December 2016 – Ukraine’s Parliament has approved several long-anticipated bills in the field of road industry and public transport that aim to attract around USD 10 billion in investments and diminish corruption.
With about 97 per cent of Ukraine’s roads in unsatisfactory condition, including 40 per cent of roads that are no longer eligible for repair and which need to be rebuilt practically from scratch, the country’s road infrastructure is considered a hindrance to economic growth. Despite Ukraine’s enormous transit potential, a total of 430,000 kilometres of roads and strategic position as a liaison between major European and Asian trade routes, it ranks 80th among 160 countries worldwide in the 2016 World Bank Logistics Performance Index, in Europe outscoring only Belarus, Bosnia and Herzegovina, Moldova, Montenegro and the Russian Federation.
Decentralisation of the system
The idea behind the Law On amendments to Ukrainian legislative acts in relation to reform of the system of management of state roads, is to deprive Ukraine’s Road Agency, Ukravtodor, which currently combines the functions of commissioner, contractor and watchdog of roads repairs, of its monopoly over the road market. By 1 January 2018, when the law enters into force and necessary secondary legislation shall have been adopted, this situation will change for the better. Over 380,000 kilometres of regional and local roads will be managed directly by regional authorities and municipalities, while Ukravtodor will maintain its commissioning powers only with respect to 49,000 kilometres of state roads. In all instances, contractors will be hired based on open tender procedures, and independent institutions will be tasked with quality control. Over the longer term, Ukravtodor’s regional offices (oblavtodors) that have proven to be counterproductive will be privatised and will cease to exist.
It is also expected that construction works will be conducted based on long-term construction contracts with a duration of up to seven years and shall be based on globally recognised forms of contracts issued by the International Federation of Consulting Engineers (FIDIC), which is at first for Ukraine.
Financing for road infrastructure
According to Ukravtodor, the annual cost for road infrastructure development is around UAH 60 billion (approximately USD 2.3 billion). Only UAH 19 billion (approximately USD 737 million) has been allocated for this purpose in 2016.
In view of this, laws “On amendments to the Law of Ukraine ‘On sources of financing of Ukraine’s road industry’” and “On amendments to the Budget Code of Ukraine on improvements in the financing of the road industry”, which also enter into force on 1 January 2018, provide for the establishment of a separate State Road Fund, to be replenished with revenues from toll roads, concession payments for use of state roads, excise tax and import duties on fuel and vehicles, and fines for driving overloaded trucks. The bills also provide for a transition period until 2020 with 50 per cent of excise and import duties allocated to the Road Fund in 2018, increasing to 75 per cent in 2019 and to 100 per cent by 2020.
Revenues for regional funds will be partially formed by means of subventions from the State Road Fund for the construction, reconstruction, repair and maintenance of roads based on the length of roads in each oblast, region, city or village. Parliament agreed to allocate 35 per cent of the Road Fund’s revenue for this purpose, while another 65 per cent will be used for state roads, repayment of associated debts and maintenance of traffic safety. Five per cent of state excise duty is already allocated to regional budgets.
In one setback, parliament failed to approve related bills regarding weight control for trucks. The current inefficient system results in the gradual deterioration of Ukrainian roads.
Other important developments
Ukraine’s Parliament also approved in the first reading changes to legislation regarding the introduction of automatic fare collection on local public transport, which is expected to attract some USD 106 million in investment and decrease by 25 per cent the expenditure of public transport enterprises on fare collection.
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