Editor’s Note: The Kyiv Post is tracking progress made in six key areas: economy & finance, security & defense, energy, rule of law, public administration and agriculture.
Agriculture: Government cuts regulation, tax breaks for sector
Last year government cancelled 14 permits and eliminated six licensing requirements for farmers. Deregulation led to price controls being lifted on corn, barley, milk and butter. As of Jan. 1, agricultural machinery doesn’t require certification, a measure praised by equipment manufacturers and suppliers.
Agribusinesses weren’t happy, though, to relinquish privileges that allowed them to retain 100 percent of the value-added tax for their own purposes, following changes to the tax code in December. Finance Minister Natalie Jaresko told Interfax this month that those changes may be revised early this year. Agribusinesses now enjoy partial tax preferences and are slated to see them disappear by 2017.
Currently, cattle farmers get to retain 80 percent of VAT, 15 percent for crop growers, and 50 percent for other producers, with the remainder being funneled to the state budget. Exporters of agricultural commodities are eligible for VAT reimbursement, according to Concorde Capital.
Some 90 new managers were competitively chosen to run state-owned agricultural enterprises last year, the Agriculture Ministry reported. The sector accounted for 14 percent of the economy last year, with $14.6 billion worth of food and agricultural goods exported, representing a yearly drop of 12 percent. The sector had an $11.1 billion trade surplus for the same period.
This year the Agriculture Ministry plans to raise $1 billion of investment to restore irrigation systems in the more arid southern part of the country, Minister Oleksiy Pavlenko said on Jan. 19.
Almost 400,000 hectares of farmland in five oblasts would be part of the project. Yields would increase by three times as a result, Pavlenko added. Public-private partnerships would be formed with investors, he said, with the state acting as the guarantor of mergers between state-managed irrigation systems in exchange for long-term loans.
– Mark Rachkevych
Activists call on government to provide transparent pharmaceutical procurement. In 2016, Ukraine plans to purchase all medicines through the United Nations and Crown Agents British procurement agency. (Kostyantyn Chernichkin)
Public Administration: Transparent public procurement will be mandatory as drive to decentralize government powers accelerates with elections
Starting April 1, it will be mandatory for all government agencies, ministries and big business to use the online platform ProZorro to boost transparent e-procurement.
ProZorro was launched in February with the help of activists and donors to shift state purchases online. The platform, operated by Transparency International Ukraine, also aims to reduce corruption in this sphere, which costs some Hr 50 billion each year, according to Ukraine’s Prime Minister Arseniy Yatsenyuk.
The savings of the budget funds exceeded Hr 500 million in 2015, Yatsenyuk said in a video address on Jan. 17. However, over the course of 2015, only 2 percent of public tenders were carried out through the system. “The transfer of all public procurement to an electronic format will increase savings by several times,” Yatsenyuk said, adding that he predicts this year’s budget savings will hit Hr 5 billion.
Ukraine also plans to purchase all medicines through the United Nations and Crown Agents British procurement agency in 2016. The sum equals almost Hr 4 billion, according to Yatsenyuk, and will help to enhance graft-fighting efforts, so the “Ukrainian pharmaceutical mafia” won’t be able to steal budget funds.
Meanwhile, decentralization made some progress on Jan. 17, when the first starosta, or “village elder,” was elected in Ukraine.
Residents of Irdyn, a community of 900 people in Cherkasy Oblast in central Ukraine, elected Oleksandr Maksymov with almost 79 percent of vote. The villagers had earlier merged with the neighboring town of Bilozirya – a crucial unit in decentralization. Merged communities have wider powers to collect local taxes and obtain direct subsidies from the state budget. The 159 first merged communities elected their heads in October.
Hennady Zubko, Ukraine’s minister of regional development, congratulated Maksymov on the election, saying on his Facebook page: “The process of decentralization has started locally.”
According to the reform, starostas will be elected in all villages with more than 50 residents. They will replace the village heads and councils and represent their villagers in the merged communities.
Starostas will also potentially be able to issue some official documents for the residents of the village, allowing them to avoid having to travel to the community center.
Some 30 more villages will elect their elders on Jan. 24 in a process that will last through 2016.
– Olena Goncharova and Oksana Grytsenko
Energy: Ending subsidies, price hikes certain
The energy sector remains a priority for the president, the International Monetary Fund and economists like Anders Aslund. Since the economy runs on natural gas, according to President Petro Poroshenko, markets for gas and electricity need to be developed to give industrial and household consumers choices while fostering competition among private and state-run producers in a setting that is further deregulated and driven by market forces. For this to happen, according to Aslund, the markets need an independent energy regulator who’ll ensure fair rules and whose actions will be governed by transparency and predictability. The current head of the energy regulator, Dmytro Vovk, was a manager at Poroshenko’s confectionary giant Roshen.
Regulators, would for example, need to stop telling private oil and gas producers to whom they need to sell their products – at present they must sell to state-owned companies – and at what prices.
