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Ukraine has made meaningful progress with considerable improvements in implementing the 2016 EITI Standard

Outcome of the Validation of Ukraine

Decision number
2021-22
Decision basis
EITI Articles of Association 2019-2021, Article 12.1. ix)
30 March 2021

Board decision

The Board came to the following decision:

The EITI Board agrees that Ukraine has fully addressed three of the eight corrective actions from the country’s first Validation and has made satisfactory progress on beneficial ownership requirement according to the framework agreed by the Board in June 2019. Consequently, Ukraine has made meaningful progress overall in implementing the 2016 EITI Standard, with considerable improvements across several individual requirements.

The Board commends the Government of Ukraine and the multi-stakeholder group (MSG) for their efforts to align EITI implementation with broader national reform priorities such as anti-corruption and improvement of investment climate. The Board takes note of how license allocation processes and disclosure of subsoil agreements have become more transparent through digitisation. The Board also recognises the country’s efforts on improving beneficial ownership disclosures, including through strengthening verification procedures. The Board further encourages the MSG to link their efforts on these thematic areas with the government’s overall agenda to combat corruption in the extractive sector, particularly in detecting conflicts of interest and identifying non-legitimate license applicants.   

The Board welcomes Ukraine’s efforts to establish an electronic data collection portal as complemented by the country’s gradual transition to systematic disclosure of extractives data. In addition, Ukraine is leveraging EITI to strengthen disclosures and garner trust at the regional level by focusing on outreach activities and disclosure of environmental payments. The Board recognises improvements in the extractive sector’s legal framework, including harmonisation of fragmented laws in the extractive sector to improve investors’ confidence and ensure efficient management of natural resources. The Board also recognises Ukraine EITI’s work on monitoring impact to further improve the contribution of the EITI to the country’s transparency reform agenda.  

Ukraine is recognised for its efforts to comprehensively disclose information related to state-owned enterprises (SOEs), even in a complex environment with hundreds of SOE subsidiaries, joint ventures and affiliates. However, there are opportunities for the MSG to further improve disclosures related to SOEs’ operations in the country, particularly in relation to third-party financing and state guarantees. More comprehensive disclosures can help Ukraine to facilitate further public debates and reforms related to improving transparency and efficiency of the state participation in the extractive sector and ensuring macroeconomic stability. Ukraine is also encouraged to leverage the ongoing and planned reforms of the oil and gas transportation sector to build greater accountability in the management of transportation arrangements. Additionally, the EITI Board recognises the call from stakeholders that Ukraine could further improve transparency by removing constraints for comprehensive disclosure of data on production and reserves. These efforts could be integrated in the broader open data and energy sector reforms.

Finally, the Board takes note of some stakeholder concerns about the independence of all constituencies involved in EITI implementation in the future and urges the MSG and government to continuously ensure adequate space for each constituency to fulfil its role in EITI implementation free from any interference.

The Board has determined that Ukraine will have time until 1 April 2023 before its next Validation to carry out corrective actions regarding state participation (Requirement 2.6), production data (Requirement 3.2), comprehensiveness (Requirement 4.1), transportation revenues (Requirement 4.4), and SOE transactions (Requirement 4.5). The next Validation of Ukraine will be conducted according to the revised Validation model approved by the Board in October 2020. Failure to demonstrate progress in the next Validation will result in temporary suspension in accordance with Article 6 of the EITI Standard. In accordance with the EITI Standard, Ukraine’s MSG may request an extension of this timeframe or request that Validation commences earlier than scheduled.

