Ukraine – Attracting Ukraine – Attracting Investments in the Investments in the

Municipal and Municipal and Environmental Environmental InfrastructureInfrastructure

Key sectors coveredKey sectors covered District Heating and Energy District Heating and Energy

EfficiencyEfficiency – renewal of – renewal of obsolete heating and obsolete heating and distribution systems and distribution systems and significant efficiency gainssignificant efficiency gains

Water & Wastewater – Water & Wastewater – improved quality of service and improved quality of service and environmental complianceenvironmental compliance

Solid Waste ManagementSolid Waste Management – – improved efficiency and improved efficiency and frequency of waste collection; frequency of waste collection; adequate waste disposal; adequate waste disposal; prevention of groundwater prevention of groundwater contaminationcontamination

Urban TransportUrban Transport – improved – improved public transport services and public transport services and more efficient and safe network more efficient and safe network designdesign

Challenges in the municipal Challenges in the municipal infrastructure sector in infrastructure sector in

UkraineUkraine Inefficient, obsolete infrastructure systems, Inefficient, obsolete infrastructure systems,

creating vast energy and water losses and creating vast energy and water losses and high operating costshigh operating costs

Low service quality Low service quality Lack of regulatory and institutional reforms Lack of regulatory and institutional reforms

toto promote energy and cost savings (consumption-promote energy and cost savings (consumption-

based billings, cross-subsidy reforms, based billings, cross-subsidy reforms, commercialisation of utility companies)commercialisation of utility companies)

include required investments into new tariffsinclude required investments into new tariffs Below cost-recovery tariffsBelow cost-recovery tariffs Weak financial position of municipal utilitiesWeak financial position of municipal utilities

Challenges in the municipal Challenges in the municipal infrastructure sector in infrastructure sector in

Ukraine Ukraine Delayed implementation of decentralisation Delayed implementation of decentralisation

policies limiting municipal budgets policies limiting municipal budgets Lack of effective legislation governing municipal Lack of effective legislation governing municipal

borrowing: the applicable laws on municipal borrowing: the applicable laws on municipal borrowings and municipal guarantees deviate borrowings and municipal guarantees deviate from best international practicesfrom best international practices

=> This limits the ability of commercial => This limits the ability of commercial banks to fund urgently needed banks to fund urgently needed investments at local level and in many investments at local level and in many cases will make it impossible.cases will make it impossible.

Attracting investments in the Attracting investments in the municipal infrastructure sector municipal infrastructure sector in Ukraine – the way forwardin Ukraine – the way forward

Develop effective legislation that will grant municipalities Develop effective legislation that will grant municipalities authority and autonomy to manage their budgets and authority and autonomy to manage their budgets and attract investments for improvement of the municipal attract investments for improvement of the municipal infrastructure infrastructure

Introduce adequate caps for municipal borrowing and Introduce adequate caps for municipal borrowing and issuance of guarantees – debt limits to be linked to tax issuance of guarantees – debt limits to be linked to tax base municipal revenues which are steady and predictable base municipal revenues which are steady and predictable

Eliminate the requirement for municipal utilities to issue Eliminate the requirement for municipal utilities to issue counter-guarantees. They are owned and controlled by the counter-guarantees. They are owned and controlled by the municipalities anywaymunicipalities anyway

Develop efficient and clear procedures to control the level Develop efficient and clear procedures to control the level of municipal borrowing at the Central Government level but of municipal borrowing at the Central Government level but not blocking it.not blocking it.

What is at stake?What is at stake?

Lack of investments in the Lack of investments in the municipal infrastructure leads municipal infrastructure leads to: to:

(i)(i) poor quality of service provided poor quality of service provided to citizens; to citizens;

(ii)(ii) energy inefficient operations; energy inefficient operations;

(iii)(iii) decline in environmental and decline in environmental and health standardshealth standards

Where does Ukraine fit in Where does Ukraine fit in comparison to other comparison to other

neighbouring countriesneighbouring countries

UkrainUkrainee

PolandPoland BulgariBulgariaa

RussiaRussia

Are Are Municipal Municipal Guaranties Guaranties subject to subject to approval by approval by the Statethe State

Municipal Municipal guarantees guarantees are subject to are subject to Ministry of Ministry of Finance Finance approval. approval.

Municipal Municipal guarantees are guarantees are not subject to not subject to Ministry of Ministry of Finance Finance approval. approval.

Municipal Municipal guarantees are guarantees are not subject to not subject to Ministry of Ministry of Finance Finance approval. approval.

Municipal Municipal guarantees are guarantees are not subject to not subject to approval by the approval by the Federal or Federal or regional regional governments. governments.

Methods for Methods for State/MinistrState/Ministry of Finance y of Finance oversight the oversight the off balance off balance sheet sheet liabilities of liabilities of the the MunicipalitieMunicipalities s

The oversight The oversight is ensured is ensured through through Ministry of Ministry of Finance Finance approval of approval of the direct and the direct and contingent contingent debt of debt of municipalities municipalities and and monitoring monitoring their their indebtedness.indebtedness.

