OFFICIAL USE

UKRAINE: KYIV CITY ADMINISTRATIONCREDITWORTHINESS ENHANCEMENT PROGRAMME

TERMS OF REFERENCE

1 BACKGROUND

The City of Kyiv (the “City”) is managed through the Kyiv City State Administration (the executive body of Kyiv City Council, hereinafter - the “KCSA” and the “KCC”, respectively), which consists of 22 structural units, in particular 18 departments and other units, as well as 1,9227 municipal enterprises and budgetary institutions that fulfil certain functions, for which purpose certain property of the City has been transferred to their balance sheet. The management is also performed through district administrations (“DAs”) whose competence includes resolving certain administrative issues and managing certain property. As of 31 December 2015, the permitted staff number of the KCSA and the DAs was 1,862 and 3,371, respectively. The structure and budget of the KCSA are approved by the KCC. There are also advisory bodies performing various tasks (46 public coordinating councils, advisory services, committees, unions, etc.).

The organisational principles of the KCSA are regulated by the Regulation of the Executive Body of Kyiv City Council Regulation (Kyiv City State Administration) approved by the KCC. Annex I provides further data on the City.

Municipal Services

The City provides hundreds of administrative, social, authorisation, public and other services. There is not a general full list of all these services. It is suspected that some of these services are duplicated. The term of provision of these services varies from several hours to 30 days (depending on the type of service).

Administrative services are provided by the Administrative Service Centres (currently 69 services are provided through these centres with a plan to increase their number to 199). Some administrative services are planned to be provided through e-Services, for which a project is currently being developed, with 10 services selected for initial implementation. A large number of services are provided by municipal enterprises.

Communal services are provided by municipal enterprises and other economic operators (joint stock companies), including those to which City property has been transferred for the provision of such services (Kyivenergo, Kyivgas, Kyivvodocanal, etc). When the services are provided by economic operators that are not owned by the City, the City controls them through the Department of Housing and Communal Services.

As of 1 January 2016, the City had 1,922 municipal enterprises which have a total of UAH 94.4 billion in assets on their balance sheet (not including the value of privatised housing accounted on the balance sheet of municipal housing and communal companies and maintained by them), as well as shares of 38 companies. The City owns 11,843,200 sq. m of non-residential property, of which 1,269.85 sq. m. is leased. The total revenue of all operating municipal enterprises in 2015 was UAH 12.4 billion. There were 141 profitable (total income

OFFICIAL USE

OFFICIAL USE

of UAH 167 million) and 103 unprofitable (a loss of UAH 289,3 million) enterprises. Some enterprises are in the state of liquidation. A total of UAH 272,4 million was received during the four months of 2015 from privatisation of municipal property in 2015. Annex II provides further data on the City’s financial situation.

There is a problem with effective management of communal property, primarily due to the absence of full consolidated information about property and the lack of a comprehensive communal property management strategy.

Budget Process

According to the Budget Code of Ukraine, when the budget is approved for a planned year, a budget forecast is prepared and approved for the two budgetary periods that follow the planned one. This forecast is based on the forecasted State Budget of Ukraine for the two budgetary periods that follow the planned one.

Since no methodology for such forecasting is approved at the state level, in practice it is normally based on key macroeconomic indicators without any detailed parameters of specific budgetary programs. As a result, it is not possible to have a clear estimate of budget revenues (as there are no figures for inter-budget transfers) or expenditures by areas and specific facilities. However, the City has some resources (development budget revenues) that do not depend on transfers from the state budget; therefore, long-term planning of expenditures from these sources is possible.

Considering that current expenses on the budgetary sphere fully depend on the budgetary transfer policy of the state, their planning can be based on parameters of the State Budget.

According to the Budget Code of Ukraine, Kyiv can borrow only to the development budget; i.e. only for capital expenses.

As of 01.01.2016, debt obligations of the City include US$ 101,2 million of external borrowings and UAH 4.290,3 million of domestic borrowings (local bonds).

External borrowings:

Restructured debt of USD 101,2 millionDebt to Ministry of Finance of USD 351,1 million as restructured debt, 7.75% pa, final maturity in 2020.

