BRDO Head Oleksiy Honcharuk: bad and stable rules for businesses are better than the good but constantly changing ones

11-01-2017

goncharukUkrainian officials and politicians change the legislation and the regulatory environment so quickly like never before under the deregulation slogan. It seems like everything is done to simplify the life of entrepreneurs. The Better Regulation Delivery Office proposes to radically change the approach to regulation and finally develop clear and simple rules for businesses.   

The Better Regulation Delivery Office has been working in Ukraine since November 2015. It is a non-governmental organization that doesn’t duplicate the functions of the State Regulatory Service or other state institutions while being involved in analyzing the legislation and the regulatory environment, identifying problematic issues and preparing documents that will solve these problems. The BRDO Office has already announced ambitious plans for the next year: to review regulatory rules on markets controlled by five ministries – the Ministry of Agrarian Policy, the Ministry of Energy, the Ministry of Economy, the Ministry of Regional Development and the Ministry of Infrastructure. It is referred to about 70 different markets – from the coal and nuclear energy market to the market of crushed stones and concrete. The Delo.UA had a conversation with the BRDO Head Oleksiy Honcharuk about the analysis of regulatory rules in the coming year as well as about the potential increase of Ukraine’s position in the Doing Business ranking.

Is the recent abolition of 367 regulatory acts the first result of the review of rules on markets?

It is a kind of so-called “rubbish” that should be removed from our legislation. There are certain rules in five economy sectors that we are talking about and they are described by 10 thousand of laws, regulations, resolutions, orders and instructions. We analyze them in terms of their legality and importance at the first stage of review.

What does it mean?  

There are the laws and by-laws, which are much more numerous and adopted to implement the laws, in Ukraine. If the law doesn’t prescribe that there should be the resolution, it should not exist at all. However, we have many documents that officials have just invented.

In addition, there are also outdated documents. For example, some by-laws have been adopted as part of the law, but this law was abolished while the by-laws continue to exist.

This all is the “rubbish” we need to clean out the regulatory environment first. So, we have a list of 367 illegal and outdated documents at the level of Cabinet of Ministers and now we are preparing a list of orders and instructions at the ministerial level in a similar way.

Speaking of real deregulation, what measures did the Cabinet of Ministers take to improve the situation in specific markets?  

The systematic review of markets will start in January 2017. Now it is important to understand what goals the government wish to achieve as part of the regulation. Every ministry and every regulator should know why its functions are necessary and what its goals are, for example, when it interferes in construction or agriculture. Therefore, we were working together with ministries on the inventory of their regulation in autumn.

We were not just trying to count regulatory acts and promise to review them in the coming year, but we would like to answer three key questions – “what, how and why?” First of all, we tried to find out what markets were regulated by these five ministries. Secondly, we tried to understand what instruments – licenses, quotas, patents, restrictions, etc. – they used to regulate each market. Third, we attempted together with them to understand why they do that. Therefore, we offer to build the activities of five ministries in this direction in a fundamentally different way the next year. We will start with markets of interregional bus transportation, wood, steel structures and energy distribution.

As for the decisions the Cabinet of Ministers has already adopted, this is also an important part of our activity, but it is not related to the systemic review of markets. There was a moment when the Prime Minister held a meeting and honestly said, “I have a feeling that the process of deregulation and effective regulation is not active. To my mind, we have stayed in the same place during the last couple of months”. However, their task was simple – to offer decisions that can be adopted as soon as possible at the level of the Cabinet of Ministers and will have a positive impact on small and medium businesses. In particular, these decisions include the adoption of license provisions, without which the access to markets is virtually closed, the possibility for notaries to set the price for services, which is less than 1%, the simplification of the procedure to approve the installation of telecommunications equipment, the revision of rates for renting the roofs of state property, the preparation of rules for developing oil and gas fields and the permission to mix grain of different types.

What changes should we expect in the near future? What issues is the BRDO working on now?

One of the important initiatives is the liberalization of interregional bus transportation. Our government is still trying to decide how many buses should go from Kyiv to Zhytomyr. But it is obvious that it does not know the real needs, and you can see this fact easily if you look at the official figures and the real situation. We estimate that about 60% of the market is in the shadow economy, and this is a sentence. It means that carriers are also beyond the state control. Our idea is to abolish limits on transportation. The government says, “If you wish to go, there is a station A and a station B, there are general rules of road safety and ecology”. What you need to understand? If we try to bring the transportation sector out of the shadow economy, the state can have a clearer idea about the passenger traffic. And what is the idea about passenger traffic? This is a possibility to choose an adequate transport model and use the territory for transporting cargo and goods efficiently and profitably.

