Analytical Report of the State Regulatory Administration of Ukraine – 2017

SUMMARY

Regulatory policy is a tool used by countries of the world to maintain the balance of interests between government, business and consumers, reduce the bureaucratic burden on small and medium businesses, and increase competitiveness of business environment. This tool is used by all progressive communities and Ukraine is not an exception.

Procedures of regulatory policy are not bureaucracy but a way of guaranteeing the rights of stakeholders – the public, small and medium businesses – to be involved in the process of making regulatory decisions by the state at early stages (from the occurrence of an idea and problem that needs to be regulated to the implementation of regulatory mechanisms and instruments). These procedures represent an ultramodern mechanism of public functions performing. And the Regulatory Impact Assessment is a document that reflects a cycle of policy assessment for a particular regulatory decision.

The State Regulatory Administration of Ukraine (hereinafter – SRA) was founded by the Decree of the Cabinet of Ministers of Ukraine of December 24, 2014 No. 724 on the basis of  State Service of Ukraine for Regulatory Policy and Entrepreneurship of Development. In January 2015, Kseniia Liapina was appointed the Head of the SRA.

The key tasks of the SRA include:

• ensuring predictable and effective regulatory policy;
• monitoring and coordinating the activities of the executive bodies, civil society institutions and businesses on deregulation of economic activities;
• ensuring the efficiency and transparency of the work of control bodies, optimizing supervisory (control) measures;
• improving the licensing system and simplifying permit procedures in the sphere of economic activities;
• protecting the rights of business entities through a pretrial dispute settlement between licensing authorities and licensees.

All these tasks are aimed at the realization of the primary mission of the SRA – to break down the barriers for the development of legitimate business in Ukraine, which, in turn, represents unalienable part of the Government’s main task – economic transformations and, as a result, economic growth.

The results achieved in 2017:

1. Continuing the trend towards reduction of a number of new regulations

After introduction in 2016 of the obligatory calculations of business costs to comply with the regulatory requirements, a number of draft regulatory acts submitted to the SRA has decreased by almost 50% in comparison with previous years. The tendency of declining the volume of drafting new regulatory acts continued in 2017 (dropping by almost another 20% comparing to 2016). The number of regulatory acts of central executive bodies (CEBs) has reduced by 11.3% versus 2016 (from 627 to 556), while the number of acts of regional state administrations and KCSA (LEBs) went down by 45.1% (from 213 to 117). This overall reduction can be explained by the implementation of an improved methodology of the Regulatory Impact Assessment (RIA) and the SME-Test adapted to the much more effective quality control of the SRA, by the defined delegation of regulatory powers to local self-government bodies and since January 2017 by the removal of the applicability of the Law of Ukraine «On the Principles of State Regulatory Policy in the Sphere of Economic Activity» the regulatory acts, developed by the National Commission for State Regulation of Energy and Public Utilities. Reducing the number of new regulations is an extremely positive and important indicator of the success of regulatory policy. It promotes sustainability and predictability of regulatory policy and indicates implementation of a moderate and prudent approach to regulation of economic activities.

2. The last year’s high level of observing the procedures for preparing the RIA has been maintained when preparing draft regulatory acts

In 98% of cases, draft regulatory acts were accompanied by the RIA, and in 96% of cases, draft act publication procedures have been observed. All draft acts submitted without observing the required procedures had been returned to drafters without consideration.

3. The overall level of compliance of draft regulatory acts submitted for approval to the SRA with the requirements and principles of the state regulatory policy has somewhat improved

In 32% of cases, the SRA denied approval of draft regulatory acts (versus 36% in 2016). The SRA continued the practice of providing ongoing consultations to CEBs. During 2017, the SRA experts held 290 consultations (38% more than in 2016). In 2017, 51% of the RIAs were compliant with the Methodology’s requirements at the time of submission to the SRA, whereas in 2016, this indicator was only 26%. The key quality indicators of the RIA preparation have increased, in particular: the percentage of the RIAs containing economic calculations of business costs as a result of regulatory impact went up to 76.4% (versus 68% in 2016); the percentage of the RIAs containing estimation of budget expenditures on the implementation of proposed regulations, which in the conditions of economic crisis also has key importance, has increased to 73.7% (versus 68% in 2016); the percentage of the RIAs subjected by drafters to the SME-Test out of those requiring impact assessment on small & medium businesses has increased to 67% (versus 54% in 2016).

4. Corrective (mitigating) measures for small & medium businesses are not used when introducing new regulations 

In 2017, none of regulatory bodies had offered corrective measures for small & medium businesses when introducing regulations with a view to equalizing the percentage of administrative burden among large, medium and small business entities.

