UZBEKISTAN LEGAL NEWSLETTER FOR APRIL 2023

After a long period of discussions, a referendum on amending the Constitution was held in Uzbekistan in April 2023. With the amendments having been approved, 91 existing Articles were amended, and 26 new Articles were introduced. Some other notable legal changes of April 2023 include the adoption of the Law on Sovereign Debt and the issuance of Presidential decisions on improving the protection of secured creditors, modernisation the heating system of social facilities, and developing hydropower. 

 1.  AMENDMENT OF THE CONSTITUTION

Following the results of a national referendum held on 30 April 2023, amendments have been introduced to the Constitution of Uzbekistan. Some of the key changes include the following:

• the presidential term has been increased from 5 to 7 years;
• the number of members of the Senate (a higher chamber of the Uzbek Parliament) has been decreased from 100 to 65 (only 4 senators now represent each administrative region instead of 6 and the President now appoints 9 senators instead of 16);
• the President and some key state officials (the Speaker of the Legislative Chamber (a lower chamber of the Parliament), the Chairman of the Senate, the Chairman of the Supreme Court, the General Prosecutor, local governors (khokims), etc.) may not hold their office for more than 2 consecutive terms;
• local governors (khokims) will no longer chair local representative bodies (counsels);
• land may now be fully owned by private individuals and entities;
• groups of more than 100,000 citizens may now propose new laws (i.e. have got a right of legislative initiative);
• the procedures for the formation and performance of the State Budget and sovereign debt shall be open and public;
• the Parliament and the President now have more time to process and review draft laws.

Constitutional Law No. ZRU-837 of 1 May 2023

Law No. ZRU-788 of 8 August 2022

 2.  LAW ON SOVEREIGN DEBT

The Law on Sovereign Debt has been adopted. It enters into force on 2 August 2023 and provides, among other things, for the following:

• Uzbekistan’s sovereign debt consists of (a) external debt, including liabilities arising out of the placement of sovereign bonds amongst non-residents, external borrowings of Uzbekistan, and external borrowings of residents guaranteed by Uzbekistan, and (b) internal debt, including liabilities arising out of the placement of sovereign bonds amongst residents, internal borrowings of Uzbekistan, and internal borrowings of residents guaranteed by Uzbekistan;
• sovereign debt embraces (i) short-term debts – up to 1 year, (ii) medium-term debts – up to 5 years, and (iii) long-term debts – of more than 5 years.
• a total amount of sovereign debt may not exceed 60% of forecasted annual GDP;
• the Ministry of Economy and Finance is designated as a relevant regulator.

 Law No. ZRU-836 of 29 April 2023

 3.  SATISFACTION OF CLAIMS OF SECURED CREDITORS

The President has signed a Decree improving the system of satisfying claims of creditors whose rights are secured by pledge (mortgage). The Decree, among other things, envisages the following:  

(a) starting from 1 July 2023, when pledge property is foreclosed on out-of-court proceedings, it may be put up for auction through the electronic system “E-Auction”;

(b) till December 2023, the Central Bank shall develop a draft Law on factoring;

(c) starting from 1 January 2024:

• in case of insolvency of a debtor, creditors will have an absolute priority right to satisfy their claims secured by a pledge from the value of pledged property;
• in case of a foreclosure, the minimum price for which pledged property may be sold at a repeat auction will be 80% of its starting price. If the pledged property has not been sold at a repeat auction, the secured creditor shall be proposed to take the property for a price 25% lower than the starting price;
• in case of a foreclosure, it will not be allowed to postpone the sale of pledged property through public trades based on a relevant pleading of a pledgor, as it is currently envisaged in the Civil Code of Uzbekistan;
• the abolition of a practice where enforcement proceedings are terminated by state enforcement officers and the restriction to dispose of the pledged property is lifted if a debtor initiates the procedure of voluntary liquidation; 
• clear criteria for defining an extremely insignificant degree of violation by a debtor of a secured obligation, that may serve as a ground for the foreclosure on a pledged property to be refused, are to be set: where the amount of relevant outstanding obligations has not exceeded 5% of the value of a pledged property and a delay in performance of the obligations has not exceeded 3 months;

(d) starting from 1 January 2025, after a mortgagee satisfies a part of his claims out of mortgaged property out of court, it will still preserve the right to claim the satisfaction of any outstanding amounts out of the borrower’s remaining property.

