NATIONAL INDICATIVE PROGRAMME BUDGET YEARS : LEGAL BASIS : Tacis REGULATION 99/2000 BUDGET LINE : B7 520 PROGRAMMING SERVICE : RELEX.

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1 NATIONAL INDICATIVE PROGRAMME COUNTRY : UKRAINE BUDGET YEARS : LEGAL BASIS : Tacis REGULATION 99/2000 BUDGET LINE : B7 520 COST OF ORDER : 212 MILLION PROGRAMMING SERVICE : RELEX.E2 Adopted by the European Commission on 4 August 2003

2 Table of Contents Page List of Acronyms Preamble 4 1. Support for institutional, legal and administrative reform Legal and administrative reform Justice and Home Affairs Action Plan and border related issues Civil Society, media and democracy Education and Training Support to the private sector and assistance for economic development Assistance to enterprise development Development of financial markets Local development in selected municipalities Energy sector reform Support in addressing the social consequences of transition Health sector reform Support to the development of social assistance policy and services targeting vulnerable groups 26 Annexes 1. Budget Survey (i) 2. Tacis assistance in the above sectors ( ) (ii) 3. Member States and other donors co-operation (iii) 4. Synthesis of the 2002 'Evaluation' (viii)

3 LIST OF ACRONYMS CBC CSP EBRD ECHO EIDHR IEA FATF FDI FIU IMF JHA NAP NCU NGO NIP NIS PCA PRSP SME TIR UEPLAC VET WTO Cross-Border Co-operation Country Strategy Paper European Bank for Reconstruction and Development Humanitarian Aid Office European Initiative for Democracy and Human Rights International Energy Agency Financial Action Task Force Foreign Direct Investment Finance Intelligence Unit International Monetary Fund Justice & Home Affairs National Action Programme National Co-ordinating Unit Non-Governmental Organisation National Indicative Programme New Independent States Partnership and Co-operation Agreement Poverty Reduction Strategy Programme Small & Medium Enterprises Transport International Routier Ukrainian European Policy Advice Centre Vocational Education & Training World Trade Organisation

4 Tacis National Indicative Programme for Ukraine Preamble The purpose of this National Indicative Programme (NIP) is to set the framework for the Ukraine Tacis National Programmes during the period It is based on the Country Strategy Paper (CSP) , decided end The overall amount for the period is forecast to be 212 Mio. Assistance during the reference period needs to continue to cover the areas of cooperation defined in Regulation 99/ Inside this framework, assistance should, to be most effective, continue to focus on the priority areas identified for the NIP 2002/03: Legal, judicial, administrative reform Border management Business, trade, and investment promotion, Civil society, training and education Social reform The CSP continues to be an appropriate basis These orientations are based on the policy analysis provided by the CSP, which set out the strategic framework for EC assistance up until 2006 in terms of EU cooperation objectives, policy response, and identification of the above priority fields. The Commission considers that the continuing process of reform in Ukraine and major policy orientations do not call, at the present stage, for a fundamental review of the EU strategy. Recent political developments in Ukraine include the parliamentary elections in March 2002 and the controversial initiative of President Kuchma of March 2003 to pass from a presidential / parliamentary to a parliamentary / presidential regime; as well as the reconfirmation of Ukraine s pro-european choice and the reform programme based on this strategy. The new Government has submitted a work programme covering economic reform, especially the reform/privatisation of the big state enterprises in the rural areas, creation of the necessary pre-conditions for the establishment of private enterprises (SMEs), as well as improvement of social service provision and support to the social consequences of transition. The up-coming presidential elections in 2004 are already influencing the general political climate while possibly making an impact on Tacis planning at a later stage. Ukraine and the EU together have in the recent past strengthened the basis and the instruments for co-operation in a number of fields already identified for Tacis support, thereby reconfirming the existing choice of priorities institutional, legal and administrative reform, private sector and assistance for economic development, addressing the social consequences of transition 4

