And the last shall be first:

Re­forms in the road­ways man­age­ment sys­tem are start­ing to show re­sults

The Ukrainian Week - - CONTENTS - Lyubomyr Shava­lyuk

Re­forms in the road­ways man­age­ment sys­tem are start­ing to show re­sults

If some­one asked you to build a suc­cess­ful coun­try, what would you start with? Some would de­cide to unite all its cit­i­zens around a com­mon goal, be­cause such a na­tion will freely wade any sea and tackle any chal­lenge with­out prob­lems. Oth­ers might try to change the men­tal­ity of their fel­low cit­i­zens, be­cause suc­cess­ful peo­ple make a suc­cess­ful na­tion. Some­one else would firstly build an ef­fec­tive sys­tem of so­cial re­la­tions that would open up the po­ten­tial of every per­son, turn­ing the sum of in­di­vid­ual achieve­ments into the suc­cess of the en­tire na­tion. An­other might try to make use of the com­pet­i­tive ad­van­tage of the coun­try’s soil, us­ing this foun­da­tion to de­velop a pow­er­ful agri­cul­tural sec­tor on a global scale...

Each of these ideas has some sense to it. Yet not one of them can be achieved in its pure form, as Ukraine’s ex­pe­ri­ence has demon­strated. In 2014, af­ter the Revo­lu­tion of Dig­nity, Ukraini­ans were faced with the chal­lenge of build­ing a suc­cess­ful coun­try. To do this, re­forms were launched in a dozen dif­fer­ent ar­eas. Four years have passed and right now we can con­firm that the trans­for­ma­tions are far from what might be de­sired in many spheres. Only those re­forms where all the nec­es­sary fac­tors—pro­gres­sive peo­ple united by a com­mon goal and ready to change and be changed, an ef­fec­tive co­or­di­na­tion sys­tem, a sec­tor that was ready for trans­for­ma­tions—were in place can now be called suc­cess­ful: when the right com­po­nents are in place, even the most de­pressed sec­tor can be trans­formed into a lead­ing one.

Re­form­ing the most sur­pris­ing sec­tors

Among such sec­tors in Ukraine is the road­ways man­age­ment sys­tem. Con­sid­er­ing where it all be­gan, this is hard to even imag­ine. When the Revo­lu­tion of Dig­nity was tak­ing place, this sec­tor was in a pa­thetic state. In 2013, UkrAvtodor, the state road­ways cor­po­ra­tion, gob­bled up UAH 15.5 bil­lion, 40% of which went to ser­vice and pay of debts that had been in­curred for the Euro-2012 foot­ball cham­pi­onships, while the rest went to build and re­pair all of 626 km of roads (see Kilo­me­ter af­ter kilo­me­ter).

Four years later, in 2017, UkrAvtodor spent a larger bud­get, UAH 20.2bn, of which only a quar­ter went to cover debts while more than 2,100 km of road­ways were re­paired or re­built. Spend­ing on road con­struc- tion grew 78%, while the amount of re­paired and new roads in­creased nearly 350%. And this was de­spite the fact that the dol­lar, to which the cost of a sig­nif­i­cant part of the ma­te­ri­als and equip­ment needed for this work is tied, tripled in value com­pared to the hryv­nia dur­ing this time. When numbers are com­pared, it be­comes clear just how cor­rupt the road­ways man­age­ment sys­tem was and how much it has changed since then.

In­deed, the road­ways cor­po­ra­tion was so cor­rupt that only the blin­d­est of the blind was not aware of how much theft was in­volved dur­ing the con­struc­tion of road­ways. Ma­te­ri­als were stolen brazenly and at all lev­els: it was enough to just look at the kitschy palaces of the di­rec­tors of petty county road­works to un­der­stand where it was all go­ing.

An­a­lysts were pre­dict­ing that, un­der the cir­cum­stances, it would take decades to re­solve all the prob­lems the sec­tor was fac­ing. They were con­vinced that there was no point even think­ing about qual­ity road in Ukraine at this time. In­deed, it was hard not to agree with them. Only a hand­ful of in­di­vid­u­als were of a dif­fer­ent opin­ion, united by a com­mon vi­sion with a ready con­cept for re­form­ing the branch, and pre­pared to act, the minute the right cir­cum­stances ap­peared. When the Revo­lu­tion of Dig­nity took place, they saw a chance to bring out and carry out their idea. The re­sult is ev­i­dent: the sit­u­a­tion in Ukraine’s road con­struc­tion is rad­i­cally dif­fer­ent and the sec­tor has con­fi­dently trans­formed it­self from an out­sider to a leader.

