assessment on the status of decentralisation...

ASSESSMENTONTHESTATUSOFDECENTRALISATIONANDSERVICESPROVISIONINTHEWATERSUPPLYSECTORINSELECTEDLOCATIONSIN

UKRAINE

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January2009

AssessmentontheStatusofDecentralizationandServicesProvisionintheWaterSupplySectorinSelectedLocationsinUkraine

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TABLEofCONTENT0. EXECUTIVESUMMARY.............................................................................................................................................12

1. INTRODUCTION........................................................................................................................................................16

1.1 ProjectFramework..........................................................................................................................................16

1.2 ThematicandGeographicalFocusoftheAssessment....................................................................................17

1.3 DataCollectionMethod..................................................................................................................................18

2. ANALYSISOFTHECURRENTSITUATION..................................................................................................................19

2.1 SocioEconomicProfileandDemographicTrends..........................................................................................19

2.1.1 Ukraine........................................................................................................................................................19

2.1.2 VinnytsiaOblast..........................................................................................................................................20

2.1.3 TheAutonomousRepublicofCrimea.........................................................................................................23

2.1.4 SummaryandConclusions..........................................................................................................................25

2.2 ReviewoftheLegalandInstitutionalFrameworkinRelationtoWaterSupplyintheFrameworkofDecentralization...........................................................................................................................................................26

2.2.1 LegalandRegulatoryFramework...............................................................................................................26

2.2.2 KeyInstitutionsandAdministrations..........................................................................................................34

2.2.3 ReviewandAnalysisoftheWaterOperators.............................................................................................40

2.2.4 Conclusions.................................................................................................................................................53

2.3 WaterResourcesandConsumptionLevels.....................................................................................................56

2.3.1 Waterresources.........................................................................................................................................56

2.3.2 WaterBalanceinVinnytsiaOblast..............................................................................................................57

2.3.3 WaterBalanceinARCrimea.......................................................................................................................58

2.3.4 Conclusions.................................................................................................................................................59

2.4 CurrentTechnicalFacilitiesandPerformance.................................................................................................60

2.4.1 Watersupplyandwastewatersystemsinfrastructure.............................................................................60

2.4.2 WaterSupplyandWasteWaterSystemsPerformanceperTypeofEnterprise........................................61

2.4.3 Conclusions.................................................................................................................................................72

2.5 FinancialandEconomicReview......................................................................................................................74

2.5.1 CurrentTaxationSystemsofWaterOperators...........................................................................................74

2.5.2 Watersupplycosts......................................................................................................................................74

2.5.3 CostsEnteringintheCalculationofTariffs.................................................................................................78

2.5.4 BudgetFundsAvailabletotheWaterSector..............................................................................................80

2.5.5 FinancingMechanismsforOperationandMaintenance............................................................................83

2.5.6 FinancingMechanismsforCapitalExpenditures........................................................................................84

2.5.7 ProcedurestoObtainFinancingforCapitalExpendituresandKeyConstraints.........................................84

2.5.8 Conclusions.................................................................................................................................................85

2.6 CustomersSatisfactionandAbilitytoPayforServices...................................................................................86

2.6.1 AssessmentofSatisfactionLevels...............................................................................................................86

2.6.2 AssessmentofWaterUsersPayingCapacity.............................................................................................94


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2.6.3 Conclusion...................................................................................................................................................96

2.7 TheConceptofDecentralisationofPublicUtility(water)ServicesanditsCurrentLimits.............................97

2.8 SummaryofDecentralizationConstraintsandProblemsinServiceProvision...............................................99

3. INDICATORSANDBASELINEDATA.........................................................................................................................105

3.1 SufficiencyofDataandGapsIdentified........................................................................................................105

3.2 RevisedListofIndicators...............................................................................................................................107

3.3 RecommendationsforMonitoringandEvaluationSystem..........................................................................107

4. STRATEGICOPTIONS..............................................................................................................................................110

4.1 ObjectivesforDecentralizationintheWaterSupplySector.........................................................................110

4.2 RationaleforIdentificationofStrategicOptions..........................................................................................110

4.3 StrategicOptionAnalysis..............................................................................................................................115

4.3.1 InstitutionalandOrganizationalOptions..................................................................................................115

4.3.2 FinancingOptions.....................................................................................................................................127

4.3.3 RegulatoryOptions...................................................................................................................................133

4.4 ResultofSWOTAnalysis................................................................................................................................141

4.5 SummaryoftheProposedStrategicOptions................................................................................................142

5. RECOMMENDATIONS............................................................................................................................................144

5.1 InstitutionalandOrganizationalRecommendations.....................................................................................144

5.2 RecommendationsforFinancingofRuralWaterSupplyInfrastructure.......................................................147

5.3 RecommendationsforRegulatoryReform...................................................................................................148

5.4 RecommendationsforDisseminationofBestPractices...............................................................................149

5.5 RecommendationsforFurtherProjectPlanningandActionPlan................................................................150

6. APPENDICES...........................................................................................................................................................152


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ListofTablesTable1MappingofvillagesanalysedinthecontextofthisAnalysis(data2008).........................................................17

Table2EmploymentandunemploymentlevelsinUkraine...........................................................................................19

Table3EmployedpopulationinVinnytsiaOblast..........................................................................................................21

Table4Socioeconomiccharacteristicsofthevillageswherefocusgroupstookplace................................................22

Table5Socioeconomicdataofvillageswherefocusgroupstookplace......................................................................22

Table6Socioeconomicprofileofthevillageswherefocusgroupstookplace.............................................................24

Table7Summaryoflegalconstraintsandtheirimplications........................................................................................28

Table8AnalysisofInstitutionalandLegalForms..........................................................................................................30

Table9Regulatoryframeworkandcorrespondinglegislation.......................................................................................31

Table10DistributionofresponsibilitiesrelatedtothewatersectoramongStateAdministrationsofvariouslevels..35

Table11FunctionalanalysisofOblast/Republicleveladministrativebodies...............................................................37

Table12Functionalanalysisofrayonandvillagecouncils.............................................................................................38

Table13StafflistofShpykivKomungosp.......................................................................................................................42

Table14WateroperatorsandorganisationsinARCrimea...........................................................................................44

Table15Summaryofkeystandardfunctionsandtaskstobefulfilledbywateroperators..........................................48

Table16Maininteractionsofwateroperatorswithadministrative/regulatorybodies................................................49

Table17Comparativeperformancedataoftwotypesofwateroperators(ARCrimea)..............................................50

Table18PreliminaryTrainingNeedsAnalysisoftheWaterSupplySectorinARCrimea..............................................51

Table19Comparativeanalysisofdifferentlegalformsofcommunitybasedenterprises............................................51

Table20WaterbalanceinVinnytsiaOblast,millionm/year......................................................................................58

Table21WaterbalanceinTulchynskyandKalynivskyrayonfortheyear2006,millionm/year...............................58

Table22WaterbalanceforARCrimea,millionm/year................................................................................................58

Table23WaterbalanceinLeninskiyrayon,millionm/year........................................................................................59

Table24DevelopmentofwatersupplyandwastewaternetworkinVinnytsiaOblast.................................................60

Table25LengthofwatersupplyandwastewaternetworkinVinnytsiaOblast(2006).................................................61

Table26ConnectiontoruralandurbansettlementsinVinnytsiaOblast......................................................................61

Table27DevelopmentofwatersupplyandwastewaternetworkinARCrimeaandkeytrends..................................61

Table28Numberofconnectionstocentralisedwatersupplysystemsinanalysedrayons(2006)...............................62

Table29MainperformanceindicatorsofthewatersupplysysteminRegionalUtilitiesEnterpriseVinnytsiavodokanal.........................................................................................................................................................62

Table30MainperformanceindicatorsofthewatersupplysysteminTulchynskyrayon.............................................63

Table31PerformanceindicatorsofTulchynvodokanal.................................................................................................63

Table32PerformanceindicatorsofShpykivKomungosp..............................................................................................65

Table33PerformanceindicatorsofSuvorivskevillage..................................................................................................66

Table34PerformanceindicatorsofwatersupplyservicesinKalynivskyrayon............................................................66

Table35PerformanceindicatorsofKalynivskeIndependentWaterSupplyandWaterDischargeUnit.......................67

Table36PerformanceindicatorofwatersupplyservicesinIvanivvillage....................................................................68

Table37PerformanceindicatorsofwatersupplyservicesinKrymvodokanalenterprise............................................68


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Table38PerformanceindicatorsofwatersupplyservicesinLeninskoyerayonenterpriseofwatersupplyanddischargesector................................................................................................................................................................70

Table39PerformanceindicatorsofwatersupplyservicesinBagerovovillage.............................................................71

Table40PerformanceindicatorsofwatersupplyservicesinOktiabrskoyevillage.......................................................72

Table41Dataabouttheamountofcurrentcostsofdifferententerprisesprovidingwatersupply.............................76

Table42Averagecostsofwateroperators....................................................................................................................76

Table43Dataaboutspecificweightofelectricitycostsandlabourcostsforwateroperators....................................77

Table44Dataontheamountofcapitalexpendituresofdifferentwatersupplyenterprises.......................................78

Table45DataonthelevelofwatersupplytariffsvalidforFebruary2006...................................................................80

Table46Dataonfinancingoftheprojectsselectedthroughcompetition....................................................................82

Table47DataonthefinancingofwatersupplysectorofARCrimeain2007...............................................................82

Table48Dataonallocationofbudgetfundsforthewatersupplysectorinrayonsin2007.........................................83

Table49VinnytsiaOblastTulchynskyrayon:villagesofSuvorivske,Kirnaskivka,Shpykiv.........................................87

Table50ResultsofthefocusgroupsinKalinvskiyrayon...............................................................................................89

Table51ResultsofthefocusgroupsinLeninskiyrayon................................................................................................92

Table52Preliminaryanalysisofusers'abilitytopay.....................................................................................................95

Table53AverageWaterConsumption,TariffandAffordabilityRatio..........................................................................95

Table55Summaryofdecentralizationconstraintsandrespectiveproblems...............................................................99

Table56Recommendedmonitoringmethods.............................................................................................................108

Table57LegalandOrganizationalFormsforRegaionalOperator..............................................................................120

