General legal newsletter for March 2020

In the first half of March 2020, a number of important documents of a planning nature were adopted, including the State Programme of 2020 and the Production Localization Programme. The first of the documents provides for a number of steps that are aimed at improving the country’s business environment, while the second one lists the projects for which private investment are sought. Fundamental reforms happened in the cotton and grain sectors of agriculture, where the system of state orders, material balances and price controls were abolished – these spheres kept functioning based on principles of the Soviet administrative economy. Some less radical, but still notable changes affected the construction and printing industries.

The second half of March was overshadowed by the outbreak of COVID-19 and the taking of quarantine measures. Our updated review of relevant legal developments is available at this link.

 1.  THE STATE PROGRAMME OF 2020

The government approved the State Programme of 2020 setting development goals for 2017-2021. The Programme provides for, among other things, the following measures to be implemented throughout 2020:

• reducing the number of licenses and permits required for businesses at least by half;
• privatizing land plots in newly created small industrial zones will be allowed in accordance with the procedure established by the Cabinet of Ministers;
• approving a number of investment projects in the chemical and mining sectors;
• attracting investors in the oil and gas sector by introducing a mechanism of risk service contracts;
• arranging public-private partnership in such areas as transport, energy, roads, utilities, medicine, and education (the introduction of mechanisms for guaranteeing state obligations);
• phasing out state regulation of prices in the cotton and grain sectors, reducing the volume of mandatory state orders for the production of raw cotton and grain;
• establishing an export credit agency;
• creating at least 800,000 broadband Internet ports and laying 12,000 km of fibre-optic communication lines.

Presidential Decree No. UP-5953 of March 2, 2020

 2.  THE PRODUCTION LOCALIZATION PROGRAMME

The government approved a state programme for the localization of the production of goods being highly demanded on domestic and foreign markets for 2020-2021. The programme includes about 2,100 potential localization projects for the total amount of approximately USD 3.5 bln. Description of the projects is provided in the list of localization projects in sectors of the national economy (being managed by central ministries/state-owned holding companies) and the list of regional localization projects (being managed at the municipal level), which are attached to the programme. Partners (investors) for the projects will be selected on a competitive basis.
Entities participating in the implementation of localization projects will be able to get the following benefits:

• land plots and real estate in small industrial zones will be provided on a preferential basis;
• state authorities will promote outputs of participating entities through the Unified Electronic Cooperative Portal (that may allow local manufacturers to conclude contracts for purchasing and selling goods/services without participating in particular public procurement procedures);
• at least 50% discount will be provided for advertising relevant production on state-owned TV or radio channels.

The Programme also includes (i) the List of Goods, the Production of which is Recommended to be Localised by Local Businesses in 2020-2021 (producers of such goods will be entitled to enter into special public procurement agreements, purchases under which will be guaranteed for 2 years after the beginning of supplies, upon winning a relevant public procurement procedure) and (ii) a timetable for holding regional industrial fairs for demonstrating locally manufactured production.

Resolution of the Cabinet of Ministers No. 136 of March 10, 2020

 3.  DEVELOPMENTS IN AGRICULTURE: THE COTTON SECTOR 

The government continues promoting market principles in agriculture, including the cotton sector. Thus, starting from the harvest season of 2020:

• the price setting regulation and government orders pertaining to raw cotton will be abandoned;
• producers of raw cotton will be able to choose freely where particular varieties of cotton are planted;
• a 10% reduction of the price for cotton fibre produced within the country will no longer be applied when determining the starting price on the country’s commodity exchange.

Furthermore,

• state-owned holding company with some regulatory powers “Uzpakhatasanoat” will be liquidated;
• soft loans for covering expenses for developing raw cotton producing facilities will be given by banks, refinancing funds provided by the Fund for State Support of Agriculture; producers will be able to freely use borrowed funds at their discretion;
• the Fund will also compensate a part of expenses for taking loans for the development purposes to cotton and textile clusters.

Also, the Programme of Measures for Regulating the Relationship Between Cotton-Growing Farms and Cotton-Processing Enterprises was approved that envisages:

• selling shares in regional machine-tractor parks of JSC “Uzagroservis” to cotton and textile clusters – April 2020
• excluding cotton products from the list of socially important and strategic goods, whose prices are regulated by the state – April 2020;
• abolishing a practice where the government approves the general balance of the production and the supply of cotton fibre starting from the harvest season of 2021 – September 2020
• developing information systems and the regular informing of cotton producers about expected prices for cotton in upcoming years based on the analysis of relevant prices on the world market.

Presidential Decree No. PP-4633 of March 6, 2020

 4.  DEVELOPMENTS IN AGRICULTURE: THE GRAIN SECTOR

The grain sector is also subject to market reforms. An adopted programme of measures provides for, among other things, gradual abolishment of the system of state orders for grain production starting from the harvest season of 2020 and the abandonment of price controls starting from the harvest season of 2021. Prices, in particular, will be determined freely as a result of trades on the national commodity exchange or based on direct (futures, forward, etc.) contracts. The Fund for State Support of Agriculture will purchase grain on the commodity exchange and will sell it occasionally for maintaining low prices.

As in case of the cotton industry, the Fund for State Support of Agriculture will support producers of grain by soft loans and grain processing enterprises and clusters by compensating a part of their expenses for taking loans.

Grain-growing enterprises being a part of JSC "Uzdonmakhsulot", a state-owned holding company controlling the sector, will be gradually privatized in 2020-2021, while the company itself may be reorganized.