5 They established a joint assessment of the achievements and the functioning of the Partnership and Co-operation Agreement (PCA) since its entry into force in , which also contains appropriate references to the use of Tacis such as the need to address the consequences of EU enlargement; a need already recognised in the CSP of 2002; The Action Plan of December 2001 on co-operation in the field of Justice and Home Affairs 4 is operational and progress will be monitored by way of a scoreboard ; Another scoreboard is also under development for tracking progress in the field of legislative approximation. The conclusion of the bilateral EU-Ukraine negotiations on market access (18 March 2003) aiming at Ukraine s accession to WTO constitutes another important step but which does not diminish the need to continue Tacis support on trade-related matters as identified in the CSP. The need for a debate on relations with the new neighbours, including Ukraine, after the forthcoming enlargement has been taken up by the Commission in a Communication on Wider Europe Neighbourhood (COM (2203) 104 final of 11 March 2003) 5. Concrete follow up will be discussed later this year for implementation during the reference period. Experience to be taken into account In the context of the Commission s Country Strategy Evaluation programme, an evaluation of Tacis performance in Ukraine was carried out by a consortium of MHW-Odi-ecdpm in Among its main findings in priority area one (institutional and legal/administrative reform): the objectives of legislative approximation and policy dialogue are highly relevant, as is the need to improve coordination with Member States in this sector. The main actor in this field, the Ukraine-European Policy Advice Centre (UEPLAC), was recognised as having drawn useful conclusions from the first two phases ( ) by way of introducing new working structures and procedures. Programmes/projects aiming at strengthening NGOs in co-ordination with, or funded by, the EIDHR, have been effective and need further support to consolidate. The Tempus programme (see below chapter 1.4) was equally commended. In the second priority area (support to private sector and economic development), the Tacis focus on financing business support services (business incubators) for SMEs was viewed critically because of a lack of demand and not sufficiently well identified needs. However, co-operation with EBRD and other donors in funding the Ukrainian Micro Lending Programme were viewed positively. Due to the importance of the agricultural sector with regard to employment (17% of the country s and 60% of the rural work force), evaluators stressed the necessity to support SMEs in this sector in order to diminish up-coming social problems. Evaluators view access to credit for and advice to establish/improve SMEs in this area as urgent requirements

6 The outcome of the Tacis funding in the social area was praised as efficient and effective and with impact at policy level. In general, there was a need felt by the beneficiaries and supported by the evaluators to simplify the Tacis heavy administrative procedures. With regard to the priority areas of the present NIP, the following recommendations were taken into account: stronger and more flexible input in supporting PCA implementation, reform of the judiciary, etc. improvement of the business environment and access to credit for SMEs strengthening of local/municipal governance and development in particular with regard to SME promotion and the environment sector, continuation of programmes in the energy sector to enhance energy efficiency strengthening of NGO programmes in particular those giving social assistance for vulnerable groups. Flexibility and adaptation Many projects of the Action Programmes are starting only now, which means that results can only be assessed in 2-3 years time. Experience gained with projects under implementation may therefore have an impact on measures under the present programme, at a later stage. Given the above circumstances, planning for the period should leave a sufficient margin of flexibility for Action Programmes to respond to changing priorities and needs, such as with regard to the consequences of enlargement of the EU. It is also already evident that greater emphasis will need to be placed on support to the field of Justice and Home Affairs including border management and infrastructure; equally on economic growth and employment, by strengthening the environment for small and medium enterprises with priority in selected rural areas, especially to provide better training and easier access to credit. Support to government to further address the social consequences of transition also needs to be increased. Moreover, poverty levels are still increasing, spreading not only among the elderly and other vulnerable parts of society such as families with many children, but also among the less well trained labour force. This tendency has been recognised by the Ukrainian authorities and their efforts to deal with the problem need to be supported as a new priority. Implementation at regional/local level In certain areas of co-operation, such as SME development and addressing the social consequences of transition, the programme will focus on selected regions, chosen on the basis of criteria to be developed in the process of turning this NIP into action programmes. Clearly the preparedness of beneficiary authorities and population will be one of the required criteria. Joint funding with IFIs may be another important factor. 6

7 Indicators for performance assessment In accordance with standard practice, indicators are to be provided with a view to subsequent assessments of the effectiveness of this NIP. It should be noted in this respect that at the level of indicative planning such indicators will necessarily seek to assess the overall impact of Tacis, thereby considering the general development in Ukraine; rather than proposing any specific output or results as may be appropriate at the level of specific programmes and projects. However, the scoreboards mentioned above constitute appropriate tools for tracking progress in fields of, respectively, Justice and Home Affairs and legislative approximation. I. Areas of Co-operation 1. Support for Institutional, Legal and Administrative Reform 1.1 Legal and administrative reform Background and justification Institutional, legal and administrative reform continue to be among the most important, and publicly recognised, parts of the political agenda in Ukraine. Legislative approximation has consistently been reaffirmed as a joint priority under the Partnership and Co-operation Agreement (PCA). It is supported through notably the Tacis funded UEPLAC. In November 2002 the Parliament of Ukraine adopted the Law on National Programme of approximation of Ukrainian legislation to the EU legislation (Number 228-IV dated ). In accordance with this Law the government s abovementioned work programme should be finalised and adopted in EC assistance should support its implementation, as a matter of continuity in support of Ukraine s reform efforts. The low level of foreign direct investments in Ukraine, including of EU origin, continues to be a weakness that needs to be addressed, as noted during the European- Ukraine Summit in Copenhagen in July Ensuring that equal conditions are applied to all economic entities irrespective of their ownership has not yet been fully achieved. Streamlining the requirements for easier creation of SMEs is one of the priorities the Ukraine government has highlighted recently. This area is important for the success of support proposed to be given to SMEs. The lack of control of state aid to certain parts of the economy remains a factor weakening the functioning of competition in Ukraine. A new law on protection of competition entered into force in 2002, which should progressively strengthen competition in Ukraine, notably by conferring effective powers and operational capacities to the Anti-Monopoly Commission. Ukraine has committed to these goals 7

