іMoRe №125. A Lot of Anti-Reforms and Positive Changes

The Index for Monitoring Reforms (iMoRe) is +0.8 points for the period from December 23, 2019 to January 5, 2020, out of possible range from -5,0 to +5,0. In the previous round, the index was +1.0 points.

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Market surveillance reform, transplantation, medical guarantee program launch, new Electoral Code, subordination of the National Commission for State Regulation of Energy and Public Utilities (NEURC) to the Cabinet of Ministers, unsuccessful attempt to lift the immunity of MPs.

Among the events of the round are laws on market surveillance, elimination of corruption schemes in real estate appraisal, transplantation, changes in the principles of state funding for universities, a new procedure for healthcare guarantees, changes to the Electoral Code.

Experts gave negative assessments to laws on making the NEURC subordinated to the Cabinet of Ministers, procedures for bringing MPs to criminal liability for the abolition of legislative immunity and the law that allows their assistants to work in other institutions / companies and do business.

This round set the record for the number of anti-reforms in the history of the index since January 2015. 3 events have received negative scores from iMoRe experts.

Chart 1. iMoRe Dynamics

Chart 2. іMoRe and its components in the current round

Main events of the round

Law on market surveillance, +2.0 points

The state sets requirements for the quality of goods, the use of which may endanger consumers or society. These are food, as well as various non-food items, including vehicles, medical devices, electrical equipment, and more.

In order to ensure that these requirements are met, public authorities carry out market surveillance. If the products do not meet the required requirements, state inspections may limit or prohibit its sale, remove it altogether, warn consumers of the identified danger.

Laws in this area were not effective and were unable to protect consumers from dangerous products. The inspectors had to warn the enterprise (manufacturer or trading company) of the inspection in advance. Therefore, the company could remedy the infringement in advance or just don’t let the inspector in. At the same time, due to unclear procedures, inspectors could abuse their authority during inspections.

Law 367-IX of 12/12/2019 seeks to address this issue. In particular, it imposed fines for not allowing the inspector on the property. Inspectors will also be able to carry out inspections on the complaint of consumers or associations.

Law on elimination of a corruption scheme in real estate valuation, +2.0 points

In the real estate sector, there was a procedure artificially inflating the costs for official registration of the sale of property. This was due to the requirement to only use authorized electronic platforms during the real estate appraisal. These platforms entered property valuation data into a Unified database of property valuation reports and provided this information at the request of notaries. These websites were controlled by several private companies that could set the price for these services at their discretion. According to Bigus Info investigations (1, 2), all the websites were probably related to each other because they worked on the same code.

Authorized websites (all 4 of them) charged around UAH  680-1800 for registering a real estate appraisal report or for checking it at the request of notaries. Since the introduction of this norm in 2018, as of 10.10.2019, more than UAH 700 million, i.e. more than UAH 1 million a day, has been collected from the public in favor of the platforms.

Law 354-IX from 05.12.2019 introduced a simplified model of real estate valuation from January 1, 2020.

The evaluation will be performed automatically. Anyone will be able to obtain information from Unified database of property valuation reports free of charge, get a real estate appraisal certificate and to conclude a sales agreement on that basis. In case of disagreement with the automatic evaluation, the person may contact the assessor. Notaries will also have free access to a Unified database to check the appraised value of the property at the time of the transaction.

New procedure for using state funds for healthcare guarantee programs, +2.0 points

The next step of medical reform is supposed to start in April 2020. The state will fund services included in the healthcare guarantee program.

Instead of paying hospitals fixed sums, the state will switch to financing the services they provide to patients. In 2020, the state will provide 60% of the amount spent on hospitals for the maintenance of hospitals in 2019. Additionally, hospitals will be able to receive funds for the provision of specific services. In the years to come, the amount of maintenance will decrease and the payment for services will increase.

In 2020, the state will finance 27 services. Each service has a list of requirements, including the premises, equipment and specialists that a hospital must meet in order for the state to finance the provision of these services. Thus, the state will only finance quality services.

Government Order No. 1086 from December 24, 2019 sets out the procedure for financing a state-funded health care package.

Transplantation law, +2.0 points

In Ukraine, about 3,000 people need organ transplants annually, but domestic hospitals carry out only a small number of such operations. For instanse, there were only 170 transplantations performed in 2018.

The law regulating transplantations and removal of donor organs was enacted in 2018, but has not been fully implemented. The excessive risks of criminal proceedings against doctors who perform such operations and the lack of procedures for ascertaining brain death have virtually blocked the development of transplant services.

Law 418-IX of 20.12.2019 aims to address these issues.

A new approach to university funding, +2.0 points

In Ukraine, the state provides nearly 60,000 students (over 40% of the total) tuition at universities, spending about UAH 20 billion a year. The cost per student is UAH 46 thousand per year on average.

The funding system does not motivate universities to improve the quality of education. Universities are interested in having as many students as possible, accepting students with very low entrance exam scores, and not letting unsuccessful students go. Because of this, the level of students is generally low.

To solve this problem, the Cabinet of Ministers adopted Resolution No. 1146 of December 24, 2019, which introduces the so-called formula financing of higher education institutions.

