ASSESSMENT OF THE ENVIRONMENT SECTOR IN UKRAINE IN VIEW OF BUDGET SUPPORT UKRAINE
1. BACKGROUND 1.1. Recipient country Ukraine. Macroeconomic framework. Ukraine’s economic performance has been strong since 2000, and poverty has substantially declined (from 11% of population in 2001 to 1% in 2006, according to the Government). GDP has grown by approximately 65 percent since 1999 (7.1% in 2006). This, combined with a significant improvement in the country’s fiscal position, has led to a dramatic decrease of the debt-to-GDP ratio (15% of GDP in 2006 compared to 61% of GDP in 1999). Preliminary conclusions of the last IMF Article IV consultation give a positive assessment of the current economic policy stance, especially quoting the government’s envisaged medium-term fiscal framework as broadly appropriate. However, this trend has not shown to be stable. The Ukrainian economy remains vulnerable to external shocks. The considerable surplus in the current account, boosted by buoyant metal products exports (40% of total exports in 2004), turned into a deficit in 2006 (approximately 1% of GDP) as import prices of energy increased while the world demand for steel levelled off in a context of extreme volatility. Ukraine experienced a hard landing in 2005 (real GDP growth declined to 2.7% against 12.1% in 2004) but the economic situation improved in 2006 (7.1%) and medium-term estimates now in the range of 6% (such optimism not being shared by all IFIs), showing the economy’s resilience in adjusting to significantly higher energy import prices. Domestic demand has been reinforced also by a credit boom, supported by a relative opening of the Ukrainian market of banking services. However, this growth may still be jeopardised by insufficient banking supervision. The monetary policy framework is based on maintaining a de facto pegged nominal exchange rate of the Hryvnia against the US dollar. Recently, as the 12-month consumer inflation surged (to 14.8% in October 2007, due to food price increases in a context of rising world prices and a poor harvest), and in spite of its unclear operational mandate in that respect, the National Bank of Ukraine undertook preparations on moving towards inflation targeting. The IMF remarked that this intention is an apt response to Ukraine’s changing economic challenges. Although buoyant consumer demand supported VAT collection and allowed to maintain the fiscal deficit for 2006 below the projected 2½ percent of GDP, another potential threat to the Ukrainian economy is linked to the balance of the budget, with a constant pressure to raise social expenses whilst the tax burden remains relatively high (37% of GDP in 2006 compared to 29% in 2004), leading to consider the financing of any additional expenditures as a question mark. Overall, the quality of public finances did not dramatically improve in the years. The Government has to put in place a medium-term fiscal framework consistent with macroeconomic stability and leaving enough fiscal space for growth-enhancing policies, including investments in infrastructure. Some steps are being taken – the 2007 and (draft) 2008 budgets focus on investment, with still a way to go. The social situation in the country remains overall critical: a sizeable part of the population (5%) still lives below the poverty line per World Bank estimates; despite sustained economic growth, unemployment remains high (around 9% of the labour force per BIT estimates, to be compared to the official 3.8%); and full access to education and health care, though formally guaranteed, is not always granted in effect. For the next decade, Ukraine will have to cope with the conjunction of three factors: its persisting demographic deficit (-0.7% per annum), the delay in overcoming the social and economic consequences of the Chernobyl disaster, and the rapidly expanding HIV/AIDS and TB epidemics. This last factor, largely ignored by most of the Ukrainian Authorities, will quickly become a major threat. As a consequence of the social situation, Ukraine’s current pension and social security systems may threaten fiscal sustainability in the long run. For instance, pension outlays soared to 15.3% of GDP in 2005 (against an average of 8.4% in the EU25). The Government has only started to address these problems. Public Financial Management (PFM) Assessments of the PFM system have been recently carried out. The World Bank’s PEFA report, released in September 2006, concludes, “Ukraine has in place the fundamental PFM systems for managing macro-fiscal developments, some elements for enabling strategic allocation of resources, and a few tools for improving operational efficiency. This reflects the relative emphasis in reforms over the past few years that put in place the Treasury and improved budget processes. Second generation reforms are beginning to grapple with better strategic allocation of resources, and even some issues of operational efficiency and accountability.” Overall, Ukraine has an effective overall PFM structure which can manage total spending and revenues to the budget. Financial reporting formats and quality can be improved. An automated commitments control system is still being set up (with Tacis previous NAPs and World Bank assistance). Finally, absence of a comprehensive MTEF integrating the various sectoral programmes as well as lack of acceptable public procurement rules represent a significant handicap to the expenditure discipline and the introduction of a genuine sector-wide approach. A Government strategy to modernise and improve public finance management efficiency over the period 2006-2016 is currently under examination by the Ukrainian Parliament. It explicitly aims at setting up the modernised PFM systems “in compliance with recommendations on governance issued by the European Commission.” Together with this strategy, a PFM Reform Plan covering the period 2007-2010, prepared with assistance of the World Bank was adopted by the government on 19 October 2007. The World Bank is committed to finance its implementation through a loan estimated at US$ 65 million as from 2007. Relevant sector policy and strategy This National Indicative Programme (NIP) for 2007-2010 defines in greater detail the focus of operations under the national envelope of the new European Neighbourhood and Partnership Instrument (ENPI). Being a new financial instrument, ENPI will replace TACIS from 2007 in order to i) link assistance to policy-driven aims agreed between EU and Ukraine; ii) complement of national measures and imply co-financing; iii) provide wide range of eligible implementation ways, from twinning to sector and general budget support.