Table60ComparisonofprosandconsofInstitutionaloptions...................................................................................126

Table61CharacteristicsofPrivateSectorParticipation(PSP)Models........................................................................132

Table62AdvantagesandDisadvantagesofExternalRegulatoryOptions(IndependentRegulatorvs.ContractbasedRegulation).....................................................................................................................................................................135

Table63MeasurestoImproveRegulatoryFrameworkthroughtariffssetting...........................................................137

Table64SummaryofInstitutional,financialandregulatoryoptionanalysis..............................................................142

Table65RecommendedchangesinthelegalframeworkofUkraine.........................................................................146

Table66RecommendedchangesoflegaldocumentsandmeasuresforimprovementofregulatoryframeworkofUkraine...........................................................................................................................................................................149

ListofFiguresFigure1:MapofVinnytsiaOblast....................................................................................................................................20

Figure2:MapofARCrimea..............................................................................................................................................23

Figure3:TheinstitutionalandadministrativeframeworkoftheruralwatersupplysectorinUkraine..........................34

Figure4:OrganisationalstructureofwateroperatorsofdifferenttypeofownershipsinVinnytsiaOblast...................40

Figure5:SystemofwatersupplyinthevillageofShpykiv...............................................................................................64

Figure6:Thegeneralprincipaloftheregionalisationmodel.........................................................................................112

Figure7:ProposedInstitutionalandOrganisationalOptions........................................................................................117

Figure8:InstitutionalElementsofOption1...................................................................................................................119

Figure9:InstitutionalElementsofOption2...................................................................................................................123


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ListofAbbreviationsAO AssociationofOwnersARC AutonomousRepublicofCrimeaARCrimea AutonomousRepublicofCrimeaBLN BillionCBE CommunityBasedEnterprisesCBA CostbenefitanalysisCHF SwissFrancCIDP CrimeaIntegrationandDevelopmentProgramofUNDPCO CommunityOrganizationCoM CabinetofMinistersDC ContractforDelegationofServices (DelegationContract)DesPro SwissUkrainianDecentralizationSupportProject,UkraineEU EuropeanUnionGoU GovernmentofUkraineIAWG InteragencyWorkingGroupILO InternationalLaborOrganizationM&E MonitoringandEvaluationMinRegBud MinistryofReginalDevelopmentandConstructionMDI MunicipalDevelopmentInstituteMoU MemorandumofUnderstandingNEFCO NordicEnvironmentalFinanceCorporationNGO NongovernmentOrganizationNCC NorthCrimeanCanalOECD OrganizationforEconomicCooperationandDevelopmentPA ProductionassociationPSB Populationselforganizationbody (OSN transliterationfromUkrainian)PPP PublicPrivatePartnershipPSP PrivateSectorParticipationRO RegionalOperatorRSE RegionalServiceEntityRWG RayonWorkingGroupSDC SwissAgencyforDevelopmentandCooperationSIPC StateInspectionforPriceControlSKAT SwissResourceCentreandConsultanciesforDevelopmentTOR TermsofReferenceUAH UkrainianHryvniaUNDP UnitedNationsDevelopmentProgramUSAID UnitedStatesAgencyforInternationalDevelopmentUSD UnitedStatesDollarVAT Valueaddedtax(inUkraine 20%)WS&S WaterSupplyandSanitationWWPS WastewaterPumpingStationWWTF WastewaterTreatmentFacilityWWTP WastewaterTreatmentPlant


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Glossary

AdministrativedivisionofUkraine1:

Ukraine is subdivided into twentyfouroblasts (regions)andoneautonomousrepublicofCrimea.Additionally, thecitiesofKiev, thecapital,andSevastopol,bothhaveaspeciallegalstatus.The24oblastsandCrimeaaresubdividedintorayons(districts),orsecondleveladministrativeunits.

Oblast1stleveladministrativeunit(region),population1to5million

Rayon 2nd level administrative unit (district), population 20,000 100,000.Thereare490rayonsinUkraine.

City(town)thereare458cities(towns)inUkraine.

Urban type villages urban type settlements, similar to ruralcommunities,butaremoreurbanized, including industrialenterprises,educational facilities,and transportconnections.Thereare886urbantypevillagesinUkraine.

Village smallest administrative unit. There are 28540 villages inUkraine

Local selfgovernmentbodies (electedbydirect voteof territorial communityforthetermof4years):

OblastCouncil24,inalloblasts

Rayon council in all rayons (490) and rayons within cities (withpopulationover200,000)

City(town)councilinall458cities

VillageCouncillocalselfgovernmentbody11062BodiesofstateexecutivepowerStateAdministrations(Oblast,rayon,rayoninthecity,citiesofKyivandSevastopol):HeadsoflocalstateadministrationsareappointedandrelievedbythePresidentofUkraineundersubmissionoftheCabinetofMinistersofUkraine.HeadsoflocalstateadministrationsinimplementingtheirpowersareresponsibletothePresidentofUkraineandCabinetofMinistersofUkraine,andaresubordinatedtohigherlevelbodiesofexecutivepower.Localstateadministrationsreporttothecouncilsinpartofthepowersdelegatedtothembyrayonoroblastcouncils.

AssociationofOwnersofWaterSupplyInfrastructure(AO):

Associationofallownersofwaterinfrastructure(watersupplynetwork,sewernetwork, wastewater treatment plant, etc.) within their administrativeterritory. The legal formmight.Ownersmight be LocalGovernments,OblastCouncils,Privateentities,etc.);

CabinetofMinistersofUkraine: ThehighestbodyofstateexecutivepowerinUkraineandservesasthecabinetofgovernment.TheCabinet is responsible to thePresidentofUkraineand isunderthecontrolofandaccountabletotheVerkhovnaRada(parliament).

CentralizedWaterSupplySystem: Water supply system with central water abstraction (groundwater well orsurfacewater)andwatersupplynetwork

Commercialcompanies: Companiesestablishedtoobtainprofit

Communallyownedunitaryenterprise:

Enterprisesownedby local territorial communities (100%of statutory capitalbelongstotheterritorialcommunity)

1Source:AnnualStatisticalCompendiumfor2006,Derzhkomstat


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Community: Inthecontextofthisstudyitisdefinedasagroupofinteractingpeoplelivinginacommonlocation

Communityorganization: Associationofresidentsofavillage(orpartofavillage).Generally,itcanhaveavariety of legal forms (population selforganization body, cooperative,NGO),withintheframeworkofCIDPmodelitisapopulationselforganizationbodies.

Communitybasedenterprise: Entrepreneur/private (individual) entrepreneur providing services tocommunityorganization,withintheframeworkofCIDPmodel.

Condominiums: Homeownersassociationinmultiapartmentbuildings

(Consumer)Cooperatives: Legalentity,establishedbynaturaland/orlegalentitieswhichvoluntarilyjoinedtogetheronthemembershipbasisforpursuingjointeconomicorotheractivityinordertosatisfytheirowneconomic,socialandotherneedsonthebasisofselfgovernment

DepartmentofGeologyandMineralResourcesUsage(StateGeologicalService):

DepartmentwithintheMinistryofEnvironmentalProtectionofUkraine

DutchSNSREAALWaterFund: SNSREAALisaninnovativeDutchfinancialservicesproviderinthefieldofinsurancesandbanking.MainbrandsareSNSBank,ASNBankandREAALVerzekeringen(REAALInsurances).TheSNSREAALWaterFundisaninvestmentfundthatwillinvestUS$50millionininternationalwaterandsanitationprojectsandinsmallandmediumsizedbusinesses(SMEs)thatarededicatedtosustainabilityandinnovation.TheWaterFundismanagedbySNSAssetManagementthatfunctionsastheinternalcompetencecentreforthedistributionandmaintenanceofknowledgeaboutsustainableinvestments.

Economicassociation: Economicassociationisanassociationofenterprisesestablishedattheirinitiativeonvoluntarybasistocoordinatetheiractivitiesbyunitingoneormoreoftheirfunctions.Itoperatesbasedonthefoundingagreementand/orcharteragreeduponbythefounders.TheEconomicassociationisalegalentity.

Economicmanagementrights: EconomyActivityCodeofUkraine,Article136defines thisasright touseandmanagepropertyassignedbytheowner(orauthorizedbody)withlimitedrightofmanagementwith respect to certain typesofpropertywithagreementbytheowner in the cases set forthby thisCode andother laws.Ownerof theproperty which is assigned to a business entity on the basis of economicmanagement rights exercises monitoring of usage and maintenance of theproperty directly or through the authorized body without intervening intooperationalactivityoftheenterprise.

Enterprises: Former collective farmspartly supplyingwater to thepopulation;Enterpriseswhich have their own borehole/well for their own production needs andprovidepartofwatertotheresidents.

Informalcommunityorganizations:

Community (residents) organizations which did not go through the officialregistrationprocedure.

Komungosps(communalenterprise):

seeSilKomungosps

Krymvodokanal: Production Association of 13 independent water/wastewater enterprises(Vodokanals) including vodokanals of Alushta, Bakhchisaray, Belogorsk,Dzhankoy, Evpatoriya, Feodosiya, Kerch, Krasnoperekopsk, Saki, Schelkino,Simferopol,SudakandYalta.

Localoperators: Water supplying entities operating at village level (as opposed to regionaloperators).

MinistryofEconomy: Centralbodyofexecutivepower.ItsactivitiesaredirectedandcoordinatedbytheCabinetofMinistersofUkraine. It is themainbodywithin theexecutivebranch to ensure implementation of the state economic, pricing, investment


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andforeigneconomicpolicy.

MinistryofEnvironmentalProtectionofUkraine:

The main goals of theMinistry of Environment and Natural Resources ofUkraine are: (i) implementation of the state policy in the field of natureprotection, (ii) rational use of natural resources (land,minerals, surface andunderground waters, free air, forests and other flora, fauna, marineenvironment andnatural resourcesof territorialwater, continental shelf andexclusive (marine)economic zoneofUkraine), (iii)ecological, (iv)nuclearandradioactive safety as well as (v) hydrometeorological, (vi) topographical,geodesic and cartographic activities, (vii) arrangement of ecologicalpreconditionsforsustainabledevelopmentofUkraine

MinistryofHealth: Isacentralbodyofexecutivepower.ItsactivitiesaredirectedandcoordinatedbytheCabinetofMinistersofUkraine.Itisthemainbodywithintheexecutivebranch toensure implementationof statepolicy in theareaofpublichealth,sanitaryandepidemiologicalwellbeing.

