UZBEKISTAN LEGAL NEWSLETTER FOR SEPTEMBER 2023

Some of the most notable legal developments in Uzbekistan in September 2023 were the adoption of Uzbekistan’s long-term development strategy “Uzbekistan 2030”, the issuance of Presidential decisions on the development of the power energy sector and the national capital market, an increase in tariffs for power energy and natural gas for legal entities, as well as the establishment of a fund for financing the development of public-private partnership (PPP) projects. 

 1.  "UZBEKISTAN 2030" DEVELOPMENT STRATEGY  

The President has signed a Decree and a Resolution introducing the development strategy “Uzbekistan 2030” and providing for some measures for its implementation. The following is, among other things, aimed to be achieved by 2030:

• the increase of national GDP up to USD 160 bln and per capita income – up to USD 4 thsd;
• the utilization of investments for USD 250 bln, including the attraction of USD 110 bln of foreign investment and USD 30 bln of investments within the framework of PPP;
• the increase in the volume of the market of publicly traded securities up to USD 8 bln;
• the implementation of more than 500 strategically significant technological and infrastructure projects for a total amount of USD 150 bln;
• a two-fold increase in the volume of portfolio investments through the establishment of mutual and venture funds;
• the introduction of a practice of issuing infrastructure bonds;
• the decrease in the number of state-owned enterprises by 6 times;
• privatisation of state-owned banks so that only 3 or 4 banks remain state-owned; the attraction of at least 4 large foreign banks to the local financial market;
• the increase in the production of copper by 3.5 times, gold - by 1.5 times, silver and uranium - by 3 times;
• the creation of large chemical and polymer clusters in the Republic of Karakalpakstan, the Bukhara, Fergana, Navoi, and Tashkent regions;
• the increase in the volume of natural gas production up to 62 bln cubic meters;
• the construction and renovation of 56,000 km of roads;
• the construction of roads “Tashkent – Samarkand” and “Tashkent - Fergana Valley” based on PPP;
• the increase in the share of electrified railways up to 65%;
• the modernization of low-profit regional airports based on PPP and their transfer to private management;
• the modernization of 6 large airports and the increase in the number of private air carriers to 10;
• the introduction of PPP mechanisms in such state-controlled spheres as irrigation, waste processing, the management of the energy and heat supply systems of social facilities;
• the attraction of USD 15 bln of investments in agriculture;
• the increase in the number of foreign tourists by up to 15 mln and the creation of 30 large touristic clusters;
• the construction of houses in regions of the country to ensure that 1 mln new flats are available.

The following measures are, among other things, envisaged by the Decree and the Resolution to facilitate the implementation of the Strategy:

• starting from 1 October 2023, the application of fines over UZS 10 mln to business entities for tax offenses where a business entity contests a relevant charge may only be done through courts;
• starting from 1 January 2024, at least 5% of the value of investment projects implemented by entities where state share exceeds 50% shall be financed through issuing bonds.

 Presidential Decree No. UP-158 of 11 September 2023
Presidential Resolution No. PP-300 of 11 September 2023

 2.  REFORMS IN POWER ENERGY

The President has signed a Decree on further reforms in power energy. The Decree, among other things, provides for the following:

(A) the creation of a new energy market regulator, the Agency for the Development and Regulation of the Power Energy Market, accountable to the Cabinet of Ministers. Its functions will gradually include developing competition in the power energy market, setting tariffs for the transmission of power energy, licensing participants of the retail and wholesale markets of power energy, developing investment programmes for the sector, approving technical standards for permissible energy losses in grids, etc.;

(B) the creation of JSC “Uzenergosotish”. Starting from 1 July 2024, the functions of JSC “National Electric Grid of Uzbekistan” (NEGU) related to its role as a single purchaser of power energy in Uzbekistan will be transferred to JSC “Uzenergosotish”. NEGU will remain responsible for the operation and maintenance of the main electric grids of the unified electric system and the transmission of energy through these grids and will continue to act as the single cross-border importer and exporter of power energy. Starting from 1 January 2025, obligations of NEGU under power purchase agreements with private generators and cross-border power purchase agreements will be performed by JSC “Uzenergosotish”;

