Conference notes EGMONT

Summary; this is not an official record of proceedings and specific remarks are not necessarily attributable.

Prime Minister of Ukraine, Madame Yulia TYMOSHENKO, presented her Government's programme for 2008, including privatisation projects and investment opportunities as the EU and Ukraine face common challenges in the framework of their future Free Trade Area. The event has been chaired and introduced by Viscount Etienne DAVIGNON, Chairman of EGMONT.

Stabilising the political climate

"The dynamic situation in Ukraine points not to chaos or instability, but to powerful purification aimed at changing Ukraine to make it a democratic country meeting European standards," Ukrainian Prime Minister Yulia Tymoshenko says, adding that fight is inevitable in such a situation.
The ruling democratic coalition has only a majority of just two or three votes in Parliament, but “it makes our team more disciplined. Our team is devoted only to the democratic coalition. We support the President and wish to work in even better harmony," Tymoshenko stated.

To stabilise the climate, she stressed the need for constitutional reform. It should bring harmony between the different branches of power and it should establish a real judiciary. She assured that this principle is supported by the Parliament, by the President and also by the society. For the moment, a hot topic is the question whether Ukraine should become a parliamentary republic or a presidential republic, because the current mixed form sealed by the Constitution causes political instability. Tymoshenko is convinced that the parliamentary form has a real chance in the Parliament, but, of course, “all visions should be spoken out”.

A good economic partner for the EU

After Ukraine joined the WTO, “one of the key achievements of the government”, Kyiv started talks with Brussels on creating a free trade zone. There is a pro-active economic relationship between Ukraine and the EU. 23 billion US dollars are invested by EU countries which represents almost 78% of all foreign investments.

Tymoshenko said that Ukraine is looking at developing a new enhanced agreement, which will have two important issues: political association and economic integration. She hoped for Ukraine “to become sooner or later an EU member”. EU integration is a goal in the internal strategy, she stressed. Ukraine is moving in the direction of economic integration “by developing a free trade zone with the EU, by attracting investment and setting up joint ventures in crucial sectors. Ukraine could be a serious economic partner for the EU next year”, she said, adding that the GDP growth rate would be 6.8% for 2008 and that there would be a serious reduction of the inflation rate compared to 2007.

Creating a favourable business climate

The Government's Action Program contains "20 initiatives of transparency" aimed at improving Ukrainian business environment.
Tymoshenko considered the state not to be an effective company owner. She announced that Ukraine will create favourable conditions for denationalization of the key economic branches on the principles of transparency and justice.
One of the measures is changing the privatization rules. All investors will be allowed to privatise the plants on three main conditions: no obstacles, open auctions without discriminatory pre-qualification limitations, equal rules for all entrepreneurs”. She stressed that “modernisation and very strict environmental conditions should be the key conditions of privatisation”. Tymoshenko underlined that “the attractive state-run enterprises, such as Ukrtelecom, the key chemical and power industry plants, the energy distribution network will be privatised in the coming months”.

Ukraine has its own natural gas fields, but it cannot enhance its energy security, mainly due to inefficient production controlled by the state and corruption. Licenses are issued, but there is no exploration and zero efficiency. Introducing transparency in this area is very important. The Prime Minister announced that the government is looking at “legislation which would enable the investors to build a more secure relationship with the state on the basis of production-sharing agreements”. Here as well, every field will be presented at the auctions and all the state conditions will be followed. She added that “companies which are efficient could invest in these fields, but if these are not exploited during a certain time, they have to be returned to the state. Then, a new auction will be announced”.

Tymoshenko also laid an emphasis on the transparent lease or sale of non-agricultural land. “To buy a plot, you need for example 126 signatures from civil servants”, she said. Ukraine has just past a law to simplify the procedures to buy land and those with regard to the construction of a new plant.
She pointed out the need for reforming the tax system. She promised to develop in the next three months an automated, functioning system of value added tax refunds which excludes the civil servants.

The government works actively with the EU-Business Association in Ukraine. “We want our country to be flourishing, to be open to the world, to be attractive for foreign investors”.

Challenges

The challenges Ukraine is facing are enormous. Society is used to a half shadowed economy and huge interests are at stake. Tymoshenko underlined “the need for a tsunami”. She admitted that there are many years of work to be done, but her team will fight to achieve the results. She referred to the unity of the democratic team, the unity of the President and the Prime Minister and to the majority of the Parliament that supports Tymoshenko’s team.
Finally, she reiterated her hope to become a member of the EU.

 

Q & A Session

When asked to give a timeline for EU membership, Tymoshenko said she would prefer not to give a specific date in case success is not achieved by then.
Furthermore, Tymoshenko stressed: “We are not flirting anymore (with EU integration). We are seriously integrating. Ukraine decided that a long time ago. Creating essential economic projects with foreign investors and harmonizing Ukrainians legislation with European standards, is one of the ways to integrate according to the Prime Minister. She added that “membership is a process and Ukraine’s domestic homework”.

