Source: RBC-Ukraine
Buses perform more than half of the passenger transportation of Ukraine. Railways transport 390 million passengers annually, while road transport performs 7.5 times more transportation – more than 3 billion passengers a year and this doesn’t include illegal traffic. Taking into account illegal passengers, who have long become common for all segments of bus transportation, the passenger traffic is more than 5 billion. Even official statistics show that every resident of Ukraine takes advantage of bus services on average about 70 times a year. However, Ukrainian bus transportation resembles Africa in terms of quality and Europe in terms of prices.
Bus transportations are traditionally not covered by the Ukrainian media. Our country pays very little attention to bus transportation matters – in contrast with the railways and aviation, where nearly every event attracts the attention of journalists and the public.
Although the bus transportation market has been dynamic for the last 10 years in Europe, in our country, the situation on this market is far from Europe and rather resembles Africa and developing countries of Southeast Asia. In Europe, buses took the niche of the most affordable and very comfortable transport after the market deregulation that was carried out several years ago and the creation of conditions for its development. Now it is quite possible to travel through several EU countries by a comfortable bus for 5-10 euro, although such trips on the train usually are 10 times more expensive.
The situation is different in our country. We all know that it is a common practice for the Ukrainian society to negatively assess the state railways and every citizen, who has a more or less understanding of the economy, seems to be too quick in blaming it for monopolism and low level of services. Despite the fact that the state railways of Ukraine provide any passenger with an opportunity to travel 1115 kilometers on the train from Kharkiv to Lviv for 10 euro at any time, in Europe, you will be lucky to make several trips around the city or buy a promotional ticket for inter-state travelling by state for this price.
Private sector
Unlike state railways, the bus transportation market is completely private in our country. It currently employs more than 20 thousand private carriers and, accordingly, that sounds inappropriate to speak about the monopoly.
In our country, private carriers have a significant role even in the segment of city bus transportations, in which municipal companies dominate in developed countries, while dictating their terms to local governments and not worrying about the level of services for passengers. Only some cities that realized a mistake done earlier with a rapid privatization of city bus parks started to revive municipal city buses and are in the process of moving to the European model of urban transport.
The regular bus transportation market can be divided into several basic segments: international, inter-city inter-regional, inter-city intraregional, sub-urban and urban transportation.
Illegal segment
There are more than 160 thousand buses used in our country and only a half of them are involved in legal passenger transportation. The level of services is poor with few exceptions. Travelling by our buses is dangerous to passengers’ lives in most cases and this is confirmed by disappointing statistics of car accidents involving buses.
It is fair to admit that there still are some carriers providing services of the European service level that use new modern buses on the market. They mostly work on routes from Kyiv to large regional centers – in particular, they chose the Kyiv-Odessa route. Due to the modern high road built on the shortest route, buses have a significant advantage over the trains on this route running along the legendary E95 highway.
However, such carriers can be counted on the fingers of one hand. The rest of them – mostly prefer small-class buses made on the basis of trucks or busses transformed from cargo vans. Passengers have to accept such transportations for lack of anything better, although the price of inter-city bus routes has reached the European level long ago.
Corruption schemes
The Parliament, the government and the relevant ministry doesn’t want to see disorders occurring on the bus market over decades. Many officials are interested and involved in corruption schemes related to the market activities, and the carriers only generously encourage them to do that. Even legal motor carriers avoid providing actual data on the passenger traffic, incomes and expenses while constantly complaining on the low tariff.
The Ministry and relevant associations have never look at the bus transportation market from the passengers’ point of view and took into account their interests. Officials get used to treat passengers only from the position that their interests are of nobody’s concern and the only thing required from them is to pay for ticket to a carrier.
This is not to say that other government bodies are always focused on the consumer needs, but their interests have never been protected on the market, where three parties act – the regulator, carriers and passengers. The fact that the civil society had no position on this issue allowed the regulator and carriers to do that with no hassles.
Civilized reality
The situation on the bus transportation market can be resolved. At the same time, it is obvious that it is impossible to make revolution on the market in the short term. New market rules can become a good drive for its transformation, improving the quality of services provided and creating the real competition.
1. Deregulation and moving to the principle of notification regarding the opening of new inter-city routes – creating the real competition in inter-regional and intraregional routes with a total length of more than 100 km.
All bus routes are currently allocated between carriers by means of tenders, that means that officials in their offices decide how many and in what time the bus lines should be there, for example, in the inter-city Kyiv-Odessa route. This approach not only reduces competition between carriers, but also gives rise to corruption for obtaining a more convenient time of bus departure. Moreover, while regulating the number of bus lines, the state doesn’t regulate tariffs and the carriers can set prices on artificially limited services by themselves.
The optimal way is to allow carriers to make a schedule by themselves and inform the authorized state agency about this only by a notification. Passengers will benefit from the fact that, for example, five or ten buses instead of one bus depart from Kyiv to Odessa at 7:00. Everyone can choose the best value for money for himself as well as find a more convenient bus station.
2. Create incentives for carriers to use new and modern busses on urban and suburban routes.
The European experience shows that the urban and suburban transportation market unlike inter-city transportations should be regulated. It is necessary to not overload the city infrastructure and have an opportunity introduce modern fare systems.
Today the rules for issuing permits on urban and suburban routes to carriers impose only minimal requirements for buses in terms of both comfort and environmental friendliness. The only environmental requirement is the engine compliance with the Euro 2 standard, which is considered to be outdated in Europe, but such an important indicator for passengers with reduced mobility or women with prams as low-floor buses is not taken into account at all when giving the permits.
As a result, a carrier that offers completely new low-floor buses with Euro 6 engines is in an equal position with a carrier offering high-floor buses with Euro 2 engines during the tender.
It is necessary to give priority to carriers using more environmentally friendly buses and providing a higher level of services during tenders for urban and suburban routes. Particular attention should be given to buses running on alternative fuels, hybrid buses and buses with engines running on liquefied natural gas (methane) and electrobuses.
3. Introduction of tachographs and an effective mechanism to control information recorded.
Tachographs have been used for almost 30 years and have proven their effectiveness in the EU countries. This device records speed road driving on a permanent basis and allows to bring a driver to responsibility not only for speeding just before traffic inspectors or transport inspection but also throughout the whole route.
Using this device makes it unprofitable for drivers to go over the safe speed limit. In addition, the tachograph allows to control the driver’s compliance with work and rest schedules that significantly increases the safety of passenger transportations.
4. European principle of relations between bus carriers and bus stations.
Now carriers have to leave 30% of the ticket price for a bus station. Since this fee is fixed not in absolute terms but as a percentage of the ticket price, passengers of long-distance routes have to overpay for rather a poor service to a bust station significantly. The bus station’s fee may be 100-150 hryvnas per ticket on a long-distance route and 10-20 hryvnas on a short-distance route. However, services that passengers and carriers get on the bus station doesn’t depend on the ticket price and the length of the route – the same lavatory facilities, same cashier’s offices, the same waiting area and the same panel with scheduled bus routes.
The station’s fee should be replaced with the fee for entry to the bus station that will not only allow to introduce the European rules of bus stations regulation, but also will provide the carriers with an opportunity to offer passengers a more flexible system of tariffs.
While being the adopted standard in EU countries, bus fee for entry to the bus station depends not on the ticket price but on the bus size and the time of its stay on the bus station.
It is important to remember that bus stations and terminals are monopolies as usually. To prevent abusing the monopoly’s position, payment rates should be a public offer and agreed with local authorities.
Also, bus stations should have the right to provide discounts to carriers performing, for example, more than 500 routes via the station per month. Discounts should be non-personalized and be offered to all carriers under clearly stated criteria.
5. Implementation of the European approach to the carriers’ admission to the passenger transportation market.
European rules provide for the requirements to the carrier’s financial capacity as well as determine the liability of carriers for transportation and introduce the concept of “carrier’s honesty”.
In addition, we should pay attention to requirements to a number of busses in the park of carriers wishing to enter the market, the concept of “minimum number of seats”. For example, Turkey has a requirement of minimum 300 seats.
That implies that carriers will choose themselves what park to declare: 5-6 large buses or 10-12 small buses. This was a good motivational factor for using large buses, which are much safer for passengers. There is also the rule allowing to use small buses only for inter-city routes with a total length of less than 100 km.
