22 January 2016

Reform in Ukraine: 2015 in Review

By Anatoliy Khomenko and Olena Prokopenko from the Kyiv Office Government and Public Affairs Department

Following a tumultuous two years of civil upheavals, military fighting and lost territory, Ukrainians brought in the New Year with relief that fighting in its eastern regions has been localized and reforms are beginning to take hold. In this first article of a two-part series on Ukrainian reform, we look at the major achievements in 2015.
Reform in Ukraine: 2015 in Review
The highlights of the year were:

Civil Service & Public Procurement
Anti-corruption strategy: In 2015, the government advanced its anti-corruption agenda by establishing the National Anti-Corruption Council; created the National Anti-Corruption Bureau in charge of pre-court investigation; and the Specialized Anti-Corruption Prosecution Office. Both the Head of the National Anti-Corruption Bureau and the Anti-Corruption Prosecutor were appointed through open competition and have begun investigative cases against officials.
Civil service reform: Parliament adopted a new Law on Civil Service to take effect May 1, 2016. The law establishes new rules and procedures for civil servants, most notably prohibiting them from being involved in political parties or their activities. It also establishes new, merit-based hiring and evaluation procedures as well as increases accountability for unlawful actions.
State purchasing: Ukraine’s government significantly reformed the system of state procurement introducing greater transparency. In particular, the Parliament adopted a law enabling Ukraine’s accession to the WTO Government Procurement Agreement (currently in progress), which opens access to foreign state tenders with an annual budget of US $1.7 trillion. Besides, Parliament plans to adopt legislation envisaging full transition to electronic state purchases by 2017, which is expected to save around UAH 50 billion (US $2 billion) per year in budget expenditures.

Security & Media Ownership
Law on National Police: Creating the new National Police remains the main showcase of Ukraine’s reform process. The law re-constitutes the role and approach to forming law enforcement, including a more transparent and merit-based hiring process, better remuneration, and full dismissal of the old “Militsia” force with the possibility of re-qualifying under new rules and standards. For now, only the patrol police department is operational in a small number of larger cities, while the old “Militsia” remains in place while the transition continues.
Freedom of the media: The Parliament adopted two high-profile laws: 1) the Law on Reforming State and Public Media, which launched the process of their abolition and transformation to private companies. And 2) the Law on Transparency of Media Ownership, which obliges all mass media companies to disclose their end beneficiaries and prohibits ownership of Ukrainian media by residents of ‘aggressor countries’ as well as offshore entities.

Anti-monopoly reform: Following new appointments to the Anti-Monopoly Committee (AMCU), the Parliament adopted a law to increase transparency of AMCU decision-making and took the first step towards transparent calculation of fines. The Parliament also made progress in liberalizing the standards for market concentration by increasing the minimum turnover threshold for companies to be subject to AMCU control.
Energy sector: In the nuclear sector, Energoatom expanded its cooperation with Westinghouse Electric Company. The state monopolist plans to expand the use of American fuel assemblies and Ukrainian nuclear power plants will work with Westinghouse on safety improvements at the plants. Regarding the oil & gas sector, the Law on the Natural Gas Market entered into force on October 1, which aims to dismantle the state monopoly Naftogaz Ukraine and build a competitive natural gas market that ensures Ukraine’s compliance with the EU’s Third Energy Package.
Agricultural sector: Perhaps one of the biggest strategic blunders of 2015 was extending the moratorium on the sale of agricultural land until January 1, 2017. In essence, the government delayed an important decision on privatizing agricultural land, as it failed to prepare an adequate system of checks and balances protecting farmers and landowners. A major development was a parliament decision to cancel the special VAT regime for agricultural producers starting January 1, 2017.
IT & Telecom: Ukraine’s National Commission for the State Regulation of Communications and Informatization held tenders for three 3G frequencies won by the three leading telecom companies – Kyivstar, MTS (Vodafone) and Astelit (lifecell). Market players are actively investing in developing their 3G networks throughout the country.
Pharmaceutical industry: The most significant development in the pharma sector was the partial transfer of state procurements from the Ministry of Health to international organizations (UNDP, UNICEF and Crown Agents) in order to increase transparency. The government made progress in introducing a reimbursement system for insulins; developing a new Law on Medicines; streamlining procedures for registering medicines; simplifying local Good Manufacturing Practices (GMP) confirmation; elaborating the new National List of Essential Medicines; and amending licensing conditions for the production and import of medicines.
Food safety and quality: In September 2015, the amendment package on food safety entered into force. The changes pursue further harmonization of Ukraine’s food safety and quality legislation with EU standards, including clarification of terms, creation of a single regulator of food safety, abolition of a number of permits and regulatory procedures, and introduction of GMO registration by origin rather than final product. In addition, in 2015 the government abolished registration of dietary supplements and baby food as well as mandatory baby food certification.
Waste management: The state waste management monopoly UkrEcoResources, which for fourteen years embodied one of the most corrupt schemes in the country while failing to perform its responsibilities, was liquidated. As a result, companies that produce or import packaged goods have been released from an additional tax burden and are advocating for implementing the extended producer responsibility (EPR) approach in Ukraine’s waste management regulation.

To find out what to expect in 2016, read the second article in this series here.