PULLING UP FROM BE­HIND

Maybe it’s for the bet­ter that Ukraine suf­fered through a ter­ri­ble eco­nomic cri­sis over 2014-2016. Its bud­get had al­most no money at all for roads, which of­fered a pain­less op­por­tu­nity to in­sti­tute new prin­ci­ples for the sec­tor to func­tion, means to avoid cor­rup­tion, to pol­ish a new sys­tem based on very lim­ited fund­ing, and to pre­pare the base for a qual­i­ta­tive leap. Ac­cord­ing to Slavomir No­vak, the act­ing di­rec­tor of the State Agency for Road­ways in Ukraine or UkrAvtodor, all pro­cure­ments have been han­dled ex­clu­sively through the ProZorro sys­tem for over a year. Thanks to this, the economies have been re­mark­able, and if we com­pare the re­sults of road­works in 2013 and 2017, the dif­fer­ence is strik­ing: for­eign com­pa­nies have en­tered the mar­ket, com­pe­ti­tion has ap­peared in the sec­tor, and the qual­ity of the work of Ukraine’s road­works teams has gone way up. Work­ing in the sec­tor has sud­denly be­come pres­ti­gious again.

A new sys­tem was also set up to sup­port the qual­ity of ex­e­cu­tion. Ac­cord­ing to No­vak, the guar­an­tee for stan­dard re­pair work is at least five years, while com­plete re­con­struc­tion is guar­an­teed for at least 10. If an ex­pert re­view de­ter­mines that work was not done to the nec­es­sary qual­ity level, the con­trac­tor will have to elim­i­nate all the flaws at its own cost ac­cord­ing to the new con­tracts. This gives rea­son for UkrAvtodor man­age­ment to feel con­fi­dent in the qual­ity of the roads that were re­paired last year.

Qual­i­ta­tive changes in the sec­tor have also had an im­pact on road­works per­son­nel them­selves. Pos­si­bly it’s too soon to draw con­clu­sions, but they seem to have be­come more con­fi­dent in to­mor­row’s day and have been mo­bi­liz­ing re­sources. At the end of 2017, lo­cal em­ploy­ees of UkrAvtodor con­firm that they have enough re­sources ac­cu­mu­lated to in­crease the scale of road re­pair and con­struc­tion sev­er­al­fold. It’s just a ques­tion of the vol­ume and reg­u­lar­ity of fund­ing.

GET­TING SMART ABOUT FUND­ING

Un­til not long ago, fund­ing was not an easy ques­tion. Last year was the turn­ing point. Ac­cord­ing to Trea­sury fig­ures, the state bud­get al­lo­cated UAH 15.2bn for road­way in­fra­struc­ture. Ini­tially, plans were to spend over UAH 10bn more, but money from an ex­per­i­men­tal cus­toms pro­gram, whose sur­plus rev­enues had been the main source of fund­ing for road repairs af­ter the Revo­lu­tion, came in at a far lower rate. As a re­sult, by mid-De­cem­ber 2017, plans for road re­pair and con­struc­tion had only been ful­filled at 68%, ac­cord­ing to the Min­istry of In­fra­struc­ture. Lo­cal road­works man­agers unan­i­mously be­gan to de­clare that there was not enough money and that in­creas­ing the scale of the works made no sense. The prob­lem needed a rad­i­cal so­lu­tion.

Nor was it long in com­ing. In early 2018, the Roads Fund be­gan to op­er­ate. This is a bud­get fund that ac­cu­mu­lates rev­enues to the Trea­sury that are re­lated to the ve­hic­u­lar sec­tor and di­rects them en­tirely at re­pair­ing and build­ing road­ways, and in­creas­ing road safety. The Fund is sup­posed to grad­u­ally ac­cu­mu­late cap­i­tal. This year, 50% of rev­enues from ex­cise taxes on fu­els and ve­hi­cles made in Ukraine or im­ported from abroad, and duty on pe­tro­leum prod­ucts, ve­hi­cles and tires will be di­rected to the Fund. In 2019, this share will in­crease to 75%, and in 2020, fully 100% of these bud­get rev­enues will go to the Fund. In the fu­ture, the Fund will also re­ceive fund­ing from in­ter­na­tional donors, tolls, and fees from trans­fer­ring roads to a long-term leases or con­ces­sions.

