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Cablegate: Ukraine: Progress On Government Procurement Reform

VZCZCXRO2675
RR RUEHLN RUEHSK RUEHVK RUEHYG
DE RUEHKV #2417/01 3451142
ZNR UUUUU ZZH
R 101142Z DEC 08
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC 6891
INFO RHMFIUU/DEPT OF JUSTICE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHGV/USMISSION GENEVA 0152
RUCNCIS/CIS COLLECTIVE

UNCLAS SECTION 01 OF 02 KYIV 002417

SIPDIS

STATE FOR EUR/UMB
STATE PLEASE PASS TO USTR FOR CKLEIN/PBURKHEAD
USDOC FOR 4201/DOC/ITA/MAC/BISNIS
USDOC FOR 4231/ITA/OEENIS/NISD/CLUCYCK
GENEVA FOR USTR

E.O. 12958: DECL: N/A
TAGS: EFIN EINV PGOV WTRO UP
SUBJECT: UKRAINE: PROGRESS ON GOVERNMENT PROCUREMENT REFORM

REF: 2007 KYIV 1862

1. Summary: Ukraine's Cabinet of Ministers on November 19
issued new provisions to regulate the country's government
procurement system. Experts, including from the World
Bank, agree that the new provisions are an improvement
after several years of GOU backsliding on procurement
reform. The provisions are only temporary, however, and a
new law to govern government procurement is working its way
slowly through the legislative process. The current
reforms should help Ukraine make progress on joining the
WTO Agreement on Government Procurement. End Summary.

GOU Issues New Procurement Regulations
--------------------------------------

2. On November 19, the Cabinet of Ministers issued
Resolution No. 1017, which updated the temporary provisions
for government procurement and was an improvement over
previous regulations. Resolution No. 1017 confirmed the
Ministry of Economy as the central oversight and policy
body for the procurement system, upheld the elimination of
the troublesome Tender Chamber, and added a specific non-
discrimination clause. The move followed several years of
backsliding on government procurement reform and general
disarray in the procurement system -- see below for
background.

3. At a donor coordination meeting on December 4, World
Bank Country Director Martin Raiser and World Bank staff
said they positively evaluated Resolution No. 1017 as
largely meeting international standards. There were still
some problems, they said, such as the list of exclusions
from the procurement process, lack of a sufficiently
independent complaint review function, and need for
external oversight (which could not be mandated by the
Cabinet of Ministers), but overall the new procedures
marked a significant improvement.

Background on Procurement System
--------------------------------

4. Ukraine's procurement system had, until this year,
operated based on the 2000 law "On Procurement of Goods,
Works, and Services Using State Funds." Although this
procurement law was originally largely in line with
international practice, amendments made in 2004-2006 opened
the system to widespread corruption and moved it away from
international norms. Authority to carry out central
oversight and policy development for the government
procurement system was stripped from the Ministry of
Economy, and those policy and oversight functions were
dispersed across several bodies, weakening oversight and
policy making, and creating various conflicts of interest
and overlapping functions. The amendments also granted the
Tender Chamber of Ukraine, purportedly a nongovernmental
organization, the authority to monitor the procurement
process and to undertake key operational functions that
were inherently governmental. The Tender Chamber soon
became the center of the procurement system's corruption
and lack of transparency (reftel).

5. The issue spilled into public discourse, with
organizations like the Association of Ukrainian Cities
protesting the dysfunctional and corrupt system and its
impact on local government operations. Parliament,
responding to these widespread complaints, repealed the law
on government procurement, including all amendments, in
March. In place of the law, the Cabinet of Ministers
issued a decree establishing temporary provisions for
government procurement based largely on the procurement law
as it existed in 2004, before the troublesome amendments.
Under those temporary provisions, the Tender Chamber was
eliminated, and the Ministry of Economy resumed its role as
the central oversight and policy body for the procurement
system and began to institute real reform. The
Constitutional Court subsequently ruled the temporary
provisions unconstitutional on technical grounds, however,
leaving Ukraine without a functioning government
procurement system. The Cabinet of Ministers quickly
issued an updated decree, meant to meet the constitutional
issue raised by the Court, in October. Resolution No. 1017
then superseded and improved upon that October decree.

KYIV 00002417 002 OF 002

New Law Still Needed
--------------------

6. While Resolution No. 1017 should allow for a proper,
functioning procurement system, it is only meant as a
temporary measure until Parliament can pass a new law on
procurement. A new draft law was passed in the first
reading in May but is working its way slowly through the
legislative process. World Bank and USAID assistance
projects helped draft that law. Although the original
draft closely followed the principles outlined in
Resolution No. 1017, the parliamentary committee now
responsible for the draft law has not revealed amendments
being considered, and there are concerns that the committee
may seek to rollback some of the reforms.

7. During the December 4 donor coordination meeting, World
Bank and USAID participants identified training for the
Ministry of Economy's new procurement-related staff and
implementation of an electronic procurement system as other
priorities for future assistance.

WTO Agreement on Government Procurement
---------------------------------------

8. Ukraine is not yet a signatory to the WTO Agreement on
Government Procurement (GPA), but committed to initiate
negotiations for GPA membership within two years of WTO
accession, which occurred on May 16, 2008. Ukraine has
requested to become an observer to the GPA and is actively
preparing its initial offer to begin the process of GPA
accession. Resolution No. 1017 puts Ukraine back on the
path of reform with an eye towards GPA accession, although
additional reforms will likely be necessary.

TAYLOR

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