Uzbekistan enacts Law on Public-Private Partnership

On May 10, 2019, President of the Republic of Uzbekistan Shavkat Mirziyoyev signed the Law “On Public-Private Partnership”. The law defines the main notions and principles of public-private partnership (“PPP”), establishes procedures for the development and implementation of PPP projects, provides for financial support mechanisms, as well as contains rights, obligations, powers of and requirements for the principal participants of PPP projects. The law also confers the status of authorized body in the sphere of PPP upon the Agency for the Development of Public-Private Partnership (“PPP Agency”). A public-private partnership is defined as a “legally arranged cooperation of public partner and private partner for a definite period based on pooling their resources for implementation of a public-private partnership project”. Further to this, a mandatory requirement for PPP projects is that they should be aimed at resolving economic, social and infrastructure issues. Moreover, the law does not name spheres in which PPP projects may be implemented, which suggests the possibility of implementing PPP projects in any sphere, subject to the requirement of being aimed at resolution of the aforementioned issues. The law provides that the following may be objects of PPP: property, property complexes, public infrastructure, works (services) and innovations. The Republic of Uzbekistan is defined as the public partner, represented by state bodies and other organizations, authorized by the Cabinet of Ministers, as well as their associations. In turn, commercial entities registered in Uzbekistan or abroad and their associations may act as a private partner. At the same time, the law (as distinct from, for example, the similar law of Kazakhstan) does not expressly envisage application of institutional PPP mechanisms, i.e. incorporation of special purpose vehicles by the public partner and private investor for the purposes of implementation of a PPP project. Moreover, the law does not provide the opportunity to use a special purpose vehicle, i.e. the company incorporated by the bidder (or consortium), which will execute and perform the PPP agreement in case of winning the tender. The process of PPP project development may be divided into three stages: PPP project initiation The public partner or private party (legal entity or sole entrepreneur) may initiate the PPP project. The concept of PPP project is the principal document at the initiation stage, regardless of whether the PPP project is initiated by the public or private party. The concept of PPP project is developed by the initiator and contains a description, costs, specifications and rationale for the implementation of the PPP project. At the same time, in the case of the project being initiated by the private person, the concept should be submitted to the potential public partner, which shall within 30 days decide on the implementation of the project based on such a concept. Notably, the law provides a limited list of grounds for refusal to implement the PPP project proposed by the private party. The concept of PPP project may be subject to approval by various bodies depending on the total value of the potential PPP project. Thus, the concept should be approved by: A relevant government authority — if the project total value is up to US$1 million; a relevant government authority by agreement with the PPP Agency — if the project total value is from US$1 million to US$10 million inclusive; the Cabinet of Ministers — if the project total value exceeds US$10 million. Following the approval of the concept of the PPP project and its inclusion in the register, a public partner should adopt a decision on the development of the PPP project and proceed with the private partner selection procedure. Selection of private partner The law provides for a tender as the principal mechanism for the selection of a private partner. The tender may be a single-stage (PPP project value ? US$1 million) or two-stage (PPP project value ? US$1 million) process. The public partner is responsible for the development of the tender documentation (which includes the draft PPP agreement) and establishment of a tender commission, by agreement with the PPP Agency and the Cabinet of Ministers respectively. In addition, the law allows for execution of the PPP agreement without tendering, based on direct negotiations, in cases: of ensuring the defense capability and security of the state; where a certain person has exclusive rights to the results of intellectual activity, other exclusive rights, land, another real estate object and other property, which is an indispensable condition for the implementation of the project; of enactment of the relevant decree or resolution of the president. The execution of a PPP agreement based on direct negotiations is possible in cases where the project concept proposed by the private initiator and approved by the relevant government authority remains “unclaimed” by other potential private partners, who, within the period defined by the law (45 days), do not express their willingness to implement the project under the conditions proposed by the project initiator. Otherwise, the public partner holds a tender and reimburses the private partner for the costs associated with preparing the PPP project. Thus, the law does not provide for any benefits to the promoter of the PPP project (i.e. the private party initiating the project), but envisages the reimbursement of its costs related to the PPP project development up to an amount not exceeding 1 percent of the project’s total value. Execution of a PPP agreement A PPP agreement between a public and private partner is concluded for a period of between three and 49 years. The law also lists the mandatory data and provisions to be contained in the PPP agreement; the grounds and procedure for its termination or amendment; the procedure for transferring property and land to a private partner, as well as the procedure for transferring ownership of the PPP object. In particular, the requirement for mandatory inclusion of provisions concerning the transfer of ownership of a PPP object to the state or to a private partner allows the implementation of PPP projects within the framework prescribed by the law based on the “build-own-operate”, “build-transfer-operate”, “build-operate-transfer” and other schemes. Interestingly, the law does not contain mandatory rules prescribing that PPP agreements should be governed exclusively by Uzbek law. At the same time, the law establishes that disputes in the field of PPP are subject to resolution in accordance with current legislation. Based on this provision, it can be concluded that parties to PPP agreements have access to both judicial and arbitral methods for resolving disputes. Financing of PPP projects The law provides that organizations financing a PPP project may be parties to a PPP agreement. Moreover, a PPP agreement may provide for lenders’ step-in rights, which can be exercised by removing or replacing a private partner or the management of a private partner. In addition, the law expressly stipulates that a private partner is entitled to provide any kind of security to its creditors, including those related to the rights and assets of the PPP project. Under a PPP agreement, financial support may be provided to a private partner, including in the form of subsidies, budget loans, loans, grants, credit lines, government guarantees, tax benefits and other kinds of benefits. A PPP agreement may also provide for the implementation of various types of payments, including payments for use and payments for availability. Guarantees of regulatory stability The law establishes guarantees for stability of the legislation for 10 years from the date of the PPP agreement’s execution. At the same time, the private partner has a discretionary right to apply regulatory provisions that improve PPP project investment conditions or not to apply them (i.e. it is not necessary to constantly update PPP agreements in line with the legislation in force). Transparency and monitoring The law provides for the PPP Agency to establish a publicly available registry of PPP projects containing information on ongoing PPP projects. Moreover, the law establishes that the concepts of PPP projects, information on the criteria for selecting a private partner, the main provisions of the PPP agreements, as well as other information should be published on the websites of the PPP Agency and the public partner. The PPP Agency monitors the implementation of the PPP agreement by both private and public partners. To this end, the private partner should provide the agency with access to the PPP facilities, and the public partner should provide a report to the agency on the implementation of the PPP project every six months. Enactment of the law is a logical step in the context of the interest of the Republic of Uzbekistan in the development of public-private partnerships in order to stimulate economic growth and improve infrastructure. Thus, the recently adopted Presidential Decree No. PP-4300 of April 29, 2019, contains a list of 15 PPP projects to be implemented in 2019. Moreover, according to the decree, the International Investment Forum will be held in Tashkent in September 2019. Source: Jdsupra