Analytical Report of the State Regulatory Administration of Ukraine - 2017

1. Analytical Reportof the State Regulatory Administration of Ukraine - 2017 The AimCreating a favorable environment for doing business TheMissionBreaking down the barriersfor the development of legitimate business in Ukraine The Key Tasks: • Ensuring predictable and effective regulatory policy; • Monitoring and coordinating the activities of the executive bodies, civil society institutions and businesses on deregulation of economic activities; • Ensuring the efficiency and transparency of the work of control bodies, optimizing supervisory (control) measures; • Improving the licensing system and simplifyingpermit procedures in the sphere of economic activities; • Protecting the rights of business entities through a pretrial dispute settlement between licensing authorities and licensees. The Principles expediencyadequacyefficiencybalance predictabilitytransparency consideration of public opinion 11

2. Analytical Report of the SRA - 2017 Considering Draft Regulatory Acts A number of draft regulatory acts submitted for approval tothe SRA, has reduced by 20% (comparing to 2016) Consultations: 290 – 2017 180 – 2016 The RIAis compatible with the requirements of the Methodology (at the time ofsubmission for approval to the SRA): Refused the approval: 36% 32% 26% 51% 12

3. Analytical Report of the SRA - 2017 The Level of Implementing the Requirements of the Methodology and the RIA by CEBs Increasing the key quality indicators of the RIApreparation 13 * Level of implementing the requirements of the Methodology and the RIA by LEBs is at about the same level as by CEBs

4. Analytical Report of the SRA - 2017 The SME - Test Draft Regulatory Acts that required the SME-Test in 2017: LSGBs LEBs CEBs The SME-Test, as one of the aspects of assessing theefficiency of a draft regulatory actallows to: 52% 93% 70% • measurethe impact of regulation onsmall & medium businessentities, • assess the costs, which they bearas the result of the regulation implementation, • consider the possibility of using the compensatory mechanisms for small & medium businesses. The SME-Test was actually conducted : * The SME-Test is conducted in cases wherethe percentage of small & medium business entitiesin the total number of business entities, which are subject to regulation, exceeds 10% 14

5. Analytical Report of the SRA - 2017 The SME-Test In 2017 225 SME-Tests were conducted by CEBs and LEBs The amount of additionalburdenonsmall & medium businesses was 1,2 billion UAH The SRA has suspended the implementation ofadditional burden on businesses of 330 million UAH Insufficient awarenessof the importance of small & medium business interests In 2017 none of regulatory bodieshad offered effectivemitigatingmeasures forsmall & medium business entities The absence of practice in implementing thecorrective (mitigating) measuresfor small & medium businesseswhen introducing thenew regulations The draftersdon’t relate the level of business costs withthe possible benefits fromintroducingregulations 15

6. Analytical Report of the SRA - 2017 Ensuringthe Reduction of Interference of State Bodiesinto Business Entities activity Among the draft regulatory acts approved by the SRA, every 7-thdraftregulatory actis aimed at deregulation ofeconomic activities and liberalization of business climate Cost-benefit analysisofimplementingthese draft regulatory actshas made it possible to foresee theapproximate common advantageof more than 11,4 billion UAH In terms ofsimplifyingadministrative procedures,the common foreseeable advantagewas estimated at almost 194 million UAH by the drafters 16

7. Analytical Report of the SRA - 2017 The Rating of Complience by the CEBs with Requirements and Principles of State Regulatory Policy Position in the Final Rating Compliance with: • the principle ofpredictability ofregulatory activities • the conformance ofdraft regulatory acts to requirements and principles of state regulatory policy • the requirements for an updated methodology of the RIAwhen formulatingthe draft regulatory acts • the requirements for the obligatory approval of draft regulatory actswith the SRA • tracking the performance of regulatory acts by regulatory bodies The volumeof projects drafted by the CEBs: • reduced by12% • anumber ofrefusalsincreased by5% • a number of draft regulatory acts was rejected consideringbecause oftransparency violationsand consideration of public opinion increased by54% 17