Domestic local bonds:

Series G – UAH 1,915.3 million

Series H – UAH 2 375,0

In 2010, Kyiv City Council issued guarantees for the Loan Agreements between the EBRD and Municipal Enterprises “Kyivpastrans” (EUR 60 million), “Kyivsky Metropoliten” (EUR 40 million) and “Kyivdorservice” (EUR 15 million).

In 2013, Kyiv City Council issued a guarantee to NEFCO for Municipal Enterprise “Project implementation Unit for the Kyiv Public Building Energy Efficiency Project” (EUR 5 million and UAH 4 million).

The Finance Department of the Executive Body of Kyiv City Council (Kyiv City State Administration) uses the “City Budget” software to prepare the city budget as a document, budget breakdown, and financing documents, as well as to process information received from the State Treasury Service of Ukraine and various information materials. This software is installed in all main spending units of Kyiv city budget and some spending units of a lower level. It is possible to install this software in all spending units. The software is also used to prepare budgetary changes.

OFFICIAL USE

OFFICIAL USE

The Finance Department processes forms received from main spending units using them as a basis for the preparation of annexes to the city budget.

In addition, the Ministry of Finance uses the “Local Budgets” information and analysis software which enables exchange of information on the budgetary forms between the Finance Department and the Ministry.

Furthermore, the “Open Budget” project is currently being implemented to ensure the transparency of the process of preparation and implementation of the City budget to its dwellers. This project is aimed at creating an industrial system of automatic collection, uploading and processing of indicators for a single online window and ensuring automated data exchange between the municipality and the Treasury making the information public the single web-portal of the City. The first part of this project is already implemented resulting in the publication of general information about the City budget (planned/actual revenues/expenditures) on the web-portal of the City with a more detailed breakdown by spending units and budget items.

Capital expenditures are planned when the Kyiv Economic and Social Development Program is drafted for the corresponding year. The “Appropriations for Capital Expenditures” annex of this Program contains specific items to be funded from the Special Fund of the city budget, appropriations from the State Budget of Ukraine, and other sources.

This list of items is prepared on the basis of proposals from main spending units (departments, directorates, State Administrations of Kyiv districts) within the limits of funding from the Special Fund of the city budget communicated by the Finance Department.

The projects proposed for funding should be in line with Kyiv strategic development priorities and city or state targeted development programs for the corresponding sectors.

The Department of Economics and Investments reviews investment proposals from main spending units for availability of required documents, priority levels, social effects, construction completion rate, etc. and prepares a list of specific items/projects that will be funded from the Special Fund of the city budget.

Another way of making capital investments is attracting them from third parties. Municipal Enterprise “Kyiv Investment Agency” serves as the main investment attraction tool. Investments are attracted through agreements such as management, concession, lease with investment obligations, as well as by other ways permitted by law. The City initiated a reorganisation process in the KIA involving international consultants and grant funds (Renaissance Foundation). This project is currently at the stage of the preparation of a baseline analysis report and recommendations regarding changes required.

However, there is a lack of a comprehensive and strategic approach to the planning of capital construction. The absence of long-term planning means that some projects may not be included in the Economic and Social Development Programs of Kyiv for the next years which leads to delayed construction, indebtedness for work already performed, and higher unfinished construction volumes.

Information systems

The City’s information systems have a fragmented architecture/structure. There is no system at the KCSA level, nor at the level of its structural subdivisions or the management level of municipal enterprises (there is not even a complete list of information systems used by the City). Different units and municipal enterprises use different software and operate/support different databases even to perform the same tasks. This creates a problem with data synchronization and structuring. Therefore, there is an urgent need for unification and optimization of the current systems so as to ensure the stability and efficiency of operation, as

OFFICIAL USE

OFFICIAL USE

well as create opportunities for the implementation of global analytical systems. At this stage, the open budget (with the assistance of SAP and the Renaissance Foundation) and the e-procurement functionalities have been launched in a trial mode, and the e-provision of administrative services is being prepared.

2 OBJECTIVES

The assignment will have the following objectives:

1. Performing a comprehensive analysis of the City’s current financial, operational and organisational performance and identifying necessary steps for the enhancement of its creditworthiness.

