Case study

FEAO Contributes to the VRU Pre-Legislative Scrutiny Procedures

Improved Parliamentary Business through quality research support: operation of the FEAO in the Parliament of Ukraine
Photo: Oleksii Ryabchyn,
member of the VRU Committee
on Fuel and Energy complex, Nuclear
Policy and Nuclear Safety

From analysis to action: MPs engage with FEAO in Ukraine

Members of Parliament and staff in Ukraine’s Verkhovna Rada are using financial analysis more often to make informed decisions about legislation thanks to the Financial Economic Analysis Office (FEAO). Set up by Westminster Foundation for Democracy (WFD) in 2015 with support from the Government of Germany, the FEAO provides complex economic data in an easy to interpret format.

“The Financial and Economic Analysis Office is an institution which brings proficiency to Ukrainian politics” according to Oleksii Ryabchyn, Member of Parliament in the Ukraine’s Verkovna Rada (VRU) who has benefitted from FEAO produced analysis.

Strong financial analysis is important for implementing legislation effectively and reducing corruption. As Mr Oleksi Ryabchyn explained: “The FEAO’ research gives me an opportunity to support my arguments with solid figures. “The impact assessment on the Energy Performance of Buildings, that was recently passed by the VRU, helped me persuade my colleagues that the proposed energy certificate is an efficient instrument to ensure effectiveness. It is critically important in the current economic situation as it leads to the creation of new jobs in the energy sector.”

Parliamentary rules and procedures in Ukraine indicate that financial analysis should be conducted by MPs, but a lack of technical capacity and political will meant this did not happen regularly before the FEAO was established. Now, as much as 70% of the FEAO’s analysis have been used by MPs to assess the financial and economic impact of draft legislation.

“Before the establishment of the FEAO, Ukrainian politics had no institutional capacity to conduct financial analysis of their initiatives. The FEAO helps to amend the draft laws in a way to make them realistic and workable” emphasised Oleksii Ryabchyn.

Independent financial analysis helps parliament to create better legislation for citizens in Ukraine. For example, the policy analysis conducted by the FEAO into energy regulation and the role of the Ombudsman helped Oleksii and his colleagues revise legislation to protect consumers.

Mr Ryabchyn explained:

“I highly appreciate the FEAO’s policy analysis and financial rationale developed for the Energy Ombudsman Office legislation”. “Ukrainian consumers do not trust the existing claims’ system. The voice of small consumers is rarely heard in National Energy Regulators’ hearings. The Energy Ombudsman will help to institutionalise support to consumers, resolve the disputes effectively and efficiently, and consequently increase the quality of services.”

Creating better legislation that works for citizens and reduces corruption helps bring Ukrainian national legislation into conformity with European legislative norms and standards required by the EU-Ukraine Association agreement.

“Through the Office’s analytical and expert support we are exposed to the main consumer rights related principles of the European Union which are mandatory to apply to the national legislation”, added Olena Baida, parliamentary assistant to Mr Ryabchyn.

A range of political, economic and social reforms are currently underway in Ukraine and the work by the FEAO contributes to this by encouraging a culture of transparency and openness that will benefit Ukrainian citizens in the long term.

Oleksii Ryabchyn added:

“The Office provides politically neutral analyses which are highly reliable and may be used by all political factions in Parliament. The fact that all analyses are published leads to a transparent discussion were none of the stakeholders can hide the inconvenient findings. Therefore, these papers help to find well-balanced and well-grounded solutions that Ukraine is committed to.”

WFD support in Ukraine is helping to consolidate its democratic transition. Bringing individuals and institutions together, through FEAO analysis will help parliament to solve the problems faced by citizens.

FEAO Contributes to the VRU Pre-Legislative Scrutiny Procedures

FEAO Contributes to the VRU Pre-Legislative Scrutiny Procedures

Staff of the Financial and Economic Analysis Office in the VRU (FEAO) conducted the research “Energy Ombudsman Activity: Foreign Experience” in response to the official inquiry from the member of the VRU Energy Committee MP Ryabchyn O. The research provides examples of Energy Ombudsman Institute options in such developed countries as Germany, Austria, Great Britain, France and Spain. This analysis gave grounds to develop a model of this institute which is the most favourable for Ukraine with regard of international best practices. Consequently, the draft Law “About Energy Ombudsman Office” was registered in the parliament of Ukraine by MP Ryabchyn. The FEAO was further engaged into the work at this piece of draft legislation by analyzing the forecast budget for Energy Ombudsman Office in Ukraine for 2018 -2020 as envisaged by the provisions of the draft Law.

