Infrastructure investment is widely recognized as a crucial driver of economic activities, and scaling up infrastructure investment, public and private, is a key pillar in the national development strategy of Ukraine. The country generates far more transport movements and volumes relative to its GDP than any other country in Europe, due notably to its reliance on agriculture and heavy industry. Transport costs make up a much large part of the final price of many goods.
Why the European Union is keen to support Ukraine in the transport and what kind of support is provided
Transport is high on our EU and Ukraine respective agendas, requiring increased dialogue. The transport sector is highly strategic and a key priorities in EU-Ukraine cooperation as foreseen in the EU-Ukraine Association Agreement.
The EU is supporting Ukraine through a number of projects and programs, e.g. the Technical Assistance for Improvement of the Infrastructure Cycle Management Project (IPCM). . Another example is the recently signed “European Transport Connectivity and ITS program,” where an EU grant of 36 mln EUR is combined with a loan of the European Investment Bank for the same amount.
What are the reasons behind reforming the infrastructure investment project cycle management
Significant investments are required to modernize the Ukrainian transport sector, including reducing its carbon footprint. These investments require the mobilization of significant resources from both public and private investors. This can only be realized when international partners and the private sector are convinced that investment decisions are taken rationally and transparently. Most of the challenges can be met through taking a systematic approach to project cycle management and through the application of modern methods and techniques used internationally to identify, define, prioritize, prepare, implement, and evaluate investment projects. This is the main purpose of the EU-funded Technical Assistance for Improvement of the Infrastructure Cycle Management Project.
What benefits will Ukraine accrue from reforming its infrastructure investment project cycle management in line with the EU practices and standards
A proper reform of the infrastructure construction cycle, including planning /approval /procurement /implementation /maintenance, and application of legislative, administrative, operational and organizational improvements will assist the process to reduce the time and cost for the realization of infrastructure projects, improve quality and will create an accountable, transparent, and effective system for infrastructure management.
The most important benefit is the increase in capacity of Ukraine to attract and utilize larger investment funds from international partners as it forges a closer relationship with the EU. At present, some €2 billion has been pledged to the transport sector and which are yet to be fully utilized. The bottlenecks are the bureaucratic procedures, which means decision-making take unnecessarily long and investment projects may be poorly prepared and may not be suitable for financing. Institutional investors must be convinced that the systems in place will result in economically beneficial projects and that they are implemented in a transparent and accountable fashion with corruption routed out of the system.
The IMF estimates that effective public investment management could save up to 30% of the funds invested in public infrastructure by reducing the number of projects that are poorly formulated, experience significant cost overruns, do not deliver the expected economic and financial returns, or are abandoned before they are completed.
What results have been achieved in the past 3 years within the Technical Assistance for Improvement of the Infrastructure Cycle Management Project in respect to reforms and what are the next steps
The joint work between stakeholders, particularly the Ministries of Infrastructure, Regional Development, Finance and Economy, has resulted in the drafting and approval of the Strategy and Action Plan for reforming Project Cycle Management in Ukraine. The Strategy enjoys the support of all key stakeholders and was submitted for adoption to the Cabinet of Ministers in September 2020, but is yet to be adopted. The core of the Strategy consists of 26 actions that are not controversial, are in line with government’s stated reform objectives, and are covered under the EU-Ukraine Association Agreement.
Also, the implementation of modern methodologies for identifying and evaluating infrastructure projects must be accompanied by adequate skills and capacity, which is unfortunately low in the transport sector in Ukraine. Therefore, the IPCM project has also focused on training activities and a large number of training events have been held in Kyiv and regions. The project has also prepared a comprehensive Capacity Strengthening Plan that addresses both the short and long term needs of the transport sector in Ukraine.
Equally important, the project has invested significant resources and efforts to raise awareness about the need for reforms in Ukraine not only to the state authorities but also to businesses, industries, associations, and NGOs, as well as the public.
What are the challenges and opportunities moving forward and what would be your advice to the Ukraine Authorities both in relation to the IPCM project and in transport sector generally
In relation to the improvement of the infrastructure cycle management, the main challenge is to adopt the Strategy and Action Plan quickly. As I mentioned previously, the core of the Strategy is 26 Actions that are in line with government’s policies. Some actions are already under implementation, such as the introduction of the FIDIC and the reform of Architectural and Engineering services. The real hard work of implementing it and building the required capacity can start as a result of this.
In relation to the Transport sector:
• Transport should play a key role in Ukraine’s Green Deal ambitions. We are convinced that Ukraine’s current substantial state investments in road infrastructure should be matched by increased investments in sustainable transport modes, notably rail rolling stock and infrastructure. Improved urban public transport will also be crucial and, for example, the 200 million loan signed on 9 December with the EIB, supported by EU-funded technical assistance, will contribute to reducing pollution and improving quality of public transport in up to 20 cities in Ukraine.
• On inland waterways, I am glad to see progress in the harmonization process and implementation of the Association Agreement in relation to inland waterways transport. The adoption of the keenly awaited Law ‘On inland water transport’ is a great achievement and opportunity to attract much needed investments and development of this subsector.
• Despite this significant success, and while acknowledging the commitment of the current Government and the Rada to speed up the transport reforms, the transport part of the Association Agreement is still lagging behind other sectors. The reform delay in the railway sector, for example, has a negative impact on our trade exchange.
This requires special attention from decision makers and all stakeholders to ensure that the relevant priority laws covering the different transport modes are adopted and implemented without delay, thus creating the relevant framework for future investments. The adoption of the action plan for the implementation of the National Transport Strategy, including a strong component on logistics, will also be crucial.
• Ukraine should also pay special attention to the preparation of high priority investment projects, in line with the Indicative TEN-T (Trans European Network) Investment Action Plan. This should include the core TEN-T network and eliminating bottlenecks, with a special emphasis on green modes of transport, in line with the objectives of the Green Deal and the EU Sustainable and Smart Mobility Strategy, but also "quick wins", which can provide immediate benefits to the citizens. These projects could therefore benefit even more from EU support under the Neighborhood Investment Platform (NIP) and potentially be financed by private investors under the "connectivity" investment window of the new EFSD Guarantee mechanism.
We will continue to support the reforms in Ukraine in order to reach a fully connected, multimodal, integrated and low-emission Ukrainian transport that is closely linked with the EU.