Few people hope for the end of the war by the end of this year, but Ukraine already requires international assistance to eliminate its consequences. De-occupied territories and cities affected by the bombing enter the first heating season during the war. Not every locality will have light, water, and heat. Thousands of houses have been destroyed or damaged, and their owners do not yet have a clear answer how and when they will be able to get assistance. The national budget is catastrophically short of funds, and it is clear that they primarily have to go to the army and restoration of critical infrastructure.
The world publicly spoke about the “Marshall Plan” for Ukraine at the very beginning of the war. But it has still not been formulated. The subject of political debate for now concerns who will decide which projects to finance and how much money we need.
The Verkhovna Rada is currently discussing draft law 7198 on the procedure for compensation for damaged and destroyed property. Recently, the Presidential Office has also presented the concept of the Reconstruction Fund of Ukraine and announced the submission of a draft law on its activity to the Parliament. However, so far, initiatives from the authorities have several unresolved issues. And this does not look like a “Ukrainian Marshall Plan” — because it contains neither a general concept nor a plan itself.
Question One: Where Are Compensations, and Where Is Rebuilding?
The primary task of the state is to assess and record all damaged and destroyed objects. But what to do next is not clear.
Some part of objects will be rebuilt — instead of the destroyed buildings, a new, possibly more modern ones will be erected. Another part should be included in the compensation procedure, that is, the owner should receive compensation for the destruction.
MPs have already proposed several draft laws to determine the procedure for compensation for destroyed property. Currently, the main one is No. 7198. It provides for a procedure for the payment of compensation only for individuals. For apartment buildings, it is planned to rebuild housing on the site of the destroyed building.
However, many issues remain outside the law for the moment. Namely, the property of legal entities, destroyed movable property of individuals (for example, cars), non-property damage (loss of health).
In addition, it is not known how to deal with objects that have already been restored or partially restored using one’s own resources.
On the other hand, according to the concept of the Reconstruction Fund of Ukraine, which is currently under preliminary discussion, the Cabinet of Ministers will determine the list of all reconstruction objects that will be financed with international funds on the request of the central executive authorities or regional state administrations.
Probably, not all destroyed objects will be included in this list of reconstruction. Accordingly, there will be a large gray area of objects that will potentially not be included either in the compensation procedure or the reconstruction procedure.
|Entity||Object||Method of compensation according to draft regulatory acts|
|Movable property||Not defined|
|Non-property losses||Not defined|
|Legal entity (public, municipal, and private)||Real estate||Not defined|
|Movable property||Not defined|
|Non-property losses||Not defined|
|Communities||Municipal property||Not defined|
Question Two: Regional or Centralized Rebuilding Model?
Already two mainstreams are developing in parallel:
- regional partnership, when different regions cooperate with different countries and funds (regional mentoring);
- a centralized institution (fund or agency) that will coordinate the entire rebuilding.
Back at the Lugano conference, individual countries showed a desire to take the patronage over the rebuilding of certain oblasts or cities. In some regions, this process has already been partially launched. For example, Denmark is beginning to help rebuild the Mykolaiv oblast.
On the other hand, the concept of the Reconstruction Fund of Ukraine refers to a centralized process subordinate to the Cabinet of Ministers.
Each of these options has its drawbacks.
The decentralized process model was applied during the implementation of post-war reconstruction projects in Bosnia and Herzegovina in 1996-2004. This has generally led to negative experiences and poor reconstruction performance due to several problems:
- lack of strategic vision of long-term ways of economic development;
- duplication of efforts of different donors and their weak communications;
- low management potential of national bodies.
Moreover, when different countries fund projects in different oblasts/cities, the issue of the scale of reconstruction depends solely on the desire/capacity of the donor country. In practice, this may mean that one city/region will receive a lot of money and a powerful recovery. Others — much fewer. In the future, this will prompt the internal migration of the population to more developed cities/regions.
The model of a single Reconstruction Fund of Ukraine with an independent supervisory board also has many issues. Firstly, these are political risks of influencing the choice of restoration projects. Secondly, independent supervisory boards do not ensure the efficiency of the institution.
The United States faced such problems during the implementation of reconstruction projects in Afghanistan and Iraq. Many projects were not completed there, and the invested funds did not produce the expected result for economic development and improving the standard of living of the population, despite independent supervisory boards and international control.
Some projects did not meet priorities and national interests, but were driven by the corruption motivation of the authorities. A striking example is the construction of a hotel in Kabul, worth USD 85 mln, which has not been completed. As a result, US taxpayers lost money and Afghanistan residents did not benefit from multimillion-dollar investments.
The instability of the political system and the low development of state institutions, such as courts, anti-monopoly bodies, institutions of investigation of economic crimes, lead to high risks of corruption abuse and many unfinished projects. In terms of reconstruction efficiency, it is the worst-case scenario.
To minimize the risks, the centralized coordination of the reconstruction process must be as independent of the political system as possible. When most decisions are made based on objective processes rather than political preferences.