2. Developing the City’s Creditworthiness Enhancement Programme (“CEP”) by providing recommendations for improving management efficiency and quality in the following components:

2.1. Organizational structure of the City management and division of functions/authority;

2.2. Financial and budget planning;

2.3. Financial resources and debt management;

2.4. Budget management and financial reporting

2.5. Investment planning;

2.6. Asset management;

3. Providing technical assistance to the City in the implementation of the CEP and defining further priorities for improving the efficiency of its operations

4. Providing the City with recommendations regarding the improvement of financial reporting.

3 SCOPE OF WORK The scope of work for this Assignment is divided into three phases:

Phase 1: Comprehensive analysis of the City’s current financial, operational and organisational performance and assessment of its creditworthiness

Phase 2: Development of the CEP; and

Phase 3: Implementation of the CEP and development of recommendations regarding further improvement of the City’s financial and operational management processes.

3.1 PHASE 1: COMPREHENSIVE ANALYSIS OF THE CITY’S CURRENT FINANCIAL, OPERATIONAL AND ORGANISATIONAL PERFORMANCE AND ASSESSMENT OF ITS CREDITWORTHINESS

Goal: The Consultant will have to carry out a comprehensive analysis of the City, including:

The City’s organisational and functional structure, division of authority and decision-making algorithms;

The City’s financial management (organisational, budget and finance, property, municipal enterprises and other entities (“Entities”));

OFFICIAL USE

OFFICIAL USE

The City’s financial results with the assessment of its financial standing on the basis of the budgets executed during the last three years and the planned budget for the current/next year;

Preparation of recommendations for the specified components (including a detailed Action Plan with a schedule and responsible persons).

Tasks:

1. Organizational management analysis:

1.1. Preparation and analysis of the management structure of the City and its Entities by their functions and reporting to the City.

1.2. Analysis of the City’s functional structure, division of powers and functions, decision-making algorithms under different processes.

2. Diagnostics of the processes and efficiency of the City’s financial management in the following components:

2.1. Financial Planning (FP).

2.2. Treasury and Debt Management (TDM).

2.3. Budget Management and financial reporting (BM).

2.4. Capital Investment Planning (CIP) and investment decision-making.

2.5. Asset Management (AM).

3. Analysis of the City’s financial results with the assessment of its financial standing on the basis of the budgets executed during the last three years and the planned budget for the current/next year

4. Analysis of the structure of the management reporting used by the structural subdivisions of KCSA.

5. Provision of recommendations for improvement of the City performance which will help to achieve quick results in the following areas:

5.1. Organisational and financial management.

5.2. Financial activity and creditworthiness of the City.

6. Updating the Terms of Reference following the diagnostics results (if required).

3.2 PHASE 2: DEVELOPMENT OF THE CEP

Following the conducted diagnostics, the Consultant shall prepare a CEP that should include:

Clear goals, with step-by-step activities and a timeline to achieve those goals for each selected action and area of activity;

Detailed analysis of organisational arrangements for implementation of the CEP, including recommendations for organisational changes within the municipal staff, and recommendations for the recruitment of new staff or replacement of existing employees (by employees with other job skills);

Training of the KCSA staff for the CEP implementation according to a programme tied to the overall timeline;

Detailed procedural guidelines for the implementation of all aspects of the CEP.

OFFICIAL USE

OFFICIAL USE

The Consultant will work in close partnership with the relevant departments within the City, so as to ensure constant training of the personnel and successful implementation of the CEP according to the City needs.

The CEP development shall include the following components:

3.2.1. Organisational Management

Goal: The main objective of this CEP component will be to assist in the identification of changes required in the management structure to improve the organisational efficiency of KCSA.

Tasks:

To provide recommendations for the improvement of the organisational efficiency of KCSA (including the Entities grouped by sector/function: their necessity/relevance and the need for interaction with Kyiv City Council according to the law) depending on the KCSA tasks, including:

- Developing a targeted organisational structure for the KCSA and template for DSA1 with the appropriate targeted functionality of its/ their subdivisions;

- To develop key performance indicators (KPI) for subdivision according to the proposed organizational structure;

- Providing recommendations regarding the required number of Entities (taking into account their functions/tasks).

At the KCSA level – to propose efficient procedures and to define decision-making bodies required for proper governance, including a system for the delegation of powers, as well as internal/external control procedures with risk assessment (identification)2.

To define key competences for top management (level -1), provide recommendations regarding an appropriate personnel development plan, including hiring/training/development/remuneration programmes (tariff schedule and a motivation system taking into account existing limitations of the current legislation).