Although full implementation of new rules and standards will take some time, there is no doubt that the proposed steps can show the first results very soon. We will have a chance to see more and more new modern buses on our roads.
New rule will encourage the carriers with modern buses to enter the market, and passengers will get an appropriate level of services at affordable prices while travelling across our beautiful country.
The meeting of the State Regulatory Service of Ukraine devoted to addressing legislative inconsistencies that arose when the Law of Ukraine “On licensing of certain types of economic activity” entered into force was held in Kyiv on June 6, 2016.
Final and transitional provisions of the abovementioned law that came into force almost a year ago – on June 28, 2015 – established that licenses on certain types of economic activity issued for a fixed period were not limited by any definite time. However, this law also says that certain economic activity types are licensed in accordance with other legal acts providing for the fixed period of the license.
In such a way, licenses that entities received before the entry into force of the current Law of Ukraine “On licensing of certain types of economic activity” are not limited by any definite time, while the licenses received after the effective date of this law have a limited duration established in special legal acts. These provisions place the business entities in the same economic activity areas in an unequal position.
“Inconsistencies between various regulatory acts that sometimes arise and place businesses in an unequal position confirm the firm position of the State Regulatory Service of Ukraine on the on-going regulatory impact analysis. Being an expert organization, we support all initiatives of the state regulator, which is responsible fulfilling its duties and engages the business, the public and regulatory policy experts into resolving the problems in the regulatory field,” the expert of the BRDO Market Surveillance and control sector Leonid Lytvynenko said at the meeting.
For the purpose to choose a common position to discuss the abovementioned conflicting legislative issue, the State Regulatory Service of Ukraine engaged representatives of licensing authorities, NGOs and experts.
As a result, they suggested several ways to solve this problem. Experts pointed out that one of the most effective ways is to develop appropriate amendments to the Law of Ukraine “On licensing of certain types of economic activity”.
The Better Regulation Delivery Office (BRDO) reminds all local business owners that according to the Law of Ukraine “On Basic Principles of State Regulatory Policy in the Sphere of Economic Activity”, the regulator should periodically monitor the impact of regulations and ensure their review. In addition, Article 6 of the Law entitles citizens to personally monitor the regulatory impact and submit proposals to revise regulations.
This topic was discussed at the round table “Optimization of procedures for connection to electricity supply networks: concrete steps to find an agreed solution of suppliers and users” that was recently held in Sumy. The government, business, socially active members and representatives of energy supply companies discussed the abovementioned issues. The Better Regulation Delivery Office attended the event.
“Connecting to electricity supply networks is one of the biggest weaknesses of the national energy market. Ukraine currently takes the 137th position in the world ranking in terms of the timing and transparency of this procedure and, of course, this factor influences the reduction of its investment and business attractiveness,” the head of the Better Regulation Delivery Office (BRDO) Energy sector Oleksiy Orzhel said. He also added that this issue should be a priority for regional authorities within the decentralization process.
In his turn, the head of the Sumy Regional State Administration apparatus Dmytro Zhyvytsky said that this issue had long been on the region’s agenda, and that is why the regional state administration had initiated the holding of this round table.
“I was a member of business organizations and a member of the regional council of entrepreneurs. I know that 50% of communication of the government and entrepreneurs is focusing on problems related to connection to electricity supply networks and cooperation with energy supply companies,” he said.
According to him, while using its monopoly position, ‘Sumyoblenergo’ doesn’t meet the needs of entrepreneurs and purposely makes the process of their connection complicated and slow. This negatively affects the business activity, product cost and investment climate in the region.
“We want to establish cooperation in this field that would be beneficial for both energy supply companies and the business as well as to solve this issue both at the legislative and regional levels,” Dmytro Zhyvytsky said.
The head of the Better Regulation Delivery Office Oleksiy Honcharuk told the round table participants that the relevant law aimed to reform the procedure for connecting to electricity supply networks was drafted with direct involvement of BRDO experts last December.
“Today’s period to connect consumers is 263 days and the cost of this procedure is almost 800% of GDP per capita. This makes the development of the business, especially the small and medium one, and the implementation of investment projects on the territory of Ukraine virtually impossible. Therefore, BRDO experts took into consideration the best regulatory practices in this area when drafting the law. Now it is in the Verkhovna Rada relevant committee and we hope that it will be adopted in the near future,” Oleksiy Honcharuk said.
The round table participants decided to officially apply to people’s deputy with a request to support legislative proposals that would improve the situation with the connection and have a positive impact on the relationship between monopolist companies, entrepreneurs and the business.
Sergey Khizhnyak’s column for liga.net
Ukrainian air passengers found themselves trapped by time-consuming judicial proceedings of airline companies and the imperfect regulatory policy regarding the airline market. The situation is so bad that only an immediate political solution can save it.
Case history
The crisis in the aviation industry began two years ago – in summer of 2014. This was not caused by the decline in market volumes, problems in the east of the country, the triple hryvna devaluation or the political instability. The reason was the actions of a main regulator of the airline market. It was then that the State Aviation Administration completely blocked the market by refusing to carry out the commission’s decision and provide airline companies with new permits for air routes. Moreover, prior to that, it announced that current rules on access to the air transportation market were illegal.
As a result of this artificially created situation, existing airline carriers could use only those permits for routes they have already had, but new airline companies couldn’t enter the market. All this happened amid the market decline. As a result of 2014, the market lost about 30% of passenger traffic.
A new Ukrainian airline company ‘Atlasjet Ukraine’, which has just planned to enter the market and had ambitious plans to develop its networks of flights, suffered from this regulator’s decision the most. In June-July of 2014, the commission decided to allow airline companies to operate 16 domestic and 14 international air routes. However, it wasn’t able to exercise its right because of the position of the State Aviation Administration. The situation was also aggravated by the commission’s denial to increase the number of frequencies for the Ukraine International Airlines (UIA) airline company on the Kyiv-Teheran (Iran) route as the company had debts before the Boryspil airport. It competes with the Ukrainian-Mediterranean Airlines (UM Air) company on this route. So, it was the beginning of the crisis that has been paralyzing this industry for two years.
War of all against all
While being dissatisfied with the decision of the ministerial commission, the UIA airline company addressed a complaint to the State Service of Ukraine for Regulatory Policy and Entrepreneurship Development concerning the abolition of market access rules approved by the Order of the Ministry of Infrastructure #245. However, the relevant ministry appealed the decision of the State Service of Ukraine for Regulatory Policy and Entrepreneurship Development. Then there were a dozen of lawsuits. All against all. The UIA is against the Ministry of Infrastructure and the State Aviation Administration, the UIA is against the Atlasjet, the Atlasjet is against the UIA and the Ministry of Infrastructure.
As a result, on March 3, 2015, the Kyiv’s District Administrative Court held the rules permitting the air transportation approved by the Resolution of the Ministry of Infrastructure #245 invalid. The regulatory vacuum reigned in the market.
Crisis No.1. Regulatory vacuum.
To replace the ministerial order, the State Aviation Administration quickly developed, adopted (the decision #686) and even registered in the Ministry of Justice its own rules on November 13, 2014. However, this decision didn’t enter into force – the market set itself against. The State Aviation Administration was accused of lobbying the interests of a certain air carrier and the artificial restriction of competition. The order’s provisions were unrealistic for most Ukrainian airline companies to meet. They just had to close and stop their operation.
After lengthy negotiations, the intermediacy of the then Minister of Infrastructure, engagement of an external law firm and the abolition of the most acute demands came into effect on June 5, 2015, but the effective date for some of provisions was postponed to the next year, i.e. to June 5, 2016. The adopted version was a difficult compromise agreed by the parties to unlock the market somehow. The Atlasjet obtained a package of permits and opened several flights. Other Ukrainian airline companies received new routes as well.
However, the need to revise the rules is obvious for everyone. In such a version, they negatively affect both air carriers, airports and passengers.
Crisis No.2. Fees in special fund
Another crisis was arising simultaneously. On August 3, 2014, the UIA airline company stopped paying state fees in a special fund of aviation, arguing that this fee didn’t comply with the Ukrainian legislation. Legal proceedings are still ongoing and the UIA debt to the State Aviation Administration is more than 147 million hryvnas.