New edition of the Electoral Code, +1.0 point

Ukraine has changed the electoral system several times — from majority to proportional and to semi-proportional. Since 2010, a mixed electoral system has been operating in Ukraine, with half of the 450 MPs elected by a proportional system with closed party lists and a 5% barrier, and the other half by majority.

In Ukraine, both components have significant drawbacks. The proportional component with closed party lists creates the possibilities for manipulation. Often, Ukrainian parties unite not around values, but around their leaders, and trade places in party lists, and therefore mandates. Often, MPs focus not on solving the systemic problems of their region or country, but on lobbying their interests and those of the people who provided them with resources to participate in elections.

The abolition of the majority component became more urgent with the beginning of the decentralization reform in 2014. Local issues should now be resolved not by parliament but by local authorities.

The draft Electoral Code, which provided for the transition to a proportional electoral system of the open-list system, was initiated by the 8th convocation of the Verkhovna Rada  in 2015. The President did not sign it and submitted his proposals to the Code, which was approved by the Verkhovna Rada of the 9th convocation (396-IX of 19.12.2019). At the same time, as the proposals were very vague, the final text of the Code changed significantly compared to the one adopted in July.

Law on leasing of state and municipal property, +1.0 point

Law 157-IX of 03.10.2019 introduces mechanisms for leasing state and municipal property through online auction.

Anti-reforms of the round

Changing the procedure of bringing MPs to criminal liability for abolishing their immunity, -2.0 points

Parliamentary immunity protects MPs from criminal prosecution, arrest and prosecution. These measures cannot be applied without approval of the Verkhovna Rada.

For many years, politicians have been including abolition of the immunity of MPs in their election programs. In 2000, during a referendum on amendments to the Constitution, 89% of citizens supported the abolition of the immunity. After the 2014 parliamentary elections, five fractions promised in their coalition agreement to abolish parliamentary immunity, but failed to do so.

Law 388-IX of 18.12.2019 was supposed to solve this problem. However, according to experts, the new version still contains a number of obstacles to hold MPs accountable.

The law on subordination of the National Commission for State Regulation of Energy and Public Utilities to the Cabinet of Ministers, -1.8 points

An independent regulator in the fields of energy and utilities (NEURC) was created under Law 1540-VIII from 22.09.2016, which passed Parliament (8th convocation) in 2016. However, a number of provisions of the law did not comply with the Constitution. The Constitutional Court listed them in its ruling No. 5-r/2019.

Law 394-IX from 19.12.2019 was to harmonize the legislation on the activities of the NEURC with the Constitution. However, the law also poses risks to the regulator’s independence and professionalism. The law also gives the regulator the powers it can use to manipulate and thus violate European law.

In particular, the regulator will be able to investigate irregularities in energy markets, perform unscheduled inspections to confirm the reliability of data reported, determine the conditions and amounts of compensation to consumers if suppliers do not meet the established standards and requirements for quality of service. In order for the NCER not to abuse its powers, a clear inspection procedure is required. Today, it is unknown what the investigation procedure will look like and how exactly the rights of market participants will be protected.

Also, the law gives the Cabinet the right to terminate the authority of a member of the NCER ahead of schedule. However, it is not specified what violations allow the Cabinet to make such a decision. The law also excluded the provisions on periodic rotation, limitation of the number of cadences of NCER members (there were no more than two terms), transparent competitive selection of candidates.

Law enabling assistant MPs to work part-time and do business, -1.0 point

The Law on Prevention of Corruption prohibited assistants of the MPs from engaging in other paid or entrepreneurial activities. The only exceptions were teaching, scientific and creative activity, medical practice, instructor and referee practice in sports.

Law 319-IX from 03.12.2019 abolished these restrictions.

IMoRe experts gave both negative and positive evaluations to this decision. Expert ratings range from -3.0 to +1.0 points.

Experts explained the negative assessments by saying that the new approach actually creates tools for lobbying that are not currently permitted by law. Assistant MPs have considerable authority — not only can they freely enter the premises of parliament, but also any other state institutions and even state-owned enterprises. The main risk is that they will use their lobbying opportunities. The adoption of the law on lobbying has been discussed for more than a decade with no results. Positive evaluations are justified by the fact that the law simply states the current state of affairs.

Law on the restart of the State Bureau of Investigation (SBI), 0.0 points

The SBI was established under Law 794-VIII from 12.11.2015 to investigate the crimes of senior government officials and war crimes. However, the body has yet to start working effectively.

Law 305-IX from 03.12.2019 was approved in order to make this body effective. However, in addition to progressive innovations, iMoRe experts point to the risks of implementing the new law. The range of expert estimates for this law is from -2.0 to +2.0 points.

On the one hand, the adoption of the new law allowed the investigation and trial of “Maidan cases” to be continued. On the other hand, it undermines the independence of the SBI, making it virtually subordinate to the president and, therefore, much politicized. Given the broad powers of the SBI, this can lead to the use of the Bureau against political opponents.

Chart 3. Value of іMoRe components and number of events

Note: Index for Monitoring Reforms (iMoRe) from VoxUkraine aims to provide a comprehensive assessment of reform efforts by Ukraine’s authorities. The Index is based on expert assessments of changes in the regulatory environment in five areas:

  1. Governance
  2. Public Finance
  3. Monetary system
  4. Business Environment
  5. Energy

For details please visit imorevox.org.

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