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3 May, 2012  ▪  Oleksandr Krasnohorodsky

A War With Kiosks

Kyiv officials are fleecing small businesses

Authorities in Kyiv are forcing the owners of kiosks to make deals crucial to the future of their businesses with the heads of NGOs which the officials have involved in the decision-making process. In this way entrepreneurs’ money – millions of hryvnias a month – is likely to reach the “right” pockets more easily and securely.

HOW THEY DO IT

On 26 January 2012, the Kyiv City Council passed decision No. 2/7339 “On Some Issues of Entrepreneurial Activity Carried Out in Temporary Structures” which permits kiosks that are located at least 20 metres away from metro entrances, at least 1.5 km away from the Olimpiysky National Sports Complex and on territory allocated for shopping centres to continue operating throughout 2012. Their owners only need to make payments that will be used to maintain infrastructure. They must sign contracts to this effect with the Chief Trade Directorate of the Kyiv City State Administration by 1 May. These fixed payments range from UAH 400-600 for press kiosks to UAH 2,500-3,000 for those that sell tobacco and beer.

The city began accepting the documents needed for these contracts only recently, but the main headache for kiosk owners is that the Temporary Structures Location Regulation Commission set up in January will determine which kiosks will be allowed to make the above-mentioned payments. Liudmyla Denysiuk, head of the Chief Directorate for Industrial Policy at the Kyiv City State Administration, was appointed chair of the commission. Apart from city officials and city council members, it includes the heads of four NGOs, in particular Andriy Yermak, head of the Association of Owners of Small Businesses and Small Architectural Structures, and Roman Solodky, chief of the Civil Corps NGO.

With Denysiuk’s facilitation, these NGO representatives were also included in working groups attached to district administrations and were tasked to precisely define places that are off limits to kiosks. From now on, these groups will make kiosk demolition submissions to the Commission for Dismantling led by First Deputy Head of the Kyiv City Administration Oleksandr Mazurchak.

Kyiv-based merchants say off the record that they have already been contacted with proposals to pay an initial membership fee of around UAH 1,000 (and then UAH 100-500 per month for each kiosk) and thus join the ranks of NGOs admitted to the decision-making process on kiosks. This essentially means buying protection for themselves, because many entrepreneurs will simply be denied the possibility to pay the official fixed fee that will guarantee that their kiosks will not be taken down in 2013. Businessmen say that they have been made clear that if they refuse, no-one will guarantee that their sales points will survive until even the end of this year.

Most kiosk owners are absolutely certain that the lobbyists who pushed through decision No. 2/7339 are pursuing the additional goal of milking small merchants. Fixed payment receipts issued by the municipal authorities are no proof to the prosecutor’s office that a kiosk was installed legitimately. For several years now, district prosecutors’ offices have been issuing hundreds of injunctions per month to have kiosks taken down. They are left unenforced only if Mazurchak’s commission “meets small businesses halfway”.

SHANGHAI KYIV-STYLE

Since 2008, when the Kyiv City Council took away the right of district councils to prolong land lease contracts for kiosks, it established new rules for legalising sales points every year. These rules did not require any documents related to land used by kiosks, and thus all of them became a priori illegal. Kiosk installation became an issue that could only be resolved by large network owners. (These are primarily local and district council members.) Money from this business virtually stopped flowing to the Kyiv city budget.

In 2009, payments from kiosks largely went to the KIA communal enterprise. In 2010 and 2011, they ended up in the pockets of officials in controlling bodies, the Kyiv Master Plan Institute and the Chief Directorate for Urban Planning and Architecture which issued permits to install kiosks. This cost entrepreneurs quite a bit. Normally, when new rules are introduced, a kiosk owner has to have a new kiosk passport issued (which will cost him UAH 4,000-7,000, according to a Kyiv Master Plan Institute estimate in 2011) and again pay for approval from the health department, the fire inspection bureau and utility companies (at least UAH 2,000-3,000 per kiosk).

In fact, for any kiosk to be legitimate, its owner must obtain a permit to use the land under it, according to the Land Code. “This is the only legal way,” says Ksenia Liapina, deputy chairman of the parliamentary Committee for Industrial and Regulatory Policy and Entrepreneurship. “No other way can guarantee that temporary structures will stop springing up in large quantities in places where construction rules and regulations ban them: near metro exits, at public transport stops, on lawns, near kindergartens, etc. This is how entrepreneurs can secure their kiosks against demolition and they would be happy to contribute to the city budget for using communal land”.

But this is precisely what the municipal authorities are unwilling to do. The decision of the Kyiv City Council, which crushed the hopes of kiosk owners to sign at least land servitude contracts with the city, was passed a year ago. At that time, the Kyiv City Administration first came up with the idea of demanding fixed payments from entrepreneurs in exchange for permissions to install kiosks.

According to the legal expertise carried out by the Volodymyr Koretsky Institute of State and Law, such contributions, being regular payments, are illegal. It is not legal to demand even one-time payments from those who already have valid lease contracts for land used by their kiosks and continue to make payments or pay the land tax.

Most kiosk owners refused to participate in this shell game. As a result, the Kyiv city budget received UAH 6-8 million in 2011 instead of the projected UAH 150 million. No-one really cares about the Land Code in Kyiv, and a kiosk issue in any place can be solved through bribes. Moreover, permission to install a sales point issued by the Kyiv City Administration and based on the owner paying a fixed contribution is no legal grounds for its installation. Thus, payments for installing a mere 3,000 or so structures were received by the city budget in 2011. Tetiana Petrenko, head of the Association of Owners of Small Architectural Structures in Kyiv, says that businessmen largely paid for kiosks which they had installed in defiance of a ban on new kiosks in order to have grounds to legalize them later on.

These moves by municipal authorities are essentially turning Kyiv into a huge, chaotic bazaar. The number of temporary structures has exceeded 15,000. In 2007, when the government announced its intention to take down half of the city's kiosks, there were about 7,000 units. Thus, five years into the campaign their number doubled, not halved. It is in the interests of officials to have as many kiosks in the city as possible and also keep them outside the law. This makes it easier to fleece their owners.


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