European Commission's support for 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. This was the main subject of the meeting between the European Commission, led by President Barroso, and the Ukrainian Government, led by Prime Minister Yatsenyuk, held on 13 May in Brussels.

This MEMO provides detailed information on the European Commission's actions in support to Ukraine. It is not intended to be comprehensive.

The joint statement following the meeting between the European Commission and the Ukrainian government on 13 May can be found here: MEMO/14/346

MACRO FINANCIAL-ASSISTANCE

The European Commission, on behalf of the EU, recently disbursed the first tranches from its two Macro-Financial Assistance (MFA) programmes for Ukraine. On 20 May, 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.

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 recently 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 following tranches under the programmes will be conditional on the implementation of the specific economic policy and financial conditions outlined in the Memoranda of Understanding (MoU) for the MFA for Ukraine and on the continuous satisfactory track record of implementing the economic adjustment programme supported by the IMF Stand-By Arrangement with Ukraine that was approved on 30 April. The policy conditions specified in the MoU fall into four thematic areas: public finance management and anti-corruption, trade and taxation, energy sector and financial sector reforms.

The 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.

STATE BUILDING CONTRACT

The new “State Building Contract” programme, worth €355 million, and complemented by a €10 million programme aimed at support the civil society, was adopted by the European Commission on 29 April.

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 governance, the fight against corruption, judiciary reform and public administration reform.

The Financing Agreement for the State Building Contract was signed by the President of the European Commission Jose Manuel Barroso and Prime Minister of Ukraine Arseniy Yatsenyuk on 13 May.

On 13 June, the European Commission announced the first disbursement of the money from this contract, worth €250 million (IP/14/676).

The second disbursement of €105 million will follow (probably in 2015) and will be linked to progress in reforms in the areas of anti-corruption, public finance management, civil service, constitutional reform, electoral legislation and justice.

Together with the Macro Financial Assistance loan programme to Ukraine, the Financing Agreement on the “State Building Contract” is another major deliverable of the €11 billion package to support Ukraine, announced by the President of the European Commission on 5 March.

REMOVAL OF CUSTOM DUTIES

The European Commission proposed on 11 March to temporarily remove customs duties on Ukrainian exports to the EU. The Commission very much welcomes the entry into force of this regulation on 23 April, following support shown by the European Parliament on 3 April and the Council's adoption of this proposal on 14 April. With this rapid response, the European Commission has shown that it stands shoulder to shoulder with the people of Ukraine. The benefit of the measures is that they advance the implementation of the tariffs section of the Association Agreement's (AA) provisions on a Deep and Comprehensive Free Trade Area (DCFTA) instead of awaiting its entry into force. The preferences are thus not a substitute for the DCFTA and will be granted for a limited period only: until 1 November 2014.

Ukraine does not have to provide extra access to EU exports in return. The temporary elimination of customs duties is total or partial, depending on the sector. 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 will be nearly €500 million in tariff reductions, of which almost €400m accrue to the agricultural sector. For industrial goods, the calendar for liberalisation in the DCFTA foresees the immediate removal of existing tariffs on most products, with exceptions for a few for which a transition period exists, in particular for the automotive sector in the case of Ukraine. For agricultural goods, ambitious concessions have been made taking into account specific sensitivities. Thus, duty-free tariff rate quotas have been granted to the Ukraine for cereals, pork, beef, poultry and a handful of additional products. Even for these sectors, particularly sensitive in the EU, the ATM grant Ukrainian exporters significant opportunities.

ENERGY SECURITY

Energy and energy security, and affordable prices, are essential for the political and economic stability and security of Ukraine. The EU is working with the new government in Ukraine, including through budget support, to ensure the long term diversification of supplies and to ensure that the Ukrainian gas transmission system continues to be an essential transit route for gas supplies to Europe. The Commission will therefore continue to work with the government in Ukraine to modernise its gas transmission system in co-operation with the EIB, EBRD and World Bank, as gas sector reforms in line with Ukraine's Energy Community commitments are carried out. Significant progress has recently been made and provided that certain conditions are fulfilled, an initial loan could be possible in the near future.

Important progress has recently been made with respect to the transparency of the Ukrainian gas sector, with the weekly publication of the gas storage levels by facility¹ and daily reporting on the volume of natural gas transported through the gas transportation system (GTS) of Ukraine²

In the short term, the Commission is ready to assist Ukraine in diversifying its gas supply routes, notably by ensuring that gas flows from the EU to Ukraine, particularly via Slovakia can be operationalized soon.

To this end, on 28 April 2014 a Memorandum of Understanding (MoU) enabling gas flows from Slovakia to Ukraine was signed by the pipeline operators concerned, the Slovakian company Eustream and the Ukrainian company Ukrtransgaz. The Commission acted as a facilitator in the negotiations that led to the breakthrough. Along with the MoU the companies signed a Framework Interconnection Agreement laying out the technical details of the foreseen solution.

Based on the solution which is presented in the MoU, the existing and unused Vojany pipeline at Veľké Kapušany on the Slovakian side will be modernised during a short construction period. Eustream has launched on 26 May 2014 a formal process to offer capacity ("open season") to reverse-flow gas from EU to Ukraine. Shippers have until 27 June 2014 to submit bids for capacity to transport gas from Slovakia to Ukraine at the new Budince cross-border interconnection point.