8. Analytical Report of the SRA - 2017 The Rating ofCompliance by the LEBswith Requirementsand Principles ofState Regulatory Policy Compliance with: • the principle ofpredictability ofregulatory activities • the conformance ofdraft regulatory acts to requirements and principles of state regulatory policy • the requirements for an updated methodology of the RIAwhen formulatingthe draft regulatory acts • the requirements for the obligatory approval of draft regulatory actswith the SRA • tracking the performance of regulatory acts by regulatory bodies Position in the Final Rating The volumeof projects drafted by the LEBs: • reduced by55% • a number ofdraft regulatory acts, that are not compatible with the principles ofstate regulatory policy decreased by36% • reduced 2 times: • a number of regions, in which the requirement for obligatory publication of draft acts has been violated, • a number of violations of principle oftransparency and consideration of public opinion 18 * In 2017 for individual regions the Final Ratingwas not definedbecause it was impossible toassess theindividual components ofimplementation ofregulatory activitiesin the regions (Dnipro, Khmelnytskyi, Lviv, Chernivtsi, Volyn Regions).

9. Analytical Report of the SRA - 2017 Examples of State Regulations MEDT MIU A Draft Law A Draft Decree of the CMU Amendments to the Law of Ukraine «OnForeign Economic Activity» Reducing a number of cases wherespecial sanctions would apply andincreasing thevolume of export/importtransactions Indexing offreight tariffswithin Ukraine by 25% beginning in February 2017 Economicbenefit, which is calculated in accordance with the Methodology’s requirements, is 2,4 billion UAH Only costs of agricultural producers will increase by 30-50 million USD 19

10. Analytical Report of the SRA - 2017 Examples of State Regulations MEDT MIU A Draft Law A Draft Decree of the CMU Amendments to certain legislative acts ofUkraineon improving the investment climate Simplifyingbusiness conditionsandreducing theregulatory burdenonbusinessin different spheres ofeconomic activity Amendments tothe amount of the fees forpassing of vessels through thelocks of the threat of the Dnipro resevoirs, in particular, for coastal vesselson average 4,5 times Economicbenefit in the construction sector is 95 million UAH in the sector of real estate transactions is 37 million UAH Business costsincrease by more than 13 million UAHannually 20

11. Analytical Report of the SRA - 2017 Examples of State Regulations MEDT SESU A Draft Law A Draft Decree of the CMU Amendments to the Tax Code of Ukraine on improving the investment climate in Ukraine Reducing the administrative burden onbusiness entitieswhen registering the VAT payer statusor when he/she ischoosing the simplified taxation system Approving the Procedure forOrganizing andEnsuringFire Protectionfor Businesses, Institutions, Organizationsandother Objectson the basis of Agreementsby State Fire-RescueUnits (Stations) of Operative and Rescue Serviceof Civil Protection Economic benefitis 2,5 million UAH Business entities are responsible and accountable for the material support of fire units (fire-rescue vehicles, fuels and lubricants, protective and clothing equipment, emergency rescue equipmentand so on) Costs of business entitiesare almost 339 million UAH 21

12. Analytical Report of the SRA - 2017 Regulatory Activities of LSGBs A number ofdraft regulatory acts submitted for approval to the SRA Only 870 out of 10552 LSGBs have submitteddraft regulatory actsto the SRA (8%) 8% A total of 1828 draft regulatory acts of LSGBs were processed by the SRA Left without consideration (incomplete package of documents and//ordocuments were issuedin violation of the Law) Proposals on improving of draft regulatory actswithvalidcomments were made There are no proposals fordraft regulatory acts 74% 2% 24% 22

13. Analytical Report of the SRA - 2017 Regulatory Activities of LSGBs 449 draft regulatory acts are left without consideration– (submission of incomplete package of documents and/or their completionin violation of the Law), only 156 of them were submitted to theSRA repeatedly On regulation spheres 139 (8%) draft regulatory actsincluded a settlement of the issuesin the absence of relevant authorityprovided by the laws of Ukraine (land matters; locating temporary facilities; disposition, discarding, alienationof property; competitiveselection of evaluation entities, etc.) 23

