Reform Index 223: Adopting Criteria for State Aid to Local Infrastructure

Reform Index 223: Adopting Criteria for State Aid to Local Infrastructure

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5 December 2023
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The Reform Index’s 223rd issue covers the period from October 9 to October 22 and incorporates four reforms. The overall rating of the Reform Index is +0.4 (on a scale ranging from -5 to +5). In the previous issue, its value was +0.3).

Graph 1. Dynamics of the Reform Monitoring Index

Graph 2. Values of the Reform Monitoring Index and its Components in the Current Assessment Round

The government has approved criteria for assessing the eligibility for state aid for local infrastructure, +1 point

Cabinet Resolution No. 1087 aims to promote the development and modernization of local infrastructure through state aid.

In order to increase the effectiveness of such assistance, a few eligibility criteria have been established. First, the applicant enterprise must be financially stable and not in a distressed condition. Second, it must engage in activities related to infrastructure used for the provision or sale of goods and services under market conditions.

Another condition is the presence of a stimulating effect from state aid. To meet this requirement, the recipient must apply for state aid before commencing the project (committing to equipment orders, starting construction, etc.) for which they intend to receive assistance. In the case of supporting large enterprises, the provider of state aid must provide documentary evidence that the assistance will result in an increase in the scale of the project or expansion of the enterprise’s activities with increased costs, as well as facilitate the faster implementation of the planned project.

Additionally, recipients of state aid under this resolution are required to ensure access to the created infrastructure on market terms and a non-discriminatory basis. 

The Association Agreement between Ukraine and the EU, ratified by Ukraine in 2014, states (Article 262) that any aid granted by Ukraine or EU member states which “distorts or threatens to distort competition by favoring certain undertakings or the production of certain goods is incompatible with the proper functioning of this Agreement insofar as it may affect trade between the Parties.” However, the Agreement allows for certain exceptions for aid that contributes to the economic development of regions with exceptionally low living standards or significant unemployment, the execution of important projects for the common European interest, rectification of substantial disruptions in the normal functioning of Ukraine’s economy or does not affect the terms of trade between Ukraine and the EU.

In 2018, the Ukrainian Parliament passed a law on state aid to enterprises that includes the following definition of state aid: “support in any form to business entities from state or local resources that distorts or threatens to distort economic competition by creating advantages for the production of specific types of goods or the conduct of specific types of economic activity.” This law takes into account the limitations proposed by the Association Agreement in the eligibility criteria for state aid. These criteria include social orientation and focus on end consumers, absence of discrimination based on the origin of goods, orientation toward compensating damages from artificial and natural disasters, support for regions with low living standards, implementation of nationwide development programs to address economic and social issues, and promotion of specific types of activities as long as they do not contradict Ukraine’s international treaties.

Information about the Reforms Index project, the list of Index experts and the database of the regulations assessed are available here.

Chart 3. Value of Reform Index components and number of events

Reform Index 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 six areas: Governance, Public Finance, Monetary system, Business Environment, Energy, Human Capital.

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