Quality Prioritization of Reconstruction Projects Is Still a Challenge. Why?

This year was the first significant test for the Ukrainian authorities in the issue of efficiency and transparency in reconstruction. If last year most of the procedures were carried out under direct agreements and no one raised any special issues with the authorities, then in 2023 the situation changed. Society again began to be interested in where and how public funds were spent. 

Ukraine needs to demonstrate to the world that it is willing to spend money honestly and without corruption on reconstruction needs. The best way to prove this is to show the result in the domestic programs and projects.

For 2023, the government approved funding for 424 reconstruction projects, totaling more than UAH 28 bln. One of the main questions was how and on which projects limited public resources would be spent. We already had the experience of covid procurement, when money was allocated for the wrong needs and the amounts of procurement were often sky-high.

Although the Cabinet of Ministers recently approved a methodology for prioritizing reconstruction projects, the issue of the effectiveness of selecting restoration projects has not yet been resolved. 

The long way of prioritization methodology

The mechanism for prioritizing projects is the main safeguard against possible abuses that arise when such a decision is adopted by an official. The lack of political and subjective influence ensures that projects be selected according to objective criteria.

The methodology for prioritizing reconstruction projects in Ukraine began to be discussed about a year ago. But the Cabinet resolution approved in April stated that the prioritization methodology was rather advisory in nature and that the selection of projects should take place “considering” a certain methodology. 

Next, the Ministry for Restoration was given six months to develop this methodology. 

This task is quite difficult because the priority of projects should be based on the defined priorities, and they, in turn, should be based on the reconstruction strategy, which is still not adopted. The government has not yet decided what, how, and in what sequence it should be rebuilt. This leads to conflicting issues constantly arising around the reconstruction:

• can reconstruction funds be spent on objects that have not been damaged? 
• should libraries and culture centers be rebuilt when not all residential buildings have been rebuilt yet? 
• is it worth investing hundreds of millions in the repair of old buildings, or is it better to build new ones? 

During the first round of selection of reconstruction projects from the state fund, the Interdepartmental Government Working Group decided to apply the draft methodology for prioritizing reconstruction, developed by TI Ukraine together with the RISE Ukraine Coalition of civil society organizations. It was based on the principle of prioritizing the needs of communities ensured by the project. The most essential projects are those that provide the basic needs of the population: access to housing, electricity, heating, water supply, etc. Further, the projects are distributed depending on the level of needs of the population they provide: emergency services, schools, hospitals, public transport, utilities, administrative buildings, culture, leisure, and sports. 

But during the first meeting, the methodology effectively had no impact on the selection of projects. They were selected regardless of the priority score, in manual mode, in fact. As a result, the government approved many controversial projects that had nothing to do with damaged or destroyed facilities. For example, UAH 700 mln was allocated for two pre-war projects to repair hospitals in Zhytomyr; UAH 400 mln for the construction of a kindergarten and a water pipeline in Odesa, and these projects were approved in 2021. 

The main argument for this choice was that these facilities were used in particular by internally displaced persons, which meant that the project was related to the needs of reconstruction. 

During the second meeting of the Interagency Working Group, the prioritization methodology was indeed used to select projects; they were selected considering the score. As a result, 93% of the funding went to the restoration of housing, water supply, heat supply, schools, and shelters. All these projects directly concerned the restoration of damaged or destroyed facilities. 

Subsequently, the government adopted several more decisions on the allocation of funds for projects on the proposal of ministries and within the framework of pilot projects without any prioritization. 

The Ministry for Restoration worked on its version of the prioritization methodology at the same time, which was developed by World Bank experts. The government approved it in October. But this is unlikely to significantly change the situation in the future. After all, the methodology is still advisory, which means that part of the funding may pass by it. This is not its only drawback.

Theory of relative priority

The final version of the methodology was based on the structure of the World Bank’s approaches to the selection of infrastructure projects. Therefore, it turned out to be quite complicated. The methodology includes 44 project assessment indicators, in particular regarding compliance with the requirements of the Paris Climate Agreement and the UN Framework Convention on Climate Change. However, compliance/non-compliance with such indicators is to be determined by the applicants themselves (i.e., communities). 

When infrastructure projects are selected by the World Bank, the number of indicators is not a significant problem. The institution has enough qualified experts for assessment, and there are not so many projects. For example, in 2023, the World Bank launched 381 projects around the world. Of these, 24 are in Europe and Central Asia (this region includes Ukraine).

