General legal newsletter for February 2020

In February 2020, the main legal changes were in the sphere of construction. The government intends to significantly liberalize the industry to boost the development of cities and regions as well as the implementation of key infrastructure projects. Yet, another notable development of the month is the adoption of a presidential decree calling for wider application of International Financial Reporting Standards. Starting from 2021, the use of IFRS will become mandatory for large companies and enterprises (as explained below).

The government also seems to be seriously determined to proceed with reducing state involvement and privatization in all the main sectors of the Uzbek economy. A relevant draft decree was proposed by the Agency for the State Assets Management. As per the draft decree, the government intends to privatize 1115 state-owned companies (including large state-owned banks, insurance companies, markets, sport facilities, enterprises in the electronic industry, enterprises in the oil and gas industry, etc.) and to sell part of its shares in 555 state-owned companies, including 18.8% of shares of Uztelecom (the largest telecom company), 25.4% of shares of Uzbekistan Post, 85% of shares of Coscom - Ucell (a large mobile network operating company), 49% of shares of Uzbekistan Airways, 25% of shares of the National Stock Exchange “Tashkent”, 24% of shares of Uzbekneftegaz (the national oil and gas company), 24% of shares of Uztransgaz (a gas transportation company), etc. It was also proposed to restructure and reform corporate governance in 13 national state-owned holding companies, having long been pillars of the national economy (these companies include Uzavtosanoat, Uztransgaz, Uzpakhtasanoat and others).

It is notable that the Resolution No. 27 “On Measures for Effective Management of the State Debt and Ensuring the Targeted Use of the Attracted Debt” , is no longer effective providing for the abolishment  of the previously described procedural requirements for financing projects through a sovereign loan. The thresholds introduced by the Law on the State Budget for 2020 shall remain in force.

 1.  DEVELOPMENTS IN THE CONSTRUCTION INDUSTRY 

The President passed a decree aimed at improving state control over construction projects starting from April 1, 2020. A draft of the Administrative Regulations for State Control over Construction Projects will be developed within 2 months and will include the following points:

• the exemption of construction projects of the low risk category (based on the categorization set by law) and individual housing projects from the mandatory requirements related to the state examination of project documentation, designer’s supervision and state construction control. Instead of that, local Inspections for Construction Control under the Main Construction Departments of regions and Tashkent city (the “Inspections”) will verify compliance with building norms and standards after completion of construction;
• the tightening of qualification requirements and accountability of specialists responsible for technical and designer’s supervision over construction projects of the high risk category;
• throughout 2020, phased-in introduction of the National Information System "Transparent Construction” that will facilitate electronic documentation management in the state construction control;
• starting from April 2020, the setting of a single state fee payable to the Inspections in the amount of 0.2% of the cost of construction and installation works (without VAT) for all projects subject to state construction control;
• starting from March 2020, projects for capital repairs will not be subject to state construction control, if financed from private sources.

It is also envisaged that the currently existing procedure for the commissioning of constructed facilities i.e. a comprehensive check of a completed construction by a number of state authorities will be abolished and instead of the issue of acts of commissioning as a result of the commissioning check, exploitation permits will be issued by the Inspections under a simplified procedure (for construction projects of the first (low-risk) category – starting from May 2020; for the other construction projects – starting from January 2021).

Presidential Decree No. PP – 4586 of February 5, 2020

 2.  STATE CONTROL OVER THE MANUFACTURE OF METAL CONSTRUCTION MATERIALS 

The government strengthened state control over the manufacture of metal construction materials in order to improve the safety and quality in the construction sector. Thus, the following changes were made:

• The List of products subject to the mandatory quality certification now includes “metal tile roofing” and “wall and roof sandwich panels”. Starting from June 2020, products of these categories produced or imported to Uzbekistan will have to be accompanied with relevant quality certificates;
• Starting from June 2020, it will be prohibited to manufacture metal construction materials with the use of an induction furnace. Construction companies will, in turn, be prohibited from the use of metal materials produced in this way;
• By April 2020, state authorities will create a public register of companies engaged in the production of metal construction materials, whose quality corresponds to state regulations and standards.

