General legal newsletter for April 2021

In April 2021, new editions of the Law “On Public Procurement” and of the Law “On the Constitutional Court” were adopted. Another notable development of the month is the adoption of two presidential decisions on reforms and strategies for the development of the national capital market; according to them, the Capital Market Development Agency is to be liquated with all its functions and powers being transferred to the Ministry of Finance. Other changes were in the spheres of control of water consumption; state governance and public-private partnerships in tourism, sports, and culture; state supports for businesses, including for promoting the use of energy-efficient equipment. 

 1.  REVISED LAW ON PUBLIC PROCUREMENT

The President has signed a new edition of the Law “On Public Procurement”, entering in force on 24 July 2021[1]. It, among others, provides for the following:

• rules for public procurement set by the Law will now also apply to the cases, where public procurement is funded:

1. through all categories of foreign loans provided to the state unless terms of a relevant loan provide otherwise (previously, only loans attracted under state guarantee were covered);
2. through financial, humanitarian, or charitable assistance or other gratuitous funding, unless terms of relevant funding provide otherwise;
3. as a project of Investment Programs of Uzbekistan (in the current version of the Law, “state development programs” are noted and it is not clear whether Investment Programs are covered).

• procurements under direct contracts are described in separate Chapter IX of the Law. It is, among others, provided that procurements under direct contracts are allowed if so authorized by a relevant decision of the President or the Cabinet of Ministers. It is specified that in such a case relevant procurement documents are subject to complex expertise by the Center for Comprehensive Expertise of Projects and Import Contracts under the Ministry of Economic Development;
• it is set that participation in a public procurement procedure is not allowed where relatives of a participant or an authorized representative of a participant are authorized to decide on choosing a supplier, are a representative of a public purchaser or an engaged specialized procurement organization;
• it is set that where along with foreign participants, no less than 3 Uzbek participants take part in a public procurement procedure, preferences related to rules of assessment of submitted offers may be granted to Uzbek participants by a Presidential Decree or Resolution;
• more detailed provisions on conflicts of interest are included in the Law: more categories of persons are now covered by conflicts of interest provisions; participants of procurement procedures will now be obliged to disclose information on their beneficial owners;
• the Law allows the implementation of EPC works under projects included in state development programs and Investment Programs by using the “fast-track” method (simultaneous engineering, procurement, and construction), based on decisions of the President;
• the list of possible types of public procurement procedures is no longer rigid (exhaustive); the President and the Cabinet of Ministers may established procurement procedures not envisaged by the Law;
• it is provided that only those criteria that are set in procurement documentation must be used for assessing offers (not all the criteria listed in the Law); where offers of suppliers are assessed, such criteria as negative impact on the natural environment, energy efficiency, rational use of natural resources, the use of eco-friendly materials and renewable sources, may be applied.
• financial thresholds for choosing particular procurement methods have been revised.

Law “On Pubic Procurement” No. ZRU-684 of 22 April 2021

 2.  NEW LAW ON CONSTITUTIONAL COURT

A new version of the Law “On the Constitutional Court” has been adopted. It enters into force on 28 April 2021. The following novelties have, among other things, been brought in by the new version:

• now, the Court has 9 judges (instead of 7 earlier), who may serve in the Court for 15 years in total (instead of 10 years earlier). The participation of at least 5 judges is required to consider a case (previously, the presence of 4 judges was sufficient);
• individuals and legal entities may now appeal to the Constitutional Court for reviewing the constitutionality of a law, provided that they have exhausted all other judicial remedies; relevant claims have to be submitted within 1 year upon the completion of relevant court proceedings;
• it has been set clearly that all hearings are held openly. Closed hearings are allowed when it is necessary to maintain the confidentiality of information constituting a state secret or being otherwise protected by law;
• resolutions and opinions of the Court shall be published within 3 days after their adoption and enter into force from the date of their official publication. Other types of Court’s decisions (e.g. procedural decisions) enter into force on the date of their adoption;
• within 1 month after a legal act or its part is recognized unconstitutional and invalidated, the state body who has issued the invalidated act shall take measures to bring it into compliance with the Constitution; legal acts issued based on the act that has been invalidated must also be revised within 1 month.