14. Analytical Report of the SRA - 2017 Priorities for 2018 • Improving the quality of draftregulatory acts and the RIAs for them, including by definingthe compensatory measures in the RIAs if the regulation is predicted to impose an excessive burden on small & medium businesses • Implementing the measures aimed at no longer valid provisions of regulatory acts that make it difficult for doing business • Methodical workwith the regulatory bodies on improving the quality of the RIA,on introducing the need for compensatory mechanisms for small & medium business entities • Intensifying the measures ofregulatory bodies in terms of implementation the monitoring activities of performance of adopted regulatory actswith the obligatorycalculations of business costs to comply with the regulatory requirements 24

15. Analytical Report of the SRA - 2017 Results of the Action Plan Implementation on Deregulation of Economic Activity Approved by the Decreeof the Cabinet of Ministers of Ukraine of March, 2015 № 615 25

16. Analytical Report of the SRA - 2017 Licensing and Permit Procedures Food Industry Improving the Position of Ukraine in theDoing Business Ranking Construction Industry Simplifying Administrative Procedures Agricultural Sector Providing Public Services Spheres/industries, covered byderegulation Oil and Gas Industry, Subsurface Use andElectric Power Industry Customsand Tax Regulation Technical Regulation of Economic Activity State Supervision (Control) Sphere of Information Technology,Telecom Industry 26

17. Analytical Report of the SRA - 2017 Results of Measures Implementation on Deregulation of Economic Activity At the legislative level: A mechanism for submittingan application in electronic formatfor registration of real rights to real estatehas been regulated by all the entities(the Law of Ukraine «On State Registration of Real Rights to Real Estate and Their Encumbrances») Ways for resolving the issues relating to construction objectshave been determined (amendments to the Law of Ukraine «OnRegulation of Urban Development») Conditions for the development and the functioning of the sphere of electronic trust services have been created (the Law of Ukraine «On Electronic Trust Services») Development of the information society in Ukraine has been achieved (the Law of Ukraine «On Access to Construction Objects, Transport, Power Industry for the Purpose of Development of Telecommunication Networks») An exhaustive list of grounds for abolishing urban conditions and restrictions has been determined (the Law of Ukraine «On Amendments to Certain Legislative Acts Regarding Improvement of Urban Construction Activities») Matters arising in the process of provision and consumption of housing and utility services have been regulated (the Law of Ukraine «On Housing and Utility Services») At the subordinate level: The permit procedure to perform work of technically uncomplicated objects has been simplified (A Decree of the Cabinet of Ministers of Ukraine of 07.06.2017 № 406 «On approval of the list of construction works, which do not require documents that give right to their performance, and after which the object is not subject to acceptancefor operation») 27

18. Analytical Report of the SRA - 2017 The Expertise of Current Regulatory Acts About 100applications ofbusiness entities andpublic associations of business entities, 70 orders of the Government oncreating obstaclesfor doing business because of certain regulatory acts (RA) were processed The expertise of more than 50 regulatory actson their compliance with principles of regulatory policy was conducted 15 Decisions to eliminate breaches of the principles of state regulatory policy (6 - in 2017) were adoptedsince the establishment of the SRA Implementation of the decisions Problematics of the decisions 28