The proposed rate of regulatory contributions for Energy Ombudsman Office Activity was challenged by the FEAO’s team as not sufficient. Instead, Alla Ivashchenko, the Office senior analytic, suggested to use another regulatory contribution rate which, as applied, could ensure more accurate budget forecast for the Ombudsman Office. It is worth mentioning that the budget of Energy Ombudsman Office depends on the meaning of regulatory contribution rate, because the main source of funding for Energy Ombudsman Office is regulatory contributions paid by utility companies.

Given the above speculations, alterations to a regulatory contributions rate were made in the draft legislation. The FEAO’s analysis is annexed to the draft law registered with the number 7059 and, alongside other supporting documents, is available at the Verkhovna Rada of Ukraine web-site w1.c1.rada.gov.ua

Currently, the draft is the subject of the VRU Committees’ consideration. The Office will be further engaged at work thereat should it is required.

Through imbedding the financial analysis into the VRU legislative procedures the FEAO improves the quality of financial and economic legislation as it is passed by the parliament of Ukraine. The FEAO team is strongly committed thereto.

Financial scrutiny in Ukraine: Following the money

Financial scrutiny in Ukraine: Following the money
Victor Maziarchuk, the FEAO Chief Economist,
live about the draft Budget 2017

In a country battling against corruption and facing a military threat from the east, Ukrainians are relying on their Verkhovna Rada (VRU) to conduct robust and effective financial scrutiny. “In these times of economic hardship, it is equally essential to know both the amount of public spending by the Government and the efficiency of that spending,” says Viktor Maziarchuk, Chief Economist of the Financial and Economic Analysis Office (FEAO).

The FEAO, set up with support from Westminster Foundation for Democracy and GIZ, began its work earlier this year and has already made some startling findings. Having analysed the Ministry of the Interior’s budget, Mr Maziarchuk says, the Office found that eight per cent of funds allocated to the Ministry “were spent for purposes other than designated for this institution”.

In order to avoid the practice of diverting public funds in 2017, the Office is closely monitoring the 2017 budgetary process in collaboration with the VRU Budgetary Committee and other concerned committees. The FEAO’s expert opinions and recommendations are underpinning a meaningful dialogue between Parliament and the Government regarding correct forecasting and the appropriate use of public funds.

Despite the difficulties faced by the Government, it produced its 2017 budget bill on time in September this year. This has enabled the Financial and Economic Analysis Office (the FEAO) to get actively engaged in and contribute to the budget bill scrutiny, and assist the members and the staff in conducting these types of analysis. Mr Maziarchuk has already been in demand to offer his neutral insight into its proposals, but the FEAO’s important work will continue long after the current bill is passed. “Once the budget law is adopted, the Office will monitor and analyse its expenditures,” he pledges.

The FEAO supports the work of the VRU and, most importantly, its MPs as they conduct oversight work. Viktor Kryvenko, Deputy Chair of the VRU Budgetary Committee, is one of them. “Cooperation with the FEAO helps me to better understand the budget and, as an MP, to take informed and qualified decisions on effective allocation of public funds,” he says. “I am using the 2016 Budget Diary prepared by the Office to study the 2017 budget bill that is being considered by Parliament. The Diary also helps me in assessing the Government’s initiatives to be funded from the state budget next year.”

WFD, partnered with GIZ, has established the FEAO to support the parliament and implement its oversight function effectively. The Office is similar to the financial scrutiny units and budget offices found in many leading parliaments around the world. The FEAO benefits by utilising their best practice through networking and experience-sharing. It provides the Verkhovna Rada with an economic research capability, as well as analysis of complex financial information and the expert advice so urgently required at a time of austerity.

It is not just members and staff who are set to benefit from the FEAO; civil society activists and journalists grappling with financial issues are also important beneficiaries. Through miscellaneous communication activities the Office has been actively engaged with interpreting the draft budget 2017, thus contributing to greater awareness-raising, public discussion and transparency of the budget process in Ukraine.

