Exclusive interview of Oleksandr Saienko, Minister at the Cabinet of Ministers of Ukraine, to Interfax-Ukraine news agency
It has been 30 months since the existing Government was appointed. Did it manage to achieve what it set out to? What can it admit it failed to do but is still working on?
I believe the central issue is what is still in progress rather what has already been done. In my opinion, we have great potential in the reform of state-owned enterprises. This focus area offers savings for the budget, an opportunity to get new revenues, reduce potential for corruption, and improve the performance of the companies themselves.
This is why we are focusing on change in this area through the introduction of good corporate governance standards by establishing professional management and independent supervisory boards, drafting an ownership policy, and making operations transparent.
Second is privatization with its own challenges. For example, bureaucracy puts up massive resistance despite a simplified procedure for transferring state-owned enterprises for privatization introduced by the new law.
The goal of privatization is not simply to sell the enterprise as it is. Firstly, our enterprises do not sell like hotcakes as they are usually plagued by many problems. Secondly, you want to sell them at a maximum price to a good investor who will be developing the business.
All this requires thorough preparation of these facilities. The new privatization law enables us to seek professional investment advisors to identify the enterprises' problems, conduct an audit, formulate the best sale conditions, make a road show, and see which investor would be interested. The first transparent competitive selection of advisors is over but, unfortunately, is currently blocked by court. In general, this preparatory period is much more important and longer than the auction itself.
I also see potential in the reform of the tax and customs services. There are some success stories, for example, with an automated VAT refund system, some progress with combating contraband, the one-stop shop, fewer complaints about tax administration after a wide range of services have been digitalized. However, the institutional reform of the customs and tax services is overdue. In this respect, the Ministry of Finance instructed by the Prime Minister is drafting a new concept of the reform of these services together with our international partners.
Are there any decisions adopted by the existing Government that one could say today should not have been passed?
The Government makes many decisions, and some could be more thought through, but I think we have not made any critical mistakes that could drastically affect any economic processes in the country. So, we can close this year normally and confidently start the new 2019 year even as we remember about peak repayments of previous years' debt.
What is the current status of the public administration reform? At the time of its launch you could hear about the reform everywhere, but now they keep silent about it. Some experts kept repeating for some time that Europeans were considering withdrawal of the program funding because Ukraine failed to fulfill its obligations. A new advance was approved in August. How does the reform progress?
The reform is being implemented and gaining momentum. This is demonstrated, among other things, by the European Commission's confirmation during the most recent political dialog that it was prepared to fund the reform in the next year, too. We are working on achieving all targets to the greatest possible degree and have received the next advance towards implementation of the reform.
Frankly, the reform is quite challenging. We know how strong our bureaucracy is and how "willing it is to change," but we are moving along. In this case, you can't overestimate the Prime Minister's support to the reform. He is determined to turn the state around to face the individual by improving its service function.
Historically, the public administration reform took dozens of years in European countries. Ukraine adopted the Law On Civil Service as late as in 2016. This is the first year that we are for the first time conducting performance assessment of civil servants, especially top officials, as an important element of improvement of civil service. Now, every civil servant has certain objectives and, whether they like it or not, has to report in the end of the year for public review. This is a good incentive for shifting the civil servant's focus from the process to the outcome.
This year we are also changing the operating logic of ministries themselves by introducing policy analysis. Ministries have to focus on quality drafting and impact assessment of their decisions, the addressing of specific problems within their area of responsibility, and to move gradually away from micromanagement of state property, the issue of authorizations, and control functions. These are not a ministry's main objectives. It is the transformed conscience of this bureaucratic machine that underlies the reform and takes time.
It is critical today that the directorates we are creating through the reform should not be overcome with red tape and should instead produce clear added value, understand existing problems and effective solutions. This is where we are moving, have full support of the expert community and our European peers.
By the way, surveys of the expert community list the public administration reform in TOP-5 Ukrainian reforms. The European Commission has also noted Ukraine's significant progress in this area.
The public administration reform is fundamental to an effective implementation of all other reforms. This is what the Prime Minister stressed on a number of occasions. For example, he emphasized during a recent meeting with G7 ambassadors that the public administration reform is one of the Government's priorities for the next year.
What are the next steps on the reform path?
In February, we will finish reforming eight pilot ministries, and the Government recently adopted all requisite resolutions.