MinistryofHousing&CommunalServices:

Speciallyauthorizedbodyofcentralexecutivepower inthesphereofhousingandmunicipaleconomy.

MinistryofRegionalDevelopmentandConstruction:

Is a centralbodyofexecutivepower. Its tasks includebut arenot limited toparticipation in formingandensuring implementationof state regionalpolicyandpolicyofbuilding,architectureandmunicipalengineering,preparingandsubmission of propositions concerning increasing of effectiveness of supportaimedatcoordinationinactivityofcentralandlocalexecutiveauthorities,localselfgovernmentbodies inthementionedsphere,preparingandsubmissionofpropositions concerning deconcentration and decentralization of power ofcentral and local executive authorities, optimization of structure of localexecutive power bodies, improvement of mechanism of regulating of thecentreregions relations, administrativeterritorial system of Ukraine, legal,economic,organizational andothermaximsof thedevelopmentof the statemanagementandlocalselfgovernment.

Municipality: In the context of this report it is synonymic to city/town and municipalgovernment(executivecommitteeofcity/towncouncil).

Oblastwatersupplier: Oblastlevelwatersupplyingenterprise,providesservices to theoblastcenterandsomeruralsettlements(incaseofVinnytsia)

Operationalmanagement(rights): EconomicActivityCodeofUkraine,Article137definesthisasrighttoown,useandmanage thepropertyassigned tohimby theowner (orauthorizedbody)for carrying out noncommercial economy activitywithin the framework setforthby theEconomicActivityCodeandother lawsandby theownerof theproperty (authorized body). Owner of the property exercisesmonitoring ofusage and maintenance of the property assigned and retains the right towithdrawexcessiveproperty,thepropertywhichisnotusedandwhichisnotusedforthedesignatedpurpose.

Organizationsofwaterconsumers(users):

Association,NGOunitingwaterusersandrepresentingtheirinterests.

Populationselforganizationinstitutions(bodies):

A representativebody formedbypartof thepopulationwhich temporaryorpermanentlyresidesonthecorrespondingterritorywithinavillage,settlement,orcity.i.e.block,street,buildingcommittees.

Privateenterprise: Particular institutional form of legal entities in Ukrainewith the purpose toobtainprofit.Privateenterpriseisbasedonindividualpropertyofacitizenwithright to hire personnel. It can be established neither by the state nor byterritorialcommunities.

Privateentrepreneur: Individuals (natural persons) pursuing business activity and registered asentrepreneursaccordingtoaspecificallyestablishedprocedure.

Privatelyownedenterprises: Enterprises owned by private persons (natural persons or legal entities) as


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opposedtocommunalorandstate(government)ownedenterprises

Publicorganization/cooperativeownedunitaryenterprise:

EnterpriseownedbyNGOorcooperative(100%ofstatutorycapitalbelongstotheNGOorcooperative)

RegionalisationModel: InstitutionalmodelforWaterSectorOrganisation,consistingofAssociationofOwners(AO),RegionalOperator(RO),DelegationContract(DC),implementedontheterritoryofalllocalselfgovernmentswhichdecidedtojointheAO.

RegionalizationStrategy StrategytoimplementtheRegionalisationModel

RegionalOperator: Entitywhich isprovidingwaterservicesonaspecific territory (definedby theaccumulatedterritoryoflocalauthoritiesdelegatingtheirrighttooperatetheirassets to such regionaloperators).The sizeof the territorymight reach fromsome villages up to several rayons, but is not necessary equal to theadministrativeboundaryofarayonoroblastadministration.

RegionalServiceEntity Entitywhich is established by local operators in a defined region to supportthem with particular functions which they cannot efficiently performthemselves(achievementofeconomiesofscale).

RegionalUtilityEnterpriseVKH"VinnytsiaVodokanal":

Communalenterpriseprovidingwaterservices to theoblastcenterandsomeruralsettlementsinthevicinityoftheoblastcentre(bylawtheenterprisecanhaveavarietyoflegalforms)

Republicenterprises: EnterprisesownedbyARC

Vodokanals: Watersupplying enterprises (specializingonwater supply and/orwastewaterservices)

SilKomungosps: Communal enterprise in the ownership of local territorial communitiesprovidingcommunalservices(incl.water)intheirterritory

(Consumer)cooperative: Cooperative established by natural persons and/or legal entities for tradeprocurement of agricultural produce, raw materials, production and otheractivitiesinordertomeetconsumerdemandsoftheirmembers.

Settlement: Smallvillage

Singlefixedtaxregime: SimplifiedtaxationsystemforlegalentitiesandnaturalpersonsinUkraineprovidingforpaymentofsingletaxfornaturalpersons.Therateisestablishedbylocalgovernments.Forlegalentitiesthesimplifiedtaxationsystemprovidesfortwooptions:Option1paymentof10%incometaxorOption2paymentof6%incometax+VAT(20%)

StateCommitteeofUkraineforRegulatoryPolicyandEntrepreneurship:

TheStateCommitteeofUkraineforregulatorypolicyandentrepreneurshipisacentral executive body with special status, aimed to exercise state policyconcerningthedevelopmentandsupportofenterprises.

StateEmploymentService: SpecialserviceestablishedforimplementationofstatepolicyofemploymentofpopulationandensuringrelatedguaranteestothecitizensofUkraineinitsterritory.ActivitiesofStateEmploymentServiceareguidedbytheMinistryofLabourandSocialProtectionandlocalbodiesofstatepower.StateEmploymentServiceconsistsoftheStateEmploymentCenter,Republican(inARC)employmentcenters,oblast,rayonandcityemploymentcentre.

Smalloperator: SeeLocalOperator.

StateInspectiononPriceControl: AgovernmentagencywithintheMinistryofEconomyinteraliaresponsibleforverificationofeconomicjustificationoftariffs.

StateStatisticsCommitteeofUkraine:

Body of central authority with special status. The principle tasks ofDerzhkomstatofUkraineare:thestatepolicyimplementationinthesphereofstatistics; accumulation,processing, summarizing and comprehensive analysisof statistical information about the processes taking place in economic andsocial lifeofUkraine and its regions, about economic reformprogress, livingstandards and social protection of the population, foreigneconomic activity


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development,privatizationandlandreformprocess.

StateCommitteeforWaterEconomy(Ukrvodgosp):

Acentralbodyofexecutivepower.Itsactivitiesaredirectedandcoordinatedbythe Cabinet ofMinisters of Ukraine. Themain tasks of the Committee are:development of proposals on state policy formation in the sphere ofwaterindustrydevelopment, landdevelopment,ensuringpeoplesrequirementsanddemands of the national economics branches in water resources,implementation in this sphere of a common technical policy, introducingscientific and technical achievements, new technologies, advanced workexperience and ensuring thispolicy realization;workingout and carryingoutnational, interstateandregionalprogramsonwaterusageandprotectionandwater resources recuperation; meeting requirements of the people andbranchesofnationaleconomics inwaterresourcesandconductingtheir interbasinredistribution;takingmeasuresconcerningwaterfloodprotectionanditsconsequences.

SupremeRada(Council) SeeVerkhovnaRada

UkrSilKomunGosp: Ukrainianassociation(legalentity)of24oblastSilkomungosps(separatelegalentities)andCrimeanrepublicanSilkomungosp.

Vodgosp: Territorial(oblast)departmentofStateCommitteeforWaterEconomy

Vodokanals Watersupplying enterprises (specializingonwater supply and/orwastewaterservices),canhaveavarietyoflegalformsenvisagedbythelaw.

VerkhovnaRada UkrainianParliamentconsistingon450deputieselectedfor5yearsterm

RatesofExchangeusedinthisstudyareNationalBankofUkraineexchangerates:

EURO1.00=UAH7.54(asonMay30,2008)

CHF1.00=UAH4.86(asonNovember17,2008)


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0. EXECUTIVESUMMARY

0.1 INTRODUCTION

TheSwissAgencyforDevelopmentandCooperation(SDC)supportsDesPro(SwissUkrainianDecentralizationSupportProject,Ukraine)inachievingtheoverallgoaltoprovideeffective,efficientandaffordableservicesinthewatersupplyandsocialservicesareasintheframeofdecentralisedstructures.Tothisend,DesProcommissionedthepresentstudyAssessmentontheStatusofDecentralisationandServicesProvisionintheWaterSupplySectorinSelectedLocationsin Ukraine. The Assessment is a situation and problem analysis and a baseline study conducted at Community,Village, Rayon, andOblast levelwith linkage to the relevant national bodies to identify and assess the legal andinstitutionalroles,responsibilities,processesandmechanismswithregardtowaterservicesprovision inruralareas,withparticularfocusontheconstraintsforthedecentralisationprocess.

0.2 ANALYSISOFTHECURRENTSITUATION

GeneralConstraintsforDecentralisationinUkraine

Themainconclusionoftheassessmentisthatthecurrentimperfectdecentralizationprocessisthekeytomostofthedeficiencies in thewater sector. Even though the Lawon Local SelfGovernmenthasbeen introduced in19972,implementation is still lagging behind. There has been a process of administrative decentralization, wherebyresponsibility for regional or local level planning, operational management and partly also for financing ofinfrastructuresandserviceshasbeenshiftedfromthecentral,oblastorrepublicleveltorayonauthoritiesandvillagecouncils.However, financial decentralisation has not yet been fully implemented as the decentralised units (localcouncils)cannotaccomplishtheirdutiesfor lackofpersonnelcapacitieswhichofcoursewouldneedagainfinancialresourcestobedeveloped.Itisobviousthatthisisacircularargumentwhichneedstobeinterruptedbysupportingtheentitiesatlocalleveltoperformtheirfunctionsefficiently.Themainreasonswhythedecentralisationprocessishampered are (i) inadequatebudgeting andplanningmechanismswhich arediscriminating rural areas, (ii) lackofpossibilities for localgovernments to raise theirown financial resources (i.e.via taxes)and to takeout loans (legalconstraint), (iii) lackof capacity and knowledgeof local governments to raise external financing, toperform theirregulatory duties effectively (tariff), to tender and monitor delegation contracts; (iv) insufficient capacity ofrayon/oblast/republicadministration toperform their regulatoryduties, (v) insufficient coordinationbetween localgovernmentsandgovernmentinstitutionsatoblast/republicandnationallevel3.Allthisleadstopoorqualityofpublicservices particularly in rural areas and the fact that community organisations are taking over some of the localgovernmentsfunctions.

