will be impossible to sell non-certified wood on external and domestic markets of Ukraine.
How to sell forest?
A stumbling point on the way to the legalization of this sector is also a system of timber buying and selling. Today many wood products are sold under direct contracts without competition that doesn’t allow to set a fair price for wood, provides opportunities to manipulate the timber volumes and stimulates its illegal selling. As a result, we get corruption schemes and unfair market competition along with a wrong view of the domestic wood market.
As you can see, the practice of timber selling that exists in Ukraine prevents the sector’s development and making the policy of conversing the forest as an ecological asset. The situation can and should be changed by introducing competitive tools of timber selling – auctions. Holding auctions for selling natural resources is a common experience and practice in Europe. For example, the main method of timber trade in the UK is electronic auctions, access to which can be obtained by everyone. In Lithuania, the wholesale of wood, which is 90% of the total volume, is also made only via auctions conducted on the electronic platform of the Directorate General of State Forests of Lithuania. A positive aspect of this mechanism is that the wood is sold in a completely transparent way and at market prices, so the state will benefit from this.
It seems that the government made the same conclusion. For example, the Cabinet of Ministers is seriously discussing the initiative to regulate the raw wood market by introducing its sales at market prices for several months. In particular, according to the proposal, auctions should be conducted in two stages:
We estimate that these well-targeted initiatives will certainly help reduce the amount of illegal cuttings, but this is still not enough to achieve sustainable positive results in the forestry sector.
The problem is that the current regulatory environment allows to ‘legalize’ illegal cuttings and avoid liability. The most popular ‘legalization’ tools is remaining ‘pseudosanitary cuttings’, which were almost 50% of all cuttings in recent years. Therefore, the moratorium of the Cabinet of Ministers on sanitary cuttings is absolutely justified until their proper regulation is established. This will help see real volumes and common factors of the wood market during the moratorium period.
Effective forestry regulation is possible with a systematic approach. We also need an adequate system of sanctions, effective mechanisms to ensure the unavoidability of punishment, a system of inventory and control over the timber trade, a certification system and a comprehensive approach to forest resources management, which is impossible apart from other natural resources. For example, if we correct weak points of liability mechanisms without changing the system of inventory and control over the timber trade, or if we improve its certification system without changing the approach to policy-making in the field of sustainable (integrated) use of natural resources, there will be no significant positive changes and right ideas can be discredited.
It is important to understand that the system of forest use rules should include the fragments, which are naturally combined with each other. Otherwise, we can’t ensure the rational use of forest resources.
The head of the Better Regulation Delivery Office (BRDO) Agriculture sector Andriy Zablotskyi believes that new regulations on grain storage will greatly contribute to creating transparent and efficient rules on the market. The expert gave this comment on the initiative to establish a working group to develop regulations on storage of grain and by-products.
According to him, today the dynamic development of the Ukrainian grain market and its leading positions in world exports require changes in terms of improving the regulation on grain and by-products storage. Therefore, drafting a new regulation on grain and by-products storage that will allow to bring the system existing in Ukraine in line with the best international practices appears on the agenda.
“The main purpose of drafting the new regulation should be to introduce transparent, effective and incentive rules for the market,” Andriy Zablotskyi said and added that this regulation should solve / or simplify a range of existing issues, such as the grain classifying for export purposes, grain mixing requirements to form a commercial batch and others.
The expert noted that the Better Regulation Delivery Office has a decisive position on resolving this issue – any obstacles to the movement of grain and its by-products, which are not directly related to the compliance with an adequate safety level and protection of interests of Ukrainian producers and consumers, should be removed.