Реалізовано
Project “Transparent Management of Funds Received from Hydrocarbon Extraction at the Local Level”

Project goal: to implement effective democratic practices for transparent and efficient management of financial flows at the local level through the implementation of pilot projects for the development of Strategic Development Plans for extractive regions, taking into account prospective financial revenues to local budgets in the form of rent payments for subsoil use related to the extraction of oil, natural gas, and gas condensate.

Термін реалізації:
02.10.2017 – 31.05.2018
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Про проєкт

Implementation of EITI (Extractive Industries Transparency Initiative) at the regional level and financial decentralization in Ukraine require local self-government bodies (LSGs) to adopt effective democratic practices for transparent and efficient management of financial flows locally. This issue is especially urgent for communities in the Kharkiv and Poltava regions, where oil, natural gas, and gas condensate extraction takes place, following the adoption of the Law of Ukraine No. 1793-VIII “On Amendments to the Budget Code of Ukraine Regarding the Allocation of Rent Payments for Subsoil Use for Oil, Natural Gas, and Gas Condensate Extraction.” According to this law, starting from 2018, 5% of the rent payments for subsoil use related to the extraction of oil, natural gas, and gas condensate remain in the regions. Specifically, 2% goes to the regional budget, 2% to district budgets, and 1% to city, town, and village budgets. For territories where united territorial communities (UTCs) have already been established, 2% is allocated to the regional budget and 3% to the budgets of UTCs and cities of regional subordination.

Currently, community representatives lack understanding regarding the exact amounts of funds they should expect following the enforcement of this law from January 1, 2018, the mechanism for calculating and distributing these funds, and which communities will be eligible to receive them, taking into account the taxation procedures for extractive companies. This situation potentially allows manipulations—both political (there have been cases where funds paid by extractive companies as social obligations, such as building kindergartens, were presented as achievements of individual deputy candidates) and financial (without information on the volumes of funds to be received by local budgets and the mechanism of their calculation, community representatives cannot effectively monitor whether the full amount was received and properly used).

In turn, understanding and awareness of the specific sums and the calculation mechanism will enable long-term budget planning and consideration of these aspects when developing strategic socio-economic development plans for the relevant communities. It is important to note that the amounts of rent payments can reach tens of millions of hryvnias, so it is crucial to ensure readiness for their proper use even before the Law takes effect.

Project objectives:

– Implementation in pilot communities of participatory democracy tools and public financial reporting, ensuring the development of amendments to the Strategic Plan considering the significant increase in budget revenues and their allocation specifically for long-term development;

– Involvement of extractive companies in the region in dialogue and participation in the development of development plans for extractive communities, considering the receipt of part of the rent payments for subsoil use related to oil, natural gas, and gas condensate extraction into local budgets;

– Dissemination of pilot community experience among other administrative units of Kharkiv, Poltava, and Sumy regions.

Within the project implementation, the use of best democratic practices is planned for the refinement of existing community passports, development, and pilot implementation of strategic socio-economic development plans for selected territorial communities (specifically, Opishnia UTC in Poltava region and Chkalove UTC in Kharkiv region), where hydrocarbon extraction takes place, taking into account additional revenues to local budgets in the form of a percentage of rent payments for subsoil use related to the extraction of oil, natural gas, and gas condensate.

The project is implemented with the financial support of the International Renaissance Foundation.

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