The Gov­ern­ment ex­pects these sources of state fund­ing for road build­ing and re­pair to grow to nearly UAH 70bn by 2020 (see Foun­da­tion for growth). Even in the cur­rent year, ma­jor fund­ing has been planned: the Roads Fund will see around UAH 47bn come in, of which UAH 33bn will come from the bud­get and the re­main­ing UAH 14bn from in­ter­na­tional donors. This kind of fi­nan­cial re­sources al­low road­works man­agers look con­fi­dently to the fu­ture and plan for many years ahead, some­thing that is very much needed now, be­cause there’s plenty of work for every­one.

No­tably, the Cab­i­net has es­tab­lished a spe­cial pro­ce­dure for dis­tribut­ing the money in the Roads Fund: 60% of all rev­enues will go to main­tain and build about 47,000 kilo­me­ters of na­tional road­ways, and 35% or UAH 11bn will go to lo­cal roads. 20% of the fund­ing for lo­cal roads will go to main­tain streets and roads be­long­ing to com­mu­ni­ties within the lim­its of pop­u­la­tion cen­ters—about 250,000 km—and the rest will go to lo­cal high­ways be­tween pop­u­la­tion cen­ters, about 123,000 km. This places the accent on na­tional road­ways, which means that, in the not-too-dis­tant fu­ture, Ukraine should find it­self cov­ered with qual­ity road con­nec­tions.

DOORS AND COR­RI­DORS

The new set-up means that al­ready this year plans in­clude al­most dou­ble the length of roads that will be re­paired or re­built, bring­ing the to­tal up to 4,000 km in 2018. This grad­ual ac­cu­mu­la­tion of fund­ing of­fers the con­di­tions nec­es­sary not to stop at this in­di­ca­tor but to raise an­nual road­works to 10,000 km, which means that at least half of Ukraine’s high­ways will be re­done in the next decade. UkrAvtodor has al­ready set an am­bi­tious goal for it­self: to con­nect all oblast cen­ters with qual­ity road­ways over the next five years. If it suc­ceeds, it will change the coun­try vis­i­bly for the bet­ter once and for all.

Quan­tity is al­ready switch­ing to qual­ity. Last year, the GO High­way project was pre­sented, which plans to link Ukraine’s Black Sea ports and Poland’s Baltic Sea ports with a high-qual­ity high­way. This is ac­tu­ally not re­pair work but the mas­sive con­struc­tion of new high­ways. Ukraine has never seen any­thing like this be­fore, but the first re­sults should be in by 2019. This project will con­sid­er­ably in­crease Ukraine’s ap­peal as a tran­sit coun­try and fits well with the “new Silk Road” trans­port cor­ri­dor from China to Europe, by­pass­ing Rus­sia.

But this is not all. Right now dis­cus­sions are tak­ing place in the EU over a “Euro­pean Plan” for

Ukraine, sim­i­lar to the Mar­shall Plan that helped Europe re­cover af­ter WWII, to pro­vide Ukraine with up to €5bn a year for de­vel­op­ment projects. The key bot­tle­neck, say the Euro­peans, is Ukraine’s poor ca­pac­ity to use fund­ing ef­fec­tively. There’s some truth to this, be­cause the In­fra­struc­ture Min­istry says that last year the coun­try took only 38% of the al­lo­cated funds pro­posed by IFIs for road con­struc­tion. In other ar­eas, in­di­ca­tors are even worse.

Once the coun­try proves its ca­pac­ity to build qual­ity roads with a min­i­mum of cor­rup­tion in­volved and west­ern fund­ing be­gins to stream its way, even more funds will be avail­able for road­works. The Euro­peans are in­ter­ested in this, from both a busi­ness per­spec­tive and a po­lit­i­cal one. In the last few years, there has been a sta­ble ten­dency for Ukraine to be in­cluded in Euro­pean pro­duc­tion chains. Fac­to­ries are be­ing launched that man­u­fac­ture, say, spare parts for Ger­man cars, and they need good links to in­dus­trial cen­ters in Europe. Euro­peans un­der­stand this and so they will likely sup­port and lobby for the build­ing of good roads in Ukraine. So far, this only con­cerns west­ern Ukraine, but the trend should con­tinue and grad­u­ally ex­pand to the rest of the coun­try. EU sup­port, es­pe­cially fi­nanc­ing, will make it pos­si­ble to in­crease road build­ing sev­er­al­fold.