The oversight The oversight of municipal of municipal budgets is budgets is carried out by carried out by the Regional the Regional Audit Audit Chambers of Chambers of the Ministry of the Ministry of Finance; these Finance; these are located at are located at regional level regional level and have to and have to review and sign review and sign off on the off on the completed completed municipal municipal budgets every budgets every year, in year, in particular particular noting noting compliance compliance with the debt with the debt limits.limits.

They have to They have to be reported be reported and registered and registered at a register at at a register at Ministry of Ministry of Finance. Also Finance. Also on quarterly on quarterly basis basis municipalities municipalities submit submit extensive extensive information on information on their financial their financial standing standing including off-including off-balance sheet balance sheet assets/liabilitiesassets/liabilities.  The data is .  The data is standardized standardized and inputted in and inputted in a database.  a database. 

The municipal The municipal guarantees are guarantees are consolidated in consolidated in the debt book the debt book of the regions of the regions (through (through registering with registering with the finance the finance departments of departments of regional regional governments) governments) and the Federal and the Federal Ministry of Ministry of Finance Finance

UkraineUkraine PolandPoland BulgariBulgariaa

RussiaRussia

Statutory Statutory debt limit debt limit for for municipal municipal indebtednesindebtedness s

The total The total amount of amount of local debt and local debt and the debt the debt guaranteed guaranteed municipality as municipality as of the end of a of the end of a budgetary budgetary period shall period shall not exceed not exceed 100% (or 100% (or 200% for the 200% for the city of Kyiv) of city of Kyiv) of average average annual annual indicative indicative forecasted forecasted revenues to revenues to the the development development budget for the budget for the next two next two years. years.

Municipalities Municipalities can incur direct can incur direct debt plus debt plus guarantees to a guarantees to a limit up to 60% limit up to 60% of the total of the total revenues. revenues.

Total Debt Total Debt Service to Own Service to Own Revenues plus Revenues plus General General Equalising Equalising Subsidy of not Subsidy of not more than 25 more than 25 per cent;per cent; The The limit of the limit of the total amount of total amount of the municipal the municipal guarantees for guarantees for each each municipality municipality cannot exceed cannot exceed 5% of its own 5% of its own revenues plus revenues plus General General Equalising Equalising Subsidy in each Subsidy in each year.  year. 

Total indebtedness Total indebtedness (direct debt plus (direct debt plus guarantees) of the guarantees) of the municipality municipality cannot exceed cannot exceed 100% of the own 100% of the own revenues of the revenues of the municipality municipality (excluding any (excluding any transfers from transfers from upper level upper level budgets within the budgets within the budgetary system budgetary system of the Russian of the Russian Federation). For Federation). For those those municipalities municipalities whose share of whose share of general purpose general purpose grants exceed 70 grants exceed 70 percent of percent of municipality's total municipality's total revenues, the level revenues, the level of total of total indebtedness is indebtedness is limited to 50 limited to 50 percent of the percent of the amount of own amount of own revenues revenues (excluding any (excluding any transfers from the transfers from the upper level upper level budgets within the budgets within the budgetary system budgetary system of the Russian of the Russian Federation). Federation).

UkraineUkraine PolandPoland BulgariaBulgaria RussiaRussia

Is there Is there statutory statutory obligation obligation for the for the Borrower to Borrower to issue issue counter counter guarantee guarantee to the to the Municipality Municipality (Guarantor) (Guarantor)

There is a There is a statutory statutory obligation for obligation for the Borrower to the Borrower to issue counter issue counter guarantee to guarantee to the the municipality. In municipality. In addition it is addition it is required to required to pledge fixed pledge fixed assets and assets and provide bank provide bank guarantee. guarantee.

There is no There is no statutory statutory obligation for obligation for the Borrower to the Borrower to issue a counter issue a counter guarantee in guarantee in favour of the favour of the municipality municipality

There is no There is no statutory statutory obligation for obligation for the Borrower to the Borrower to issue a counter issue a counter guarantee in guarantee in favour of the favour of the municipality. municipality.

There is no There is no statutory statutory obligation for obligation for the Borrower to the Borrower to issue a counter issue a counter guarantee in guarantee in favour of the favour of the municipality municipality (Guarantor). (Guarantor). Municipal Municipal guarantees can guarantees can be issued with be issued with recourse and recourse and without without recourse to the recourse to the Borrower. The Borrower. The guarantee guarantee issued with issued with recourse to the recourse to the Borrower shall Borrower shall be secured on be secured on the Borrower's the Borrower's liquid assets or liquid assets or bank bank guarantees guarantees issued in favour issued in favour of the of the Guarantor Guarantor (similar to (similar to counter-counter-guarantee). guarantee).