Legal development

Uzbekistan International PPP Opportunities

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    When Shavkat Mirziyoyev became the President of Uzbekistan in 2016, the country embarked on an ambitious economic and social reform program, aiming to liberalise the economy and double gross domestic product (GDP) by 2030.

    These measures are beginning to show results – there was 7.4 per cent GDP growth in 2021 despite COVID-19. The World Bank increased its GDP forecast for Uzbekistan twice in 2021, and similar projections have been announced by the International Monetary Fund (IMF) and the Asian Development Bank (ADB). The country's GDP is set to rise at a faster rate than any other country in Central Asia in 2022 and 2023, by 5.6 percent and 5.8 percent, respectively.

    Uzbekistan's 2022 – 2026 Development Plan includes a number of goals including an ambition for the energy sector to intensify energy generating capacities by almost half of current production and increase the share of renewable energy in the total portfolio of the country's energy generation by 25 per cent. In addition, there is a focus on improving transport and infrastructure in the region, in light of a fast-growing population.

    Uzbekistan is keen to catalyse private sector investment in order to reach its GDP, energy and infrastructure goals, and PPPs will be key mechanism to attract foreign investors to the region. This commitment to international investment was evidenced at Uzbekistan's recent PPP roundtable which was attended by international financial institutions, development banks, advisors and sponsors, including Ashurst, EDF, Veolia and Meridiam, amongst others.

    Goals in energy and infrastructure; the role of PPPs

    In order to reach its goals, Uzbekistan has adopted a public-private partnership law and created a new public body under the Ministry of Finance – the PPP Development Agency (PPPDA). In 2021, the PPP agency implemented 183 PPP projects with a combined value of USD 2.6 billion, including 5 in the energy sector. The President of Uzbekistan has also recently adopted a new decree encouraging a dramatic increase in the number of PPP projects in the energy, transport, utilities, healthcare, education, water management sectors, including those involving small and medium hydroelectric power plants.

    Indeed, a number of private sector investors have been keen to invest in the region, such as ACWA Power (a leading Saudi developer, investor and operator in power generation, who has invested in four projects in Uzbekistan recently), and Masdar (a subsidiary of Mubadala Investment Company and one of the world’s leading renewable energy companies, who has also invested in a number of wind and solar projects in Uzbekistan, including a 100MW solar plant in the Navoi region, a further two solar projects in Jizzakh and Samarkland, a 1.5GW wind project and a 457MW solar project in Sherbad). 

    It is worth noting that Uzbekistan has also created close ties with international finance institutions such as the World Bank, IFC, ADB and EBRD, who are supporting a significant number of energy projects (both renewable and conventional), as well as projects in the schools, healthcare, transport, district heating and waste management sectors.

    Investing in Uzbekistan – key components of the PPP

    The PPP law does not name areas in which PPP projects may be implemented, however a mandatory requirement for PPP projects is that they should be aimed at solving economic, social and infrastructure issues.

    A project can be initiated by the Government or, notably, by the private partner.

    In latter cases, the private initiator may propose a project to be approved by the relevant government authority, however this must remain "unclaimed" by other potential private partners for a period defined by law (45 days). Where no other private partner expresses an interest in implementing the project under the conditions proposed by the project initiator, the PPP can proceed. Alternatively if an interest is expressed and the PPP project's concept has been approved, the public partner will run a tender process and the private initiator will be reimbursed for the costs relating to preparation of the PPP project. Where the PPP project value is less than US$1 million, the tender will be a single-stage process. The tender will consist of two stages where the PPP project value is more than US$1 million.

    When selecting the project's private partner, the tender selection process takes into account, among others, the following criteria:

    • the amount of payments to be made by the private partner and public partner;
    • the maximum price(s) (tariffs) applicable to the PPP project;
    • the total financing the private partner is required to source from external financiers;
    • the State support (amount and type) required to be provided by the public partner;
    • the timescale for construction and early operation of the PPP project;
    • the term of the PPP project (which can be concluded for a period from 3 to 49 years); and
    • the technological benefits (if any) and any innovative technology offerings for the PPP project.

    The PPP agreement is a key project document in the PPP projects. The PPP law outlines a list of the provisions which must be included in the PPP agreement. However, in general, the PPP law provides a significant degree of freedom in drafting the PPP agreement allowing for it to be structured as a concession agreement, availability-based contract or offtake contract.

    Generally, a PPP project should be structured based on a “reverting asset” model (e.g. BOT, BTO), with an express authorisation of the President of Uzbekistan being required in order to structure the PPP project based on a “non-reverting asset” model (i.e. BOO). The majority of the PPP projects implemented in Uzbekistan provide that the ownership over the project asset is transferred to the public partner (or other public entity) at a defined stage of the project, which is usually either (i) the commercial operations date or (ii) the date of expiry or early termination of the PPP agreement. Where the asset transfers on the commercial operations date, the Project Agreement will continue, to give the project company a contractual right to remain on site, to provide the relevant services, and to receive revenue for providing those services.

    The following types of support can be provided to private partners by the public partner:

    • subsidies or a guaranteed minimum income from the project;
    • contributions in the form of assets and property required for the implementation of a project;
    • funds from the budgetary system to pay for the consumption or use of a certain amount or part of goods (works, services) produced or supplied;
    • the provision of loans, grants, credit lines and other types of financing; and
    • state guarantees, tax and other benefits and other guarantees or compensation.

    In addition, the PPP law allows execution of a government support agreement envisaging provision of additional guarantees and support measures to the private partner. The government support agreement is executed between the private partner and the Government of Uzbekistan represented by the Ministry of Finance of Uzbekistan.

    The Uzbek Government is keen to enhance its PPP legislation in order to ensure it is continuing to attract the private sector. Recent reforms have included:

    • the ability to sign the PPP agreement directly with an SPV project company;
    • the ability to seek compensation from the public partner for changes in law which increase the expenses of the private partner or decreases its income;
    • a list of provisions which will be included in lender direct agreements, to assist the bankability of projects; and
    • the ability for the private partner to open bank accounts abroad.

    Looking to bankability, the private partner is entitled to provide its lenders with any type of security over the project’s assets, including, inter alia, security over the private partner’s rights and receivables under a PPP agreement, land rights, shares and fixed assets. Importantly, the PPP law also expressly recognises the concepts of direct agreements and allows lender’s step-in rights to be contemplated thereunder.

    Concluding remarks

    It is hard not to share Uzbekistan's optimism for its future in light of its economic developments. The country's commitment to its growth and to creating favourable opportunities to investors, together with a strong pipeline of projects, clearly presents an opportunity for foreign direct investment in the energy and infrastructure sectors.
    This article is written jointly by Ashurst LLP and Centil Law Firm. Ashurst and Centil have a strong working relationship and have worked together on a number of transactions in Uzbekistan. Ashurst's Simon Moore also spoke at Uzbekistan's PPP Roundtable in May. A link to the recording of that event is available here.

    To hear more about our work in the region, please contact below:

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.


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