Decentralization: the mortal threat to Ukraine’s entrenched elites

In April 2014, Ukraine launched its decentralization reform. So far it is believed to be the most successful reform in the country – local communities finally received the power and finances to deal with local issues themselves. However, the process doesn’t go smoothly everywhere. Ukraine’s “old system,” namely, its entrenched power network of oligarchs and politicians, resists the changes. And as the fight for self-governance is ongoing, it is high time for Ukrainian civil society to demonstrate its unity. The country’s existing administrative divisions, the 24 oblasts shown on the map + the Autonomous Republic of Crimea, and the smaller districts, are a result of Soviet planning which sought to blur ethnic and traditional lines. It served the purpose of providing resources to Communist party members. State funds dispatched through a centralized system allowed those in power to maintain the unconditional loyalty of their financially dependent “subjects.” This system, which had been largely preserved to this day, has nothing in common with the interests of the community, attracting investments, or a rational use of funds. Combined with changing socioeconomic realities and urbanization, whole villages became extinct, and regions dependent on subsidies. The decentralization reform seeks to tackle this situation by giving more power, resources, and control to communities. Villages were permitted to form associations with other villages (dubbed “communities,” optimizing their capacity to solve local problems independently. In late December 2014, the Parliament passed amendments to the budget and tax codes, which enabled the conversion of outcomes of economic development into incomes of local budgets. In result, local authorities were given more control. The cooperation of territorial communities became horizontal in different fields, including education and healthcare.

The first taste of success

Ukraine already boasts dozens of small local success stories. An example of positive changes is the newly created Novovodolaga territorial community in the Kharkiv Oblast. In the town of Stara Vodolaga, the community managed to repair a road which had been standing broken for 5 years. In the village Sosonivka in the same community, the House of Culture had no heating for 25 years. This finally changed after an overhaul of the village’s boiler houses. As well, a renovation of the local kindergartens is underway. It is expected that starting from 2018, the community will be financially independent of its district or oblast, both of which had restrained the development of villages in the past. The representatives of the community assessed that prior to decentralization, their annual budget was about UAH 32 mn ($1.19 mn). In 2018 they expect it to rise to UAH 200 mn ($7.44 mn) - the revenues generated by the big enterprises working on the territory of the community will remain there, stimulating additional economic development. So far, the Dnipropetrovsk, Khmelnytskyi, Zhytomyr, Chernihiv, and Zaporizhzhia oblasts are considered as the most successful in terms of decentralization, according to the rating of the Ministry of Regional Development Building and Housing of Ukraine. For the rating, experts analyzed four parameters: the number of amalgamated communities, their area, number of settlements, and citizens that united in the communities. But the picture, in general, is more complicated as the resistance of old politicians and local oligarchs to the reform is strong: after all, the existing system preserves their political and economic power. Now their goal is to use the decentralization tools to keep their power.

Local community vs local business

There are unofficial owners of almost every region. Let's take a look at the example of a conflict in the mentioned successful Dnipropetrovsk Oblast. The Novomoskovsk District of the oblast is a place where the business of Vadym Nesterenko is located. Nesterenko used to be a member of the Party of Regions, the party of the runaway president Viktor Yanukovych. Now he is an MP from the Petro Poroshenko Bloс and a member of the agrarian committee of the Ukrainian Parliament. He owes more than 20 companies, the overwhelming majority of which are related to the agrarian business. During the discussions on decentralization in the Novomoskovsk district, he suggested to all heads of villages councils in the district to unite around the city Novomoskovsk. In this case, he would keep all his powers and the idea of decentralization would not work. Because of this, representatives of the village Pishchanka are prevented from creating a much smaller, united territorial community around their village together with three other localities, despite meeting all the legal requirements. The head of the local village council Mykola Maznytsia says that they had applied to the oblast administration four times. Each time, the documents were returned, citing the need for providing additional details. As told by the representatives of the Pishchanka village council, the last time they were refused on the basis of a fabricated court decision. The villagers see an unexpected water outage during the summer as an additional attempt to pressure them into accepting the oligarch’s will. Nesterenko pushed an option where Pishchanka and the villages which wanted to unite with it would become part of a big territorial community almost the size of Ukraine’s largest city Kyiv, uniting Novomoskovsk with over 60 surrounding villages. The businessman argues that such a big union is necessary because of the existence of already built roads which will become no-man's if the territorial community will be smaller and benefits from the point of view of decentralization of healthcare institutions. The head of the Pishchansk village council, in his turn, says that in fact the oligarch wants to take the money and the land of smaller communities. A big Novomoskovsk-centered territorial community disadvantages the village residents first of all, as they won’t have control over their localities. In this case, every current village council will have only 1 out of 42 deputies in the new community. But 50% of deputies will represent the city Novomoskovsk itself. The discussions are ongoing in the district.

Using the money competently

Oleksandr Lemenov, the expert of the Reanimation Package of Reforms and local activist of Bila Tserkva, a city of 200,000 inhabitants located an hour’s ride away from the capital Kyiv, points out the main benefit of decentralization: finances are allocated horizontally, which opens a lot of opportunities for the regions. For example, this year Bila Tserkva received around UAH 200 mn ($7.4 mn) for development. But there is also a drawback. Last year, the city couldn’t use half of the UAH 150 mn ($5.6 mn) which they received for development last year. And it is not only the problem of Bila Tserkva.

“Nearly in the whole country, local authorities are now repaving the streets,” says Lemenov.

He says that this is the first time it’s happened to Bila Tserkva in the last 25 years, but that the money could be used for a more important cause:

“Still, unfortunately, the majority of locals doesn’t think about greater projects and is quite satisfied with new pavement only.”