Presidential Decree No. PP-4634 of March 6, 2020

 5.  DEVELOPMENTS IN THE CONSTRUCTION INDUSTRY

Some regulations in the construction industry were changed:

• it is now allowed, till December 31 2028, to use some foreign technical standards and codes in urban development projects together with the national regulations, including the use at the stage of the examination of project documentation, provided that (i) local design experts will be engaged for accommodating documentation prepared based on foreign standards to local standards and (ii) expenses of authorized examination bodies for the attraction of foreign specialists and consultants for the examination of project documents will be covered by an investor implementing a relevant project;
• publicly available electronic ranking systems - registers of project companies and construction companies will be launched on July 1, 2020, and September 1, 2020, respectively and include information about experience, staff, assets, creditworthiness and other indicators related to these companies;
• starting from January 1, 2021, (i) public procurement procedures in the construction sector will be conducted in electronic form, online with the use of data contained in the above electronic registers: in order to be eligible to participate in a public procurement procedure, an organization will have to be ranked in the relevant register; top-ranked organizations will be allowed to skip the pre-qualification stage and not to submit technical documentation requested within a procurement procedure, (ii) winners selected as a result of public procurement procedures will be required to perform some minimum volume of works by their own means; such a minimum volume as set for now is works constituting at least 30% of the cost of a relevant project;
• in Tashkent, the government will start an experiment on the attraction of private companies for performing functions of the manager under public construction contracts. The Cabinet of Ministers is expected to identify 10 construction projects to be completed in 2021-2022 that will be subject to the experiment. Private companies – participants of the experiment will be selected on a competitive basis.

Presidential Decree No. UP- 5963 of March 13, 2020
Presidential Decree No. UP-5953 of March 2, 2020

 6.  DEVELOPMENTS IN THE CHEMICAL AND MINING SECTORS

There were some legal developments in the chemical and mining sectors. The government initiated reforms in the following 2 areas: (i) increasing the production of phosphorous fertilizers and (ii) transforming major state-owned enterprise “Navoi Mining and Metallurgical Combine” (SE “Navoi MMC”), particularly:

1. the government approved a programme of measures for transferring a 51% share in JSC “Ammofos-Maxam” owned by state-owned JSC “Uzkimyosanoat” to JSC “Almalyk Mining and Metallurgical Combine” for fiduciary management for 5 years as well as contributing the JSC “Uzkimyosanoat”’100% share in LLC “Kyzylkum Phosphorit Kompleksy” to the charter capital of JSC “Almalyk Mining and Metallurgical Combine” for increasing the state share. According to the programme, in August 2020, investment projects will be initiated to increase production volumes of Ammofos-Maxam in 2020-2024. For that, during the next 6 months, it will be attempted to attract loans of foreign banks under the guarantee of JSC “Almalyk Mining and Metallurgical Combine”. Similarly, the production of phosphorite raw materials will be developed at “Kyzylkum Phosphorit Kompleksy” for selling the output to JSC “Indorama Kokand Fertilizers”.
2. SE “Navoi MMC” is reorganised into 3 companies: SE “Navoiuran” that will focus on the extraction and processing of natural uranium and rare earth metals; JSC “Navoil MMC” will extract and make production out of precious metals, and state establishment “Fund NMMC” will manage what has previously been non-core assets of SE “Navoi MMC”. It is planned that a number of large investment projects will soon (within 1 month) be approved for JSC “Navoi MMC” as well as that by November 1, 2020, the company will issue Eurobonds for about USD 300 mln.

Resolution of the Cabinet of Ministers No. 120 of March 4, 2020
Presidential Decree No. PP-4629 of March 6, 2020

 7.  AN INFRASTRUCTURE PROJECTS WITH THE ADB

The Cabinet of Ministers signed a resolution that provides for the initiation of a project for the reconstruction of 240 km of the A-380 highway "Guzar-Bukhara-Nukus-Beineu" financed by the Asian Development Bank. In accordance with the relevant agreement reached between the ADB and the Committee for Roads under the Ministry of Transport, the project will be implemented during 2020-2025. Detailed information about the project in English can be found here.

Resolution of the Cabinet of Ministers No. 124 of March 5, 2020

 8.  LIBERALIZATION IN THE PRINTING AND PUBLISHING INDUSTRIES

According to the Presidential Decree adopted on March 16, 2020:

• starting from July 1, 2020, the licensing of the publishing and printing activities will be abolished and a system of giving notifications about the beginning of these activities will instead be established;
• special payments to Fund “Ijod” under the Union of Writers of Uzbekistan will no longer have to be made by entities engaged in the above activities;
• price controls in the industries will be abolished;
• the purchasing of published and printed materials, including textbooks, by state authorities, institutions, and enterprises will have to made based on the Law on Public Procurement with the participation of foreign suppliers being allowed.
• a number of state-owned publishing housed will be privatized.

Presidential Resolution of March 16, 2020

 9.  THE ISSUING OF ID CARDS

 10.  A NEW RULE FOR PAYING ADMINISTRATIVE FINES

On March 17, 2020, a new rule in respect of paying administrative fines was set. As of the indicated date, if an offender voluntarily pays 70% of a fine within 15 days from the date of delivery of the decision to impose the fine, he/she will be released from the responsibility to pay the remaining amount of the fine, except for the following cases:

• the imposition of the fine by a court for committing an administrative offense;
• an appeal or a protest claim against a decision to impose the fine has been brought;
• repeated commission of the same offense within a year after the imposition of an administrative penalty.

Law No. ZRU-612 of March 17, 2020

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Kosta Legal Law Firm