The aim of the assessment is to help the Commission and Ukraine adequately address environmental challenges and provide effective assistance in the improvement of environmental laws in Ukraine. These should draw on lessons learned in the EU technical assistance, the main directions of partnership strategy, activities of other donors and reform efforts in Ukraine.
In this context, the Delegation has initiated the preliminary assessments for programming and formulating phases of the future NIP taking into account a Sector Wide Approach methodology as well as the Budgetary Support and intends to assess deeply the consolidated progress in environmental strategy, legislation and institutional capacity.
If the assessments done on these issues were negative, the recommendation would be to defer the start of Sector Policy Support Programmes and move into a Sector Wide Approach. On the contrary, should the assessment be positive, this would lead the Delegation to advance into the Identification process within the future ENPI instruments.
1.2. Contracting authority
European Community, represented by the European Commission on behalf of and for the account of Ukraine. 2. DESCRIPTION OFTHE ASSIGNMENT 2.1. Global objectives The global objective is to contribute to the improvement of the efficiency of the EC-funded assistance, by identifying the necessary conditions, in the environment sector of Ukraine, allowing for an intensified recourse by EC to sector-wide approaches and possibly budget support mechanisms, and by making recommendations to the Government of Ukraine as to how to fulfill the said conditions. 2.2. Specific objectives The specific objectives of this contract are: (a) to provide a documented review, based on available information, on the current performance of the environment-related policy measures in Ukraine agreed in the Ukraine ENP Action Plan, as well as, the medium term, on the realistic perspectives of improvement of these systems through the design, execution and monitoring of reforms that are or will be gradually implemented by the government; and (b) to draw up, as appropriate, recommendations for an EC-funded sector programme to support those reforms. 2.3. Requested services, including suggested methodology The requested services of this contract are as follows: 2.3.1. First phase: review of the situation of the environment sector and recommendation for a possible EC-funded programme to support reforms and improvements (1) Assessment of the environment sector situation in Ukraine The following areas, indicatively, will be reviewed:
1. Legal framework 2. Reform concepts and advancement of their implementation 3. Institutional framework 4. Revenues 5. Budget allocation and execution 6. Public procurement in the sector 7. Personnel expenditure 8. Performance monitoring 9. Internal control and internal audit 10. Accountability and reporting 11. External scrutiny and audit 12. Organisation and capacity for reform
For each of the above-mentioned areas the report will present and review: i) the main analyses recently carried out on the performance of environment sector structures and measures; ii) the adequacy of government-agreed reforms, including those in the important areas of natural resources management, waste management, integrated sustainable development policies, climate change, biodiversity, and international cooperation; and iii) the actual (verifiable) results of reforms achieved so far and, subsequently, the perspective of government’s implementation of ongoing and/or further reforms. (2) Based on the outcome of (1), make a proposal, if appropriate, for a sector support programme for environment. 2.3.2. Second phase: detailed description of the elements to support the environment sector programme (1) Based on the outcome of the 1st phase, continue the dialogue with the relevant stakeholders for further specification of the components of a reform support programme. (2) Make a detailed proposal for the said programme, which should: - take into consideration all the pertinent aid delivery mechanisms available (technical assistance, twinning, budget support from various sources) – be envisaged, as appropriate, in a multi-annual prospective. - take into account similar interventions by other donors or multilateral financial institutions, in order to ensure coordination in the domain – make a proposal for a matrix of reform-related conditionalities. 2.3.3. Suggested methodology The Consultant is expected to provide, together with the CVs of the proposed two experts, a brief (max. 2 pages) plan explaining how he intends to organize the assignment so as to ensure the quality and the timeliness of deliveries as well as the coherence of the working methods among experts. Briefing and debriefing missions shall take place in the EC Delegation to Ukraine at the beginning and at the end of each phase. This will be confirmed by the Task Manager. 2.4. Required outputs
For Phase 1:
- Detailed assessment report on environment-related policy and implementation measures in Ukraine, covering the issues listed in 2.3.1 above and Annex I, in English and Ukrainian.
- Proposal for the environment sector support programme or justification of unfeasibility of such a programme, in English and Ukrainian.
