General legal newsletter for April 2020

In April 2020, Uzbek government’s efforts were mainly targeted at combating the spread of COVID-19 and taking relevant measures to support the population and businesses. The measures related to the reduction of state budget expenses, which may have a direct impact on planned investment projects with participation of the state, are described in this newsletter, whereas other relevant measures are covered in our new publication.

Though being mainly concerned with the coronavirus and the collapse of the Sardoba dam in the Sirdaryo region of Uzbekistan, which has left more than 100,000 people displaced, the government continued to implement reforms in various spheres. There were changes in the oil and gas industry, power energy, public procurement procedures, procedures related to PPP and investment projects (as described in our publication, a link to which is given below), the regulation of trading in alcohol and tobacco products, and some other areas and industries.

Uzbekistan has also improved its legal framework for investment projects implementation. Please click this link to access the insight on the recent developments.

 1.  THE USE OF STATE FUNDS IN 2020

As a result of the spread of COVID-19, the government decided to take the following measures to ensure better utilization of state funds:

• postpone the implementation/financing of new projects of minor importance;
• continue proper performance of state obligations under ongoing projects, prioritizing social projects;
• continue proper repayment of foreign debts and the implementation of commenced PPP projects;
• optimize expenditures of local budgets of regions, cities, and towns, ensuring that financing of less prioritized projects is postponed;
• order all state agencies and institutions (except for medical and some social establishments) to suspend construction, reconstruction, and repair works as well as the purchasing of assets at the expense of their extra-budgetary funds (i.e. funds being not directed from the state budget, but accumulated by those institutions as a result of their performance of specific activities – the collection of fines, the charging of state fees, etc.), except for the projects, the financing of which has already commenced;
• revise business plans of enterprises with state shares above 50%; to ensure that dividends from the activity of such enterprises are entirely directed to the state budget; the Cabinet of Ministers is now empowered to take special decisions on a distribution of profits of state-owned enterprises engaged in the extraction of natural resources;
• make a list of projects financed by the Fund for Reconstruction and Development of Uzbekistan that will be postponed. This list will include only those projects, wherein no construction and installation works have commenced yet.

Presidential Decree No. PP-4679 of 15 April 2020
Resolution of the Cabinet of Ministers No. 232 of 16 April 2020

 2.  DEVELOPMENTS IN THE OIL & GAS SECTOR

To promote a competitive environment and improve efficiency of many state-owned enterprises in the oil and gas industry, the President ordered the Ministry of Energy, the Ministry of Finance, the Ministry of Economic Development and the Reduction of Poverty, and a number of other state agencies to implement the following measures:

• starting from 1 May 2020, (i) to abandon state control on retail prices for motor gasoline Ai 80 and diesel fuel and (ii) to ensure that refineries will sell gasoline Ai 80 and diesel fuel through commodity exchanges only (except for selling them to a number of state-owned enterprises). The excise tax will not be applied when petroleum products are bought for resale. Similar measures were taken in respect of motor gasoline Ai 90 in August 2019;
• starting from 1 May 2020, to set new intra-industry prices for oil and gas condensate sold by JSC Uzbekneftegaz and LLC Shurtansky GCC (some of the country’s largest producers), which will be tied to Brent oil prices on world’s commodity exchanges, and new prices for the provision of terminal storage services to businesses importing petroleum products and hydrocarbons.
• by 1 June 2020, to submit proposals on hiring highly qualified foreign experts and specialists, including compatriots abroad, by state-owned oil and gas companies, setting methods of their selection, qualification requirements, functional responsibilities, terms of recruitment and the amount of remuneration;
• by 1 July – 1 October 2020, to develop action plans on improving operational efficiency and corporate governance and on implementing anti-corruption compliance in state-owned enterprises in the sector;
• by 1 September 2020, (i) to propose how to facilitate the creation of wholesale electricity and natural gas markets functioning based on the principle of commodity exchange trades, ensuring equal access for all participants and transparency of pricing mechanisms; (ii) to prepare a programme for the development of the gas transportation system up to 2030 with the involvement of World Bank’s and Asian Development Bank’s experts;
• to ensure the attraction of funds of the Silk Road Fund, foreign commercial banks (USD 250 mln), and export credit agencies (USD 400 mln) to continue the funding of the Programme for Increasing the Production of Hydrocarbons for 2017-2021 (some details about the progress of its implementation are available here: 1 and 2). Part of the financing will be attracted under sovereign guarantees;
• to submit proposals on simplifying licensing procedures in the sector.