According to Lemenov, one reason the local authorities don't use all the money they have for development is that they don’t have the experience to operate with such sums. But another one could be that they try to profit from this money. This traditional way for civic servants to enrich themselves has been complicated by the open source government e-procurement system Prozorro, which helps the public track the use of local finances in cities like Bila Tserkva. However, Lemenov says that even with decentralization and introducing Prozorro, the local authorities and businessmen still find a place for acts of corruption:

“There are certain amounts of money for which Prozorro can be used. They [local authorities] take one order and divide the tasks in a way that amount of money used for each task would be less than the limit needed to use Prozorro. So the order does not go through the system. They apply to contractors related to them and receive benefit.”

The expert believes that attention of journalists and local activists to how the money is spent is crucial and can change the situation. This example demonstrates the challenges which local communities face, even when granted larger power. Years of centralized authority and subsidization created the situation when all major management decisions were not made locally, and local authorities were absolved from any real power. The result? Passive citizens with a paternalistic mindset who see the “center” as guilty of their local problems and expect the same center to fix the situation and are not ready to carry responsibility for their own life. There are signs of this changing, but not everywhere, and not at the same speed.

Difficulties of decentralization in industrial Donbas

School#3, a documentary of Ukrainian and German directors – Liza Kostyrkina and Georg Genoux won the Gran-prix at the 2017 Berlinale. It is named after the School#3 in the small frontline town of Mykolaivka in eastern Ukraine

The film shows the life of the town as seen by its teenagers. It was shot during and after a volunteer mission including Kostyrkina and Genoux descended on the city to help it rebuild after the war. After the Euromaidan revolution, changes came to eastern Ukraine as well. Another challenge for decentralization there is its post-Soviet mentality. As life in industrial Donbas is centered around big enterprises, often locals have a hard time imagining that the state of affairs can be different and that not only the authorities, but also the local community can make decisions. Nevertheless, there are signs that the Donbas society is developing. One of the results of decentralization is that the key basic schools should be created from the best schools in big villages and district centers. Students from nearby small villages will go to basic schools and the rest of the schools with small numbers of pupils will be either closed or reformatted. Mykolayivka, a town in Donetsk Oblast, had a competition to select a basic school as well. The school#3 should have become this school based on all visible indicators. It has the biggest amount of students, the best premises in the town, including computer classes. Moreover, in 2014, the volunteers came to rebuild the school, which was damaged during battles with Russian-separatist forces. With the help of sponsors, they repaired its concert hall. Most importantly, they established a peaceful cultural dialogue with the locals affected by Russian TV propaganda by initiating school projects with the participation of its students and their parents and teachers.

Read: The Berlinale Grand Prix film from Ukraine tells a different story of the Donbas

However, the competition was held with numerous violations and another school won. It is supported by the new mayor of the town and by the head of the local thermal electricity plant, which is the center of life in Mykolayivka. This school has neither a hall, nor a gym, and is inferior by other criteria as well. But it will be allocated UAH 70 mn ($2.6 mn), as planned for a basic school in Mykolayivka. The teachers of the school #3 were worried that if their school doesn’t win, they will not be able to work on all the projects initiated by the volunteers. One of them is a cooperation with an Austrian school in IT matters. The two schools signed the memorandum which was supported by the Austrian Ministry of Education. After meeting with the volunteers, a community formed around the school #3:

“Before, we thought we can’t change anything,” says Olga Bakukha, a teacher of the school.

So the community decided to resist what they saw as an unfair situation. They managed to organize another competition. But they lost it again and this time appealed in court:

“Most probably we will win the case, however, there probably won’t be a basic school in Mykolayivka,” says Bakukha, fearing that their exposure of the town leadership’s wrongdoings will lead to the abolition of Mykolayivka’s right to such a school overall.

The teacher notes that the majority of people in the town don’t support the community around the school #3:

“They blame us because the city won’t get 70 mn. But they don’t understand the goal of getting the money. One representative of the thermal electricity plant said ‘we will receive money for the school and divide it between three others,’” says the teacher.

She also explained that almost every person in the town is related to the electricity plant:

“So usually people keep quiet because they are afraid to lose their jobs.”

At Ukraine’s official decentralization site, Mykolayivka is shown as a positive example. The local authorities boast about their achievements to the citizens. “In fact, there are no achievements,” says Bakukha and goes on explaining that the new roads were built with oblast funds, and houses damaged during the warfare of 2014 were reconstructed with them as well. The sports complex was built with the money of the company Donbas Energo, and later will be probably given under oblast control, and all the communal payments will be paid from the town’s budget. The teacher says that a year after the territorial community was formed in Mykolayivka everything is still centered around the power plant. She agrees with Lemenov that public control is the only solution for making local governments work:

“The mayor of Sloviansk, a district center in Donetsk Oblast, wanted to keep all the power in his hands. But a lawyer who now works with us on the case of the basic school managed to create a Public Council in the city. The local mayor does not like it because now he has to report on his work to it.”

Despite the obvious successes of decentralization in Ukraine, its failures are systemic. They show that changes which are doomed to success can't be fully implemented without other crucial transformations. In this case, they are deoligarchization, the fight against corruption, election reform. Also, successful decentralization requires an active position from the common people, which often isn’t the case in Ukraine. Still, launching decentralization for Ukraine, the largest country in Europe, was crucial and even all the obstacles can’t stop the process of transformation. On 29 October 2017, Ukraine held elections to 201 united territorial communities. Over 1.3 mn people, or 4% of the total eligible voters, were able to take part in voting. They were choosing deputies to cities and village councils (4,506 deputies overall) and heads of the united communities, which are to be created as part of the decentralization reform. The first local elections to 415 united territorial communities took place in 2015 and 2017. The next elections are planned for December.