The EU, together with its Member States, has since last year delivered unprecedented levels of support to help Ukraine in its efforts for launching this renewed reform process. In March last year, the EU and European Financial Institutions committed EUR 11 billion in support of Ukraine’s political, economic and financial stabilisation. So far, around EUR 6 billion has been mobilised in the form of loans and grants, including the recently approved additional third macro-financial assistance programme of EUR 1.8 billion. The EU is both currently and since the country's independence the biggest international donor to Ukraine.
The European Commission is determined to make sure that Ukraine has all the support it needs, in the short and long term, to undertake the political and economic reforms that are necessary to consolidate a democratic, independent, united and prosperous Ukraine.
Since 2014 the Commission has agreed on a number of concrete measures for the short and medium term to help stabilise the economic and financial situation in Ukraine, assist with the transition, encourage political and economic reforms and support inclusive development for the benefit of all Ukrainians. A further package of Macro-financial assistance worth €1.8 billion was proposed on 8 January 2015. In addition, the first special measure (grants) in 2015 for Ukraine worth EUR 70 million in support of private sector development and early economic recovery has been adopted [link]. This will be complemented by a €40 million loan guarantee facility under the Neighbourhood Investment Facility. Together this measure will help support SMEs and entrepreneurship across Ukraine's regions, including in areas most affected by the conflict.
In order to meet the particularly acute challenge presented by the situation as it was then developing, in mid-2014 the Commission established the Support Group for Ukraine. The Support Group coordinates the resources and expertise of the European Commission in order not just to monitor but also to assist Ukraine in the implementation of the Association Agreement and, crucially, in undertaking the deep and systemic reforms that will be necessary. The Group helps individual ministries draw up reform strategies and draft new reform legislation. This is the first time such a Support Group has been established for any country outside the borders of the EU.
EU-UKRAINE ASSOCIATION AGREEMENT
The EU's relations with Ukraine are governed by an Association Agreement. This Agreement, including a Deep and Comprehensive Free Trade Area, was negotiated over the period 2007-2011 and initialed in 2012. On 21 March 2014 the EU and Ukraine signed the political provisions of the Association Agreement, underlining their joint commitment to proceed to the signature and conclusion of the remaining parts of the Agreement. In doing so, Ukraine confirmed its free and sovereign decision to pursue political association and economic integration with the European Union, and to undertake the deep reforms consequent to this decision. Following the completion of technical preparations, the EU and Ukraine signed the remaining provisions of the EU-Ukraine Association Agreementin Brussels on 27 June 2014.
Provisional application of important parts of the EU-Ukraine Association Agreement began on 1 November 2014, including those on the respect of human rights, fundamental freedoms and the rule of law; political dialogue and reform; justice, freedom and security; economic and financial cooperation.
Consultations on the implementation of the Agreement including the Deep and Comprehensive Free Trade Area have taken place with the Russian Federation as well as with both Ukraine and Russia in a trilateral format since July 2014. The importance of promoting trade liberalisation in support of growth and greater prosperity, in line with their WTO obligations, has been agreed on all by all sides. In the political level meeting of 18 May 2015 in Brussels, the Parties reiterated their commitment to the development of trade in the region as a means to achieve inclusive economic growth. They also agreed to intensify their efforts to achieve practical solutions to the concerns raised by Russia. Provisional application of the Deep and Comprehensive Free Trade Area (DCFTA) part of the Agreement has been delayed until 1 January 2016, as part of the overall efforts towards a comprehensive peace process in Ukraine, in full respect of Ukraine's territorial integrity and right to decide on its own destiny.
REMOVAL OF CUSTOM DUTIES (TRADE)
Pending the entry into force of the Deep and Comprehensive Free Trade Area (DCFTA) part of the Agreement foreseen for 1 January 2016, the EU continues to apply autonomous trade measures for the benefit of Ukraine, granting Ukrainian exporters continued preferential access to EU markets.
The EU temporarily removed customs duties on Ukrainian exports to the EUas of 23 April 2014. With this rapid response, the European Commission has shown that it stands shoulder to shoulder with the people of Ukraine. Ukraine does not have to provide extra access to EU exports in return. The temporary elimination of customs duties is total for most products, depending on the sector, following the terms of the future agreement. The DCFTA calendar for liberalisation for industrial goods foresees the immediate removal of existing tariffs on most products. For agricultural goods, ambitious concessions have been made taking into account specific sensitivities.