Scorecard

Manual

Background

Ukraine joined the EITI in 2013. Ukraine’s first Validation under the EITI Standard concluded on 29 June 2018, in which the EITI Board found that Ukraine had made ‘meaningful progress’ in implementing the EITI Standard. Eight corrective actions were identified by the Board, to be assessed in a second Validation commencing on 29 December 2020, under the 2016 EITI Standard, related to:

  1. State participation (#2.6)
  2. Production data (#3.2)
  3. Comprehensiveness (#4.1)
  4. Transportation revenues (#4.4)
  5. SOE transactions (#4.5)
  6. Data quality (#4.9)
  7. SOE quasi-fiscal expenditures (#6.2)
  8. Economic contribution (#6.3)

On 13 February 2020, the EITI Board agreed that Ukraine was eligible for an extension of its deadlines and postponed the commencement date of their second Validation. Ukraine’s second Validation commenced on 30 June 2020. Ukraine has undertaken a number of activities to address the corrective actions:

  • The 2017 Ukraine EITI Report was published on 2 June 2020.
  • A series of trainings and workshops have been conducted on various EITI-related topics.
  • On 7 October 2018, UAEITI published an Annual progress report for 2017.
  • On 28 December 2019, UAEITI published an Annual progress report for 2018.
  • On 2 June 2020, UAEITI published an Annual progress report for 2019.
  • On 6 December 2019, UAEITI published a work plan for 2020.
  • UAEITI developed a Monitoring and evaluation framework for EITI Ukraine.
  • Ukraine passed a Law “On ensuring transparency in extractive industries” on 18 September 2018.
  • UAEITI is now piloting an electronic platform for submission of data for EITI reporting.

Since the commencement of Ukraine’s second Validation on 30 June 2020. The EITI International Secretariat has assessed the progress made in addressing the eight corrective actions established by the EITI Board following Ukraine’s first Validation in 2018.

Corrective actions and strategic recommendations

The EITI Board agreed the following corrective actions to be undertaken by Ukraine. Progress in addressing these corrective actions will be assessed in a Validation commencing on 1 April 2023:

  1. In accordance with Requirement 2.6, Ukraine should ensure that the policies and practices regarding the financial relationship between the government and state-owned enterprises are publicly disclosed, and that EITI reporting complements existing disclosures by covering gaps in public disclosures. This includes (i) decisions and practices related to SOEs’ retained earnings, reinvestments, dividends and third-party financing, as well as those of their subsidiaries and joint ventures; (ii) the level of state participation in all SOEs, their subsidiaries, associated companies, joint activities and ventures, and the terms associated with equity shares. Any loans or loan guarantees provided by the government or SOE(s) to oil, gas and mining companies operating within the country should be publicly disclosed, including their total amounts, outstanding balances, interest rates and repayment schedules. Ukraine may wish to use EITI reporting to assess the comprehensiveness of SOEs disclosures through publicly accessible financial statements, and to assess whether additional disclosures are needed by SOEs to fully reflect disclosures of transfers, retained earnings, reinvestment and third-party financing related to SOE joint ventures and subsidiaries.

  2. In accordance with Requirement 3.2, Ukraine should ensure disclosure of production volumes and values for all extractive commodities produced in Ukraine, including titanium, uranium, and other ores. Ukraine is also encouraged to continue the ongoing efforts related to ensuring that differences in methodologies applied by different agencies are well-explained. Ukraine may also wish to consider systematic disclosure of mining production value data by relevant government entities.

  3. In accordance with Requirement 4.1, Ukraine should provide an assessment of materiality of all extractive companies, including those operating in uranium and thorium ore sub-sectors. If this information is not available, the MSG should provide an explanation of any barriers preventing from such disclosures as well as any steps taken to address these issues. To strengthen implementation, Ukraine is encouraged to continue the ongoing work on systematic disclosure of taxes and revenues with a view to ensuring comprehensive and reliable disclosures of government extractive revenues in a timely manner through routine government and company disclosures.

