Funding Ukraine’s Reconstruction: Who Will be Accountable for Integrity?

Direct losses inflicted on Ukrainian infrastructure during the war have reached $147 billion, and the World Bank estimates that the country’s reconstruction needs total $411 billion. The resources available through Ukraine’s special funds for the reconstruction of housing, social and critical infrastructure cover only 1% of these needs.

How this initial 1% is used will be carefully watched by Ukraine’s Western partners – securing their trust is at stake. This is why Ukraine has invested so much time in preparing and launching a robust institutional architecture for reconstruction, in order to secure the necessary trust and confidence to support the future of its recovery processes. In particular, a focus on anti-corruption and transparency will be central to this effort.

Hundreds of projects will soon be funded by the first $1.6 billion from the Fund for the Elimination of Consequences of Armed Aggression, including rebuilding houses, kindergartens, schools and critical infrastructure facilities; constructing a rehabilitation centre for the military; and addressing the effects of the destruction of the Kakhovka Dam. Compensation payments to citizens for lost housing have already started.

Although it took time for Ukraine to decide on the right institutional architecture for reconstruction, and approaches changed several times, the core institutions have been quickly launched.

So, what does this architecture look like? Who are the recovery actors, what are their accountability roles, and what further changes can be expected?

The Ministry for Restoration: A Government Giant

The Ministry for Restoration is the informal moniker for the Ministry of Communities, Territories and Infrastructure Development. It is charged with implementing the government’s policy on reconstruction processes. The ministry, now one of the government’s largest, was established in December 2022 from a merger of the Ministry of Communities Development and the Ministry of Infrastructure. The new ministry has a wide range of responsibilities, from transport to regional policies. Its main focus, however, is reconstruction.

The Ministry for Restoration also administers multiple funds, among them the Fund for the Elimination of Consequences of Armed Aggression (over $1.6 billion), the Destroyed Property Restoration Fund ($16.9 million) and the State Regional Development Fund ($54 million).

The ministry has a clear political mandate to make recovery processes transparent and to introduce anti-corruption compliance. Corruption risks are now being assessed, and corresponding corruption prevention arrangements will be designed.

Recovery Agency

In addition to the Ministry for Restoration, the government created the Recovery Agency in early 2023. It was also formed from two existing entities, the Agency for Infrastructure Projects and the State Agency for Automobile Roads of Ukraine. The decision to merge and rename these agencies allowed the government to kill at least two birds with one stone.

Firstly, there was no need to establish a new institution from scratch, which would have increased the number of public authorities and taken unnecessary time to create, design its structure and hire staff.

Secondly, it enabled a more efficient use of available resources. After all, both core agencies have experience in international biddings and handling huge projects, and they had started implementing corruption prevention arrangements with international support.

Hence, the new agency had about 200 employees on its first day, as well as an extended network of regional offices including recovery services, the Motorways of Ukraine PJSC, and other existing state-owned enterprises.

Together with the RISE Ukraine Coalition, the agency has deployed a comprehensive restoration management system called the Digital Restoration Ecosystem for Accountable Management (DREAM). This enables the digital tracking of all reconstruction projects, meaning that anyone anywhere can monitor the spending of every cent allocated for reconstruction online.

The system is expected to be fully operational by the end of 2023, presenting the massive amount of reconstruction-related information as openly available data – something that has never happened before in Ukraine. DREAM will accumulate all the data from existing public sources, making it openly available with management and control tools in place.

Given the benefits presented by DREAM, it is essential that each reconstruction project is implemented through the system. This will ensure maximum transparency and will allow investors to see a complete picture of the reconstruction process.

Given that the West constantly emphasises the importance of transparency and accountability when allocating reconstruction funds, a digital instrument can make Ukraine stronger in this respect.

Regional Recovery Services Await Anti-Corruption Compliance

Former motorway management services have been transformed into recovery services in wartime Ukraine. They will be the key actors responsible for the implementation of reconstruction projects on-site. These services have no public authority status, but will arrange and carry out public procurement directly. They constitute an extended regional network of the Recovery Agency, with each oblast of Ukraine having its own recovery service.

It is important that these institutions do not have to confront new challenges while old problems persist. After all, the structure and staff of the services remain the same for now.

This is why regional-level reconstruction institutions require an integrity system to be built and anti-corruption compliance to be implemented as a top priority. The Recovery Agency is designing these actions in collaboration with corruption prevention experts.

The reform of regional services in charge of organising the entire process has already started. This involves the creation of anti-corruption offices that will be responsible for implementing corruption prevention practices and internal control.

Other key changes should include a transparent and competitive system for appointing the recovery services leadership, with all candidates being tested for integrity.

The Role of Local Authorities

Local authorities are dealing with reconstruction processes sporadically in partnership with the national authorities, international partners and foreign countries. This primarily concerns payments and housing reconstruction assistance, repairing damaged buildings so that people have a place to return to, as well as rebuilding schools, hospitals and critical infrastructure facilities.

The participation of local governments as recovery actors is important as plans will be developed on a bottom-up basis, meaning that these authorities will be on the frontline of the process – just as they have been during the war. Local authorities should therefore be included in all processes, from planning to reconstruction; being closer to the people, they will have a better understanding of what needs to be reconstructed first.

With DREAM in place, each community can now submit its reconstruction ideas to the ‘project showcase’ and attract funds directly from international partners. The prioritisation methodology for reconstruction projects, expected to be approved within the next few months, will systematise the approach to prioritising reconstruction sites, making the project screening process much easier.

The Way Ahead

The Ukraine Recovery Conference (URC) in London in June underlined the willingness of international partners to help rebuild Ukraine, with the country managing to attract over €60 billion of commitments. Private investors also see substantial opportunities in Ukraine, as it will become a global construction site after the war, and thus will have great potential for attracting funding.

However, to ensure trust, transparency and accountability, some key changes must be in place. Reforms, especially judiciary reform, must continue in order to ensure that the fight against corruption is won, alongside implementation of the European Commission’s seven key steps for Ukraine’s EU candidacy. Encouragingly, the Commission has recently noted ‘considerable steps forward’ and progress in the implementation of reforms.

This is the fundamental difference between Ukraine and Russia. As we fight for our future under the blue-and-yellow banner, we are also fighting against corruption and labels imposed by our kleptocratic neighbour.

The views expressed in this Commentary are the author’s, and do not represent those of RUSI or any other institution.

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