However, the solution which has been sealed on 28 April is only a first step in enabling gas flows from Slovakia to Ukraine. Further options besides using the Vojany pipeline will be legally and technically assessed in due course.

Currently, it is possible to ship gas via Poland and Hungary to Ukraine. Last year Ukraine imported around 2 billion cubic meters of gas from EU Member States.

Moreover, Commissioner Günther H. Oettinger is engaging in trilateral talks with Russian Energy Minister Aleksandr Novak and Ukrainian Energy Minister Yuriy Prodan with the aim of finding a solution on the payment of the outstanding gas debt of Ukraine and on the price for supplies of Russian gas to Ukraine. This shall also ensure the security of gas transit via Ukraine to the EU. Several rounds of negotiations have already taken place and the Commission remains convinced that an agreement is possible and in the interest of all parties involved. Commission Oettinger is therefore committed to continue mediating in a trilateral framework. The Commission is currently taking bilateral contact with the Ukrainian and Russian partners with a view to organising another round of trilateral talks before mid-July.

FACILITATING MOBILITY

As regards the support measures in the area of mobility the Commission has proposed to work on three different strands:

(1) the 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 20 February, Commission services have examined in detail the flexibility offered by the upgraded Visa Facilitation Agreement and the Visa Code that allows for issuing Schengen visas to Ukrainian applicants in a facilitated manner and to lower or waive the visa fees. This is in line with the Statement of the Heads of State or Government on Ukraine of 6 March, which reiterated the EU's commitment to enhance people to people contacts between the citizens of the EU and Ukraine.

On 7 May Commissioner Malmström 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 authorized 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.

Member States have repeatedly confirmed (Foreign Affairs' Council Conclusions of 20 February and 3 March) their commitment to enhance people-to-people contacts between the EU and Ukraine, i.a. through the visa liberalisation process, along with agreed conditions in the framework of the Visa Liberalisation Action Plan.

The European Commission's support package for the Ukrainian stabilization was supported by the extraordinary meeting of the EU Heads of State and Government of 6 March. The mobility part of this package committed to support the Ukrainian efforts to move forward the visa liberalisation process as quickly as possible in line with the agreed conditions of the Visa Liberalisation Action Plan. While noting that progress depends on how the new authorities are able to tackle the most important outstanding issues, it stated that the Commission will do its outmost to help solve the remaining issues in an accelerated manner.

The Commission remains in close contact with the Ukrainian authorities to monitor the latest progress towards the benchmarks in the first phase of the Action Plan.

(3) offer cooperation under the umbrella of a Mobility Partnership.

The offer to conclude a Mobility Partnership can be a further means 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 dealing with requests for asylum and international protection as well as tackling irregular migration.

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 deferral to the judicial authorities of cases of fraud/corruption.

The Commission (OLAF as lead service) 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.

EU–UKRAINE AVIATION AGREEMENT

The Commission is fully committed to signing a comprehensive EU–Ukraine air services agreement to strengthen transport connections. This agreement would open the way to a "common aviation area" between the EU and Ukraine, based on common standards. The agreement would offer further opportunities, more direct connections and economic benefits on both sides. All limitations to weekly flights between Ukraine and the EU would be removed, while free and fair competition would help in establishing market prices for all flights. To attain these objectives, Ukraine would align its legislation with EU aviation standards and enforce EU requirements in areas such as: aviation safety, air traffic management, environment, economic regulation, competition, consumer protection and social aspects.

Air transport of passengers and cargo between Ukraine and the EU has been growing steadily in recent years, and new investment opportunities for airlines would open up by allowing reciprocal majority ownership, facilitating the development of airlines and consolidation of the aviation sector. The comprehensive air services agreement was initialled by EU and Ukraine in November 2013. It is now in the hands of the Council. The Commission urges a signature of the agreement as soon as possible. Following signature, the ratification process will begin for both EU and Ukraine. Similar comprehensive air transport agreements have already been signed with other neighbouring countries: the Western Balkans, Morocco, Georgia, Jordan, Moldova and Israel.

BACKGROUND

On 5 March, the European Commission 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. These measures were welcome by Heads of state and Government during their extraordinary meeting on 6 March.

The signature of the political provisions of the EU-Ukraine Association Agreement on 21 March shows the importance that both sides attach to their relationship and recognises the aspirations of the people of Ukraine to live in a country governed by values, by democracy and by the rule of law. Following up on this signature, Commissioner Füle travelled to Kyiv on 24 March leading a high-level Commission delegation, in order to work with the Ukrainian authorities on a number of reforms that are necessary both in the area of democratic institutions and the economy.

Following discussions with the Ukrainian authorities, a "European Agenda for Reform" is being established to match the EU's short- and mid-term support actions with Ukraine needs. The Commission has also decided to create a Support Group for Ukraine to provide a focal point, structure, overview and guidance for the Commission's work to support Ukraine. This is an important decision that demonstrates the clear determination of the Commission – together with other stakeholders – to assist the Government of Ukraine in meeting its full potential as rapidly as possible and to assist Ukraine in its efforts to build a sustainable economy as soon as possible.

For more information

IP/14/413 Support Group for Ukraine

MEMO/14/159 European Commission's support to Ukraine

IP/14/676 EU releases €250 million of grants to support Ukraine

1 : Published on the website of Gas Storage Europe (https://transparency.gie.eu/)

2 : Published on the website of Ukrtransgas – Operative information (http://www.utg.ua/en/activities/)