To provide recommendations on the openness and publicity standards for the KCSA decision making process and the involvement of citizens and organizations in the making of certain decisions.

3.2.2. Financial Planning

Goal: This component of the CEP will focus on assisting the City to build efficient processes and a financial model for the prediction of its long-term financial needs and capacity.

Tasks:

To develop a long term multi-year financial planning methodology and financial model;

To define the level of detail, formats and procedures for such planning (taking into account the difference between current and capital expenditure budgets);

1 District State Administration2 Take into account COSO (the Committee of Sponsoring Organization) in risk assessment, in management – ISO 37120, ISO 37101, ISO 9001 (without preparation to certification – to use the standards as guideline, not as a target).

OFFICIAL USE

OFFICIAL USE

To assess the debt and/or loan guarantee capacity of the City (based on the analysis of the City’s financial results and the assessment of its financial standing);

To link the long term financial planning with the strategy and sector policies;

To develop financial policy rules.

3.2.3. Treasury and Debt (both direct and guaranteed) Management

Goal: This component of the CEP will focus on the improvement of the City’s debt/guarantee and cash management system:

Tasks:

To develop a policy for cash and debt management, including financial safety ratios defining the limits of debt and conditions of contracting the new loan or bond obligations (considering the impact on the financial capacity of the City in the future);

To design the structure/principles for a centralised database of the City’s debt/guarantee obligations which will be used in particular for long term financial planning;

To develop a system for the monitoring of debt/guarantee obligations which should cover the corresponding financial indicators and benchmarks (covenants);

To develop a procedure and forms for the reporting under the Guarantee Agreement with the EBRD (including the Financial Report with the main budget execution indicators and the calculation of the key financial ratios).

To develop a debt/guarantee management policy to optimize the availability of funds, the ability to fund planned investments, and to ensure:

- Matching current revenues and expenses to avoid a current deficit (including the need to borrow or to use one-time proceeds for the funding of current expenditures);

- Achieving a sufficient surplus for the fulfillment of the obligations relating to the debt principal repayment, as well as capital restructuring;

- Making borrowings only for the purpose of debt restructuring or financing of new capital investments (including with the use of past non-periodic revenues that may have been received as a result of an asset sale);

- Maintaining the debt/guarantee amount within the prudential limits and the limits established by the national law;

- Minimising foreign exchange risks so that the unhedged foreign currency debt does not exceed the level defined by the KCSA (or other authorized body).

3.2.4. Budget management and financial reporting

Goal: The goal of this component of the CEP is to improve information available for budgetary planning and monitoring including preparation of the budget, monitoring of its execution, registering all the changes introduced during the year and also analysing the reasons of deviations between the budget and actual results and preparation of the final reports and ensure transparency of the budget approval process.

Tasks:

To design a management reporting system for the monitoring of the execution of annual budgets/multi-annual plans, which registers all the changes introduced during the year

OFFICIAL USE

OFFICIAL USE

after the approval and analyses the reasons for deviations between planned and actual indicators;

To reclassify the budget expenditures to differentiate between the ‘protected’ expenditures, costs that are incurred to fulfil targeted programmes, ‘unprotected’ on-going costs and investment costs (development budget), and to provide budgetary units with recommendations on where savings could be made;

To develop an approach to improving the budget planning process through monitoring of budget expenditure efficiency, development of criteria for program prioritisation, as well as development of transparent procedures of budget forming and approval, in particular with participation of the City inhabitants;

To analyse and classify/reclassify current and capital budget expenditures;

To develop a procedure for the preparation of consolidated management financial reports of the KCSA.

3.2.5. Capital Investment Planning (CIP)

Goal: The goal of this component is to develop an investment planning system, to support long-term budget planning that will allow the City to plan its liabilities, set clear investment priorities, identify when the City will have limited liquidity and show investors that the City is financially stable in the long-term.

Tasks:

To develop a capital investment planning system to develop multi year investment plans integrated into multi-annual financial projections.

To develop a methodology for the assessment, selection and prioritisation of investment projects;

To develop an investment budget execution monitoring system;

To provide technical assistance for the development of the City’s investment plan.

3.2.6. Asset Management (AM)

Goal: The aim of this component of the CEP is to optimise asset management.

