Result-Oriented Performance

The issues raised by the Severodonetsk congress still continue to resonate, as continue the debates around the issue of “inefficient local budgeting…” We can do a lot of arguing, or we can simply work toward the end result.  What is more important?   The Advisory Committee on Budget Reform open meeting took place on the premises of Alchevsk municipal council on March 5, 2008.  The results of integrating the latest budgeting approach—Performance Program Budgeting (PPB)-an alternative to traditional (line-item) budgeting - were discussed at this meeting.  PPB is being implemented with the support of the Municipal Budget Reform (MBR) Project in Ukraine. Steel City Alchevsk is a steel city.  Today nearly every fifth citizen in the city with population of 120,000 is employed at the Alchevsk integrated metallurgic plant that is a member of the “Industrial Union of Donbass” (IUD).  The Alchevsk plant is a strategically important Donbass enterprise, and it makes the list of the 80 largest metallurgic enterprises in the world.  Both the Alchevsk metallurgic plant and the Alchevsk coke plant directly impact the quality of life in the city.  Incidentally, the price of a one-bedroom apartment in Alchevsk is the same as the price of a similar apartment in the regional capital – US $25-27,000. The top leaders of the country often visit the Alchevsk metallurgic plant.  The President of Ukraine, Victor Yuschenko, visited Alchevsk more than once.  All guests of the city consider it a must to visit the Alchevsk plant.  No wonder, the President of Ukraine on his recent plant tour expressed his admiration of its massive modernization and construction scope and pace.  And there was good reason for that!  To say that the industrial complex is currently in the process of building up its industrial muscle is to say nothing.  The comprehensive modernization program of the Alchevsk metallurgic plant covering the period ending in 2010 incorporates the overhaul and modernization of sintering, blast and steel-smelting production capacity, installation of a 300 megawatt electric power station and a multi-fold decrease in hazardous gas releases.  The total amount of investments in the reconstruction of the plant will be close to two billion US dollars by 2010.  Quite significant and tangible!   The reconstruction goes beyond the building of new facilities, installation of new equipment and the use of new technologies to ultimately achieve greater output and improve the quality and overall characteristics of the product.  It is also intended to achieve lower cost ratios and lower energy costs to decrease unit production cost.  It will allow the Alchevsk metallurgic plant to become competitive with the known leaders of the world metallurgy in terms of quality and variety of product.  The program is unique in that all construction and assembly is conducted on site, without interrupting the plant’s production cycle.  The design, manufacture and construction of metal structure and equipment go concurrently with the line assembly which allows to speed-up the start-up of new production facilities by 2.5 times.   The train ride from Luhansk to Komunarsk (the station kept the city’s old name) takes one hour.  Until recently the city’s huge industry was a source of trouble for everybody – the amount of pollution and hazardous discharge exceeded any allowable norms.  Even the color of snow was orange… Today, along with major plant overhaul, the management of the Alchevsk metallurgic plant is seriously considering how to make the production environmentally friendly.  Over 20 percent of overall investment is dedicated to the environment protection.   "A few years from now, the visitors to the Alchevsk metallurgic plant will see the same production capability and management culture typical of a similar metallurgic plant in, say, the Austrian city of Linz," I recall the words of Taras Shevchenko, the plant’s General Director, spoken during Victor Yuschenko’s recent visit to Alchevsk.  He referred to the statement of Serhiy Taruta, Head of the Board of Directors of the 'Industrial Union of Donbass': "The key goals for the IUD are both the increase of production efficiency and the exercise of social responsibility," a very clear and concise business philosophy declaration. Donors?  No, Partners!   In 2006 Alchevsk became the synonym of irresponsible management practices by companies that provide heating, electric and water supply in residential apartment housing.  When winter temperatures dropped to 30 decrees Celsius below zero, the biggest breakdown of the municipal heating system in Ukraine had occurred.  As the result of that man-made disaster, the city was left without heating for several weeks.  The President of Ukraine came to the city and declared the state of emergency in Alchevsk.  The people of Alchevsk have been very grateful to the Alchevsk metallurgic plant and the Alchevsk coke plant that played a major role in the disaster response.  It came as no surprise that Volodymyr Chub was elected mayor of the city in spring 2006.   What do we have today?  The 2007-2008 winter heating production is going smoothly, no major breakdowns or disruptions.  Alchevsk received significant funding from various sources to support the city utilities during the cold season.  There is a popular toast in Donbass “Let there be good!” The people of Alchevsk add to it “Let there be heat!” In addition to their committed response to the heating breakdown, the Alchevsk coke plant jointly with the Industrial Donbass Union completed major repairs of a number of city roads. On 14 September last year the Alchevsk municipal council, the “Industrial Union of Donbass” Corporation and the United States Agency for International Development (USAID) signed the Memorandum of Cooperation.  