Prioritization of Reconstruction Projects: Why It Is Important to Allocate Resources for Recovery Correctly

In May, the government approved the first 159 community reconstruction projects financed by the Fund for the Liquidation of the Consequences of Armed Aggression (Recovery Fund). In total, UAH 6.6 bln was allocated for them.

However, the list of approved projects raised some questions about the extent to which they are priority and related to recovery needs.

For example, UAH 700 mln was allocated for the reconstruction of the Herbachevskyi Zhytomyr Regional Clinical Hospital and Zhytomyr Regional Children’s Hospital. As far as is known, these hospitals were not damaged by missile strikes, and their reconstruction project had been approved before the full-scale invasion. In January 2022, even the first tenders were announced. Undoubtedly, these hospitals perform important functions, including for internally displaced persons, so they can formally meet the needs of reconstruction. But how feasible such projects are now, when the restoration of the basic needs of the population affected by the hostilities has not yet been ensured, is difficult to say.

Another UAH 70 mln will be allocated for the construction of a kindergarten in Odesa (Pestel Lane). This project was approved at the end of 2021. UAH 340 mln — for the construction of a water pipeline in Odesa from Bahrytskyi street to the Fontanska road. This project was also approved back in 2021 as part of the development strategy of Odesa Oblast.

Prioritization of projects

Transparency International Ukraine has developed a concept of a methodology for prioritizing projects within the Rise coalition. During the selection of the first recovery projects, it was used only as a recommendation tool. However, the final decision was made by the Interagency Working Group. This led to the fact that often projects with higher indicators were not selected, instead, the projects I wrote about above received funding.

The methodology developed by TI Ukraine should form the basis of the national Project Prioritization Methodology, which the Ministry for Restoration is developing jointly with the World Bank.

The selection of projects during the second meeting of the working group was based on the indicators of the priority methodology, which we helped develop. This allowed us to focus on more urgent projects — the reconstruction of damaged housing and energy infrastructure.

139 projects were selected for UAH 5.15 bln. Among them: restoration of 62 multistory residential buildings, 17 water supply and sanitation facilities, 7 heat supply facilities, 29 civil protection facilities, 6 facilities to provide housing for IDPs and persons who lost it as a result of armed aggression, etc.

Prioritization should become an alternative to manual selection of projects. After all, such a procedure may contain a risk of excessive subjective and political influence over the selection of recovery projects and have negative consequences for both the efficiency of spending and the trust of international partners.

Why it is important to allocate recovery resources correctly

There will always be more recovery needs than financial resources. According to a joint assessment by the World Bank, the European Commission, the UN, and the government, Ukraine’s needs for reconstruction and recovery amount to USD 411 bln, while the resources in the Fund for the Liquidation of the Consequences of Armed Aggression only amount to UAH 62 bln (USD 1.7 bln). Some part of the projects will also be financed from local budgets and donor funds, but it is obvious that the available resources are incompatible with the overall needs.

Therefore, it is important to use these funds as rationally as possible. After financing a large ambitious project for the construction of a sports complex or university, there may be not enough money left for the primary needs of people who were most affected by the war. It is necessary to objectively assess the extent to which the project is time-critical and the benefits to the population before deciding which projects should be funded in the first place.

What can happen if reconstruction funds are spent irrationally

In its Concept of Reconstruction, TI Ukraine identified inefficient allocation of recovery resources as one of the four key reconstruction risks. This risk has been inherent in many countries that have undergone the recovery process.

In particular, one of the reasons for the unsuccessful reconstruction of Afghanistan was the implementation of a large number of ambitious but unnecessary projects that did not have a direct impact on the real needs of the population, for example, the construction of a hotel in Kabul worth USD 85 mln. Despite the fact that these funds were allocated at the expense of U.S. financial assistance, the hotel was never completed. But even if the construction had been completed successfully, it is unlikely that such a colossal investment would be justified.

According to the reports of the U.S. Inspector General in Afghanistan, most of the over USD 100 bln allocated to the reconstruction of Afghanistan was spent inefficiently due to the fact that the country’s authorities could not cope with these investments and distribute them effectively among the recovery needs. As a result, the standard of living of the population did not significantly improve, despite the enormous assistance of the U.S. government and dozens of donor organizations.