The EU's unilateral trade opening requires Ukraine to fully co-operate with the EU in its implementation and ensure that Ukraine does not change in any way its tariffs towards the EU during this period. In addition, a number of safeguard controls are put in place to prevent market-distorting surges impacting adversely on European companies and industry including the agricultural sector.
The annual value of this support measure is nearly €500 million in tariff reductions, of which almost €400 million accrue to the agricultural sector.
The EU has kept the humanitarian aspect of the Ukrainian crisis high on its agenda from the early days of the conflict. It has increased its humanitarian assistance in 2015 and is ready to scale up support according to needs.
To help the most vulnerable of those affected by the conflict, the European Union and its Member States have contributed over €139.5 million in humanitarian and early recovery aid since the beginning of the crisis, including €47.85 million provided by the Commission.
The European Commission has provided over €26 million for humanitarian assistance in this crisis: reaching out to internally displaced people, people who returned home or who remained in the conflict areas. About 55% of the Commission's humanitarian funding addresses the basic needs of the population in the non-government controlled areas directly affected by the conflict. Support has also been provided to people who have sought refuge across the border, in Russia and Belarus.
On the ground, assistance is delivered through partner organisations such as People In Need, the Red Cross, Save the Children and UN bodies. With EU funding, partner organisations are distributing food and clothes to the people in need and ensuring access to health services, safe drinking water, hygiene supplies and basic repairs to emergency shelters and individual homes. They also provide legal assistance and psychosocial support.
In addition to funding, the European Commission and several EU Member States organised a joint humanitarian airlift operation in January 2015. Three EU-chartered cargo planes and several trucks carried some 85 tonnes of emergency supplies to Ukraine, including blankets, sleeping bags, water containers, heaters, hygiene kits and warm clothing.
In continuation of the assistance provided by the EU, a team with experts from seven EU Member States has been deployed to support the national authorities in the field of civil protection in March 2015.
MACRO FINANCIAL ASSISTANCE
Macro Financial Assistance (MFA) is an exceptional EU crisis-response instrument available to the EU's neighbouring partner countries experiencing severe balance of payments problems. It complements assistance provided by the IMF.
MFA loans are financed through EU borrowings on capital markets. The funds are then on-lent with similar financial terms to the beneficiary countries.
MFA is one important tool in a broader approach intended to support Ukraine in implementing its necessary reform strategy. It is intended to help the new reform-orientated government strengthen the country and deal with economic and political challenges.
On 8 January 2015, the European Commission, on behalf of the EU, proposed further macro-financial assistance to Ukraine of up to €1.8 billion in medium-term loans. It was adopted by the European Parliament and the Council on 15 April 2015. It can be implemented in the course of 2015, and in early 2016, and would be the third MFA programme for Ukraine since 2010. The European Commission has already disbursed €1.61 billion in support of Ukraine under two previous MFA programmes between May 2014 and April 2015.
The MFA programmes are designed to help Ukraine cover part of its urgent external financing needs in the context of the economic stabilisation and reform programme launched by the Ukrainian authorities. The assistance is aimed at reducing the economy’s short-term balance of payments and fiscal vulnerabilities.
The disbursement of the new MFA programmes will be conditional on the implementation of the specific economic policy and financial conditions to be agreed in the Memorandum of Understanding (MoU) and on the continuous satisfactory track record of implementing the economic adjustment programme supported by the IMF Extended Fund Facility programme with Ukraine that was approved on 11 March 2015. The MoU was signed on 22 May 2015 by Vice-President Valdis Dombrovskis on behalf of the European Commission, and by the Minister of Finance, Natalie Jaresko, and the Governor of the National Bank, Valeria Gontareva, on behalf of Ukraine.
MFA Disbursements so far: On 20 May 2014, a €100 million tranche was transferred from the first programme, which totals €610 million. This was followed by a disbursement of €500 million on 17 June from the second MFA programme, which totals €1 billion. A further €260 million was disbursed on 12 November 2014 (MFA I) and €500 million on 3 December (second tranche of MFA II). On 21 April 2015, the final tranche of €250 million under MFA 1 was disbursed to Ukraine.
