General legal newsletter for January 2020

The most notable legal developments in January 2020 include the adoption of the Investment Program for 2020-2022 (a list of major state-supported projects, for the majority of which private investment is sought), the adoption of new regulations on (i) investment activities and (ii) the sovereign debt and guarantees and the attempt to completely reshape the agriculture sector, suffering from all-pervasive state control, including price controls and rules for the distribution of agricultural products. 

In terms of business entities regulation, (i) certain procedures for mandatory fees of mobile network operators have been changed, (ii) regulation of limited and additional liability companies has been reviewed, (iii) the list of licensing activities has been extended with certain new penalties being introduced, (iv) some changes in the legislation concerning unlawful actions of state authorities have been enacted.

 1.  INVESTMENT PROGRAM AND SOCIAL CONSTRUCTION PROJECTS IN 2020-2022

The President has approved the Investment Program for 2020-2022 that provides for a list of priority investment projects in energy, oil & gas, chemical, metallurgy, automobile, and some other industries, being supported by the state. The majority of the projects are going to be implemented through the attraction of private direct investments and foreign loans. The total value of the projects envisaged by the Program is UZS 850 trln, USD 35,5 bln of which are expected to be financed by foreign investment. Private investors may refer to the Annexes 5-7 for potential investment projects.

A separate Presidential Decree has also approved a program for the development of social and production infrastructure. It mainly provides for the construction and reconstruction of educational, healthcare and transportation infrastructure at the expense of the state budget. It is of interest that the Decree expressly prohibits implementing projects being financed by centralized investments (i.e. from the state budget) without holding a tender, except for special cases directly envisaged by the Law on Public Procurement and other legal acts.

Presidential Decree No. PP-4563 of January 9, 2020
Presidential Decree No. PP – 4565 of January 10, 2020

 2.  CHANGES IN LAWS ON BUSINESS ENTITIES 

 The Law on Limited and Additional Liability Companies, the Law on Joint-Stock Companies, and the Law on the Audit Activities have been amended. All the corresponding changes described below will enter into force starting from April 22, 2020.

The following rules related to limited and additional liability companies have been added:

• Limited/additional liability companies with the net book value of assets exceeding 100,000 times the baseline calculation value (approx. USD 2,3 mln) are now subject to mandatory annual audit by an independent audit company;
• The entering into of joint-stock company into large transactions (in simple terms, the acquisition or the disposal of property for the sum exceeding 15% of the company’s total net assets) or a transaction with an affiliated party, the total cost of assets of which exceeds 10% of the total net value of company’s assets, may now not be approved until terms of such transactions have been reviewed by an independent audit company; 
• If participants of a company cannot reach an agreement on matters related to managing the company owing to the lack of a required number of votes because of some irreconcilable disagreement, such a conflict is to be resolved in court.

Law of the Republic of Uzbekistan No. ZRU-603 of January 22, 2020

 3.  DEVELOPMENTS IN AGRICULTURAL SECTOR

In November 2019, the President approved the Strategy for the Development of Agriculture in 2020-2030. In January 2020, the President adopted the Program of Measures for the Implementation of the Agricultural Strategy. The following steps will be taken in 2020-2021:

• starting from the beginning of the harvesting season of 2021 the government will introduce market mechanisms:

- in the purchase and sale of grain crops to create free competition;

- for pricing, purchasing and selling raw cotton. One of the new mechanisms will be setting minimum prices for raw cotton supplied by farms to cotton and textile clusters;

• starting from April 1, 2020, the government will introduce (as an experiment for Tashkent and Kibray districts of Tashkent region, Fergana and Altyaryk districts of the Fergana region, and Nishan and Kitab districts of Kashkadarya region):

- a mechanism for a more transparent and competitive allocation of land plots for agricultural purposes;

- a new mechanism for assessing the market value of the rights to agricultural lands and will clarify how this value is to be used when taxes are calculated.

Presidential Decree No. PP – 4575 of January 28, 2020

 4.  PROMOTION OF MECHANICAL COTTON HARVESTING

The government has approved a list of measures to be implemented throughout 2020-2026 to introduce modern technologies in cotton harvesting. Jizzakh, Kashkadarya, Syrdarya, and Tashkent regions are identified as priority regions for testing these measures in 2020-2022 before they will be applied in all the regions of the country.

According to the approved list of measures,(i) the Ministry of Finance will continue to cover 30% of the costs of agricultural enterprises related to the use of machine services during the harvesting; (ii) state-owned holding company Uzagrotexsanoatholding is tasked to initiate projects to create production lines for manufacturing agriculture machinery to harvest cotton; (iii) state-owned enterprises being controlled by Uzagrotexsanoatholding receive the right to select contractors for purchasing components, raw materials, and equipment for the production of agricultural machinery without the need to hold a tender.

Resolution of the Cabinet of Ministers No. 21 of January 14, 2020

 5.  MANDATORY FEES FOR MOBILE NETWORK OPERATORS

 The Ministry for the Development of Information Technologies and Communications and the Ministry of Finance has changed the Regulation on the Procedure for the Calculation and Payment of Fees for the Use of Telephone Numbers by Legal Entities Providing Mobile Communication Services (Mobile Network Operators). In particular, rules for the calculation of the number of telephone numbers assigned to customers have been changed that will affect relevant mandatory fees payable by mobile network operators to a specialized state fund. From now on, mobile network operators will be required to make relevant fee calculations based on the average number of customers in a given month rather than pay for the number of customers quantified on the last day of a given month.

Resolution of the Ministry for Development of Information Technologies and Communications and the Ministry of Finance No. 2329-6 of January 10, 2020

 6.  REGULATION OF LICENSING ACTIVITIES 

 7.  UNLAWFUL ACTIONS OF STATE AUTHORITIES

A new provision on compensations from state bodies and state officials for their illicit actions and omissions, including the issuance of acts that do not comply with the law, has been added to Article 15 of the Civil Code. It is now explicitly provided that relevant compensations must be paid at the expense of extra budgetary funds of state bodies having been held responsible. If these funds are insufficient, payments are made from the state budget.

Law of the Republic of Uzbekistan No. ZRU-603 of January 22, 2020 

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Have a good day!

Sincerely,
Kosta Legal Law Firm