Directorate-General for Internal Policies of the Union Directorate for Budgetary Affairs Secretariat of the Committee on Budgetary Control

Brussels, 13.02.2017

Report on the fact-finding mission of the Budgetary Control Committee to Ukraine 16-19 May 2016

Source: www.travellerspoint.com

B-1047 Brussels - Tel +32 2 28 448869 - Fax 0032 2 28 46958

Summary and recommendations

Since the Maidan revolution in 2014, the EU is providing a very substantial financial assistance to support Ukraine's stabilisation and reform process (3.4 billion euro of Macro- financial assistance, 900 million euro of bilateral development assistance, 500 million euro of regional assistance, 50 million euro for stability and peace, 60 million euro for humanitarian aid). This aid covers key areas such as fight against corruption, judicial and public sector reform as well as economic reform and private sector development. In addition, there are specific actions targeting civil society organisations, cross-border cooperation and humanitarian assistance.

In the light of the above, the Budgetary Control Committee decided to send a delegation to Ukraine in order to verify:  how EU money has been spent and what added value it brought;  did the EU expertise helped tame corruption and brought the spill over effect of EU standards to Ukraine;  did the EU financial aid in its direct neighbourhood helped stabilising the country;  did the Eastern Partnership project improve the quality of the civil service in Ukraine.

The program of the visit was split into two parts:

The first part in the L’viv region in western Ukraine aimed to monitor EU funded projects and trans-border cooperation with the EU. The delegation visited projects not only in the regional capital of L’viv, but also in towns like Drohobych or Sambir and villages like Morshyn, Pisochna or Luky where EU funded projects have also been conducted.

The second part of the delegation took place in the Ukrainian capital Kyiv where the Members met with the central authorities - the Verkhovna Rada (Ukrainian parliament) and the newly sworn in government. During the meetings they checked how Ukraine was coping with systemic corruption and how was it managing centrally the EU funds. In the Parliament, the CONT Delegation met with its homologue in the spirit of the recently signed cooperation agreement between the European Parliament and the Verkhovna Rada. The delegation also met with the anti-corruption bodies created after the Maidan revolution. Meetings with the civil society, anti-corruption watchdogs and investigative journalists were also included in the program.

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On the bases of the meetings and visits of the projects, the delegation could note that:

1. General remarks:

 Despite progress achieved since 2014, several long-term issues remain: the risk of backsliding, for example in public procurement exemptions and budgetary transparency;  Overall, as stated by the ECA in its special report on Ukraine, EU assistance to Ukraine has been partially effective in supporting the transformation of the country into a well-governed state in the area of public finance management and the fight against corruption. The assistance was also only partially effective in producing

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tangible and sustainable results; the Commission however believes that even though the EU assistance was partially effective, important structural reforms in nearly all areas covered by the audit have been triggered or supported by EU programmes;

2. Macro Financial Assistance to Ukraine and European Neighbourhood Instrument:

 The EU response to the Ukraine crisis of 2014, although prompt, was an emergency solution and the EU acted without a predefined strategy following the rapid development of events;  Monitoring of the implementation of EU assistance was largely effective. Suspensions of budget support payments advanced public finance management priorities in 2011- 2013;  Frontloading of the Ukrainian sector budget support programmes designed over the 2007-2010 period contrasted with the weak track record of reform policy implementation in Ukraine and the relatively poor fulfilment of the variable tranche conditions;  Frontloading of the MFA II loan to Ukraine, was in response to the risk of financial and political collapse of the country and was done in emergency mode; for example the Commission disbursed EUR 250 million (70% of the State Building contract) within a month of signing the contract;  It is worth noting however that what has been done in the case of Ukraine is not at all outside normal EU practice and rules for budget support and is applied by the Commission to other countries as well;  In the Public Finance Management section of MFA I and II, the Commission assessed half of the conditions as broadly fulfilled and only one as non-fulfilled. However, for disbursement purposes, the Commission used its margin of appreciation and positively assessed several PFM conditions even though implementation on the ground was affected by shortcomings;  The Budgetary Control Committee agrees with the position of the ECA in its audit of Ukraine, that the EU budget support in Ukraine is not evaluated systematically;  The Budgetary Control Committee agrees with the position of the Accounting Chamber of Ukraine, which stated in its conclusions on the audit of MFA funds, that: . central executive bodies did not manage to efficiently and timely use the budget support; . Ukrainian legislation regulating budget support operations needs to be improved; . Lack of coordination between ministries; . Central executive bodies responsible for implementation of sectoral budget support failed to fulfil many indicators therefore disbursement of various tranches was only partial;

3. Corruption:

 Significant steps to combat corruption were taken only after the Maidan revolution but further consolidation of the anti-corruption framework is needed, as are tangible results;  Since 2014, the Ukrainian authorities have created three bodies aimed at combating corruption. Two years after their creation, some of these bodies are still more occupied with staffing and office equipment then they are with fulfilling their statutory duties;

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 Further improvements are needed to ensure full independence and integrity of specialised anti-corruption Prosecutor’s Office;  Effective monitoring and coordination by the National Council on Anti-corruption Policy is still needed;  The Ukrainian authorities have not yet produced a convincing track record of investigations and sanctions for high-level corruption cases;

4. Improvement of quality of civil service in Ukraine:

 Despite efforts of the Ukrainian authorities and despite seeing success stories implemented, the Ukrainian the quality of the civil service remains poor. This directly affects the possibility of effective disbursement of EU funds granted to the country;  The Ukrainian civil service is underpaid, which results in a high turnover of staff, limiting the efforts to improve its quality; additionally, the underpayment of the civil service increases the risks of bribery, which can further hinder both Ukraine and the EU funds;  It is worth noting that with the new civil service law (adopted in end of 2016) and the new PAR strategy and implementation plan (also adopted last year and in line with EU and OECD/SIGMA principles) there is a now some potential to improve the situation. On that basis, the EU has decided to launch a major PAR support programme (Special Measure II 2016 for budget of EUR 104 million).

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1. Introduction

Ukraine is one of the largest countries on the European continent (603 000 km2) and is home to 44 million inhabitants. The country gained independence in 1991 with the collapse of the Soviet Union. Since then it has conducted a multi-vector policy trying to balance between the European Union and Russia. This policy was questioned by the Ukrainian society in 2004 during the Orange Revolution and again in 2014 in the Maidan Revolution, during which Ukrainians clearly showed that they would prefer to cooperate closer with the European Union.

Since the beginning of 2014, Ukraine’s territorial integrity has been seriously threatened. The Russian forces had annexed the Crimean Peninsula and the Russian-backed separatists are occupying parts of the Donetsk and Luhansk regions in the east of the country.

Ukraine since 2004 is a direct neighbour of the European Union. It is an active member of the Eastern Partnership and receives EU funds via various channels. Firstly it received funding through the European Neighbourhood and Partnership Instrument (ENPI) and then since 2014 through its successor - the European Neighbourhood Instrument (ENI). Most of ENPI-ENI assistance (65%) was granted using a sector budget approach. Ukraine also received EU grants through the instrument for Nuclear Safety Cooperation and the Instrument contributing to Stability and Peace. In addition to grants, the EU has provided Ukraine with macro- financial assistance (MFA), i.e. loans which were released in several instalments (“tranches”) upon fulfilment of conditions related to macro-economic situation and sectorial reforms. In March 2014, the Commission announced an indicative Ukraine support package of EUR 11.2 billion, including up to EUR 8 billion of EIB and EBRD loans for the 2014-2020 period to support the reform process. Further detailed information on the various funds provided for Ukraine can be found in chapter 2.

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2. Overview of EU support to Ukraine

2.1 Macro-financial assistance (MFA). Since 2014, the EU has committed € 3.41 billion in macro-financial assistance (MFA) to Ukraine under three programmes. So far, € 2.21 billion in loans have been disbursed - € 610 million under the first MFA operation, € 1 billion under the second programme, and € 600 million as part of the most recent and ongoing MFA operation (MFA III). Subject to the effective implementation of the policy, measures detailed in the Memorandum of Understanding related to MFA III, two further tranches of € 600 million each are expected to be made available to Ukraine in 2017.

Macro Financial Assistance 2014-2015 Expected Committed Disbursed to be (in B€) (in B€) available in 2017 B€ Overall MFA 3.41 MFA I 610 610 MFA II 1.000 1.000 MFA III 1.800 600 MFA III (further tranches) 1.2 Total MFA M€ 1.2 3.41 2.21

2.2 Bilateral Development Assistance Due to the fragile situation in Ukraine there is no multi-annual ENI programming document in place. Instead, assistance is currently provided in the form of annual 'Special Measures' (SM). Return to normal multi-annual programming is envisaged as from 2018.

2.3. 2014 Special Measure (April 2014) (€ 365 million) In 2014, the European Commission adopted a Special Measure worth € 365 million in the form of grants. The package supported the country's transition by promoting and monitoring democratic reforms, reinforcing macroeconomic stability, strengthening its capacity reforms and its socioeconomic development through two actions:

2.3.1 State Building Contract (€355 million)

The State Building Contract in the form of budget support provides financial support to the transition process of Ukraine. The general objective is to support the government of the country in addressing short-term economic problems and preparing for in depth reform in the context of political association and economic integration with the EU on the basis of the Association Agreement/Deep Comprehensive Free Trade Areas through support to improve governance, the fight against corruption, judiciary reform and public administration reform.