The Air Code and the Government’s Resolution of 1993 regulate the special fund activity. The current Resolution is outdated and requires to be revised. However, other air carriers on the market – both the Ukrainian and international ones – follow this rule.
Crisis No.3. Parallel lines met
This spring, the new leadership of the State Aviation Administration decided to bring the rules on granting assignments for air routes in line with the needs of market players and stimulating the development of air services. Proposed amendments were related to the two most critical restrictions: additional requirements to the airline companies’ ownership structure and the mandatory work exclusively on domestic routes for a year before getting the access to international routes.
However, an additional requirement was included to the rules – now new permits are granted only to air carriers that don’t have any debts to the special fund. In other words, they made a “good job” for everyone except the UIA. The debt of this airline company to the special fund, which is currently being challenged in the courts, actually blocks the development of new routes for the air carrier. This is the provision that was a formal cause of the UIA to appeal to court to challenge the legality of amendments to the rules (Order #222).
The court decided to suspend this provision as a security for a claim that will be considered on June 6.
This provision is really ambiguous. On the one hand, the airline company has debts and the regulator wishes to have the levers of influence to recover the debt. On the other hand – the special fund’s mechanism is not related to the assignment for routes and should be defined in laws or government’s regulations.
The bottom line
The situation came to a deadlock. If amendments continue to be valid, the UIA will lose, but another airline companies will be fine. If the court cancels the amendments – the UIA will be fine, but other Ukrainian air carriers will have to stop their flights, because the postponed order’s provisions that don’t allow them to operate come into effect on June 5. In other words, only those companies that carried out the flights on domestic routes within the previous 12 months will be allowed to operate on international airlines – but it is only three domestic airline companies: the UIA, Dniproavia and Motor Sich. In addition, all permits of air carriers, which didn’t prove that they are owned by Ukrainian citizens, are canceled automatically.
The main reason for this situation is a lack of a clear state’s regulatory policy. It is unacceptable that the relevant ministry can’t shape the policy in the industry and rules are approved under the influence of certain players behind the scenes.
Effective regulation should contribute to the market development. A great skill is to find the right balance between regulator’s requirements, public needs and real possibilities of business.
What is to be done?
To rewrite the rules from scratch. With the participation of the Ministry of Infrastructure, the State Aviation Administration and independent experts. Unfortunately, the version of rules of 2014 was a great setback for this industry.
By the way, dozens of other rules in the aviation area need to be revised as well. Our state has a great tool for this – the initiated Agreement with the EU on Common Aviation Area (“Open Skies”). This document contains Ukraine’s commitments on implementing about 100 regulations that control the industry in the EU countries in its legislation.
There is no need to reinvent the wheel. The roadmap to create an effective regulatory system is already in our hands.
The head of the Better Regulation Delivery Office (BRDO) Oleksiy Honcharuk summed up the ‘season of reform’ on the Ukrainian Radio in the last days of May. You can read how the government’s Action Plan on implementation of the best practices of doing business as reflected in the World Bank’s methodology of the Doing Business ranking is implemented and what problems the Ukrainian business is facing with today in the interview.
– What are the biggest problems the Ukrainian business is facing with now?
– Ukrainian business is in a difficult situation, because the business can successfully grow only when the environment is predictable. When the state is predictable. Alternatively, when the rules are constantly changed, the business can’t feel comfortable, because this fact deprives it of the possibility to plan own activity. In addition, there are many issues remaining in the main areas of the business interest – it is taxation, work with tax agencies, currency regulation (unstable currency). Therefore, it is hardly possible to say that the business took advantage of the positive effect of reforms.
At the same time, there are many positive examples and positive stories happened over the past 18 months. For example, the reform of public procurement (especially, Prozorro), liberalization of many permitting documents transformed from licenses (it was impossible to obtain them) into simpler forms of licensing procedures (declaration, etc.). However, there are still a lot of work we need to do.
– What do overall results of the Doing Business reform season imply?
– It is our interim event, during which we want to total all pluses and minuses of the period when Ukraine had an opportunity to improve its legislation and thereby improve own positions in this ranking. Why are they called the reform results? This is because, primarily, it concerns the recognized world’s Doing Business ranking – as May is the last month, when the state can make some changes that will be considered for next year. That’s why we posed the question in this way – the windows of opportunities will be closed and it is time to total all pluses and minuses.
This ranking provides 10 components, which are used to assess the business activity – there are both construction and energy (how easy it is to connect to electricity supply networks) sectors among them – in other words, the business access to, relatively speaking, such strategic resources as electricity, without which it can’t exist. This implies the ease of doing business, simple procedures of business liquidation, bankruptcy procedures – that is the debt collection and others.
However, this ranking is not an end in itself. Therefore, we will try to speak about the best regulatory and legal practices existing in the world and that we would need to adopt, but the period, which could allow us to influence on the ranking next year, is over. Nevertheless, the life is not over – we need the best regulatory practices not only for the ranking. First of all, we need them to provide the ease of doing business. For example, if we are speaking about connecting to electricity supply networks – as it turned out, a large problem for business start-ups in the regions is to connect to electricity supply networks without corruption. This issue should be resolved not for the ranking, but to allow the business to grow. The same is true for taxation.
– What factors exactly are related to taxation – rates or predictability?
– The ranking doesn’t take into account the stability of the law – as for this case, it takes into account the burden that falls on the business and time limits as a resource that the business has to use for certain procedures.
– Do we meet the European business standards in terms of this burden?
– Well, the situation with taxation is not very well. The main reason for this unfavorable climate in taxation is instability. We know that we live in a time, when the adoption of the next tax law is around the corner. The end of last year was marked by major changes in this area and now we expect the tax reform. Therefore, the business, of course, can’t feel comfortable in the context of rapid reforms and continuously changing rules, and it is not a matter of the tax rate. The problem is that rates are not equal for everyone. The business can pay the tax of both 20-30%, 50% and even 70% if all companies pay the same. The reason is that the market will regulate it later. If business owners are on equal footing – eventually, this is put in the price of goods or services that the business provides.
– As for large and small businesses: do we need to make a distinction? Benefits for small business?
– We mean that there should be equal conditions for everyone. The rules should be equally applied to everyone. If there are ‘tax gaps’ – it means that someone has a competitive advantage due to the fact that he doesn’t pay taxes. This is the main problem, the lack of existing tax laws. There is the same business in the same market, but one business has a certain tax burden, while another one enjoys more favorable terms due to a combination of good contacts and connections, so the state actually discriminates an honest manufacturer.
However, I would like to emphasize that this week is quite busy in terms of economic initiatives for the Verkhovna Rada and there are many draft laws that need to be adopted. The draft law #2418a regarding the reform of state control and supervision designed to simplify the relationship between the business and control and supervisory bodies significantly is among them. These bodies should be more open and have much less opportunities to abuse their right to conduct inspections; also a public electronic database of inspections, where the business can always find itself and be aware of the date of the state bodies visit and be able to prepare for this, should be created. We will also raise a question concerning a moratorium on business inspections – now control and supervisory bodies are still not reformed, so we can’t say that the business trusts them and they have been really transformed into service-providing institutions while being enforcement and punishment mechanisms no more.
– In what country do entrepreneurs trust inspection bodies and wait for them? Isn’t it true that the business always doesn’t trust them?
– This is a common mistake to believe that the Western civilization was built on distrust. The basis of mechanisms operating in civilized Western countries is trust. This differs from the Ukrainian business and Ukrainian supervisory bodies – there is no trust between them. Where there is no trust, transaction costs of communication and relationship building are too large. In western countries, the business not only trusts, it is also interested in ensuring that the control and supervisory bodies work in a proper way, because such a proper work is a guarantee that everyone is on equal footing, as in this case market mechanisms are operating and the business is living in a market environment. This is a key stone.
– If there is a large tax burden on entrepreneurs and business owners, why is the state treasury half-empty? Why are there such problems with government expenditures and social functions performed by the state?
