Tenth Meeting of the EAP Task Force EECCA Environmental Finance... – 23 February 2007 22 Paris, France

Tenth Meeting of the EAP Task Force EECCA Environmental Finance Network
22 – 23 February 2007
Paris, France
Performance Review of the State
Environmental Protection Fund of
Main Conclusions and Recommendations
Nelly Petkova
Environmental Finance Programme
EAP Task Force
Structure of the Presentation
• Performance Review Methodology
• Objectives of the Performance Review
• Performance Assessment of the State
Fund of Ukraine: 2006
• Major Findings and Conclusions
– Fiscal Prudence
– Management Efficiency
– Environmental Effectiveness
• Major Recommendations
• Lessons Learnt
EAP Task Force
Performance Review Methodology
Based on the criteria identified in the Good Practices for
Public Environmental Expenditure Management (PEEM)
– environmental effectiveness
– fiscal prudence
– management efficiency
EAP Task Force
Inputs from FitchRatings on fiscal prudence and financial
The review was implemented in close co-operation with
the Ministry of Environmental Protection, with
representatives from other key ministries
The project - financially supported by the governments of
Switzerland and the Netherlands
Objectives of the Performance Review
• To conduct an independent and objective
assessment of all aspects of the administration and
management of the Fund against internationallyrecognised criteria, such as those contained in the
Good Practices for PEEM
• To identify and analyse the strengths and
weaknesses of the Fund’s performance and
propose a Reform Plan for further improvements
• To support the Ministry of Environment in its efforts
to improve the management of the public
environmental finance system in Ukraine
• To help improve data collection and disclosure of
EAP Task Force
Performance Assessment of the State Fund of
Ukraine: 2006
Best Possible
Management Efficiency
EAP Task Force
Fiscal Prudence
Scope for
Major Findings and Conclusions –
Fiscal Discipline
• Generally, the National Fund’s performance has benefited from wider
reforms in the public finance system
In 1998 – transformed from an extra-budgetary to a budgetary “special” Fund –
improved Parliamentary control
State Treasury created and a Treasury Single Account opened – all Fund’s revenue and
expenditure channelled through this account – improved financial control over spending
Accounting Chamber created – improved control over the expenditure of budgetary
State Tax Inspection made responsible for pollution charges – significant increase of
Passport of budgetary programmes created - attempt to introduce performance-based
budgeting and improve programming
Due to the strict rules of the Budget Code and annual budget laws – prudent fiscal policy
Barter and other non-monetary transactions have been largely eliminated and all
revenue now collected in cash
• The Fund largely complies with the main criteria of fiscal discipline
EAP Task Force
Fund’s Revenue
Progression of the revenue collected
Revenues (LHS)
Collection rate (RHS)
Source : State Environmental Fund
EAP Task Force
Major Findings and Conclusions –
Management Efficiency
• The project cycle management is inadequate with regard to the
type of expenditure financed
The management structure – most elements present but only vaguely correspond to the best
international practices
No dedicated professional staff and a separate administrative structure to manage the Fund’s
Responsibilities for appraisal and selection split between too many people and levels
Decision-making is slow and unproductive – disbursement hampered and resources spent in an
ad hoc manner
Project appraisal – formal process – checking proposals for compliance with legal and budgetary
requirements but no clear appraisal and selection criteria and rules - no skills to conduct sound
Cost-effectiveness - not a prominent selection criterion – data on O&M costs not collected
Main disbursement mechanisms – grants – which resemble direct purchase of goods and
services on behalf of the government - public procurement should not be a core responsibility of a
public finance institution
Fund legislation does not ensure operational independence and protection of staff against ad hoc
political interference
Need for an urgent reorganisation of the governance structure of the
Fund in line with good international practices
Need for introducing proper project cycle management tools to ensure
the selection of the most cost-effective projects
EAP Task Force
Major Findings and Conclusions –
Environmental Effectiveness
• Environmental effectiveness - difficult to assess
Fund supports many programmes across environmental media
Programming is still weak – no clear priorities and targets
In 2006 – 8 MEP programmes supported by the Fund + 15 programmes of 5 other
Ministries financed from Fund’s resources – failure to create a critical mass of
Poor communication with potential clients – the Fund does not try to identify good
The one year-budget perspective of Fund’s expenditure is incompatible with the
multi-year implementation schedules of investment projects – completion of
projects jeopardised
The Fund does not monitor the implementation of projects and the environmental
results achieved
Information on actual spending incomplete and unreliable and not available at a
national level
Need to reformulate priorities, narrow them down and translate them
into realistic and measurable targets
Need to arrive at a political consensus on the strategic areas which will
be supported by the Fund
EAP Task Force
Major Recommendations
EAP Task Force
Reduce the number of Funds and concentrate revenue to obtain a
critical mass of resources
Introduce specific, narrow and investment-oriented priorities
Design a proper organisation and management structure – create
a separate unit with a degree of management autonomy
Develop strong capacity in project cycle management – conduct
appraisal and selection in accordance with best international
Introduce a medium-term budget framework to facilitate the
smooth implementation of multi-year projects
Introduce and maintain regular monitoring and control of individual
investment projects implemented with support by the Fund
Collect data at a national level and develop a database on projects
financed by the Fund, containing key financial, technical and
environmental information
Major Lessons Learnt
EAP Task Force
Funds remain a second best option
Public finance reform creates opportunities to improve the quality
of Funds
– Consolidating extra-budgetary funds into the regular budget
improves control and transparency
– Transferring responsibilities for collection of revenue from
pollution charges to tax authorities brings better results
Programming and clear priority-setting is crucial for implementing
national environmental objectives in a coherent, transparent and
accountable manner
Multi-year budgeting – a prerequisite for the smooth
implementation of investment programmes
Need for a clear management structure and a clear division of
responsibilities for programming (political level) and project
appraisal (technically competent staff)
Need for modern management tools - including simple but robust
eligibility, appraisal and selection criteria and clear decision-making
rules and procedures
Where public money is involved the process is very political with
lots of vested interests – hence, reforms require strong political
support, consensus and leadership
Donors – what role to play?