Responding to concerns that Ukraine has to choose between building relations with the EU or Russia, Tymoshenko said: “The question of either/or is incorrect.” 
The prime minister declared that Ukraine has cooperation ties with Russia in almost every sector and the country will continue to build harmonious relations with Russia in connection with many issues.  She said “Ukrainian politicians, before 2004, put national interests second to other interests which strengthened Ukraine's energy and political dependency on Russia”. Now, however, Ukraine needs to “build relations with Russia as equal partners”, diminishing its energy dependency on the country.

Questioned about professional management of the economy and poverty, Tymoshenko said that professional managers came to power in the new government. They could provide the quality of the reforms. Civil servants are following special training programs in Ukraine and abroad. Cooperation between government and business is also a key priority. She repeated that the economic program is aimed at paving the way for investors and at easing the administrative procedures.

Tymoshenko agreed that fighting poverty is important. Indeed, a lot of people are poorly paid. Improving the business climate will provide opportunities. European businessmen commented that professional skills and the educational level of Ukrainians impresses investors. Another concern is how to return Ukrainians working abroad to their homeland?

Asked about Ukrainian citizens being informed about NATO and EU activity, Tymoshenko said that more than 70% of them support EU membership. Ukraine has the necessary budget funds for a public information program to explain NATO functions, the importance of collective security and the need to become a member of NATO more clearly.
Furthermore, she referred to the joint letter to NATO concerning joining the Action Plan and the MAP. It was signed by President Viktor Yushchenko, Prime Minister Yulia Tymoshenko, and Parliamentary Speaker Arseny Yatsenyuk. The letter has provoked loud political debate in Ukraine. There was a strong opposition to this. The whole issue is a very sensitive question in Ukraine. Tymoshenko announced to work to change the public opinion concerning the European security. “We feel the process is positive, but we need to provide the merit information support”, she said.

On the reform of the central apparatus, Tymoshenko underlined that implementing reforms is difficult and bureaucratic counteractions exists, but political will to change is the key to overcome the obstacles. “We are monitoring the implementation every day until the end result”.

On the reform of the energy sector, the Prime Minister indicated the main target is to exclude shadow intermediaries, to conduct direct agreements between Naftagaz and Gazprom. Agreements should be long term agreements, “not for one month, but at least for 10 years”, she said. The prices should be predictable. The distribution in the internal market should be separated from production. Ukraine can be self-sufficient in distribution, according to Tymoshenko.
Tymoshenko underscored the importance of changing the tax system in order to be comfortable for the State and the entrepreneurs. She presented a few new tax code propositions.
“No real estate tax exists and initiating it will be a problem”, she said. Ukraine needs here the support of the civil society. Another difficult task is collecting VAT. She admitted that corruption occurs. A new phenomenon for Ukraine is that “people who declare VAT without exporting demand a reimbursement”. Now, the issue of changing VAT and going to an end user tax is being discussed. In the meantime, the EPT has been reduced. Currently, there are too many diverse taxes on the salaries and a part of the salaries are in the shadow zone. Here also reform is needed.

Regarding agribusiness in Ukraine, a director of an US based company (agribusiness and vegetable oil supplier) outlined the challenges his company is facing with. Administrative measures are completely unannounced and sometimes discriminatory which cause sudden interruptions. The company doesn’t get licences. It is being forced to sell the vegetable oil on the domestic market at certain limited prices. In fact, it would be better for the company to export the crude oil.
Tymoshenko agreed by saying that the development of business shouldn’t be the “act of heroism” and investors shouldn’t “fight obstacles”. The support of the government and political stability are key factors for a better climate. Ukraine indeed needs to further reform. One of the measures is streamlining the tax system, also “for foreign investors who want to build a plant in Ukraine”. Furthermore, she mentioned that, as members of WTO, Ukraine removed all the obstacles which hamper the export. The government will support the agricultural business and companies may become member of the agricultural council.

The question about the powers of the President and Prime Minister, about “who will get more powers” is the responsibility of the government, Tymoshenko stressed. “If the parliamentary powers will be voted, we will support that”. Harmony of powers is needed and could be achieved by constitutional reforms. Tymoshenko noted that the president has started up this work. The constitutional Council has been created which works with the President and government.

 

Further info:

*Yulia Tymoshenko, Prime Minister of Ukraine: her personal website
* Governmental portal : information concerning key provisions of the Government Program
*World Bank: article on: “Ukraine policy recommendations to a new Government. October 2007”
*View more information on: Tax Reform and Draft Tax code propositions