Cablegate: Ukraine: No End in Sight to Land Sale Moratorium

VZCZCXRO1764
RR RUEHIK
DE RUEHKV #2172/01 3550732
ZNR UUUUU ZZH
R 210732Z DEC 09 ZDK
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC 9003
INFO RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHZG/NATO EU COLLECTIVE
RUCNCIS/CIS COLLECTIVE

UNCLAS SECTION 01 OF 03 KYIV 002172

SIPDIS
SENSITIVE

STATE FOR EUR/UMB, EEB/TPP/MTAA/ABT
COMMERCE FOR CLUCYK

E.O.: 12958: N/A
TAGS: ECON EAGR UP
SUBJECT: UKRAINE: NO END IN SIGHT TO LAND SALE MORATORIUM

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SENSITIVE BUT UNCLASSIFIED

1. (U) Summary. Agricultural land in Ukraine cannot be traded
legally for farming or development due to a moratorium on
agricultural land sales. However, major market investors have used
loopholes to bypass the moratorium and convert usable arable land
for housing and commercial development. With presidential elections
fast approaching, none of the candidates have fully addressed how
the moratorium on agricultural land sales could be lifted. The
inability to legitimately sell agricultural land not only limits
investment in the land but holds back the development of Ukraine's
agricultural sector, which currently makes up less than 7% of
Ukraine's GDP. Since Ukraine is home to close to 1/4 of the world's
fertile "black soil", Ukraine's potential agricultural output is
clearly much greater and would likely grow if reforms were
successfully carried out. End Summary.

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99% of Private Land in Ukraine Cannot Be Sold
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2. (U) Although close to 95% of Ukrainian land has been titled, 99%
of Ukraine's privately held land is zoned for agricultural uses and
cannot be sold or purchased due to a sales moratorium that was
introduced in 2005. This provisional moratorium states that no
agricultural land shall be sold before both a national land registry
(the so-called cadastre) law and a land market law are passed and
come into force. Establishing a national land registry is no simple
task: at present, there are a number of different real estate
registries in Ukraine. Some of these registries give technical
information about agricultural land while others list buildings on
the land. These registries are also supplemented by a registry of
deeds, registry of mortgages, and other similar registries.
Furthermore, different government agencies control the registries;
the State Committee on Land Resources administers the land registry
and the Ministry of Justice is responsible for the building
registry.

3. (U) Along with the moratorium on agricultural land sales, an
individual or corporation is allowed to own no more than 100
hectares of agricultural land. Given that effective modern farming
requires larger plots of land, both the moratorium and the plot size
limitations restrict Ukraine's agricultural output. At this moment,
land leasing remains the only option for investors who want to
operate large-scale agricultural businesses in Ukraine.

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Land Registry Draft Law Rejected Again
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4. (U) Recent attempts to pass a law on a unified land registry
failed again on November 17. The drafters of a bill had hoped to
build a legal basis for land-registration, create a national land
registry, and improve land ownership rights by binding rights to the
official registration of the land. However, critics of the bill,
including President Yushchenko, noted that it did nothing more than
duplicate existing national real estate registries. The President
also expressed his concern that the draft law contravened the
interests of the state and its citizens, while its provisions
contradicted the constitution and the land code. According to the
President, the bill also duplicated other functioning government
real estate registries.

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Failed World Bank Attempt at National Land Registry
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5. (U) Ukraine has seen other attempts at land reform fail. For
example, Ukraine created a Committee on State Land Cadastre (CSLC)
which has not been able to fulfill its primary goal of creating a
functioning, automated land registry system. During the first four
years of its operation, CSLC, which was supported by a World Bank
loan of $8.5 million for the creation of land registry, made little
progress. Given the difficult progress, the World Bank had to
restructure the project and its funding in order to ensure that its
targets could be achieved before 2012, the original project
completion date.

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Land Moratorium Reflects Paranoia about Losing Control
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6. (SBU) The moratorium on land sales reflects paranoia among the
ruling class in Ukraine, according to Max Fedorchenko, Director of
Kyiv NGO Center for Land Reform. Some fear that foreigners would

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"scoop up" Ukraine's fertile land and that the benefits of its use
would not be fully realized by Ukrainians themselves. Others have
found ways to work around the system and are benefitting from the
sales moratorium by being able to have access to and pay less for
land use than what most would expect to pay should the moratorium be
lifted.

