On October 19, the Parliament voted for the draft law, which provides for the creation of a fund to eliminate the consequences of russian aggression. This is a special fund as part of the national budget for 2022, which will be filled exclusively with funds seized or received from the sale of assets of russia and its residents.

This is about closing a significant part of the country’s reconstruction needs — the construction of public buildings and shelters, reconstruction and repair of critical infrastructure, housing for IDPs and persons who lost it as a result of the military action, and even the procurement of buses and special vehicles for health care institutions and municipal enterprises.

In fact, MPs tried to solve two topical problems at once — providing partial financing of measures to eliminate the consequences of the armed aggression and settle the issue of disposing of part of the seized russian assets.

However, despite the important goal, the draft law has a number of doubtful provisions and shortcomings that will affect the effectiveness of the fund.

  • The fund will finance a significant amount of expenditures — from the construction and reconstruction of critical infrastructure to compensation for damage to life and health caused in connection with the military aggression. However, the sources of the fund’s filling are limited — these are funds received from the forced seizure of the assets of russia and its residents. But they are unlikely to be enough to cover the government’s stated need of USD 3.4 billionthis year.
  • Among the sources of financing of the fund, there are no confiscated russian assets. This mechanism is applied on a par with forced seizure — in early September, the HACC confiscated the assets of the russian oligarch Vladimir Yevtushenkov, and the Ministry of Justice is already preparing for new trials against sanctioned russians who have assets in Ukraine. However, without the procedure for disposal of confiscated assets determined at the level of the law, it is impossible to direct them to the needs of restoration.
  • The draft law does not provide for a clear and transparent mechanism for using the money of the fund and prioritizing the areas of financing. This is a significant risk, which can lead to inefficient spending of budget funds.
  • The power to dispose of the funds will be vested in the government, but the decision on the allocation of funds will be agreed by the VRU Committee on Budget. In this case, the role of the political component in the process is increasing, the consequences of which can be abuses in the financing of individual expenditures or blocking of funds.

The seized russian assets should be aimed at urgent measures to eliminate the consequences of the armed aggression. First of all, it concerns the restoration of critical infrastructure and housing in the de-occupied territories. That is why TI Ukraine recommends parliamentarians and the government to embark on changes immediately so that the fund becomes a truly effective tool.

Transparency International Ukraine recommends:

–       to separate and agree on the areas of financing of both funds to ensure the most effective use of funds and avoid their double financing when developing the draft law on the launch of the Reconstruction Fund of Ukraine;

–       to provide a transparent mechanism for the use of the money from the fund, which will determine the amount and procedure for the distribution of funding between areas, their priority;

–       to regulate at the level of the law the procedure for the disposal of russian assets confiscated in accordance with the Law on Improving the Effectiveness of Sanctions and to direct them to the needs of reconstruction of the country.