(C) the Concept of Phased Transition to the Wholesale and Retail Power Energy Markets in 2023 – 2030 (Annex No. 1 to the Decree) and the Roadmap for the Implementation of the Concept (Annex No. 2), which, among other things, envisage the following:

• the adoption of a new Law “On Electricity” and Transmission and Distribution Grid Codes;
• a phased transition to the wholesale and retail electricity markets by 2030. Very generally, at the first stage of the transition (Purchase Based on Bilateral Agreements) (2024-2025), the functions of the centralized purchase of power energy and the transmission of power energy through the main electric grids will be separated, as provided above. JSC “Uzenergosotish” will start to act as a single purchaser of power energy from all generators and will sell such power energy at set tariffs to the created state-owned regional purchasing enterprise “Energosavdo” and private regional purchasing enterprises. At the second stage of the reform (Next Day Trades) (2026-2028), state-owned and private generating companies will get the opportunity to sell power energy at market rates directly to “Energosavdo”, private regional purchasing enterprises, special categories of consumers (generally, large enterprises), and traders through a relevant online trading platform (except for power stations operating based on PPP, which will continue to sell power energy directly to JSC “Uzenergosotish”). At the third and final stage of the reform (Daily (Hourly) Trades) (2029-2030), mechanisms for selling energy through the platform will be improved.

 Presidential Decree No. UP-166 of 28 September 2023

 3.  INCREASE IN ENERGY TARIFFS 

The Cabinet of Ministers has issued a Resolution “On the Implementation of Market Mechanisms in the Fuel and Energy Sector”, which, among other things, provides for the following:

• substantial increase in tariffs for power energy and natural gas for legal entities. Hence, generally, the cost of 1 kWh of power energy for legal entities has increased by 2 times, from UZS 450 to UZS 900; the cost of 1 cubic meter of natural gas – by 2.3 times, from UZS 660 to UZS 1,500;
• the creation of the Commission for Coordinating Work on the Introduction of Market Mechanisms in the Fuel and Energy Sector, headed by the Prime Minister. The Commission shall, among other things, approve: (i) a program for optimizing energy consumption, reducing losses, and increasing the energy efficiency of production (by 15 October 2023); (ii) a methodology for calculating losses during the transmission of power energy and natural gas to consumers (till 1 December 2023).

Resolution of the Cabinet of Ministers No. 475 of 15 September 2023

 4.  DEVELOPMENT OF THE CAPITAL MARKET 

The President has signed a Resolution on measures for the development of the capital market. The Resolution, among other things, provides for the following:

(a) the functions for regulating the capital market have been transferred from the Ministry of Economy and Finance to the National Agency for Prospective Projects;

(b) the Rules for the Activities of Foreign Participants in the Capital Market (Annex 2) and the Measures for Ensuring Confidentiality of Information about Owners of Securities and Protecting Their Property Rights (Annex 3) have been approved;

(c) the Central Securities Depositary is reorganised into a joint-stock company and transferred to the Central Bank. Starting from 1 January 2025, it will maintain a unified record of state and corporate securities;

(d) the extension of the application of the following incentives till 31 December 2028:

• the exemption of individuals from income tax on dividends on shares;
• the application of an income tax rate of 5% to dividends on shares received by legal entities – non-residents of Uzbekistan; and
• the exemption of individuals and legal entities from corporate/income tax on interest accrued on bonds of business entities.

 Presidential Resolution No. PP-291 of 2 September 2023

 5.  PPP PROJECTS DEVELOPMENT FUND

The President has signed a Resolution providing for the formation of the PPP Projects Development Fund jointly with the European Bank for Reconstruction and Development (EBRD). The Fund is financed by a grant of EBRD of USD 10 mln and a loan of EBRD to Uzbekistan of USD 10 mln and will be managed by EBRD. The relevant funds will be directed to paying for the services of consultants participating in developing project concepts and project documentation for PPP projects implemented on a tender basis, organizing relevant tenders, educating PPP professionals, and general development the sphere of PPP. Services of consultants are only financed for PPP projects whose value exceeds USD 10 mln. A list of projects to which the financing is provided is approved annually by the Cabinet of Ministers, based on recommendations of the Ministry of Economy and Finance.
 
Presidential Resolution No. PP-307 of 14 September 2023

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Kosta Legal Law Firm