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RU The EITI Board agreed that Ukraine has made meaningful progress in implementing the 2016 EITI Standard.

Decision number
2018-37
Decision basis
2016 EITI Standard, Requirement 8.3 EITI Validation deadlines and consequences
29 June 2018

Board decision

RUSSIAN

Following the conclusion of Ukraine’s Validation, the EITI Board decided that Ukraine has made meaningful progress overall in implementing the EITI Standard.

The Board congratulated the Government of Ukraine and the Multi-Stakeholder Group (MSG) on the progress made in strengthening the governance of the extractive industries. The EITI has helped ensure timely information on the revenues from mining, oil and gas, including from transportation, is provided to the public, most notably civil society, media and affected communities. The Board welcomed the extension of EITI implementation to a larger group of companies and to new sectors including coal, manganese, titanium mining and hydrocarbons transportation. Ukraine’s EITI implementation has helped drive broader economic, financial and institutional reforms by supporting the adoption of a law on “Transparency in the Extractive Industries”, and amendments to the laws on “State Registration of Legal Entities and Individual Entrepreneurs” and on the “Budget Code”.

The EITI has also provided a mechanism for civil society to raise concerns with government and industry stakeholders, leveraging active dissemination and outreach efforts and by providing a platform for public debate and informing policy-making. Civil society has played a central role in driving EITI follow-up on reforms and by building its own capacity to improve accountability in the government’s management of the extractive industries. The Board encourages the government and MSG to pursue discussions on transparency in contracts and project-level reporting, and to enhance efforts to improve the transparency of the state-owned enterprises.

The Board recognised Ukraine’s efforts to go beyond the requirements of the EITI Standard related to the engagement of civil society (1.3), beneficial ownership transparency (2.5), distribution of revenues (5.1), revenue management and expenditures (5.3), social expenditures (6.1) and public debate (7.1). The Board welcomes the government’s commitment to entrench an enabling environment for EITI implementation in sector policies and legislations, and encourages the MSG’s efforts to move towards systematic disclosures of EITI data through government and company systems.

The Board has determined that Ukraine will have 18 months, i.e. until 29 December 2019, before a second Validation to carry out corrective actions regarding the requirements relating to state-participation (2.6), production data (3.2), comprehensiveness (4.1), transportation (4.4), SOE transactions (4.5), data quality (4.9), SOE quasi-fiscal expenditures (6.2) and economic contribution (6.3). Failure to achieve meaningful progress with considerable improvements across several individual requirements in the second Validation will result in suspension in accordance with 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.

The Board’s decision followed a Validation that commenced on 1 July 2017. In accordance with the 2016 EITI Standard, an initial assessment was undertaken by the International Secretariat. The findings were reviewed by an Independent Validator, who submitted a draft Validation report to the MSG for comment. The MSG’s comments on the report were taken into consideration by the independent Validator in finalising the Validation report and the independent Validator responded to the MSG’s comments. The final decision was taken by the EITI Board.

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 second Validation commencing on 29 December 2019:

  1. In accordance with requirement 2.6.a, the MSG should provide a comprehensive overview of state-owned enterprises, including an explanation of the prevailing rules and practices related to SOEs’ retained earnings, reinvestment and third-party funding. The government should also ensure annual disclosure of any changes in government ownership in SOEs or their subsidiaries, and provide a comprehensive account of any loans or loan guarantees extended by the state or SOEs to mining, oil, and gas companies in line with requirement 2.6.b.

  2. In accordance with Requirement 3.2, the MSG should ensure that future reports disclose the production values for every extractives commodity produced, including crude oil, natural gas and every mineral covered by reports. To strengthen implementation, the MSG may wish to comment on parallel reporting systems for production volumes including regular publication and verification procedures, to ensure consistent, regular and reliable data.

  3. In accordance with Requirement 4.1.c, the MSG should ensure that the materiality of payments from each non-reporting entity and the nature of discrepancies are clearly assessed to support the IA’s overall assessment of the comprehensiveness of reconciliation. In accordance with Requirement 4.1.d, unless there are significant practical barriers, the government is additionally required to provide full disclosure of material revenues from non-material companies, disaggregated by revenue stream.

  4. In accordance with Requirement 4.4, the MSG should ensure that the next EITI Report disaggregates the transportation revenues by pipeline/route and by paying company.

  5. In accordance with Requirement 4.5, the MSG should engage relevant government entities and SOEs with the view to ensure that the reporting process comprehensively addresses the role of state-owned enterprises (SOEs), including material payments to SOEs from oil, gas and mining companies, and transfers between SOEs and other government agencies.

  6. In accordance with Requirement 4.9.a, the EITI requires an assessment of whether the payments and revenues are subject to credible, independent audit, applying international auditing standards. In accordance with requirement 4.9.b.iii and the standard Terms of Reference for the Independent Administrator agreed by the EITI Board, the MSG and Independent Administrator should:

    1. examine the audit and assurance procedures in companies and government entities participating in the EITI reporting process, and based on this examination, agree what information participating companies and government entities are required to provide to the Independent Administrator in order to assure the credibility of the data in accordance with Requirement 4.9. The Independent Administrator should exercise judgement and apply appropriate international professional standards in developing a procedure that provide a sufficient basis for a comprehensive and reliable EITI Report. The Independent Administrator should employ his/her professional judgement to determine the extent to which reliance can be placed on the existing controls and audit frameworks of the companies and governments. The Independent Administrator’s inception report should document the options considered and the rationale for the assurances to be provided.

    2. ensure that the Independent Administrator provides an assessment of comprehensiveness and reliability of the (financial) data presented, including an informative summary of the work performed by the Independent Administrator and the limitations of the assessment provided.