5. There are still problems in relation to the regulatory planning

Authorities are mostly formally approached to drafting plans which indicates either a lack of a genuine activity strategy of these bodies and the significant advantage of tactical response to the problems of well-planned state policy, or a lack of understanding of the regulatory planning place in the operationalization and implementation of existing policies and strategies. Perfect regulatory planning significantly increases predictability of the regulatory environment and, as a consequence, helps to attract investment to economy. As in 2016, during 2017, a lot of changes were made to the plans, which led to an additional increase of planned draft regulatory acts almost twice. Some CEBs improperly taken into account the regulatory planning in 2016 as well as in 2017, in particular, in the Ministry of Energy and Coal Industry of Ukraine the number of planned regulatory acts increased from 2 to 39 in 2017(in 2016 from 4 to 33), in the Ministry of Economic Development of Ukraine from 3 to 42 (in 2016 from 15 to 53). In 42% of cases, regulatory acts which were submitted for approval to the SRA had not been prescribed by plans at all.

6. There are still cases of total disregard of the regulatory legislation requirements, though they are significantly fewer in number

The most flagrant breach of the state regulatory policy procedures is the determination to completely avoid the need to conduct the RIA and the approval of regulatory acts by the SRA. Ukraine has an effective system for detecting such cases that is an example of the best world practices. During 2017, 32 adopted regulatory acts had been identified (in 2016 there were 90), which were not submitted for approval to the SRA in accordance with the Law (the drafters for 8 regulatory acts were CEBs (50 in 2016), and 24 – LEBs (40 in 2016).

7. The ex-post evaluation level of has worsened

The authorities do not use the legal avenue to monitor periodically the performance of regulatory acts for the effective deregulation of economic activity. The law provides that regulatory body, which has adopted the relevant act, makes periodically a report on monitoring its performance. Based on the analysis of such a report, the drafter could decide on the need for repealing and amending the relevant regulatory act. During 2017, the SRA received 602 reports on monitoring the performance of regulatory acts (780 in 2016). Among them, CEBs presented 429 reports (603 in 2016), LEBs – 173 (177 in 2016). The tendency of declining a number of reports has been observed since 2015. On the results of tracings, 6 CEBs concluded about the need for repealing and amending 13 regulatory acts. 4 regulatory acts were repealed or amended as at 31 December 2017. These are the similar indicators as they were in 2016 and considerably lower than in 2015, when the decisions were made on 49 regulations. This data, and especially the extremely low percentage of decisions on repealing and amending the current regulations – 2,1% of the reviewed regulatory acts,  is a wake-up call which indicates either a lack of will to carry out deregulation by the authorities or a lack or an inadequacy of efficient and high-quality analysis of regulatory acts despite the substantive attraction of technical assistance resources. The RIAs, prepared under the old methodology, intensify this problem enabling to use formal approach in reviewing them and to write formal replies. On the other hand there is no excuse for the state of affairs, when 602 acts were still reviewed and only 13 were amended. In Ukraine the quality of the existing regulatory regime is not so high as to justify such a proportion.

8. Compliance with the requirements of regulatory legislation by local self-government bodies (LSGBs) is extremely unsatisfactory, especially in rural areas

In Ukraine there are 10581 regulatory bodies that are empowered to adopt regulatory acts. Only 8% of mentioned bodies had submitted draft regulatory acts to the SRA during 2017. SRA received draft regulatory acts only from 11 out of 24 regional councils (46% of total); from 514 district councils received only 34 regulatory acts (7% of total); from 414 city councils – 148, that means from every third; from 668 township councils – 76 (11%); from 8986 village councils – 599 (7%). In general, in 2017 1828 draft regulatory acts were submitted to the SRA by LSGBs and there were no proposals on improving of 32 draft regulatory acts (less than 2%) according to the principles of state regulatory policy. In addition, 476 regulatory acts of LSGBs were identified, that have been adopted in violation of the Law. The SRA received only 112 out of them in the permitted manner, although they then have been adopted without taking into account the comments.

9. 23 license terms of conducting the types of economic activity were adopted by the SRA and were approved by the Decrees of the Cabinet of Ministers of Ukraine

10. There were established the conditions for submitting the documents to obtain a license in electronic format

A Decree of the Cabinet of Ministers of Ukraine of May 24, 2017 No. 363 «On Approval of the Procedure for Submission of Documents Electronically to the Licensing Authority» provides that electronic documents can be submitted to the licensing authority through the Unified State Portal of Administrative Services, including through information systems of licensing authorities integrated with it, was adopted. The issue of implementing the United State Register of Legal Entities, Individual Entrepreneurs and Public Organizations (USR) since 2017, as the unified electronic data collection system that ensures both transparency and disclosure of information on licenses and permit documents, continues to be an urgent matter in this sphere. Measures aimed at filling the USR with information on licenses and permit documents have not been completed owing to the reasons beyond the control of the SRA and time frame for their implementation was deferred until 1^st January 2019. This fact cannot fully exercise the right of business entities to reflect in the USR the information on licenses or permit documents that they have.

