UKRAINE: NO END IN SIGHT TO LAND SALE MORATORIUM

UNCLAS SECTION 01 OF 03 KYIV 002172 SIPDIS SENSITIVE STATE FOR EUR/UMB, EEB/TPP/MTAA/ABT COMMERCE FOR CLUCYK E.O.: 12958: N/A TAGS: ECON EAGR UP SUBJECT: UKRAINE: NO END IN SIGHT TO LAND SALE MORATORIUM KYIV 00002172 001.2 OF 003 SENSITIVE BUT UNCLASSIFIED ¶1. (U) Summary. Agricultural land in Ukraine cannot be traded legally for farming or development due to a moratorium on agricultural land sales. However, major market investors have used loopholes to bypass the moratorium and convert usable arable land for housing and commercial development. With presidential elections fast approaching, none of the candidates have fully addressed how the moratorium on agricultural land sales could be lifted. The inability to legitimately sell agricultural land not only limits investment in the land but holds back the development of Ukraine's agricultural sector, which currently makes up less than 7% of Ukraine's GDP. Since Ukraine is home to close to 1/4 of the world's fertile "black soil", Ukraine's potential agricultural output is clearly much greater and would likely grow if reforms were successfully carried out. End Summary. -------------- 99% of Private Land in Ukraine Cannot Be Sold -------------- ¶2. (U) Although close to 95% of Ukrainian land has been titled, 99% of Ukraine's privately held land is zoned for agricultural uses and cannot be sold or purchased due to a sales moratorium that was introduced in 2005. This provisional moratorium states that no agricultural land shall be sold before both a national land registry (the so-called cadastre) law and a land market law are passed and come into force. Establishing a national land registry is no simple task: at present, there are a number of different real estate registries in Ukraine. Some of these registries give technical information about agricultural land while others list buildings on the land. These registries are also supplemented by a registry of deeds, registry of mortgages, and other similar registries. Furthermore, different government agencies control the registries; the State Committee on Land Resources administers the land registry and the Ministry of Justice is responsible for the building registry. ¶3. (U) Along with the moratorium on agricultural land sales, an individual or corporation is allowed to own no more than 100 hectares of agricultural land. Given that effective modern farming requires larger plots of land, both the moratorium and the plot size limitations restrict Ukraine's agricultural output. At this moment, land leasing remains the only option for investors who want to operate large-scale agricultural businesses in Ukraine. -------------- Land Registry Draft Law Rejected Again -------------- ¶4. (U) Recent attempts to pass a law on a unified land registry failed again on November 17. The drafters of a bill had hoped to build a legal basis for land-registration, create a national land registry, and improve land ownership rights by binding rights to the official registration of the land. However, critics of the bill, including President Yushchenko, noted that it did nothing more than duplicate existing national real estate registries. The President also expressed his concern that the draft law contravened the interests of the state and its citizens, while its provisions contradicted the constitution and the land code. According to the President, the bill also duplicated other functioning government real estate registries. -------------- -------------- Failed World Bank Attempt at National Land Registry -------------- -------------- ¶5. (U) Ukraine has seen other attempts at land reform fail. For example, Ukraine created a Committee on State Land Cadastre (CSLC) which has not been able to fulfill its primary goal of creating a functioning, automated land registry system. During the first four years of its operation, CSLC, which was supported by a World Bank loan of $8.5 million for the creation of land registry, made little progress. Given the difficult progress, the World Bank had to restructure the project and its funding in order to ensure that its targets could be achieved before 2012, the original project completion date. -------------- -------------- Land Moratorium Reflects Paranoia about Losing Control -------------- -------------- ¶6. (SBU) The moratorium on land sales reflects paranoia among the ruling class in Ukraine, according to Max Fedorchenko, Director of Kyiv NGO Center for Land Reform. Some fear that foreigners would KYIV 00002172 002.2 OF 003 "scoop up" Ukraine's fertile land and that the benefits of its use would not be fully realized by Ukrainians themselves. Others have found ways to work around the system and are benefitting from the sales moratorium by being able to have access to and pay less for land use than what most would expect to pay should the moratorium be lifted. ¶7. (U) There is little political appetite to