Ukraine’s state road authority Ukravtodor is to reject a $220-million World Bank loan – not because the money isn’t needed to fix the country’s crumbling roadways, but because it says it just can’t use the cash effectively.
The World Bank on Dec. 2 announced that it would temporarily withdraw the money from Ukravtodor’s loan portfolio. It was forced to do so because the money “isn’t moving fast enough and is becoming an economic burden.”
The head of Ukravtodor, Slawomir Nowak, said on Dec. 6 that the withdrawal of the loan was done under mutual agreement. The state agency needs time to evaluate its capacity to spend the borrowed money, and increase its efficiency first, he said.
“Money that we borrow from our international partners has to be used effectively, because each cent will be repaid with interest,” Nowak said. “Cooperation with our international partners is very important for Ukraine, and particularly, for the development of the road sector. However, we have to be realistic about our capacity to use such funds.”
Ukraine’s road infrastructure depends entirely on state budget funding and the support of international donors. Although President Petro Poroshenko has declared road construction and major repairs a priority for the next two years, in the short term funding for maintaining the road network has now effectively been cut.
Meanwhile, Ukravtodor says it will review how road infrastructure projects funded by loans are implemented. Despite hundreds of millions of dollars being allocated under international grants and loans, the condition of the country’s roads is continuing to deteriorate.
However, Roman Khmil, former deputy minister of infrastructure and now head of the “My Road” non-governmental organization, saw the withdrawal of the loan as a warning sign. He said he was concerned that other lenders, such as the European Bank for Reconstruction and Development and the European Investment Bank, might follow the World Bank’s lead, seeing Ukravtodor’s inability to carry out its projects.
“The key issue of Ukravtodor’s inefficiency is understaffing,” said Khmil. “Specialists leave the country to work abroad because the salaries they are offered here are very low. There are simply not enough people to carry out these projects.”
The $220 million (Hr 5.7 billion) now cut from Ukravtodor’s loan package is almost equivalent to the amount of funds earmarked for road maintenance and repairs in the 2017 state budget.
Next year, Ukravtodor is set to receive Hr 14.1 billion ($542 million) from the state budget. But more than a half of this money, Hr 7.3 billion ($280 million), will go to repay debts on previous loans, and only Hr 6.6 billion ($253 million) will actually go to repairing roads.
Moreover, Ukravtodor needs at least Hr 40 billion in 2017, and its existing funds are not sufficient to begin major road repairs any time soon, Ukravtodor’s press service has reported, citing its head Nowak.
Khmil said that out of the Hr 6.6 billion available, nearly Hr 3.5 billion will have to be used on road maintenance, and the remaining sum won’t be enough to pay even for emergency repairs. He said 60 percent of the country’s road network should be closed due to its poor condition.
Nevertheless, there is hope for Ukraine’s road network in the long term.
On Nov. 17 the Verkhovna Rada, Ukraine’s parliament, passed two bills to establish the State Road Fund of Ukraine, which will change the way the road construction and repairs are financed.
The fund will collect all road-related fees, including gas excise duties, and spend the money solely on road repairs. That will decrease Ukravtodor’s dependence on the state budget and double the funding for roads, the Infrastructure Ministry has reported.
However, Khmil said the State Road Fund will take a few years to get up to full operating capacity, which means that Ukraine won’t see any improvement in the condition of its roads before 2020.