We've come close to amending the rules of procedure of the Cabinet of Ministers. I think it will happen very soon. We will propose the draft Law On the Administrative Procedure to the Verkhovna Rada of Ukraine. This is essentially a mechanism for protecting citizen rights versus the state. We do not have this culture yet. Accordingly, the system of protection of citizen rights in our country is very weak. But the Ministry of Justice is doing a hard and good job in this context.
If you take a look at any quality assessment of administration in any country, the question to be asked first is "How do you build your administrative procedure? How do you ensure citizen rights are respected in the citizen–state interaction?
This is a very crucial law in that every party will have clearly defined rights and obligations. Then the citizen will be secure in any interactions with the state.
Besides, we are now finishing work on amendments to laws on the Cabinet of Ministers and central government agencies. Administrative models of other countries suggest there must be clearly defined powers and responsibility.
Will the new rules of procedure be adopted after amendments to the Law On the Cabinet of Ministers?
I think we will modify the rules of procedure in December 2018–January 2019 to the extent that does not require legislative amendments. We can achieve a lot with regulations. It will take longer when a law is required, but we'll wait for its adoption.
Please tell us about key differences between the modified and existing rules of procedure?
Firstly, it is critical for us to start discussing the merits of the very solution (public policy) and only then to move to approving the regulation that implements this solution. This is a position of principle.
We made our first move in summer and are now preparing an impact assessment for every regulation. Importantly, the very decision-making process should be structured correctly. It should start with a political discussion of the solution where we have to understand the problem we are addressing, alternative ways, related costs, reservations, winners and losers. Drafting a regulation is more a technical legal effort that formalizes this solution as a regulation.
Another equally important matter is that, on the one hand, we have to simplify existing expert examinations, and on the other, improve their performance. Today, the number of expert examinations conducted by the Ministry of Justice and the CMU Secretariat really overloads the very bureaucratic machine. And we don't have a clear definition of conceptual things such as why this expert examination is needed, what it aims to achieve, identify, focus on, its consequences.
This is why we will be greatly simplifying the expert opinion of the Cabinet of Ministers by turning it into a structured check-list, which is within our powers.
Once simplified and made electronic, all these internal documents and expert examinations will reduce paper-based red-tape even inside the system itself, produce their clear list, decrease arbitrary red tape, accelerate decision-making, and make these processes more transparent.
Multi-agency electronic document management has already been implemented. Documents are exchanged through this system electronically between more than 600 central and local government agencies. It transfers 5,000+ electronic documents daily, including draft regulations.
While introducing changes, we are now incorporating European standards into processes. For example, the State Agency for e-Government of Ukraine issued an order this month implementing a new format electronic document compatible with the format of the European electronic document. The new e-document format can contain both the text of documents and digital signatures of all agencies and institutions that participated in drafting it. This will enable us to maintain the State Electronic Archive, approve electronic draft regulations, conclude and sign electronic agreements and, naturally, enhance cross-border collaboration and give up hard-copy documents in our relations with European partners by using the Europe-wide standard.
Let's go back to the civil service reform. The pilot project is about to finish. It will be assessed. Will this reform be extended to the remaining ministries and, if yes, when?
After completion in February, we will propose a ministry reform concept to the Government. The preliminary concept has been drafted already and discussed with European colleagues.
Principally, the model we are offering is used by all western countries, all developed democracies. After it is presented and all aspects and certain special features are taken into account, for example, with the Ministry of Defense, the Ministry of Foreign Affairs, the Ministry of Internal Affairs, we will define the algorithm of our course of action. I think the presentation will be delivered in the end of the first quarter.
Will the reformed ministries structurally be very different from what we had in pilots?
The ministries' logical structure is very simple and includes directorates, which formulate and implement policies by proposing and putting in practice certain solutions; departments that will be kept as a transitional structure where uncharacteristic powers are to be exercised. Today, many functions are laid down in laws and cannot be simply given up. There is also a secretariat made up of all units, essentially a back office that will incorporate all administrative authority.
I think with time we have to create one integrated back office on most matters when, for example, we have one procurement center for all government agencies, one mobilization center, one service for technical support. This will produce a very serious effect in terms of savings and effective performance of these functions.
We are also considering standardizing, for example, ministry computerization, personnel management processes, and internal financial audit.