Presidential Decree No. PP-4464 of 4 April 2020

 3.  DEVELOPMENTS IN THE POWER ENERGY INDUSTRY 

The government approved the Concept of Providing Uzbekistan with Power Energy for 2020-2030. The main aim of the document is to meet growing demands for power energy (it is anticipated that the total power consumption will increase from 63.6 kWh to 120.8 bln kWh by 2030) and the creation of a balanced power sector. It is planned, among other things, that:

• 13 investment projects for the construction and reconstruction of thermal power plants will be implemented;
• projects in the renewable energy sector will be implemented that will allow to ensure the production of 3GW of wind energy and 5GW of solar energy; wind stations will be constructed in Karakalpakstan and the Navoi region, solar stations with the capacity of 100-500 MW – in the Jizzakh, Samarkand, Bukhara, Kaskadarya, and Surkhandarya regions;
• 62 projects in hydro power energy will be implemented; this includes the construction of 35 new stations and the reconstruction of 27 existing stations;
• new power transmission lines will be constructed for connecting generation enterprises and existing lines;
• local distribution lines will be constructed and reconstructed;
• the total generating capacity will be increased from 12.9 HW to 29.3 HW by 2030;
• the total generation volumes will reach 120.8 kWh;
• 7.1% of the total amount will be generated using renewable sources, 14.9% – by nuclear power stations;
• the use of natural gas in the power generation will decrease from 16.5 bln m³ to 12.1 bln m³ per year, while the annual amount of coal being burned will increase from 4.1 mln tons to 8.5 mln tons per year;
• the majority of generation facilities will be owned by the private sector with the state owning hydropower stations, nuclear stations, and some thermal power plants;
• energy losses in transmitting power energy will be decreased to 2.4%, in the local distribution – to 6.5%.

It is also envisaged by the Concept that a wholesale market of power energy will be created by 2023. In 2021, a new trading company will be established that will act as a single off-taker of power energy instead of JSC “National Energy Grids of Uzbekistan”, also undertaking import and export of power energy. In 2020-2021, a number of other institutions will also be created: (i) an independent regulator of the power energy market (ii) a stated owned company – an operator of the online platforms, at which trades in power energy will be conducted.

The government plans to develop a new Law on Power Energy, a Law on the Independent Regulator of the Energy Market, and the Grid Code.
A new tariff policy will be developed based on the following principles:

• separate non-discriminatory tariffs will be set for the generation, transmission, and distribution of power energy that will allow to recover actual operation expenses, depreciation, capital expenses, and expenses related to the repayment of loans as well as to earn profit;
• long-term tariffs will be set to stimulate energy efficiency and the reduction of energy losses;
• uniform tariffs will be set for end-users throughout the country;
• setting differentiated tariffs depending on the time of a day and the day of a week;
• the purchasing of excessive power energy produced by the population, using its own generation facilities;
• approval of tariffs by a specialised Tariff Commission and the Independent Regulator, which will also be responsible for developing relevant methodologies.

 4.  PUBLIC PROCUREMENT: TENDER AND BIDDING

The Regulation on the Procedure for the Organization of Public Procurement was supplemented. Now, it is set that:

• tenders and competitive bidding can be conducted electronically. The corresponding online platforms have already been created: http://xarid.mf.uz/ – for e-bidding and http://tender.mf.uz/ – for e-tenders.
• in the above public procurement procedures, bid bonds are now to be provided for a period until a winner is determined, and for the winning bidder – under until a relevant procurement contract is concluded. The bid bond may not exceed 3% of the relevant contract price.

Order of the Ministry of Finance No. 3016-3 of 13 April 2020

 5.  PUBLIC PROCUREMENT FOR STRATEGIC ENTERPRISES

The procedural requirements for public procurement procedures conducted by state-owned strategic enterprises were changed. The following rules now apply:

• the comprehensive state examination of technical specifications of a procurement procedure – the minimum threshold for strategic enterprises was increased to 5,000 times the baseline calculation value (the ‘BCV’) (approx. USD 111,513);
• the comprehensive state examination of procurement contracts– now, only import contracts, including their supplementary agreements, are subject to the state assessment with the minimal threshold being increased to 40,000 times the BCV (approx. USD 892,000);
• direct contracts – direct purchase contracts are now allowed between strategic enterprises and persons having exclusive rights to an object of procurement;
• announcement of a procurement procedure – the period within which strategic enterprises must accept responses to their procurement announcements was reduced from 15 to 10 days.