2.3.2. Support to Civil Society (€10 million)

The Civil Society Support Programme complements the support provided to Ukraine under the State Building Contract, to enhance the role of civil society; promoting and 6

monitoring democratic reforms and inclusive socio-economic development in Ukraine. The action is implemented through calls for proposals for funding actions implemented by civil society organisations and through technical assistance providing training and advice on support to structured dialogue between the authorities and the civil society.

European Neighbourhood Instrument (ENI) No multi-annual Total 2014 Special Measure programming commitments (in M€) State Building Contract - support to the process 355 of stabilisation Civil Society Support Programme 10 Total SM 2014 365

2.4. 2015 Special Measure I in support of Private Sector Development and Approximation (April 2015)

The bulk of the 2015 programme was designed to contribute to economic recovery, focusing on the areas affected by the conflict in the East, including reforms to improve business climate and support to SMEs. At the same time, the programme also supports the Ukrainian public authorities in designing and implementing key reforms stemming from the Association Agreement, including capacity to carry out the legal approximation process with the EU.

This Special Measure contains two actions (a private sector development programme for € 95 million and a technical assistance facility worth €15 million) for a total of €110 million.

2.4.1 EU Support to Ukraine to re-launch the Economy (€95 million)

EUR 55 million (EU SURE) is for Private Sector Development and Approximation in addition to €40 million through the Neighbourhood Investment Facility (NIF). The action supports national, regional and local authorities and other stakeholders to develop and implement effective economic development policies, including SMEs policy.

The Neighbourhood Investment Facility (NIF) is an innovative financial instrument under the European Neighbourhood Policy (ENP). The NIF pools grant resources from the EU budget and the EU Member States and uses them to leverage loans from European Public Finance Institutions as well as contributions from the ENP partner countries themselves. Its primary aim is to support key investment infrastructure projects in the transport, energy, social and environment sectors as well as to support private sector development (in particular Small and Medium Enterprises - SMEs) in the EU Neighbourhood region. To benefit from the NIF, a project must be financed by an eligible European Public Finance Institutions, such as the European Investment Bank (EIB), the European Bank for Reconstruction and Development (EBRD) or the Council of Europe Development Bank (CEB) in order to receive a grant from the NIF

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2.4.2. Technical Cooperation Facility (€15 million) This action of € 15 million together with the Private Sector Development of € 55 million, constitute the Special Measure for Private Sector Development and Approximation (see table below).

The TCF overall objective is to raise Ukrainian public authorities' capacity in designing and implementing key reforms stemming from the Association Agreement, including the capacity to carry out legal approximation. Main priority areas of this action are:

 Governance reforms, economic governance and trade reforms, including statistics, technical barriers to trade and financial services, transport and energy. The programme is implemented mainly through technical assistance and grants.

2015 Special Measure I in support to re- No multi- Total launch the Economy annual commitments programming (in M€) Private Sector Development and Approximation 55 (+40 through NIF) Technical Cooperation Facility 15 Total 2015 Special Measure I 70 (+40 through NIF) = 110

2.5. 2015 Special Measure on Decentralisation Reform (€90 million)

A € 90 million Special Measure to support Decentralisation Reform was adopted on 2 December 2015. This special measure is intended to contribute to the establishment of multilevel governance, which is transparent, accountable and responsive to the needs of the population.

The action includes two main components:

 The first component is intended to enhance the capacity of key actors at central, regional and local levels to implement regional policy and decentralisation reform.  The second component will focus on improving delivery of local administrative services for the benefit of the citizens.

2.6. Special Measure I 2016 for Anti-Corruption and Support to Key Reforms

The Special Measure was adopted on 26 July 2016. It contains two actions for a total EU budget contribution of EUR 43.5 million: Action 1: “EU Anti-corruption Initiative in Ukraine" (€ 15 million) The overall objective of the action is to improve the implementation of anti-corruption policy in Ukraine, thereby ultimately contributing to a reduction in corruption. The specific objectives are:  Strengthen the operational and policy-making capacities of state institutions dealing with prevention and the fight against corruption;

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 Strengthen Parliament's oversight of reform implementation and its capacity to scrutinise and improve the strategic and legislative framework;

 Enhance the capacity of civil society and media to contribute in fighting against corruption

Action 2: Technical Cooperation Facility 2016 (€ 28.5 million) The overall objective of the action is to effectively raise Ukrainian public authorities' capacities in designing and implementing key reforms stemming from the Association Agreement and the Association Agenda, including capacity to carry out legal approximation process with the EU.

2.7. Special Measure II 2016 for Public Administration Reform (€ 104 million)

The Commission Decision concerning this action was adopted on 28 October 2016. The action aims at supporting Ukraine in implementing a comprehensive PAR Strategy for the period of 2016-2020 on the basis of the PAR strategy adopted at the end of June 2016. It will target the main areas of PAR, namely policy development and coordination, civil service and human resources management, accountability of public administration, including improvement of its organisation, administrative service delivery and procedures and Public Financial management.

2.8. Special Measure III 2016 for Support to Rule of Law Reforms in Ukraine (PRAVO) (€ 52.5 million)

The Commission Decision concerning the third 2016 SM was adopted on 12 December 2016. This new initiative is expected to assist Ukraine to step up the current support for the rule of law reforms by providing the necessary capacity building and equipment for efficient and sustainable reform.

Two main areas of support are envisaged: Component 1 will support the justice sector reforms, focussing on the judiciary, the enforcement of judgments, improved access to justice, state registers and the execution of sanctions; Component 2 will support reforms in the law enforcement sector with a particular focus on police reform.

Total Special Measures 2014 + 2015 No multi- Total annual commitments programming (in M€) 2014 SM 365 2015 SM I 110 2015 SM II 90 2016 SM I 43.5 2016 SM II 104 2016 SM III 52.5 Total Special Measures 2014+2015+2016 765

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2.9 Regional Programmes to support SMEs

Support to SMEs at regional level is provided through the Eastern Partnership SME Flagship. The SME Flagship provides support at three levels:

At policy level, the EU works with the Organisation for Economic Co-operation and Development (OECD) to assist Eastern European partner countries in drawing up effective SME policies. This is done through the Small Business Act (SBA) Assessment and the implementation of related recommendations. The EU also co- finances a project of the World Bank (STAREP), which aims to improve financial reporting in partner countries.

For business support organisations the EU has initiated a vast pan-European networking programme - East Invest, which aims at promoting trade and investment through networking and capacity building of business associations in the Eastern Partnership region.

At business level, the EU supports SMEs facilitating their access to finance through a wide range of programmes involving EFIs, such as the SME Finance Facility (implemented by the European Bank for Reconstruction and Development - EBRD, the European Investment Bank – EIB, and the German development bank - KfW) under the umbrella of the Neighbourhood Investment Facility (NIF). The EU is also co-funding business development services to SMEs through the Small Business Support programme, implemented by the EBRD. An upcoming project is the Woman in Business programme of the EBRD whereby the EU is providing risks sharing for loans to women entrepreneurs. In 2015, the SME Flagship consists of a portfolio of active projects of more than € 100 million, out of which € 75 million is provided through European Financial Institutions (EFIs) – leveraging ten times more investment into SMEs in the region.

It is important to increase the visibility and awareness among the business population on the impact and opportunities deriving from the DCFTA. The DCFTA is not only about export but requires companies to comply with higher technical standards and reporting requirements. This creates opportunities but can also be a threat if the business sector is not prepared. Therefore, as part of the SME Flagship, the Commission has put in place a set of programmes to respond to that need in the form of the DCFTA Facility, which mobilise € 200 million in grants that should lead to € 2 billion in investments through loans mainly from the EBRD and EIB. It is expected that about half of this amount will go to Ukraine.

In order to increase visibility of the SME support, all support directly targeting SME will be part of the EU4Business branding.

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2.10 Sustainable Municipal Flagship Initiative

The Flagship on Sustainable Municipal Development was created in early 2015 in response to recent developments and the EU’s and partner countries’ common interest to strengthen local authorities. It encourages local authorities to cooperate with civil society organisations to enhance accountability, exchange best practices and strengthen the municipalities’ capacities as efficient and effective administrations for local development.

The initiative builds on the achievements of some of the ongoing ‘pillars’ of the flagship such as Covenant of Mayors East (see below). The Covenant of Mayors is an EU initiative launched in 2009 where local authorities commit themselves to significantly reduce energy consumption and CO2 emissions, as well as an increase in their renewable energy use and energy efficiency measures, through the implementation of Sustainable Energy Action Plans. This unique bottom-up movement has succeeded in mobilising a great number of local and regional authorities to develop action plans and direct investments towards climate change mitigation measures: more than 6500 municipalities have joined this action, of which more than 150 from the Eastern Partnership region.

Building on the success of the Covenant of Mayors, the Mayors Adapt initiative was launched in 2014, relying on the same governance model, inviting cities to make political commitments and take action to anticipate and prepare for the unavoidable impacts of climate change. End of 2015, the initiatives merged under the new integrated Covenant of Mayors for Climate & Energy, adopting the EU 2030 objectives and an integrated approach to climate change mitigation and adaptation.