BUILD­ING MORE THAN ROADS

Although the sit­u­a­tion in Ukraine’s road­ways man­age­ment sys­tem is car­di­nally dif­fer­ent from what it was prior to 2014, it’s im­por­tant to un­der­stand clearly all the con­se­quences of large-scale high­way con­struc­tion. Po­ten­tially, there are quite a few of them.

First of all, good roads mean that trans­port and tran­sit po­ten­tial can be re­al­ized, which al­ready means con­sid­er­able eco­nomic div­i­dends. For one thing, enor­mous re­sources have to be mo­bi­lized to build roads, which means hun­dreds of thou­sands of jobs, be­cause it af­fects not just the road­works sys­tem but also re­lated sec­tors, such as the pro­duc­tion of gravel, sand and as­phalt, the man­u­fac­ture of heavy equip­ment, and fuel pro­cess­ing. Once the road opens, tens of thou­sands of other jobs are gen­er­ated in ea­ter­ies, ho­tels and mo­tels, gas sta­tions, shops, and so on. A coun­try with good roads can take on con­sid­er­able tran­sit and tourist streams from neigh­bor­ing coun­tries and make con­sid­er­able cap­i­tal out of it.

Se­condly, good roads bring peo­ple closer to­gether. They re­duce the dis­tance from the most dis­tant cor­ners of a coun­try and the most iso­lated so­cial groups. Many of us have seen the statis­tic that most res­i­dents of Don­bas had never left their re­gion, which led to the closed men­tal­ity of the re­gion—and the con­se­quences are with us to this day. With good roads, travel be­comes much more ac­ces­si­ble, and Ukraini­ans spend more time com­mu­ni­cat­ing, ex­chang­ing thoughts, ideas, and life ex­pe­ri­ences with each other in var­i­ous parts of the coun­try. What is most needed to shape the Ukrainian na­tion if not con­tact with each other?

Thirdly, large-scale road-build­ing ral­lies the pub­lic. Ev­ery­body needs roads, with­out ex­cep­tion, and their con­di­tion in Ukraine has both­ered ev­ery­body. If roads be­gin to be bet­ter qual­ity, this will lead to more up­beat con­ver­sa­tions, pos­i­tive news re­ports, and grow­ing pub­lic faith and trust in the gov­ern­ment. The wide broad­cast­ing of the road-build­ing process will draw the at­ten­tion of mil­lions and in­spire them. This, too, could be­come a uni­fy­ing fac­tor for Ukraine.

Fourth, ex­pand­ing net­works of qual­ity high­ways could be the coun­try’s first suc­cess­ful na­tional project. For Ukraine to be suc­cess­ful, every Ukrainian needs to learn to be suc­cess­ful and that means hav­ing high qual­ity ex­am­ples and mod­els that mil­lions can draw in­spi­ra­tion from. Right now, such ex­am­ples are lack­ing, so Ukraini­ans need to work to­gether to cre­ate them. Build­ing good roads is a very good op­tion.

And fi­nally, good roads are a fac­tor in civ­i­lized iden­tity. Build­ing good roads is a great chance for Ukraini­ans to show them­selves, first of all, that they are dif­fer­ent, that they are not de­cay­ing.

The way Slavomir No­vak puts it, in Poland, politi­cians won elec­tions based on the roads they built. In Canada and the US, may­ors are of­ten re-elected for the same rea­son. Per­haps this will hap­pen in Ukraine, too. In any case, it should mo­ti­vate politi­cians to sup­port the pro­cesses that are al­ready un­der­way. Of course, no one can guar­an­tee that pop­ulists won’t carry the day at the next elec­tion, even as they eye the juicy bud­get road­works are now get­ting, hop­ing to get their hands on pub­lic money once more and keep­ing the coun­try on the same track to degra­da­tion. But it won’t be as easy for them: this sec­tor is pick­ing up pace and trans­form­ing it­self from out­sider to leader.

EX­PAND­ING NET­WORKS OF QUAL­ITY HIGH­WAYS COULD BE THE COUN­TRY’S

FIRST SUC­CESS­FUL NA­TIONAL PROJECT. FOR UKRAINE TO BE SUC­CESS­FUL, EVERY UKRAINIAN NEEDS TO LEARN TO BE SUC­CESS­FUL AND THAT MEANS HAV­ING HIGH QUAL­ITY EX­AM­PLES AND MOD­ELS THAT MIL­LIONS CAN DRAW IN­SPI­RA­TION FROM

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