FINANCIAL COOPERATION, GRANTS AND STATE BUILDING
In response to fast moving events and the urgent need to mobilise considerable assistance to help stabilise the country, in 2014 the Commission approved a €365 million "Special Measure" (in grants), the highest annual amount ever committed for Ukraine. Past support to Ukraine included support for infrastructure development in the areas of energy, transport, environment, border management. Since the signature of the Association Agreement and given the need for systemic reforms, attention now turns to broader governance issues.
The first special measure in 2015 for Ukraine worth EUR 70 million is in support of private sector development and early economic recovery has recently been adopted. This measure has been designed to support the development of SMEs across the Ukrainian regions and to contribute to the re-launch of the Ukrainian economy to create growth and employment. This was complemented by a EUR 40 million loan guarantee facility under the Neighbourhood Investment Facility. A second special measure is expected later in the year.
Assistance in 2014 was thus focused on the implementation of a €355 million State Building Contract, a budget support operation as used in a situation of fragility and transition processes. It will help the government of Ukraine to address short-term economic stabilisation needs, and prepare for in-depth reforms in the context of the Association Agreement/Deep Comprehensive Free Trade Area through support to improved public finance management, anti-corruption, public administration, budget transparency, judicial and constitutional reform and electoral legislation. The first tranche of €250 million was released in June with a second of €105 million to follow a year later, conditional on progress in reforms of these key areas.
In addition, the "DCFTA Facility for SMEs" is now ready for implementation. By helping small businesses grow, it will help Ukraine to implement its Association Agreement and to prepare for new market opportunities its DCFTA will create. The Facility will provide some € 200 million worth of grants from the EU budget over the next ten years. This contribution is expected to unlock new investments worth at least € 2 billion for the SMEs in Georgia, Moldova and Ukraine. The indicative utilisation of resources by country would be roughly half to Ukraine and half to Georgia and Moldova. However, to ensure the necessary flexibility during implementation there is no earmarking for each country.
Particular attention has also been devoted to the involvement of Ukrainian civil society. The State Building Contract will therefore be accompanied by a €10 million Civil Society Support Programme (signed in September) to ensure a credible and effective civil society role in monitoring the stabilisation process and the implementation of key reforms. The action will be implemented through calls for proposals for funding actions implemented by civil society organisations and through technical assistance providing capacity building and support to structured dialogue between the authorities and the civil society.
A further agreement in support of Ukraine's Regional Development Strategy (€55 million) provides technical and financial support to the Ukrainian Government to reform the Regional and Local Development system. The overall objective is to support the social, economic and territorial cohesion of Ukraine and well-being throughout the country. The programme backs the three strategic objectives of the State Regional Development Strategy 2020: improving the competitiveness of regions; territorial socio-economic integration; and effective state governance of regional development.
ENERGY SECURITY AND ENERGY REFORMS
Deep energy reforms and enhanced energy security are essential for the political and economic development of Ukraine.
A key objective of the EU support in the energy sector is to facilitate swift implementation of reforms in line with Ukraine's Energy Community and Association Agreement commitments and built competitive and transparent energy markets. Through technical assistance, the EU supports the Ukrainian government in establishing a strong and independent energy regulatory authority, in preparing new legislation on gas and electricity markets and in increasing the efficiency of the Ukrainian energy sector. A major undertaking in this context has been the drafting and adoption of a new gas law in line with the 3rd Energy Package on 9 April 2015 which enters into force in October 2015 and will now have to be implemented swiftly. This will entail also the restructuring of Naftogaz and the unbundling of production and transmission companies in the coming year.
As regards energy security, the EU has been assisting Ukraine in addressing the energy crisis the country is currently experiencing as well as enhancing supply diversification in the short and longer term.
With the mediation of the European Commission Ukraine and Russia agreed on the so-called "winter package" on 30 October 2014 which enables Ukraine to purchase gas from Russia and has been successfully implemented until March 2015. Negotiations on a follow-up package for gas supplies in the summer and for the coming winter 2015-2016 have been launched at tri-lateral level. They started in March 2015 and are expected to be completed soon. The Vice-President for Energy Union, Maros Šefčovič, is in regular contact with the Russian and Ukrainian sides on this issue.
