It is evident that energy has been (and will continue to play) an integral part in the EU-Ukraine relationship and that aid delivery will increasingly rely on national systems through the progressive focus and use of mechanisms such as budget support, which in the case of Ukraine is being pioneered in the energy sector.
One of the main elements and fundamental precondition for the application of sector budget support programmes is the existence of a coherent and nationally-driven sector policy and strategy developed and owned by the government of the partner country and be sufficiently elaborated in terms of its goals and priorities, the expected results and targets, the definition of action plans, roles and responsibilities of implementing parties, and the required resources and budgets. In March 2006, Ukraine endorsed its Energy Strategy for the period 2006-2030 defining Ukraine’s key energy policy and priorities and covering all areas of the energy sector.
The Energy Sector Budget Support (ESBS) Programme is the first of its kind in Ukraine and follows the signing of the Financing Agreement by the EC and the Ministry of Economy of Ukraine in September 2008. The programme is untargeted budget support under centralised management with the funds being channelled to the State Treasury. There are a number of stakeholders for the budget support operation, such as the EU, the Ministries of Fuel and Energy of Ukraine (MoFE), the Ministry of Finance of Ukraine, the Ministry of Economy, of Ukraine the National Electricity Regulatory Commission of Ukraine, the National Agency for Efficient Use of Energy Resources.
In accordance with the Financing Agreement, budgetary support should be disbursed in two tranches: fixed and variable (€82 million overall). A first component of the fixed tranche (€23 million of a total of €40 million) was disbursed in December 2008 following the disbursement by the International Monetary Fund (IMF) of its first tranche under a Stand-By Agreement entered into with Ukraine; the residual €17 million of the fixed tranche has also been paid in September 2009.
The second variable tranche of €42 million is conditional upon the attainment of results under a list of indicators. Importantly, the list of indicators is accorded a unit weight, while for many of the variable tranche indicators there are additional sub-indicators.
The introduction of budget support shifts much of the responsibility for the monitoring and evaluation of EC assistance to the Government of Ukraine and, more particularly, to MoFE’s Joint Monitoring Group (JMG) established in November 2008 and comprising the representatives of the Ministry of Fuel and Energy of Ukraine and the EC. The primary functions of JMG are the establishment of a monitoring system, oversight of the sector support programme, the coordination of data collection, the preparation of a semi-annual joint EU-Ukraine Progress Report, and the drafting of a mid-term evaluation/review.
The issue of capacity building within the relevant Ukrainian authorities for management, reporting and monitoring the Programme's implementation is a very acute issue which could directly influence the level of ownership of the reform process. To support the set up of proper coordination and monitoring system, the EC has allocated funding for a Complementary Technical Assistance to the EU-Funded Budget Support to Ukraine’s Energy Strategy Implementation (TA for ESBS Programme). The Financing Agreement signed by the EC and the Ministry of Economy of Ukraine in the framework of the 2007 National Action Programme for Ukraine on support Ukraine's Energy Strategy implementation contains relevant provision for such a complementary technical assistance to ensure proper follow-up of the programme's implementation, report on the evolution of the energy and public finance management (PFM) sectors as well as provide the Programme's stakeholders with a specific advice to facilitate achievement of critical objectives and programme benchmarks of the 'Memorandum of Understanding on Cooperation in the Field of Energy between the EU and Ukraine' (MoU) signed on 1 December 2005.
The assistance to the Ministry of Fuel and Energy on implementation of one of the most challenging tasks, i.e. set up of the Programme's Performance Monitoring System, has already been started by the EU funded project 'Support to Partnership and Cooperation Agreement Implementation.' As the ESBS directly was linked with the EU-Ukraine Action Plan (AP), there was a rationale for the provisional technical assistance by the PCA Support Project. A team of experts analysed the Performance Monitoring framework of the Ministry of Fuel and Energy and provided the Ministry with initial methodological support.
To may maximum use of prior work and systems, and existing information the TA for ESBS Programme will undertake to ensure that all relevant and available existing information, rules, procedures and methodologies are collected, reviewed, analysed and suitably incorporated in our work and recommendations. This will ensure that there is no unnecessary duplication and that our project builds upon and further refines work that has been developed in the context of other technical assistance projects for MoFE and other beneficiaries, such as the PCA Project.
As this is the first time that sector budget support is being applied by the EU in Ukraine and that this therefore presents its own challenges in departing from more traditional project-based approaches. Beyond ensuring accelerated implementation of the Energy Strategy and sector policies, the transition to budget support will require strengthening sector coordination mechanisms – primarily the Joint Monitoring Group - creating a stronger results-oriented culture together with the concomitant planning, implementation, monitoring and evaluation systems, and improving the sector’s public financial management procedures.