– It is a complex question and the truth is that there are many reasons… The first reason is the collected funds are not always spent efficiently, so they are not enough. Until recently, there even was no more or less adequate register of persons entitled to social benefits. In other words, the targeting of social benefits is an issue remaining very acute in the state, because we don’t understand where and in what way the funds aimed at providing the required social support to people are used. But it is just a small problem. Speaking of taxes for the business, then… go to Khreshchatyk. Visit any boutique or restaurant and see who will give you a check if you buy a product or service there. This will be a private entrepreneur usually paying minimum taxes. However, Khreshchatyk implies more than a significant volume and turnover of funds and cash. Therefore, when somebody says me that the Ukrainian business pays too many taxes – it doesn’t mean that there are high tax rates in Ukraine. In reality, if you take a look at the amount of taxes paid by the Ukrainian business, it looks like the business says: “Don’t touch us and we will use tax schemes allowing almost not to pay taxes, and instead we won’t monitor the way you spend money we pay to you.” We should break this corrupt social contract and rebuild the tax system in such a way that a boutique at Khreshchatyk or an expensive restaurant in Kyiv doesn’t have any chance to pay a couple thousand hryvnas a month, because it doesn’t reflect a real amount of their revenues.
Resolving the problems with unfinished construction projects should be a matter of the intensive dialog between the government, investors and real estate developers in the near future. This thesis became a key point on the basis of results of the round table “Unfinished and illegal construction projects: how to resolve a no-win situation?” organized by the Association of real estate investors on May 30, 2016 in Kyiv. The Construction sector head Olena Shulyak represented the Better Regulation Delivery Office (BRDO) at the event.
The whole complex of problems starting from causes leading to unfinished construction projects to possible options to complete the construction was discussed during the debate.
In the opinion of round table participants, this issue remains extremely important for Ukraine for many years. According to the State Statistics Service of Ukraine, there are 14 915 constructions in progress throughout the country as of the beginning of 2015. There are 3823 residential construction projects with a total area of 16 285 thousand sq. m. (excluding the Autonomous Republic of Crimea and some districts of Donetsk and Luhansk regions) among them. For example, there are 357 residential facilities under construction in Kyiv. According to the Ukrainian Union of Investors, 63 construction projects of them are problematic.
In her speech, Olena Shulyak noted that resolving the problems with unfinished construction projects and illegal construction was inextricably linked to investor rights. “Provided that the average size of an apartment in Ukraine is about 40-60 square meters, it can be said that at least 270 thousand families are a risk group that can be included to the list of defrauded investors. This fact turns the economic problem with unfinished construction projects into the social one,” she said.
The BRDO expert informed the participants that Better Regulation Delivery Office experts are working on a comprehensive solution to this issue. For example, they worked out a number of amendments to the regulatory legislation – from issues of land acquisition for construction to protection of end investors’ rights.
“Today, it is necessary to focus our special attention on the issue of registering property rights on facilities to be built in the future. This will help partially resolve the issue to protect investors’ rights on unfinished residential construction projects,” Olena Shulyak said.
The Better Regulation Delivery Office (BRDO) has already drafted a law that provides for a clear mechanism to protect rights of owners of property that will be built in the future from the double resale and illegal change of its specifications.
Discussion participants supported the BRDO experts’ initiatives and expressed their confidence that issues proposed to solve by making legislative amendments to the regulations on the construction industry were of the utmost relevance. In her turn, Olena Shulyak invited all members of the public, government representatives and construction industry entrepreneurs to participate in the discussion of laws drafted by the BRDO.
The draft Law of Ukraine “On amendments to certain legislative acts to protect ownership rights of immovable property to be built in the future” will be published on the BRDO website.
Nevertheless, now the Better Regulation Delivery Office encourages business representatives and the public to get involved in reforming the regulatory legislation and send their proposals to [email protected]. All proposals and comments coming to the BRDO email will be considered when drafting the regulations.
Thus, it is planned to consider the Draft Law of Ukraine “On Amendments to the Law of Ukraine “On Basic Principles of State Supervision (Control) in the Sphere of Economic Activity” as to the liberalization of the state control system” #2418a in the second reading this week.
The Better Regulation Delivery Office (BRDO) participated in drafting amendments to the rules of business and regulatory authority cooperation, including to the aforementioned draft law.
BRDO experts believe that the adoption of this draft law will significantly improve the domestic business environment and help business entities organize their activities with more predictable and transparent regulation.
“Establishing clear inspection rules is a real reformist step in building a civilized system of state control,” the head of the BRDO ‘Control and Supervision’ sector Volodymyr Holovatenko commented on this draft law.
In such a manner, according to the draft law, inspections will be carried out by a single procedure and this Law shall apply to the implementation of following measures: monitoring performed by state fiscal services, control over compliance with the nuclear safety requirements, control in the field of civil aviation, supervision of the labor and employment law implementation, state architectural and construction control (supervision).
It is also planned to reduce the frequency of regular inspections of high-risk business entities – these entities will be inspected every 2 years.
In addition, a certain public responsibility of the regulatory agency is introduced – if it doesn’t publish a unified form of the inspection protocol with a list of points to be inspected, it won’t be permitted to conduct this inspection.
If the draft law is adopted, an integrated automated system of state supervision (control) will be set up to systematize the information on inspections. It will contain information on: the assessed degree of risk for each business entity; agencies conducting these inspections; grounds to carry out unscheduled inspections of the business entity; violations that should be addressed and others. This will significantly reduce the possibilities of manipulating the inspection results and help reduce corruption risks.
We should also point out the innovation providing for extending the scope of this draft law to cover the local government administrations. They will conduct inspections just like almost all regulatory agencies as prescribed by the Law.
In late May, the World Bank’s experts are planned to assess the business environment in Ukraine. According to the results, an updated position of Ukraine in the Doing Business 2017 ranking will be announced in autumn of 2016.
In autumn 2015, the Ministry of Economic Development and Trade in direct cooperation with Better Regulation Delivery Office (BRDO) experts developed an Action Plan to simplify the business environment in Ukraine and, accordingly, improve positions in the World Bank’s Doing Business ranking. This Plan was approved by the Resolution of the Cabinet of Ministers of Ukraine #1406 dated 12/16/2005 as a roadmap consisting of 43 steps.
During this time, the participants implementing the Action Plan prepared more than 20 regulations that could improve Ukraine’s positions in the ranking and significantly increase the business and investment prospects of our country. With direct involvement of BRDO experts, 9 laws have been drafted.
Unfortunately, lawmakers didn’t find the time and efforts to address issues regarding simplifying the business environment. Today, most initiatives developed by the BRDO and other expert organizations still have the status of draft laws.
Under the Doing Business 2017 Roadmap, Better Regulation Delivery Office experts created a special information web resource, where every citizen of Ukraine can analyze missed opportunities for the development of our economy, aiming to explain the importance of every legislative initiative.
Welcome to visit our website
and you will see yourself the effect transparently implemented reforms may have on the economic freedom in Ukraine.
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BRDO experts encourage all citizens to control the activity of government bodies more actively and remind – all legislative proposals on reforms are made not for rankings and reports, but for implementing real changes in the lives of each of us. Issues of simplifying the business environment will remain live issues even after the World Bank’s experts complete the assessment of our country. We should implement reforms in the first place for ourselves and not stop on this way.
The head of the Better Regulation Delivery Office (BRDO) Oleksiy Honcharuk announced this point of view at a press conference “Doing Business 2017: reform season’s results”. Ukraine is currently ranked the 83rd of 189 countries in this ranking.
“According to preliminary estimates, our position is increasing by 10-13 points in the current ranking, a number of regulations designed to provide it have been developed and adopted during the year. Thus, we resolved the issue of protecting the rights of minority shareholders. There were also changes in the area related to registration of property rights. Progress was achieved in other areas as well. For example, the regulation of the Ministry of Economic Development abolished a mandatory certification procedure for automobile parts. Our major achievements include reducing the rate and time needed to administer a unified social tax,” Oleksiy Honcharuk said and added that despite this, Ukraine won’t be ranked below the 70th place in the ranking.
The head of BRDO also noted that progress in the ranking can’t be a goal in itself, but the ranking is a kind of designation for reforming to improve the country’s investment climate in the context of the world economy.