The Memorandum signed by the city mayor Volodymyr Chub, the Head of the Industrial Donbass Union Board of Directors Serhiy Taruta and the United States Agency for International Development (USAID) Mission Director Earl Gast outlines such areas of cooperation as the development of the city strategic plan, development of local self-governance, investment climate improvement, development of non-governmental organizations and promotion of public and civic engagement.  This cooperation, which actually started back in 2006, is very significant for the Alchevsk citizens because it specifically targets such urgent issues as raising the quality of maternal and child healthcare, improvement of services provided by the municipal authorities and utility companies, etc.  As a result of this cooperation the following programs have been launched: “Local Economic Development,” “Development of Non-governmental Organizations and Civic Responsibility,” “Municipal Budget Reform,” and “City Water Supply System Improvement to Decrease Water Losses.” According to Vasyl Storchak, Head of the “Alchevsk Development Fund” (the founder -- IUD), in 2007 the Industrial Union of Donbass allocated UAH 25.698 million to support various public and social-service programs in Alchevsk, an equivalent of 25 percent of the municipal budget.  In 2008, this amount can be considerably increased to UAH 30-40 million. Know-how from Overseas The scarcity of centrally allocated state funding makes it especially important that the funds are used efficiently, which is exactly what the Performance Program Budgeting (PPB) is all about.  Many leading nations in the world use PPB as an effective budgeting and budget planning tool.  PPB is designed to maximize the efficient use of budget resources by allowing citizens to influence decisions on budget spending on the city level.  The funds are budgeted not to support specific eligible institutions, but rather specific socially significant programs.  The budget planning normally covers a period of 3-5 years.  The programs are evaluated on an annual basis, which allows to increase financing of successful programs and withdraw support from the programs that failed to produce anticipated results.  Today PPB is implemented in 85 Ukrainian cities; Alchevsk is the only city in Luhansk region that uses PPB.   Monitoring and evaluation of PPB programs still remain the key to success.  For this purpose, as the USAID Implementer Vira Illiash explains, the web site of the Municipal Budget Reform Project www.mbr-ukr.org has been created.  According to Vira Illiash, initially the project team was unsure whether the city officials in Alchevsk would be willing to accept the new budgeting approach.  Why?  It would certainly increase their workload.  Any doubts were dispelled quickly with improved performance.  Ultimately, the local government officials had been won over by the new project.   “Today we have achieved the main goal of cooperation by designing and implementing effective capacity-building models in the city thanks to the concerted efforts of all parties,” says the Deputy Mayor Liudmyla Solovyova.   Svitlana Shmyglenko, Head of the City Finance Department, when summarizing the financial performance in 2007 indicated: “We see from our experience that both the municipal government and the community support the performance program budgeting approach.  The city government came up with the initiative, which the public at large (non-governmental organizations, mass media, etc.) embraced and assisted the government in determining social and economic priorities and matching them with the available resources.  Alchevsk was the first city in Luhansk region to have organized public hearings on the 2008 budget proposal.  The people of Alchevsk received an opportunity to exercise control over the municipal budget and, more importantly, to have their opinion matter and acted upon.” Svitlana Shmyglenko believes that the hearings are an effective forum which allows the public to be fully informed about the formulation of the city’s main financial document.  In her recent speech, Yevheniya Hohytydze, Alchevsk Deputy Mayor, emphasized, “the citizens should be aware of the priorities in the city needs and the amount of dedicated funding, because this directly impacts their quality life and the quality of services the city provides to them.” To date, such priorities have included the installation of new street lights in the city (almost 5.5 thousand units were installed; additionally, the old traditional bulbs were replaced with energy-saving sodium bulbs, which resulted in saving UAH 64 thousand for the city), and sponsoring summer camps and other leisure activities for Alchevsk children. *** We left Alchevsk having one thought on our mind.  Why, when other cities keep blaming Kyiv for disproportionate budget allocations, scarcity of budget funding, problems with local self-governance, in Alchevsk they do everything right, everything works and they have positive outcomes?  Why other cities of Luhansk region have no similar cooperative agreements in place between the government and the business despite numerous statements of intent by high-ranking officials from the Oblast’ State Administration?  Why the cities like Severodonetsk or Lysychansk haven’t introduced programs similar to the PPB program in Alchevsk and their municipal councils have no cooperative agreements with the Industrial Union of Donbass and the USAID?  There are more questions than answers…