32 REDUCING MARKET DISTORTIONS FOR A MORE PROSPEROUS UKRAINE the government simultaneously acts as an operator and a regulator, causing conflicts of interest. The lack of both an independent regulator and a regulatory framework that includes third-party access regulations creates inconsistency between the state’s regulatory and operational roles and incentivizes the creation of barriers to entry. The regulatory framework or implementation weaknesses related to the existing pol- icies applicable to SOEs and private sector point to the lack of competitive neutral- ity. The regulatory framework for SOEs grants them advantages over private 昀椀rms. Moreover, corporate governance rules di昀昀er depending on whether SOEs are fully public 昀椀rms or joint-stock 51 companies, and while Ukrainian legislation de昀椀nes commercial and non-commercial SOE activ- ities, unbundling is not yet e昀昀ective.52 SOEs are also legally protected from competition in other- wise competitive sectors that are not listed as legal or natural monopolies. The discretionary enforcement of regulations further distorts the competitive playing 昀椀eld. Governmental respon- sibilities for SOE oversight are dispersed across institutions with overlapping mandates, and SOE performance is not transparently reported, preventing an objective assessment of their e昀昀ective- ness and market impact. As of November 2015, only 40 percent of operational SOEs had published 53 reports online. Moreover, SOEs have traditionally enjoyed preferential access to 昀椀nance through state-owned banks or government guarantees, and public guarantees to SOEs were equivalent to 18 percent of GDP in 2014. Direct subsidies to SOEs represented around 2.5 percent of GDP in 2014 and 1.3 percent in 201554 with direct subsidies to the coal and energy sector alone accounting for about 1 percent of GDP.55 inadequate competitive neutrality extends to competition among private 昀椀rms, as polit- ically connected business groups use various channels to obtain preferential treatment from the government. Such treatment may include favoritism in the public procurement process, preferential access to privatized state assets, trade regulations that restrict imports, favorable tax treatment, subsidized loans from state-owned banks, concessional development 昀椀nancing via public 56 debt guarantees, and state aid in the form of direct transfers from the budget. Figure 30, below, presents a competitive neutrality gap analysis for Ukraine. 51 While joint-stock companies are subject to the same corporate rules as private 昀椀rms, fully public SOEs are not. See Art. 73 of the Commercial Code. 52 An unbundling process is underway in the gas and electricity sectors. An SOE was formerly responsible for electricity generation, importation, supply, transmission, and distribution. However, under Art. 32 of the Law on the Electricity Market of 13.04.2017 #2019-VIII (http://zakon3.rada.gov.ua/laws/show/2019-19), which took e昀昀ect on December 12, 2017, electric- ity transmission is now separated from generation, distribution, and supply. According to Art. 47, which will take e昀昀ect on December 12, 2018, electricity distribution is to be separated from generation, transmission, and supply. 53 MEDT. 2015. Reform of State-Owned Enterprises. Presentation in November 2015. 54 IMF. 2016. Ukraine. Technical Assistance Report – Reforming Management and Oversight of State Assets. 55 IMF. 2015. IMF Country Report No. 16/31, Ukraine, Reforming Management and Oversight of State Assets, p. 27. 56 World Bank Group and UK Good Governance Fund. 2018. Crony Capitalism in Ukraine: Impact on Economic Outcomes. p. 6.