  4. In accordance with Requirement 4.4, Ukraine (i) must establish whether transportation revenues are material; (ii) must indicate what level of disaggregation should be sought for transportation revenues (i.e. coverage of disaggregated data), and; (iii) is expected to disclose transportation volumes and revenue values by material revenue stream, and by companies. In the event there are practical or legal barriers to comprehensively disclose data as per (i)-(iii) above, Ukraine must document which practical and legal barriers exist, and document a clear plan for how to overcome the barriers for public disclosure. To further strengthen public disclosure of transportation revenues, Ukraine is recommended to engage Ukrtransgaz, Ukrtransnafta, the newly incorporated “Gas Transmission System Operator of Ukraine”, and any other SOEs involved in the transportation of extractive commodities, to develop procedures for systematically disclosing extractive transportation revenues and volumes and values of extractive commodities transported. These engagements could focus on procedures to ensure public disclosure of transportation volumes and values, disaggregated by the largest consumers (e.g. searchable by company names and/or identifiers – EDRPOU). Where legal or practical barriers exist to disaggregated transport revenue disclosures, Ukraine is encouraged to publicly document the relevant obstacles and agreed public and time-bound plans for overcoming such constraints.

  5. In accordance with Requirement 4.5, Ukraine should ensure that the reporting process provides comprehensive and reliable disclosures of SOE transactions with government and extractive companies, including their subsidiaries, joint activities and joint ventures, when material (materiality and reconciliation as per the standard procedure endorsed by the EITI Board). To strengthen implementation, Ukraine may wish to consider engaging the government to ensure data on budget programme transfers are available with disaggregated data per SOE (including SEs). Ukraine may further wish to explore how publicly available financial statements of SOEs compare to EITI Requirements, and whether regular publications of additional data is possible to ensure systematic disclosures of all significant SOE transactions.

Scorecard for Ukraine: 2020

Assessment of EITI requirements

  • Not met
  • Partly met
  • Mostly met
  • Fully met
  • Exceeded
Scorecard by requirement View more Assessment View more

Overall Progress

MSG oversight

1.1Government engagement

There are regular, public statements of support from the government, a senior individual has been appointed to lead on the implementation of the EITI, and senior government officials are represented on the MSG. Despite political instability, the government is actively and effectively engaged in the design, implementation, monitoring and evaluation of the EITI.

1.2Industry engagement

Mining, oil and gas companies are actively and effectively engaged in the EITI process, both as providers of information and in the design, implementation, monitoring and evaluation of the EITI process. There are clear legal provisions requiring EITI reporting for all oil and gas companies in Ukraine, that enable the largest extractive taxpayers to report. Reporting from the mining industry remains challenging.

1.3Civil society engagement

There is a strong and vibrant civil society, which is actively and effectively engaged in the EITI process and has contributed significantly to EITI implementation in Ukraine. Since 2009, civil society has fundamentally driven the EITI process, providing high-quality feedback; influencing policies and reform agenda for the government; and effectively utilising the results of the EITI disclosures.

1.4MSG governance

The MSG has been formed and includes self-appointed representatives from each stakeholder group with no suggestion of interference or coercion. The CSO members of the MSG are operationally and in policy terms independent from government and companies. The ToRs for the MSG addresses the requirements of the EITI Standard and stakeholders renewed it in accordance with the 2016 EITI Standard.

1.5Work plan

Ukraine has an updated work plan for 2017, approved by the MSG in February 2017. The work plan contains clear objectives aligned with national priorities, as well as actions aimed at ensuring the objectives are met. The work plan includes a broad timeline for achieving the objectives, as well as costings and proposed funding sources. In practice, the work plan is well managed and followed by all stakeholders.

Licenses and contracts

2.1Legal framework

The 2014-2015 Ukraine EITI Report provides all required information on the legal and fiscal framework in Ukraine in a clear and consistent manner. Stakeholders also confirm the comprehensiveness of this requirement, although noting that the information is not up-to-date due to the speed at which the Ukrainian government is passing reforms.