On the scale of Ukraine and the needs of reconstruction, we are talking about a much larger number of projects — thousands per year. Difficulties might also arise in terms of experts, especially at the level of small communities.

Accordingly, the quality of filling in information about the project may differ significantly. Thus, the overall results of prioritization will have a significant error. 

The methodology also assumes that projects will be assessed in groups. The best project from the group with the highest percentage under 44 assessment indicators will score 100 points. The scores of the rest will be formed depending on the ratio to the indicators of the best. 

The problem is that such a rating system is quite relative. If you assess only bad projects in one group, then one of them will still receive the highest score, and all the others will be evaluated relative to its indicator. Therefore, today one project can score 100 points and tomorrow 10, depending on which list it is put on for assessment.

Provisions of the methodology regarding the given assessment result

The original version proposed by the World Bank focused more on large infrastructure projects related to water, roads, and energy than on social infrastructure (which is normal for an international financial institution but not for a state fund). The factor of whether the object is related to the consequences of hostilities or missile attacks had almost no impact on the results of the assessment. 

Transparency International Ukraine participated in the discussion of this version of the methodology and insisted on its finalization. This problem has been reduced. The weight of indicators as to whether the project is associated with the consequences of the destruction has increased. Not all infrastructure objects will receive additional points, but only those related to overcoming the consequences of armed aggression. Within the framework of cooperation between experts from the World Bank, the Ministry for Restoration, and representatives of RISE Ukraine, it was possible to agree on increasing the weight of the criteria for projects related to housing reconstruction and housing for internally displaced persons. 

Consequently, the final version of the methodology is more balanced and focuses on different types of reconstruction needs. But the problems of complexity and relativity have not yet been solved. TI Ukraine will monitor the experience of its application and the extent to which it will have an impact on the results of the assessment.

Blind prioritization

Another big issue with reconstruction is that there are actually no formalized requirements for the quality of projects. Prioritization takes place at the level of project indicators — the number of users, the type of object, etc., but not at the level of how well the project is designed, whether the cheapest way of implementation has been chosen, or whether there is a need for this project at all.

In practice, the project initiator decides:

• whether it is necessary to analyze the changes that have occurred since the beginning of the full-scale war and adjust the need to new conditions (for example, it is better to build a school not on the site of the destroyed one but a few blocks away);
• how to consider new security conditions when rebuilding old facilities;
• whether it is worth rebuilding facilities that are beyond the standard period of operation and have no architectural value, or whether it is better to build new ones;
• whether it is worth selecting the most optimal reconstruction option, considering its cost and effect on the population, or whether it is possible to select the most expensive one.

These and many other issues are left to the discretion of the communities, which have to determine what and how to rebuild. But we have already witnessed local authorities picking the most expensive and least effective option. For example, they restore old panel high-rise buildings at a cost exceeding the price of building new, modern housing.
In conditions of limited resources and enormous reconstruction needs, this can lead to most of the required projects not getting funding, and the funds will be used to finance other projects.

However, we hope to avoid this when the state defines clear and mandatory approaches to the formation of reconstruction projects based on a single strategy. 

So, what else needs to be done

The experience of the first year of distributing funding for reconstruction projects only emphasized that this should be done according to a single methodology. It is good that it was finally approved, but it should be mandatory. Part of the funding can really be allocated for urgent projects arising because of the war, for example, overcoming environmental disasters such as the destruction of the Kakhovka HPP dam. But most financial resources should be allocated according to clear rules. 

In order for the best and most urgent projects to receive funding, it is necessary to:

• approve a reconstruction strategy that will determine the approaches to restoration (which facilities are being restored primarily within the framework of rapid reconstruction and which facilities should not be restored before major reconstruction begins);
• determine the requirements for the development of reconstruction projects, in particular, whether facilities older than 40–50 years need to be rebuilt, how to determine a more effective method of reconstruction (whether a facility needs restoring if the cost of building a new one is lower), and which steps should be taken to update the need and adjust the characteristics of the facility;
• introduce monitoring of the quality and effectiveness of the proposed projects so that the prioritization and implementation of the quality requirements of the projects are not formal.

The publication was prepared with the support of USAID / UK aid project Transparency and Accountability in Public Administration and Services / TAPAS