Big plans for reconstruction: who played by the rules for “their own”?

The deadline for comments on the controversial government “experiment” – a clone of draft law No. 5655 on urban planning reform – expired on January 13. A month ago, the Ministry of Regional Development published a document titled “On the Implementation of Experimental Projects in the Field of Urban Planning.” These are the rules under which they want reconstruction to take place. It involves significant resources and someone’s undisclosed interests.

The media resonance was enormous. “Mirror Weekly” thwarted an attempt to push through a question with corruption risks. This allowed time for analysis. Miracles did not happen: developers will benefit from this initiative, while citizens and local self-government will lose. It’s similar to what happened in the urban planning “reform” by Olena Shuliak (“Servant of the People”), which was criticized by both the European Parliament and the European Commission.

To bypass Volodymyr Zelensky, who stated that he does not sign the project because it is his personal will, they decided to go through the government. However, even here, they need allies whose signatures matter. We managed to find out the role played by the State Regulatory Service in this story. Essentially, it plays along, like the National Agency on Corruption Prevention (NAZK), and violates the law.

The ideal scheme: at stake is 20-25% of the country’s GDP.

The rules of the game will be in effect for 2 years and cover everything from obtaining urban planning conditions and restrictions to putting the object into operation, as well as carrying out state architectural and construction control and supervision. International partners should understand: these rules will operate in conditions of war for reconstruction.

Among the main risks of the government project, corruption factors and the overall impact of changes on the economy stand out. Corruption in construction, especially in the issuance of permits and embezzlement of public funds for construction, has been extensively discussed. Unfortunately, these types of corruption are usually not considered in connection with each other, although they become crucial in the context of reconstruction.

Various manipulations in public procurement through “Prozorro” are secondary in the case of construction.

To be able to embezzle the budget with impunity, one must first reach an agreement with the designers to include it in the project and estimate. Then, negotiations with an expert organization are necessary to ensure that the violations “go unnoticed.” Only then do they appear on “Prozorro” with an inflated price. Schemes after tenders are also built on urban planning legislation – this includes “unforeseen” additional work, purchased without tenders from the same contractor, and adjusting the price based on a new project expertise.

Even with perfect legislation on public procurement, it is possible to embezzle the budget safely due to loopholes in urban planning legislation. Perhaps that’s why Shuliak didn’t rush to create a comprehensive urban planning code and spent two years on the urban planning “reform”?

In other words, if there were quality legislation, no loopholes and schemes in public procurement would help discreetly embezzle allocated funds.

If the “reconstruction overseers” gain control over designers and experts, they will be able to build a perfect embezzlement scheme for reconstruction funds. Perhaps this is the plan?

So, the cloned resolution does exactly that – it transfers control over designers and experts to the Ministry of Infrastructure, headed by Deputy Prime Minister for Reconstruction Oleksandr Kubrakov.

When talking about the impact of construction on the economy, people usually remember its contribution to GDP at the level of 2-3%. The figure may not be impressive. However, attention should be paid not to the contribution but to the share of GDP for which construction is the final consumer.

In 2021, the cost of constructed buildings and structures amounted to over 800 billion UAH (almost 15% of Ukraine’s GDP), while the construction sector’s contribution to GDP was only 150 billion UAH, or 2.8% of GDP. This means that 15% of GDP was spent on construction that year.

Considering the destruction, the reconstruction will require significantly more than before the invasion. Depending on the recovery timelines, we are talking about amounts equivalent to 20-25% of GDP, a substantial portion of which is likely to be in the form of financial aid from our international partners. It is precisely over this substantial share of GDP that the “experiment” is currently planned.

Experimenting with an issue of such magnitude, where any mistake will have a noticeable impact on the macroeconomic level, is not advisable. Calculations should be made for multiple scenarios of events.

Who controls the launch of the “experiment”?

It is a common saying that he who is drowning is the one who saves himself. Therefore, it is best to have public oversight over everything. However, there is a nuance: for the public to oversee, access to all necessary information is required.

Naturally, we have designated and specialized state bodies for control.

The issue of corruption risks should be overseen by the National Agency for the Prevention of Corruption (NAPC). But there is a problem here.

In 2021, the National Agency for the Prevention of Corruption (NAPC) opposed the “reform” 5655, which is now replicated in the government project. A year later, the position has reversed: they refused to conduct an examination of the law project, which was rewritten by 80% before the second reading. Meanwhile, the head of NAPC, Oleksandr Novikov, stated that there are no risks, and, in general, it is an anti-corruption reform. It’s a case of “haven’t read, but support,” even though the majority of NAPC’s comments were ignored.

In terms of economic impact, the key control body is the State Regulatory Service. It is responsible for verifying compliance with the Law “On the Principles of State Regulatory Policy in the Field of Economic Activity” when preparing regulatory acts and blocking their adoption in case of violations.

These functions simultaneously play a crucial role in enabling public control. The procedures for reviewing regulatory acts, as established by law, ensure transparency and consideration of public opinion, guaranteed by the advance publication of necessary information.