2.2License allocations

The report covers all significant aspects of the requirement, disclosing the relevant procedures and practices for allocating licenses or extractive rights in Ukraine. The Independent Administrator clearly states that no significant deviations from existing procedures were identified. The 2014-2015 EITI Report itself covers most of the information and where information is missing in the report, references and links are provided.

2.3License register

The Ukrainian online and publicly available license registry, Geoinform, is maintained and regularly updated. It contains all necessary information on license holders, coordinates, relevant dates of the licences, and information regarding which commodities the special permits pertain to.

2.4Policy on contract disclosure

The 2014-2015 EITI Report and supplementary comments to it clarify that there is no single government policy on contract disclosures, and no requirements to disclose contracts exist in laws governing the legal agreements used in Ukraine. The EITI Report outlines terms and conditions of contracts. The MSG and national secretariat have made significant efforts in promoting contract disclosure through the draft law.

2.5Beneficial ownership

Ukraine has agreed definitions of “beneficial owner” and “politically exposed person” (PEP) that are in line with the 2016 EITI Standard. All companies, including those operating in the extractive sector and applying for extractive licenses, were required to report on their beneficial owners. The data were provided in a publicly accessible state register managed by the Ministry of Justice. Information about PEPs is disclosed in the state register of electronic declarations and other publicly accessible sources.

2.6State participation

The 2017 EITI Report addresses several aspects of the requirement on state participation. There are subsidiaries and associate extractive companies (minority-owned) for which SOEs’ precise equity stakes, or the terms associated with the equity interests, are not publicly disclosed. There appears to be some significant differences between the contents of the EITI Report and other publicly accessible documents, especially regarding retained earnings and reinvestments. There is no data on dividend income of all material SOEs. Loans and loan guarantees are documented through publicly accessible documents and EITI reporting, though neither stipulate the precise terms and repayment schedules, nor which precise loans are guaranteed by the state.

Monitoring production

3.1Exploration data

The 2014-2015 EITI Report provides an overview of the extractive industries, including significant exploration activities and developments in all sub-sectors. Where there are gaps in publicly-available information on the extractive industries such as reserves estimates, the MSG is exploring options for improving the process.

3.2Production data

The 2017 EITI Report provides production volumes and values of almost all main extractive commodities produced in Ukraine in 2017. All sources of information are clearly stated and differences in methodologies applied by different state agencies are documented. While the MSG has been transparent about constraints on disclosure of titanium production data, EITI reporting provides titanium production values for only some – but not all – of the extractive companies operating in this sector.

3.3Export data

Export data is available both as volumes and values for all sectors. Volumes are available as both aggregate figures per commodity and some disaggregated by subtypes such as hard coal versus brown coal. Both volumes and values are disaggregated by country-destination, and the disclosures overall are in accordance with Requirement 3.3.

Revenue collection

4.1Comprehensiveness

The MSG agreed on a targeted reconciliation approach for material revenue streams and set a clear materiality threshold for material companies. The scoping study to the 2017 EITI Report also provides an assessment of materiality of different extractive sub-sectors; however, it does not comment on the significance of uranium and thorium ores’ revenues in total extractive revenues.

4.2In-kind revenues

Not applicable

This requirement is not applicable in Ukraine.

4.3Barter agreements

Not applicable

This requirement is not applicable in Ukraine.

4.4Transportation revenues

The 2017 EITI Report marks an improvement in disclosures of transportation revenues compared to the previous Validation, with MSG efforts to disclose more detailed data. However, the EITI Report and public disclosures do not present extractive transport revenue data disaggregated by individual company/customer.

4.5SOE transactions

The 2017 EITI Report marks an improvement in disclosures of transactions related to state-owned enterprises compared to the first Validation. Where previously information was gathered through stakeholder consultations and in tables without adequate details, the report now reports data more systematically. However, given the lack of a comprehensive review of material transactions between government and SOEs or from extractive companies to SOEs, it is not possible to conclude that disclosure of material SOE transactions in the EITI Report is comprehensive or reliable.

