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UZBEKISTAN LEGAL NEWSLETTER FOR AUGUST 2024

In August 2024, several significant legal developments occurred. Notably, the adoption of the new Laws "On the Electric Energy Industry" and "On Saving Energy, Its Rational Use, and Energy Efficiency" marked a major shift. The first Law, in particular, establishes a completely new framework for the energy market, building on the previously adopted Concept for the Gradual Transition to Retail and Wholesale Energy Markets. This aims to attract private investment and foster competition in the energy sector previously dominated by the state.

Other key legal changes this month include the adoption of the Law "On Recognition of Rights over Illegally Occupied Lands," new measures to advance public-private partnerships, the creation of the National Investment Fund to own and manage shares in specific state-owned enterprises, and initiatives to develop the factoring services market. Additionally, steps have been taken to better organize and liberalize certain business activities, and the Singapore Treaty on the Law of Trademarks of 2006 has been ratified.

 1.  NEW LAW ON ELECTRIC ENERGY INDUSTRY

On 7 August 2024, a new Law “On the Electric Energy Industry” was adopted. It will come into force on 9 November 2024 and replace the current Law “On the Electric Energy Industry” of 30 September 2009. The following is, among other things, envisaged:

- the Law fixes the transition to a new electric energy market structure with the functions for production, transmission, distribution, supply, and sale of electric energy as well as dispatch management being gradually divided. It is provided that the structure and rules for the functioning of the market shall be established in the Concept for the Wholesale and Retail Market of Electric Energy, as developed by a designated regulator and approved by the President. For a while, until a wholesale energy market is fully established, all generated power energy (except for energy generated for own needs) will be purchased by a central purchaser (JSC “Uzenergosotish”);
- the Agency for Development and Regulation of the Energy Market of the Republic of Uzbekistan (the “Agency”) is designated as the industry's principal regulator. The Inspectorate for Control over the Use of Electric Energy, Oil Products and Gas will exercise technical control;

- besides for developing the Concept for the Wholesale and Retail Market of Electric Energy, the Agency is responsible for developing Rules for the Competitive Wholesale and Retail Electric Energy Market, Rules for the Use of Transmission and Distribution Power Lines, Commercial Rules of the Central Purchaser, methodologies for calculating tariffs;

- power plants may be owned by the state and private parties. At least 25% of hydroelectric power plants and pumped-storage power plants with an installed capacity of more than 5 MW must be owned by the state;

- the centralized purchaser, operators of transmission and distribution lines shall be state-owned joint-stock companies. Transmission lines and distribution lines shall belong to respective operators. The state share in the charter capital of a distribution lines operator may be transferred to a third party for fiduciary management;

- the Law introduces the requirement to obtain licenses for the generation, storage, centralized purchase, trading, transmission, distribution, and supply of electric energy and dispatch management. For generators and storage facility operators, a license shall be obtained for each power generating/storage facility. Licenses are granted by the Agency based on Rules for Licensing to be approved by the Cabinet of Ministers. The following responsibilities of licensees are, among other things, listed:
  • licensees may not suspend, terminate, limit or expand licensed activities without written consent of the Agency, except in cases where rendered services have not been paid for or, in accordance with the Law or the licensing requirements and conditions, the suspension, termination, limitation of the relevant types of activities is due to technical reasons or safety reasons;
  • licensees regularly disclose information about their activities to the Agency;
  • the reorganization of a licensee or the direct or indirect acquisition of more than 25% of the voting shares of a licensee shall be carried out with the consent of the Agency. The provision of the consent may, however, be refused only in limited cases.
All entities engaged in the licensed activities above shall obtain relevant licenses within 3 months after the Law enters into force;

- the Law introduces the concept of operators of an electric energy storage system. The relevant activity is, as provided above, subject to licensing. It is provided in the Law that such operators conclude contracts for the sale and purchase and availability of capacity. It is, however, not entirely clear with whom such contracts for the sale of capacity are supposed to be concluded;

- the Agency will develop methodologies for calculating tariffs and, based on these methodologies, set tariffs for electric energy and capacity, the transmission and distribution of electric energy, and other relevant services.
Law No. ZRU-939 of 7 August 2024

 2.  NEW LAW ON RATIONAL USE OF ENERGY

On 7 August 2024, a new Law “On Saving Energy, Its Rational Use and Energy Efficiency” was adopted. It will come into force on 9 November 2024 and replace the existing Law “On the Rational Use of Energy” of 25 April 1997. Some of the key changes brought in by the new Law include:

- the Ministry of Energy is a policy-maker in the area, whereas the Inspectorate for Control over the Use of Electric Energy, Oil Products and Gas will exercise technical control;

- organizations consuming 500 tons or more of conventional fuel (as defined in the Law) will be included in the State Energy Register;
consumers included in the State Energy Register will be subject to a mandatory energy audit and shall comply with annual fuel consumption norms;

- project design documentation for newly constructed or renovated buildings must undergo energy expertise;

- project design documentation for industrial, public, and residential construction projects that exceed standard energy consumption levels or lack metering, control, and regulation devices will not be approved;

- incentives to energy consumers may only be granted through Laws or decisions of the President;

- fines will be imposed for failure to comply with energy efficiency requirements.

