Measures to improve the financial stability of the oil and gas industry in Uzbekistan

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On April 4, 2020, Presidential Decree No. PP-4664 “On priority measures to improve the financial stability of the oil and gas industry” (the Decree) was adopted. The Decree provides for the following measures:

  1. The Ministry of Energy along with other governmental institutions were tasked with creating a program with the help of experts from the World Bank and Asia Development Bank to develop a gas transmission system by 2030. In accordance with the main goal of the program, the program should create a wholesale market for electrical and natural gas energy resources with prices based on exchange trading. This approach is aimed at creating a level playing field for all participants to access the market and a more transparent pricing mechanism.
  2. The State Assets Management Agency, jointly with the Ministry of Energy and the Ministry of Finance, together with consulting companies, were entrusted with achieving the following tasks:
    1. to create a “road map” to achieve a more efficient oil and gas operational system by July 1, 2020;
    2. to create a “compliance-control” system to prevent corruption within the industry by October 1, 2020;
    3. to make proposals to attract foreign and Uzbek specialists from abroad to the oil and gas sector.
  3. The procedure for obtaining licenses and relevant permits for the oil and gas industry will be simplified.
  4. The following proposals were approved:
    1. To increase state ownership in Uzbekneftegaz JSC by capitalizing debt on loans provided by the Fund for Reconstruction and Development of the Republic of Uzbekistan (UFRD) for various investment projects throughout 2009-2018. 
    2. To raise funding for the 2017-2021 program for increasing hydrocarbon production by obtaining a US$250 million credit from the Silk Road Foundation (PRC) and foreign commercial banks, with the credit being backed by a guarantee from Uzbekneftegaz JSC. In addition, a US$400 million loan will be taken from export credit agencies.

The decree also abolishes the state regulation of prices for automobile gasoline AI-80 and diesel fuel (including ECO), simultaneously allowing oil refineries to sell AI-80 and diesel fuel in exchange trading. A number of enterprises in the public sector and the textile industry are allowed to conclude direct contracts at a weighted average price with discounts.

In addition, from May 1, 2020, new intra-industry prices for oil and gas condensate sold by Uzbekneftegaz JSC and Shurtan GCC LLC should be set with reference to the Brent benchmark on world exchanges.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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