“There was no point in expecting a rapid growth of conditions to create a more comfortable business climate in our reality. After all, more than 20 draft laws designed to implement the Government’s Action Plan on improving Ukraine’s positions in the ranking are still drafts laws,” the head of BRDO stressed.
Honcharuk explained that if the Verkhovna Rada gave due consideration to these issues, the effect could be much better – about 10 key positions of the ranking, which ‘cost’ about 600-700 million dollars of potential investments.
“The Ministry of Economic Development together with the BRDO developed a Roadmap, which consists of 43 steps for Ukraine to enter the TOP 20 of the Doing Business ranking, for a period of two years. There are many laws that have been already drafted to implement some of these steps. In particular, 13 draft laws were registered in the Verkhovna Rada, another draft laws are waiting to be registered. We had a very fruitful year and carried out a huge preparatory work to implement the above mentioned Roadmap. It aims at improving the business climate in the country and resolving painful issues of the Ukrainian business. The Doing Business ranking is a convenient tool to measure changes for both the Ukrainians and international partners. We are optimistic about the future and hope that the cooperation with the Rada will be more effective this year,” the project manager of the Deregulation reform Dmytro Romanovych said.
In general, the press conference participants stressed that there was no time to adopt the laws, which could significantly improve the regulatory framework and the Ukraine’s position in the ranking of 2017. However, there are still 4 months to work with the World Bank’s experts in carrying out surveys and adapting approved initiatives.
“Doing Business is actually one of the few stable and measuring “pictures” of the future. I hope that the government and the Verkhovna Rada will consolidate their efforts to accelerate the pace of implementing the best regulatory practices and make a significant jump in the ranking next year. We have already made all necessary work for this,” Oleksiy Honcharuk said.
He also added that with the purpose to explain the importance of each legislative initiative from the BRDO, he created a special information website where everyone can analyze opportunities for economic development of Ukraine and positions in the ranking – http://db.brdo.com.ua/.
Now it is difficult to imagine the development of national economies without foreign investments. Therefore, the struggle for investors is virtually a main point of interstate competition and an important driver to modernize economic systems. However, those ones who want to invest resources in a particular country do this not by intuition, but on the basis of a comprehensive monitoring reflected in reputable international ratings, indicators, forecasts, etc. One of the most recognized rankings, which determines the ease of doing business in the country, and hence – its investment prospects is the World Bank’s Doing Business ranking. It have been calculated for 189 countries since 2004.
While assessing the regulatory environment, which is a key focus of attention for potential investors, Doing Business not only identify the points of increased investment attractiveness in the world economic map, but also shows the effectiveness of government’s reforms. Therefore, progress in the ranking is both an objective necessity and a matter of the government’s image in any country that increases its credibility as a reliable partner.
According to the World Bank’s statistics, countries, which are in the top ten of the Doing Business ranking, receive 50 times more foreign direct investments than countries achieving the last ten positions. At the same time, high-ranking positions serve not only as a kind of investment magnet: the national economic situation largely depends on successful reforms in terms of the relevant criteria.
Singapore has occupied leading positions in the ranking for many years. According to the Doing Business 2016 research findings (covering the results of the second half of 2014 – the first half of 2015), Ukraine has placed in the middle of the ranking – 83 of 189 positions, being between Brunei and Saudi Arabia. However, it is important not only to have a certain position in the ranking, but also to show the dynamics of progress.
For example, our position in the ranking is growing for the second consecutive year: last year Ukraine rose by 16 points and this year – by 13 (or by 4 points considering the changes in the calculation methodology). Progress in the ranking is considered to be a key indicator that assesses the implementation of reforms and programs under the Strategy of Sustainable Development “Ukraine – 2020” while being one the goals declared in the coalition agreement. In addition, the Cabinet of Ministers approved the Action Plan on implementation of the best practices of quality and effective regulation as reflected in the World Bank Group’s methodology of the Doing Business 2016 ranking.
A number of laws designed to help increase Ukraine’s position in the ranking have been drafted and adopted during the second half of 2015 – the first half of 2016. Thus, we resolved the issue of protecting the rights of minority shareholders. Last February, the Verkhovna Rada finally made amendments to the Law on joint stock companies, which significantly expanded rights and opportunities of minority shareholders and established additional liability for company directors. In addition, it introduced a derivative action mechanism allowing minority shareholders to initiate legal proceedings on behalf of a company against its director if his actions cause harm to the business. This is a positive signal to investors and, accordingly, increasing Ukraine’s positions in terms of the ‘Protection of investor’s rights’. It is expected that we can move from the 88th position to the second ten or even the top ten of leaders by this indicator.
There were also changes in the area related to registration of property rights. According to this indicator, Ukraine was ranked just the 61st. The Cabinet of Ministers approved a resolution on state registration of immovable property rights and encumbrances. In addition, a new Law of Ukraine on state registration of property rights to immovable property came into force on January 1. There are following achievements among innovations: the time for state registration of property rights to immovable property was reduced, a cabinet of electronic services was created and the State Register of Property Rights to Immovable Property was established.
Progress was achieved in other areas as well. For example, mandatory certification procedures for automobile parts were abolished. Moreover, the following processes are currently implemented: creating the ‘single window’, introducing authorized economic operators and reducing the number of customs clearance procedures. This creates a favorable business environment in Ukraine. So, there is a chance to move from the 109th position to the most successful countries by the ‘International trade’ indicator in the Doing Business ranking.
A tax reform, including reducing rates and time to administer Unified Social Tax (introducing a single rate of 22% for all sectors), cancelling the Unified Social Tax payment in the amount of 3.6% of salary and simplifying the income tax administration, will also allow to significantly improve the Ukraine’s position in the World Bank’s ranking. Considering that Ukraine ranked only the 107th last year, adopted changes may allow it to rise up to the 50-60th positions.
Simplified land transactions by providing notaries with access to the land cadaster, ensured public (but paid) access to the information on land owners and reduced period of registration of legal entities are among other steps that have been already implemented and will have a direct effect on the ranking.
Ukraine has good chances to enter the first 50 and even top 20 of countries in the ranking in the future, but only if it systematically works on implementing the necessary reforms. In general, the steps that have been already implemented will probably allow Ukraine to rise by 17 points (according to the World Bank’s methodology) next year. Moreover, the methodology’s specifics in calculating the ranking may lead to the fact that our tax reform will be included to the next year. This means minus four points. Therefore, it is more realistic to expect that Ukraine will rise by a maximum of 10-13 positions. However, it is difficult to make an accurate forecast, because the ranking calculation depends on the efforts of all countries, which are also highly motivated to improve their positions and don’t delay their reforms.
We had to adopt more than a dozen draft laws by June 1 to achieve more. For example, draft laws to improve connecting to electricity supply networks, make amendments to certain Laws of Ukraine on bankruptcy, on regulation of urban development, on mediation, on enforcement proceedings, on simplifying the registration of newly established entities by single tax and VAT payers and others are currently waiting to be considered by the Verkhovna Rada. These changes would allow Ukraine to occupy an honorable place in the top 50 of this prestigious ranking.
Of course, progress in Doing Business can’t be a goal in itself to introduce reforms, but even its very existence as an artificial tool is an important guide to reform the system of doing business rules. This is particularly important with the annual government rotation, when the ranking is actually one of the few stable and measuring “pictures of the future” that everyone desired to build.
Source: Novoye Vremia
The forest industry has a great development potential in Ukraine. However, today’s forestry operates up to Soviet standards in Ukrainian realities. The current government has no time or desire to deal with forest issues, so it imposes restrictions. The situation is not regulated while state forests are destroyed and dealers who fill their own pockets cash on this activity instead of the state budget.
The analysis head of the Better Regulation Delivery Office (BRDO) Ihor Lavrynenko told to the Pravda news agency about the problems of Ukrainian forests and most importantly about their solutions in more details.
– Ihor, you mentioned in one of your previous interviews that 80% of sanitary cuttings are made to order. Can you explain in what way this scheme works?