Presidential Decree No. PP-4678 of 15 April 2020

 6.  PPP PROJECTS INITIATION AND APPROVAL

 7.  ELECTRONIC SYSTEM FOR LOCAL MUNICIPALITIES: LAND ALLOCATION

The government plans to launch an electronic system for the development, approval, and registration of decisions taken by local municipalities (khokimiyats), including those on land allocation, - “E-QAROR”. It is expected that the system will allow to streamline the process of taking such decisions and to ensure better cooperation of state agencies engaged in it. In the first 6 months of 2021, the system will be tested in the Kashkadarya region. It is expected that in July 2021, the system will be launched nationwide.

By 1 September 2020, a comprehensive inventory of all land allocation decisions made by local municipalities from September 1993 to March 2020 will be made. All the decisions will then be published on websites of the municipalities. This will make the land allocation system more transparent and will help verifying ownership rights to land plots. 

Resolution of the Cabinet of Ministers No. 218 of 14 April 2020

 8.  THE LICENSING OF WAREHOUSES AND DUTY FREE SHOPS

Administrative regulations on new rules for issuing licenses for the operation of (i) customs (bonded) warehouses, (ii) free trade zone warehouses, and (iii) “duty free” shops were adopted. A new licensing authority is the Specialized Customs Complex "Tashkent-AERO" (instead of the Central Apparatus of the State Customs Committee). The relevant licensing services are provided in the Public Services Centers (have to be attended in person) and through the State Portal (application documents may be submitted electronically). Relevant standard application forms are attached to the approved regulations, while a list of required supportive documents has not changed. The license is still given for an unlimited term. It is issued within 20 calendar days upon the submission of the relevant application. A state fee payable for obtaining the license is 5 times the baseline calculation value (approx. USD 112).

Resolution of the Cabinet of Ministers No. 210 of 9 April 2020

 9.  REGULATION OF TOBACCO AND ALCOHOL PRODUCTS

According to the Presidential Decree of 6 April 2020, starting from 1 June 2020, the excise tax will start to be levied on such imported tobacco products as (i) heated tobacco products, (ii) smoking, chewing, snuff, smokeless (snus), and hookah tobacco (iii) tobacco-free nicotine snus, and (iv) nicotine liquids (the relevant excise tax rates may be found here). Also, a new law will be developed within 3 months from the date of the Decree to create a modern regulatory framework for hookah tobacco, e-cigarettes, heated tobacco products, and nicotine products.

Additionally, new excise stamps were introduced for alcohol and tobacco products with old excise stamps remaining valid till 1 February 2021.

Presidential Decree No. 4665 of 6 April 2020
Resolution of the Cabinet of Ministers No. 227 of 15 April 2020

 10.  INFRASTRUCTURE PROJECTS IN KASHKADARYA AND KHOREZM REGIONS

The government initiated projects for the construction and reconstruction of water supply and sewerage systems in the Kashkadarya and Khorezm regions. The projects will be implemented throughout 2020 – 2023 with the help of the European Bank of the Reconstruction and Development (“EBRD”). The cost of the project in the Kashkadarya region is USD 114.5 mln, in the Khorezm region – USD 76.04 mln. Contributions of EBRD will amount to USD 90 mln and USD 60 mln respectively. The funds will be lent for 15 years. A state authority implementing the projects is the State Agency “Komunkhizmat” under the Ministry of Housing and Communal Services.

Resolution of the Cabinet of Ministers No. 220 of 14 April 2020
Resolution of the Cabinet of Ministers No. 221 of 14 April 2020

 11.  AN INVESTMENT PROJECT IN TELECOMMUNICATIONS

One of the largest mobile companies in Uzbekistan, state-owned “Universal Mobile Systems”, initiated an investment project for modernising its equipment and facilities for improving the provision of Internet services across the country. The project is performed by Huawei Technologies Co. Ltd. The total cost of the project is USD 238.5 mln and is partially financed (USD 127.5 mln) by the National Bank for Foreign Economic Activity of Uzbekistan, who, in turn, attracts financing from the Export–Import Bank of China.

Resolution of the Cabinet of Ministers No. 196 of 3 April 2020

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Kosta Legal Law Firm