So, how did it happen that the intentions of the Cabinet of Ministers to adopt a clone resolution became known unexpectedly, and only the swift reaction of the media was able to temporarily delay the entire process, if there is a special government body that was supposed to make such a situation impossible?

First, let’s understand what a regulatory act is and what requirements for its development and adoption are provided by legislation.

A regulatory act is “a normative legal act adopted by an authorized regulatory body, the whole or certain provisions of which are aimed at legal regulation of economic relations and administrative relations between regulatory bodies or other authorities of state power and economic entities” (Article 1 — hereinafter referred to as the Law “On the Principles of State Regulatory Policy in the Field of Economic Activity”).

People’s Deputy Yulia Klymenko (“Holos”), who previously worked as the Deputy Minister of Economic Development, claims:

“The Law 5655 and its clone resolution are regulatory acts and must undergo a regulatory impact assessment. They have a significant impact on both business and Ukrainians, so they must be seriously calculated and discussed with the public so that every business and citizen understands how much it will cost them. This is how it is done in the civilized world, and we must respect and follow it, rather than turning into North Korea or Russia.”

And for the preparation and consideration of draft regulatory acts, a set of stringent requirements is established.

• Regulatory bodies approve plans for the preparation of such act drafts (Article 7) and are required to make amendments to the plan if the development of a project not provided for in the plan is necessary.
• An analysis of the regulatory impact must be conducted, and there are requirements for the content of the analysis (Article 8).
• Each draft of a regulatory act is published along with the corresponding regulatory impact analysis to obtain comments and suggestions from individuals and legal entities, their associations (Article 10). The period during which comments and suggestions are accepted cannot be less than one month from the date of publication of the act draft and the corresponding impact analysis.
• A regulatory act cannot be adopted by the authorized executive body if there is no regulatory impact analysis or if the requirements for publication and agreement are not met (Article 25).

How did the events with the clone resolution unfold?

On December 12, “Dzerkalo Tyzhnia” reported on the Cabinet of Ministers’ intentions to adopt this resolution. The next day, the Ministry of Infrastructure published the draft resolution for discussion, as announced by Kubrakov on Facebook.

Moreover:

• This resolution is not included in the Ministry of Infrastructure’s Plan for the preparation of regulatory act drafts;
• The regulatory impact analysis has not been published;
• The deadline for submitting proposals is until December 29, which is 15 days, although the law establishes a minimum of one month.

Furthermore, an invalid email address for submitting proposals and comments was provided on the Ministry of Infrastructure’s website. It was only because we discovered this issue that the deadline for submitting comments was extended by another two weeks.

As it turned out, the Ministry of Infrastructure did not comply with the requirements of the Law “On the Principles of State Regulatory Policy in the Field of Economic Activity” because… two weeks after the violations, they received a letter granting permission to do so, signed by the head of the State Regulatory Service, Oleksiy Kucher (former MP of “Servant of the People”).

People’s Deputy Hanna Bondar (“Servant of the People”) addressed the Ministry of Regional Development to find out if a regulatory impact analysis of the draft resolution was conducted.

Kucher also proposed violations, including those related to our commitments to UNESCO. If a developer now sues to obtain permission for prohibited construction near the Sophia of Kyiv, after the adoption of this controversial resolution, the Ministry of Culture will have no choice but to violate international obligations and issue permits, or developers will obtain it with tacit consent.

All of this happens when Ukraine has become the vice-chair of the UNESCO committee for the first time.

Even more questions arise from the response with explanations from the State Regulatory Service. Kucher provided two explanations as to why the draft resolution “does not contain signs of a regulatory act project.”

1. “The voluntary participation of business entities operating in the field of urban planning who expressed a desire to participate in the experiments proposed by the draft resolution is envisaged.”

However, there is no mention of any “voluntary participation”—all economic entities engaged in urban planning activities become participants in the experiment by compulsion.

“A maximum term of its implementation is determined – 2 years.”

However, the relevant Law provides that regulatory acts may have a limited duration, and it contains separate provisions to account for such cases. The regulatory impact analysis includes justification for the proposed term of the regulatory act (Article 8), and Article 10 establishes features of monitoring the effectiveness of the regulatory act if its duration is extended or if the duration was set for less than a year.

In other words, Kucher provided knowingly false information in response to the request.

The story with the regulatory service is the same as with NACP (National Agency on Corruption Prevention) and the case 5655. Back then, the NACP received the redrafted project for the second reading, identified a number of new corruption risks, but did not assign a mandatory anti-corruption examination; instead, it simply sent a letter with a list of hastily identified problems.

Now, the State Regulatory Service, in order not to hinder the pushing through of the clone resolution, has provided a conclusion that the regulatory act is not regulatory and can be adopted without adhering to strict procedures regarding impact analysis.

The most interesting thing is that formally fulfilling the requirements of the law poses no problem. So, what could the problem be?

The only explanation for why Kubrakov chose the corruption-prone path and violated the law is the panic fear of the necessity to publish the regulatory impact analysis of the urban planning “reform.” This document would refute the myths of lobbyists about the goals and consequences of the “reform” better than dozens of analytical articles by their opponents would.