As regards supply diversification, an important step towards a closer integration of the gas market was achieved by enabling gas deliveries from EU into the Ukraine in 2014. Slovakia currently provides the largest transport capacity through the new interconnection point at Budince. Facilitated by the European Commission, this interconnection point was established as a result of a Memorandum of Understanding signed on 28 April 2014 between the Slovak transmission system operator Eustream and the Ukrainian transmission system operator Ukrtransgaz. Gas flows from Slovakia started on 1 September 2014 and as a result of subsequent increases. transport capacity currently stands at 40 mcm/day. Transport capacities into Ukraine from Poland are currently at 4 mcm/day and from Hungary at nearly 16 mcm/day, on a so-called interruptible basis. Around 5 bcm of natural gas was shipped from the EU to Ukraine in 2014 and flows continue in 2015. This has been crucial in securing supplies to Ukraine in addition to gas from Russia.
The EU has also been working with the Government of Ukraine to modernise the Ukrainian gas transmission system in view of the strategic importance of this transit route for gas supplies to Europe. In line with the Joint Declaration of March 2009 between the Ukraine, the EU, EIB, EBRD and World Bank, the EIB and EBRD signed in December 2014 the first two loans of €150 million each for the upgrading of the main East-West pipeline.
FIGHT AGAINST CORRUPTION
The fight against fraud and corruption is a priority for the Ukrainian authorities, and the setting-up of a national anti-fraud/anti-corruption authority is currently underway. Such an institution will deal with the detection, investigation and referral to the judicial authorities of cases of fraud/corruption.
The Commission is ready to supply the necessary expertise to support the Ukrainian authorities in this respect and work with them towards curbing fraud and corruption at national level.
Furthermore, the EU will monitor the effective disbursement of EU aid and other budgetary resources to ensure that EU funding reaches the intended projects and purposes.
In light of the extraordinary efforts of the EU to assist Ukraine and of the need to protect EU funding from fraud, the Commission is discussing with Ukrainian authorities about the creation of a joint, independent body to investigate on fraud and corruption-related matters.
As regards the support measures in the area of mobility the Commission has proposed to work on three different strands:
(1) optimal use of the existing framework (the bilateral Visa Facilitation Agreement and the relevant provisions of the Visa Code).
Schengen visas are issued to Ukrainian citizens in line with applicable legislation: the provisions of the upgraded Visa Facilitation Agreement and of the Visa Code.
Following the Foreign Affairs Council on 20February 2014, the European Commission examined in detail the flexibilities offered by the upgraded Visa Facilitation Agreement and the Visa Code allowing for issuing Schengen visas to Ukrainian applicants in a facilitated manner and against lowered or waived visa fees. This is in line with the Statement of the Heads of State or Government on Ukraine of 6 March 2014, which reiterated the EU's commitment to enhance people to people contacts between the citizens of the EU and Ukraine.
On 7 May 2014 the Commission sent a letter to the Interior Ministers of the Member States, recommending the full use of the flexibility offered by Article 5 of the Visa Facilitation Agreement with Ukraine, to issue to eligible Ukrainian visa applicants Schengen multiple-entry visas with the maximum authorised term of validity of 5 years.
The Commission services are in close contact with the Member States' consulates in Kyiv to oversee any need for special procedures to be applied.
(2) accelerating the on-going visa liberalisation process, and thereby supporting the reform process in all sectors covered by the Visa Liberalisation Action Plan.
EU Member States have repeatedly confirmed their commitment to enhance people-to-people contacts between the EU and Ukraine, for example through the visa liberalisation process, along with agreed conditions in the framework of the Visa Liberalisation Action Plan. The Commission adopted on 8 May 2015 the first progress report on the implementation of the second phase of the Action Plan by Ukraine. It addresses how effectively and sustainably the implementation of the first phase benchmarks has been addressed by the Ukrainian government. Given the exceptional circumstances, the progress achieved by Ukraine has been considered noteworthy. The Commission remains in close contact with the Ukrainian authorities to monitor the progress towards the benchmarks in the second phase of the Action Plan. Provided the Ukrainian authorities continue the reform process, the Commission will evaluate how the recommendations are implemented and will report on the progress made by the end of 2015.
(3) offer cooperation under the umbrella of a Mobility Partnership.
The offer to conclude a Mobility Partnership can be a further tool to strengthen the ties between Ukraine and the European Union. It provides the overarching framework to improve the management of migration and mobility of people. It allows for reinforced cooperation and practical support to the Ukrainian authorities in areas such as legal migration, migration and development and in improving the speed and quality of procedures for asylum and international protection, as well as, in building capacity to better tackle irregular migration.
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