ConstraintsforDecentralisationintheWaterSector

It isnoteworthy that reforming thewater sectordoesnotmean thatdecentralisationof all functions is themosteffectiveandefficientsolution.Oneshouldclearlydistinguishbetweenthefunction(i)oftheownerofwatersupplyinfrastructure, (ii)ofoperatingwatersupply infrastructureand (iii) the functionof regulating4 thewatersector.Asdepictedabove, inUkrainedecisionmaking,ownershipand responsibility to supply thepopulationwithwaterhasalreadybeendecentralizedtothelowestadministrativelevel,namelythevillagecouncil.However,thenewownersofthewater infrastructure are facing serious difficulties inmaintaining their assets and financing improvement andextensionof thewater supply systems.TheConsultant thereforeevaluated the current constraintswith regard tooperatingandfinancingthewater infrastructureaswellasthe legalandregulatoryconstraintstheGoUwillhavetoovercomeinthenearfuture.

Themain constraints forefficientoperationofwater systems are closely related to the abovementionedgeneralconstraintsforthedecentralisationprocess:(i) inadequatefinancialresourcesforcapital investmentsdueto limitedaccess toexternal financingand lowcapacity togenerate reserves5, (ii) lackofadequately trainedstaff toperformspecificfunctions(repairofwellsandpumps,waterqualityanalysis),(iii)lackoftransparencyandinefficientcustomerrelationshipmanagement6resultingingeneralmistrustofcustomerstowardwateroperators.

2Amendedin199820083i.e.toprovidesufficientdataenablingregulatingauthoritiesatoblast/republicandnationalleveltoperformtheirduties4Tariffregulation,levelofserviceandperformanceofwateroperatorsincludingwaterqualitymonitoring5Inmanycaseshighoperationandmaintenancecostsduetooutworninfrastructureandpoorrawwaterqualitycombinedwithalowpaymentcapacityofcustomers(i.e.inLenino)6Lackofcomplaintmechanisms


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Regulation of the water sector in Ukraine is performed at different administrative levels. The main constraintsidentified are: (i) ineffective tariff system (unclear distribution of responsibilities, irregular tariff review, lack oftransparency),(ii)ineffectivelicensingandpermitissuingmechanisms(smallruraloperatorsarefacingdifficultiestoobtain licencesandare thereforeoperatingin isolation from theoverallwatersector), (iii) inabilityof respectiveauthorities tomonitorandcontrolwaterqualitydue to lackofcommunicationanddifficulties incollectionofdatafromnumeroussmalloperators.

Oneofthekeyreasonsforthepoorperformanceofexistingwateroperatorsandthe ineffectiveregulatorysystemlays in the overfragmentation7 of the ruralwater sector resulting in (i) difficulties tomonitor the sector and toenforce regulatory requirements for licensing and permits by the respective state authorities, (ii) difficulties ininfrastructure financingdue to thehighnumberofprojectswith small investmentamounts, (iii) lowefficiency foroperationofwatersystemsduetolackofeconomyofscale(iv)lowattractivenessfortheprivatesectortoparticipateinoperationandfinancingofwatersupplysystems.

Further, lackofcapacityofentitiesatvarious levelstocarryouttheirfunctionsefficientlyhasbeen identifiedasanadditionalreasonfor institutionalandorganizationaldeficiencies inthewatersector. Insufficientnumberofstaffoflocalstateadministrationsbodies (atoblast/republic,rayon level)responsible forcoordinationandcontrolofruralwater supply sector lead to lack of coordination and support between the state administrations at rayon,oblast/republic leveland thehighnumberofsmallruraloperators.At local level,rural localselfgovernmentshavelimitedskillsandcapacitiestoperformtheirfunctionalduties(i.e.lawinterpretation,contractualarrangements,tariffandregulatoryissues,raisingexternalfinancing).

Finally,anumberoflegaldocumentswillhavetobeamendedinordertoimprovethelegalframeworknecessaryforimplementingreformmeasuresinthewatersector.

Thisvast listofchallengesfordecentralizationandresultingproblemsshowsthatthe legalauthorityforperformingwater supply andwastewater services,which has been transferred from the state government to the local selfgovernment,isanecessaryconditionfordecentralization,butnotsufficientforsuccessfulaccomplishmentofalltasksinthewatersector.Toovercomealltheexistingconstraintsmentionedabove,asetofcomprehensivemeasureswillberequired.TheConsultantwillfocusonrecommendationswithregardtoregulatory,institutional/organisationalandfinancialconstraints,whichhavebeen identifiedas thekey fieldsof intervention in thewatersectorand themoststringentconstraintstoovercome.

CustomerSatisfactionandAbilitytoPay

WhileinbothregionsVinnytsiaandARCrimeathereisasignificantdissatisfactionwithwaterservices,concernsofthe residentsdiffer. InVinnytsiamostcustomersaredissatisfiedwith thedegreeofaccess tocentralwatersupplysystems8and rehabilitationofexistingcentralizedwater systemwhile inARCrimea thecustomerscomplainaboutwaterqualityandfrequentsupplyinterruptions.Despitesignificantdegreeofdissatisfactionoftheuserswithwaterserviceonlysmallpercentageofthemcomplainedtovariousauthoritiesandoperators.Currenttariffsingeneralareaffordablewithsomeexceptionswhereproductioncostsarehighandincomeofruralhouseholdsislow.Customersagree to pay about 25% more for better services. However, full cost coverage including financing of capitalinvestments would exceed payment capacity of most households. It is noteworthy that about onethird of theresidentsbelievetheirproviderdoesnothaveowncapacitytosolvethemoststringentproblems.

0.3 INDICATORANDBASELINEDATA

TheConsultantsassessment isbasedondatacollectionduringfieldtrips,focusgroupmeetings,householdsurveysand interviewswith service providers and authorities involved in thewater sector in selected pilot rayons of ARCrimeaandVinnytsiaoblast.Further,asetofindicators(institutional,social,financialandtechnical)hasbeendefinedand adata tablewith the respectivebaselinedatawill allowDesPro tomonitor andevaluate itsprojects. Finally,recommendationsforDesProsmonitoringandevaluationsystemhavebeendevelopedincludingamethodologyforfuturedatacollectionduringthemonitoringandevaluationprocess.DesProwillhavetocriticallyreviewtheproposedsetofindicatorsandadjustittotheavailablebudgetforprojectmonitoringandevaluation.

7Highnumberofsmallresidentialsettlementsandconsequentlyhighnumberofsmallwateroperators8Inparticularinruralareas


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0.4 STRATEGICOPTIONSANDRECOMMENDATIONS

InstitutionalandorganisationalOptionsandRecommendations

Basedontheevaluationofstrategicoptionsforimprovingdecentralisationandserviceprovisioninthewatersupplysector and the results of SWOT analysis, the Consultant proposes InstitutionalOption 2 LocalOperators and aRegionalServiceEntityasthemostfavourableandrealisticoptionintheshortterm.Thisoptionrequiresstrongandwellperforminglocaloperators,whicharecurrentlysupportedbyDesProinVinnytsiaOblastandARCrimeaapplyingaCommunityBasedApproach.TherecommendationsthereforefocusonafurtherdevelopmentofDesProsapproachthroughdelegatingsomefunctionsofthelocaloperatorstoaRegionalServiceEntityaimingatachievingeconomiesofscale. However, the option has onemajor drawback namely that funding of infrastructure investment and thussustainabilityofoperationisnotassured.ThereforetheConsultantrecommendsthatInstitutionalOption1RegionalOperator should be implemented at a mid to longterm perspective. Under this option a number of localgovernments, which are owner of the water infrastructure and responsible to supply the population in theiradministrativeterritorywithpotablewater,decidevoluntarilytojoinanAssociationofOwners.ThisassociationwillthenactonbehalfofthelocalgovernmentsanddelegatestherighttooperatetheassetsinitsterritorytoaRegionalOperator.ThisoperatingcompanymighteitherbenewlyestablishedbytheLocalGovernments(mergingofexistinglocaloperators)oranyexistingoperator (i.e.a townoperator)mightextend itsservicearea to the territoryof thelocalgovernments.ItisnoteworthythatOption1andOption2whicharedescribedabovemightcoexistwithinthegivenframework.

FinancingOptionsandRecommendations

Tosupport implementationof the institutionalreformstrategyaimingatencouragingdecentralisation in thewatersector, the financing strategy should focus on assisting the local governments in (i) strengthening the capacity ofoperators inefficient financialandoperationalmanagementand in (ii) improvingaccess to (external9) financingofcapitalinvestmentprojectsthroughbuildingsufficientcollateraland/orguaranteesforattractingexternalfinancingaswellasachievingcriticalsizeoftheinvestmentproject.

The Consultant recommends encouraging and fostering establishment of the following financing facilities andmeasurestoimproveaccesstofinanceforruralwatersupplyoperators:

Poolingofinvestmentprojects, PooledFinancingFacilitysuchasaDevelopmentFund(foundbytheGovernmentofUkrainewiththeinitiativeof theMinistryofHousingandCommunalEconomyofUkraineand theMinistryofRegionalDevelopmentandConstructionofUkraine)and/oranInvestmentFund(privatelyownedandoperated);

PrivateSectorParticipationforcapitalinvestmentfinancingofinfrastructure; Alternativefinancingschemessuchasfinancialleasinganduseofefficiencyimprovementsforbuildingsufficientcollateraland/orguaranteesforattractingexternalfinancing;

Developing attractive models, guidelines and standard contracts in cooperation with international financingagencies,localbanks,suppliersofequipmentandoperators;

Promoting extension of the proposed scheme through offering attractive subsidies (cofinancingwith donorsupportand/orbudgetfinancing);

Developingcapacitiesofoperatorstosetupandtomanagesuchschemes; Improve contracts and regulations between operators and customers aswell as between operator and localauthorities inorder toenablepledgingof revenue streams tobeusedascollateralsand therefore to improveaccesstofinancing.