The umbrella programme for support to municipalities in the Eastern Partnership is called Covenant of Mayors East and forms part of the Eastern Partnership Sustainable Urban Development Flagship. In Ukraine around 100 Ukrainian cities have signed up to the Covenant of Mayors and 60 of them have already developed and are implementing their Sustainable Energy Action Plans.

Two financial facilities are also available to ease access to finance for Local Authorities during project design and implementation. Local Authorities can submit projects to the Municipal Project Support Facility (MPSF) to receive support for the preparation of their investment projects (from project identification, through project preparation and monitoring)..Moreover, the Eastern Europe Energy Efficiency and Environment Partnership (E5P) supports loans from the participating financial institutions to implement municipal sector projects that will improve energy efficiency and the environment, in particular by cutting the CO2 and other Green House Gas emissions. The E5P is a multi- donor Trust Fund to which the EU is the biggest contributor with € 78 million (€ 40 million for Ukraine). In addition, the Sustainable Urban Demonstration Projects (SUDeP) – Technical Support team which is a program of technical assistance in support to the beneficiaries of the latest round of call for proposal of Covenant of Mayors east. In Ukraine, there are several cities that have won a grant and receiving assistance within the framework of this programme.

A New Regional Programme has been prepared to support local sustainable development in the Eastern Partnership region for the period 2016-2020 (economic development, energy efficiency, security of energy supply, job creation, improvement of local public

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administration capacities, improvement of quality of life, etc.) and will be composed of two different strands:

 An energy/climate stream as follow-up of the Covenant of Mayors project with a stronger focus on the implementation of actions. (CoMO-East II, € 15 million)  An economic stream that will be implemented through the 'Mayors for Economic Growth' initiative (M4EG). This is an initiative that is based on the Covenant of Mayors concept, but applied to the economic field. (€ 15 million)

Sustainable Municipal Flagship Initiative Value of the project components (in M€) Eastern Europe Energy Efficiency and Environment Partnership (E5P) – (€ 40 million 78 for Ukraine) 2011-2019 Municipal project Support Facility (2015-2019) 12.3 Energy/climate streamCovenant of Mayors 15.5 (phase II 2016-2020) Sustainable Urban Demonstration Projects (SUDeP) – Technical Support team 2014-2017 4 Mayors for Economic Growth (2016-2020) 15 Total 124.8

2.11 Cross Border Cooperation (CBC) in Ukraine 2007-2013 programmes In addition to regional programmes, cross-border cooperation has an important place in EU cooperation with Ukraine and Eastern partnership countries. The objective is to deliver a tangible impact on both sides of the borders (cross border impact) in a variety of sectors (including environmental protection, tourism, education and culture) targeting the local population needs. The ENPI Cross-border cooperation concentrates on building direct contacts between societies and local administrations. The main project beneficiaries are local and regional authorities and civil society organisations.

The CBC programmes are implemented in shared management by Joint Managing Authorities (JMAs) located in the Union’s Member States. Projects are normally selected through calls for proposals. However, certain programmes are also implementing large scale projects (often including large infrastructure components) selected via direct award by the participating countries.

Ukraine is involved in four cross-border cooperation (CBC) programmes. The total EU allocations 2007-2013 and 2014-2020 for these programmes are given in the table on the next page.

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ENPI CBC programmes ENI CBC programmes (2007-2013) in M€ (2014-2020) in M€ Black Sea 17.3 39.0 Romania-Ukraine- Moldova / Romania- 126.7 60.0 Ukraine1 Hungary-Slovakia- 68.6 73.9 Romania-Ukraine Poland –Belarus - Ukraine 186.2 175.8

Total 398.8 348.7

Cross border cooperation focused, during the 2007-2013 period, on four strategic objectives:

 promote economic and social development in regions on both sides of common borders;  address common challenges, in such fields as environment, public health and the prevention of and fight against organised crime;  ensure efficient and secure borders;  promote local cross-border people-to-people actions.

ENPI Cross Border No of projects involving Value of the Cooperation Ukrainian beneficiaries Ukrainian project 2007-2013 components (in M€) Black Sea 43 3.8 Romania-Ukraine-Moldova 91 28.12 Hungary-Slovakia-Romania- 138 31.17 Ukraine Poland –Belarus - Ukraine 88 14.26 Total 360 77.35

For the financial period 2014-2020, new Joint Operational Programmes for the Cross-Border Programmes with Ukraine were adopted in December 2015. For the year 2016, the Financing Agreements between the European Commission and partner countries, notably Ukraine should be negotiated with a view to their signature before the end of the year 2016.

In addition, Ukraine participates in EU-funded Territorial Cooperation Programmes for a total amount of € 6.6 million.

1 The 2007-2013 Romania-Ukraine-Moldova was split into 2 bilateral programmes, i.e. Romania-Ukraine and Romania – Moldova in the period 2014-2020. 13

These programmes are funded under the ENPI Regional East Programme and run from 2014 until 2018. They mostly focus on support to SMEs, agriculture and tourism development, environmental protection and people-to-people actions in the fields of sports, education and culture. Support is provided to cross border projects selected through calls for proposals. No project has been selected yet under these programmes. The Moldova-Ukraine programme is now finalising the selection process of the grant applications received, whereas the Belarus- Ukraine programme launched the call for proposals in January 2016, scheduled to run until April 2016.

Territorial Cooperation Programme Total budget (M€) Belarus-Ukraine 3.3 Moldova-Ukraine 3.3

2.12. Assistance to Civil Society, Non state Actors, Local Authorities, Human rights

2.12.1 Financial support to CSOs The Non State Actors and Local Authorities programme (NSA-LA), known as the Civil Society Organisations and Local Authorities programme (CSO-LA) from 2014 on, became available in Ukraine in 2011, with an average allocation of € 1 million per year (€ 650 000 to NSA and € 350 000 to LA). In 2012 the EU further expanded its support to civil society through the Neighbourhood Civil Society Facility (funded under ENPI 2011-2013). Three calls for proposals of € 8 million were launched in 2012-2014, focusing on developing the capacity of the civil society organisations to support their involvement in policy dialogue and reform process in Ukraine. For 2014-2017, the CSO-LA programme in Ukraine has a total budget of € 10 million: € 6.5 million to support civil society organisations and € 3.5 million for local authorities. In 2015, two projects worth € 2 million were signed with local authorities to contribute to the ongoing decentralization reform in Ukraine by supporting the reform of administrative services in three regions and enhancing the capacity of local authorities to manage efficiently and accountably public budget resources. EUR 3 million of the CSO allocation will be used in 2016 to support the National platform of the Eastern Partnership (EaP) Civil Society Forum and the EU-Ukraine Civil Society Platform under the Association Agreement and finance the reserve list projects from the call under the Civil Society Support Programme described below. Further support is also provided through the € 10 million Civil Society Support Programme under ENI funded 2014 SM mentioned above at point 2.1.2. The first call for proposals was launched in April 2015 and around 230 proposals were received. Out of the 23 pre- selected proposals, 9 were selected for grant awards for the total amount of around € 6 million. The projects are expected to start in April-May 2016 and will work in such areas as monitoring and advocacy of reforms, peace-building and support to IDPs, waste management, PFM and budget transparency, and inclusive socio-economic development focusing on Roma communities and young children with disabilities. Since 2014, nearly € 9 million have been channelled through NGOs under the Instrument contributing to Peace and Stability, for recovery, peace building and democratic stabilisation.

2.12.2 European Instrument for Democracy and Human Rights (EIDHR) The European Instrument for Democracy and Human Rights has supported civil society for over 15 years, with an annual budget of € 1 million in the last 5 years.

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Through the European Instrument for Democracy and Human Rights (EIDHR), the EU has supported Ukrainian civil society and human rights defenders in their work on political, civil, economic, social and cultural rights and democratisation. In March 2014, a € 700 000 top-up was made available in support of the constitutional and election processes in Ukraine. Currently, there are 11 ongoing EIDHR projects, with 4 more projects to be signed in the first quarter of 2016. Nine of these projects for the total amount of € 2 million were selected in 2015 to work in the following four areas: civil society participation in policy-making, implementation and monitoring on human rights; support to networks of human rights defenders; women's human rights, and rehabilitation and reintegration for internally displaced children. Other EIDHR projects are working on fight against torture and ill-treatment, promotion of non-discrimination and equality, human rights education, and protection of vulnerable groups.

Support to CSO and local authorities Total budget (M€) CSO part of ENI 2014 Special Measure 10 Thematic Programme 2014-2017 Civil Society organisations 6.5 Local Authorities 3.5 EIDHR 2014-2017 4.4 Total 24.4

2.13. Instrument contributing to Stability and Peace (IcSP) The overall financial support provided through the Instrument contributing to Stability and Peace (managed by FPI – Commission's Service for Foreign Policy Instruments) from 2014 onwards goes up to € 73.7 million (including projects in the pipeline) as follows:

2.13.1 Election observation and confidence building measures (5 million)

On 3 April 2014 the EU adopted a € 5 million package of IcSP assistance to support the OSCE election observation mission in Ukraine for the Presidential elections on 25 May as well as other electoral cycle events up to October 2015.