Prozorro and we are doing a centralized procurement pilot and will have capacity for centralized purchasing of integrated groups of standard goods for everyone. This provides savings in terms of not only effective use of human resources but also the pricing effect.
When will they start funding the public administration reform from the budget?
Sustainability of this reform is of paramount importance for us. Today, we get funding from the national budget and financial support from the European Union.
In the next year, civil servant compensation is in for many changes. Compensation for new reform experts is a prototype of the civil servant compensation model where the fixed portion accounts for at least 70%. This model underlies the Law On Civil Service. These parameters have been already set for reform experts. We have limited bonuses to thirty percent. This prevents setting sky-high bonuses. Now the system itself is greatly imbalanced because the base salary is minimal, but overall compensation grows as allowances and bonuses are paid. This generates dependence on the manager's political subjective will with all respective consequences.
The new system will be more transparent and balanced, and gradually the reform will be increasingly funded by main programs of the ministries' administrative offices.
National budget funds committed for the reform will be allocated by ministries by the end of this year.
But will the budget sustain such rather high and competitive official salaries without foreign funding?
Actually, all these items are now funded by the national budget. I support the small government model where the number of public institutions is minimized and administrative costs reduced by offering both higher and more competitive salaries. This is all interrelated.
Which pilot ministries performed best, and which worst?
The Ministry of Education did very well. The Minister personally supervised the reform. The reform has been implemented rather well by the Ministry of Social Policy. The Ministry of Health suggested a very nice model. There were some procedures to be followed, but now they have reached a good pace.
As concerns problems, these aren't even problems. Some ministries perform horizontal cross-sectoral functions common for all agencies. They include the Secretariat of the Cabinet of Ministers, the Ministry of Justice, the Ministry of Finance and, to some extent, the Ministry of Economy. This is where I think they should be categorized separately to offer one operating model for these cross-sectoral functions. For example, legal due diligence.
Take a look at how a regulation is drafted: it is first subject to approval by the Legal Department of the ministry, then an expert opinion of the Ministry of Justice, analysis by the Legal Department of the CMU Secretariat. This is to say nothing of the fact that every ministry forwards the document to other ministries where it is subject to approval by legal departments of respective agencies.
For example, in Canada lawyers may be based in different ministries but they all formally belong to the Ministry of Justice. This ensures coordination in the lawyers' activities because there are no material inconsistencies between legal units of different agencies.
Do you know when we can expect the next advance of funding for this reform?
We have had a very good political dialog with our European partners. They already have an official position that they are ready to continue support to this reform. We expect the next advance in April to May.
What is the amount?
This will depend on certain criteria, but I think we will be able to get about EUR 10 to 20 mln for the next year.
When speaking of reforms that lag behind, you mentioned the State Fiscal Service. Is there an understanding of what will happen to the tax police? And, generally speaking, what is the expected effect of separating customs and taxes?
The position of the Government and Prime Minister Volodymyr Hroisman is that we have to create a new service that would be responsible for investigations into financial crime, have a more sizable analytical component rather than the punitive function. We have to integrate the functions of other agencies associated with combating financial offenses. The goal is primarily to make life easier for business because we have many law enforcement agencies today which, so to speak, take care of economic crime, putting serious burden on business owners.
About separating the customs. We find it reasonable to create separate agencies. This will make them stronger operationally. Besides, fewer juridical persons will boost institutional capacity and manageability. The reform calls for bringing new blood to the expert pool and digitalizing processes.
This model does not rule out interaction between tax and customs databases in any way.
This will mean more funding to the customs, right?
Now SFS is structured as a large number of juridical persons creating a certain administrative burden because each juridical person has its own Accountants, HR, etc., and a higher centralization of such administrative functions will produce some savings. Besides, many processes can be automated. Examples include the e-cabinet, new scanners, and the one-stop shop.
Is there a deadline for announcing director recruitment? There must be some arrangements with IMF.
The agreement with the International Monetary Fund is about to be signed. Its requirements include the drafting of a tax and customs reform concept. As far as I know, it is due early next year.
You have touched upon the financial investigations agency. Have they reached a compromise already?
I am sure one will be reached. Negotiations are underway. Importantly, there is a common understanding of the main goal. They are now discussing investigative jurisdiction, i.e. investigations into which crimes are within the competence of this service, certain matters of organization of its activities.