19. Analytical Report of the SRA - 2017 Procedure for the Abolition of the State Registration of a Regulatory Act by the Ministry of Justice Based on the SRA Notification of the Detection of Relevant Circumstances RAcannot be adoptedor approvedby the designated executive bodyorby itsofficial, if there is at least one of the followingcircumstances: Draft regulatory act was not promulgated The SRA was decided to refusethe approval of draft regulatory act There is no RIA Draft regulatory act was not submitted for approval to the SRA Example: The Decree of the Ministry of Healthcare of Ukraineof 29.03.2017 № 339 «On Approval of the State Sanitary Norms and Rules «On Safety and Protection of Workers against Harmful Effects of Asbestos and Materials and Articles Containing Asbestos» could not be adoptedin terms ofnon-approval bythe SRA. In addition, its provisions set a blanket ban for the production and use of asbestos, regardless of its type and asbestos-containing articles and materials in the technological processes and during construction and installation works. According to the results ofinspectionbasedon the SRA notification of the detection ofgiven circumstance, the Ministry of Justice had decided to abolish the state registration of the Decree of the Ministry of Healthcareof 29.03.2017 № 339 29

20. Analytical Report of the SRA - 2017 Priorities for 2018 • Introducing the completereview mechanism ofthe regional regulatory acts • Formulating the DraftDecree of the Cabinet of Ministers of Ukraine on implementing the measuresregarding the review of the regional regulatory acts. • Drafting themethodological recommendations onintroducing the review of the regional regulatory acts. • Providing the measures onmethodological training for the representatives of the working groups on implementing the review of the regional regulatory acts in all regions of Ukraine. • Monitoring theimplementation status of the measureson deregulation ofeconomic activities • Establishing the inter-agency working groupon the development ofalternative mechanismsaimed at introducing the systematic approachto deregulation in Ukraine 30

21. Analytical Report of the SRA - 2017 License Terms 23 license terms have been approved bythe CMU decrees License terms and amendments thereto are drafted by licensing body, agreed by the SRAandapproved by the Cabinet ofMinisters of Ukraine. They set out the exhaustive list of requirements binding upon the licensee as well asexhaustive list of documents attached to thelicense application 15 license terms have been approved bythe NERC decrees UnadoptedLicense Terms: • Carring out economic activities in releasing andconductinglotteries(consultations are in progress) • Carring out economic activities in producing veterinary drugs (new type of licensing – the Law of Ukraineof 18.05.2017 № 2042-VІІІ) The NCCIRlost its powers of a licensing bodysince01.01.2018 (licensing activities in the sphere of telecommunications were abolished) Amendments to the License Terms: 2 – agreed by the SRA 4 – refused the agreement 1 – undergoing the agreement procedure at the SRA 31

22. Analytical Report of the SRA - 2017 The Expert-Appeal Council Consideringappeals and other complaints oflicense applicants, licenseesagainst licensing authorityor against other applicantson violation of the legislation in licensing sphere 131 complaintsof business entities were considered Complaintsagainstauthorities on: 56%of complaints are satisfied 32

23. Analytical Report of the SRA - 2017 The Expert-Appeal Council Considering applications of licensing authorities on granting the consent toconductunscheduled inspectionsof licensees compliance with the requirementsof license terms 135 applicationsof licensing authorities were considered 33

24. Analytical Report of the SRA - 2017 Prioritiesfor 2018 • Improving the licensing system in the sphere of economic activities • Taking the measures onfurther implementation of the Law of Ukraine «On Licensing Types of Business Activities», in particular, the adoption of normative-legal acts on licensing, that is stipulated by the aforementioned law, including the relevant Licensing Terms. • Optimizing the state regulationin the sphere of licensing through a reduction of the certain licensed types of business activities and/or work (services) within the activitywhile duplicatingother meansof state regulation in a certain activity or ineffectiveness of a such regulation. • Taking the measures aimed atintroducing theUnited State Register of Legal Entities, Individual Entrepreneurs and Public Organizations (USR) since 01.01.2019, asthe unifiedelectronic data collection systemthat ensures both transparency and disclosure of informationonlicensesand permit documents. • Ensuring the activities ofthe Expert-Appeal Council on Licensing, as a collegiate bodyat the State Regulatory Administration of Ukraine • Improving and simplifying permit procedures in the sphere of economic activities • Involvementin harmonization oflaws regulating the matters, that related to obtaining permitdocuments with the Laws of Ukraine «On the Permit System in the Sphere of Economic Activity», «On the List of Permitsin the Sphere of Economic Activity». • Extending the list of activities based on the declarative principle andimprovement of mechanism to apply thedeclarative principle. 34