8 in the PCA (Articles 49 and 51), including legislative approximation, to be assisted through continued technical assistance. Statistics should be considered as an important tool underpinning political decisionmaking and evaluation. Even though progress has been made, efforts to strengthen the statistical system are still needed. The level of state involvement in the Ukrainian economy requires a functioning and effective supreme audit institution. Assessments conducted by International Financial Institutions (IFIs) regarding the country s financial accountability concluded that policy-level decision and systemic/structural actions are needed to improve public financial accountability. Ukraine needed to undertake further actions to ensure financial control and to strengthen the capacity of the executive and legislative authorities to formulate policy changes. Regularity and performance controls are needed to strengthen fiscal control and provide feedback to decision-makers. In this connection, amendments to Art. 98 of the Constitution are being discussed. EC assistance is currently being provided to the Accounting Chamber to improve control over the use of public funds; it should be provided during the next years also to the State Treasury to strengthen its operational capacity in the management of public funds. A considerable step forward in the direction of the judicial reform was taken on 7 February 2002, when the Parliament adopted the Law on the Organisation of the Courts, N III. This Law entered in force on 1 June 2002 and introduced three main changes: instituting a procedure for appeal and cassation in civil and criminal cases a new line of specialised Administrative Courts to be established beside the Courts for Civil and Criminal Cases and the Commercial Courts, a new State Agency at the Department of Court Administration, to be in charge of the administration of the Courts for Civil and Criminal Cases. This reform process is supported by the EC through projects strengthening the reform of the Arbitration Courts system and assisting the newly established Department of Court Administration Objectives Main objectives Strengthening of legal and administrative capacity of central and regional government authorities Support to legislative approximation and adaptation to WTO requirements Creation of a business friendly legal and administrative environment with special focus on SMEs Support to judicial reform and strengthening of an independent and competent judicial system Support to improving control of use of public funds. 8

9 Specific Objectives Approximation of legislation in the priority areas identified in the PCA context, with emphasis on legislation on industrial products, and as necessary in pursuit of on-going Tacis assistance in this area, strengthening of Ukraine s capacities to meet WTO requirements, both for accession and for implementation, Support to environmental legal issues that could strengthen the programmes already under way in this sector Promote the approximation of legislation and regulations in the transport sector, in particular with regard to safety, security and interoperability Improvement of legislation and implementation rules in order to facilitate SME creation and development as well as entrepreneurship in general. Building up of capacity to implement policies and legislation in the enterprise policy area Improvement of regional development planning mechanisms strengthen the Government s aid co-ordination functions through the Tacis National Co-ordinating Unit, Strengthening the statistical infrastructure and promoting further introduction of international standards in statistics Orientation for Programme development In order to comply with WTO requirements assistance should focus on training/capacity building and provision of equipment as necessary. This should include the area of standardisation, technical regulations and conformity assessment, as well as related areas (metrology, accreditation, market surveillance). Continuation of specific training of judges could be a means of advancing in the process towards an independent and competent judiciary system. The provision of a legal framework favourable for the establishment of SMEs and micro-enterprises as well as the business climate in general should be supported. Support to the State Treasury in order to strengthen the function of the Accounting Chamber should continue in order to improve the control over the use of public funds. Assistance is also necessary to enhance/consolidate environmental legislation complementary to the initiatives fomented in the regional approach (water, biodiversity and forest resources). The National Co-ordinating Unit (NCU) has an important role to play in balancing aid requests of the line ministries on the one hand and improving co-ordination between the Commission and Ukraine at programming and implementation level on the other hand facilitating co-operation between both parties Expected results and indicators For all legislative approximation, the related scoreboard which is currently under preparation should be used as a tool for tracking progress. In addition: Business climate improved as measured by statistics on general investment levels and FDI in particular 9

