Reform Watch: January 1-12

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Editor’s Note: The Kyiv Post tracks the progress made by Ukraine’s post-EuroMaidan Revolution leaders in making structural changes in the public interest in a broad range of areas, from the defense and energy sectors, to taxation and pensions. Below are the main issues in focus from Jan. 1-12.

Summary

Ukraine’s parliament resumes its work on Jan. 15 and it has much to do in privatization, adopting a new election law that reduces the influence of big donors and makes party lists open, and creating an agricultural land market, among many other items.

Ukraine started the year with a new lower speed limit of 50 kilometers per hour, with the aim of saving lives. In the first nine months of last year, 2,317 people were killed in road accidents in Ukraine.

Japan on Jan. 1 became the latest country to relax visa requirements for Ukrainians, increasing multiple-entry, short-stay visas from three years to five years. Meanwhile, the United Arab Emirates on Dec. 31, 2017 became the latest country to offer visa-free travel to Ukrainians. According to the latest Passport Index compiled by global citizenship and residence advisory firm Henley and Partners, the Ukrainian passport is the 44th most powerful in the world, granting visa-free access to 114 countries. The German passport tops the ranking, with visa-free travel to 177 countries and the Russian passport is 48th (110). Last is the Afghan passport, which allows visa-free travel to only 24 countries.

Ukraine, in turn, from Jan. 1 imposed new biometric controls on entry for citizens of 70 countries, including Russia. The checks are also carried out on the administrative border between the Russian-occupied Ukrainian territory of Crimea and mainland Ukraine.

Also on Jan. 1, Ukraine canceled the 16.8 percent value-added tax on imports of electric vehicles and increased the minimum wage to Hr 3,732 ($131).

Defense

Michael Carpenter, senior director of the Biden Center for Diplomacy and Global Engagement at the University of Pennsylvania, and a nonresident senior fellow at the Atlantic Council, has set out a three-step plan to transform Ukraine’s defense industry and attract foreign investment.

Writing in a blog on the Atlantic Council’s website on Jan. 4, Carpenter said investors are wary of Ukraine’s defense sector because it had until recently been tied to Russia’s military industrial complex and because it remains dominated by state defense-sector holding company Ukroboronprom. Pervasive corruption also puts investors off, he said. To fix this, Ukraine should set up an independent supervisory board for Ukroboronprom.

Ukraine should then retool its 130-plus defense companies to produce NATO-standard equipment for new markets in the ongoing move away from Russia.

Next, Ukraine’s defense enterprises should be restructured, divested of non-core assets and corporatized into clusters of companies that work in aviation, shipbuilding, missiles and so on. The most promising of the companies could be groomed for privatization, Carpenter wrote.

Governance

Measures to make Ukraine’s government ministries more effective are to be completed by the first half of 2018, Minister of the Cabinet of Ministers Oleksandr Sayenko said in a report posted on the government’s website on Jan. 9.

Directorates were set up in August 2017 at 10 of Ukraine’s ministries, including agriculture, energy, culture, health, education, regional development, housing, social policy, finance and justice.

“Soon we will complete the formation of an institutional map for each pilot ministry,” Sayenko said. “We will determine what we will do with the functions unusual for the ministry: whether to transfer them to local authorities or develop alternative solutions.”

Energy

Ukraine will make further attempts to introduce competition in it electricity supply sector in 2018 by selling more controlling stakes in its regional electricity distribution companies, or “oblenergos.” The aim is for electricity consumers to be able to change their supplier, allowing them to shop for the best deal. That, in turn, should encourage energy companies to become more efficient.

Controlling stakes in five oblenergos were sold last year, bringing the state Hr 3 billion ($111 million) in privatization revenues, but the goal of increasing competition was not met, as all five companies are now under the control of a single business — System Capital Management, the holding company of Ukraine’s richest oligarch, Rinat Akhmetov.

Francis Malige, managing director for Eastern Europe and the Caucasus at the European Bank for Reconstruction and Development, criticized the sales as not in the best interests of the state.

Moreover, the sales of 25 percent stakes in another three oblenergos — Odesaoblenergo, Sumyoblenergo and Donbasenergo — failed due to a lack of bids. The government will try to sell them in 2018 as well as a 60.3 percent stakes in Zaporizhiaoblenergo, and stakes in Mykolayivoblenergo (70 percent), Kharkivoblenergo (65 percent), Khmelnytskoblenergo (70 percent), Cherkasyoblenergo (46 percent) and Ternopiloblenergo (51 percent).

The government also hopes to sell stakes in power generating companies, including a 99.8 percent stake in Kherson Combined Heat and Power Plant, 99.9 percent of Mykolayiv CHPP, 99.9 percent of Dniprovska CHPP, and 78.3 percent of shares in state-owned power generating company Centrenergo.

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