In the context of existing draft laws?
As you know, the Government has done some groundwork for the Financial Investigations Service, has a concept of the National Bureau of Financial Investigations designed by the tax committee. I think, they will ultimately integrate these two approaches to consolidate the Verkhovna Rada on this matter.
What do you think of the first operating results of newly created supervisory boards with independent members?
It's very hard to speak of any outcomes of supervisory boards after such a short period of time. Two things are important for supervisory boards. Firstly, they should be given respective powers and, on the other hand, a system of their control and performance assessment should be put in place.
A CMU meeting adopted framework requirements to the ownership policy more than a month ago. This is a vital step towards implementation of the new policy on state assets. It is important to define the strategy, provide your vision of the enterprise's development as a shareholder, and set performance assessment criteria for supervisory boards and management. It is based on the achievement of clear KPIs that we can see how effective a supervisory board is.
The Prime Minister and the Government stated a clear need to transform administration by moving away from micromanagement of state-owned enterprises with control of operational processes to administration where you set specific objectives and assess the enterprise's performance. If the supervisory board or management fails, the issue of replacement or low performance is raised.
So now, after the approval of this framework policy, it is critical for governing bodies to start working out development strategies. This process in underway. We are drafting individual strategies for Ukrzaliznytsia [Ukrainian Railway], Ukrenerho [Ukrainian Energy Company], and Ukrposhta [Ukrainian Post Service]. After that we will be able to effectively assess the performance of supervisory boards.
The next step is to draft and adopt ownership policies for all enterprises crucial for the economy.
Is the matter of extending the supervisory boards' powers suspended due to lack of consensus on the respective draft law?
The Parliament has the draft law (No. 6428-д dated 5/30/2018 on amending certain legislative acts of Ukraine to improve corporate governance of juridical persons where the state is a shareholder (founder, member)) proposed by the Government. The latter has expressed its position. The Verkhovna Rada has considerable discussion on this issue.
But I feel that giving a fuller authority to supervisory boards, which I absolutely support, should come together with another process. We have to streamline compensation in the sector of state-owned enterprises; build a system of performance assessment of supervisory boards; introduce a system where the owner (shareholder) policy binding on supervisory boards and management is created for each enterprise. We should not lose existing management instruments without creating new ones. First steps in building a new system of administration should be taken together with extending the authority of supervisory boards.
Now the supervisory board at Ukrzaliznytsia has been authorized to select the company's management at its discretion. At the same time, new collaboration mechanisms should be put in place.
The health care reform enjoys huge popularity. It is the object of considerable discussion. Is it keeping to the schedule?
We are completing the primary level with improving the quality of services and raising salaries, the importance of selection of an alternative doctor. I feel the primary level had a good start. This stage will be completed by the year's end.
A few important steps in the secondary level have been planned for the next year. It is much more complicated. We will be identifying several pilot oblasts to see how we can standardize and shift to payment for services. So, overall, the reform keeps to the schedule. We have planned the emergency care reform for 2019. It will be very important to extend the Affordable Medicines program, provide free diagnosis and tests. So I think we are still on schedule.
Do you feel the delayed reforms are irreversible? Something you talked about earlier, in the context of the elections period?
Some discussions in the pre-election year are quite natural. So I feel it is critical to communicate properly now, explain the substance and importance of continuing these reforms. They are already bearing fruit. But the decisions intended to raise the standard of living, increase welfare payments, improve conditions for doing business, reduce unemployment rates will give maximum effect later and, if they are stopped, it will be hard to argue that these reforms are effective. The Government's goal outline by the Prime Minister is structural reforms that will lay the foundation for effective work for the years ahead.
The health care reform is working, while privatization and corporate governance are delayed. There are risks that they might be wound up after elections.
One should communicate with the public on privatization and other reforms. This issue is subject to frequent manipulations. But people should hear the key message that the Government is not planning to privatize strategic enterprises such as Ukrposhta, Ukrzaliznytsia, Enerhoatom, Naftohaz. They will remain state-owned. But the state cannot manage about 3,500 enterprises.
Those that the state retains ownership of should be managed at least as effectively as companies in the private sector. Quality management of state assets will produce an effect very soon. When the reform of the SOE sector was starting in 2014, 100 largest state-owned companies generated UAH 117 bn in losses. In 2017, they registered a profit of UAH 44 bn.