– There are sanitary cuttings among 60 types of forest felling – it is cutting of sick and damaged trees. This is a normal process. When does a non-normal situation happen? When a wood worker first selects an appropriate plot in the forest and then specialists prepare documents that it is “infected” and requires to be immediately cut down. Unfortunately, the legislation allows to perform such “tricks”. Forestry legislation has remained unchanged since Soviet times and it is not adapted to the today’s needs. For example, the current regulation on sanitary cutting was adopted in 1995. A new regulation was adopted in 2012, but it was never put into effect. In view of that, the Government chooses the wrong way today. It was initiated to ban sanitary cuttings, but in fact, it was simply needed to implement a new regulation on sanitary cutting.
– Why is it not implemented?
– It is obvious that somebody has benefits from this situation. Actually, as for the sanitary cutting issue, I would like to say that now there is a ban on issuing permits for such works. It is also a mistake. Imagine that the storm has passed, the forest fell, it is necessary to conduct sanitary cutting and remove downed trees. The same is true in case of fire. Therefore, sanitary cuttings can’t be completely banned. The solution is to adopt new rules of sanitary felling.
– Why did they decided not to issue permits to conduct sanitary cuttings?
– There is a logic of partisan actions in use. Quite a long time ago, in 2007, it was decided to sell the trees from final fellings through auctions, so a person who offered the best price could buy them. For example, a forest plot – block 25 should be felled and the wood will be sold at auctions. Nice, honest, European approach. However, we don’t like to move along a straight line, we are looking for by-pass routes.
It is used as follows. Imagine that I buy the wood. I come and see that the wood from the beautiful 25th block is the thing I need. They send me at the auction, but I have no guarantee that I can buy exactly this batch of wood. That’s why I “get” a piece of paper that the forest is sick in this block and, therefore, it is cut down. Then a forestry enterprise sells it to me on a direct contract as it was a sanitary cutting procedure and this wood is not put up for auction. Thus, a customer can buy what he wants for sure.
In order to close this scheme, any wood should be sold at auctions with a clear indication of its quality.
– You said that there was a new regulation that simply wasn’t implemented. What key points does it contain and how does it differ from previous versions?
– It contains some technical changes, which will be interesting for foresters, because there are new tree diseases, new ways to care for the forest. Purely technological innovations. There are also organizational innovations. Now a key person who determines a tree state is a forest pathologist. He comes and puts a stamp: yes, this forest is sick. However, there can be no claims to this forest pathologist.
The first innovation is to involve the environmental inspectorate in the forest assessment process. This step will provide at least some additional guarantees of quality of this inspection.
Secondly, it is publicity – all these decisions should be public, starting from the fact that all information should be posted on websites, such as the regional forestry administration’s website. Anyone can open and see: the 24th block, there are bark beetles in certain area, it is decided to conduct sanitary cutting. All people from the nearest village can go and see whether there are bark beetles or not. If not – they should write a complaint. Today, if there are forest cutting procedures conducted, I can’t be aware of its legality. The community and local authorities should have the right to participate in making such decisions, this decision should be made by a commission with mandatory signature of the village council or regional administration representatives.
– Who has the right to conduct these cuttings? Is it a state-owned company or a contractor selected on a competitive basis?
– The truth is that it doesn’t matter. There are two options of how to conduct forest cuttings: by a forestry enterprise or on a tender basis. Innovations implemented now – decisions on such tenders should be public. Today, there is a ProZorro website, you can find forestry enterprises and information on tenders for forest cuttings. However, not all forestry enterprises do in this way, because they still have the right to choose whether an open tender will be held or not.
– There are both state and communal forests. Should there be some differences in the procedure?
– No, this procedure is universal. There can be additional requirements in case of forest reserves.
– Should the wood be sold on the auction principle?
– If the wood after the sanitary felling is put up for auction – it will be good. As for the current auction procedure to sell the commercial wood, it is imperfect. Therefore, there is a proposal to adopt a new regulation on auctions. One of the elements of this document will be introducing electronic auctions, by analogy with ProZorro.
Today’s auctions are held almost in the same way as we see on TV. People gather and raise the cards. If you didn’t come or got sick, nothing changes. In its turn, the electronic auction will provide equal opportunities for all participants.
Forest agency is ready for this step. It will be easier for them, since now all auctions are held once a quarter, and in this way, it will be possible to sell forests even around the clock.
There is also another innovation. I hope it will be implemented. It is identification tagging. Currently, only state forests are identified by tags. There is an initiative that it is also needed to put tags on communal forests.
A tag – a bar code – will contain all information about what kind of wood it is, when and where it was cut down.
– The Verkhovna Rada passed a moratorium on the round wood export last year. Is this moratorium related in some way to regulating the situation on the forest market?
– As in the case of the ban on sanitary felling, export restrictions are an emotional decision, a kind of reaction to the pressure from society. Therefore, its implementation won’t lead to the desired results and declared objectives.
To my mind, this ban should be abolished because it doesn’t work.
– Is it still exported?
– Of course. The reason is simple – they have introduced a moratorium on the round wood export, but there is no moratorium on the firewood export. We still use the Soviet rules. Firewood is not the forest that was specially cut down, firewood is the fuel wood that is burned in power plants or boiler rooms. This can be a beech about 50 cm in diameter and even a one hundred year oak.
– Zakarpattya customs officers are accused of operating fraud schemes – they allow to export the round wood as the firewood. But can there be any claims to a customs officer if he is provided the documents that this is the firewood?
– In order to solve this situation, we should move to the European standards of forest quality assessment. The relevant decision was adopted in 2005. It has been more than 10 years, but we still didn’t implement anything.
– Is it disadvantageous for someone?
– Of course. There are real schemes used in this area. For example, there is a plot that should be cut down (there are a thousand cubic meters of wood according to Soviet standards, but it is a bit more in reality). The reserves are estimated before the forest cutting. Then a forestry enterprise’s director approves the cutting of 1 thousand cubic meters that will be cut down and delivered to him, but woodcutters will keep additional 100 cubic meters for themselves. The woodcutters live off this activity. We have minimal prices for forest cutting works, it is roughly 100 hryvnas per 1 cubic meter. They are lower than the prime cost. Therefore, they earn by selling the wood under the counter. However, this wood is illegal, it doesn’t have any documents. So, they sell it as a communal forest on forged documents.
– Moratorium for 10 years is a considerable period of time. Are there any prospects that it will be abolished earlier?
– Europeans demand to abolish it, otherwise they won’t provide the macro-financial assistance to us. Moreover, we should abolish the moratorium first and then they will give the tranche. This should be done by the end of May, if we wish to get money in June.
– The head of the State Agency of Forest Resources has been recently dismissed. It is planned to announce the date of a new competition for the election of the head in a month. What is going to change in this area with the new head?
– If this competition is conducted in a transparent way, with the implementation of all the conditions, then we will have a chance that some of the problems will be resolved.
– The previous head had a task to integrate all state forest enterprises within a single holding company…
– This was a coalition agreement’s requirement …
– Is it a kind of utopia?
– 50 to 50. Kutovoy (the current Minister of Agriculture and Food – editor’s note) considers this idea and wants to realize it. If a large holding company is created, a nominee for the head of the State Agency of Forest Resources won’t have any value, because this person will deal with forest science and statistics. However, creating a forest holding company – as a reform in Naftogaz. This is a difficult political decision and a person with lots of political will can make it.
– Is there an approval for such political will?
– When Naftogaz was reformed, dozens of deputies lost weight because they had nothing to live upon. The same situation will be with the forest, but to a lesser degree. It is just that other deputies will lose weight.
Significant changes require a political will of the President, who has to make a decision while knowing who will call him and complain. Probably, it will be a condition of the IMF.
It should be understood that Kyiv doesn’t control the forests now, it appointed a forest enterprise’s director, say, Vasyl Petrovych. That’s all, the only thing that Kyiv will receive in the future is the reports that can’t be verified.
For example, our volumes of lumber exports are twice more than the volume of domestic production. However, this is just a piece of a shadow market. Sawmills show only the legally acquired wood in their statistics, so they report only on legally produced wood boards. At the same time, customs offices show all wood boards physically crossed the border.
– Ukraine has a tradition that when a large state holding company is created, it will be given for sale as time goes by. The example is the State Food and Grain Corporation of Ukraine, which we are actually ready to give to the Chinese. As for the state forest holding company, is there a tendency to privatize the forests?