11. The number of complaints considered by the Expert-Appeal Council of Licensing has been increased

In 2017 the Expert-Appeal Council of Licensing held 15 meetings, during which 131 complaints of business entities on violation of the legislation in licensing sphere against licensing authority were considered (unjustified revocations of licenses, refusals to re-issue the licenses on perpetual ones and refusals to issue the licenses), that has increased more than 1,5 times comparing to 2016 (in 2017 85 complaints were considered). This shows that the Council is the effective institution for protecting the rights of business entities. The vast majority of complaints from business entities concerning the actions of the State Architectural and Construction Inspectorate of Ukraine (SACI) and the Ministry of Ecology and Natural Resources of Ukraine (MENR) have been received. However, if only few complaints concerning the actions of the SACI were satisfied (7 out of 37 were satisfied), complaints concerning the actions of the MENR were mostly substantiated (18 out of 32 were satisfied). Upon the results of considering the complaints, the decision was made to satisfy 56% of business entities complaints and as a result, the SRA issued to licensing authorities the prescripts to eliminate the breaches of licensing legislation.

12. Drafting new permit documents is continuing in violation of the legislation

During 2017 the SRA carried out an expertise of draft regulatory acts related to provision of permit documents and administrative services permanently (more than 300 draft regulatory acts were considered, including 160 draft decisions of LSGBs, 143 draft legislative and normative-legal acts). Almost 80% of draft normative-legal acts contained provisions which complicated the activities of business entities and implemented excessive state regulation. This is especially so in the draft decisions of LSGBs related to regulations of locating temporary facilities, objects for trade, advertising facilities, signboards, improvement of territories. Drafts of such decisions provided for permit documents, approvals for locating temporary facilities, objects for trade, etc., are not prescribed by the Laws, as required by the Law of Ukraine «On the Permit System in the Sphere of Economic Activity». The SRA continually prepares proposals for avoiding the inclusion in draft regulatory acts of permit documents and permit procedures which are not prescribed by special laws that govern relations in relevant spheres, and by the Law of Ukraine «On the List of Permits in the Sphere of Economic Activity».

13. In Ukraine deregulation process is not being implemented effectively

Some draft normative-legal acts, which had been submitted for approval to the SRA in 2017, were aimed at deregulation of economic activities and liberalization of business climate. The drafters’ quantitative cost-benefit analysis of implementing these draft regulatory acts has made it possible to foresee the approximate common advantage of more than 11,4 billion UAH. Over 100 regulatory barriers were abolished including a reduction of more than 40% of permit documents, mandatory certification of 90% of goods, time frame for issuance of a phyto-sanitary certificate at ports (from 5 to 2 days). A quarantine certificate and also about 15000 Soviet standards had been repealed. In addition, the Action Plan for Deregulation of Economic Activities is not being fully implemented. 60% or even more than 80% of scheduled measures remain unimplemented by certain regulators (detailed information can be found on the official web-site of the SRA under «Deregulation»).

14. The full publicity of the procedure for approval of unscheduled measures of state supervision (control) was implemented

The approval has now been implemented on the basis of substantiated applications of individuals on breaches of their legal rights by business entities, which provides the opportunity to protect citizens rights, and a protection mechanism for businesses against unjustified inspections by the supervisory (control) authorities is simultaneously implemented. The Council on State Supervision (Control) of the SRA meets every week, the approvals and the refusal list are immediately posted on the official website of the SRA. During 2017, the SRA, taking into account the Council recommendations, considered 3074 applications from state supervision (control) authorities on granting the consent to conduct unscheduled state supervision (control) measures. 2273 applications were approved and 679 applications were refused the approval by the SRA. 122 applications from state supervision (control) authorities were left without consideration taking into account the grounds, determined by the procedure. 

15. Compliance with the legislation by state authorities of supervision (control) was supervised

In 2017 the SRA had conducted 58 inspections in order to prevent and to identify violations of legislation by the state supervision (control) authorities. According to the results of all inspections, the acts were drawn up and the instructions as well as the orders were issued.

The State Regulatory Administration team works steadily on solving the tasks that first of all business formulates for the Administration. The SRA’s staff is adequately trained which indifferent to their work, including new public officials who have won the competitions for vacant positions. The SRA has a clear strategic vision to meet the challenges which were entrusted to it by the Government. The Administration implement the measures which are assigned to it under «Economic Growth» of the Medium-Term Action Plan of Priority Actions for the Government until 2020 and the Strategy for Sustainable Development «Ukraine – 2020» systematically and thoroughly. We fully understand that – in the process of qualitative regulatory policy-making, as well as executing the deregulation tasks, the business will remain the main professional partner of the SRA. And our mission was, is and will be – breaking down the barriers for the development of legitimate business in Ukraine.

Prepared with the assistance of the World Bank experts

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