Law No. ZRU-940 of 7 August 2024

 3.  RECOGNITION OF RIGHTS OVER ILLEGALLY OCCUPIED LANDS

The Law “On the Recognition of Rights over Illegally Occupied Lands and over Buildings and Structures Constructed on Them” has been adopted. As follows from its title, the Law allows individuals and legal entities to formalise their rights over illegally occupied lands that meet the criteria set in the Law and buildings and structures constructed on such lands. The Law will enter into force on 8 November 2024 and will apply to, among others, the following lands:

  • lands occupied till 1 May 2018 by individuals and legal entities in excess of the area specified in title documents to lands allotted in accordance with law;
  • lands allotted till 8 June 2021 to individuals and legal entities by a decision of a city/district khokims (mayors) that have not been approved by regional khokims or regional councils of people’s deputies (except where lands have been misused or the construction of buildings on them has been not initiated within 2 years from the date of allotment);
  • lands  where non-residential buildings and structures have been constructed by business entities located on a territory of a small industrial zone till 9 March 2020;
  • lands occupied by privatized buildings and structures;
  • lands occupied by buildings and structures in respect to which individuals and legal entities have recognized ownership rights.

In respect of lands meeting the above criteria and being illegally occupied, occupiers will be granted lease rights with a duration of 49 years (for individual residential houses – 99 years). Occupiers will also be able to formalise ownership over buildings and structures located on such lands. Leased lands may subsequently be privatized. The recognition of rights will be formalized by a decision made by a regional council of people’s deputies.

The Law also provides that the Cadaster Agency will organize a phased inventory of all illegally seized lands based on relevant annual plans.

Law No. ZRU-937 of 5 August 2024

 4.  DEVELOPMENT OF PUBLIC-PRIVATE PARTNERSHIP IN 2024-2030

The President has signed a Resolution on the development of public-private partnership (PPP) in 2024-2030. It is aimed to attract private investments of at least USD 30 bln into PPP projects by 2030. The following is also, among other things, provided in the Resolution:

- the Measures for the Implementation of Priority PPP Projects in 2024-2026 (Annex 1 to the Resolution);
- the Program of PPP Projects Intended to be Implemented in 2024-2030 (Annex 2 to the Resolution);

- the construction and modernization of at least 1,000 km of modern main toll roads, including the main roads “Tashkent-Samarkand” and “Tashkent-Andijan”;
- the construction and operation of multidisciplinary hospitals servicing more than 100 patients;
- starting from 2026, at least 100 schools and 100 preschools with a capacity of over 400 pupils and 300 attendants respectively will be constructed annually on a PPP basis;
- execution of PPP agreements for transferring power distribution lines to private operators till 1 July 2027 and gas distribution networks till the end of 2027 with the aim of reducing annual energy losses by at least 50%;
- execution of agreements for the modernization of obsolete irrigating pumping stations till 2028 for saving up to 30% of electric energy;
- attraction of private companies for the modernization and operation of water supply and sewerage networks in each region till the end of 2028;

- within 1 week of the Resolution’s adoption, the Ministry of Ecology, Environmental Protection and Climate Change shall submit proposals to the Administration of the President to address inconsistencies between the European and national standards applicable to sewerage facilities;

- within 1 month following the adoption of the Resolution, the Ministry of Economy and Finance shall develop proposals for a new mechanism allowing (i) the establishment of direct investment funds with the involvement of international financial institutions and foreign commercial banks for financing PPP projects; (ii) implementation of PPP projects based on programs agreed with potential investors;

- within 3 months following the adoption of the Resolution, the Ministry of Economy and Finance, the Ministry of Investment, Industry, and Trade, and the Ministry of Energy shall submit to the Cabinet of Ministers a draft Law on setting an upper limit of obligations of the government (take or pay) and issued confirmation letters (comfort letters) under PPP projects;

- till the end of 2024, the Ministry of Economy and Finance and the Ministry of Digital Technologies shall launch an electronic platform for recording and monitoring PPP projects and ensure its integration with systems of other ministries and agencies;

- a Center for PPP Projects will be established under the Ministry of Economy and Finance for, among other things, coordinating the implementation of PPP projects;

- till the end of 2024, the Ministry of Economy and Finance and a number of other institutions will conduct an inventory of inefficiently used large hospitals, cultural and sports facilities and submit proposals to the Cabinet of Ministers for their use on a PPP basis.

