Basic information

1. Public Procurement in Ukraine: lessons learnedNatalya Korchakova-HeebSector ManagerEconomics, Trade and Territorial DevelopmentDelegation of European Union to Ukraine

2. Regulator – Ministry of Economic Development and Trade Review body –Antimonopoly Committee of Ukraine 139 724 tenders for a total amount of 428 063,5 mln UAH (apx.42,8 bln EUR)in 2012 101 352 for the total amount of 167 297 mln UAH (apx.16,7 bln EUR) in 2008 Ministry of Energy and Coal is the most active Contracting Authority in 2012 (35 378 tenders) There is a long and turbulent history of public procurement in Ukraine (Tender Chamber was closed by the President Uschenko because of its corruptive practices) Public procurement in Ukraine is strongly associated with corruption practices. Considered to be economically not –effective. The state makes purchases at higher than market prices. Basic information

3. Association Agreement could be signed in 2013 provided that Ukraine meets a set of benchmarks. AA contains a chapter on PP (Chapter 8, articles 148-156) Association Agenda- immediate measures to be taken in PP in Ukraine before the signature of Association Agreement: The Parties shall pay particular attention to cooperation in taking the following measures: • enhance and strengthen cooperation, including through technical assistance, aimed at taking appropriate measures in particular to ensure that the central government body responsible for economic policy has sufficient administrative capacity to fulfill its tasks related to public procurement ; • work towards the establishment of an independent review body in line with Directive 89/665 as amended by Directive 2007/66 and ensure that it has sufficient administrative capacity to provide effective remedies; • work towards further harmonisation of the Ukrainian public procurement legislation with the EU acquis as set out in Directives 2004/17 and 2004/18. Partnership and Cooperation Agreement (still in force- will be replaced by Association Agreement when AA is signed) Technical assistance to Ukraine is provided within the framework of the European Neighbourhood and Partnership Instrument. Current EU-Ukraine political framework for development of PP in Ukraine

4. The Law of Ukraine “On Public Procurement” (PPL) adopted in June 2010 General principles are in line with international standards; Control and regulatory functions have been separated between the regulator and review body; Transparency of PP operations increased -higher requirement to advertising and reporting are established; the Official Web Portal for publishing Procurement Notices free of charge established Awareness of the markets and the civil society in monitoring public procurement operations improved; Prior approvals of non-competitive procurement operations by regulator (corruption risks) has been removed; New instruments such as framework agreements and e-procurement platforms have been introduced Progress

5. The Law of Ukraine “ On Peculiarities of Procurement in Certain Spheres of Economic Activity”(Utilities Law) adopted in May 2012 Relevant activities have been defined closely to the relevant definitions in the EU Directives (17/2004/ЕС) The legal basis for special regulation of Utilities as required by PPL (Art 2(4)) has been established Progress (cont.)

6. There is no unified strategy that would clearly establish a plan for the development of PP in mid term or even short term perspective (although the PPL requires this to be prepared). The PPL has been continuously changed ( 20 amendments since 2010) and it affects the legal, professionalism an institutional sustainability in the sector. In particular, since 2010 the following negative trends in PP policy have been indicated: 15 exemptions from the scope of PPL that contradict EU regulations; A new and unusual procedure for electronic reverse auctions, compulsory for a particular list of goods and services that introduced tender intermediaries (i.e. e-platform operators into the public procurement actors); Weak legal approximation of the PPL and Utilities law at the level of legal concepts of EU ( such notions as public contract, contracting authorities, utilities, enterprises, special and exclusive rights, negotiated procedure, prequalification of tenderers and some other notions require major adjustment to the international rules) A lack of alignment between the PPL and Utilities law A number of unregulated or inadequately regulated institutional aspects: inadequate assessment of public needs and planning of procurement operations, duplication of control functions (police, national security, financial audits and control, Accounting Chamber, treasury, MoEDT and AMCU) A lack of “the best value for money” approach at the strategic and operational levels of the system, the legislation , the official monitoring and control are more Negative trends

7. Lack of planning and financial management (allocation of money is made at the end of the year creating tight deadlines for contracting authorities) Absence of medium term financial planning No systematic approach – legislation is regularly revised; permanent changes in the legislation makes the situation unpredictable Lack of understanding and low competences of members of tenders evaluation committees Regulator – the Ministry of Economic Development and Trade is not strong enough to lead the process Competition a a main principle is lost- public procurement in Ukraine is not contributing but reducing competition Biased interests easily find support in the Parliament- low political culture works against national interests; business is merged with politics. Overregulation and rigid control of the controlling bodies –irregularities easily to be found. High corruption risks- as a horisontal issue for all sectors, including public procurement. WHY?