2.13.2 Support to OSCE Special Monitoring Mission in Ukraine – SMM (30 million) In April 2014, IcSP provided initial support of €5 million to OSCE to allow the SMM reach its full capacity of 500 international monitors and to assist in the implementation of de-escalation measures, as specified by the Geneva Joint Statement of 17 April. Following a request of the OSCE Swiss Chairmanship for additional support to allow SMM to exercise its new monitoring responsibilities of the cease fire agreed under the Minsk Agreement of 5 September 2014, a further €2 million were made available in November to ensure the efficient conduct of SMM operations on the ground during first quarter of 2015. Further € 6 million were provided to cover operational and staff costs for the SMM monitors under the second mandate and another € 5 million have been earmarked for the ongoing third mandate of the SMM (decision to be formally adopted in November 2016). In June 2015, IcSP provided €5 million to the EU Satellite Centre to allow more comprehensive access to imagery and analysis for the SMM and thus to further enhance its monitoring capacity. The IcSP also provided €7 million for Unmanned Aerial Vehicle (UAV) and other monitoring tools (night vision equipment and other optical devices) to support the operations of the SMM.

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2.14 Support to Internally Displaced Persons (IDPs) € 9.5 million The Commission allocated a further € 4.5 million under the IcSP in November 2014 to address IDP recovery and integration needs as well as to promote social stabilisation and confidence building between IDPs and host communities in areas of displacement. A second phase, with a budget of 4 million, has been adopted on 1 September 2016 to continue the provision of such support. The project is implemented by the International Organisation for Migration.

2.15 Support to conflict-affected populations in Ukraine € 13.2 million

IcSP support of EUR 9.5 million was allocated in 2015 to mitigate the most acute effects of the conflict, both physical and psychological, for the affected populations. The four components address:

 the monitoring of human rights abuses with the aim of building up a well- documented caseload which will then assist in the restoration of justice for affected individuals and communities,

 working with Ukrainian regional media on the diverse perceptions of the conflict so as to promote a balanced media coverage,

 provision of psychosocial assistance to conflict-affected communities,

 provision of training and equipment for the state services responsible for demining as well as mine risk education activities for affected populations. A second phase of the human rights monitoring (2.5 million) and a new mine related action to support the Ministry of Infrastructure (1.2 million) were adopted on 1 September 2016.

2.16 Support to Restoration of Governance and Reconciliation in Crisis-Affected Communities of Ukraine € 10 million The IcSP action (adopted in December 2015) contributes to the restoration of effective governance and promotion of reconciliation in crisis-affected communities of Donetsk and Luhans regions of Ukraine thereby enhancing the credibility and legitimacy of local governments in the government controlled areas of the regions. The first component of the project seeks to improve administration and service delivery and the second component supports enhanced community security by building trust between local communities, especially Internally Displaced persons (IDPs) and their host communities, and local government and law enforcement representatives.

2.17 Support to police reform (€ 6 million)

A new 18 month IcSP action, jointly identified with the EU Advisory Mission (EUAM) and to be implemented by the Swedish Police and UNOPS, will support police reform efforts in two priority areas: public order and community policing.

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2.18 Assistance through Common Foreign & Security Policy (CFSP) budget Following a request from OSCE, EC Commission worked closely with EEAS services and were able together to identify 44 armoured vehicles from the stock of ongoing EU operations to be made available to the SMM. 24 armoured vehicles from EUBAM Libya and EUMM Georgia and 20 armoured vehicles from EUPOL Afghanistan. 35 trauma kits were also donated to the SMM. Common Security and Defence Policy (CSDP) mission EU Advisory Mission for Civilian Security Sector Reform Ukraine (EUAM Ukraine): established on 1 August 2014 and launched on 1 December 2014. The current budget for the period 1 December 2014 to 30 November 2015 is € 13.1million.

Assistance through the IcSP 2014-2016 Total budget (M€) Election observation and confidence building 5 measure Support to OSCE Special Monitoring Mission in 30 Ukraine Support to Internally Displaced Persons (IDPs) 9.5 Support to conflict-affected populations in Ukraine 13.2 Support to Restoration of Governance and Reconciliation in Crisis-Affected Communities of 10 Ukraine Support to police reform 6 Total 73.7 CSDP contribution: provision of 35 trauma kits and 20 armoured vehicles from other CSDP operations to OSCE CSDP 13.1

2.19. Humanitarian Aid ECHO figures (years 2014-16): The European Commission acts on the basis of international humanitarian principles of humanity, neutrality, impartiality and independence, which are an integral part of the European Consensus on Humanitarian Aid. This means that the European Commission provides humanitarian assistance to the most vulnerable communities, irrespective of ethnic or religious background. All EU humanitarian assistance is based solely on needs and provided to people affected by the conflict wherever they are. ECHO provided support to the most vulnerable population in the Government and Non-Government controlled areas and along both sides of the contact line. ECHO assisted also Ukrainian civilians having fled to neighbouring countries, such as Belarus and Russia. Since the beginning of the crisis, ECHO has provided over € 65.7 million in humanitarian assistance (€ 11.3 million in 2014, € 32 million in 2015 and € 22.4 million in 2016), of which around 55% of assistance is going to the areas beyond the control of the Government of Ukraine. On the ground, the assistance is being delivered through the Commission's humanitarian partner organisations, including People In Need, ICRC, Danish Refugee Council, ACF,

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UNHCR, WHO, IOM, Save the Children, PU-AMI, Caritas, NRC,WFP, UNICEF and OCHA. Priorities sectors are  Protection: Support to registration and access to documentation, legal counselling, assistance to victims, child protection  Health: Provision of Primary Health Care and support to secondary health care, including rehabilitation services. Support to Epidemiological surveillance and Early Warning System. Psychosocial intervention also targeted.  Food Assistance & Livelihood: support to populations at risk of food insecurity.  Shelter and Non-Food Items: Emergency/Transitional support, one dry room concept, Provision of Non-Food Items.  Water, Sanitation and Hygiene: Rehabilitation of access to water, emergency repair of WASH infrastructure, provision of hygiene kits.  Coordination: Possible support to increased coordination mechanisms at field and national levels  Capacity building: support to the crisis management capacity of national, regional and local authorities.

The use of cash and voucher is considered as preferred modality when conditions prevail as the most dignifying and cost efficient way of delivering assistance in Ukraine.

ECHO Assistance Total commitments (in M€) Humanitarian assistance 2014 11.3 Humanitarian assistance 2015 32.0 Humanitarian assistance 2016 22.4 Total 2014 to 2016 65.7

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3. Visits in the L’viv Region 3.1 Introduction

L’viv region is the one of the westernmost regions of Ukraine. It borders directly with Poland and is within less than 200 km range from the borders of three other EU Member States – Slovakia, Hungary and Romania. Due to its geographical location, it is one of the most important for the EU regions of Ukraine, is included in a number of cross border cooperation projects and receives a significant amount of EU funds. It is also considered a showcase region for Ukraine, both internally as well as from the EU’s perspective. It is therefore used for a number of pilot projects, which are later applied throughout the whole of Ukraine. The L’viv region is also known to be one of the least corrupted regions in Ukraine, which plays a pivotal role when the EU funds are being dispersed.

3.2 Meetings with the regional authorities

The delegation of the Budgetary Control Committee started its visit in the L’viv region with a meeting with the regional authorities. The first meeting was with Mr Oleh Synutka, Head of the L’viv Region State Administration and his team and with Mr Oleksandr Hanuschyn, Head of the L’viv Regional Council and his team. Mr Synutka spoke about the benefits of the decentralisation process, which started after the 2014 revolution. As a result of it, the current budget of the region is seven times higher than in two years ago. This allows the region to conduct a number of projects, which it was unable to conduct earlier even though it was tasked to do it. He mentioned that one of the needs of the region is better connection with the EU. One of the priorities of the region will be a construction (or

19 rather a reconstruction) of an 80 km narrow-gage railroad from the Polish border to L’viv (Ukraine is using the Russian wide-gage railroad system which creates bottlenecks on the border). Another priority is a gas pipeline which would connect Drozdovychi with Bilche Volotsya on the Polish border (110 km of pipeline is needed). This would allow the region to import gas from Poland where it is cheaper and would allow Poland to store excessive gas in two Ukrainian gas storage facilities, which are currently empty. The delegation of the Budgetary Control Committee met also with the city mayor of L’viv, Mr Andriy Sadovyi, who is not only a city mayor, but also one of the most known politicians in the country. Mr Sadovyi explained the problems the city is facing and underlined that the only way for the city, the region and for the country to benefit from long-term stable and sustainable growth is through deepening its ties with the European Union. He thanked the EU for allowing his region and his city to benefit from the EU funds and praised the transfer of EU standards to Ukraine.

3.3 L’viv Public Transport Financing Project One of the many problems of cities in the post-Soviet region is the worn out infrastructure. This could be clearly seen in L’viv, where the public transport needs urgent modernisation. The LvivElektroTrans – the operator of trams and trolleybuses in L’viv – operates trams, which are on average 30 years old with the term of exploitation of 15 years and trolleybuses with an average age of 20 years with the term of exploitation of 10 years. It owns 124 trams, but only 92 of them are operational, while for normative exploitation it would need to operate 126 of them. A similar problem occurs with trolleybuses. The EBRD has provided EUR 50 million in loans to LvivElektroTrans and LvivAvtodor to rehabilitate tram tracks, streets and underlying utilities, renew tram infrastructure and acquire used trams for the City of L’viv. The EU has contributed with EUR 1 million of the technical assistance for L’viv public transport project under the EBRD-01 Technical Assistance Support for Ukrainian Municipalities Project for the development of business plans, procurement and implementation support.