– There are no preconditions for privatization because now forestry enterprises imply having just buildings and tractors. The forest is not owned by forestry enterprises. They have a legal status – a permanent forest user. A forestry enterprise becomes a forest owner upon completion of the forest cutting. The state owns the wood before until it is cut down.
State forests can a priori be only state-owned and their legal status can change only when they stop to be forests, their designated purpose is changing. For example, the land is allocated to build a nuclear power plant. Moreover, a big positive in the creation of the forest holding is the capitalization of forests. Today, there are no forests in legal terms. For example, the Dnieper River.
– Please, explain…
– The forest is not included to any balance sheet. It is assigned to a forestry entrerprise, but not to its balance sheet. Establishing a forest holding company will allow to introduce the forest into civil turnover, make documents that it is a state property and a forest enterprise is a permanent user. This will allow to capitalize the income from the forest.
For example, now the forestry can’t take a loan to purchase new equipment, since it has nothing to provide as a pledge, except its administrative building. In the future, it won’t be able to use the forest as a pledge, but it will be possible to put revenues from the forest use in pledge. You received a loan, bought a tractor and improved the work efficiency. A forester’s labor productivity in Sweden us 10 times higher than ours. With comparable forest sizes, we employ 50 thousand people, they – 4 thousand.
Today, our forestry enterprise has to work a few years in order to buy a tractor.
– What situation is with planting new forests in Ukraine?
– On the one hand, there is an advantage in law. You cut down the forest, then you have to plant even more. You cut down 10 hectares of forest, you need to plant 11 hectares. However, there are two disadvantages. We have rather archaic technologies of forest restoration, elderly women plant the forest by hand. There is the tractor landing in Sweden, it increases the economic efficiency and trees grow better. In addition, reforestation can become a separate business area. This has been already done in Belarus. Now Belarus has become a major exporter of forest seeding. They earn millions of dollars, create nursery gardens and sell the young forest and seeds to Sweden. We can also perform these activities. Foresters are ready, if there is at least some funding. The problem is that the budget doesn’t provide any money.
– What is the current level of financing of reforestation?
– The State budget covered 1 billion hryvnas for the forest in 2013, 500 million – last year and 0 hryvnas – this year.
If we don’t manage this situation in the near future, we will have a real problem. Resource areas – the ones that can exist by selling the forest – they won’t feel difficulties. However, not resource areas in the south and east of the country, where there was never a forest business, will die. The problem is not with dismissals of foresters, but with the fact that the forest meets the ecological purpose. In particular, these forest plantations located along the fields. If the budget doesn’t provide the money – while there is a relevant draft law on funding, it is need just to approve it – it will lead to the fact that artificial forests won’t be recovered and protected, the fires won’t be stopped there. As for the fires – recently, there was a large fire in Kherson region. Today this situation is very critical. Foresters spent 20 million hryvnas for purchasing equipment to stop forest fires last year, but they were forced to give this equipment back, because there is the resolution of the Yatsenyuk government on banning the purchase of vehicles for state purposes.
Source: Pravda News Agency
This decision was approved during a meeting of the Cabinet of Ministers on May 25. According to the resolution, the “single window” provides for registration of all kinds of control via electronic data exchange. In particular, it is related to customs, sanitary-epidemiological, veterinary, phytosnaitary, environmental, radiological and other controls. It is expected that this innovation will operate starting from August 1, 2016.
The Better Regulation Delivery Office believes that the introduction of the “single window” means creating modern tools that will help eliminate corruption at the customs and simplify customs procedures significantly.
It will also have a positive impact on the investment potential of our country while allowing Ukraine to improve its rank in the World Bank’s Doing Business ranking in the future.
Introducing the “single window” principle for exercising controls on crossborder movement of goods is one of the paragraphs of the Government’s Action Plan on the implementation of the best practices of efficient and quality regulation as reflected in the World Bank Group’s methodology of the Doing Business 2016 ranking.
However, the full implementation of the “single window” mechanism requires making amendments to the laws of Ukraine that regulate granting permitting documents or providing administrative services within the international economic activity as well as to a wide range of related subordinate regulations. The proper functioning of the “single window” system will also require reducing the number of regulatory bodies at the border and abolishing unjustified control / licensing procedures related to international economic activities. In addition, it is needed to solve the problem of providing government bodies with the equipment to ensure the operation of the “single window”.
Currently, the BRDO experts together with the Ministry of Economic Development and Trade of Ukraine are working on the draft law “On amendments to the Customs Code of Ukraine to introduce the “single window” at the border” and on a concept of implementing the “single window” system in Ukraine.
The world is changing. Trends of the clean energy development by using renewable energy sources (RES) and information technologies are merged together; areas of decentralized smart distributed generation grids based on a harmony instead of a fight against natural powers and diversity are formed.
A bright example that speaks for itself: the world famous Google Company is building a new data center on the site of an old closed coal-fired power station. The new data center will get its energy supply from RES. This is a part of the global company’s goal – 100% clean energy supply.
Is this way real for Ukraine? Do we need to change at all?
The Paris Climate Agreement signed by governments of 135 leading developing countries is a clear direction of the human development from the carbon, costly and environmentally harmful energy to the renewable one.
Ukraine also signed this Agreement and thereby declared its intention and determined the direction. But what is the status of the RES development in reality? It is a complicated question, which raises a wide range of unsolved problems hindering the process started.
The “round table” on “The status of implementation of the National Action Plan for renewable energy for the period until 2020: parliamentary control” held on May 16 in the parliamentary Committee on Fuel and Energy Complex had to give the answer to this question.
Analysts and experts agreed on a significant gap between real figures and the ones specified in the Plan. Moreover, considering the need to adjust this Plan in accordance with the requirements of the Climate Agreement in the near future, this gap can be called catastrophic. RES generate about 25 % of energy in the world, in Ukraine – 1.2%.
While the world’s capacity commissioning rates are up to 8% per year, in Ukraine, for example, in 2015, only 0.5% of new RES capacities were introduced. These rates make us to speak about the progress reversion instead of achievements.
There are also situational factors: loss of control over Donbass coal mines and resources as a result of the Russian aggression and significant dependence of the nuclear fuel cycle on the Russian Federation clearly orient the development vector of the Ukrainian energy system towards RES, energy saving, decentralized or so called distributed generation and “smart grids”.
Is it possible to imagine that RES represented by “a drop in the ocean” yet – 1.2% of overall generation – hold at least a prominent and potentially crucial place in the energy system of Ukraine? To my mind, it is possible.
Inexhaustible energy sources and the RES development-related infrastructure, science and engineering, technological innovations, energy independence, security, the nation’s health, clean environment are only some prospects on this way.
However, now, even very moderate rates prescribed by the Plan are not provided by a unified balanced and predictable state policy for support and development (as defined under the law on electric power industry). This sector has long been in a dual and very unstable situation: positive factors of government incentive measures are combined with ill-advised and unpredictable decisions of the government’s bodies resulting in the significant slowdown and even suspension of the sector’s development, especially in 2015.
Introducing emergency measures in the energy market along with a simultaneous decrease of “green” tariffs, non-revised tariffs previously approved for RES projects with already attracted investments, unresolved problems with their network connection* and, finally, ignoring specifics of the domestic RES sector while planning the global reform of the Ukrainian electric power industry – all these factors keep investment capitals away from the sector.
There are also some achievements, which can serve as an example of fruitful cooperation between legislators, the government and the business community. “Technical” proposals for the legislation are jointly worked out; some very effective incentive rules are successfully introduced in the legislative field as a result of a compromise.
An important achievement was the adoption of the Law #514 “On amendments to certain laws of Ukraine to ensure competitive conditions for production of electricity from alternative energy sources” on June 4, 2015. This law provided for introducing “green” tariffs for electrical power at mutually acceptable levels based on the EU countries’ experience and as a result of balancing the expenditures of electricity consumers in Ukraine and stabilizing the RES sector.
Today, another two important draft laws are registered in the Verkhovna Rada of Ukraine: “On amendments to certain law of Ukraine regarding the improvement of the mechanism to stimulate production of electricity from alternative energy sources (technical)” (registered as #3447) and on simplification of land allocation for RES projects.