10 strengthening of Ukraine s capacities to meet WTO requirements, both for accession and for implementation, Customs procedures approximated to World Customs Union and EU standards and reflecting WTO recommendations regarding trade facilitation Facilitation of SME development, as measured by the number of SMEs established in a determined period after entrance of new SME legislation Improved regulatory framework, notably on product safety and protection of health, environment and consumers, as measured by the number and relevance of standards aligned with international and EU standards Delivery of EU assistance further improved by a strengthened NCU, as measured by the time needed to take decisions and procedural simplifications (Financing Agreements, utilisation of funds etc) Improved statistical infrastructure and methodology as evaluated by EUROSTAT Proper implementation of international conventions (TIR) as assessed by the Commission s services Assumptions and Risks The above support needs strong and consistent Government commitment to achieve its intended results. 1.2 Justice and Home Affairs Action Plan and border related issues Background and justification Co-operation between the EU and Ukraine on justice and home affairs is based on the related EU Action Plan on Ukraine of December For monitoring its implementation a scoreboard has been jointly developed and completed, including input from the Member States. This field will continue to rise on the bilateral agenda during the coming years. Combating organised crime, drugs, terrorism, trafficking in human beings, support to Ukraine's efforts in strengthening its overall border management system including the eastern and southern border as well as increased co-operation in the fields of refugee protection, good governance and the judiciary are some of the common challenges. The structures of co-operation in this field have already developed beyond the provisions of the PCA. Ukraine is a significant transit corridor for both drugs and a considerable number of illegal migrants. The number of drug users has increased dramatically (in excess of 500,000 according to Ministry of Interior). The corresponding increase in domestic demand for drugs has led to the establishment of far-reaching distribution networks which are increasingly involved in trafficking activities. It is therefore important to cut both supply and demand simultaneously. 10

11 Ukraine is also a major source and transit country for persons trafficked to Central and Western Europe and the Middle East. Limited resources hamper the country s efforts to fully comply with international standards. In recent years, however, continuous improvements have been achieved not least because of Tacis assistance. As a transit country for illegal migration Ukraine carries a heavy burden in logistical, technical and financial terms involving the capturing, custody and accommodation, and eventual return of the persons concerned. Following the conclusion of a Readmission Agreement with the EU, currently under negotiation, Ukraine will have to deal with reintegration of its own nationals and deportation of third country nationals. As a destination country for refugees Ukraine has to ensure access to the territory and provide protection for asylum seekers and refugees in accordance with the international and human rights conventions. Pilot projects to alleviate the additional burden following from the Readmission Agreement should be considered. Ukraine continues to make steps forward towards an appropriate legal framework and good standing under the relevant international conventions. With regard to money laundering in particular, the newly adopted Criminal Code makes this a criminal offence. An improved anti-money laundering regime was adopted following the FATF recommendations and a Financial Intelligence Unit (FIU) should be fully operational by end of May FATF will review the situation in June and Ukraine has in this context stated that assistance is very much welcomed, particularly with regard to training of the FIU staff. The lack of real independence of the judiciary, the structural weaknesses of the administration and problems in safeguarding human beings require support to reform in this area. Support for building border crossings and related infrastructure at the Western borders of Ukraine such as bridges and access roads has been a priority since the beginning of the Tacis programme. Support for infrastructure has been accompanied by measures in the justice and home affairs field to make border controls more efficient. The Commission has taken the Trans European Networks as references for planning its support on border management. Most of the crossings identified as priorities during the initial phase of the programme are either completed already or have received Tacis funding (Chop, Jagodin, Rava Ruska and Uzgorod). Complementary additional work as requested by the Ukrainian side has been incorporated globally in this NIP but requires still detailed analysis before taken up in the Action Programmes to follow Objectives Main objectives To enhance implementation of the JHA Action Plan To support progress in making orderly and legal movement of goods and people across borders as fast and easy as possible. Specific objectives Establishment of adequately trained and equipped authorities and judicial structures capable of effectively combating organised crime 11

