Suzerains from Bankova Street

How land legislation can change and why these changes are not for the better

article by YULIYA SAMAYEVA, ZN.UA Economics Editor

Imagine having a land bank of three million hectares. You can manage the land freely: give it out left and right in exchange for money or other services, rent it out cheaply to your people, but with requital, and dearly to others while letting them become nearer and dearer. In fact, you are a suzerain from around 12th century. This is the kind of overlord the Office of the President of Ukraine will become if the government controlled by it completes the planned changes in the management of state agricultural lands.

The land has kept every government on the trot. Obviously, not because powers-that-be wanted to finally bring order to this realm. But this time the attempt to hog land is probably the most daring of all.

On every previous occasion, they somehow tried to cover their rapacious schemes with the fig leaf of reforms, optimization or, at least, best practices. This time they don’t even try. Multi-page amendments to a stack of legislation read as follows: the government will manage state agricultural lands as it pleases; as for others, that’s none of their business. How very insolent!

For the sake of understanding, it is a question of more than three million hectares of state-owned agricultural land, or about 7.5% of all agricultural land in the country. For the record, Ukrainian heavyweight landowners have land banks of 300,000–500,000 hectares.

There certainly is plenty of questions about the quality of management on state agricultural lands, especially now. The disease has been let slide for years. The symptoms are classic: inefficient owners, the wear and tear of resources and the degradation of the soil itself, a mess in documents, up to their loss, shady rent schemes, minimization of land fees, chronic unprofitability, etc. It’s no use denying that this domain needs changes for a long time.

Unfortunately, the changes provided by the government’s draft law No. 7588 are not changes for the better.

Firstly, the draft law envisages the expropriation of land from state-owned enterprises, institutions or organizations by decision of the government, followed by their transfer… to other state-owned enterprises.

Wait, where is the logic? We approve the changes to the legislation because the state-owned enterprises are inefficient landowners. But are we sure that other state enterprises will be effective? Moreover, there is no list of those “effective” ones in the draft, the legislators do not detail to whom exactly the Cabinet of Ministers can give land by a sole decision – irrespective of market requirements and, quite possibly, for corrupt purposes. Although already being prepared for the second reading in parliament, the draft law also does not contain any criteria against which the government will determine from whom the agricultural land will be taken and whom it will be transferred to. Convenient, but somehow too far from best practices, wouldn’t you agree?

Secondly, there are a lot of questions regarding the proposal to further transfer the land for lease for a period of 50 years. In general, the term is normal if we are talking about an investor who obtained the land by participating in land auctions on competitive terms and invested his hard-earned money in the cause. But no, here we have a completely opaque transfer by a sole decision of the government, which will also be cemented for the next 50 years. Isn’t that too much?

Readers well-versed in the topic must have already asked themselves: how is this even possible? After all, the land in the state-owned enterprise is in permanent use, there cannot be any rental in general by law. Right you are. That is why the government, which would like not only to grant lands like a medieval feudal lord, but also to have more profit from it, proposes to turn the state-owned enterprises possessing agricultural plots with an area of at least 100 hectares into limited liability companies. The land, which is now in their permanent use, would then be rented to them. Or not to them, but to other LLCs, or not to LLCs at all — that is up to the Cabinet of Ministers to decide.

Here, by the way, there is another interesting point: employees of agricultural state-owned enterprises can generally apply for land shares, but employees of limited liability companies certainly cannot. The draft law simply bypasses this issue. But it's like crying over spilled milk when the house has burnt down…

Moreover, there is a third, most interesting thing: the conclusion of the land rental agreement will be carried out “without the adoption of a decision by the relevant executive authority or local self-government body.” Therefore, we adopt changes to the legislation since inefficient land use “reduces possible revenues to local budgets and affects the well-being of local communities,” as the authors of the draft law explain. But at the same time, we remove communities from the most important thing — determining the value of that rental for the next 50 years.

Somehow it is even inconvenient to remind the legislators that the rental fee for land plots of state and communal property is one of the forms of land payments, that is, a local tax. Seeing as such a revelry has already started, then maybe the Tax Code should be amended? Because it turns out that communities have to keep records of tenants, report on payments, explain to the tax office why something happens this way and not the other... but they do not influence the rent amount at all. And this is not to mention such not comme il faut steps as the intervention of the central bodies of the executive in local taxes.

In addition, the draft law also includes “supervisors” from parliament to ensure the Cabinet of Ministers operates properly. In particular, the draft assigns “control functions” to the land committee of the Verkhovna Rada, although the committees are not independent entities of parliamentary control and are generally established for legislative work. But that’s not enough. The Interagency Commission — an advisory body that will prepare government proposals for the transfer of integral property complexes — includes representatives not only of the State Property Fund and the State Service of Ukraine for Geodesy, Cartography and Cadastre (StateGeoCadastre), but also of the parliamentary committee together with an MP who is “elected in the single-mandate electoral district where the integral property complex is situated.” We will not dwell on the obvious here, it is corrupt, but we should definitely write the non-obvious — it is unconstitutional. It is not without reason that the Basic Law separates the executive power from the legislative power; the desire of the members of the Servants of the People party to make the most of the time they have left is probably not enough to change it.

Unfortunately, the aforesaid proposals do not exhaust the shortcomings of the draft law, but does it make sense to continue describing them?

It is obvious that the biggest possible land scam is in the works, which will allow, in an absolutely opaque way and by decision of an extremely non-independent government, redistributing three million hectares of agricultural land in the inner circle of powers-that-be at an acceptable rental price for them for the next fifty years. Considering that Bankova Street has not won the war yet and is already preparing for the elections, land is a valuable asset, which is easily converted into cash and regional loyalty, making trampling the Constitution and common sense worth their while.

Read this article in russian and Ukrainian.