Uzbekistan: New PPP Law and Opportunities

Introduction

Uzbekistan appears to be entering a new stage of development and investment opportunities. For many years, under its former ruler, Islam Karimov, Uzbekistan offered little appeal to foreign investors, raking extremely low in civil rights and investment protection. Following the death of Karimov in 2016, Uzbekistan started to open up for investment and undertook a number of major reforms, under the lead of its new president, Shavkat Mirziyoyev.

Among other things, Uzbekistan has introduced new investment opportunities in the public-private partnership (PPP) sector. Earlier this year, President Mirziyoyev signed a presidential order whereby Uzbekistan offered foreign investors 15 projects worth 1.66 billion USD to be undertaken on the basis of PPP terms.  In May of this year, to accommodate these PPP projects and future PPP projects, Uzbekistan enacted a new law on public-private partnership (PPP Law).

The New PPP Law: Overview

The concept of public-private partnership is not entirely new for Uzbekistan. There have been a few attempts in past years to implement PPP projects at the municipal level, based on local regulations of municipal divisions in Uzbekistan, and within the projects falling under the United Nations Development Program in Uzbekistan.

However, until now, there had not been any legislative framework for State-level PPP projects that was necessary to accommodate private foreign investment in Uzbek PPP projects. This lack of legislation created insurmountable obstacles for investment. For example, prior to the introduction of the PPP Law, there was no procedure for the transfer of PPP assets, which made PPP projects unattractive and unsustainable in the long term. There was also no institutional support and little transparency with respect to the powers of various state authorities in respect of these projects.

In June 2019 the PPP Law entered into force. The PPP Law established a number of fundamental principles applicable to the implementation of PPP projects in Uzbekistan, which is an important step in setting the tone for the protection of investors’ rights. These fundamental principles include:

  • equality under the law of both the public and the private partners;

  • transparency of rules and procedures for PPP;

  • competitiveness and objectiveness in selection of a private partner;

  • non-discrimination;

  • inadmissibility of corruption.

Eligible Projects and Selection of a Private Partner

The scope of the PPP Law is rather broad and is not limited to any specific industry or spheres of the Uzbek economy. A project can be implemented on the PPP basis so long as it aims at resolving an economic, social or infrastructure issue faced by Uzbekistan and is approved by the competent authorities.

A PPP project can be initiated by either a private investor or the State, which must develop the concept of the PPP project. The project needs approval by a competent authority, which varies depending on the project’s value.

Upon approval of the PPP project’s concept, a tender is conducted in order to select the private partner that is to be awarded the project. The selection process takes into account, among others, the following criteria:

  • the maximum price(s) (tariffs) applicable to the PPP project;

  • the amount of financing the private partner is required to attract;

  • the amount and type of State support the public partner is required to provide;

  • the timeline for construction and putting into operation of the PPP project;

  • the technological advantages (if any) of a private partner and any innovative technologies offered for the PPP project.

In a limited number of cases, the PPP Law envisages the possibility of awarding a PPP contract without a tender, by means of direct negotiations with a private partner. Direct negotiations are allowed when, among other things, the project is required for the purposes of ensuring State security or a private partner has the exclusive intellectual property rights required for performance of the PPP project.

The PPP Contract

The terms of a PPP contract are based on the tender documentation (when a PPP project is awarded by a tender) or are agreed during direct negotiations. However, the PPP Law requires a PPP contract to address a number of mandatory provisions, including:

  • the time and procedure for implementation of the PPP project;

  • the parties’ rights to use the infrastructure and other objects within the PPP project and the procedure for their transfer;

  • the terms for establishment and change of tariffs for services, works, etc. provided by the private partner;

  • the liability of the parties and allocation of risks between the private partner and the public partner;

  • the grounds and procedure for amendment and termination of the PPP contract.

The PPP contract can be concluded for a period from three years to 49 years. The PPP Law does not contain a provision expressly requiring a PPP contract to be governed by Uzbek laws; however, it is unclear at this stage if a foreign law governed PPP contract would be approved by the relevant authorities.

State Support and Guarantees

The PPP Law envisages that the following types of State support are available for PPP projects:

  • State subsidies to guarantee a minimum rate of return for the private partner:

  • the provision of State owned assets required for the PPP project;

  • the allocation of certain amounts of the State budget for the acquisition of works or services provided for the PPP project;

  • State loans, facilities and other means of financing;

  • State guarantees;

  • tax incentives; and

  • other incentives and guarantees.

The PPP Law also contains a stabilization provision whereby for 10 years from the date of the PPP contract the private partner is to be protected from any adverse changes of Uzbekistan legislation that produces a negative impact on the private partner’s investment. This legislative provision, unlike the current trend, provides “grandfathering” protection from change of law, allowing the investor to apply the legislation at the time of the PPP contract in place of any new legislation that creates an adverse change in the realization of its project. However, as this grandfathering right is in the legislation itself, the investors will need to consider the effect of a change in the PPP Law that removes or changes the current stabilization provisions.

PPP Opportunities

According to the Presidential Order “On Further Measures to Improve Mechanics of Attracting Investment”, an international investment forum is to be held in Uzbekistan in the fall of 2019.[3] The forum is expected to attract the interest and cooperation of foreign investors and result in the signing of a number of projects to be initiated within the PPP framework.

Within the framework of PPP opportunities currently offered by Uzbekistan, the Government of Uzbekistan plans to conduct, jointly with the International Financial Corporation (IFC), a tender for the construction of an international airport in Tashkent worth approximately 470 million US dollars.

Uzbekistan, with the assistance of the IFC, also conducted a tender for the construction of a solar power plant with capacity of 100 MVt and a combined-cycle power station with total value of approximately 600 million US dollars. The list of the current PPP projects provided in the Presidential Order “On Further Measures to Improve Mechanics of Attracting Investment” also includes construction of roads, systems for treatment of domestic waste and the upgrade of regional airports. Uzbekistan also intends to tender, jointly with the Asian Development Bank, management services for certain gas supply and heat supply systems, as well as power supply systems.

While the potential for PPP investments in Uzbekistan is still in its early stages, and further legislation will be required to develop a more mature and predictable investment environment, the adoption of the PPP Law is an important initial step for Uzbekistan’s future investment projects.

[1] Order of the President of Uzbekistan No. PP-4300 “On Further Measures to Improve Mechanics of Attracting Investment” dated 29 April 2019.

[2] Law of the Republic of Uzbekistan “On Public-Private Partnership” dated 10 May 2019.

[3] Order of the President of Uzbekistan No. PP-4300 “On Further Measures to Improve Mechanics of Attracting Investment” dated 29 April 2019.