12 Capacity building for border guards, customs services, law enforcement authorities, and the judiciary, as well as NGOs (for treatment and re-integration of victims) Support to national migration authorities for becoming more effective in preventing illegal migration and in providing protection for asylum seekers and refugees, while fully complying with the international conventions in this area Enhancing national capacities to effectively fight drug trafficking, including support to demand-reduction activities carried out by NGOs Strengthening the independence, competence and effectiveness of the judiciary as regards criminal matters including prosecutor's offices Creation of a modern integrated border management system including measures relating to trade facilitation Continued modernisation of border infrastructures Orientation of programme development Programmes should comprise the following activities: Combating Organised Crime: Drug trafficking, money laundering, trafficking in human beings need to be addressed. Priority should be put on the (i) improvement of the relevant legislation meeting international standards; (ii) capacity building such as the provision of training to judicial, law enforcement and financial sector (money laundering) personnel as well as supply of necessary infrastructure, equipment and related facilities, including the creation or improvement of relevant data bases; (iii) measures against the corruptibility of judicial and law enforcement officials; (iv) promotion of regional, cross-border and national co-operation and exchange of information between the relevant law enforcement bodies; (v) establishment of information gathering systems and observatories for certain aspects of crime development; (vi) treatment and support of victims. Migration and asylum: Strengthening the asylum and migration systems including (i) improvement of the national legal framework; (ii) strengthening the migration structures and, following further needs assessment, the refurbishment or establishment of a reception centre for asylum seekers meeting international standards, (iii) support for the integration of recognised refugees and returned persons into society. Judiciary: Strengthening of the judicial system as regards criminal matters, by way of a review of the current system and development of a reform strategy; provision of training for judges and prosecutors (notably on human rights and mutual legal assistance); documentation on the EU acquis in the domain of judiciary and judicial co-operation; improvement of judicial co-operation in criminal matters with EU Member States; improvement of the court management with regard to the criminal police and access to justice. Programmes should seek synergy with other EU initiatives addressing border issues, such as the Tacis Cross-Border and Regional programmes as well as Phare and Interreg. Border management: Support to the establishment of an integrated border management system, including the provision of technical assistance and relevant training for border guards and customs officials; supply of modern border management equipment; promotion of cross-border and regional co-operation; enhancement of inter-agency co-ordination and the rehabilitation/construction and 12

13 refurbishment of border management facilities (including detention centres for illegal migrants). Infrastructure up-grading at border crossings, where appropriate Expected results and indicators The Scoreboard for monitoring implementation and evaluating the impact of the JHA Action Plan will be the main tool for setting annual priorities and for recording progress achieved. The following elements specify the general goals and provide examples for the indicators to be used. As regards legislative approximation in this field, the intended scoreboard for monitoring overall developments in legislative approximation will also be relevant. Increased effectiveness in combating organised crime. An efficient judiciary, safeguarding the rights of the individual. Indicators to include numbers of criminal cases being prosecuted regarding in particular: money laundering, trafficking in human beings, border offences Improved training levels for a significant number of border guards and customs service staff, law enforcement officials, as well as financial control staff, prosecutors and judges Improved legislative framework aligned on EU standards The authorities in charge of dealing with investigation requests from EU law enforcement services able to handle demands and respond in due course, as measurable by numbers of successfully processed rogatory letters from EU authorities strengthened asylum and migration management structures; reception and detention centres meeting international standards; temporary accommodation facilities for victims of trafficking and for illegal migrants in selected areas. Trends in numbers of asylum seekers which are admitted/refused entry into the territory, number of asylum seekers whose claims are being examined can serve as indicators Improved regional, cross-border and national co-operation among the judiciary, border and customs guards Less waiting time for freight and passenger traffic at the border crossings Assumptions and risks Parliament and government prepared to bring into force the relevant legislation required. The success of co-operation among all actors concerned will depend on the commitment of the Ukrainian authorities for close co-operation, including with NGOs. Commitment of the beneficiary and common interest in sustainability are key. This means close involvement of national authorities and ensuring that financial allocations 13