Although energy price discrepancies were reduced, household prices for energy still need to be brought to market levels to reduce subsidies and opportunities for corruption. Full cost recovery on gas sales to households is now slated for after April 2017, according to Ukraine’s new memorandum with lender International Monetary Fund as cited by Dragon Capital. Authorities aim to cover 75 percent of the cost of imported gas by April through raising household prices by 56 percent from the current level, the investment bank said in an emailed note. The poorest third of the public receives social subsidies to cover energy costs, “but no further subsidies should be given to energy companies,” according to Aslund.
To achieve 75 percent cost recovery on gas supplied to heating utilities, the full gas price would need to increase by 87 percent, according to Dragon Capital.
Another component is to boost energy efficiency with the Cabinet of Ministers having approved a five-year plan in November. Energy consumption should decline by 9 percent by 2020, and by 5 percent next year. To measure this, average end-consumer consumption figures will be used for 2005-2009, a period when the country experienced economic growth due to high world commodity prices and cheap Russian gas before the global financial crisis hit Ukraine. The new State Agency on Energy Efficiency and Energy Saving was created to help accomplish this.
Russia only supplied Ukraine with about 6 billion cubic meters (bcm) of gas last year with Kyiv having stopped imports from its warring neighbor in November. Industry and households last year reduced consumption by 29 and 22 percent over the previous year to 11.4 and 12.2 bcm, respectively. Heating utilities used about the same amount on a yearly basis at 6.9 bcm. Thus, the European Union accounted for 63 percent of total gas imports while supplies from Russia fell by 53 percent, according to Dragon Capital.
Ukraine’s largest taxpayer and state-run company, oil and gas giant Naftogaz, is searching for independent board members, the Economy Ministry announced. The measures are part of government efforts to bring corporate governance at the state-run company to international standards, which includes installing a qualified supervisory board. Other measures include verifiable internal auditing capacities, compliance, anti-corruption, and risk management.
– Mark Rachkevych
Men sing the Ukrainian national anthem at the Desnyansky recruitment office on Jan. 29 in Kyiv as they prepare to leave for the war front. (Volodymyr Petrov)
Defense & Security: Ukrainian soldiers to get pay hikes
Civil society scored a victory last month when National Police Chief Khatia Dekanoidze fired two top officials subject to the lustration law, which envisages dismissing officials who served under disgraced ex-President Viktor Yanukovych. Those fired were ex-Deputy Interior Minister Vasyl Paskal and ex-Kyiv police chief Oleksandr Tereshchuk.
A vetting process for new police officers in Kyiv was launched last November and is scheduled to be completed by the end of January. Kyiv Police Chief Andriy Kryshchenko said that 80 percent of the officers had passed the checks. Vetting in other regions is expected to begin later this month.
Reform of the armed forces is less successful. Leadership is sabotaging the process of switching to NATO standards, according to volunteers who take part in the reform and military analysts. The military leadership denies the accusations.
One positive development, however, is that the government decided to more than double salaries for soldiers starting in February.
A soldier’s pay will rise to Hr 7,000 (about $284) from the current nearly $95. A platoon commander will receive $385, a company commander will get $446, a battalion commander $527, and a brigade commander about $649. Additionally, all soldiers now get about $4 for each day of service in the war zone.
The General Staff also announced on Jan. 15 the seventh wave of mobilization, saying it will be mainly focused on hiring contract soldiers.
— Oleg Sukhov and Oksana Grytsenko
Rule of Law: Prosecutorial, court reforms stalling
Ukraine’s prosecutorial reform has so far failed, with almost all top local prosecution jobs going to incumbents appointed in December by Prosecutor General Viktor Shokin, seen by critics as the biggest impediment to prosecution of corrupt officials and ex-officials.
On the bright side, the National Anti-Corruption Bureau started operating in December when it opened two graft cases against ex-lawmaker Mykola Martynenko, an ally of Prime Minister Arseniy Yatsenyuk. Martynenko was questioned on Jan. 18.
Changes in the court are starting also.
The High Council of Justice has recommended the dismissal of about 15 judges for violating their oath. President Petro Poroshenko on Jan. 19 fired four of these judges, including Kyiv Pechersky District Court judge Rodion Kireyev. Kireyev presided over the trial of former Prime Minister Yulia Tymoshenko that led to her arrest and jailing in 2011 on trumped-up charges believed to have been ordered by her top political foe, ex-President Viktor Yanukovych.
The High Council of Justice has also recommended firing 21 judges for issuing unlawful rulings against activists of the 2013-2014 EuroMaidan Revolution, which drove disgraced ex-President Viktor Yanukovych from power. Of these, three judges have been already dismissed.
But critics say the moves are too little and too late, considering Ukraine has nearly 9,000 judges, many of whom are believed to be corrupt.
Maksym Sereda, an expert with the Center for Policy and Legal Reform think tank, explained that the High Council of Justice that operated under Yanukovych had been disbanded after the EuroMaidan Revolution that drove him from power. The new one was formed only last summer, Sereda said.
Since then, the council has been swamped with more than 15,000 complaints against judges.
But Tetyana Kozachenko, head of the Justice Ministry’s lustration department, told the Kyiv Post that the High Council of Justice is working fast. “They are doing everything possible,” she said. “We need to give them time.”
– Alyona Zhuk and Oleg Sukhov