Tasks:

To develop an asset management methodology including an asset inventory divided into 3 categories:

─ Functional – necessary for providing the municipal services,

─ Instrumental – assets which are important as a tool for implementation of the strategy or the key policies,

─ Assets to be potentially sold or managed by a private investor;

To perform a high-level analysis of the City assets (taking into account Entities) according to the developed methodology and the market analysis (3 strategic sectors defined by the City). To advise the target assets management structure (with recommendations for target effective composition of Entities) with assets management strategy and possible KPIs. In case possible (enough information) to define Entities with biggest corruption risks. After

OFFICIAL USE

OFFICIAL USE

the asset management strategy is developed it is important to prepare the operating action plans.

To recommend mechanisms for the attraction of private investors/operators (PPP, concession, operational management) for different type of assets.

To analyse the procedures and availability of the databases related to asset management;

To provide technical assistance and recommendations in creating a list of all Entities that are fully or partially owned by the City and to provide general information about them (including share ownership, subsidies/ current transfers from the budget/ extra-budgetary funds, capital transfers from the budget/ extra-budgetary funds; data on their financial results, a list of all subsidy companies (industrial, construction, trade, commercial, banking, insurance, etc.)., in which the KCSA owns a significant share. It should be indicated whether these companies’ business activities are mainly dependent on the budget or other sources, and/ or Entities that are owned by the City);

To provide the City with technical assistance and recommendations in the preparation of detailed information on real estate owned by the City (including any real estate managed on behalf of the City by any municipal or private company, with their analysis by categories (vacant land plots, land plots for green field construction, social housing, other residential property, KCSA premises, other commercial real estate, industrial facilities, etc.).

3.3 PHASE 3: IMPLEMENTATION OF THE CEP

Goal: The Consultant will support the City in implementing all elements of the CEP, devised during Phase 2 and will train the personnel to ensure the implementation of these components.

Tasks:

To develop a financial model for the mid- and long-term planning at the City level using the information provided by the KCSA. The model should include:

- Financial planning;

- Liquidity forecasting;

- Centralised database of the City’s debt obligations;

- Plan of capital investments;

- Database of investment needs.

To analyse deviations between the financial forecasts and strategic goals of the City and to provide recommendations for their elimination;

To provide technical assistance to the KCSA in the preparation of the first multi-annual financial plan;

To conduct a number of training seminars for the KCSA staff on the use of the developed tools and implementation of the CEP recommendations.

The Consultant will ensure that the financial reporting system of the City includes monitoring of the ratios/covenants recommended by the EBRD.

OFFICIAL USE

OFFICIAL USE

4 IMPLEMENTATION ARRANGEMENTS AND DELIVERABLES

4.1 REPORTING

The Consultant will report to the Client while also liaising with the EBRD’s Operation Leader, Daria Kochubinskaya in the Kyiv RO.

Reports on the CEP progress with identified potential problems/risks will be provided on a monthly basis. A separate report should be provided following the implementation of each phase/component of the CEP with an explanation of any deviations from the planned scope and timeframe.

To facilitate such reporting, it is expected that the Consultant will generate working papers for discussion and review with the City, copies should be provided to the EBRD.

4.2 STEERING COMMITTEE

A steering committee will be formed, including representatives of the City, the EBRD and the Consultant, to perform the operational project management and to make interim decisions regarding certain stages of the project.

The Consultant will organise the following Steering Committee meetings:

i) Inception meeting – this meeting will be held at the outset of the Assignment to discuss the overall implementation of the Assignment;

ii) First interim meeting – this meeting will be held to discuss specific tasks under the draft CEP and possible updates following the diagnostics. The final version of the CEP tasks will be approved by all members of the Steering Committee, including the EBRD.

iii) Second interim meeting – this meeting will be held following to discuss the results of the CEP development. The results will be approved by all members of the steering committee, including the EBRD.

iv) Final meeting – this meeting will be held following the completion of all tasks, and the delivery of the draft final report.

4.3 OBLIGATIONS OF THE CONSULTANT AND THE CITY

The Consultant should ensure that the appropriately qualified experts are available, as required, for each of the different tasks outlined above. It is expected that the Assignment will be led by an appropriately qualified project manager, accompanied by both key and supporting experts (the “Experts”).