7. (U) There is little political appetite to tackle this difficult
question in the near term. In fact, the Cabinet of Ministers
extended the total ban on sales of agricultural land, including land
plots for gardening in Draft Law #3353 "On Immediate Measures for
Prevention of Negative Aftermaths of Financial Crisis and on
Introducing Changes into Some Laws" in early 2009. The law is still
being implemented despite a December 1 Constitutional Court ruling
of its unconstitutionality. Embassy contacts speculate that the
moratorium is unlikely to be lifted for several years.

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Top Presidential Candidates Silent on Lifting Moratorium
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8. (SBU) Top candidates in the upcoming presidential elections have
largely been silent on the issue of land reform or the lifting of
the moratorium. According to Fedorchenko, leading presidential
candidate Yanukovych and his Party of Regions (PoR) are thought to
be the least likely to lift the moratorium as his chief supporters
are Ukrainian business oligarchs who profit from the current system.
Lifting the moratorium would mean allowing competition in the
agricultural sector, rising land prices, and would require greater
business transparency. PoR understands the issue is important for
Ukraine's small landholders, however, and PoR Shadow Minister
Akimova told econoffs on December 3 that her party favored lifting
the moratorium. She purported that Yanukovich would move to put in
place a national registry and lift the moratorium within a year of
being elected.

9. (SBU) PM Tymoshenko has said little about the moratorium on the
campaign trail. Center for Land Reform Fedorchenko referred to her
program as being "in her head". She decides on her policy "as it
happens", so the land reform issue may be addressed by her when a
specific situation comes up but not during the presidential
campaign.

10. (SBU) President Yushchenko is the only candidate, says
Fedorchenko, who would like to see an open and transparent land
market in Ukraine. His attempts at securing Ukrainians' full rights
to land ownership, including the right to trade privately-owned
land, have been thwarted regularly by parliamentary and government
forces opposed to opening up of the market. In December, the
President vetoed the law on eminent domain but his veto was
overridden by the parliament, which may open the door for shadow
land transactions.

11. (U) Speaker of the Verkhovna Rada (Ukraine's parliament) and
presidential candidate Lytvyn, in a meeting in western Ukraine,
expressed his opposition to lifting the moratorium. He said it
would lead, in his opinion, to attempts at legalization of land
holdings obtained illegally under the moratorium. He also said the
issue of land sales is not top priority because there are other
pressing land issues -- such as inventorying land, valuation,
establishment of a state land bank, and creating a national land
registry. Moreover, Lytvyn strongly opposed the idea of selling
land to foreigners, who cannot purchase agricultural land in Ukraine
under existing laws.

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Lack of Public Support for Transparent Land Market
--------------------------------------------- -----

12. (U) In addition to the lack of interest among politicians,
numerous public opinion surveys confirm the lack of a pro-market
majority in Ukrainian society. A case in point is Crimea, where a
USAID land titling project met with obstacles from a number of small
farmers reportedly uninterested not only in obtaining land titles
but even in having their land plots surveyed. These farmers felt
that once their rights were on paper, their property would be
officially disclosed, which would make it easier for other
individuals to challenge their rights.

13. (U) Recently, the NGO Center for Land Reform wanted to file a
case with the European Court for Human Rights to claim that the
moratorium was in violation of the European Convention on Human
Rights and Fundamental Freedoms. Unfortunately, the NGO could not
find a Ukrainian individual who was willing to file such a claim
based on their own land title and the inability to sell their land.

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Those that have land do not want reform, they have already
benefitted from the current scheme; politicians hesitate to take
land reform decisions because there appears to be no social demand
for such changes.

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Comment
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14. (SBU) Since Ukraine first legalized private land ownership soon
after its 1991 independence, endless debates over the land code and
land market have stalled agriculture investment. Such quarrels have
benefitted the well-connected who skirt the moratorium, but hurt
Ukraine overall. Ukraine, which generated 1/4 of the Soviet Union's
agricultural output, is clearly not living up to its potential in
this area. Until the national land registry and land market are
established, Ukraine will not reap the benefits of the country's
arguably richest resource.

TEFFT

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