Public Property Lease Reform: Successful Start, but More Room for Improvement

Transparency International Ukraine has published the results of its research The Lease of Public Property in Ukraine.

Since February 1, 2020, new rules for the lease of public property have been in effect in Ukraine after the new Law “On the Lease of National and Municipal Property” came into effect. From now on, government property can only be leased through e-auctions in the Prozorro.Sale system. The first results of the reform are as follows:

1. Positive dynamics of e-auctions.In October 2020, the first 43 auctions for state property lease took place. As of the end of 2020, 952 auctions had been held, 332 (35%) of which have now been successfully completed. Kharkiv, Donetsk and Luhansk oblasts are in the lead in the number of successful auctions.
2. Increase in national budget revenues: in some e-auctions the rental price increased tenfold from the starting price.
3. Increase in the transparency of the sphere, simplifying procedures, stimulating competition and strengthening public scrutiny through unhindered access to data.
4. The low disqualification rate of auction participants is less than 3%. The main reason for the disqualifications was the lack of a protocol signed in time by the winner.

At the same time, the following problems in the sector have been identified:

1. Lack of a clear mechanism of government control over the sale and use of public property. It is necessary to approve the methodology for monitoring the lease of state property, as well as to enshrine the liability for various types of violations in law.
2. Low quality of reporting information filled out by hand in the register of lease agreements. Among other things, there is no uniform approach to filling quarterly lists, there are errors in ERDPOU codes, no information on private individuals who are lessees, and the absencce of agreements in open access.
3. To increase the number of successful lots for the lease of state property and foster competition among participants, it is important to increase the level of professionalism of both organizers and businesses. Since the reform of public property lease has just begun, there is a public demand for unequivocal interpretation of updated legislative provisions, their practical application, and dissemination of the best practices.

“Despite the problems, the reform has launched a mechanism for change. The new law regulates the procedure for the transfer of state-owned property, making it clear and unambiguous. E-auctions mean equal opportunities and uniform rules of the game for all market participants. Thanks to the transparent procedure of e-auctions, the national budget and local budgets will be able to generate real revenue. The reform continues, and so the state, business and civil society have some homework: to implement really effective monitoring and control over the sale and use of state property,” explains Khrystyna Zelinska, co-author of the study and manager of the TI Ukraine’s innovation projects program.

Previously, before the adoption of the new Law, government property was leased through a complex and non-transparent procedure, which brought minimal revenues to the national budget. Owners advertised the possibility of renting on their own websites or in the media, the process of transferring property for use took a long time, the pricing algorithm remained unclear, and public control over the effectiveness of the lease was limited, as the texts of contracts were not publicly available.

The study was prepared by the Transparency International Ukraine State Property Management Team within the project “Support of the State Property Fund of Ukraine: Sustainable Investments Office.” The study was made possible with the support of the British Embassy in Ukraine. The contents of this publication are the sole responsibility of Transparency International Ukraine and do not necessarily reflect the views of the U.K. Government.