ThefinancingoptionsproposedbytheConsultantshouldnotbeconsideredasalternativesbecauseacombinationofseveral financing facilitiesmightoptimize and improve access to infrastructure financing in the ruralwater supplysector. The Consultant concludes that pooling of investment projects and establishment of pooled financingfacilities (Development funds,TrustFunds)willbeofutmost importance inorder to assure financingof longterminvestmentprogramsandthussustainabilityofoperationintheruralwatersector.Additionally,financialleasingandsimilar financing instrumentswhich uses efficiency gains for financing of infrastructure seems to be an attractivefacilityinparticularforfinancingofsmallruralinfrastructureprojects.

9i.e.bankloans,PrivateSectorParticipation


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RegulatoryOptionsandRecommendations

TheregulatoryframeworkofthewatersupplysectorneedstobesignificantlyimprovedthroughanumberofchangestotheUkrainian legislation inorderto introduceaclearregulatorymodel.TheConsultantproposesto implementaregulatorymodel,whichcombinesexternalandinternalregulatoryapproaches,whichwillinclude:

Implementation of the National Regulatory Commission with the territorial commissions (for regulation ofprivateoperators);.

EstablishmentofSupervisoryBoardsforregulatingactivityofthepubliclyownedcorporatizedwateroperators; Improvinginstitutionalarrangementsforcarryingoutoflicensingandpermitgivingfunctionsbytheauthorized

entities,whichwillinclude:

EstablishInteragencyworkinggroupattheoblastlevel.

StrengtheningtheruralwaterandwastewatersectionwithintheARCMinistryofHousingandCommunalServicesandoblast/rayonadministrations.

Implementation of the above mentioned regulatory model will have to be accompanied by the respectiveamendmentstocurrentLawsofUkraine(i.e.TheLawofUkraineOnhousingandCommunalServices,TheLawofUkraine On Local Selfgovernments; The Law of Ukraine On Local State Administrations the Constitution ofUkraine).TheConsultantrecommendsthatDesProsupportstheGovernmentofUkraine in implementingtheabovementioned strategy through (i) initiatingdiscussionswithdonors to support the reformprocess and (ii)providingassistanceinselectingthebestregulatoryoptionandinimplementingthenecessarymeasures.

RecommendationsforDisseminatingBestPractice

Inordertopromotetheconceptofaneffectivedecentralizationprocessintheruralwatersector,toraiseawarenessontheeffectivelocalselfgovernments,topromotetheconceptofgovernmenttopeople10throughbestpractices,it is recommended to summarize and disseminate best practices that are available inUkraine on a regular basisthrough an established institutionalmechanism. Therefore, the Consultant proposes for theMinistry of RegionalDevelopment andConstructionofUkraine and theMinistryofHousing andCommunal EconomyofUkraine (i) todesignandimplementthenationalprogramforsupportingrurallocalgovernmentsinenactingthenationalpolicyonregionaleconomicdevelopmentandprovisionofpublic servicesand (ii) toestablish the coordinatingand supportmechanismsforruralwatersupplyoperatorsbyOblast/Republicandrayonslevelauthorities.

10TheconceptrelatestotheTymoshenkosgovernmentprogramwhichprovidedforintroductionofamendmentstotheConstitutionofUkraine.OneofproposedchangesconcernedArticle5whichstatedthatUkrainianpeopleexercisetheirpowerdirectlythroughbodiesoflocalselfgovernment,PeoplesAssemblyandbodiesofstateauthority.CurrentversionstatesthatUkrainianpeopleexercisetheirpowerdirectlyandthroughbodiesofstateauthorityandbodiesoflocalselfgovernment.


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1. INTRODUCTION

1.1 ProjectFramework(1)ContractualRelationships

AQUA PRO Technisches Bro fr Kulturtechnik undWasserwirtschaft Dipl. Ing. Friedrich HOLZMANN (in thefollowingreferredtoastheConsultant)hasbeencontractedbytheSKATSwissResourceCentreandConsultanciesforDevelopment toprovideconsultancyservices for theProjectAssessmenton theStatusofDecentralisationandServicesProvision in theWater SupplySector in Selected Locations inUkraine (in the following referred toas theAssessment.

AQUAPROhasengagedMDIMunicipalDevelopmentInstituteassubcontractorfortheAssignment.

InStep1oftheAssessment,aConceptforprojectdevelopmentandToRforStep2hasbeenprepared.ThecontractforStep2oftheAssessmentwassignedendofJanuary2008.

(2)Background

Ukrainehasfacednumerouschallengesinitstransitionprocesssinceindependence,suchas:(a)thetransformationofthepoliticalsystemfromauthoritarianruletodemocracy;and(b)thechangefromacentralisedandstateplannedtoamarketorientedeconomy.This transformation impliespoliticalpluralism,accountabilityandan increasingroleofnonstateactors.Present fiscalequalisationapproachesdonotprovidethebasis forreal financial independenceofthe localselfgovernments.TheycontinuetodependheavilyonthebudgetallocationscalculatedbytheMinistryofFinanceandthelocalstateexecutivepowers.

Decentralisation and residentsparticipation are the intrinsic elementsofdemocratic governance.However, tobemeaningful,sensitisationondecentralisationisneededatalllevelsofGovernmentVillage,Municipal,Rayon,OblastandNationallevels,aswellaswithintheCommunitiesthemselves.

TheSDCsupportedDesPro(DecentralisationSupportProjectinUkraine)aimsatachievingtheoverallgoaltoprovideeffective,efficientandaffordableservicesinthewatersupplyandsocialservicesareasintheframeofdecentralisedstructures.TheprojectisimplementedbytheProjectImplementationUnit(PIU)ofSkatSwissResourceCentreandConsultanciesforDevelopment.DesProstartedinearly2007workingtowardsthreekeyobjectivesbeing:

Toenablelocalcommunitiesinidentifying,planning,implementing,andmanagingpublicservices.

ToenableLocalGovernmentsatregional,district/municipalandvillagelevelsinplanning,financing,performing,andcoordinatingaffordableservicesinaparticipatoryandinnovativemanner

ToassisttheUkrainianGovernmentindevelopingaNationalAgendaondecentralisationandsupportitstaskstocoordinatenationalpolicyinitiatives.

Recently,DesProselectedpilot localcommunities inARC (BakhchisarayandLeninskiyRayons)andVinnytsiaOblast(TulchynskyandKalynivskyrayons),whichexpressedtheirneedtoimprovequalityofwatersupplyandmanagementconcerningvillagesandsmalltownsoftheselectedRayons.

RegardingmonitoringoftheDesProproject,theDesProteamdevelopsapracticalandeasytouseoutcomeorientedplanning&monitoring system (P&M system).TheP&Msystemwill focuson the results that thisAssessment is togenerate.Forthis, itwill includebaselinedataagainstwhichtheprogressoftheprojectwillbemeasuredata laterstage.Therefore,DesProplansanassessmentthatwilldeliverthenecessarybaselinedata.Thefollowingparagraphsdescribethebackground,objectivesandproceedingsofthisAssessment.

(3)TermsofReference

OneofthefirstkeytasksoftheDesProprojectistoimplementanAssessmentontheStatusofDecentralisationandServicesProvision in theWaterSupplySector inSelectedLocations inUkraine.TheAssessment isasituationandproblemanalysisandabaselinestudyconductedatCommunity,Village,Rayon,andOblast levelwith linkagetotherelevant National bodies to identify and assess the legal and institutional roles, responsibilities, processes andmechanismswithregardtoservicesprovision,inparticularinthewatersupplysector,withregardtotheactualstatusof the decentralisation process. The consultantwill undertake an assessment in the selected pilot rayons ofARC(AutonomousRepublicofCrimea)andVinnytsiaoblast.


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Theassessment inCrimeahasbeenbecarriedoutconsideringthe latestresultsoftheMDI11reportAssessmentofRegulatory and Institutional Framework Concerning RuralWater Supply in Crimea,whichwas commissioned byUNDPsCrimeaIntegrationandDevelopmentProgram(CIDP),andfinancedbySDC.TheresultsoftheCrimeaStudy,in particular the legal and organisational issues have been reviewed, gaps identified and verified, and revisedaccordingtothesituationinVinnytsiaarea.

Asawhole theassessment (1)deliversasituation/problemanalysis,andestablishbaselinedataagainstwhich theprojectwillbemonitored/evaluatedatlaterstage,and(2)providerecommendationsforthefurtherprojectdesign.

Ithasbeenagreed,thattheAssignmentwillbecarriedoutinthreesteps:

IntheFirstStepacomprehensiveconceptandapproachoftheassessmenthasbeenprepared;

TheSecondStepincludesagapanalysisandapreliminaryassessment;

TheThirdStepwillentailadetailedassessment.

1.2 ThematicandGeographicalFocusoftheAssessmentTheoverallobjectivesoftheAssessmentaredefinedasfollows:

TopresentthecurrentsituationatCommunity,Village/Municipal,Rayon,OblastandNationlevelwithregardtoserviceprovisioninthewatersupplysectorandthedecentralisationprocesswithfocusonruralareas;

To provide baseline data based on quantitative and qualitative indicators against which the project will bemonitoredandevaluatedatalaterstage;

Toidentifythestrength,weaknesses,opportunitiesandthreatsintheruralwatersector;

Todevelopstrategicoptionsandrecommendationsfortheimprovementoftheruralwatersector;

Toproviderecommendationsforfurtherprojectplanningandpolicychange"

TheAssessmentiscarriedoutforthreepilotrayons,oneinARCrimea(LeninskiyRayon)andtwoinVinnytsiaOblast(TulchynskyandKalynivskyrayons).Foreachrayonanumberofrurallocalities(villages)havebeenselectedtocarryoutfocusgroupmeetingsandfieldinvestigations.VinnytsiaOblastislocatedsouthwestofKievandsharesaboarderwithMoldavia. The Crimean peninsula is located in southern Ukraine and juts into the Black Sea. A detaileddescriptionoflocationandcharacteristicsofthepilotrayonsispresentedinChapter2.1.2.forVinnytsiaOblastandinChapter2.1.3.forARCrimea.