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The loan agreement with EBRD was signed in 2009 and was restructured at the end of 2014 for 10 years. The total estimated cost of the Project is EUR 16.4 million and consists of:

EUR millions 1. The EBRD Loan 12,0 2. Local Contribution from L’viv City Council 2,2 3. Technical Assistance from European Union (Grant) 1,9 Total 16,4

Procurement, implementation and other technical assistance for our project is carried out by Egis International (France) in line with international best practices.

The components of the project were as follows:

Use of Funds Estimated Cost (EUR millions) 1. Purchase of 5 used trams KT4D (completed in 2013) 0,25 2. Local loan refinancing ( completed in 2012) 0,3 3. Modernization of 19 traction substations (completed in 4,0 2016) 4. Construction of traction substation No. 17 with cable power 1,4 supply network for trolley and tram line to Sykhiv residential area in L’viv (in progress) 5. Supply of 7 new three-section articulated tram vehicles, 5,0 associated goods and related services ( in progress ) 6. Reconstruction of Tram Depot №2 (in progress) 1,05 Total 12,00

1. Five used trams were purchased in 2013 from a tram operator of Erfurt, Germany, at the cost of EUR 254 000. These trams are currently operating in L’viv.

2. Modernization of 19 traction substations (completed in 2016): the purpose of the Contract was to perform all necessary supply and installation works, commissioning and other associated services as necessary for the foreseen scope of modernization of 19 Traction Converter Substations (TCS) and Control Centre (CC) for centralized electrical power supply for the Public Electrical Transport of L’viv with replacement of the deteriorated equipment to increase the reliability of the power supply and thus the level of service of the urban 21

electric transport network. The Project included the Supply and Installation of 6kV (alternate current), 600V (direct current) and low voltage equipment in 19 substations, new SCADA system, electrical power commercial metering system, fire and security alarm systems. The Contract was awarded to PrJSC “Pluton” (Ukraine) in September 2011. Completion period was 31 months. The Contract Price was 74.3 million with VAT (~ EUR 4.8 M).

3. Construction of traction substation No. 17 with cable power supply network for trolley and tram line to Sykhiv residential area in L’viv (in progress): the present project includes the construction of a new substation, laying of 6 kV and 600V cable lines, additional installation of switchgear two linear cabinets and two switchgear cabinets of negative rail DC 600V for traction substation TCS-13, modernization of two linear cabinets of switchgear AC 6 kV employing retrofit system for powering traction substation 35/6 kV "Lviv-4" for trolleybus and tramway networks of LME "Lvivelektrotrans". The scope of works includes construction works, supply, installation, connection, testing and commissioning of the new power substation and provision of necessary additional services (training, etc.). The Contract was awarded to PrJSC “Pluton” in November 2015. The expected time for completion is 8 months. The Contract Price is EUR 1.7 million with VAT.

4. Supply of 7 new three-section articulated tram vehicles, associated goods and related services (in progress): the Contract was awarded to JV PJSC “Concern-Electron” and PJSC “Kriukov Car Building Works” in November 2015. The expected time for completion is 9.5 months. The Contract Price is EUR 6.9 million with VAT (including subvention in the amount of EUR 1.6 million provided by government of Ukraine and EUR 0.3 million provided by L’viv City Council).

5. Reconstruction of Tram Depot №2 (in progress): the purpose of the Contract was to perform

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rehabilitation of the Maintenance Building with Boiler Room, Utility and Administrative Rooms of the Tramway Depot No.2. The expected time for completion is 12 months. The Contract Price is EUR 1.27 million with VAT.

L’viv traffic control center: currently, the Traffic Control Centre using specialized software monitors operation of all public transport of the city (trams, trolleys and buses including private carriers) and necessary amendments are made on-line e.g. temporary rerouting through an accident or replacement of defective vehicle, providing scheduled intervals between vehicles on a route, etc. Daily reports formed by dispatchers allow analyzing work of carriers and after implementation of E-ticket system it will be a necessary document for carriers charging money for passenger-kilometers performed. Traffic Control Center provides operation of information boards installed at the bus stops along the tram routes No. 2 and No. 6. These information boards display time of tram arrival at the stop, and some additional information about delay in movement or re-routing in case of failures in a route. Another important function of Traffic Control Center is provision of correct operation of all traffic lights in the city. Now the Traffic Control Center exploits traffic lights with adaptive control on 29 controlled intersections, which through video detectors "adjust" duration of permit signals in traffic flows. In addition, they provide priority for tram traffic (for a tram approaching an intersection turns on green light that does not turn off until a tram will pass it). At these intersections, there is a video monitoring system. The engineers of the Traffic Control Center can directly switch regulatory modes at these traffic lights. Concerning other traffic lights, operators receive information from residents and traffic police and transmit it to Department of traffic lights service.

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3.4 Community Based Approach to Local Development Phase III

This is a programme with the EU funding of EUR 52 million and is since 2008 implemented by UNDP to build capacities of local communities and authorities in applying community-based approach, participatory local planning and public service delivery, rehabilitating basic social and communal infrastructure and developing small farm and non-farm businesses. The delegation of the Budgetary Control Committee visited an example of a project implemented under the Community Based Approach in a small village of Luky, located 60 km south-west of L’viv with a population of circa 935 people. This village has no paved roads and most of its existing infrastructure is worn-out. Thanks to the energetic local school principal who managed to convince the community to apply for EU funds, the local school, attended by 154 children and staffed by 60 teachers, received EUR 5983 as a part of an energy efficiency initiative to replace windows and install boilers that are more effective. The project, although very small in scale, has changed the approach of the village community, which understood that it can have influence on the way it can develop and does not have to passively wait for central aid coming from L’viv or Kyiv. The community is now preparing a project aiming at building street lamps in the center of the village, which would increase the safety of the villagers in during the dark hours of the evenings, especially in autumn and winter.

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3.5 Police Station: EUAM in Sambir

After the Maidan revolution in 2014 one thing became clear and obvious – the Ukrainians do not trust their police. The fact that the police forces were used to fire on the protesters and killed 100 people became the ultimate test for the society that the police is working for the state against the them and not for the society and community. The events in Kyiv had a spill over effect and resulted in looting police stations in western Ukraine. The police officers abandoned their posts feared of being lynched by the population. In the weeks after the revolution, vast parts of Western Ukraine and Kyiv remained without any police force. With the new authorities in power, the decision to reform the police forces became evident. The new police should reflect the shift of policies of the country. Experts from the EU and US have been invited to Kyiv to reform the forces. Within less than 6 months, a new police force has been created. The name of it has been changed from the Soviet-style “militia” into a modern western style “police”. The aim of the new forces was to be closer to the population to whom it is serving, and, what is even more important from the financial point of view, the new forces were supposed to be corrupt-free, as the militia was known to be one of the most bribe oriented professions. As an example of this reform, the delegation of the Budgetary Control Committee visited a local police station in Sambir. Reorganisation of the Sambir police station was done in the framework of EUAM regional outreach activities. A rapid response unit has been created which increased the number of police on the road and thus increased their visibility and reduced response time in the case of emergencies. Sambir police station was a pilot project for the reorganization of tier 2 (small and medium stations) police stations in Ukraine.

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3.5 Center of Administrative Services (CASD) in Drohobych Another element of reform after the 2014 revolution was the reform of public services serving the local population. Until 2014, it was seen as ineffective, impolite and bribe- oriented. A new service is planned to be client-oriented, free from corruption, friendly and efficient. In the light of this transformation, a grant of EUR 940 101 was given to the Lutsk City Council, Rivne and L’viv regional state administrations to create 13 exemplary Centers of Administrative Services. The services were to be located in Volyn, L’viv and Rivne regions (north-west of Ukraine) with implementation of e- technologies for providing administrative services and qualitative and effective administrative services delivering in created CASDs though experience exchange. The project was foreseen to last 18 months (1.02.2016-31.07.2017). The aim of the project was to create a CASD, which can provide a great number of services using the principles of “single office” and “single window”, which means that all agreements, conclusions, notes from different bodies/structural units are delivered to a single “window” in front of which is the customer. This includes business registration, real estate registration, land issues, residence registration, issuing of passports, social services, civil status acts registration and other issues of local importance. The services include unhindered access for people with disabilities and electronic systems of registration and online services. The service providers, good suppliers and work performers were all selected by means of electronic procurement system Prozorro, which was a novelty in Ukraine. According to the results of a social survey, the level of customer satisfaction reaches currently 82%, which was significantly higher compared to a similar study conducted in the same places in 2014, when it did not exceed 10%.

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3.6 Cross Border Cooperation Programme in Morshyn

The project is an integrated investment project implemented in the main area of support of Cross Border Cooperation programme Poland-Belarus-Ukraine 2007-2013. The EU provided EUR 3.9 million to develop the historic spa towns in Horyniec-Zdroj and Morshynn on the Polish-Ukrainian border. The funding was used to upgrade the spa facilities and local architecture as well as the exchange of experiences and transfer of best practice knowledge between the two towns. The project aimed on the benefits for local communities. Using the historical potential of the towns to provide opportunities for a new generation of entrepreneurs as well as helping established business to expand. The project consisted of a complex development and management of spa parks in Horyniec- Zdroj and Morshyn as the space for rest and recreation of local inhabitants, tourists and health resort visitors. It also aimed at increasing the number of domestic and foreign tourists in the two partner towns and stimulation of economic development based on the tourism sector. Finally yet importantly, the project focused on the use of culture, sports and cultural objects to create attractive offer to draw tourists' attention and closer cooperation between the communities of the partner towns.