For Phase II:
- Detailed description of the environment sector support programme, in English and Ukrainian. 3. EXPERTS PROFILES 3.1. General Given the broad scope of area to be reviewed, the Consultant is requested to provide individual experts meeting the profiles specified below and a pool of expertise. Officials working in the public service of the beneficiary country cannot be recruited as experts. All experts should have a University degree or equivalent, full command of English, both oral and written, and good report writing skills. Command of Russian and/or Ukrainian would be a plus. The following competencies should be covered: 1. Expertise covering to all possible extent the key environment areas, including a minima: natural resources management, waste management, integrated sustainable development policies, climate change, biodiversity, and international cooperation on environment (horizontal issues). 2. Expertise in public financial management, covering at least the following issues: budget preparation and formulation, budget execution, public procurement, internal and external control and audit. 3. Experience in the design and/or implementation of environment-related interventions, preferably in ex-Tacis, ex-CARDS and ex-MEDA (particularly in the framework of international cooperation, preferably with the EC). 3.2 Number of requested experts per category and number of man-days per expert The estimated total number of man-days requested is 105. The Consultant will propose two experts of Category 2 and a pool of experts of Categories 2 and/or 3. The Consultant may compose the team according to the proposed work methodology. It is essential that the experts have complimentary experiences matching or exceeding the overall requirements in 3.1. The following table is tentative and might be adapted in the Consultant’s methodology: Expert 1 (team leader) 1 II 40 Expert 2 (environmental cooperation expert) 1 II 25 Pool of experts Maximum 4 II, III 40
Number Category Working daysAt least 80% of the time allocated to the experts shall be spent in Ukraine. This requirement applies to the whole team, not to each expert individually. Expert 1 and Expert 2 will have the possibility to use their days on site in periods of 10 to 15 days each.
One expert of Category II will assume the responsibilities of Team Leader. He/she will have responsibility for the day-to-day management of the project. He/she will be responsible for the co-ordination and organisation of project activities, including:– Liaison with the Delegation of the European Commission to Ukraine; – Co-ordination with the relevant Ukrainian and donor organisations; – Co-ordinating the expert team in all daily activities; – Timely delivery of reports; – Briefing and de-briefing of the experts; – Organising and overseeing administrative and logistic project support.
Specific professional experience – Experience in standardisation, conformity assessment according to the New and Global Approach procedures, good knowledge on metrology, market surveillance and consumer protection.
The second experts of Category II will specialise in horizontal issues of environmental cooperation at the international level.Specific professional experience
– Previous relevant experience in the area of international cooperation in at least one of the issues listed in 3.1.1 (for instance, climate change, biodiversity, transboundary natural resources management) – Proven knowledge of the EU environmental rules and of the harmonisation path followed by the New EU Member States (EU-10)
Working language English. Ukrainian interpretation / translation of excellent quality will be required for all contacts with the target project stakeholders. Reports listed in 2.4 above should be translated into Ukrainian. 4. LOCATION AND DURATION
DURATIONThe assignment will start on 22 February 2008 at the latest, with a briefing with the EC Project Manager in Kyiv.The duration of the assignment is 3.5 months.LocationKyiv, Ukraine. Visits to regions of Ukraine may be implemented if appropriate.5. REPORTING
No later than two weeks after the start of the assignment, the Consultant will prepare a brief project inception report. The report will summarise the existing situation with a work-plan for the assignment, the list of interlocutors met or to meet, and abridged minutes of the meetings / consultations with the stakeholders of the target project.
Every month thereafter, the experts’ team will prepare an update of this first report, summarising the work done and the plan of operations for the remaining portion of the project. The progress reports shall be sent via e-mail to the EC Project Manager.
The Consultant will provide the EC Project Manager with copies of all technical reports including assessment studies, dissemination materials as they are elaborated. No later than the last day of the assignment, the Consultant will provide the Contracting Authority with a CD ROM containing all the documents/reports/presentations/dissemination materials produced during the implementation of the project.
A final report and a final invoice must be submitted at the end of the period of execution. The final report will contain a summary of the activities implemented, the problems encountered and solutions adopted, a description of the results achieved. It will also include a detailed chart of resource utilisation set against activities and results. The final report should also include as annexes all outputs produced by the project. It shall be submitted in English before the end of May 2008. The reports and any other supporting documents must be delivered to the EC Delegation project manager in hard copy (2 copies) and on CD-ROM in a standard computerised format (Microsoft Word and Excel files or equivalents). 6. ADMINISTRATIVE INFORMATION
The Consultant must make available an appropriate logistical support for the experts, including travel and accommodation arrangements for each assignment (no visa needed for Ukraine for stays of less than 90 days).
Sub-contracting of any aspect of the management and / or administration of this framework contract is not authorised. Sub-contracting of the expertise is not restricted.
Eligibility: All nationalities are eligible.
The experts’ availability should cover the entire foreseen duration of the contract.
Equipment: No equipment is to be purchased on behalf of the Contracting Authority / beneficiary country under this contract (neither in the context of individual assignments) with the exception of the items strictly necessary for the assignment (legal texts, statistics etc.).
Secretarial/office-related costs which may include office rental, communications (fax, telecommunications, mail, courier etc.), report production and secretarial services both in the Consultant’s Headquarters and/or individual expert’s home office and for experts in the beneficiary country are considered to be included within the fee rates of the experts. No costs of this nature may be charged in addition.
The fee rate and per diem amount which should be used are those in force on the date of the signature of the Request for services. No price revision is foreseen during the duration of this contract.
Reimbursable costs: the following items under the budget heading “reimbursable costs” are eligible:
1. Per diem () 2. International and Intercity Travel costs 3. Possible visa costs 4. Interpretation/Translation.