Thefollowingtablemapsoutthevillagesthatwerevisitedeitherinthecontextofthefieldtripsorinthecontextofthefocusgroups:

Table1MappingofvillagesanalysedinthecontextofthisAnalysis(data2008)

Rayons NamesofvillagesPopulation

levelsThroughfield

tripsThroughfocus

groupsExistingorfutureDesPro

projectsVinnytsyaOblastTulchynsky Shpykiv12 4078 x x yes

Suvorivska 2236 x x yesKirnashivka 5495 x x yes

Kalynivsky Ivaniv 4468 x x yesNovaHreblya 1195 x yesCherepashchintsi 1487 x yes

ARCrimeaLeninskiy Lenino 7900 x Highlikelyyesinfuture

Ostanino 1427 x yesBatalnoye 1369 x LikelyyesinfutureBagerovo 4178 x noBelinskoye 423 x noKrasnogorovka 952 x noOktyabrskoye 1510 x no

11MunicipalDevelopmentInstitutebasedinKiev.12HighlightedinTable1aresettlementswheresurveyofthehouseholdstookplace


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1.3 DataCollectionMethodData collection in DesPro pilot regions took place on oblast/republic, rayon and village levels. Pilot rayonswereselected by DesPro based on the recommendations of oblast/ARC administrations. Data were gathered in thefollowingpilotrayons:

- VinnytsiaoblastKalynivskyandTulchynskyrayons

- ARCrimeainLeninskyrayon

Themain selection criterion for the villageswas the existence of aDesPro project (or likelihood to implement aproject).

DatacollectionwascarriedoutduringStep2andgapsfilled/additionaldatagatheredduringStep3through:

areviewofkeylegislationandregulatorydocuments,statisticalsourcesofinformationanddocumentsaswellasreportsproducedonthethemeofwatersupplyinUkraineinthecontextofvariousinternationalprojectsfundedbySDC,UNDP,USAID,etc.;

twofieldtripsorganisedinVinnytsiaOblastandintheAutonomousRepublicofCrimea

threeroundsofthreefocusgroupseachinVinnytsiaOblastandARCrimea

a surveyofhouseholdsof Ivaniv, Shpykiv villagesofVinnytsiaOblast and Leninskiy village inARCrimea 80householdsineachvillage,whichrepresentsinonevillage7to10%ofthepopulationofavillage.Surveyerroris6.5%.

indepth interviewswithkeyplayers in ruralwater supply sectorofvillage, rayonandoblast level inVinnytsiaOblastandvillage,rayonandrepubliclevelofARCrimea79representativeswereinterviewed.

telephoneinquiriesduringStep3withkeyplayersinruralwatersupplysector.

Sufficiencyofdataandgapsidentified,keyconstraintsandlimitationsencounteredduringthiscollectionprocessarediscussedinSection3.1ofthisreport.

ThedetailsofeachtypeofdatacollectionexerciseareprovidedinAppendix1andinAppendices910.


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2. ANALYSISOFTHECURRENTSITUATION

2.1 SocioEconomicProfileandDemographicTrends

2.1.1 UkraineUkraineisalowermiddleincomecountry,withaGDPpercapitaofUS$1940in200613.ItisthesecondlargestcountryoftheformerSovietUnionwithapopulationof46million.AfterthebreakupoftheSovietUnion,UkrainesufferedoneofthesteepestdeclinesofanyoftheformerSovietUnioncountries,withGDPfallingto41percentofthe1991levelby1998.However,since2000,Ukrainehasstartedtoenjoyastrongeconomicrecovery,withgrowthataround7.5percentperyearonaverage,since2004.UkrainesconsolidatedbudgetwasshowingfortheperiodofJanuarytoNovember2007asurplusofnearlyUAH6bln(CHF1.23bln),asopposedtoadeficitofuptoUAH11bln(CHF2.26bln)in2004.

Rapideconomicgrowthhasfacilitatedasharpdecline inpoverty inrecentyears.Povertyhasfallensharplyfrom31percent in2001 to 8percent in200514.Ukrainehas enjoyedoneof the fastest ratesofpoverty reduction in theEuropeandCentralAsiaRegionsincethestartofeconomicrecoveryin2000.However,inspiteofthisachievement,thepublicssatisfactionwiththeirmaterialwellbeingremainslow.

Ukraines recentstrongeconomicgrowth isnotsharedequallyacross thecountry, ruralareas lagbehind themaincities.Thepresentfiscalequalisationapproachesdonotprovideabasisforrealfinancial independenceofthe localselfgovernments. The latter continue to depend heavily on the budget allocations calculated by theMinistry ofFinanceandthelocalstateexecutivepowers.Localfeesandtaxesmakeuponlyaverysmallfractionoftherevenuesgeneratedatthe local level.Boththefinancialallocationsand locallygeneratedtaxesare insufficienttoensurethatthecitizensareprovidedwiththelevelsofstateservicesasdefinedinthesocialstandardsandnorms.

AparticularsocialchallengeisUkrainesdemographicprofile.Ukrainesdemographicsituationhasbeenworseningforthepastsixteenyears.SincethecollapseoftheSovietUnion,thepopulationhasplummetedfromanestimated52milliondowntoapproximately46.3milliontoday(seeAppendix2).68%ofthepopulationislivinginurbanareas.Thekeycausesof suchademographicdecreasehavebeenand stillare:a significantoutflowofUkrainians looking forworkabroad(inparticular intheperiod1993to2000),highmortalityratesand lowbirthrates.AccordingtoWorldBankexperts,Ukraineisforecasttolosearound25percentofitspopulationby2025.

Therehasbeenamarked improvement in the labourmarket situationover the last fewyears.Employment levelsstand at 67.2% of the able towork population at end 2007, against 66.4% at end 2006. Unemployment levels,calculatedaccordingtothe ILOmethodology,wereat6.7%ofabletoworkpopulation in2007(against6.9%atend2006).Europeanunemploymentlevelsstoodat7.2%atend2007.

Table2EmploymentandunemploymentlevelsinUkraine

2006 2007Employedpopulation,thousand 19179 19324Employmentlevel,% 66.4 67.2Unemployedpopulation(ILOmethodology),thousand 1418 1385Unemploymentlevel,%(ILOmethodology) 6.9 6.7Registeredunemploymentlevel,%ofeconomicallyactivepopulationinworkingage 4.0 3.4Economicallyinactive 8267 8042

Source:DerzhkomstatWebSitewww.ukrstat.gov.ua

13WorldBankCountrypartnershipstrategyforUkrainefortheperiod2008to2011(data2007)14WorldBankCountrypartnershipstrategyforUkrainefortheperiod2008to2011(data2007)


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2.1.2 VinnytsiaOblastTheregion(Oblast)ofVinnytsiaissituatedinthewesternpartofUkraine,borderingMoldova.

Figure1:MapofVinnytsiaOblast

TheOblastcoversaterritoryof26.5thousandsquarekilometres.AdministrativelytheOblastisdividedinto27villagerayons,theoblastcentreisdividedinto3townrayons.Ithas17towns,30towntypevillagesand1,467villages.ThetownofVinnytsia,whichisover630yearsold,hasapopulationofmorethan400thousandresidents.

Theoblast isdominatedby a strong agricultural sector. Ithas a landwith a significantmineral rawmaterialbase(kaolin)andanimportantnumberofmineralsprings.Thetotalfarmlandareais19,605squarekilometres(73%oftheterritory);arablelandsoccupyabout17thousandsquarekilometres.Theagriculturesectorscropoutputsrepresentnearly 8 % of the total agricultural crop outputs of Ukraine. 850 agricultural companies operate in the oblastagriculturalsector.Theyaresupplementedby1,240privatefarms.

Nearly30,000enterprisesofvariousownershipformfunction intheregion,outofwhichabitmorethan2,000areregisteredasprivateentrepreneursphysicalentities.


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Populationoftheoblastis1.67millionpeople15(3.6%oftheUkrainenationaltotal)outofwhich0.81millionpeoplelived incitiesand0.85million in ruralareas.Thenetmigration rate (from/to theOblastwithinUkraine)per1,000habitantswas0.8.Populationdensitywas63peoplepersq.km.,whichisrelativelysmallcomparedtootherregions.Demographicprocessesaredominatedbyareduction in thebirthratesandaconstantlyhighdeathrate.Overtheperiodof1995 through2000, thebirth rate (i.e.numberofnewbornsper1,000persons)decreasedby20.8%. In2007, this indicatorwas 8.6 persons per 1,000 people and the death ratewas 16.7 persons per 1,000 residents.VinnytsiaOblasthastheoldestpopulationinUkraine.Theshareofresidentsover60accountsfor23.8%ofthetotalandappearstobeoneofthehighestworldwide16.

Table3below,basedondatacollectedinVinnytsiabyaUSAIDprojectonLocalEconomicDevelopment,highlightsasharpdecreaseofemployment figures in theperiod2003 to2005whereasnationaldata,during the sameperiod,startedtoshowaslightupwardtrend.Basedonthosedata,theOblastsemploymentratesstoodonlyat30%oftheeconomicallyactivepopulation.

Table3EmployedpopulationinVinnytsiaOblast

Administrativejurisdiction 1995 2000 2001 2002 2003 2004 2005VinnytsiaOblast 896793 823100 815900 798200 821000 720800 504550Employment rateVinnytsiaOblastin%

65,9 62,4 62,9 65,1 57,4 57,6

Ukraine 23725500 21268500 21015500 20091200 20163300 20295700 20680000EmploymentrateUkrainein%17 55,8 55,8 56,2 56,2 56,7 57,7

Sources:USAIDLocalEconomicDevelopmentProjectVinnytsiaCommunityProfile(2006)fordatauptoandincluding2005andUkraineStateCommitteeofStatistics:AnnualStatisticalData,Ukraine

Morerecentdatafor2006and2007fromtheVinnytsiaOblastStateEmploymentServices indicateanemploymentlevel(amongeconomicallyactivepopulationaged15to70)of729,000people in2006and730,000people in2007,whichrepresentsanaverageregionalemploymentrateof43%18overthesetwoyears(seeAppendix3).

