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Tenth Meeting of the EAP Task Force EECCA Environmental Finance Network 22 – 23 February 2007 Paris, France. Performance Review of the State Environmental Protection Fund of Ukraine Main Conclusions and Recommendations. Nelly Petkova Environmental Finance Programme.

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Tenth Meeting of the EAP Task Force EECCA Environmental Finance Network22 – 23 February 2007

Paris, France

Performance Review of the State Environmental Protection Fund of UkraineMain Conclusions and Recommendations

Nelly Petkova

Environmental Finance Programme

structure of the presentation
Structure of the Presentation
  • Performance Review Methodology
  • Objectives of the Performance Review
  • Performance Assessment of the State Fund of Ukraine: 2006
  • Major Findings and Conclusions
    • Fiscal Prudence
    • Management Efficiency
    • Environmental Effectiveness
  • Major Recommendations
  • Lessons Learnt
performance review methodology
Performance Review Methodology
  • Based on the criteria identified in the Good Practices for Public Environmental Expenditure Management (PEEM)
    • environmental effectiveness
    • fiscal prudence
    • management efficiency
  • Inputs from FitchRatings on fiscal prudence and financial performance
  • The review was implemented in close co-operation with the Ministry of Environmental Protection, with representatives from other key ministries
  • The project - financially supported by the governments of Switzerland and the Netherlands

Objectives of the Performance Review

  • To conduct an independent and objective assessment of all aspects of the administration and management of the Fund against internationally-recognised criteria, such as those contained in the Good Practices for PEEM
  • To identify and analyse the strengths and weaknesses of the Fund’s performance and propose a Reform Plan for further improvements
  • To support the Ministry of Environment in its efforts to improve the management of the public environmental finance system in Ukraine
  • To help improve data collection and disclosure of information
performance assessment of the state fund of ukraine 2006
Performance Assessment of the State Fund of Ukraine: 2006







major findings and conclusions fiscal discipline
Major Findings and Conclusions – Fiscal Discipline
  • Generally, the National Fund’s performance has benefited from wider reforms in the public finance system
    • In 1998 – transformed from an extra-budgetary to a budgetary “special” Fund – improved Parliamentary control
    • State Treasury created and a Treasury Single Account opened – all Fund’s revenue and expenditure channelled through this account – improved financial control over spending
    • Accounting Chamber created – improved control over the expenditure of budgetary entities
    • State Tax Inspection made responsible for pollution charges – significant increase of revenue
    • Passport of budgetary programmes created - attempt to introduce performance-based budgeting and improve programming
    • Due to the strict rules of the Budget Code and annual budget laws – prudent fiscal policy
    • Barter and other non-monetary transactions have been largely eliminated and all revenue now collected in cash
  • The Fund largely complies with the main criteria of fiscal discipline
major findings and conclusions management efficiency
Major Findings and Conclusions – Management Efficiency
  • The project cycle management is inadequate with regard to the type of expenditure financed
    • The management structure – most elements present but only vaguely correspond to the best international practices
    • No dedicated professional staff and a separate administrative structure to manage the Fund’s resources
    • Responsibilities for appraisal and selection split between too many people and levels
    • Decision-making is slow and unproductive – disbursement hampered and resources spent in an ad hoc manner
    • Project appraisal – formal process – checking proposals for compliance with legal and budgetary requirements but no clear appraisal and selection criteria and rules - no skills to conduct sound appraisal
    • Cost-effectiveness - not a prominent selection criterion – data on O&M costs not collected
    • Main disbursement mechanisms – grants – which resemble direct purchase of goods and services on behalf of the government - public procurement should not be a core responsibility of a public finance institution
    • Fund legislation does not ensure operational independence and protection of staff against ad hoc political interference
  • Need for an urgent reorganisation of the governance structure of the Fund in line with good international practices
  • Need for introducing proper project cycle management tools to ensure the selection of the most cost-effective projects
major findings and conclusions environmental effectiveness
Major Findings and Conclusions –Environmental Effectiveness
  • Environmental effectiveness - difficult to assess
    • Fund supports many programmes across environmental media
    • Programming is still weak – no clear priorities and targets
    • In 2006 – 8 MEP programmes supported by the Fund + 15 programmes of 5 other Ministries financed from Fund’s resources – failure to create a critical mass of resources
    • Poor communication with potential clients – the Fund does not try to identify good projects
    • The one year-budget perspective of Fund’s expenditure is incompatible with the multi-year implementation schedules of investment projects – completion of projects jeopardised
    • The Fund does not monitor the implementation of projects and the environmental results achieved
    • Information on actual spending incomplete and unreliable and not available at a national level
  • Need to reformulate priorities, narrow them down and translate them into realistic and measurable targets
  • Need to arrive at a political consensus on the strategic areas which will be supported by the Fund
major recommendations
Major Recommendations
  • Reduce the number of Funds and concentrate revenue to obtain a critical mass of resources
  • Introduce specific, narrow and investment-oriented priorities
  • Design a proper organisation and management structure – create a separate unit with a degree of management autonomy
  • Develop strong capacity in project cycle management – conduct appraisal and selection in accordance with best international practices
  • Introduce a medium-term budget framework to facilitate the smooth implementation of multi-year projects
  • Introduce and maintain regular monitoring and control of individual investment projects implemented with support by the Fund
  • Collect data at a national level and develop a database on projects financed by the Fund, containing key financial, technical and environmental information

Major Lessons Learnt

  • Funds remain a second best option
  • Public finance reform creates opportunities to improve the quality of Funds
    • Consolidating extra-budgetary funds into the regular budget improves control and transparency
    • Transferring responsibilities for collection of revenue from pollution charges to tax authorities brings better results
  • Programming and clear priority-setting is crucial for implementing national environmental objectives in a coherent, transparent and accountable manner
  • Multi-year budgeting – a prerequisite for the smooth implementation of investment programmes
  • Need for a clear management structure and a clear division of responsibilities for programming (political level) and project appraisal (technically competent staff)
  • Need for modern management tools - including simple but robust eligibility, appraisal and selection criteria and clear decision-making rules and procedures
  • Where public money is involved the process is very political with lots of vested interests – hence, reforms require strong political support, consensus and leadership
  • Donors – what role to play?