VZCZCXRO2675
RR RUEHLN RUEHSK RUEHVK RUEHYG
DE RUEHKV #2417/01 3451142
ZNR UUUUU ZZH
R 101142Z DEC 08
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC 6891
INFO RHMFIUU/DEPT OF JUSTICE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHGV/USMISSION GENEVA 0152
RUCNCIS/CIS COLLECTIVE

UNCLAS SECTION 01 OF 02 KYIV 002417 
 
SIPDIS 
 
STATE FOR EUR/UMB 
STATE PLEASE PASS TO USTR FOR CKLEIN/PBURKHEAD 
USDOC FOR 4201/DOC/ITA/MAC/BISNIS 
USDOC FOR 4231/ITA/OEENIS/NISD/CLUCYCK 
GENEVA FOR USTR 
 
E.O. 12958: DECL: N/A 
TAGS: EFIN EINV PGOV WTRO UP
SUBJECT: UKRAINE: PROGRESS ON GOVERNMENT PROCUREMENT REFORM 
 
REF: 2007 KYIV 1862 
 
¶1. Summary: Ukraine's Cabinet of Ministers on November 19 
issued new provisions to regulate the country's government 
procurement system.  Experts, including from the World 
Bank, agree that the new provisions are an improvement 
after several years of GOU backsliding on procurement 
reform.  The provisions are only temporary, however, and a 
new law to govern government procurement is working its way 
slowly through the legislative process.  The current 
reforms should help Ukraine make progress on joining the 
WTO Agreement on Government Procurement.  End Summary. 
 
GOU Issues New Procurement Regulations 
-------------------------------------- 
 
¶2. On November 19, the Cabinet of Ministers issued 
Resolution No. 1017, which updated the temporary provisions 
for government procurement and was an improvement over 
previous regulations.  Resolution No. 1017 confirmed the 
Ministry of Economy as the central oversight and policy 
body for the procurement system, upheld the elimination of 
the troublesome Tender Chamber, and added a specific non- 
discrimination clause.  The move followed several years of 
backsliding on government procurement reform and general 
disarray in the procurement system -- see below for 
background. 
 
¶3. At a donor coordination meeting on December 4, World 
Bank Country Director Martin Raiser and World Bank staff 
said they positively evaluated Resolution No. 1017 as 
largely meeting international standards.  There were still 
some problems, they said, such as the list of exclusions 
from the procurement process, lack of a sufficiently 
independent complaint review function, and need for 
external oversight (which could not be mandated by the 
Cabinet of Ministers), but overall the new procedures 
marked a significant improvement. 
 
Background on Procurement System 
-------------------------------- 
 
¶4. Ukraine's procurement system had, until this year, 
operated based on the 2000 law "On Procurement of Goods, 
Works, and Services Using State Funds."  Although this 
procurement law was originally largely in line with 
international practice, amendments made in 2004-2006 opened 
the system to widespread corruption and moved it away from 
international norms.  Authority to carry out central 
oversight and policy development for the government 
procurement system was stripped from the Ministry of 
Economy, and those policy and oversight functions were 
dispersed across several bodies, weakening oversight and 
policy making, and creating various conflicts of interest 
and overlapping functions.  The amendments also granted the 
Tender Chamber of Ukraine, purportedly a nongovernmental 
organization, the authority to monitor the procurement 
process and to undertake key operational functions that 
were inherently governmental.  The Tender Chamber soon 
became the center of the procurement system's corruption 
and lack of transparency (reftel). 
 
¶5. The issue spilled into public discourse, with 
organizations like the Association of Ukrainian Cities 
protesting the dysfunctional and corrupt system and its 
impact on local government operations.  Parliament, 
responding to these widespread complaints, repealed the law 
on government procurement, including all amendments, in 
March.  In place of the law, the Cabinet of Ministers 
issued a decree establishing temporary provisions for 
government procurement based largely on the procurement law 
as it existed in 2004, before the troublesome amendments. 
Under those temporary provisions, the Tender Chamber was 
eliminated, and the Ministry of Economy resumed its role as 
the central oversight and policy body for the procurement 
system and began to institute real reform.  The 
Constitutional Court subsequently ruled the temporary 
provisions unconstitutional on technical grounds, however, 
leaving Ukraine without a functioning government 
procurement system.  The Cabinet of Ministers quickly 
issued an updated decree, meant to meet the constitutional 
issue raised by the Court, in October.  Resolution No. 1017 
then superseded and improved upon that October decree. 
 
KYIV 00002417  002 OF 002 
 
 
 
New Law Still Needed 
-------------------- 
 
¶6. While Resolution No. 1017 should allow for a proper, 
functioning procurement system, it is only meant as a 
temporary measure until Parliament can pass a new law on 
procurement.  A new draft law was passed in the first 
reading in May but is working its way slowly through the 
legislative process.  World Bank and USAID assistance 
projects helped draft that law.  Although the original 
draft closely followed the principles outlined in 
Resolution No. 1017, the parliamentary committee now 
responsible for the draft law has not revealed amendments 
being considered, and there are concerns that the committee 
may seek to rollback some of the reforms. 
 
¶7. During the December 4 donor coordination meeting, World 
Bank and USAID participants identified training for the 
Ministry of Economy's new procurement-related staff and 
implementation of an electronic procurement system as other 
priorities for future assistance. 
 
WTO Agreement on Government Procurement 
--------------------------------------- 
 
¶8. Ukraine is not yet a signatory to the WTO Agreement on 
Government Procurement (GPA), but committed to initiate 
negotiations for GPA membership within two years of WTO 
accession, which occurred on May 16, 2008.  Ukraine has 
requested to become an observer to the GPA and is actively 
preparing its initial offer to begin the process of GPA 
accession.  Resolution No. 1017 puts Ukraine back on the 
path of reform with an eye towards GPA accession, although 
additional reforms will likely be necessary. 
 
TAYLOR