Kyiv is a capital city with special status, but when it comes to governing, the metropolis has little to no autonomy.
For instance, under current legislation, the city doesn’t even have the authority to fine a car parked in the wrong place, decide how much to pay municipal employees, or force the owner of a decaying building blemishing a central street to repair it.
In these conditions, attracting private investment into city infrastructure may seem far from a dream job.
But not according to Oleg Mistyuk, head of Kyiv Investment Agency, a municipal body trying to marry private investors with infrastructure projects in need of money.
The agency has existed for 20 years, but only really started working actively in 2014, when then-newly-elected mayor Vitali Klitschko brought in new people to reboot the agency.
Today, the agency has a staff of 50 people, many of whom come from the private sector — including Mistyuk, who comes from banking.
“The agency exists to talk to investors in their language, to play on their side,” Mistyuk says.
But by doing that, they hit obstacles — mostly, legislative and bureaucratic — and in the end the number of private investors actually putting money into Kyiv projects has fallen short of expectations.
In the three years since the agency’s reboot, the city has signed just 24 deals with private investors. In most of them, a private company obtained control over a piece of infrastructure on the condition that it invested an agreed amount of money in it. In other cases, an investor got a land plot to build a piece of infrastructure, like a hospital or a private school, from scratch.
Early in 2016, Mistyuk said in an interview with business newspaper Delovaya Stolitsa that the agency planned to sign deals with investors worth Hr 10 billion ($385 million) that year. In reality, only three deals were signed in 2016, worth only Hr 180 million ($7 million).
Still, “there is plenty of interest from investors now, much more than there was in 2015 and 2016,” Mistyuk says.
Money needed
Kyiv needs a municipal investment agency because so many of its infrastructure objects — hospitals, schools, kindergartens, and so on — need investment that the city budget often can’t provide.
“The goal is to replace state funding with private money,” says Mistyuk.
In other cases, the city needs to build certain infrastructure which it can’t afford, and instead provides an investor with the land to build and operate it.
Now, for example, the agency is choosing an investor to build and run a private school for 660 children in Obolon district. In the past, Mistyuk explains, the city had a deal with developers constructing several large residential complexes in Obolon that they would build a school in the area.
But in the end, the developers ignored the condition, and now the Kyiv Investment Agency is looking for an investor to spend some Hr 170 million on building a school for the densely populated neighborhood.
In a different example, the city owns a cinema which has been closed for five years. The city doesn’t really need a movie theater: There are plenty of them. However, Mistyuk says, the city could use a modern concert hall, and that is where a private investor could step in and either remodel the cinema into a concert hall or buy the cinema and the city could use the money to build a concert hall. The city is still deciding which option to go with.
There are plenty of such examples: The city is sitting on 10.5 million square meters of municipal real estate.
But the really big fish aren’t schools and cinemas.
First, there is the city’s energy systems. In April 2018, Kyiv city hall will end its contract for heating and electricity supplies with Kyivenergo, part of energy holding DTEK, belonging to Ukraine’s richest oligarch Rinat Akhmetov.
According to Mistyuk, the city will look for a new, foreign, contractor to operate the city’s energy systems.
A second massive project awaiting investment is a long-discussed amusement park that the city authorities envision for an island on the Dnipro River.
City hall is now developing the concept for such a park.
“We have three investors waiting who want to do it,” Mistyuk says.
Urban problems
Mistyuk has been living in Kyiv since 1998. The city has changed to the better since then, becoming way more global, he says.
But in terms of attractiveness — for foreign investors and regular citizens — there is still a long way to go.
One of the pressing issues is the abundance of empty and decaying historic buildings in the city center.
Owners often buy a building for the sake of its central location, but have no desire to carry out renovation, which is usually more expensive than a new construction. Moreover, demolishing an old, historic building is forbidden, so the owners sit on the property for decades, waiting for it to collapse or catch fire.
The city center is dotted with such buildings, their windows broken and blank, and their crumbling walls threatening passers-by.
The empty buildings are high on Mayor Klitschko’s agenda, according to Mistyuk, who recalls a recent meeting with Klitschko where the issue was discussed. However, he says there is nothing the city can do with them right now: There are still no ways to put pressure on the owners.
“Retaking privatized buildings from the owners isn’t an option: It will result in several years of court action,” Mistyuk says.
He is more optimistic about solving a different pressing problem of Kyiv: transport.
Kyiv’s public transport was one of the things Mistyuk discussed at a meeting with World Bank President Jim Young Kim, who visited Kyiv on Nov. 12–14.
“He turned out to be very knowledgeable about our city’s problems,” Mistyuk said.
According to Mistyuk, a solution for the city’s clogged public transit could be a system of shuttle buses driving in specially allotted lanes. The World Bank will help with this project, as they have in other countries, Mistyuk said.
As for the messy parking situation in the city center, where cars block streets and sidewalks alike, a solution will arrive soon. In December, parliament is scheduled to pass a bill on parking regulations that will give city authorities the right to remove illegally parked cars — currently only the Interior Ministry has this right.
Dreams of decentralization
But there was one issue where the city of Kyiv and World Bank disagree.
According to Mistyuk, the city needs the parliament to decentralize tax regulation and give cities the authority to offer tax holidays to lure in investors.
“When a foreign investor comes in, they ask what kind of tax benefits we can offer. And we can offer none, except for maybe a land tax discount,” says Mistyuk.
This won’t change in the near future: World Bank representatives didn’t support it.
“We fought about it with the World Bank. They are strongly against it,” Mistyuk says. “They need to ensure there are stable tax revenues for the state budget.”
With no tax decentralization, Kyiv still hopes for decentralization of power, which will untie their hands, particularly on the issue of wages.
“Now, we have municipal companies that employ 6,000 to 12,000 people, and we can’t pay a normal, market-level salary to their managers,” Mistyuk says. “All we need is for two words to be removed from the Law on Public Service, so that it doesn’t regulate municipal companies anymore.”
Now, according to Mistyuk, the World Bank will help lobby parliament for this.