tackle this difficult question in the near term. In fact, the Cabinet of Ministers extended the total ban on sales of agricultural land, including land plots for gardening in Draft Law #3353 "On Immediate Measures for Prevention of Negative Aftermaths of Financial Crisis and on Introducing Changes into Some Laws" in early 2009. The law is still being implemented despite a December 1 Constitutional Court ruling of its unconstitutionality. Embassy contacts speculate that the moratorium is unlikely to be lifted for several years. -------------- -------------- Top Presidential Candidates Silent on Lifting Moratorium -------------- -------------- ¶8. (SBU) Top candidates in the upcoming presidential elections have largely been silent on the issue of land reform or the lifting of the moratorium. According to Fedorchenko, leading presidential candidate Yanukovych and his Party of Regions (PoR) are thought to be the least likely to lift the moratorium as his chief supporters are Ukrainian business oligarchs who profit from the current system. Lifting the moratorium would mean allowing competition in the agricultural sector, rising land prices, and would require greater business transparency. PoR understands the issue is important for Ukraine's small landholders, however, and PoR Shadow Minister Akimova told econoffs on December 3 that her party favored lifting the moratorium. She purported that Yanukovich would move to put in place a national registry and lift the moratorium within a year of being elected. ¶9. (SBU) PM Tymoshenko has said little about the moratorium on the campaign trail. Center for Land Reform Fedorchenko referred to her program as being "in her head". She decides on her policy "as it happens", so the land reform issue may be addressed by her when a specific situation comes up but not during the presidential campaign. ¶10. (SBU) President Yushchenko is the only candidate, says Fedorchenko, who would like to see an open and transparent land market in Ukraine. His attempts at securing Ukrainians' full rights to land ownership, including the right to trade privately-owned land, have been thwarted regularly by parliamentary and government forces opposed to opening up of the market. In December, the President vetoed the law on eminent domain but his veto was overridden by the parliament, which may open the door for shadow land transactions. ¶11. (U) Speaker of the Verkhovna Rada (Ukraine's parliament) and presidential candidate Lytvyn, in a meeting in western Ukraine, expressed his opposition to lifting the moratorium. He said it would lead, in his opinion, to attempts at legalization of land holdings obtained illegally under the moratorium. He also said the issue of land sales is not top priority because there are other pressing land issues -- such as inventorying land, valuation, establishment of a state land bank, and creating a national land registry. Moreover, Lytvyn strongly opposed the idea of selling land to foreigners, who cannot purchase agricultural land in Ukraine under existing laws. -------------- -------------- Lack of Public Support for Transparent Land Market -------------- -------------- ¶12. (U) In addition to the lack of interest among politicians, numerous public opinion surveys confirm the lack of a pro-market majority in Ukrainian society. A case in point is Crimea, where a USAID land titling project met with obstacles from a number of small farmers reportedly uninterested not only in obtaining land titles but even in having their land plots surveyed. These farmers felt that once their rights were on paper, their property would be officially disclosed, which would make it easier for other individuals to challenge their rights. ¶13. (U) Recently, the NGO Center for Land Reform wanted to file a case with the European Court for Human Rights to claim that the moratorium was in violation of the European Convention on Human Rights and Fundamental Freedoms. Unfortunately, the NGO could not find a Ukrainian individual who was willing to file such a claim based on their own land title and the inability to sell their land. KYIV 00002172 003.2 OF 003 Those that have land do not want reform, they have already benefitted from the current scheme; politicians hesitate to take land reform decisions because there appears to be no social demand for such changes. -------------- Comment -------------- ¶14. (SBU) Since Ukraine first legalized private land ownership soon after its 1991 independence, endless debates over the land code and land market have stalled agriculture investment. Such quarrels have benefitted the well-connected who skirt the moratorium, but hurt Ukraine overall. Ukraine, which generated 1/4 of the Soviet Union's agricultural output, is clearly not living up to its potential in this area. Until the national land registry and land market are established, Ukraine will not reap the benefits of the country's arguably richest resource. TEFFT