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3.7 EU4Business: Network of Business Support Centers in Ukraine: TOR LLC Glass Enterprise

The aim of the general program of EUR 40 million was to roll out 15 business support centres in 15 regions of Ukraine. It was a part of a EUR 95 million support programme for the development (including access to finance) of the SMEs across the Ukrainian regions and re-launch of the Ukrainian economy to create growth and employment. The programme was launched in May 2016 and was based on the EBRD’s experience in providing business advice to SMEs under the EBRD Small Business Support programmes in the Eastern Partnership countries (EU contribution of EUR 10 million). The particular case visited by the delegation of the Budgetary Control Committee was a medium size enterprise – TOR LLC Glass Enterprise – which produced various types of artisanal glassware (glasses, vases, plates, bowls, candleholders, decorative items, lamps, etc.).

The enterprise was founded in October 1992 and since 1993 was engaged in development, creation and production of art glassware in a wide range of shapes, designs, colours and sizes. The products were exported to more than 15 countries. It hires around 200 employees. It applied for an EBRD loan of EUR 400 000 in order to improve the energy efficiency of the glass production. The company wanted to install solar panels on the roof of the factory and to use this energy in production. It also wanted to improve the energy efficiency of the production line. This application was however rejected, as the minimal grant given by the EBRD was 1 million euro.

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This project was a very good basis for a discussion by the delegation of the Budgetary Control Committee. The Members decided to follow up the issue and ask the EBRD why, if it aims at promoting small and medium enterprises, does it set up the bar of a minimal loan so high, that a medium-size enterprise cannot apply for a loan, as its needs are too small.

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4. Visits in Kyiv

4.1 Introduction The second part of the program of the visit of the delegation of the Budgetary Control Committee focused on the central and macroeconomic issues. The delegation met with the representatives of the newly elected government, with three parliamentary Committees and with various anti-corruption bodies created after the 2014 revolution. The delegation met also with NGOs and watchdogs, which monitor corruption in Ukraine.

4.2 Meeting with the EU Ambassador and with the OLAF liaison officer The delegation was briefed by the EU Ambassador Mr Tombiński who outlined the political situation of the country and the problems lying still ahead. The ambassador addressed the issue of corruption, the visa issues, the de-monopolisation of the energy sector, the reform of the public administration and the decentralisation of the country. The delegation then head a fruitful discussion with the OLAF liaison officer in Kyiv, Mr Mariusz Kowalczuk, who is monitoring various aspects of potentially fraudulent cases, which might harm the EU budget.

4.3 Meetings in the Verkhovna Rada (Ukrainian Parliament):  Budgetary Committee,  European Integration Committee,  Financial Policy Committee

In the spirit of the agreement signed between the European Parliament and the Verkhovna Rada of Ukraine aiming at deepening of cooperation

30 between the two chambers and spreading knowledge of the EU and its working aspects, the delegation of the Budgetary Control Committee met three Committees of the Rada, which deal with similar matters as CONT. During these meetings, the Members of both parliaments exchanged knowledge and practical aspects of their daily work.

4.4 Meetings with the Ukrainian Government: with Mr Hennadyi Zubko, Vice Prime Minister, and with Ms Yulia Klymenko, Deputy Minister of Economic Development and Trade

The delegation of the Budgetary Control Committee met with the Vice Prime Minister who outlined the political situation in the country and the costs of the war in the east. He highlighted the problems in the Luhansk and Donbass regions and informed about the remedies the government is undertaking to counter the problems. The delegation met also with the Deputy Minister of Economic Trade and Development and had a long and very fruitful discussion with her. She informed the delegation about the status of the police reform, the civil service and the provided the latest information about the public procurement.

4.5 Meeting with anti-corruption NGOs and investigative journalists

As one of the aims of the visit of the delegation was to monitor corruption in Ukraine, the delegation met with watchdogs and investigative journalists who informed about the cases of corruption they have discovered or are following. The Chair asked them to keep her informed about any cases they will find linked to EU funds.

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4.6 Meetings with the National Anti- corruption Bureau, National Agency for corruption prevention, Specialized Anti- corruption Prosecutor's office and Support to Justice Sector Reform project

As Ukraine is the second most corrupt country on the European continent, the issue of corruption was very high on the agenda of the delegation of the Budgetary Control Committee. The delegation wanted to know whether EU funds have been affected by fraud. The issue of corruption was also very high on the agenda of the new Ukrainian authorities, which came into power after the 2014 revolution. Some of the aspects of the fight against corruption have already been highlighted in previous chapters of this report. On macro scale the authorities created three new anticorruption bodies and the delegation met with the management of all three of them. They have informed the delegation that there has been no corruption cases linked to the EU funds discovered so far. The Chair was happy to hear that, but asked them to continue to be vigilant and to be the eyes and ears of the EU taxpayer in Ukraine in this regard. She also underlined that it is crucial that they become fully operational as soon as possible and that their time and energy should not be wasted on staffing, logistics and acquiring office equipment.

4.7 Meeting on the Public Procurement project

One of the measures to counter corruption in public spending is the use of public procurement. The Ukrainian authorities are working on introducing it in the country and the EU is supporting them in this regard. The delegation met with the representatives of the public procurement project, an EU funded project aiming at development of a solid and consistent public finance management through the establishment of a comprehensive and transparent regulatory framework for public procurement. It aims also at an efficient public procurement institutional infrastructure, the

32 accountability and integrity of public authorities in regards to public procurement and the development of the Ukrainian State aid control and monitoring system. The improvement of the public procurement Law in terms of substantial reduction of the numerous exemptions and introduction of e-procurement is also a key issue. The project aims at supporting the drafting of the public procurement reform Strategy/Road map for harmonization with EU legislation, as requested by the Association Agreement between the EU and Ukraine and the Deep and Comprehensive Free Trade Agreement.

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Annex 1 Brussels, 20 May 2016

Fact-finding mission of the Budgetary Control Committee (CONT) to Ukraine

16-19 May 2016

FINAL PROGRAMME

Members of the delegation: 1. Ms Inge Gräßle (EPP, Head of Delegation) 2. Mr Joachim Zeller (EPP) 3. Mr Derek Vaughan (S&D) 4. Mr Ryszard Czarnecki (ECR)

CONT Secretariat 1. Mr Michal Czaplicki (EP mobile: +32-472.580721) 2. Ms Catherine Coninckx

Advisors of Political Groups 1. Mr Balazs Szechy (EPP) 2. Ms Sarah Clarkson (S&D)

Commission 1. Mr Peter Wagner, SGUA (DG NEAR), (Kyiv only) 2. Mr Stefan Schleuning, SGUA (DG NEAR)

EEAS: 1. Mr Berend De Groot (Head of Cooperation in the EU Delegation in Ukraine)

Languages covered EN, PL, DE, UK

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Interpreters

1. Mr Maciej Szajnicki 2. Mr Igor Domanski 3. Ms Cordula Werle 4. Ms Louise Mayer 5. Mr Juri Lyssenko 6. Mr Vadym Kastelli 7. Mr Valeriy Shulha

Coordination in Ukraine

Ms Victoria Brich Assistant to the Head of Operations Delegation of the European Union to Ukraine tel: +380 44 390 80 10 (ext.1702) [email protected]

EU Delegation in Ukraine

101 Volodymyrska St. Kyiv, 01033 Ukraine Telephone: +380 (44) 390 8010 E-mail: [email protected]

Transport: Bus transfers in L'viv and Kyiv

Accomodation/Hotels:

LEOPOLIS Hotel in L'viv Teatralna Street 16 Phone : +380 32 295 9500 Fax : +380 32 295 9599 E-Mail : hotel(at)leopolishotel.com

PREMIER PALACE Hotel in Kyiv 5-7/29 T. Shevchenka Blvd / Pushkinska Str., Kyiv 01004, Ukraine Tel.: +38 (044) 244 12 00 +38 (044) 537 45 00 Fax: +38 (044) 279 87 72 E-mail: [email protected]

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Flights:

OUTWARD - From Brussels to Warsaw Flight On Airport Departure time Arrival time LO 236 16 May Brussels Airport 10:05 12:05 From Warsaw to L'viv Flight On Airport Departure time Arrival time LO 765 16 May Warsaw Airport 12:50 14:50 From L'viv to Kyiv Flight On Airport Departure time Arrival time PS 034 18 May L'viv Airport 07:00 8:10 RETURN - From Kyiv to Warsaw Flight On Airport Departure time Arrival time LO 754 19 May Kyiv Airport 18:00 18:35 From Warsaw to Brussels Flight On Airport Departure time Arrival time LO 231 19 May Warsaw Airport 19:50 21:55

Programme:

Monday 16 May

Time Meeting Location

10:05 Departure from Brussels

14:50 Arrival to L'viv via Warsaw

15:30 - 17.00 Official meeting with the Head of the L'viv 18 Vynnychenka St. Oblast State Administration and presentation of the centres of administrative services delivery modernisation project  Mr Oleh Synyutka, Head of the L'viv Oblast State Administration  Ms Marianna Vilshynska, Deputy Head of the L’viv Region State Administration  Mr Oleksandr Hanuschyn, Head of the L’viv Regional Council  Mr Rostyslav Zamlynskyy, First Deputy Head of L’viv Regional State Administration  Mr Roman Matviychiuk, Team leader of the project;  Ms Tetyana Shepilenko, Director of Department of International Technical Assistance and International Cooperation, L’viv Regional State Administration  Mr Vitaliy Kibretsky, L’viv Regional State Administration  Mr Oleh Dimkin, L’viv Regional State Administration

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17:15 - 18:00 presentation and project visit of the L'viv Public 109 Konovaltsya Transport project  Ms Olha Syvak, Chief investment officer of the L’viv City Council

18:30 - 19.30 official meeting with the Head of L'viv City 1 Rynok Square Council  Mr Andriy Sadovyi, Head of L’viv City Council  Mr Rostyslav Datskiv, Deputy Mayor  Ms Yaryna Soroka, Foreign economic relations and investment office, L’viv City Council

19:30 – 21:00 working dinner with local authorities and civil 1 Rynok Square society (upon invitation of the Chair only)

Tuesday 17 May

Time Meeting Location

8:30 – 9:00 project visit of the new tram lines L'viv construction in Sykhiv  Mr Pierre-Yves Tessier, Project Manager  Mr Rostyslav Zamlynskyy, First Deputy Head of L’viv Regional State Administration

10:00 - 11:00 project visit to Community-based approach Luky, Sambir district project in village Luky, Sambir district  Mr Vitaliy Kimak, Head of Sambir District Council  Mr Mykola Frey, Head of Sambir District State Administration  Mr Igor Nazar, Community-based approach project in L’viv  Ms Iryna Galayko, Community- based approach project in L’viv  Mr Rostyslav Zamlynskyy, First Deputy Head of L’viv Regional State Administration

11:30 - 12:30 project visit to the model police station in Sambir Sambir  Deputy Head of L’viv oblast police department  Mr Yuriy Hamar, Sambir City Mayor  Mr Rostyslav Zamlynskyy, First Deputy Head of L’viv Regional State Administration  Mr Ronan Goggin, Head of Public Information Department/Senior Spokesperson, EUAM Ukraine 37

12.45 - 13.45 free lunch Drohobych

14:00 - 15.00 project visit to the Center of the Drohobych Administrative services delivery in Drohobych  Ms Marianna Vilshynska, Deputy Head of the L’viv Regional State Administration  Mr Volodymyr Shutko, Head of Drohobych District State Administration  Mr Taras Kuchma, Drohobych City Mayor  Mr Roman Matviychuk, Team Leader of the project  Mr Rostyslav Zamlynskyy, First Deputy Head of L’viv Regional State Administration

16:30 - 17:30 project visit to Morshyn park renovated Morshyn under the cross-border cooperation programme Poland-Ukraine-Belarus  Mr Volodymyr Shutko, Head of Drohobych DSistrict State Administration  Mr Ruslan Ilnytskyi, Morshyn City Mayor  Mr Yuriy Yankiv, Morshyn First Deputy Mayor  Mr Rostyslav Zamlynskyy, First Deputy Head of L’viv Regional State Administration

18:15 - 19:00 project visit to TOR glass factory (support to Pisochna SMEs programme)  Mr Zenoviy Bokiychuk, Director of the TOR Glass Factory  Mr Rostyslav Zamlynskyy, First Deputy Head of L’viv Regional State Administration

20:00 Return to L'viv

20:30-21:40 optional city tour with a guide (walk) alternatively private dinner

Wednesday 18 May

Time Meeting Location

5:40 Departure from hotel

7:00 departure from L'viv by plane

8:10 arrival in Kyiv Boryspil Airport

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10:00 - 10:45 meeting with the Head of EU Delegation EUD, 101 Volodymyrska HE Mr Jan Tombinski St

10:45 – 11:15 Meeting with OLAF liaison officer in Kyiv EUD, 101 Volodymyrska Mr Mariusz Kowalczuk St

11:30 – 12:30 official meetings in the Verkhovna Rada 6/8 Bankova St (Ukrainian parliament): Budgetary Committee  Mr Derkach, Committee Chair  Mr Skoryi, Committee Member  Mr Kulichenko, Committee Member  Mr Serhyi Rudyk, Committee Member

13:00 - 14:00 official meeting with Ms Yulia Klymenko, 12/2 Grushevskogo St Deputy Minister of Economic Development and Trade  Ms Olena Tregub, Director of International Assistance Coordination and Cooperation with IFIs, Ministry of Economic Development and Trade of Ukraine

14:00 - 15:00 official meetings in the Verkhovna Rada 3a Sadova St (Ukrainian parliament): European Integration Committee  Mr Andrey Artemenko, Deputy Chairman  Mr Andrii Derkach, Committee Member  Mr Mustafa Nayyem, Committee Member

15:00 – 15:45 official meetings in the Verkhovna Rada 3 Lypska St. (Ukrainian parliament): Financial Policy Committee

16:00 - 17:30 Official meeting with Vice Prime Minister 12/2 Grushevskogo St. Hennadyi Zubko on decentralisation and energy efficiency

19:00 - 20:30 meeting with anti-corruption NGOs and EUD, 101 Volodymyrska investigative journalists Str.  Mr Yevhen Cherniak, Transparency International Ukraine

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Thursday 19 may

Time Meeting Location

8:20 Departure from hotel

9:00 - 10:00 official meeting with the National Anti- EUD, 101 Volodymyrska corruption Bureau St

10:00 - 11:00 official meeting with the National Agency for EUD, 101 Volodymyrska corruption prevention St

11:00 - 12:00 official meeting with the Specialized Anti- EUD, 101 Volodymyrska corruption Prosecutor's office St

12:00 - 13:00 meeting with Support to Justice Sector EUD, 101 Volodymyrska Reform project St  Mr Dovydas Vitkauskas, Expert of the EU Project Support to Justice Sector Reforms in Ukraine

13:00 - 13:30 free lunch EUD, 101 Volodymyrska St

14:00 – 15:00 meeting with Public Procurement project EUD, 101 Volodymyrska  Dr Eugene Stuart, Team Leader of St the Harmonisation of Public Procurement System in Ukraine with EU Standards  Mr Valentin Dereviankin, Deputy Team Leader of the Harmonisation of Public Procurement System in Ukraine with EU Standards

15:00 - 15:30 press conference EUD, 101 Volodymyrska St

15:30 departure to the airport

18:00 departure from Kyiv

21:55 arrival to Brussels

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Annex 2 Project descriptions

Title of the action: Community Based Approach to Local Development Phase III

Location(s) of the action: Ukraine, all regions

Office location: Kyiv and all regions

Duration: 24 month; 01/04/2014-30/09/2017

23,000,000.00 EUR (overall amount for 3 phases 52 million 2008- EU financing: 2017)

Objectives of the action Build capacities of local communities and authorities in applying community-based approach, participatory local planning and public service delivery, rehabilitating basic social and communal infrastructure, and developing small farm and non-farm businesses.

Enhance energy efficiency through energy planning and efficient energy use, innovative technologies and awareness campaigns.

Share best practices and knowledge on community mobilization and participatory governance through the knowledge hub and advocate for policy changes towards decentralization and local democracy.

Integrate community-based approaches to local governance and development in the curriculum of academia and educational institutions.

Expected results Local communities and authorities have better capacities for participatory planning, decision-making and collective actions to implement sustainable local development initiatives.

Community members, community organisations (COs), associations of co-owners of multi-apartment buildings (ACMBs) and elected/state authorities have the knowledge and skills to implement community-based methodology for achieving local sustainable development.

People in rural and urban areas enjoy better living conditions as a result of improved basic communal services and income-generating activities.

Non-profit agricultural service cooperatives carry out economic activities which generate employment opportunities for households in rural areas.

Public campaigns carried out to increase awareness about energy efficiency.

Innovative municipal governance practices and tools help to provide information, deliver better public services and foster people’s 41

participation.

Experience on community mobilization and participatory governance collected and disseminated through the knowledge management hub as well as integrated into the university curriculum.

Implementer United Nations Development Programme

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Centres for Administrative Services Delivery (CASD) as an Title of the action: innovative instrument of cooperation between authorities and community

Ukraine:Volyn region, Lviv region, Rivne region.

Location(s) of the action: The activities are taking place in the following communities of Lviv region: Khodoriv, Trostianets, Drohobych, Stryi, Skole.

Office location Lutsk, Lviv, Rivne

Total duration of the action 18 months (01/02/2016 – 31/07/2017)

EU financing 940 101.92 EUR

Objectives of the action Overall objective(s)

Formation of model of typical CASDs for small inhabited localities and united communities in the context of decentralization of powers (using examles of Volyn, Lviv and Rivne regions) by introducing and disseminating the best practices of good governance.

