Uzbekistan enhances public-private partnership legislation

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Uzbekistan is continuing to reform public-private partnership (“PPP”) legislation to create an internationally acceptable and bankable PPP framework in the country.

On January 22, 2021, the President of Uzbekistan signed Law No. 669, which addresses gaps in the Law No. 537 “On Public-Private Partnership” adopted on May 10, 2019 (the PPP Law; our insight on the PPP Law is available here).

Below is our summary of the key PPP amendments introduced by Law No.669.

Pegging prices to foreign currency

Previously, the Currency Regulation Law No.573 dated October 22, 2019, contained an absolute prohibition on pegging the prices for goods, services (and works) in Uzbekistan to foreign currencies and other conditional units. Law No.669 amended this prohibition by allowing, as an exception, on the basis of decisions of the President of Uzbekistan, the pegging of prices for goods (works, services) sold in Uzbekistan under projects involving foreign investments attracted in the framework of PPP agreements and investment agreements with the Government of Uzbekistan.

Project company

Law No. 669 introduced the concept of project company in the PPP Law, defining it as a legal entity established by the winning bidder, reserved winning bidder, private initiator or participant of direct negotiations solely for the purpose of implementing the PPP project and registered in accordance with the legislation of Uzbekistan. Moreover, the amendments also allow signing the PPP agreement directly with the project company.

Concessions

Law No. 669 incorporates concessions to the PPP Law and defines them as a form of public-private partnership in which the state provides the private partner with property and land with a permit to carry out a certain type of economic activity provided for by the concession agreement. Previously, concessions were regulated by the Law No. 110-I "On Concessions"1 and have not been included in the PPP Law. As a result of the amendments, the concessions are now regulated by the PPP Law and the Law "On Concessions" is no longer in force.

Information on public-private partnership projects

Law No.669 specified the scope of information about PPP projects that should be published on the official websites of the public partner and the PPP Development Agency of Uzbekistan (“PPPDA”).

In particular, the following information, except for cases involving state secrets, should be published:

  • Name of the parties to the project;
  • Project field (sector);
  • Project location;
  • Term of the project implementation (duration of the project);
  • Tariffs for goods (works, services) to be collected from consumers (if any);
  • Total project value;
  • Amount and type of government support (if any).

Prior to the amendment, the PPP Law contained a general provision requiring publication of information on PPP projects, with no clear list of information to be published.

Local executive bodies

Law No.669 added a new provision to the PPP Law that defines the powers of local executive bodies in the field of PPP. The local executive bodies are empowered, among other things, to determine the facilities at their disposal in respect of which a PPP agreement may be concluded, and allocate land plots without auction for the period specified in the PPP agreement in order to implement a PPP project.

Change in law

Law No. 669 amends the change-in-law provision of the PPP Law. In particular, in the case of changes in legislation in effect on the date of conclusion of the PPP agreement that directly entail an increase in the expenses of the private partner or a reduction of its income under the PPP project, the private partner shall have the right to demand a compensatory increase of the PPP object availability fee and (or) user fee, as well as to demand from the public partner a lump-sum compensation. The procedure and conditions for application of these guarantees should be defined in the PPP agreement.

However, the above is not applicable in case of changes in taxes and duties after the conclusion of the PPP agreement, except for discriminatory changes in relation to the PPP project.

This amendment ensures the rights of the private partner in case of adverse change in law. However, since taxes and duties are carved out from this change-in-law provision, increases in taxes/duties after the conclusion of the PPP agreement might be an additional burden for the private partner.

Unsolicited proposals

Law No. 669 streamlined the negotiation process with a potential public partner and the PPPDA in the case of an unsolicited proposal (private initiative). The concept of a proposed project is subject to screening for an interest by other applicants and, if a positive response is received, the award should be subject to a single-stage tender process. If the private initiator is not selected as the winning bidder, it may claim reimbursement of incurred costs not exceeding 1% of the overall project value.

Amendment, addition or termination of the ppp agreement

Law No.669 introduces changes to the PPP agreement amendment and termination procedure as follows:

  • Amendment/termination of a PPP agreement on a PPP project with a total value of up to the equivalent of US$1 million inclusive is carried out by the public partner and the private partner independently in the manner prescribed by the PPP agreement.
  • Amendment/termination of a PPP agreement on a PPP project with a total value of the equivalent of more than US$1 million is carried out in coordination with the PPPDA.
  • Amendment/termination of a PPP agreement on a PPP project with a total value of the equivalent of more than US$10 million is carried out in coordination with the Cabinet of Ministers of the Republic of Uzbekistan.

This amendment is aimed at protecting the public interest from unfair changes in the PPP agreement.

Signature bonus

Law No. 669 introduces a signature bonus to be paid to the PPPDA in the amount established by the government.

Direct agreements

In order to ensure the lenders’ rights, Law No. 669 specifies mandatory provisions of direct agreements that include:

  • lenders' rights and obligations in connection with the exercise of step-in rights;
  • obligation of the public partner to make certain payments falling due under the PPP agreement to be made directly to the lenders instead of the private partner, in case of the private partner’s substitution;
  • terms and conditions to mitigate the risk of termination of the PPP agreement;
  • arrangements for payments upon early termination of the PPP agreement;
  • procedure for exchanging information on implementation of the PPP project and ensuring the rights and obligations of the parties.

At the same time, under Law No. 669, the financial parties cannot be a party to the PPP agreement as previously allowed under the PPP Law. This means that there is a need to conclude a separate agreement (e.g. direct agreement) to stipulate terms and conditions of financing and rights of lenders.

Right of a project company to open bank accounts outside Uzbekistan

Under Law No.669, the private partner that is a resident of Uzbekistan (e.g. a project company), has the right to open bank accounts abroad for the purposes stipulated in the PPP agreement and/or the government support agreement. This is a positive amendment for PPP projects’ bankability as it provides a carve-out from the Currency Regulation Law that allows the resident private partner to directly open bank accounts abroad. In accordance with the Currency Regulation Law, resident legal entities of Uzbekistan are allowed to open bank accounts outside Uzbekistan only if there is a decision of the President or the Government of the Republic of Uzbekistan or there are international treaties of Uzbekistan that provide for opening such accounts abroad.

Amendment of tender documents

The extension period in case of changes in tender documents has been reduced from 30 to 15 calendar days.

This amendment in the PPP Law allows flexibility for the PPP tender process and helps to avoid excessive extension of tender deadlines in case of minor changes in tender documents.

Conclusion

In general, Law No.669 addressed the majority of existing gaps in the PPP Law and clarified the mechanism for implementation of PPP projects in Uzbekistan. It is expected that the PPP amendments under Law No.669 will bring the PPP legal framework of Uzbekistan into conformity with international best practice and help to reduce expenditures allocated from the state budget of Uzbekistan for development of economic and social sectors.

 

  1. Law of the Republic of Uzbekistan No. 110-I "On Concessions" dated 30 August 1995.

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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