Resolution of the Cabinet of Ministers No. 89 of February 17, 2020

 3.  THE USE OF INTERNATIONAL FINANCIAL REPORTING STANDARDS 

The President signed a decree on the adaptation and use of International Financial Reporting Standards (IFRS). The decree provides for the following measures:

• Starting from January 2021, joint-stock companies, commercial banks, insurance companies and legal entities that are classified as large taxpayers (i.e. entities with the total net income exceeding UZS 100 bln; entities that are engaged in the production of excisable goods; entities that are parties to product sharing agreements; Navoi Mining and Metallurgical Combine, Almalyk Mining and Metallurgical Combine and their subsidiaries; banks and their branch offices; commodity, stock and currency exchanges) will be required to organize accounting and financial reporting based on IFRS and to ensure that their accounting department is staffed with at least 3 accountants who have passed “IFRS Financial Reporting” courses or have obtained relevant international certificates (CIPA, ACCA, CPA, or DipIFR);
• Business entities voluntary using IFRS in accounting and financial reporting will be exempt from the requirement to apply national accounting standards;
• Until June 2020, the Agency for the State Assets Management will publish a schedule for the transition to the use of IFRS for state-owned enterprises on its official website.

Additionally, the Action Plan for Staged Incorporation of IFRS and Relevant Training Methods was approved that provides for exact steps to be taken with the assistance of international consultants to ensure correct application of IFRS within Uzbekistan. This includes the adaptation of the IFRS requirements and the publication of explanatory notes throughout 2020.

Presidential Decree No. PP-4611 of February 24, 2020

 4.  THE REGISTRATION OF PERSONAL DATA DATABASES

In March 2020, the State Personalization Center under the Cabinet of Ministers will launch a public register of databases containing personal data, as provided in newly adopted Regulations. The relevant registration requirements and related rules set by the Regulations do not cover situations when:

• personal data are processed by individuals for personal and household purposes not related to their professional or commercial activities;
• archival documents and documents of the National Archival Fund containing personal data are formed, stored and used;
• personal data falling under the category of state secrets are processed;
• personal data are processed in the course of investigation, intelligence, law enforcement and other similar activities.

The databases containing the following types of personal data do not have to be registered:

• a surname, a first name and a patronymic of individuals;
• personal data that have been made publicly available by its owner;
• personal data processed without using automation systems;
• personal data processed based on the requirements of labor law;
• personal data related to members of religious and public organizations and processed by these organizations internally;
• personal data included in informational systems, being state automated information systems (as defined by law);
• necessary for getting onetime access to the territory where the owner or an operator of the relevant database is located/resides.

Databases are registered by sending a notification to the State Personalization Center by owners or operators of these databases using the standard form application attached to the Regulations. A certificate is issued upon successful registration. No fees are charged for the registration and making further changes in respect of registered details. Time required for the registration is 15 calendar days.

For your information, our review of the Uzbek Data Protection Law of July 2019 is available here.

Resolution of the Cabinet of Ministers No. 71 of February 8, 2020

 5.  MANDATORY LABELING AND CERTIFICATION

Presidential Decree No. 4594 of February 11, 2020
Order of the Uzbek Agency for the Standardization, Metrology and Certification "Uzstandart” No. 1458-5 of February 5, 2020

 6.  DEVELOPMENTS IN THE CHEMICAL INDUSTRY 

On February 5-6, 2020, the President and the Cabinet of Ministers passed resolutions providing for the transfer of the 100% of state-owned shares of JSC “Samarkankimyo” (a company operating a fertilizers producing enterprise in Samarkand region) to “Ferkensco Management Limited” (Cyprus). The shares are transferred at zero cost in exchange for a commitment to invest USD 200 mln into the creation of an environmentally friendly chemical complex for the production of complex mineral fertilizers in Samarkand region. The relevant investment agreement will be signed till July 2, 2020. The resolutions also provide for a number of benefits and incentives for the implementation of the project.

Presidential Decree No. PP – 4587 of February 6, 2020
Resolution of the Cabinet of Ministers No. 61 of February 5, 2020

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Kosta Legal Law Firm