Is there someone other than the BRDO who understands the strategic importance of these changes?    

Of course, the team of the Ministry of Infrastructure understands. But an average minister’s “life period” is 11 months, so the government is trying to set more realistic plans for this short period. Thus, they mostly focus on things that can be changed right here and right now while having some results. This is a mode of quick wins. In fact, it is exactly the opposite of what any minister should perform. Actually, the BRDO’s function is just to follow the sequence and look into the future. We have to set the pace and vectors and continue on that path regardless of the Government.

Why did you choose these markets for the systematic review?      

We followed several criteria. First, the markets should be related to the small and medium business. Second, these markets were the ones, where we could try to show a compromise. After all, an ideal reform will be implemented when they all agree on the rules once and for 100 years. But it is possible to agree for a long time only when you hear them all, understand and develop the rules to suit everyone.

What other decisions related to the deregulation will be taken in the near future?     

Another important issue we are dealing with is the export control. Ukraine has a much longer list of goods subject to this control than in other countries, and, particularly, it is because the Security Service included many different comments to it. We would like to shorten this list.

Another very important topic, which, on the one hand, promises to save the state money and on the other hand, to sort out the mess in the sector, is the wood registration. There are 619 primary forest users, i.e. forestry and objects of nature reserve fund eligible to use and manage the forest in Ukraine. Almost all these entities cut the trees, however, not only for industrial but also for sanitation purposes. Of course, we can run through the forest and catch the guys with the axes checking their documents to enable the state to control who cuts the trees and on what grounds. But it is expensive and we can’t catch everyone. They introduced a chipping method to ensure the adequate operation of the system of wood registration. If someone cuts down a tree and intends to sell it, he has to put an identification mark on it and this information will be included to the information system of the SE “Leskonsalting” company. However, the problem is that only state enterprises (the number of which is less than 300) from 619 forestry agencies have this system. Other forest users sell the wood but without these marks. Therefore, everyone has to use a single approach to make the system of wood registration effective. The Cabinet of Ministers should adopt a resolution and oblige all forestry enterprises, including the military and municipal ones as well as objects of natural reserve fund, to record the data in a unified system. It is quite possible and we are working on this issue now.

What does the business say about your plans?

Someone supports us, someone is watching from sidelines and others resist because they are afraid of changes. There are a lot of work to be done and we will gain the confidence of businesses step by step and try to reformat its relations with the state.

What is a serious barrier for businesses in your opinion – the bad regulation or outdated visions of Ukrainian entrepreneurs? 

These aspects really complement each other. Today’s blinkered vision is a legacy, a result of total mistrust and the attitude to the state as something external. This is a fantastic phenomenon since it turns out that you can support the state while being against it at the same time. To my mind, there are very deep grounds for that. On the one hand, small and medium businesses constantly feels guilty, for example, because of unpaid or underpaid taxes. On the other hand, they also feel a constant fear since the state constantly changes the rules, and so they simply can’t be sure than they comply with all the requirements. In addition, the state has long been used for other purposes to protect individual corporate interests. Therefore, it is treated as an instrument of reallocation.

The Government has recently announced the adoption of a law that supposedly should raise our position by 40 points in the Doing Business ranking. How do you think what changes are the most important and when this document will be adopted?

The value of this draft law is in its comprehensiveness, it doesn’t contain non-important aspects. What does it cover? In particular, this is the abolition of share contributions for real estate developers, a trust property instrument that will help restore the credit activities, an instrument of alternative consideration of disputes and provisions enhancing the protection of minority shareholders. We consciously included only the aspects that the Doing Business ranking offers into this draft law. We believe that it will be easier to “sell” the document to the parliament in such a way. After all, there are dozens of draft laws, which can positively affect the ranking’s position this way or another, in the Verkhovna Rada now, but we need to win quickly to achieve a significant progress and make it noticeable on the international stage. If the document is adopted in late March or at the beginning of April, it will have a result and we will enter the top 30.

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