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General legal newsletter for Аugust 2020

Some of the most notable legal changes of August 2020 are the cancellation of licenses and the liberalization of licensing procedures in a large number of industries. The government of Uzbekistan remains to be committed to destatisation of the economy and made yet another decisive step in this direction. Other interesting developments of the month include clarification of rules and procedures for taxing foreign entities and paying VAT; improvement of the legislation on the insurance of export risks; and liberalization of the regime for state supervision over construction works. A number of legal acts were also passed to support investment and development projects in energy, infrastructure, and agriculture.

1. LIBERALIZATION IN LICENSING

To simplify the market entry of new business entities, the President ordered to phase out the licensing (the provision of special permits) in a number of areas. It is planned (i) to significantly reduce the number of licenses and permits by introducing alternative regulatory systems and (ii) to completely switch to paperless workflow in issuing all licenses and permits.

According to the relevant Presidential Decree, the following changes will be introduced starting from 1 January 2021:

certain types of licenses and special permits will be abolished, including (i) the licenses for the financial audit activities; the production and wholesaling of medical products; the realtor activities; the appraisal activities; the mining of gemstones; the urban, suburban, intercity, and international transportation of goods by roads; the activities of investment funds; etc.; (ii) the permits for the attraction of foreign labor force; the construction of water supply and sewage systems, as is given by the Ministry for Healthcare; the installation of cable TV networks, etc.
some types of licenses and special permits will merge, including the permits for selling veterinary drugs; the permits for designing and installing local, intercity, and international telecommunication networks; the mine allotment act and the approval of a technical project of a mining enterprise; the permit to use residential premises for non-residential purposes and the permit to reconstruct a facility/premises; etc.
for some activities, instead of obtaining a permit, just sending a notification will be sufficient, including such activities as the production and the sale of jewelry; the investment consulting services; the out-of-school education activities; the sale of petroleum products (except for the sale of petroleum products through gas stations and oil change points); the pawnshop activities; the geodetic and cartographic activities; the opening of branches by banks; the retail trade in alcoholic beverages; etc.
timeframes for issuing licenses and permits will be shortened resulting in relevant documents being issued faster.

The following practices of licensing bodies will be strictly prohibited:

to refuse to provide/extend the validity of licenses and permits, if the applicant has debts on utility payments;
to replace the procedure for issuing licenses/permits with the practice of concluding other arrangements with business entities;
to request purchasing particular services as a precondition for issuing a license/permits.

Starting from 1 January 2021, state unitary enterprises/non-governmental establishments created based on decisions of the President or the Cabinet of Ministers will no longer be allowed to carry out any activities subject to the licensing without obtaining a corresponding license/permit.

All the licenses and permits that expire in 2020 will remain valid till 1 January 2021. All license holders whose licenses are replaced by notification procedures as per the approved lists above are not required to provide notifications till their licenses expire.

Presidential Decree No. UP-6044 of 24 August 2020

2. INSURANCE OF EXPORT RISKS

(a) In line with the Road Map for the Development of the Uzbekistan’s Insurance Market in 2019-2020, the Regulation on the Procedure for Insuring Export of Capital, Goods and Services (Works) was adopted.

In accordance with the Regulation, exporters may obtain insurance against political, commercial, and/or logistic risks (separately, against each risk, or against all listed, at once). The insurance agreements are subject to relevant minimal requirements and restrictions. A procedure for concluding relevant contracts is described in details in the Regulation with the relevant scheme being also attached to the Regulation.

All payments within Uzbekistan (insurance premiums, payments of insurance compensation) must be paid in UZS. However, it is allowed to make payments in a foreign currency to foreign entities.

According to the Regulation, insurance compensation must be paid within 15 calendar days upon receipt of relevant justifying documents. An insurance company may refuse making the payment in cases listed in the Regulation (given that the relevant clause listing these cases is duly incorporated into an insurance contract).

(b) Additionally, the Regulation for Compensating Expenses on Insurance Premiums when Exporters Use Insurance as a Collateral was adopted. The Regulation provides that expenses on insurance premiums are compensated by the Agency for Export Promotion under the Ministry of Investments and Foreign Trade. The amount of the compensation may not exceed 1% of the relevant insurance amount.

Resolution of the Cabinet of Ministers No. 477 of 12 August 2020
Resolution of the Cabinet of Ministers No. 512 of 25 August 2020

3. STATE SUPERVISION OVER CONSTRUCTION PROJECTS

Following the Resolution of the President No. PP-4586 of 5 February 2020, the Government adopted the Administrative Regulation for the State Construction Supervision and the Classification of Categories of Facilities’ Danger, changing the regime for state supervision over construction projects through the introduction of differential treatment provisions. Among other things, such reforms strive to reduce over-regulation of low-risk facilities and strengthening monitoring of high-risk ones.

As per the Regulation, Territorial Construction Supervision Inspections under the Ministry of Construction will thus apply different rules for the state supervision (and will conduct a different number of inspections), depending on a category of a relevant facility. The facilities' category depends on the level of risks and dangers accompanying the associated engineering and construction works to be performed.

It is notable that the revised list with the relevant categorization of facilities for each industry is attached to the Regulation.

Resolution of the Cabinet of Ministers No. 496 of 20 August 2020

4. IMPROVEMENTS IN TAX LEGISLATION

The Cabinet of Ministers adopted a number of Regulations governing the tax administration in respect of activities of foreign entities and the value-added tax, including:

Each of the above Regulation provides for corresponding procedures (guidelines) with corresponding standard application forms being attached.