Most importantly, we should remember about the purpose of privatization — raising investment for the enterprise to buy new technology, upgrade facilities, create new jobs, and open up access to foreign markets and distribution channels. A private owner is almost always more effective than the government by caring about a more effective use of resources and preventing embezzlement of assets. Many countries are living proof.
Do you mean you see no risks here?
Interests are everywhere. Any reform faces some resistance. If none exists, these changes are merely cosmetic.
Back to the matter of irreversibility. When starting the public administration reform, the Government created the position of the state secretary in ministries and the Secretariat. It it these people who would have to ensure that reforms are irreversible — they are appointed for five years and are in charge of all reforms. However, some ministries faced very serious problems with appointments — the Ministry of Health, the Ministry of Energy, the Ministry of Infrastructure, where some people have already been dismissed. For example, the state secretary of the Ministry of Environmental Protection, the Ministry of Finance. Are these problems related to competitive selection of Category A officials?
I don't think it is a big problem when the state secretary is replaced with a change in political administration. This happens in many countries.
A new minister that comes and cannot work with the state secretary raises these issues, and respective dismissal procedures are in place.
The question is who occupies the office of the state secretary. The state secretary is a state manager. The institute of the state secretary is critical for the formation of the top echelons of civil service. They can be rotated; a pool can be created. Importantly, a professional official rather than a politician should be the state secretary.
Hence the binding condition that all Category A appointments are made through the selection commission that ensures a certain level of professionalism. But I still think we should liberalize these changes to an extent. The selection commission should nominate 2–3 candidates out of which CMU can make a choice. The rigid model when only one candidate is nominated is not quite justified. We should offer an alternative.
In European countries, the commission nominates several candidates ranking them first, second, and third, and a political decision is later made to select one.
Are these changes under discussion or already under preparation?
We are drafting the law and will continue supporting these changes in the Law On Civil Service as they provide political administration with options.
In late summer, the Ministry of Justice registered NGO Ukrainian Strategy of Success founded by you together with Mr. Denysenko and Mr. Zolotariov. What is it about and for?
This non-governmental organization was established primarily to bring together people with values and principles to achieve certain goals of modernizing our country.
It has never been as necessary and critical to unite people around the important reforms underway in the country as today. Success depends on an understanding and support of the essence of the Government's reform policy and changes. This is why it is crucial to communicate with people, explain proposed changes, and engage them in these changes for implementing the reforms and developing the country. When united around the country's development, the proactive part of the nation will be able to accelerate change and create a safeguard against rising populism. It is easy to promise what you are never going to deliver. Instead, we honestly speak about successes, problems, and challenges. This is the dialog we will hold within the NGO.
This NGO is said to be a prototype of a future party which will be registered with the same name closer to [parliamentary] elections and, headed by Volodymyr Hroisman, the Prime Minister's team will run for the Parliament.
I am strongly convinced that the Prime Minister will run for the Parliament. But it is premature to talk about how he will do this.
What is your role as a current government member in the NGO?
I have been with Volodymyr Hroisman since early 2014 and am actively involved in designing and implementing the reforms we have undertaken. I would hate to see the outcomes of several years of effort ruined by populists, whose only aspiration and meaning of life is power. We've walked a long path of state building over these years in such challenging conditions, and I am prepared to fight for this. In this context, positions, agencies, and organizations are only instruments for creating and putting in life the values I believe in.
Would you like to become a member of parliament or, for example, keep a position in the future government to continue these reforms?
One man no man. Any serious change takes a team. I am part of the team, and the status and position in which I will continue my effort will be determined as it becomes necessary.
Experts are already discussing possible further political steps of the Prime Minister's team. Some believe that preparation for elections has already started, though unofficially. People, including you, are already creating campaign headquarters. Are preparations really underway, including regionally?
What do you define as preparations? Even though its a pre-election year, the Government goes on doing its job, continues the reforms started in previous years. The Prime Minister recently announced key 2019 priorities, and we will be working on achieving them.
As concerns the team, we are always on the lookout for proactive people in the center and locally, we organize our effort, including regionally, because people are the main driver of any transformations. This is why it is important for people that share values and readiness to fight for irreversible change to unite — what our organization is actually helping with.