14 are made by the national budget, for example for centres for refugees and illegal migrants. 1.3 Civil society, media and democracy Background and Justification In Soviet times, Ukraine did not have a proactive civil society nor independent media. With independence and the transition to democracy, the situation has improved but it is still far from presenting the characteristics of a modern, multi-layered society. With the exception of a limited number of NGOs, structures inherited from the Soviet period such as trade unions, veterans associations, and women s associations often adopted NGO status without undergoing the necessary transformation towards democratic structures. Of the estimated NGOs in existence, only can be considered active. An even smaller number can be described as operating professionally with permanent and well trained staff, on the basis of strategic goals and planning. However, a growing number of small grassroots NGOs have the potential to provide relevant services but face constraints in terms of resources, training, and work capacity. These in particular need to be supported such as by creating resource centres and fostering co-operation between them and local authorities, for example in the social sector. Indirectly, such support will also enhance the functioning of democracy, as these entities will be increasing able to check and balance government power. The media landscape is characterised by the state and local authorities controlling the majority of TV channels, radio and newspapers. Those privatised or newly established by private initiative are concentrated in few hands which are often inter-linked with government powers. Independent media are often weak in financial terms and face numerous difficulties for carrying out their work properly, given persistent control by state organs and a partly difficult legal environment. Even though individual journalists and their associations are playing a growing role, their influence and independence remains still limited. Support is necessary for them to be able to fulfil their role in society correctly and efficiently Objectives Main objective To contribute to further development of a diversified, multi-layered, democracy society Specific objectives: Capacity building within civil society, in particular strengthening of NGO networks Improved co-operation between state authorities and civil society 14

15 Support to independent media Orientation for programme development Development of civil society One of the constraints for more rapid development of civil society is the prevailing inadequate legal and administrative context. In this regard, the following programme parts could usefully be developed: Development of co-operation between state authorities and civil society organisations. Government should be encouraged to include civil society actors in decision-making processes by giving them a consultative role and/or transfers of certain responsibilities where NGOs are better placed than government to carry out specific tasks (taking into account current budgetary constraints for the government side, see co-operation in social sector). Support to NGOs and related networks such as associations (including agencies for regional development) in order to help build up more work capacity and to provide them with a stronger basis for their co-operation with local authorities. Where organisations such as trade unions originating from the Soviet period have sufficient legitimacy, these should be supported in making the transition to improved, democratic operating standards. Support for joint initiatives between state and civil society actors in specific sectors such as the social sector, community development, income generation skills, business-networking etc., using existing Tacis instruments such as Institution Building Partnership Programme (IBPP). Creation of sustainable partnerships between civil society actors within Ukraine and between actors in Ukraine and the enlarged EU. Support to independent media Support should be given to independent media, in particular with a view to their role before and during elections. Ways should be identified to make media more financially solvent and thus less vulnerable to influence from certain vested interests. In order to increase efficiency, it may be worthwhile to focus on media in the regions. Continued support to training and legal advice for journalists could also be considered. The use of Tacis instruments should be co-ordinated with other Commission instruments such as the European Initiative for Democracy and Human Rights (EIDHR) Expected results and indicators A stronger civil society carrying out its checks and balances role vis-à-vis government authorities, as well as more fully exercising its potential for taking direct responsibilities, with the numbers of NGOs working as resource centres serving as one indictor 15

16 More, and closer, partnerships between civil society and public authorities in particular at regional/district level stronger implication of groups of civil society in local development, to be measured by evaluations done by monitoring units on site Stronger independent media, in particular at regional and district level Assumptions and risks Government policy favourable to co-operation with civil society continues and intensifies; recognition by the state and actors of civil society of the benefits of division of work. Private ownership of media outlets and framework for independent operations continues to exist and improves. 1.4 Education and Training Background and justification Among the prerequisites for a functioning market economy has to be that individuals encompass the related principles in their thinking and behaviour; hence the overall importance of the education system. The Ukrainian authorities are increasingly aware of that link; moreover, they recognise the necessity of bringing the education system into line with on-going social changes and evolving labour market demands. In 2002 and 2003 this has led to an intensive political debate on education in general and on vocational education and training (VET) in particular. The National Doctrine on Education of 2002 constitutes the overall framework for the continuing modernisation efforts. It is against this background that the Tempus programme should be continued. Moreover, support in the field of VET will also be complementary to the efforts in favour of civil society. Ukraine s government is putting strong emphasis on the preparation of a policy to support the best use of instruments of information society (e-business, distant learning, tele-medecin, pursuit of the principal of universal services). In April 2003, Government authorities held a conference on the issue in order to prepare for the World Summit on Information Society to take place in Geneva (10 to 12 December 2003). Authorities requested assistance in this sector. 16