4.6Direct subnational payments

Not applicable

This requirement is not applicable in Ukraine. Although some taxes are channelled to the local level, there is a centralised taxes and payments collection system monitored by the SFS. Thus, the local governments do not directly receive and account for payments by extractive companies.

4.7Disaggregation

The 2015 EITI Report is disaggregated by individual revenue stream, company and government entity.

4.8Data timeliness

The 2014-15 EITI Report was published within extended deadline agreed by the EITI Board.

4.9Data quality

The MSG agreed the ToRs for the IA for the 2017 EITI Report that are consistent with the standard ToRs and agreed-upon procedures issued by the EITI Board. The IA has undertaken a reconciliation of revenue streams by applying international best practices. The assurance and data reliability consisted of attestation of reporting templates by senior company management or senior government officials. Overall, the IA’s conclusion is that data provided in the 2017 EITI Report is comprehensive and reliable.

Revenue allocation

5.1Distribution of revenues

The 2014-15 EITI Report explains how revenues are recorded in the national budget. Ukraine has also gone beyond the minimum requirements by including references to the national budget classification systems as encouraged by the EITI Standard.

5.2Subnational transfers

The 2014-15 EITI Report describes the system for transferring subsidies (subventions) and compares the budgeted amounts with executed transfers. Although the report does not contain a clear formula, it provides a link to the formula in the government’s resolution. The broader objective of transparency in subnational transfers is met.

5.3Revenue management and expenditures

Reporting on revenue management and expenditures in encouraged but not required by the EITI Standard and progress with this requirement will not have any implications for a country’s EITI status. Ukraine has gone beyond the minimum requirements by providing additional information on revenue management and expenditures as encouraged by the EITI Standard.

Socio-economic contribution

6.1Mandatory social expenditures

Ukraine has gone beyond towards meeting this requirement by covering the encouraged aspect of the requirement. While the EITI Through consultations among stakeholders and through the third-party research it is confirmed that there are no mandatory social expenditures. The report provides unilateral aggregated disclosure of the discretionary social payments from the company side.

6.2Quasi-fiscal expenditures

The report identifies three forms of quasi-fiscal expenditures in Ukraine, two of which were relevant in the period under review. The report provides some methodology for calculating these quasi-fiscal expenditures, and indicates which SOEs are involved in these expenditures. No other quasi-fiscal expenditures were reported to exist.

6.3Economic contribution

The 2017 EITI Report provides comprehensive information on the extractive industries’ contribution, in absolute and relative terms, to GDP, government revenues, exports and employment and notes the main regions of production. The report provides a thorough overview of informal employment and elaborates on shadow economy estimates.

Outcomes and impact

7.1Public debate

The UA-EITI Reports are comprehensible, actively promoted through varied channels (including print, online and through active outreach), publicly accessible and have tangibly contributed to public debate on the extractive industries in Ukraine. Ukraine has gone beyond the minimum requirements through active subnational outreach and dissemination. The three stakeholder groups have also actively contributed to dissemination of the EITI reports.

7.2Data accessibility

Not assessed

This requirement is only encouraged and should not be taken into account in assessing progress. Ukraine’s EITI data is available in machine-readable formats through UAEITI’s website and the EITI global website. The MSG has published summary reports in multiple languages and is currently exploring opportunities for automated or more timely disclosures.

7.3Follow up on recommendations

The MSG has taken steps to act upon lessons learnt, to identify weaknesses of the EITI process and to consider the recommendations for improvements from the Independent Administrator. Although the MSG did not fully investigate and address the causes of discrepancies, the MSG was aware of the issue and added it into the work plan for 2017.

7.4Outcomes and impact of implementation

The MSG has reviewed progress and outcomes of implementation on a regular basis, including by publishing annual progress reports over the past four years. The APR notes the strengths and weaknesses of the EITI process in Ukraine. It highlights the main impact stories and addresses recommendations from the previous EITI Report.