April 3, 2020

Breakthrough in Ukraine’s land privatization saga


KYIV – On March 30 and 31, the Ukrainian Parliament finally delivered on two crucial issues set as preconditions by the International Monetary Fund in order for the country to receive financial support of up to $8 billion to help offset the effects of the coronavirus pandemic and its devastating impact on Ukraine’s fragile economy.

The first involved the adoption in its first reading of the so-called “banking” or “anti-Kolomoisky” bill named after the notorious billionaire oligarch who wants to recover Ukraine’s largest bank, PrivatBank. It was nationalized in 2016 after he allegedly embezzled $5.5 billion from it. The new legislation has been designed to ensure that Mr. Kolomoisky and others who bankrupted banks won’t have them returned or receive compensation at the taxpayers’ expense.

But the second was no less important, and in a historical sense probably more significant. It saw the breaking of a psychological taboo inherited from the Soviet period, which had been fostered for self-serving political and business purposes ever since by powerful forces with vested interests: the opening up of the country’s land market to privatization. A moratorium on this issue had been in place since 2001, having been regularly extended.

The World Bank and others viewed this ban as an unduly conservative and unwarranted impediment to Ukraine realizing its economic potential. It estimated that the moratorium has deprived Ukraine’s economy of billions of dollars in land taxes and investment in agriculture.

Furthermore, in May 2018 the European Court of Human Rights declared that the moratorium on farmland sales violated Ukrainians’ human rights as Ukrainian farmers – an estimated 7 million of them – because they were not allowed to manage their property freely.

In 2018, a coalition of 39 companies and over 1,500 agricultural producers petitioned for the abolition of the land moratorium. In September of that year President Petro Poroshenko reminded the Ukrainian Parliament that the land moratorium was not in line with Ukraine’s European strategy and had been condemned by the European Court of Human Rights. Nevertheless, for three years in a row, he authorized the extension of the land moratorium.

In December 2018, with presidential elections looming, Ukraine’s Parliament, the Verkhovna Rada, passed a law prolonging the ban until January 2020. The main argument was the lack of a proper mechanism for setting rules for an agricultural land market.

After his election victories in 2019, President Volodymyr Zelenskyy confirmed that his Servant of the People party, which won a majority of the seats in the Rada, intended to lift the moratorium and permit the privatization of land. But, somewhat unexpectedly, opposition to this commitment to open up the country’s land market became, in effect, the major rallying point for all of the faction’s opponents in the Ver­khovna Rada, ranging from Mr. Poroshen­ko’s European Solidarity, Yulia Tymo­shenko’s Batkivshchyna and Sviato­slav Vakarchuk’s Holos, to the pro-Russian Opposition Platform – For Life.

The arguments employed were largely populistic and emotional: the land in Ukraine belongs to its inhabitants; Presi­dent Zelenskyy’s administration is planning to sell it off to oligarchs and foreigners. But other factors were also stressed, such as the lack of a reliable legal framework in which the privatization could be carried out without damaging the interests of Ukrainian farmers and landowners.

The Zelenskyy administration was not particularly effective in countering these claims and presenting a credible case for the land market reform. Consequently, as opinion surveys demonstrated, the overwhelming majority of the public remained opposed to it.

Eventually, after considerable heated discussion, the draft law was passed in its first reading back in November 2019. It was introduced for its second reading on February 6 of this year. Despite the compromises already agreed on, it was clear that the opponents remained determined to block its passage. Ms. Tymoshenko and representatives of the Opposition Platform – For Life faction headed the obstructionist response, resorting to classic filibustering methods that effectively paralyzed the work of the Parliament. They introduced over 4,000 separate amendments, insisting that each one be considered and voted on.

Under pressure from the IMF, when the Verkhovna Rada met in its emergency sessions on March 30, the result of the voting on this and the “banking” issue was in doubt. President Zelenskyy himself turned up in the late afternoon and appealed to the national deputies, including the recalcitrant ones within the ranks of his own party, to vote for the two bills and thereby prevent the country from defaulting.

Eventually, the “banking” bill passed, two new ministers (health and finance) were endorsed on the second attempt, and attention turned to the law on legalizing the sale of farmland and lifting the country’s 19-year moratorium on land transactions. Although the Servant of the People Party had agreed to major new concessions watering down the initial bill and Mr. Poroshenko’s faction had agreed to support it in order not to alienate the IMF, representatives from both Batkivshchyna and the Opposition Platform – For Life insisted on the remaining dozens of amendments being addressed first.

Consequently, it took a marathon session that lasted into the early hours of the next day before the law lifting the moratorium was finally adopted with 259 lawmakers supporting it. Only 206 of 254 national deputies from Mr. Zelenskyy’s own Servant of the People faction voted in favor, but they were supported by 23 of 25 from European Solidarity and 13 of 20 from Holos, plus 17 independents.

The final version of the controversial law was barely recognizable from what had been initially proposed. The permitted amount of land that one person or entity can acquire was reduced from 200,000 hectares to just 100 hectares, though it will increase to 10,000 hectares in 2024. Foreigners and companies based abroad are for the time being banned from buying farmland in Ukraine, but this may be lifted after a nationwide referendum. The law will come into effect not in October of this year, but only in July 2021.

The head of the Presidential Office, Andriy Yermak, described the adoption of the law as a critical breakthrough, but stressed that it was only the start of a process that will require serious follow-up measures. He wrote on his Facebook page: “The Verkhovna Rada has finally passed the law on land! This is undoubtedly a historic event. And this is the first step in land reform. The government must do a lot to build a transparent and fair land market – from an efficient land cadastre to systematic support for our farmers.”

President Zelenskyy’s spokesperson Iuliia Mendel provided more details. “By approving this bill, Ukraine took the first and most important step towards creating a land market by lifting its ‘eternal’ moratorium on the sale of agricultural land,” she elaborated. Full state financing for the agricultural sector in this difficult time is being preserved. And “complementary legislation to make the land market function efficiently” is foreseen “to enable farmers to take out loans in order to expand their business,” introduce stronger safeguards and “create a framework for a future referendum asking Ukrainians whether to allow the sale of farmland to foreigners.”

External responses have been positive. For example, according to financial analyst Timothy Ash, who specializes in Ukrainian economic matters: “The land law is more restrictive than many had hoped, but after 30 years of obstruction to a land market from the Rada and Ukraine’s political elites, finally, Ukraine has something of a market in agricultural land. This is a base to go forward.”

But efforts to block the law continue. The Opposition Platform – For Life says it will appeal the adoption of the law in the Constitutional Court on procedural grounds.

The signature of the law by the speaker of the Verkhovna Rada also is being blocked. Five bills have already been registered to scuttle the process. Parliamentary regulations require that if such resolutions are registered, the Verkhovna Rada’s chairman cannot sign a related bill and send it to the president for further signing until the draft resolutions are voted on by the chamber.

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