17 1.4.2 Objectives Main objective An education system that can underpin the development towards a functioning market economy, and respond to the challenges in the labour market and social field Support to the creation of an information society Specific objectives Successful development of higher education according to national priorities, drawing on the expertise of European higher education establishments Adaptation to the challenges in the labour market and social field (see above) to also be pursued with regard to VET Orientation for programme development In the area of higher education, the Tempus programme should continue its support to modernise the structure, content, and teaching methods of higher education, along with continued emphasis on the structure and management of higher education institutions. Concerning VET, after the initial reform of the system in 1996, awareness grew of its importance for economic development, resulting in closer political attention to the modernisation of VET structures and delivery. A comprehensive analysis is to be carried out by the European Training Foundation in 2003, which should be instrumental in identifying areas for Tacis measures. Bringing the VET system into line with social, economic and labour markets needs both in terms of structure and content should in any case be the overall goal of Tacis support. More particularly, teacher training, teaching material development, training of VET managers, and improvement of regional VET management are areas where assistance could be useful. The support to the reform of the VET systems should, as much as possible, be linked to measures in favour of SMEs. In this regard, the development of modules targeting the rural population (private farmers, professional activities on and off-farm, including re-training) should be considered. The above mentioned study will help to determine useful targets in more detail. Support should also be given to promoting the best use of information society instruments in Ukraine, notably by transferring best practices identified in the EU. While the education and training field will receive direct substantial benefits, a positive complementary effect can be expected on all Tacis priority areas, and the foundations of democracy will ultimately also be strengthened. With that aim specific well-targeted small-scale programmes, such as Bistro, should be used. 17

18 Expected results and indicators New and upgraded curricula and teaching materials of higher education institutions, progress measured by their numbers and compliance with modern standards Modern structures and management of higher education institutions leading to, for example, growing numbers of higher education institutions involved in long-term co-operation with EU partners. Progress could also be measured by simplified accreditation procedures Comprehensive analysis of the VET system carried out, and areas for intervention identified Curricula and teaching methods reviewed and adapted for teacher training and training of VET managers. New training curricula developed and offered to rural population facilitating private farming and off-farm work. Increase utilisation of information society instruments and tools Assumptions and risks Continued political attention given to education and in particular VET is essential for a successful reform Reform discussions should include employers from different sectors of the economy, for the development of lasting solutions and for linking VET supply to demand at all levels. Increased public and private allocations of resources to VET are essential for sustainable reforms. 2. Support to the private sector and assistance for economic development 2.1 Assistance to enterprise development Background information/justification In its poverty alleviation programme of 2001 as well as in its long term government programme , Ukraine focuses on the creation of adequate economic and legal conditions to enhance overall economic development, in particular through SMEs. The current contribution of SMEs to GDP (10%) is low compared with 40% in developed countries. Most of these SME are currently located in urban areas. The main constraint to the development of SMEs is regulatory and administrative barriers to market entry and expansion as well as limited access to innovation technologies and credit. 18

19 In rural areas, government support concerning credit, agricultural inputs and training has not yet reached the smallholders. To overcome this bottleneck, smallholders wanting to improve their living from farming in a sustainable way would need intensive assistance from advisory services as well as access to credit. Their entrepreneurship should be strengthened by training and expert advice. Those who will not be able or are not willing to stay in the farming business would have to look for employment in the food processing or off-farm sector. In addition to the proposals made below, measures to improve training conditions as foreseen in the VET sector will contribute to providing new chances to the rural population and new employment opportunities especially to the youth Objectives Main objective Consolidation of SMEs and strengthening of enterprises in priority development regions and sectors, assistance to rural enterprises and farms, help in transferring modern knowledge to enterprises on specific issues. Specific Objectives Remove existing administrative and regulatory bottlenecks to private sector development, notably with regard to SMEs Increase competitiveness of enterprises via management training Promote extension and consultancy services for entrepreneurs in on- and off-farm activities Promote technical capacity and willingness of local financial institutions to increase lending operations to SMEs, including rural enterprises Orientation for programme development The programme should be oriented towards empowerment of the SMEs and microenterprises thereby creating employment for rural inhabitants either as farmers or through off-farm employment, e.g. in the food processing sector, input/output trade etc. Tacis funding should focus on provision of training and consultancy as well as facilitating access to credit both by assisting the farming and non-farming population and the potential providers of credit (savings and credit co-operatives etc). Tacis could also assist to cover the technical studies necessary to obtain credit. The programme should, in the first place, target youth and unemployed individuals in order to integrate them into the labour market. Farming and food-production as well as processing and off-farm activities could be promoted and completed by vocational education and training adapted to their needs. In order to obtain impact, programmes should focus on regions or districts to be selected in accordance with national development priorities and the level of commitment by local authorities and target groups. 19