“As a journalist writing on economic matters, I used to lack timely, objective and complete information regarding the state budget,” says Channel 5 reporter Olha Kalynovska. “This made it difficult for me to prepare high-quality, professional media stories on this topic. Thanks to the FEAO’s materials, I have come to understand the budget document better, and the entire budgetary process has become more open and transparent. I’m glad that the Office often uses the platform of live broadcasting offered by our TV channel to promote such openness and transparency.”

A parliament’s ability to scrutinize where citizen’s money is going is always a step in the right direction for oversight and transparency. In Ukraine, though, the need is felt particularly keenly because of the continuing political uncertainty and the illegal annexation of Crimea in 2014. The government has been focused on on-going fighting in the south-east, EU accession and dealing with the economic crisis. A number of macroeconomic reforms have helped stabilize the economy, but more challenging restructuring lies ahead.

WFD’s Country Representative Halyna Shevchuk said: “The FEAO programme is committed to ensure that the Verkhovna Rada of Ukraine is a capable, accountable and responsive institution with regard to financial oversight and scrutiny, providing useful perspectives on economic sustainability, development and growth.”

CASE STUDY – Strengthening Financial Oversight in Ukraine: A New Instrument in Place

CASE STUDY – Strengthening Financial Oversight in Ukraine: A New Instrument in Place
The FEAO Launch, February 2016

Unlike most of the Verkhovna Rada’s (VRU) committees, which are responsible for hearing reports from individual ministries, the Committee on Economic Policy has the much bigger job of assessing the work of the government as a whole. One recent session, dedicated to assessing the progress of the 2015 Governmental Programme. The Committee members asking questions needed support and for the first time they received this from a new source – the VRU’s Financial and Economic Analysis Office (FEAO). “The briefing paper specifically prepared by the FEAO for the Committee promoted a more meaningful and substantive discussion of government officials” says Mr Dyatlov, the Committee’s clerk, who sees the FEAO as a key instrument in improving oversight function. “It assisted the Committee to make recommendations to which the Government must publicly respond”, he added.

The FEAO is the result of a partnership between the Westminster Foundation for Democracy, GIZ and the Interns’ League. In November 2015 they signed a Memorandum of Understanding with the VRU on establishing the parliamentary financial office. WFD has a long history of providing the VRU, through the Westminster Consortium, with a financial training programme for staff. The current programme extends that support by working with ten parliamentary committees and making the FEAO’s products available to all in the parliament. Given Ukraine’s aspirations for EU integration, the FEAO is also providing expert support in meeting the acquis requirements in the area of economy and finance.

In doing so it meets a clear need of MPs. Speaking at the FEAO launch, MP Olexii Ryabchyn lamented the lack of any accompanying financial and economic rationale associated with bills. “Nor are there adequate calculations to provide the need for additional state budget expenditures”, he said. The inauguration of the FEAO was designed to address this issue, Mr Ryabchyn explained. “I have got both technical and more general comments regarding bills.” There is a clear appetite within the VRU for it to embrace the German and British initiative. “Similar offices operate in those countries’ national parliaments to provide MPs with the necessary analytical data and economic calculations that help to advance parliamentarianism,” Mr Rybachyn added. “I strongly recommend that MPs apply to the Office for assistance in improving the quality of our legislation.”

It is not just members and staff who will benefit; the expert community that cooperates with Parliament are also important beneficiaries. Civil society say the initiative is useful because it provides independent expert analysis. “Civil society has limited access to this information, whereas the Office is in the best position to obtain and use it for the public good”, said Mr Zubenko, Head of the Institute for Budget and Socio-Economic Research. “This will have a positive impact on the comprehensiveness, reliability and quality of the Office’s products.”

Once the FEAO becomes more established it is expected it can contribute widely to a broad range of issues. A parliament’s ability to scrutinise where citizen’s money is going is a step in the right direction for oversight and transparency, something WFD and the parliament of the Ukraine are committed. More broadly, these principles constitute the effective democratic governance which is essential for economic sustainability, development and growth.

“High demand for the FEAO’s services at this initial stage of our development proves the urgent need for support of WFD and organisations like it”, says Oleg Oliinyk, the FEAO head. “Our work strengthening MPs’ ability to conduct financial scrutiny strengthens the parliament’s ability to examine where taxpayers’ money is going.”