Ukrainian high-quality roads require transparent processes, proper control, competition and UAH 5 trillion

18-12-2019

The total length of Ukrainian roads is 169.6 thousand kilometers. According to the World Bank Group’s research, more than 90% of them are worn out requiring immediate repair or renewal. At the same time, 39% of roads of national importance do not meet the requirements for durability and 51% – for evenness.

Poorly developed road infrastructure and poor quality of roads in Ukraine are caused by underfunding, poor road operation, ineffective control over the use of funds, low competition in the market and corruption. As a consequence, this situation hinders economic development while creating obstacles to enhancing the country’s competitiveness in the international market.

The government and business representatives discussed the ways of solving the road industry problems during the Roundtable “Road construction and repair: how to solve the age-old Ukrainian problem?” on December 18. The event was organized by the BRDO Office with the support of EU4Business/FORBIZ as part of the #PRODialogue Public Dialogue.

“The worn-out state of Ukrainian roads is too bad, and this hinders the country’s economic development. The situation can be qualitatively improved only by changing approaches to all stages of the work, from planning and to maintenance of roads, completely. It is necessary to introduce medium- and long-term planning of road works, including budget financing, as well as to create the competitive environment for contractors and customers,” the BRDO’s Transport and Infrastructure Sector Head Vladyslav Prytomanov said.

Johannes Baur, Head of Sector for Economic Cooperation, Energy, Environment and Infrastructure at the Delegation of the European Union to Ukraine, agreed with the need to improve road construction standards in Ukraine:

“Harmonization with international quality standards in the industry is critical to creating an efficient European infrastructure network. We already support Ukraine’s efforts in this area, and we have plans to expand our support programs up to 400 million euros in the future”.

BRDO experts conducted a systematic analysis of the road construction and repair market and found that existing regulatory instruments did not meet the goals of state regulation in this area. They relate mainly to construction in general rather than to the construction and reconstruction of roads, including repair works. At the same time, medium, maintenance and patch works, as well as maintenance of roads, which are beyond the control of the state due to the lack of appropriate legal instruments, have been the prevailing types of work in this area over the last 5 years. In general, the regulatory environment of the market consists of 50 legal acts, of which 22% are irrelevant and 6% are illegal. The current strategic documents do not contain clear measurable indicators and mechanisms to monitor the achievement of objectives.

Another problematic aspect of the market is low competition. Thus, more than 50% of the market for road works carried out in accordance with state-financed programs and tendered through PROZORRO are covered by only 5 contractors, one of which is the foreign one. In most regions, no more than 2-3 companies participate in tenders, and in Ivano-Frankivsk, for example, more than 80% of the market is covered by only 1 company. That is, there is almost no real competition.

According to BRDO, the following steps are necessary for systemic changes in the industry:

  1. Development of a state methodology for determining priority objects of road construction, reconstruction and repair with clear selection criteria.
  2. Introduction of long-term budget planning in the area.
  3. Provision of transparency of planning, procurement and implementation of works and warranty services of road construction, reconstruction and repair objects. In particular, through the introduction of international selection criteria for contractors and the creation of a public portal of the system of management and monitoring of works in real time.
  4. Involvement of independent consultant engineers at all stages, as well as inclusion of conditions on insurance of construction objects in the contracts for performance of road construction, reconstruction and repair works.

In addition, BRDO experts estimated that it would be necessary to invest about 5 trillion hryvnias over 10 years in order to bring Ukrainian roads in good condition. Accordingly, the State Road Fund should be increased tenfold compared to 2018. Such investments can be attracted through international financial institutions and public-private partnerships, including concessions, with budget funds allocated for 10-12 years.

These measures will allow to build an extensive system of high-quality surface roads, increase the percentage of road construction, reconstruction and major repairs compared to patch repairs and provide better road preservation as well as higher efficiency and safety of transportation.

The event was attended by Oleksiy Dorohan, BRDO CEO, representatives of the Ministry of Infrastructure of Ukraine, Oleksiy Kubrakov, Head of the State Agency “Ukravtodor”, Artem Hrynenko, President of the All-Ukrainian Road Association, Taras Syrotynsky, President of the National Association of Road Workers of Ukraine, representatives of businesses and the public.

For information:

The Ministry of Economic Development and Trade and the State Regulatory Service with the assistance of the BRDO Office are the initiators of the regulatory reform in Ukraine. The project is supported by the EU as part of the EU4Business/FORBIZ initiative.  

BRDO is a leading independent expert-analytical center for regulatory policy in Ukraine.

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