20 Expected results and indicators Business environment for SMEs improved by reduced regulatory and administrative barriers; Easier access to finance for SMEs. Indicators: Number of modernised or newly established SMEs in selected areas More jobs for, and better integration of, youth and unemployed in the rural labour market. Indicators: labour market statistics Training of smallholders, governmental agents and rural economic agents with regard to their specific necessities increased and improved. Indicators: Number of persons trained by VET institutions or agents, as indicated by VET management statistics; number of smallholders living on farming activities Higher level of non-farm employment in the selected regions/districts Assumptions and risks Government s continued and accelerated reform policy towards private enterprises and notably to SME s is essential Development of financial markets Background and justification The development of capital markets is defined in government policy papers as one of the main factors for strengthening the small and medium enterprise sector, creation of a favourable investment climate and promotion of private business initiatives, and the development of a middle class in society. Key components should be stronger and more diversified banking services, along with simultaneous improvements of risk management in the financial service sector and consolidation of the insurance sector. Among the tasks to be solved in the mid- and long-term perspective is the development of financial infrastructure and services involving in particular: making the commercial banks better meet the financial needs of enterprises and citizens; intensifying the banks relations with rural customers and SME s; expansion of mechanisms of credit (short-, mid- and long-term) and other banking services instruments in particular in rural zones; consolidation of the legislative framework for mortgage crediting, banking and non-banking credit institutions and activities Objectives Main objective To up-grade the financial sector in Ukraine with a view to making it fit for fully exercising its role in the development of the Ukrainian economy and society at large. 20

21 Specific objectives To improve operational capacities in the banking sector and to foster the development of the regulatory and methodological framework, To support the introduction of up-to-date mechanisms and tools for banks becoming efficient financial intermediaries including enhanced relations with all groups of customers, To support the sustainable development of the insurance services market by providing assistance in developing its infrastructure and methodological framework Orientation for programme development Tacis should continue to support the development of new mechanisms for credit (short-, mid-and long-term) responding to the particular needs in rural areas, special short-term credit programmes for farmers, development of credit guarantees such as mortgages, and the strengthening of the banking regulatory framework. Support to alternative systems such as credit and savings co-operatives should be developed. Support to the insurance sector should be concentrated on the development of the insurance services market, aiming at the creation of a system of insurance services capable to ensure a reliable protection of long-term investment and credit resources Expected results and indicators The current gap between focus of commercial banks and the financial needs of enterprises and citizens reduced, and relations enhanced The business environment in the banking and insurance sectors improved The range of financial services/products expanded The methodological framework for commercial banking and insurance sectors upgraded Management capacity of stakeholder institutions strengthened Competition in banking and insurance sectors increased To measure the results the following indicators might be applicable: Growth of deposits made by public in commercial banks Increased share of long-term loans in the overall loan portfolios of the commercial banks Increased number of loans granted to small and medium enterprises Increased number of credits extended against insured pledges Expanded client base (by number and spheres of activities) of insurance services Assumptions and risks The impact in the above programmes is dependent on the on-going reform process in the financial sector, including namely banking supervision, taxation and accounting. Technical capacity and willingness of local financial institutions to increase lending operations to rural enterprises and SME s. 21

22 2.3 Local development in selected municipalities Background and justification Accessible and reliable municipal services (i.e. water supply, waste treatment, public transport, heating, etc.) are essential to sustain economic development and to promote social stability. In Ukraine, the management of municipal services is generally outdated and inefficient, the infrastructure needs modernisation and funding is insufficient to cover the full cost of service provision. About 30% of water supply and sewage systems are under emergency maintenance state. All this points to a need for radical reforms in the way essential services are managed by municipalities. The Programme of Reform and Development of the Housing and Communal Services defines the Ukrainian government s strategy to promote competitive mechanisms for the provision of essential services. De-monopolisation and privatisation are among the main instruments identified to improve quality and access to municipal services. In addition to supporting better service provision there is a strong need to improve environment protection at municipal level, in close co-operation with specialised NGOs and IFIs Objective To improve quality, access and sustainability of essential services in selected municipalities and to support better environment protection at local level Orientation for programme development Tacis should support the de-monopolisation and privatisation of municipal services in selected cities in co-operation with interested IFIs by funding the preparation and management contracts which outsource the provision of services to private enterprises. This funding is conditioned to IFIs engagement in financing in parallel the investment capital for the modernisation of municipal services infrastructure. Tacis support should also include policy advice and training for local administrations and measures for the protection of consumers. Environmental issues at local level should be dealt with by way of getting civil society involved as much as possible. Within the framework of Tacis General Rules, Tacis funding may also include substantial equipment and/or investment components to ease the overall project financing Expected results Higher efficiency in the management of municipal services upgraded municipal services infrastructure increased choice of municipal service providers for consumers and better quality of service 6 Cabinet of Ministers Resolution of