Infrastructure policy is a central element in the reform process of the Ukrainian economy. Whereas the policy debate is mainly concerned with quantitative measures, e.g. public investments, the qualitative aspects of infrastructure policy are at least as important, e.g. commercialisation, tariff setting, and regulation. The ultimate objective of infrastructure reforms is to supply infrastructure services by efficient, mainly privatised companies, at tariffs close to hypothetical market levels (e.g. long-run marginal costs, complemented by a time-of-use element), and subject to an objective, transparent regulatory process. Ukraine is still far away from this ideal world, same as many other countries of the former Soviet Union.
The objective of this infrastructure monitoring effort, designed in accordance with EBRD’s infrastructure indicators, is to provide a regular in-depth analysis of policy reforms for six key infrastructure industries: power, gas, water, telecommunication, railways and roads. The infrastructure monitoring produced by the Institute for Economic Research and Policy Consulting (the IERPC) evaluates the current state and the dynamics of the reform process.
The following criteria were taken into account when evaluating Ukraine’s infrastructure policies:
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commercialisation and privatisation (ownership, natural monopoly operation, industry organisational structure);
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tariff reform (structure of tariffs, payment arrears, budgetary payments);
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regulatory and institutional reforms (effective regulatory institutions, network access regulations).
It is important to mention that the IERPC applied universal criteria to all industries, while the EBRD uses individual criteria. Estimations were produced according to a scale ranging from 1 (no reform at all) to 4 (market-oriented reforms almost accomplished); this scale follows EBRD’s practice, although it more closely corresponds to the U.S. Grade Point Average principle (4~A, 3.7~A-, 3.3~B+, etc., 1~D).
The IERPC follows the EBRD’s indicators for reasons of compatibility, however it extends the methodology, first, by indicator dis-aggregation, and second, by measuring the extent to which legislation was implemented and key performance indicators were met, e.g. payment arrears and mutual settlements. Dis-aggregating the indicators and estimating individual aspects has the disadvantage of introducing a bias into the calculations related to individual indicator selection. Nevertheless, the bias of the EBRD indicators related to their estimation procedures may be still higher.