    3. ensure that the Independent Administrator provides an assessment of whether all companies and government entities within the agreed scope of the EITI reporting process provided the requested information. Any gaps or weaknesses in reporting to the Independent Administrator must be disclosed in the EITI Report, including naming any entities that failed to comply with the agreed procedures, and an assessment of whether this is likely to have had material impact on the comprehensiveness and reliability of the report.

  7. In accordance with Requirement 6.2, the MSG should clarify a definition of materiality with regards to quasi-fiscal expenditures by SOEs, including SOE subsidiaries and joint ventures. The MSG should ensure disclosure of quasi-fiscal expenditures are in accordance with requirement 6.2. This includes the nature of the subsidy scheme for household utility-payments, and the role of state-owned enterprises. It also includes the financial relationship between the SOE and its subsidiaries, including joint ventures, especially pertaining to coverage of losses. To ensure disclosure is comprehensive, the MSG may wish to define which expenditures are of a quasi-fiscal nature using national laws and regulations.

  8. In accordance with Requirement 6.3, the MSG should clarify the public availability of estimates of informal extractives activities, including but not limited to artisanal and small-scale mining.

The government and the MSG are encouraged to consider the other recommendations in the Validator’s report and the International Secretariat’s initial assessment, and to document the MSG’s responses to these recommendations in the next annual progress report.

The government and the MSG are encouraged to consider the other recommendations in the Validator’s Report and the International Secretariat’s initial assessment, and to document the MSG’s responses to these recommendations in the next annual progress report.

Background

The government of Ukraine committed to implement the EITI on 30 September 2009. The Multi-Stakeholder Group was formed on 10 October 2012. The country was accepted as an EITI Candidate on 17 October 2013 at the EITI Board’s meeting in Abidjan.

The Validation process commenced on 1 July 2017. In accordance with the Validation procedures, an initial assessment [English | Ukrainian] was prepared by the International Secretariat. The Independent Validator reviewed the findings and wrote a draft Validation report [English | Ukrainian]. Comments from the MSG [English | Ukrainian] were received on 23 May 2018. The Independent Validator reviewed the comments, provided response to the MSG and finalised the Validation report [English | French | Ukrainian] on 24 May 2018. According to the Independent Validator, the majority of the MSG’s comments on the draft Validation report related to new information in the most recent EITI Report covering 2016, which was published after the commencement of Validation on 23 May 2018. The Validator noted these developments but noted that only the EITI Board had the mandate to take this updated information into account.

The Validation Committee reviewed the case on 26 April and 6 June 2018. Based on the findings above, the Validation Committee agreed to recommend the assessment card and corrective actions outlined below.

The Committee also agreed to recommend an overall assessment of “meaningful progress” in implementing the 2016 EITI Standard. Requirement 8.3.c. of the EITI Standard states that:

ii.    Overall assessments. Pursuant to the Validation Process, the EITI Board will make an assessment of overall compliance with all requirements in the EITI Standard.

iv.   Meaningful progress. The country will be considered an EITI candidate and requested to undertake corrective actions until the second Validation.

The Validation Committee agreed to recommend a period of 18 months to undertake the corrective actions. This recommendation takes into account that the challenges identified are relatively significant and seeks to align the Validation deadline with the timetable for Ukraine’s 2016 and 2017 EITI Reports.

Scorecard for Ukraine: 2017

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

Implementing countries are not yet required to address beneficial ownership and progress with this requirement. However, Ukraine has gone beyond this requirement by creating a publicly accessible register of beneficial owners as encouraged by the EITI Standard.

2.6State participation

The EITI Report includes which state-owned companies are part of the scope of the report, however, it was not possible to assess the comprehensiveness of the information. The report does not contain general information regarding rules between SOEs and central government and does not provide specific comments towards assessing the comprehensiveness of government ownership.

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

UAEITI provides production volumes per commodity. Stakeholder consultation drew attention to a potential problem of reliability; production volumes are available through three different channels which present different figures. At the same time, production values are not calculated. This was confirmed through consultation with stakeholders.

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 report appears to provide a comprehensive reconciliation of government revenues and company payments in accordance with the agreed scope. The report is not explicit about the reporting of government entities, neither provides an assessment of the materiality of company omissions. The Independent Administrator’s conclusion on the comprehensiveness of the disclosure and explanation of the discrepancies are missing.

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

Transport revenues are material in Ukraine. While the MSG has made efforts to increase transparency in transportation arrangements, the revenues received in tariffs and other payments are not disaggregated by paying company.

4.5SOE transactions

Due to the amount of SOEs in Ukraine, alongside limited information regarding transactions of SOEs, it was not possible to assess whether the EITI Report comprehensively addresses SOE transactions. Much of the abovementioned information was gathered or clarified by stakeholders during consultation, and are not sufficiently documented.

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 appears to have approved the selection of the Independent Administrator for the 2014-15 EITI Report, including a ToRs consistent with the Board-approved template, as well as the reporting templates. While the Independent Administrator comments on the quality assurance procedures, it does not seem the comprehensiveness of the report has been assessed in accordance with the ToRs.

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

There is insufficient information in the EITI Report to assess whether quasi-fiscal expenditures are sufficiently and comprehensively included in the EITI Report. Although several mandatory and voluntary social expenditures certainly are of a quasi-fiscal nature, they are not explicitly identified as such nor whether they are included in local government budgets.

6.3Economic contribution

The EITI Report provides sufficient information on the contribution of the extractive sector to GDP, exports, government revenues and employment, as well as investments. It also provides an impressive analysis of wages in the sectors in relation to Ukraine as a whole. The key areas of production in Ukraine are also highlighted in the report. However, the EITI Report does not address the informal sector of Ukraine.

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.

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