25. Analytical Report of the SRA - 2017 Harmonization of Normative-legal Acts with the Law of Ukraine «On Fundamentals of State Supervision (Control) of Economic Activity» as well asthe Decree of the CMU of 28.08.2013 № 752 35

26. Analytical Report of the SRA - 2017 The Integrated Automated System of State Supervision (Control) Launched inthe research mode: since 17.10.2017 – the module for schedulingstate supervision (control) measuresandcollecting information tolaunchthe ІАS since 15.12.2017 - the module for synchronizing andtraining ofbodieson theAutomated System https://ias.brdo.com.ua 36

27. Analytical Report of the SRA - 2017 The Integrated Automated System of State Supervision (Control) Business entities can find themselvesin the Action Plan of Implementation of State Supervision (Control) Complex Measures through: • Name of business entity; • ItsEDRPOU code; • Level of risk; • Name of state supervision (control) body https://ias.brdo.com.ua The Action Plan of Implementation of State Supervision (Control) Complex Measures 2018 contains27171 entriesofbusiness entities 37

28. Analytical Report of the SRA - 2017 Integrated Automated System of State Supervision (Control) Impact on Adherence to the Law Disclosureand transparency ofcontrol • All normative acts verified during state supervision (control) are in public domain; • Information on the scheduled andconducted measures of state supervision (control) and their outcomes is in public domain; • Disclosure of information on the outcomes of measureswill facilitate the same response of state regulatory (control) bodies to the similarlegislation breaches 38

29. Analytical Report of the SRA - 2017 Approval of Conductingthe Unscheduled Measures of State Supervison (Control) The Council on State Supervision (Control) every Friday meeting 3074 applications were considered 2273 applications were approved 679 applications were refused the approval applications were left without considerationtaking into account thegrounds, determined by the appropriate procedure 122 Reducing the number of scheduled measures: 2014 102000 2017 62000 39

30. Analytical Report of the SRA - 2017 Approval of Conductingthe Unscheduled Measures of State Supervison (Control) Reasons for refusing the approval ofunscheduled measures • 1. The Absenceof business entity in the United State Register • 2. The following is not mentioned in the application of a state supervision (control) body: • Name of business entity or name of private entrepreneur; location of business entity or private entrepreneur’s place of residence; • The need to verify the issue became a reason forimplementing the unscheduled measure; • Absence of references to the normative-legal acts, the standards of which have been violated. 40

31. Analytical Report of the SRA - 2017 Conducting Inspections of Permit Authorities, Licensing and State Supervision (Control) Authorities by the State Regulatory Administration of Ukraine Number of conducted inspections: Strengthening control over the activities of licensing and permit authorities by the SRA has resulted in asharp decrease of the number of cases where they violated the legislative requirements for which establishes administrative liability Number of identified breaches: 2015 2016 2017 41

32. Analytical Report of the SRA - 2017 Prioritiesfor 2018 • Shifting the emphasis of work of state supervision (control) bodies from punishment to prevention oflegislation breaches, improving the application of a risk-oriented approach toimplementation of state supervision (control) Introducing a new Methodologyof criteria development, by which thelevel of risk arising from economic activity is assessedand the periodicity of scheduled state supervision (control) measuresas well as unified act forms, which are drawn up according to the results of scheduled (unscheduled) state supervision (control) measures are determined before the Cabinet of Ministers of Ukraine. Conducting scheduled and unscheduledinspections ofpermit, licensing and state supervision (control) bodies. Monitoring the harmonization of normative-legal acts with the Law of Ukraine «On Fundamentals of State Supervision (Control) of Economic Activity» by state supervision (control) bodiesas well asthe Decree of the CMU of 28.08.2013 № 752 taking into account theintroduction ofa new version of the methodologiesspecified in theDecree. • Completing the Integrated Automated System of State Supervision (Control). 42