TheVinnytsiaOblastStateEmploymentServices indicatesanunemployment rateof6.5% (for2007)and6.4% (for2006) of the economically active population (aged 15 to 70) (ILOmethodology). TheVinnytsiaOblast InvestmentPortal,however, indicatesahighpercent(60.4%)ofunemployedpeople inruralareas.It ispresumedthatthisdatarepresentsthesituationasatend2007.

Theaveragemonthlywage,asatend2007,wasUAH1,27319 (CHF262)againstanaveragenational figureofUAH1,675(CHF345).VinnytsiaOblastworkforceisamongthelowestpaidregionalworkforcesofUkraine.

ThetwoanalysedrayonsoftheOblast,TulchynskyandKalynivskyrayons,arepredominantlyruralareas.

Tulchynsky rayon20coversa territoryof1,124km2 (i.e.4.3%of theOblast).Theoverallcoverageof itswaterbasinrepresents2,402hectares.Forests cover19,205hectaresof its territory.Populationof the rayon is59,741,outofwhich 35,431 live in rural areas (59.3% of the total population of the rayon).Nearly 37% of the population arepensioners.Populationdensityis53persons/km2.

Nearly 3,500 persons are registered as unemployed in the State Employment Centre of the rayon. No data areavailableonrealunemploymentrate(accordingtotheILOmethodology),therateofemploymentandaveragewages.

Therayonhas19settlements/villageswhicharelocatedintheformerChornobylszoneofradioactivecontamination.Inthesesettlementslivenearly38,000people,outofwhich6,580children.Industrialproductionshowedagrowth,atthe end of 2007, of 113.6% compared to the previous years. The gross grain production in that yearwas 60.3thousandtonsandthatofthesugarbeet,66.2thousandtons.

Asat1stJanuary2008,therewere192registeredsmallbusinesses(legalentities)and3,279privateentrepreneursphysicalentities.

152007data.Norecentdataonagebreakdownintheregionwasavailableatthetimeoftheanalysis16Source:VinnytsiaOblastInvestmentPortal(www.vininvest.com.ua)17EmploymentRateisrationumberofemployed(ages1570)tototalpopulation.18DataofVinnytsiaOblastStateEmploymentService19datafromtheUkraineStateCommitteeofStatisticswebsite20datafromthe2007TulchinskiyrayonSocioEconomicPassport(RayonStateAdministration)


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Villagelevelsocioeconomicdata

The followingdatawasobtainedon the socioeconomic situationof thepopulationof three villageswhere focusgroupstookplace.

Table4Socioeconomiccharacteristicsofthevillageswherefocusgroupstookplace

Suvorivskevillage Shpykivvillage KirnasivkavillageIndicator 2006 2007 2008 2006 2007 2008 2006 2007 2008Numberofresidents,including: 2357 2294 2236 4125 4102 4078 5551 5527 5495women 1396 1381 1342 2345 2328 2312 3421 3395 3382pensioners 996 978 964 1702 1680 1684 1989 1993 1911unemployed 346 374 342 1508 1515 1510 2891 2863 2848childrenunder18 364 359 348 780 755 712 1342 1358 1340

Thesedatahighlight:

ageneraldownwarddemographictrendacrossthreevillagesoverthelastthreeyears(onaveragebetween1%perannumforShpykivandKirnasivkaand3%perannumforSuvoroskoye)

prevailingfemalepopulation(average59%,inKirnasivka:62%)

a significant share of older population (pension age), on averagemore than 40% (except in Krnasivkawherepensionersrepresent35%ofthepopulation)

onaverageabitmorethan15%ofyoungerpopulation(lessthan18yearsold)except inKirnasivkawherethisgrouprepresents24%

astableaverageunemploymentrateofbetween15%inSuvoroskoyeand52%oftotalpopulation(nofiguresoneconomicallyactivepopulationbetweenanageof15and70weremadeavailabletotheexpertsteamtoallowforamorecorrectcalculationofunemploymentrateineachvillage.

Kalynivskyrayon21coversaterritoryof1096km2(i.e.4.2%oftheOblast).Populationoftherayonis61,331(31.6%ofthetotalOblastpopulation),outofwhich30.5thousandareabletowork(49.7%ofthetotalrayonpopulation).Morethantwothirdsofthepopulationlivesinruralareas(41926people).30%ofthepopulationarepensioners.

Atotalof16,000peoplewereemployedasatend2007:43.8%intheagriculturalsector,25%intheindustrialsector(mainly food processing,machine building andmetal processing, andwood processing), 1.9% in the constructionsector, 3.1% in the transportation sector, 12.5% in education, 6.2% in health and social protection. No data areavailableonthelevelofunemploymentintherayonandaveragewagelevels.

A total of 226 small enterprises are registered (with 163 operating) in the rayon and 515 persons are privateentrepreneursphysicalentities.Thereare28NGOs,associationsandunions,10ofwhicharelegalised.

Table5Socioeconomicdataofvillageswherefocusgroupstookplace

Ivaniv NovayaHreblya CherepashyntsiIndicator 2006 2007 2008 2006 2007 2008 2006 2007 2008Numberofresidents,including: 4640 4432 4468 1234 1224 1195 1541 1530 1487women 2284 2248 2244 666 659 637 795 783 779pensioners 1150 1176 1076 325 325 326 576 584 593unemployed 221 180 190 20 15 12 118 127 131childrenunder18 949 863 941 299 301 300 313 325 323

Thenumberofpensionersisslightlyincreasingeveryyear,exceptinIvanivwhereitdecreasedbymorethan8%overthelastyear,whereasthenumberofchildreninthisvillageincreasedby9%.Thehighestproportionofpensionerscanbefound inCherepashyntsi(9%),whereasNovayaHreblyahasthehighestshareofchildren(under18).ThehighestproportionofunemployedpeoplecanbefoundinCherepashyntsi(9%),followedbyIvaniv(4%).UnemploymentlevelshavesignificantlydecreasedinNovayaHreblyaoverthelastthreeanalysedyears(by40%)

21datafromthe2007KalinivskiyrayonSocioEconomicPassport(RayonStateAdministration)


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2.1.3 TheAutonomousRepublicofCrimea

Figure2:MapofARCrimea

Crimeanpeninsulacoversa territoryof26,200km2,and issituated inthesouthofUkraine. Ithas thestatusofanAutonomousRepublic.

Crimeaissubdividedinto25regions:14rayonsand11citymunicipalities,officiallyknownas"territoriesgovernedbycitycouncils".Regionsincludecity,urbantypevillageandvillagecommunities.ThemunicipalityofSevastopolisoneoftwospecialmunicipalitieswithinUkraineandisnotpartofARCrimeaitself.

TotalpopulationofCrimeais1,970,44522(comparedto1,983,825in2006and1,994,300in2005),outofwhich63%live inurbanareas.As in therestofUkraine, theRepublichasregisteredaslowbutconstantdemographicdeclinedespiteanetmigrationof+2,421people(thereturnofdisplacedgroupssuchasCrimeanTatars(nearly2,500over2007).Overthelastthreeyears,thetotalpopulationinARCrimearegisteredanannualdeclineof0.5%,whereasruralpopulation decreased annually by 0.7%. The nationality structure comprises the following selfreported ethnicgroups23: Russians 58.32%; Ukrainians 24.32%; Crimean Tatars 12.1%; Belarusians 1.44%; Tatars: 0.54%;Armenians 0.43%;andJews 0.22%.Otherminorities includeBlackSeaGermans,Romapeople,Bulgarians,Poles,Azerbaijanis,KoreansandGreeks.

ThemainbranchesoftheCrimeaneconomyaretourismandagriculture. Industrialplantsaresituatedforthemostpart in thenorthern regionsof the republic. Important industrial cities includeDzhankoy,housingamajor railwayconnection,andKrasnoperekopsk,amongothers.

ThemostimportantindustriesinCrimeaincludefoodproduction,chemicalfields,mechanicalengineeringandmetalworking,and fuelproduction industries. Sixtypercentof the industrymarketbelongs to foodproduction. In2007,therewereatotalof291largeindustrialenterprisesand1002smallbusinessenterprises.

222007data:DatafromUkraineStateCommitteeofStatisticswebsitefor2007232001Ukrainianpopulationcensusdata


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Themainbranchesofagriculturalproduction intheregion includecereals,vegetablegrowing,gardening,andwinemaking, particularly in the Yalta andMassandra regions.Other agricultural forms include cattle breeding, poultrykeeping,andsheepbreeding.OtherproductsproducedontheCrimeaPeninsulaincludesalt,porphyry,limestone,andironore(foundaroundKerch).

Asatend2005, thenumberofemployedpeople stoodat906,100which represented58.7%of theeconomicallyactivepopulationaged1570. Thenumberofabletoworkpopulationnotemployedrepresented52,600peopleor5.5%ofthenumberofeconomicallyactivepopulation(accordingtoILOmethodology).Theaveragewagelevelattheendof2007wasUAH1,493(CHF307)permonth.

TherayonwhichwasanalysedforthepurposeofthisAnalysisisLeninskiyrayon.

ThisrayonisasmallerpeninsulaattachedtotheCrimeanpeninsulaonitseasternside.Itcoversaterritoryof2,900squarekm.Itcomprisesonetown(Shchelkino),twotowntypevillages(LeninoandBaguerovo)and68villages.Asatend2006, itspopulation stoodat65,525 residents (compared to66,276 in2005),outofwhich64% lived in ruralareas.Around53%ofthepopulationarewomen.Accordingtodatafrom1999,Russiansarethepredominantethnicgroup in this rayon (61.4% of the population),Ukrainians represent 17.1% of the population and Crimean Tatars16.2%.

Agricultureandfishingarethemainsectorsofeconomicactivity inthisrayon.Averagewage levelrepresentsabout70%oftherepublicanlevel.

Asat1stFebruary2007,2.8%ofLeninskiyrayoneconomicallyactivepopulationwereofficiallyunemployed.Nodataonreal(ILOmethodology)unemployedlevelswereavailableatthetimeoftheAnalysis.

Villagelevelsocioeconomicdata

Thefollowingdatawasobtainedonthesocioeconomicsituationofthepopulationofthethreevillageswherefocusgroupstookplace.

