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PPP LEGISLATION IN UZBEKISTAN: ADOPTION OF THE PPP LAW

Monday, 10 June 2019

The Uzbek Law “On Public – Private Partnership” No. ZRU – 537 (the “PPP Law”) has been adopted on May 10, 2019. It shall take effect on 10 June 2019. Unofficial English version of the PPP Law can be found at https://kostalegal.com/publications/legal-highlight/law-of-the-republic-of-uzbekistan-on-public-private-partnership. The Law provides a legal framework for co-operation between the public and private sectors, when developing public infrastructure or providing municipal services. As established by the PPP law, relations under the public procurement and production sharing agreements fall outside the scope of the PPP law. At the time of PPP Law adoption, the government has also adopted a series of sector – specific bylaws (e.g. Resolutions of the Cabinet of Minister) providing detailed rules and procedures for designing and carrying out PPP projects in these sectors, including the process of selecting Private Partners. As a result, such bylaws shall be brought into compliance with this PPP Law.

The PPP Law provides clear guidance on the rules related to project identification, initiation and preparation, as well as detailed procedures for the selection of Private Partners, the stages of project implementation and monitoring relations. Moreover, the PPP law clearly divides tasks, obligations and risks among the public and Private Partners, allocating them in the most optimal manner. PPP projects may be initiated not only by the government, but also by potential private investors. The PPP law provides for an adequate framework for the Public Partner to manage private initiatives that ensures transparency and equal treatment and does not distort competition.

The PPP Law determines the following state representatives as the key authorities in the PPP market:

  • PPP Agency under the Ministry of Finance (“PPP Agency”), which acts as a central PPP unit in Uzbekistan and takes part in the legislative procedure (develops guidelines and best practices reviews for PPP projects). Also, the Agency approves the concept of a PPP project with a total value of over USD 1 million;
  • the Cabinet of Ministers of the Republic of Uzbekistan adopts regulations on PPPs and designates the Public Partner for PPP projects upon request of PPP Agency. Another important function of the Cabinet of Ministers of the Republic of Uzbekistan is that it approves the concept of a PPP project, the total value of which exceeds USD 10 million;
  • the President of the Republic of Uzbekistan who takes a decision on whether the ownership rights to an object of PPP may be transferred to a Private Partner once the project has been completed.

It would be premature at this stage to judge the effectiveness of PPP Law, but despite the lack of practice, it can now be firmly stated that Uzbekistan has comprehensive legal framework in place to regulate partnerships between the government and private - sector investors. That is the introduction of PPP legal framework shall create a more stable and predictable business environment in PPP sector.

The concept of PPP

According to the PPP Law, “PPP is a cooperation, legally arranged for a certain period of time, of the public partner and the Private Partner through pooling resources to implement a PPP project.” The PPP Law enables to implement PPP projects in all sectors of economy as the PPP Law provides for a relatively broad concept of a public- Private Partnership. However, it shall necessarily be used for the satisfaction of public needs, the securing of which is imposed on the state authorities.

Parties

The PPP Law clearly identifies the contracting authorities ("Public Partners") that are authorized to select projects, prepare for, and award PPPs and enter into PPP Agreements. Under the PPP Law, the term “Public Partner” shall refer to the public authorities, local executive authorities, as well as other state bodies (organizations) or their association authorized by the Cabinet of Ministers of the Republic of Uzbekistan to act on behalf of the Republic of Uzbekistan. In PPP projects, the public side is usually represented by PPP Agency, ministries of relevant sectors and administrations at the regional and municipal levels.

The private partners (“Private Partners”) can be local or international investors or their consortium with technical and financial expertise relevant to the project. In other words, the PrivatePartner may be, in particular, a foreign entity, an Uzbek legal entity and individual, or two or more business entities, acting as a joint venture/partnership. Thus, there are no restrictions on companies' participation in a PPP project.

Objects of a PPP

The list of the types of property that fall under the definition of PPP objects is quite broad and includes all key infrastructure objects that needs to be created or modernized. The works/services are also may be regarded as objects of a PPP.

Main obligations

According to the PPP Law, the Private Partner undertakes at its own expense to create or reconstruct certain facilities and carry out activities using the facility (i.e., to operate it) or render services. The ownership right to the facility belongs (or will belong) to the Public Partner.

The Public Partner undertakes to grant to the Private Partner the rights of possession and use of the facility under the PPP for the implementation of the respective activity during the term established by the PPP agreement. The Public Partner shall assist the Private Partner in obtaining licenses and permits, which are necessary for the implementation of the public-private partnership agreement.

The parties are obliged to provide security for ensuring the performance of its obligations under the PPP agreement.

Term

The minimum term for the PPP agreement is 3 years that shall not exceed 49 years.

