A large-scale privatization program has been initiated by the adoption of Presidential Decree No. PP – 4300 of April 29, 2019 "On measures to further improvement of the mechanisms for attracting foreign direct investment in the economy of the Republic" (the "Decree") and the Resolution of the Cabinet of Ministers No. 358 of April 26, 2019 "On the organization of the initial and secondary public offerings of shares at the stock exchange" (the "Resolution").
According to the Decree, the State wants to proceed with the privatization by transferring the ownership over a wide range of public entities to the private sector. The list of state-owned shares provided by the Decree initiates the sale of controlling stakes in state enterprises. This list shall be used in conjunction with another list of traded shares introduced by the Resolution in order to see the full picture. The program further provides for the implementation of PPP projects and identifies potential direct investment projects to be offered to foreign investors.
To promote the privatization program, the Government of Uzbekistan plans to hold the Tashkent International Investment Forum in autumn of 2019. The Organizational Committee responsible for preparing and conducting the Forum (the "Committee") reserves the right to introduce changes to all lists of projects/transactions proposed by the Decree. This fact is what makes the event significant. The participants of the Forum shall have a right to make their own proposals to the potential projects and the Committee shall consider that proposals. Later on, all projects offered by the Decree shall be implemented with due regard for changes suggested by participants of the Forum.
Officials of the foreign countries, international organizations and foreign firms are expected to be among the participants. Foreign participants will be provided with entry visas and shall be exempted from the consular fees at international airports.
Investment opportunities for foreigners
Pursuant to the Decree, the Government accords particular attention to foreign investors. The list of the potential investment projects focused on foreign direct investment has been approved. The List includes 86 investment projects in various industries.
The largest number of proposals are identified in the agriculture sector. There are 26 proposals that include the expansion of grape plantations and organization of wine production. It is also proposed to invest in the food production and farming.
Then tourism and pharmaceutical industry follows with 22 proposals. Investors can take part in the construction of diagnostic laboratories or medical centers and clinics. The production of the pharmaceutical products is included in the List as well. Regarding tourism, the investment projects are offered for the improvement of tourism services infrastructure across resorts and other recreational zones.
The oil and gas, energy and petrochemical industries comprise 20 proposals. These proposals provide for the production of chemical and petrochemical products, exploration and mining of oil fields and construction of renewable energy power plants (solar and wind).
The metallurgical, machine – building, electro technical and light industries are combined in one section with 13 proposals. Here, investors can find the opportunities in projects such as geological studies of potential sites with precious and non-ferrous metals and organization of tracked, road-building and agricultural machinery production. Among these projects are the implementation of the jewelry cluster project in Tashkent and the production of fabrics and finished products. Furthermore, foreign investors may also be interested in the creation of data storage and data centers.
The share of building materials production sector is small with 5 proposals. Investors are offered to be involved in the production of outputs from natural stone (granite, marble and travertine) and organization of wallpaper and cement production.
The detailed list of potential investment projects can be found at: https://kostalegal.com/publications/legal-highlight/the-list-of-foreign-investment-proposals.
PPP projects to be initiated during 2019
As indicated in the Decree, the Government has also prepared the portfolio of PPP projects that shall be implemented during 2019 - 2021. The proposed projects shall be realized through tender or direct negotiations. Part of them is going to be launched only in the following years.
The Decree envisages 15 PPP projects that has been offered in the following sectors:
- Construction of toll roads;
- Construction/modernization of airports;
- Construction of power plants;
- Waste management;
- Management of the water supply, sewerage, heat and gas supply systems.
For detailed information, please see Annex 1.
Sale of state – owned shares
As per the Decree, the controlling stakes in more than 20 public entities are to be offered to local and foreign investors. Potential buyers may be obliged to fulfill social and/or investment obligations. Not all of the shares shall be sold through public offers. It is possible to purchase the offered shares through investment intermediaries or consultants. Another list of significant public enterprises which shares are also offered to private sector is provided by the Resolution.
The Resolution, in its turn, envisages an initial (IPO) and secondary (SPO) public offering programme that shall see multiple state-owned joint-stock companies, including JSC "Uzbek Republican Commodity Exchange" and several commercial banks, listed on the Republican Stock Exchange (UZSE). Rather than large-scale sales scheduled by the Decree, minority interests in selected state assets are to be offered to private investors, with the government retaining control of its key resources. Moreover, the Resolution has established the limitation, whereby one individual/entity may purchase only 0.01 % of the offered shares in companies listed in Table 2.
It is to note that within a few months the Cabinet of Ministers is expected to adopt a bill to simplify the procedure for the purchase of bank shares by foreigners. Currently, foreigners are required to obtain a prior permission from the Central Bank of Uzbekistan, when it comes to buying even 1% of the shares of a local bank. The bill offers to make this process slightly easier and allow foreigners to buy up to 5% of the bank shares without obtaining the permit. It will be enough to send a notification to the Central Bank in the standard form.
For detailed information, please see Annex 2.
The Decree also makes it possible for the State to engage evaluation organizations, investment intermediaries or consultants, including foreign ones, through direct negotiations.
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