The KCSA will provide support in the following spheres:

Obtaining necessary authorizations for the implementation of specific elements of the Programme;

Conducting the agreed organizational restructuring;

Provision of technical assistance and implementation of agreed training programmes;

Provision of all necessary information upon a written request from the Consultant.

4.4 FACILITIES FOR THE CONSULTANT, AND ACCESS TO INFORMATION

OFFICIAL USE

OFFICIAL USE

The City will provide furnished and services office accommodation for the Consultant, plus suitable office space for meetings. The City will also provide access to all relevant information, maps, studies, models, legal documents etc. at no cost to the Consultant. The City will deliver the materials in the original version (i.e. not necessarily in English).

The Consultant will be responsible for all local and international transport, living accommodation and expenses for its staff, together with communications materials, training materials, printing, report production and translation.

4.5 TIMETABLE

The Assignment will have a total duration of 24 months, and is due to commence in March/April 2016.

4.6 DELIVERABLES

All reports should be submitted to the Company. The copies of reports will be submitted to the EBRD. The reports must be provided in electronic and paper forms. The format of electronic reports will depend on their type. Possible formats: Word, Excel, PowerPoint.

The languages of the reports: English and Ukrainian.

Deliverable Draft submitted Comments supplied

Final submitted

Inception Report

Diagnostic Report of the City’s current financial situation

The KCSA organizational structure and functional description of its units, including the management structure of the City’s Entities

CEP Report including:

Recommendations for the improvement of the City’s organizational management (including the recommended organizational structure of the KCSA and the management structure for the Entities) and further implementation steps

Draft Financial Policy of the City

Long-term financial planning methodology

Cash management methodology for the City

Debt management methodology for the City

Report on the assessment of the City’s debt/guarantee capacity

Reporting procedures/forms under the Guarantee Agreement with the EBRD

OFFICIAL USE

OFFICIAL USE

Process for City budget preparation and approval

Processes for the preparation of the consolidated financial reporting of the KCSA

Methodology for the preparation of management reports

Methodology for prioritization and monitoring of the investment activity

Methodology for the management of the City’s assets

Strategy for the City’s assets management

Structures of the ME and real estate databases to be created

Management reporting album

Financial Model for the mid- and long-term financial planning at the City level including:

Centralised Database of the City’s debt obligations

City’s Capital Investment Plan

Database of the City’s investment needs

First Multi-Annual Financial Plan

KCSA Personnel Training Plan

Final Report

4.7 DONOR VISIBILITY

Given the assignment is funded through the EBRD’s donor funded technical cooperation programme, the Consultant will be required to support the client to ensure visibility of these resources. Support on these visibility aspects can be obtained from the Bank’s Communications Department. Measures could include but not be limited to:- All documents produced by the Consultant should mention donor support and bear the

logo of the donor, when appropriate.- Donor support to the project should be acknowledged in any public communication

(press releases, launch of facilities)- Local representatives of donors should be invited to any public event organised to

promote the project (press conferences, inaugurations, possibly stakeholder participation programmes)

Please contact Lucia Sconosciuto (email: SconoscL@ebrd.com; tel: +44 20 7338 8155) for further information. Some donor visibility guidelines can also be provided by the Bank to Consultants at the start of an assignment.

OFFICIAL USE

OFFICIAL USE

5 CONSULTANT PROFILE

The Consultant shall be responsible for professional staff with the proven experience in project management, procurement, and administration of similar contracts under IFI procurement rules.

It is anticipated that the Consultant’s team shall include the following professional expertise with short-term support as required:

Project Manager Financial and operational expert(s) Management and business planning expert Environmental expert Legal expert with expert knowledge of Ukrainian legislation

The Consultant should ensure that the appropriately qualified experts are available, as required, for each of the different tasks outlined above. It is expected that the assignment will be led by an appropriately qualified project manager, accompanied by both key and supporting experts.

It is expected that the team will include a team leader, who will spend a significant portion of the assignment working on site. As the key to successful outcome of the assignment is participation of City staff in development of the work, the required Consultant’s presence in the field is 80%.

It is expected, that the Consultant team will include both foreign and local experts. The Consultant team will be able to efficiently operate in Ukrainian and English.

OFFICIAL USE

OFFICIAL USE

Annex I

OFFICIAL USE

OFFICIAL USE

Annex II: 2014 Financial Report – General Data:

OFFICIAL USE