UKRAINE: NEW LAWS ON PUBLIC PROCUREMENT, BUSINESS

UNCLAS SECTION 01 OF 02 KYIV 000262

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV ETRD UP

SUBJECT: UKRAINE: NEW LAWS ON PUBLIC PROCUREMENT, BUSINESS
DEREGULATION AND REAL ESTATE

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SENSITIVE BUT UNCLASSIFIED, NOT FOR INTERNET DISTRIBUTION


1. (SBU) Summary. Ukraine's Verkhovna Rada (parliament) passed
legislative reforms on public procurement, business deregulation,
and land and property title registration that had long been
advocated for by the World Bank and USAID. Analysts note that these
three laws represent positive progress but that additional
amendments may be needed to bring the laws into line with
international norms. One of the key intents of the new law on the
procurement system, through which as much as 20% of GDP passes, is
to reduce corruption. However, the World Bank is concerned about
the law's provision for what has been criticized as a
non-transparent dispute settlement body. End Summary.

PROCUREMENT LAW ADOPTED
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2. (U) On February 11, the Rada passed a public procurement law,
essentially restoring rules on procurement that had been in place
before 2006. In the new law, the Ministry of Economy is tapped to
authorized procurements. According to the law, the Ministry should
streamline state purchasing by establishing competitive procurement
methods and publishing requirements for tenders.


3. (SBU) The passage of the law is a positive development and should
help reduce, but not eliminate, corruption in the procurement
system. In 2008, 20% of GDP passed through the procurement system;
however, in 2009 the estimate is much lower 5-9% due to problems
with the law and regulation of the sector. Critics noted that the
dispute settlement body, established under the Ministry of Economy,
would be open to "political compromise." Consisting of seven
government members and seven independent experts, the body will be
overseen by two Rada Committees. The new law was supported by MP
Irina Akimova and the Party of Regions. However, BYuT MP Oleh
Lyashko criticized the law for giving too much authority to the Rada
Finance and Banking Committee, controlled by Party of Regions Mykola
Azarov, and the Economic Policy Committee, controlled by BYuT's
Serhiy Osyka. Prime Minister Yulia Tymoshenko has asked President
Yushchenko to veto the law on the grounds that the dispute
settlement body was deficient. Yushchenko has not yet signed the
law into force, but he is expected to do so.


4. (U) The previous public procurement law was repealed by the Rada
in 2008, after significant amendments in 2006 had made the law
grossly dysfunctional. In the meantime, procurement was governed by
Cabinet of Ministers' resolutions that had unclear legal authority.


AMENDMENTS ON PROPERTY RIGHTS
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5. (U) A decade-long attempt to unify real estate ownership rights
took a step forward on February 11 when the Rada amended the Land
Code and the 2004 land registration law. The law explicitly
assigned overall authority for registration of ownership rights of
land and buildings to the Ministry of Justice (MOJ).


6. (SBU) Having sole control over real estate registries, the MOJ
could help establish a unified land registry, considered to be an
essential condition for land to be openly and transparently traded
in Ukraine. USAID provided assistance on the development of this
law, and is already preparing to develop unified registries in
Crimea. Once developed, the pilot projects in Crimea could serve as
models for other registries throughout Ukraine.


7. (SBU) Ukraine had maintained the obsolete Soviet-era system of
separate land and building property registration. In the absence of
clear ownership titles, the Ukrainian property market was rife with
shady deal-making, causing widespread investor frustration. Turf
battles between GOU agencies over authority to resolve claims had
perpetuated the corrupt system.

PERMITS LAW AMENDED
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8. (SBU) The Rada also adopted legislation to simplify permitting
for entrepreneurs. The law introduced a "silent consent" principle
on permit issuing and established regional permit centers.
According to experts, however, efficient implementation of these
provisions requires additional regulatory acts and legislative
amendments. Procedural issues over the subordination of the permit
centers and the process for closing businesses are not clearly
spelled out in the law.

COMMENT
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9.(SBU) These newly adopted laws send an important positive signal

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to investors, who have long lobbied to reduce corruption and improve
the business climate. Nonetheless, the laws have deficiencies and
inconsistencies, resulting from hasty political compromises made
just days after the February 7 second round of Ukraine's
presidential election. If President Yushchenko indeed signs the
laws into force, we should take this as a win for the economy and
start work, including with our business community, to suggest
implementing mechanisms or amendments where needed.

TEFFT