Table6Socioeconomicprofileofthevillageswherefocusgroupstookplace

Lenino Ostanino BatalnoyeIndicator 2006 2007 2008 2006 2007 2008 2006 2007 2008Numberofresidents,including

8200 8000 7900 1442 1435 1427 1389 1378 1369

women 2788 2779 2774 490 487 480 472 470 468pensioners 1231 1227 1220 475 470 467 434 430 427unemployed Nodata Nodata Nodatachildrenunder18 1993 1995 1998 357 350 348 400 396 392

Thesedatahighlight:

ageneraldownwarddemographictrendacrossthethreevillagesoverthelastthreeyears(onaveragearound1%perannum)

ashareofolderpopulation(pensionage)slightlyexceeding30%,except inLenino,wherepensionersrepresentonly15%ofthepopulation

between24%and29%ofyoungerpopulation(lessthan18yearsold)

Nodatacouldbeobtainedonunemploymentlevels.


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2.1.4 SummaryandConclusionsThe latest socioeconomic development in the country indicate that there is a need for improving local services,overcomingdemographicchallenges,marketorientedreformstoovercomepovertyandmaintainingimprovedlabourmarketindicators.

Socioeconomicanddemographicdataatnationallevel:

A particular social challenge is Ukraines demographic profile. Since the collapse of the Soviet Union, thepopulationhasplummetedfromanestimated52milliondowntoapproximately46.3milliontoday.68%ofthepopulationislivinginurbanareas;

Rapid economic growth has facilitated a sharp decline in poverty in recent years. However, in spite of thisachievement,thepublicssatisfactionwiththeirmaterialwellbeingremainslow;

Ukrainesrecentstrongeconomicgrowthisnotsharedequallyacrossthecountry,ruralareaslagbehindthemaincities.

SocioeconomicanddemographicdataofVinnytsiaoblast:

Populationof theoblast is1.67millionpeople24 (3.6%of theUkrainenational total)outofwhich0.81millionpeoplelivedincitiesand0.85millioninruralareas;

TheoblasthastheoldestpopulationinUkraine;

TheVinnytsiaOblaststatisticsindicatesahighpercent(60.4%)ofunemployedpeopleinruralareas;

VinnytsiaOblastworkforceisamongthelowestpaidregionalworkforcesofUkraine;

Highshareoffemalepopulation(insomevillagesexceeding60%)havinglowwagesingeneral;

ExistenceofChernobyldisastercontaminatedzones.

SocioeconomicanddemographicdataARCrimea

TotalpopulationofCrimeais1.97millionpeople25,outofwhich63%liveinurbanareas.

As in the rest of Ukraine, AR Crimea has registered a slow but constant demographic decline despite a netmigration(thereturnofdisplacedgroupssuchasCrimeanTatars(nearly2,500over2007).

Overthelastthreeyears,thetotalpopulationinARCrimearegisteredanannualdeclineof0.5%,whereasruralpopulationdecreasedannuallyby0.7%.Thenationalitystructurecomprisesavarietyofethnicgroups26.

The employment indicators for 2005 show higher employment rate in AR Crimea (58.7 %) as compared toUkrainesaverage(57.7%).

TheaveragewagelevelinARCrimeaattheendof2007was1,493UAH(CHF307)permonthagainstanaveragenationalfigureof1,675UAH(CHF345).

ContextwithregardtoDecentralization:

Thegovernmentsatall levelshave important responsibilitiesand theirperformanceshighlydependon the socio economicconditionoftheregionwhichischaracterizedbydemographic,geographicandeconomicindicators.

Localselfgovernmentshavelowerfiscalcapacityinraisingtheirownfundsforcarryingoutdecentralizedfunctions,(i)thehigherthenumberofelderlypeople,(ii)thelowerthebirthrate,(iii)thehighertheshareofagriculturalsectorineconomyof the region, (iv) thepoorer thepopulation. Further, thepresent fiscalequalizationapproachesdonotprovideabasisforrealfinancialindependenceofthelocalselfgovernments.

242007data.Norecentdataonagebreakdownintheregionwasavailableatthetimeoftheanalysis252007data.DatafromUkraineStateCommitteeofStatisticswebsitefor2007262001Ukrainianpopulationcensusdata


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2.2 ReviewoftheLegalandInstitutionalFrameworkinRelationtoWaterSupplyintheFrameworkofDecentralization

2.2.1 LegalandRegulatoryFramework(1) LawsandSublawsrelatingtoWaterUsage,WaterSupplyandWasteWater

In Ukraine, water supply and wastewater service provision is a fully decentralised function. The process ofdecentralisingresponsibilitiesforwatersupplybeganin199427whenthestatecommencedthetransferstateownedwatersupplyinfrastructuretolocalselfgovernments.AfteradoptionoftheConstitutionofUkrainein1996localselfgovernments (Section XI Local SelfGovernment) were empowered with the right to invest in and to maintaincommunalpropertyandtohavefullresponsibilityforitsmanagement.TheConstitutionofUkrainehasalsospecifiedthattherightsandresponsibilitiesofthelocalselfgovernmentshavetobedefinedbytherespectivelaw.

In1997, the LawofUkraine OnLocalSelfgovernment inUkrainewaspassedwhichdefineda setof rightsandresponsibilities for the local selfgovernments. With theenactmentof this lawone couldmakea case thatwatersupplyandwastewaterdisposalarefullydecentralizedfunctionsinUkraine,sincethelocalselfgovernmentshavealldecisionmakingpowersforfreechoiceandorganisationofthemostappropriatemanagementmethodsfortheseservicesaswellas responsibility for the investmentandmanagementofdrinkingwater supplyandwastewaterfacilities(SeethefulltextofthelawinAppendix17tothisreport).

To streamline the procedure for transfer of state assets into communal property of local selfgovernments, theSupremeRadapassedtheLaw#147datedMarch3,1998,OnTransferofStateandCommunalProperties,whichgovernsthisprocess.

Following the Law on Local Selfgovernment in Ukraine, in 1997, the Supreme Rada imposed prohibition forprivatizationofwaterandwastewaterinfrastructure,whichhasbeenenactedbytheLawofUkraineOnamendmentto the Law ofUkraine On Privatization of State Property # 89/97VR of February 19, 1997.As a result of theenactmentofthisprovision,thelocalselfgovernmentscannotuseobjectsofinfrastructure28ascollateral.

Despite the existing prohibition for privatization (transfer of ownership) of infrastructure, the entities,which areoperatingwatersupplyandwastewaterfacilities,canbefunctioninginallownershipforms:

privatecompanies(orindividualentrepreneurs),operatingontheprivateownershipoftheindividualsandlegalentities;

communally (publicly) owned enterprises, owned by the territorial community of the cities, villages andresidentialsettlements;

stateenterprises,operatingontheownershipofthestate;

companieshavingmixedformsofownership(jointventurebetweenpublicandprivate).

Dependingontheformofownershipoftheentitywhichisoperatingwatersupplyandwastewaterfacilities,thelocalselfgovernment chooses a respective type of the contractual arrangementwith such an operator (delegation ofmanagement).

The Commercial Code ofUkraine (436IV, 16.01.2003) identifies the various legal formswhich enterprises andorganizationscantake(basedondifferenttypesofownership)andspecifiesthedifferentcontractualarrangementswhich can take place betweenwater operators and government or nongovernmental organizations. Contractualarrangementsofparticularrelevancetowateroperatorsare:

Leaseandconcessioncontracts:Definestherelationshipbetweenthelocalgovernmentsandthewateroperators.Anyeconomicentity, regardlessof its institutionalandlegal formand the formofownership,whichpossessesadequate physical, technological and financial resources may conclude a lease or concession contract withrespecttowatersupplyfacilitieswiththe localgovernmenthaving jurisdictionoversuchfacilities in (a)certainvillage(s);

27ThetransferwascarriedoutpursuanttothePresidentialDecree#84datedMarch12,1994,OnStrengtheningoftheEconomicBasisofLocalGovernment.

28Watersupplyandseweragenetworks,watertreatmentplants,wastewatertreatmentplants,etc.


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Serviceprovisioncontracts:Thecodespellsoutthecontractualrelationshipsbetweenwateroperatorsandwaterusers(consumers);

TheCodeprovidesalegaldefinitionofcommercial(forprofit)economicactivitiesandnotforprofitactivities.

The Civil Code (435IV, 16.01.2003) is themain legislative act codifying the normswhich regulate civil and legalrelationsofpropertyandnonpropertycharacter.Itspellsoutformsofparticipationofthestate,ARCrimea,territorialcommunities in civil legal relationships, defines general rules for leasing property or concluding managementcontracts,providesdefinitionofanenterpriseassingleandunifiedpropertycomplex.

However, neither Constitution of Ukraine, nor the Law of Ukraine On Local selfgovernments do not defineinstitutionaloptions,whichcanbeusedbylocalselfgovernmentsforjointdecisionmaking29regardingregionalwatersupplyandwastewaterserviceprovision.TheLawofUkraineOnLocalselfgovernments(article26,par31)definesthe right of local councils to delegate the management of their property as following: To adopt decisions ondelegating certain powers to other bodies to manage the communal property of the corresponding territorialcommunityand todetermine the limitsof thesepowersand theconditionsof their implementation.Asdefined inarticle43oftheLawofUkraineOnlocalselfgovernmentthelocalselfgovernmentscannottransferownership(andrelatedrights)toanyotherorganisationbuttotherayonoroblastcouncilsonthesale,rent,concessionormortgageofcommunalpropertyobjects,whichmeet thecommonneedsof territorialcommunitiesandwhicharemanaged,respectively,byrayonandoblastcouncils.

MonitoringofServiceContractsbetweenLocalGovernmentsandWaterOperator:

UndertheLawofUkraineOnLocalSelfGovernmentinUkrainelocalgovernmentsareheldresponsibletoprovidehighqualityservicestothepopulationwithintheirterritory.Inthiscontext,localgovernmentsareauthorizedtoenterintocontractualrelationshipwithenterprisesofvariousformsofownershipforserviceprovisiontoconsumers.Thelawdoesnotspellouttherequirements for thecontentsandproceduresof thecontractsconclusion, inparticularcontractual performance targets. It also does not provide guidelines on theway the fulfilment of such contractsshouldbemonitoredbythelocalauthority.ThefieldtripsinVinnytsiaOblasthighlightedthefactthatasmallnumberofwater suppliers

assessment on the status of decentralisation...

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