Specific objective(s)

- creation of 13 exemplary CASDs in Volyn, Lviv and Rivne regions – implementation of e-technologies for providing administrative services in Volyn, Lviv and Rivne CASDs

- qualitative and effective administrative services delivering in created CASDs through experience exchange;

Main activities Formation of typical solution for CASDs in district state administrations and executive committees, development of design and budget documentation for each CASD that will be modernized; creation of infrastructure in new CASDs and improvement of infrastructure of existing CASDs; introducing electronic administrative services in Rivne region;

transfer of 5 administrative services to electronic format on the Portal of administrative services of Volyn region, development of analytics system on the Portal of administrative services of Volyn region; raising professional level of representatives of CASDs, which take part in the Action; working out information and technological cards for each of 13 CASDs; promotion of the Action; working out and printing of methodical (scientific) materials on the administrative services provision, including gained experience of CASDs’ development in new communities for its further multiplication within Ukraine.

Grant recipient Volyn Regional State Administration (Lutsk) - coordinator

Other implementers: Lutsk City Council, Rivne Regional State 43

Administration, and Lviv Regional State Administration

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Harmonisation of public procurement system in Ukraine with Title of the action: EU standards

Location(s) of the action: Kyiv

Office location Kyiv

Total duration of the action 05/11/2013 – 04/11/2016

EU financing 3,998,400 EUR

Objectives of the action The Project is working to contribute to the development of a solid and consistent public finance management through the establishment of a comprehensive and transparent regulatory framework for public procurement (PP), an efficient PP institutional infrastructure, the accountability and integrity of public authorities in regard to PP and the development of the Ukrainian State aid control and monitoring system.

Main activities Support activities primarily focus on expert advice on policies, legislation and institutional structures and operations together with a range of training activities and awareness raising and public outreach activities and initiatives.

Beneficiaries Ministry of Economic Development and Trade and the Anti- Monopoly Committee of Ukraine; collaboration with the Cabinet of Ministers, the Parliament (Verkhovna Rada), the Ministry of Finance, the Ministry of Justice, the Accounting Chamber, the State Financial Inspection and other organizations involved and with an interest in the public procurement and State aid sectors.

Achievements Improvement of the PP Law in terms of substantial reduction of the numerous exemptions and introduction of e-procurement; the support to the drafting of the PP reform Strategy/Road map for harmonization with EU legislation, as requested by the AA/DCFTA; the increased through extensive trainings administrative capacity of the PP Department of the MEDT and other related stakeholders; the adoption of the Law on State aid to undertakings and the provision of bridge support to the Antimonopoly Committee of Ukraine before the start of a dedicated project in September 2016, creating the preconditions for the establishment of the Ukrainian State aid control and monitoring system and the increased transparency of PP.

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Annex 3 2014-2015 ENI ASSISTANCE TO UKRAINE (including regional programmes)

Decision Title Commission EU Zone Number Decision contribution benefitting date MEUR from Action ENI/2014/033- Ukraine Civil Society 29/04/2014 10,000,000 Ukraine

833 (EC) Support Programme ENI/2014/036- Implementation of the 6,700,000 Eastern Europe † 898 (EC) Shared Environmental 18/08/2014 Region Information System principles and practices in the Eastern Partnership countries (SEIS East) ENI/2014/037- OPEN Neighbourhood: 07/10/2014 15,000,000 Neighbourhood

324 (EC) Opportunities, Region participation, engagement and networking with people from the Neighbourhood area ENI/2014/037- Implementation of the 04/12/2014 5,500,000 Neighbourhood

355 (EC) Eastern Partnership Region multilateral dimension and support to the implementation of the Black Sea Synergy and the Northern Dimension ENI/2014/037- Technical Assistance 4,000,000 Eastern Europe

366 (CA) Information Exchange Region (TAIEX) ENI/2014/037- State Building Contract 28/04/2014 232,000,000 Ukraine

370 (EC) for Ukraine (AAP 2014) ENI/2014/037- Supporting the 04/12/2014 5,000,000 Eastern Europe

448 (EC) implementation of Region and aviation agreements in the Central Asia Eastern Partnership countries and upgrading civil aviation safety and security standards in Central Asia ENI/2014/037- Eastern Neighbourhood 04/12/2014 5,000,000 Eastern Europe

477 (EC) Civil Society Facility Region 2014 – Support to the activities of the Eastern Partnership Civil Society Forum ENI/2014/037- Contribution 2014 to the MULTI 104,085,902 Eastern Europe

515 (EC) NIF (Neighbourhood Region Investment Facility) for

† For all programmes named 'Eastern Europe Region' and 'Neighbourhood Region' Ukraine is only one of the participating countries and benefits on a pro-rata basis.

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Decision Title Commission EU Zone Number Decision contribution benefitting date MEUR from Action the EAST ENI/2014/037- E@P. Connect 13,000,000 Eastern Europe

536 (CA) Region ENI/2014/037- ENI-East Global 04/12/2014 6,000,000 Eastern Europe

575 (EC) Allocation 2014 Region ENI/2014/037- CLIMA East - Non- 29/07/2014 1,200,000 Eastern Europe

620 (EC) substantial modification Region of Commission Implementing Decision C(2011)8563 ENI/2014/037- Implementation of the 20,000,000 Eastern Europe

697 (EC) Programmatic Region Cooperation framework with the Council of Europe in the Eastern Partnership ENI/2014/037- Support for Improvement 9,000,000 Eastern Europe

698 (EC) in Governance and Region Management (SIGMA) ENI/2014/037- INOGATE Technical 16/10/2014 3,000,000 Eastern Europe

722 (EC) Secretariat - Non- Region and substantial modification Central Asia of Commission Implementing Decision C(2010)5018 ENI/2014/037- Non-substantial 07/11/2014 2,123,284 Eastern Europe

764 (EC) modifications of Region Commission Implementing Decision C(2013)5300 on the ENPI East Regional Action Programme 2013 ENI/2015/032- EU Support to Ukraine to 23/04/2015 55,000,000 Ukraine

789 (EC) Re-launch the Economy (EU SURE) ENI/2015/037- Technical Cooperation 23/04/2015 15,000,000 Ukraine

834 (EC) Facility ENI/2015/038- Implementation of the 10/06/2015 4,000,000 Eastern Europe

026 (EC) Eastern Partnership Region multilateral dimension and support to the implementation of the Black Sea Synergy ENI/2015/038- ENI East Global 10/06/2015 6,396,000 Eastern Europe

027 (EC) Allocation 2015 Region ENI/2015/038- European Water Initiative 22/07/2015 10,000,000 Eastern Europe

109 (EC) Plus for Eastern Region Partnership (EUWI+ 4 EaP) (2015 share) ENI/2015/038- Regional Programme in 22/07/2015 4,500,000 Eastern Europe 47

Decision Title Commission EU Zone Number Decision contribution benefitting date MEUR from Action

113 (EC) the Eastern Region Neighbourhood in support of the Eastern Partnership Flagship Initiative on Sustainable Municipal Development (2015 share) ENI/2015/038- Neighbourhood Civil 22/07/2015 5,000,000 Eastern Europe

124 (EC) Society Facility Regional Region Actions 2015 ENI/2015/038- Energy Policy in Eastern 05/11/2015 14,708,173 Eastern Europe

141 (EC) partnership countries and Region and Central Asia (2016 share) Central Asia ENI/2015/038- EUBAM 11 (budget 2015 22/07/2015 8,000,000 Eastern Europe

159 (EC) contribution) Region ENI/2015/038- Environmental Protection 13/07/2015 1,000,000 Eastern Europe

296 (EC) of International River Region Basins (EPIRB) - Non- substantial modification of Commission Implementing Decision C(2010)5018 ENI/2015/038- Contribution 2015 to the 23/04/2015 105,540,000 Eastern Europe

314 (EC) NIF (Neighbourhood Region Investment Facility) for the EAST ENI/2015/038- TAIEX action 07/12/2015 3,500,000 Eastern Europe

340 (EC) programme 2015-2017 Region under the European Neighbourhood-wide measures - Eastern Partnership - 2015 allocation ENI/2015/038- E@P Connect 10/06/2015 13,000,000 Eastern Europe

364 (EC) Region ENI/2015/038- Supporting Participation 17/07/2015 300,000 Eastern Europe

424 (EC) of Eastern Partnership Region and Central Asian Cities in the Covenant of Mayors - Non-substantial modification of Commission Implementing Decision C(2010)5018 ENI/2015/038- Support to the European 30/06/2015 2,000,000 Eastern Europe

445 (EC) Endowment for Region Democracy for the period 2015 - 2018 (2015 East share) ENI/2015/038- ESTAT share (C8 credits) 300,000 Eastern Europe 48

Decision Title Commission EU Zone Number Decision contribution benefitting date MEUR from Action

701 (EG) of ENI Regional 2014 Region SEIS EAST (decommitted from decision ENI/2014/36898) ENI/2015/038- 2016 share of programme 07/10/2014 5,000,000 Eastern Europe

726 (EC) OPEN (Neighbourhood: Region Opportunities, participation, engagement and networking with people from the Neighbourhood area ENI/2015/038- U-LEAD with Europe: 90,000,000 Ukraine

739 (EG) Ukraine Local Empowerment, Accountability and Development Programme Total bilateral 402,000,000 Ukraine support Total Eastern 362,353,359 Eastern Europe Europe Region Region Total 20,500,000 Neighbourhood Neigbourhood Region Region Overall Total 784,353,859

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