Provision of land plots

The Public Partner is obliged to provide the Private Partner with the required land plots for the whole term of the contract without conducting any separate tender procedures. Usually land plots are provided based on the lease agreements.

Transfer of property

The transfer of the property constituting a PPP object and/or other property necessary for the implementation of a PPP project to the possession and use takes place on the basis of a PPP agreement. A PPP agreement provides for the obligation of a Public Partner to make such transfer. Signing of additional contracts or agreements for this transfer is not required.

Selection of the private party

In principle, the PPP Law requires the Public Partner to select Private Partners through a competitive tender process. The selection may be conducted through either single or two-stage tendering.

In addition to an open tender, the PPP Law also provides for exceptional cases, in which a Private Partner may be awarded a contract directly, without a tender. These are: (i) when exclusive IP rights, land plots, real estate or other property that are essential for PPP project implementation belong to a specific person, (ii) adoption of corresponding resolution or decree of the President of the Republic of Uzbekistan, (iii) involvement of the issues of state defense and security.

PPP projects of less than USD 1 million shall be implemented through a single – stage tendering. In all other cases, the private party is selected trough two-stage tendering. Both tendering procedures starts from the call of expressions of interests and comprises the phase of the tenders (offers) submission and evaluation. As with the two-stage tendering, there is a pre-qualification stage between the abovementioned phases, where the private party shall meet certain requirements in order to be eligible to participate in tendering. The qualification requirements for the potential Private Partners shall be provided in the tender documentation that are made publicly available by the Public Partner.

In both cases (i.e. one-stage and two-stage tendering), the invitation to tender shall be published in mass media, on the official websites of the Public Partner and the PPP Agency. The deadline for submission of tenders (offers) shall not be less than 30 calendar days from the date of publication of such invitation.

Tender procedures often take around 5-6 months from the announcement of the tender up to the signing of the PPP agreement.

PPP agreement

The Public Partner shall enter into a PPP agreement with the winner of the tender in accordance with the terms, conditions, and procedures set forth in the tender documentation. The PPP Law gives flexibility to the negotiation of most terms of the PPP agreement. PPP Agency shall monitor the implementation of PPP projects for compliance with the terms of PPP agreement. The Private Partner is obliged to provide access to PPP objects and relevant documents for monitoring purposes.

Payment

The PPP Law allows to use any methods to compensate Private Partners. The following methods are explicitly mentioned in the PPP Law: direct toll or “user fees” and availability payments.

Taking into consideration the provisions of PPP agreement, a Private Partner shall have the right to make payments to the Public Partner in the following forms:

  • fixed amount payable on a periodic basis;
  • one-time payment;
  • a certain part of any income owed to the Private Partner for its activities.

PPP agreement may provide for a combination of various types of payments.

State guarantees

The PPP Law gives the option to provide state guarantees under PPP agreement. The PPP Law explicitly lists types of state guarantees. The size, procedure and conditions for their granting to the Private Partner shall be specified in the tender documentation and in the PPP agreement.

Moreover, the Private Partner may be provided with the financial support in the various forms.

Distribution of risk

The PPP Law does not involve an extensive risk allocation mechanism, so in practice, while there are certain market approaches to risk allocation, ultimately it will depend on the contractual agreements between the parties, the type of project and regional practice. Like in many other countries, in Uzbekistan there are special guidelines and recommendations on how to distribute risks: this is issued by the PPP Agency. The general principle of risk allocation is in line with standard international practice – the party that is best able to manage the risk (influence the occurrence of any risk and deal with the consequences) should bear it.

The PPP Law safeguards the rights of a Private Partner. According to the PPP Law, if the subsequent legislation of the Republic of Uzbekistan worsens the conditions surrounding investments in the PPP object, the legislation effective on the date of PPP agreement shall be applied to the Private Partner within 10 years from the date of PPP agreement. A Private Partner has discretionary powers to apply those provisions of the new legislation of Uzbekistan that improves the conditions surrounding investments in the PPP object.

Adjustment and revision

Parties to PPP agreement are free to amend/supplement it. The copies of all amendments and supplemented agreements must be presented to PPP Agency within twenty calendar days from the date of signing corresponding amendment or addendums.

Transfer of ownership

In general, under a PPP agreement there is only public ownership of property involved. The Private Partner may acquire the right of ownership upon the expiration of the term of the PPP agreement, if the President of the Republic of Uzbekistan makes a relevant decision. The PPP Law does not provide conditions or procedures for such cases.

Early termination

PPP agreement may be terminated on the following grounds:

  • by mutual consent;
  • by a court decision - in the cases of material breach by one of the other party;
  • unilateral termination - non-fulfillment by the Public Partner of the obligation to provide the Private Partner with the land plot or rights to it
  • by other ways stipulated in the PPP agreement itself.

Termination of PPP agreement is the basis for termination of the contractual relationship with respect to the land plot provided for the implementation of a PPP project.