Consequently, the availability of funding and international support do not guarantee that the reconstruction will be successful. A large number of political, unnecessary, and often corrupt projects devoured most of the international funding in Afghanistan.

Of course, Ukraine has much more developed state institutions, but we should not exclude the risk of excessive political influence and ineffective choice of projects.

How to allocate reconstruction resources effectively

To use reconstruction resources as efficiently as possible, it is necessary to determine objective principles for assessing the priority of the project and the order of its financing.

In the concept of the Methodology for Prioritization of Reconstruction Projects, TI Ukraine proposed five main categories of projects, depending on what needs they meet:

1. Projects that meet the primary needs of citizens affected by military aggression

restoration of housing, temporary housing for IDPs, restoration of electricity, gas, water, and heat supply, restoration of traffic to the settlement, demining of territories, construction and modernization of shelters.

These are projects that restore access to the basic needs of the population affected by the hostilities. They should be a top priority for the state.

2. Projects aimed at restoring community activity

resumption of the work of emergency medical services, emergency rescue services, functioning of public transport, primary health care facilities, critical road infrastructure, resumption of the work of the National Police, State Emergency Service, Administrative Services Centers, social protection services.

This is a category of projects that are aimed at restoring basic services in communities that are necessary for the population in the first place.

3. Projects aimed at restoring sustainable functioning of communities

restoration of schools, kindergartens, communication services, functioning of public services, specialized medicine, etc.

These projects allow citizens to return to normal life.

4. Projects for the restoration of objects of social and cultural welfare of communities

monuments of architecture, museums, libraries, higher educational institutions, public space and sports and leisure facilities.

This category of projects provides a full restoration of life in all spheres, including cultural.

5. Community development restoration projects

projects that may not be associated with the consequences of destruction but are important for restoring the lost potential of the country’s development, contribute to overcoming the consequences of military aggression, improving the comfort and quality of life of the population.

It is advisable to implement development projects when the state has provided for the basic needs of the population and the return of the territories to normal life.

However, within one category of projects there can be thousands of different initiatives, with varying degrees of feasibility and effectiveness. Therefore, projects should also be additionally prioritized according to such indicators as:

• Cost per user (the higher the cost of the object in relation to the number of users, the less priority is given to such a project).

Example: there are two projects worth UAH 10 mln: the restoration of a damaged apartment building, which will allow restoring housing for 50 families, and the reconstruction of three private houses for three families. Obviously, the restoration of an apartment building is a higher-priority way to use these UAH 10 mln because it provides an identical need for a much larger number of citizens.

• The urgency of the need

Not all objects require restoration here and now. Therefore, it is important to analyze whether the need for the project is really urgent, or whether such a project can still be implemented using the subsequent financial revenues.

• Energy efficiency, environmental friendliness, and inclusiveness

It is also critical to give a competitive advantage to projects that involve the improvement and modernization of facilities. In particular, improving energy efficiency, reducing emissions, improving waste management, improving access to services, etc.

You can read the full draft of our project prioritization methodology here.

This list of criteria is not exhaustive. For example, during the second stage of selection of reconstruction projects, the indicator of community’s capacity was used, which gave preference to communities with small budgets over the richer ones. It was proposed by the Ministry for Restoration so that the money would primarily go to those projects that the communities are not able to implement at their expense.

However, it is important that objective criteria be implemented and have a decisive impact on how funds are allocated.

Further steps

To channel limited reconstruction resources to the important and urgent needs of citizens and the state, the government must define clear and transparent principles for the selection of projects, regardless of the level at which the funding decision is made. The best option is a single methodology.

It must be mandatory when selecting projects both at the national level and in the regions. A transparent and effective methodology will help minimize the human factor and the risk of political influence so that the funds are really spent on reconstruction, in accordance with the most urgent needs.

This will underpin the international community’s confidence in the state’s approach to planning and implementing the country’s recovery, and how effectively it will apply international support.

Western countries have a rich experience of unsuccessful examples of reconstruction in the Middle East and the Balkans. In many cases, the interest of reconstruction partners quickly faded away, facing ineffective and opaque mechanisms within the state. Ukraine must take a different path.

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