Presidential Decree No. UP-63 of 29 April 2023

 4.  REFORMS IN HYDROPOWER

The President has signed a Resolution introducing reforms in the area of hydropower. The Resolution, among other things, provides for the following:  

(a) increase of the total capacity of the hydropower sector for up to 4,999 MW by 2030 through, among other things, the creation of additional capacities for 2,311 MW by state-owned JSC “Uzhydroenergo” and with the participation of private investors for 615 MW;

(b) the implementation of additional promising hydropower projects in 2023 in the Bostanlyk district of the Tashkent region (876 MW), on the Naryn River in the Namangan region (225 MW), and in the Saryasi district of the Surkhandarya region (264 MW);

(c) JSC “Uzhydroenergo” may finance the construction of infrastructure for implementing the above promising projects;

(d) where the promising projects are implemented, JSC “National Electric Grid of Uzbekistan” (generally, a single purchaser of power energy in Uzbekistan) shall take an obligation to purchase produced energy for 25 years at the tariff set for such projects and agreed with the Interdepartmental Tariff Commission under the Cabinet of Ministers;

(e) after the establishment of wholesale and retail electricity markets, payment for electricity generated by hydroelectric power plants will be subject to special regulation (capacity payments will be charged);

(f) JSC “Uzhydroenergo” may participate in public-private partnership projects as a public partner or in cooperation with private partners where these projects relate or may have some influence on hydroelectric power stations within the structure of the company or projects implemented by them;

(g) JSC “Uzhydroenergo” is supposed to diversify its activities through (i) the construction of solar photoelectric power plants on vacant land areas adjacent to hydroelectric power stations; (ii) the setting up of the production of hydroelectric units on the basis of controlled enterprises; (iii) the implementation of PPP projects for the construction of hydroelectric power plants and pumped-storage power plants with a capacity of over 5 MW;

(h) the Programme for Further Development of Hydropower in 2023 – 2030, which, among other things, includes the following:

• a list of 9 investment projects for a total capacity of 748.5 MW expected to be implemented in 2023-2027 (Annex 2 to the Resolution);
• a list of 47 investment projects for a total capacity of 2,749.5 MW expected to be implemented in 2024-2030 (Annex 3).

 Presidential Resolution No. PP-104 of 30 March 2023

 5.  MODERNIZATION OF HEATING SYSTEMS OF SOCIAL FACILITIES

The President has signed a Resolution providing for the modernization of heating systems of social facilities based on public-private partnership (PPP). The Resolution, among other things, envisages the following:

• in 2023-2026, heating systems of state social facilities in regions should be converted to coal fuel based on PPP;
• a roadmap for modernization and management of heating systems of state social facilities based on PPP (Annex 1);
• a plan for signing PPP agreements with respect to state social facilities in the Republic of Karakalpakstan and regions in 2023 (Annex 2);
• the following criteria should, among others, be taken into account when considering a relevant PPP project: the share of a private partner should be at least 50%; the service life of relevant facilities should be at least 10 years; relevant private services should be cheaper than those spendings that would have been made from the state budget; a potential private partner should be a reliable taxpayer and its turnover for the preceding year shall be at least UZS 3 bln;
• to support manufacturers of heating boilers, relevant imported goods (a list of which will be set by the Ministry of Energy) will be exempt from customs duties until 1 January 2025.

Presidential Resolution No. PP-118 of 10 April 2023

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Kosta Legal Law Firm