Law “On the Constitutional Court” No. ZRU-687 of 27 April 2021

 3.  DEVELOPMENTS IN THE CAPITAL MARKETS REGULATION

The President has signed several documents on the development of the national capital market. Based on the documents:

• the Capital Market Development Agency (CMDA) is liquated on 1 May 2021 with its all functions and powers being transferred to the Ministry of Finance, in which a special department is established for overseeing the capital market. Applications being currently considered by the CMDA and its territorial departments will be considered by the Ministry of Finance in due course;
• starting from 1 January 2023, based on recommendations of an underwriter, domestic issuers may place their shares on foreign stock markets after preliminary placement on the national stock exchange;
• results of initial and secondary public offerings (IPOs and SPOs) are now not subject to re-examination;
• certain conditions are set for IPOs and SPOs of joint-stock companies, 50% or more shares of which are owned by the state;
• shares of 15 major state-owned companies will be subject to public offering throughout 2021-2023.

The Capital Market Development Program for 2021-2023 has also been approved (in Russian and Uzbek) which, among other things, envisages the following:

• active integration of the national capital market with international financial markets via, among others, extensive use of modern information and communication technologies (such as the opening of depo accounts remotely for residents and non-residents);
• by the end of 2023, ensuring that at least 5% of the financing of implemented projects is the financing attracted by issuing securities under national and regional investment programs;
• the introduction of novel financial instruments, including “exchange-traded funds” (among others, Gold ETF) and Islamic securities (Sukuk);
• enhancement of transparency and corporate governance in joint-stock companies;
• development of new legislation on capital markets, including a new Law “On the Capital Market”.

The Program will be implemented based on an approved Road Map.

Presidential Decree No. UP-6207 of 13 April 2021
Presidential Resolution No. PP-5073 of 13 April 2021

 4.  STATE CONTROL IN TOURISM, SPORTS AND CULTURAL HERITAGE 

The Ministry of Tourism and Sports (the “Ministry”) and the Agency for Cultural Heritage under the Ministry have been established with the Ministry of Physical Culture and Sports and the State Committee for the Tourism Development having been liquidated. Among its other mandates, the Ministry is responsible for applying public-private partnership (PPP) instruments for developing tourist facilities, sports facilities, and sites of tangible cultural heritage.

The Presidential Decree and the Presidential Resolution on establishing the Ministry and the Agency provide for some other measures in the relevant spheres, including, among others, the following measures:

• by early July 2021, the Cabinet of Ministers will develop instructions on how PPP instruments shall be implemented in the above spheres and will identify a list of facilities that may be a basis for relevant PPP projects. It has been set that PPP projects involving the above facilities for less than USD 1 mln may be initiated based on direct negotiations without holding a tender;
• a unified Law on cultural heritage objects and the export/import of cultural values will be developed by 1 January 2022 with the assistance of foreign experts;
• the Ministry and other state bodies will develop a draft of a Resolution of the Cabinet of Ministers for regulating activities related to sports betting.

Presidential Decree No. UP-6199 of 6 April 2021

 5.  STATE SUPPORT FOR BUSINESS ENTITIES

The President has adopted a Decree on measures for supporting businesses and improving Uzbekistan’s business environment. According to the Decree, the following measures of financial support are, among others, envisaged:

Starting from 1 May 2021:

• small businesses may receive a compensation of the interest on loans in the national currency where the interest does not exceed 1.75 times the Central Bank’s base rate (currently, 14%) from the State Fund for Supporting Business Entities (the “State Support Fund”);
• business entities may apply to the State Support Fund for guarantees and compensations irrespectively of the number of obtained loans, given some thresholds set by the Decree are not exceeded;
• the Export Promotion Agency is mandated to provide financing to commercial banks that in turn shall provide revolving loans to exporters selling goods on the terms of deferred payment;
• the amount of the fines for exporters who have not ensured timely payment for goods (services) that they have exported and the fines for importers who have not ensured timely import of goods that they have ordered will be decreased by 50%;
• the above fines accrued prior to 1 May 2021 will no longer be claimed with the term of delay being calculated anew from 1 May 2021.

Starting from 1 June 2021:

• taxpayers operating for more than 3 years and duly paying taxes may be granted a tax deferral if they are currently unable to pay their tax debts; the deferral may only be applied to the amount not exceeding 50% of the taxes paid by the taxpayer over the last 3 years;
• importers operating for more than 3 years and duly paying customs fees may be granted a customs fees deferral if they are currently unable to pay customs fees; the deferral may only be applied to the amount not exceeding 50% of the customs fees paid by the importer over the last 3 years.