But this is not enough – the main factor for the development of this industry in our country is providing an adequate state policy aimed at the complete restoration of electric power sector in general and moving from “costly” carbon energy principles to “smart” and “clean” production and energy saving technologies.
In addition to the above, of course, the most important factor is a stable political and economic situation. Any forms of “hand” regulation in the industry, including unpredictable and inconsistent decisions of government’s bodies, which are in conflict with the current legislation, the planning of such major reforms as market liberalization without taking into consideration the specifics of RES generators (not to speak of the fact that it can be done without taking into account the priority of their development), frequent changes in the leadership of the executive branch, unstable financial situation and, as a result, high capital risks and costs are the factors that cause the uncertainty of investors.
Only one thing provides confidence and optimism: while there is a declining trend in the coal and nuclear power industry, the RES potential is inexhaustible, benefits of its implementation are countless and will grow with every passing day and their cost will decrease; Ukraine’s potential for “green” energy sources is several times more than today’s gross consumption.
So, we can conclude: the ongoing energy development requires new environmentally and human friendly ways of its production, and it is necessary to make every effort to create a powerful RES sector in Ukraine “almost from the scratch”.
* The network connection procedure is almost the most complicated and regulated now and requires to be revised completely and immediately. And not only for RES, but also for the business in general.
Ukraine takes the 137th place among 189 countries in terms of “Network connection” in the World Bank Doing Business 2015 ranking. Duration is 263 days, the number of procedures – five.
These are major tasks and their solution requires to make amendments to the Law “On Electric Power Industry” and the works with the legislator in this area are conducted. However, there are much more unsolved problems yet than achievements and developments in this area.
The moratorium on timber exports is a legislator’s mistake. It didn’t help domestic manufacturers since the woodworking industry is stagnating, and didn’t solve ecological problems – forests are still massively cut down. The only result of imposing the moratorium is a rapid growth of corruption among officials, who “control” the forest – at customs, in the environmental inspectorate… And above all – Ukraine as a full member of the World Trade Organization doesn’t fulfill the requirements under the agreement with the WTO and the European Union.
Domestic market is full
There is a low demand for timber products on the domestic market. Warehouses are filled with finished timber. Moreover, a number of wood workers have financial problems and are not even able to pay state forest enterprises for delivered timber products.
For example, only 68% of non-processed timber were sold at public auctions last year. 47% – at specialized auctions.
In total, 4.3 from 7.3 million cubic meters of wood for sale in 2015 were actually sold and that is 60% of the planned amount.
Besides, 3 million cubic meters of wood were not in demand. This confirms the stagnation of the domestic market and demonstrates the failure of domestic enterprises to deal with such production volumes.
Forests “made to order”
The moratorium on timber exports had virtually no effect on the problem of clear-cutting of forests. Now it is a sanitary procedure made “to order” of wood workers, who increase shadow export market volumes despite the ban. It is impossible to ignore this fact – social networks contain many photos of trains loaded with timber (and not only with pine) that go abroad as well as photos of forest cutting, which volumes are at the level of environmental disaster.
The outdated legal framework allows to “legalize” such forest cutting and avoid liability for that – forest pathologists approve massive clear-cutting of “sick” forests. This process is corrupt and virtually uncontrolled.
The problem came to a head, what solution is there?
The abolition of the moratorium on timber exports is an advantageous option both in economic and political terms. The state will also benefit receiving additional billion hryvnas annually and incomes of forestry enterprises will be increased at least by three billion hryvnas.
However, in order to prevent a negative effect of the abolition of ban on timber exports on domestic wood workers, it is needed to implement a number of compensation options, namely to introduce the practice of selling all non-processed wood through auctions and abandon direct agreements. In addition, Ukrainian wood workers should get preferences. It is also necessary to introduce a single state system of electronic timber management that will show the origin of cut timber in all stages of management from production to selling to a consumer.
The Better Regulation Delivery Office (BRDO) sent its proposals on this subject to the Ministry of Economic Development and Trade and now hopes that proposed initiatives will be taken into account and the Parliament will consider the issue of abolition of the moratorium on timber exports in the near future.
Original publication: AgroPolit.com
Source: liga.net
On Tuesday, May 17, the State Aviation Administration of Ukraine (SAA) changed the Procedure for granting and revoking rights to operate air routes. The market has been waiting for new rules almost a year.
Airline companies were forced to work with a number of restrictions all this time, because previous rules were adopted last June as a transitional option to unlock the market. In fact, they were a kind of a compromise between parties, although, the players’ opinion on many proposed rules was not taken into account. Everyone was convinced that the revision of rules is about timing. However, most of Ukrainian airlines were so close to stop the flights already in June this year.
Changes were made and they removed two of the most acute problems of the market.
Ukrainian companies could perform international flights only after a year of flying exclusively within the territory of Ukraine. These are the requirements of a regulator, who had good intentions to develop the domestic market.
This requirement turned to be almost impossible to fulfil for most market participants because of unprofitable domestic transportation services. There are several reasons: low incomes of Ukrainians and the availability of affordable land transportation services. In addition, the termination of flights to Donetsk and Simferopol as well as significant decrease in the paying capacity of the population reduced the already small domestic market by half.
In such a way, there would be neither additional domestic flights nor international flights.
In order to recognize the airline company as the Ukrainian one, the proportion of physical and legal entities in the ownership structure shouldn’t exceed 50%. These are the rules of international aviation law. This rule exists in our regulatory and legal environment at the level of law – in the Air Code. The airline company confirms the ownership structure when obtaining the license.
It makes no sense to prove this fact again when submitting the documents to obtain the right to operate air routes. Therefore, these additional requirements are not only in direct contradiction to the provisions of the Air Code, but actually made it impossible for foreign investments to come into Ukrainian airline companies.
However, making these changes doesn’t solve all problems of the aviation industry. Moreover, the current rules don’t allow to fully develop aviation services while they should become an effective tool in the hands of a regulator to develop the market. That’s why, it is needed to completely revise the Procedure and abolish discriminatory rules and legal uncertainty.
Increased transparency and disclosure of information. International air services are provided on the basis of bilateral intergovernmental agreements signed with each country and supplemented by agreements at the level of aviation administration bodies – records of meetings of joint commissions or exchange of official letters. They determine the possibilities of Ukrainian airlines, including coordinated airports, the number of carriers in each air route, the number of available frequencies (flights per week).
The SAA doesn’t publish all this information. This creates a huge inconvenience for air carriers, who, on the one hand, are not always aware of available frequencies on certain air routes, and on the other hand – apply for getting assignments for air routes, which hasn’t already have the quota of the Ukrainian side.
A complete review of criteria for assessing applications and selecting the carrier. If there are restrictions on an air route in terms of the number of air carriers or frequencies, the procedure provides for holding of a competitive tender. Its goal is to select the most effective carrier of those who have applied. However, quantitative criteria established by the procedure don’t allow to make this choice. The assess only how effectively the carrier uses already received rights, the level of payments to the state budget per one aircraft, the number of aviation accidents and the regularity of flights within the previous six months.
The list of criteria of the EU countries is much longer: they take into account the starting date of flights and the schedule convenience, the service level of airline companies, proposed tariffs, the financial capacity of the carrier, the competition on the market, the impact on the development of regional airports and transfer flights, etc.
Liberalization of charter flights. Today they are regulated by Rules for charter flights, which are not provided for in the Air Code of Ukraine (adopted in 2011). In spite of this fact, this document is still in use and imposes significant restrictions on charter air carriers. For example, it prohibits performing charter flights to those cities, where Ukrainian airline companies perform regular flights to as well as to the cities at a distance of 200 km from them.
At the same time, this rule is also valid for air routes that don’t have restrictions for regular flights, in other words, the ones that can be opened for all air carriers concerned. For example, if the Ukrainian airline company performs regular flights from Kyiv to Barcelona, performing the charter flights is prohibited to Barcelona, neighboring Girona and even to Palma de Mallorca located on the nearby island.
Improving the quality of regulation. Many procedural aspects require to be revised and amended. In particular, it is necessary to define the powers of the commission and the reasons for refusal of admission, clarify the voting and decision-making rules, provide an opportunity to appeal the commission’s decision in the court, reduce the list of documents submitted by the air carrier for admission, etc.