The center of this process may be a politically independent institution (agency/fund), which is responsible for the quality of the process: maintaining the development of quality projects, assessing them, ensuring a transparent way of determining the contractors and cost of work, monitoring the efficiency of use of funds, aggregation of information, and notifying the society.
In fact, such an institution should connect all aspects of the reconstruction process:
- donors and investors;
- the state;
- performers of projects (balance holders of objects);
- society and communities (ultimate beneficiaries).
It should also have high level of confidence among the international society and the population of Ukraine.
Question Three: State or International Reconstruction Institution?
There are also two opposite points of view on what the institution should be: Ukrainian or international (foreign). And here, too, there is no obvious choice. In both cases, there are shortcomings.
The state institution, even if it is separated from the state by all sorts of independent bodies like supervisory boards, will still be in the field of action of the regulatory framework of the Cabinet of Ministers and the Verkhovna Rada.
We have repeatedly seen attempts to change NABU and SAPO legislation to minimize the political independence of these bodies. We also saw how the competitions in these bodies took place. It is difficult to believe that in the case of reconstruction agency/fund, the Ukrainian political establishment will behave differently.
On the other hand, the purely international body is very far from the real needs of Ukraine. It will be interested in the implementation of projects that are easier to control and where the contractors will most likely be western companies. And they are unlikely to build small objects in remote communities.
In Afghanistan, the Office of the Special Inspector General and the Reconstruction Trust did not ensure the efficient use of funds and quality implementation of projects. After all, the effectiveness of the projects depends on the performance and requires not only procedural but also operational control of processes.
The international institution will not be influenced by a lever of Ukrainian society, which will demand not only large-scale investment projects, but also more mundane squares, gardens, bus stops, etc.
Therefore, such an institution should be Ukrainian, but separated as much possible from the body of state power.
So far, the concept of the Ukrainian Restoration Fund provides that the Cabinet will determine what and how it will do. To buy off the international community, they only plan to give the majority of votes in the supervisory board, which has very limited powers.
Question Four: Who and How Will Select Projects for Reconstruction?
If you analyze the current situation, it seems that at the local level, international donors and local councils will select the reconstruction projects. At least, the draft laws and proposal of the authorities neither deny it nor clarify it.
Large projects at the level of oblasts and the state will be determined by the Cabinet of Ministers. How it will do it, and based on what principles — is still unknown. It is only noted that such approval will be submitted by the relevant request of state administration and ministries.
At the same time, the issue of selection of reconstruction projects contains perhaps the highest number of corruption risks. The distribution of funds is, at the very least, the issue of political corruption, when money is channelled primarily to projects that can be used as a base for future political campaigns. Secondly, certain companies in the market may lobby for the financing of projects in a particular sphere.
As a result, we will see an imbalance in funding needs and limited competition in some markets that will absorb the majority of funds. Where there is limited competition and a lot of money, there are inflated prices, corruption, and kickbacks.
To avoid these risks, the process of distributing funding between projects should be as objective as possible and consider not only the wishes of officials, but also the society. It is also necessary to assess projects for risks and compliance with reconstruction needs.
Roughly, funding should be distributed among the “baskets” of needs according to a fair principle. And each of the “baskets” should include only effective projects with low risks.
Ensuring a separate distribution of funding within regional, sectoral, and national projects should allow the realization of a fair principle in which there are no risks of disproportionate meeting the needs of a particular sphere/region.
Question Five: Who and How Will Control the Funds?
So far, the issue of controlling the effectiveness of the use of funds is almost not raised. It’s not good since this is the main question. We have extensive experience in dozens of programs, projects, and initiatives that have absorbed billions of funds and culminated in long-term constructions or corruption stories and investigations.
Obviously, the country requires a new mechanism. Such a function can be performed by the same centralized institution if it is independent and has sufficient competence not only to administer the process, but also to analyze it. For example, to conduct an examination of the project implementation, assess the integrity of procurement, determine risks not at the stage when the money has already been paid and transferred to Panamanian offshore, but also at the stage of project preparation.
If Ukraine fails to ensure the efficient use of funds, the issue of reconstruction will fail.
Ukraine has the State Audit Service, the Accounting Chamber as public procurement control institutions. But this is mostly not about efficiency, but about whether the funds have been spent correctly from the perspective of the law. In addition, public control and supervision is a statement of an event that has already taken place. The effectiveness of the use of funds depends mostly on how transparent and honest the process is until the moment of payment.
For reconstruction, an expert function is important, which will be able to evaluate the quality of the project, its prospects, alternatives, and risks, whether the project is duplicated with other programs, and whether it meets the goals of reconstruction, whether the project developer has studied alternatives, and whether the right approach has been chosen.
In a rather limited field of institutions in the field of project and investment evaluation, it is likely that without an institution that will accompany the reconstruction process, it will be difficult to achieve a positive result.
The material was prepared within the framework of the USAID/UK aid TAPAS Project/Transparency and Accountability in Public Administration and Services.