Additional information about the Resolution and the lists of PPP projects included in its Annexes can be found in our dedicated Legal Highlight.

Presidential Resolution No. PP-308 of 30 August 2024

 5.  ESTABLISHMENT OF NATIONAL INVESTMENT FUND 

To boost foreign direct investment and accelerate the transformation of large companies and commercial banks with state participation, the President has established the National Investment Fund of the Republic of Uzbekistan. The Fund is a joint-stock company, with the Ministry of Economy and Finance as the sole shareholder until a public offering is conducted. State shares in enterprises and commercial banks listed in the Annex of a relevant Presidential Resolution — including 40% of shares in the chemical enterprise “Navoiyazot” JSC, 40% of shares in “Regional Power Grids” JSC, 25% of shares in “Thermal Power Stations” JSC, 25% of shares in “Uzbekistan Airports” JSC, and 20% of shares in “Uzbekhydroenergo”— will be transferred to the Fund. A trustee will be appointed to manage the Fund’s investments. One of its principal tasks is to list the Fund’s shares on the Tashkent and international stock exchanges by the end of 2026. By 2030, at least half of the Fund’s net revenue will be disbursed annually as dividends.

Presidential Resolution No. PP-303 of 27 August 2024

 6.  DEVELOPMENT OF FACTORING SERVICES MARKET 

The President has signed a Decree aimed at developing the factoring services market. The Decree seeks to increase the volume of factoring services by 10 times within 3 years and the share of factoring services rendered by state-owned banks to 3% of the total financing by the end of 2026. It is provided in the Decree that the Central Bank and the International Finance Corporation have developed a draft Law on factoring based on the UNIDROIT model law. Within 1 month of the Decree’s adoption, the Cabinet of Ministers shall submit the draft Law, providing for, among others, the following changes to the Parliament:

  • factoring organizations may be incorporated subject to being registered with the Central Bank of Uzbekistan as non-bank credit institutions;
  • starting from 1 January 2025: (i) factoring operations in a foreign currency may be carried out if a customer’s counterparty is a non-resident; (ii) credit institutions may resell (refactor) factoring agreements; (iii) the liability for the breach of prohibition of an assignment of the monetary claim will be abolished; (iv) notifications of assignments of monetary claims shall be recorded with the pledge registry; and (v) change of a currency of debt or a country of payment without the debtor’s consent will be prohibited.

The Decree has also approved a roadmap for developing the factoring services market, as set out in its Annex.

Presidential Decree No. UP-109 of 12 August 2024 

 7.  LIBERALISATION MEASURES FOR BUSINESSES 

The President has issued a Decree outlining measures to address the issues raised during the 4th open presidential dialogue with entrepreneurs. The Decree, among other things, envisages the following:

- a list of new legal acts envisaged to be developed in 2024 to address the issues discussed with entrepreneurs, including a Law on microfinance banks, a Law on Islamic finance, a Law entitling the government to take temporary tariff and non-tariff measures to harmonise legislation with WTO rules, a Presidential Decree on supporting private educational establishments, a Cabinet of Ministers’ Resolution on the introduction of a single classifier of permitted purposes of use of lands,  a Cabinet of Ministers’ Resolution on simplifying rules and procedures for supporting investment projects with external utilities and infrastructure;

- if a contract for the import of equipment or components provides for a delivery period exceeding 180 days, such a period shall be considered a valid period of repatriation of relevant assets;

- starting from 1 January 2025, the sale of vacant non-agricultural land plots through an online auction will no longer be subject to VAT;

- on 1 January 2025, an electronic system "Risk Analysis" will be launched to identify risks of violations by businesses. Inspections and preventive measures will be initiated based on indicators of this system;

- doubling the damages threshold serving as the basis for imposing criminal liability for intentional concealment or understatement of profits for tax purposes or tax evasion.

Presidential Decree No. UP-132 of 30 August 2024

 8.  RATIFICATION OF SINGAPORE TREATY OF TRADEMARKS

A Law ratifying the Singapore Treaty on the Law of Trademarks of 2006 has been adopted. The Treaty aims to create a modern international framework for harmonizing administrative trademark registration procedures across jurisdictions and applies to all types of marks registrable under the law of a given contracting party.  Uzbekistan has ratified the Treaty with a reservation concerning Clause 19.2, which relates to the right of licensees to join infringement proceedings regardless of whether the relevant license is recorded.

Law No. ZRU-941 of 13 August 2024

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Sincerely,
Kosta Legal Law Firm

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