8. EU Project “Harmonization of Competition and Public Procurement System in Ukraine with EU Standards” (“Project)” has been operating since January 2009 till May 2013. Direct beneficiaries are the MoEDT and the AMCU. Major Project results have been the following: Direct impact on drafting of the PPL and the Utilities laws (experts were involved in working groups and numerous consultations at the level of MoEDT, AMCU, the Cabinet of Ministers and Presidential Administration; Extensive assistance has been provided in preparing secondary legislation, guidelines and standard documents for PP ( including Web Portal functionalities, guidance on single source procurement and framework agreements approved by the MoEDT) Three international conferences on PPL in Kyiv ( 2010-2012) and in Odessa (2011) and three international round table meetings with the central authorities; An extensive training programme has been accomplished in 2010 -2013 ( including training of 20 regional authorities and two study visits to the EU countries, an electronic distance learning software and contents have been developed); A number of analytical documents and recommendations have been prepared at the requests of public authorities involved in control and regulating PP operations( including an updated Gap analysis of the PPL with the EU Directives, a draft Road Map for the implementation of the FTA with EU in future and as a component of a PP strategy); EU-Ukraine cooperation in the area of public procurement

9. Adoption of a Strategy for PP development at the level of Presidential Decree specifically indicating timeframe for further approximation of procurement procedures and concepts in the PPL and the Utilities law with EU Directives. The strategy should also indicate a prospect of a revision (new edition) of the PPL. Immediate amendment of the PPL in the following aspects: Drastic shortening of the list of exceptions from PPL, in particular concerning purchasing of : goods, works and services for organisation of elections and referenda ; air services for high state officials; Demolition works at the illegitimate property objects and services for standardization of construction industry; goods, works and services by Universities and research institutions when financed from their own funds; goods and services for aircraft building as specified in the approved designer documentation; goods, works and services procured within projects implementing Ukraine’s obligations under the Kyoto Protocol; goods and services deemed as directly needed for artistic tours, cultural and tourist events, for festivals identified as urgently needed due to their political, cultural or historical importance; Benchmarks for accessing the progress in 2013

10. General Benchmarks for accessing the progress in 2013 • Put an end to the selective justice • Reform of the electoral code • Continuation of the overall economic reforms

11. foods for circus animals; goods and services needed for productions of new theatric performances or concerts, for production of original film materials, audiovisual works; air transport, catering, accommodation services, maintenance of sports facilities, special equipment, services of sports training camps, goods needed for organisation of national and international sports events, purchasing of medication for national sport teams; services by foreign universities and research institutions; services of scientific, technical institutions financed on a competitive basis under Article 34 of the Law of Ukraine "On the scientific and technical activities” Establishing the principle of voluntary electronic auctions; 3. Further approximation of the Utilities law with the REU standard and adjustment to the PPL requirements (may be merging Utilities provisions with the PPL) in particular concerning clear definition o9f the Utilities on the basis of special and exclusive rights and specific activities. Benchmarks for accessing the progress in 2013 (cont.)

12. Media NGOs International organisations (WTO, EU, EBRD, World Bank, IMF) President of Ukraine (if there is political will) Facilitation mechanisms Donor group on public procurement (EBRD, World Bank, EU, Member states, USAID) – increasing political leverage- stronger coordination. Donor group is coordinated by the Delegation of the EU to Ukraine Working group on anticorruption Working group on public finance management Who could put pressure?

13. To approve and to implement a public finance management strategy where public procurement is a key component To respect international commitments and to continue alighment with the EU To think about professionalisation of public procurement and creation of centralised procurement agency To improve competition and business climate in Ukraine To improve institutional capacity and monitoring functions of the regulator To increase public awareness about public procurement, accountability of the state bodies, transparency of state policy-making, budgeting and spending. To fight with corruption as a horisontal issue What to do?

14. Thank you for your attention! Natalya.Korchakova@eeas.europa.eu Thank you for your attention!Natalya.Korchakova@eeas.europa.eu