Measures related to the allocation of land include:

• regional Councils of People’s Deputies (Kengashes) have been authorized to decrease the starting auction price for the rights of permanent use of land plots located in remote and inaccessible areas by 50%;
• starting from 1 June 2021, it will be allowed to allocate low-fertile, unused agricultural land plots located close to infrastructure objects (as will be identified in a specially approved list) via the online platform “E-IJRO AUKSION” to investors for constructing industrial objects;
• local municipalities will initiate PPP projects for the reconstruction of about 500 buildings of local self-governance organizations (makhallyas); under the projects, parts of reconstructed buildings will be transferred to private partners for business activities for 30 years.

Presidential Decree No. PP-5087 of 21 April 2021

 6.  PROMOTION OF ENERGY EFFICIENCY 

The Cabinet of Ministers has adopted the Regulation on Compensating Expenses for the Purchase of Energy-Efficient and Energy-Saving Installations. According to the Regulation, among other things, legal entities are eligible for compensation of the interest on bank loans taken for the purchase and installation of renewable energy and energy-efficient devices/equipment, including gas burners/boilers. The compensation is available where the amount of a loan does not exceed UZS 5 bln (approx. USD 474,428) and covers that part of the interest that exceeds the refinancing rate of the Central Bank of Uzbekistan (currently, 14%), but not more than for 5%.

To receive the compensation, an applicant must fill in a standard form application and attach such documents as: (i) a certificate and a technical passport for an installation(s), (ii) a relevant loan agreement as well as the documents justifying the provision of the loan, (iii) an agreement(s) with contractors performing installation and testing works, (iv) a certificate of the state registration (incorporation) of the applicant, (v) a document with applicant’s bank details. These documents have to be submitted to specialized working groups under local municipalities (khokimiyats).

Resolution of the Cabinet of Ministers No. 217 of 14 April 2021

 7.  MONITORING OF WATER CONSUMPTION

The Cabinet of Ministers has adopted the Regulation on the Procedure for Accounting, Reporting and Monitoring of the Water Use and Water Consumption, entering in force on 1 October 2021. According to the Regulation:

• all “special water users and consumers”[2] (except for those receiving water from municipal water supply systems) will have to submit reports on the water use and consumption in an electronic form. By 1 September 2021, relevant instructions on electronic reporting will be developed;
• facilities used for taking water from water bodies will have to be equipped with water locks and metering devices for online monitoring of water intake;
• permits to intake water will have to be obtained following a revised procedure and no later than 10 days prior to the actual intake;
• consumption records will be used comprehensively to calculate taxes on the use of water resources.

Resolution of the Cabinet of Ministers No. 174 of 3 April 2021

 8.  COMPENSATIONS FOR ENVIRONMENTAL POLLUTION 

A new Regulation on the Procedure for Charging Compensation Payments for Environmental Pollution and Waste Disposal has been adopted, having replaced the previous version. The list of business entities having to pay the relevant compensation has remained unchanged and includes: (i) legal entities emitting pollutants into the environment, discharging wastewater, and placing wastes, and (ii) individual entrepreneurs and legal entities discharging pollutants into municipal sewer networks in excess of set limits.

Specified compensation payers still calculate the compensation based on special formulas set in the Regulation, though rates of relevant variables are now higher (some of them will start to apply from 15 July 2021). Relevant calculations must be put into a special standard form (either on paper or electronically) and be submitted to regional departments for ecology and environmental protection for verification once every quarter or annually depending on the hazard category of a relevant entity. The compensation is paid in advance prior to the verification. If the amount of the paid compensation is insufficient, additional payment must be paid within 10 days upon the verification; any excess payments are, in turn, kept by the ecological authorities as an advance for future payments. Penalties apply if any payments are not made timely.

Resolution of the Cabinet of Ministers No. 202 of 12 April 2021

 9.  INVESTMENT PROJECTS IN TELECOMMUNICATIONS

The Cabinet of Ministers has approved the project “The Expansion of the Capacity of the International Packet Switching Center of the JSC “Uzbektelecom". Based on the results of tender bidding, it has been decided that the project will be implemented by “Winncom Technologies Corp” (USA). The total cost of the project is USD 25.9 mln. Relevant sources of funding are funds of JSC “Uzbektelecom” and a loan of state-owned JSC “Alokabank”. The main technical and economic parameters of the project are provided in Annex 1 to the relevant Resolution.

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Kosta Legal Law Firm