On August 29, MP Oleksii Movchan submitted draft law No. 1055 “On Lease of the National and Municipal Property.” The team of Transparency International Ukraine has analyzed the document.

Why is it important?

Draft law No. 1055 implements the sale of lease rights to national and municipal property through an electronic trade system, which will allow the state and communities to receive greater revenue thanks to transparent competition among potential lessees. 

What will this draft law change?

The electronic auction would undoubtedly mitigate corruption risks in selection of the lessee. Besides, this also mitigates economic risks in establishing how much to charge for the lease. Automation of such processes will help to organize the significant volume of information in this sphere and will provide the authorities, the public and the business unlimited access to them.

For instance, the electronic trade system would automatically create and publish a protocol on auction results on the day when the auction is completed.

Our recommendations

The draft law does not eliminate the potentially corruption-driving provisions of the current law. The mechanism in question is the privatization of property through redemption and lease of property while avoiding transparent competitive procedures. Therefore, we recommend:

  • To increase the procedural time limit for governing agencies to make the decision on leasing the property;
  • To eliminate or restrict the provision on leasing national and municipal property without an electronic auction for certain categories, such as associations, civic organizations, charitable and religious organizations and their “individual members,” etc.;
  • To eliminate the provision on the lessee’s right to privatize the object through redemption without an auction if the lessee has irrevocably improved the leased property.

TI Ukraine supports the use of the ProZorro.Sale system as auctions for lease of national and municipal property. Today, Ukraine can already boast of successful cases in Lviv, Mariupol, Chernivtsi, Mykolaiiv, Kyiv and many other communities. This helped local communities to increase budget revenue and to spark competition.

Analysis of the draft law 

  • Where are we now?

The current Law of Ukraine “On Lease of National and Municipal Property” was approved back in 1992 and does not correspond to the requirements of the modern Ukrainian market. The law stipulates the sale of lease rights for national and municipal property objects through a complicated procedure that does nothing to foster economic competition or boost the price. The lessee is identified by a selection board of the lessor.

By contrast, the draft law proposes to optimize competition through electronic auction and a centralized publication on potential objects to be leased in the respective Electronic Trade System (ETS) where such auctions will be taking place.

Key outtakes:

І. There will be two property lists for the lessor to create and maintain: “First Type List” (a list of objects that have been leased through an auction) and “Second Type List” (a list of objects that have been leased without an auction).

ІІ. The key stages of the lease procedure are defined:

1) making the decision on putting up the property for lease;

2) making the decision to include the prospective object for lease to one of the Lists;

3) publishing the information on the prospective object for lease in the ETS;

4) publishing the lease announcement in the ETS;

5) holding the auction for lease or transfer of the object for lease without an auction, concluding the lease agreement and publication it in the ETS;

ІІІ. The draft law establishes that the procedures of ETS functioning, transfer of the property for lease, submission of applications, conducting auctions, the amount of guarantee deposits and registration fees, the procedure of their payment and refund, participation fee, signing and publication of the protocol and agreement based on auction results are approved by the Cabinet of Ministers of Ukraine.

To participate in the auction, a potential lessee applies by filling out an electronic form in the ETS established by the administrator. The application procedure is regulated by the Cabinet of Ministers.

ІV. The protocol on auction results is supposed to be formed and published by the ETS automatically on the day of auction completion in the electronic form. At the same time, information on auction participants cannot be disclosed until the auction is completed.

It is suggested to simplify the procedure of concluding the lease agreement by establishing a typical form approved by the Cabinet of Ministers of Ukraine (for national property) or by a local self-government agency (for municipal property). If the property being leased has some additional conditions that need clarification, there can be special terms for such agreements

VІ. The lessor will be able to control whether the lessee complies with the terms of the agreement.

Comments:

The electronic auction would undoubtedly mitigate corruption risks in selection of the lessee. Besides, this also mitigates economic risks in establishing how much to charge for the lease. Automation of such processes will help to organize the significant volume of information in this sphere and will provide the authorities, the public and the business unlimited access to them.

However, the draft law is discordant with the Law of Ukraine “On Local Self-Government” and has discrepancies with other laws that need to be reconciled.

 Conclusion

Draft law No. 1055 implements the sale of lease rights to national and municipal property through an electronic trade system, which will allow the state and communities to receive greater revenue thanks to transparent competition among potential lessees. 

However, the draft law does not eliminate the potentially corruption-driving provisions of the current law. The mechanism in question is the privatization of property through redemption and lease of property while avoiding transparent competitive procedures.

We recommend:

  • To increase the procedural time limit for governing agencies to make the decision on leasing the property by taking into account the Laws of Ukraine “On Local Self-Government” and “On Access to Public Information”;
  • To eliminate or restrict the provision on leasing national and municipal property without an electronic auction for certain categories, such as associations, civic organizations, charitable and religious organizations and their “individual members,” etc.;
  • To eliminate the provision on the lessee’s right to privatize the object through redemption without an auction if the lessee has irrevocably improved the leased property;
  • To eliminate the provision that assigns decision-making to commissions of local self-government agencies, since such commissions do not have the authority to make decisions; they can only prepare conclusions and recommendations.

The electronic auction would undoubtedly mitigate corruption risks in selection of the lessee. Besides, this also mitigates economic risks in establishing how much to charge for the lease. Automation of such processes will help to organize the significant volume of information in this sphere and will provide the authorities, the public and the business unlimited access to them. 

For reference:

Transparency International Ukraine (TI Ukraine) is an accredited chapter of the global movement Transparency International, taking a comprehensive approach to the development and implementation of reforms to reduce corruption. TI Ukraine has administered and provided the government such electronic systems as ProZorro, ProZorro.Sale, eHealth, and E-Data. Our other ongoing projects include the Transparent Cities Ranking and development of the DOZORRO community for control over public procurement.

For media inquiries: Olesia Koval, koval@ti-ukraine.org, 093-808-82-78.