Resolution of the Cabinet of Ministers No. 489 of 14 August 2020

5. INVESTMENT PROJECTS IN ENERGY SECTOR

(a) The President approved project documentation for 2 investment projects for the construction of combined-cycle gas turbine (CCGT) plants. Cooperation between the government and investors in both projects will last for 25 years.

The first project (for USD 1,2 bln) envisages the construction of a 1500 MW CCGT power plant in the Syrdaryo region. The project is sponsored by “The International Company for Water and Power Projects” (Saudi Arabia), which has established a local special purpose company - LLC “Acwa Power Sirdarya”. The Presidential Decree approving the project also approves a power energy off-take agreement between LLC “Acwa Power Sirdarya” and state-owned JSC “National Power Grids”.
The second project is sponsored by “AKSA Enerji Üretim A. Ş.” (Turkey) and envisages the construction of a 240 MW CCGT power plant in the Tashkent region. The project cost was not revealed. Similar to the first project, a power purchase agreement will be concluded between the sponsor and JSC “National Power Grids”.

(b) 3 hydropower stations (HPSs) - Rabat HPSm Chappansuy HPS, and Tamshuh HPS - will be built at the Aksu and Akdarya-Aksu rivers. Based on indicators of relevant feasibility studies, the total cost of the project is USD 75.3 mln, USD 60 mln of which are provided by the Asian Development Bank. State-owned JSC “Uzbekhydroenergo” is responsible for implementing the project.

Presidential Decree No. PP-4799 of 10 August 2020
Presidential Decree No. PP-4807 of 13 August 2020
Resolution of the Cabinet of Ministers No. 497 of 21 August 2020

6. INFRASTRUCTURE PROJECTS IN ROAD CONSTRUCTION

Based on a Resolution of the Cabinet of Ministers, a local joint venture was created by the German company “GP Gunter Papenburg AG” (70%) and the state-owned enterprise “Transyo’lqurilish” under the State Roads Committee (30%). Papenburg Uzbekistan will engage in manufacturing asphalt concrete mixes and ready-made concrete products for road construction as well as performing construction and installation works with the use of German technologies and equipment.

For performing the above activities, Papenburg Uzbekistan will (i) receive 6 hectares of land at a zero cost with corresponding investment obligations being attached, (ii) enter into a direct agreement for the extraction of sand and gravel materials from the Chirchik riverbed.

Resolution of the Cabinet of Ministers No. 471 of 10 August 2020

7. WATER SUPPLY IN BUKHARA REGION

The government initiated a project for the development and modernization of the water supply and sewerage systems in the Bukhara region, which will be implemented during 2020 - 2030. For implementing the project, the government obtained a target loan of the Asian Infrastructure Investment Bank for USD 385,12 mln and provided tax and customs incentives for USD 52 mln. The agency “Kommunkhizmat” under the Ministry of Housing and Communal Services is responsible for implementing the project. Technical and economic parameters of the project were also revealed.

Resolution of the Cabinet of Ministers No. 482 of 12 August 2020

8. PROJECT FOR AGRICULTURAL SECTOR DEVELOPMENT

A Presidential Decree was adopted to implement the project for the modernization of agriculture of Uzbekistan with the participation of the International Bank for Reconstruction and Development and the International Development Association. The total cost of the project is USD 659.3 mln and the implementation period is 6 years (2020-2026).

It envisages the creation of agricultural research institutions, the development of the seed production, the creation of agro-logistics complexes in the Bukhara and Khorezm regions; the financing of the creation of orchards and vineyards all over the country; the creation of assistance centers for framers in all the regions, and the training of specialists for the sector.

Some tax and customs benefits are provided to entities that participate in the project.

Presidential Decree No. PP-4803 of 11 August 2020

9. PROJECT FOR IMPROVING METERING AND CONTROL IN ELECTRICITY SECTOR

As had been envisaged by the Road Map for Attracting Funding for Supporting the Economy during the Pandemic of 6 June 2020, the Ministry of Investments and Foreign Trade and the Ministry of Energy signed a memorandum of understanding with the French Development Agency, under which the Agency will provide EUR 150 mln loan for reforms in the energy sector and in particular, for the implementation of a project for the introduction of an automated system of electricity metering and control. The ultimate recipient of the attracted funds is JSC “Territorial Electricity Grids”, which is responsible for the implementation of the project. A corresponding loan agreement, some details of which were also revealed, is yet to be concluded.

Resolution of the Cabinet of Ministers No. 465 of 6 August 2020

10. SOCIAL AND ECONOMIC PROJECTS IN FERGANA REGION

The President approved a Program for socio-economic development of the Sokhsk district of the Fergana region in 2020 – 2021. It envisages the implementation of projects in agriculture, infrastructure, education, healthcare, etc.

For implementing the projects, the district-level municipality was given the right to allocate land plots (except for irrigated ones and in coordination with region-level municipalities) through direct negotiations until 1 January 2022.

The relevant list of projects to be implemented in 2020-2021 under the Program provides for almost 80 projects, the most substantial of which include:

the construction of water supply facilities (274 km networks, the estimated number of consumers - 59K) for USD 10.6 mln;
the construction of roads: 266 km of roads and 40 km of pedestrian walkways for USD 10.2 mln;
the construction of a pumping station at the Qayroq massif for the reclamation of agricultural lands (1448 hectares) for USD 8.9 mln:
the creation of facilities for manufacturing cement for USD 7.7 mln.
the construction of advanced greenhouses within an area of 10 hectares by engaging large businesses for USD 5.9 mln.

The Presidential Decree approving the Program also provides for a number of benefits and incentives for individuals and businesses of the Sokhsk district.

Presidential Decree No. PP-4798 of 8 August 2020

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Have a good day!

Sincerely,
Kosta Legal Law Firm

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