The System of Public-Private Partnership in Uzbekistan and Legal Guarantees for Foreign Investors

The Republic of Uzbekistan has embarked on an ambitious path of economic reform and modernization, recognizing Public-Private Partnership (“PPP”) as a crucial mechanism for attracting investment, developing infrastructure, and enhancing the quality of public services. A robust and transparent legal framework has been established to govern PPPs, offering significant guarantees and a predictable environment for both domestic and foreign investors. This article examines the core components of Uzbekistan’s PPP system, and the key legal protections afforded to foreign participants.

1. The Legal Framework of the PPP System

The cornerstone of PPP regulation in Uzbekistan is the Law of the Republic of Uzbekistan “On Public-Private Partnership” (No. LRU-537, dated May 10, 2019), which has been subsequently amended to refine its provisions. This law provides a comprehensive definition of PPP, establishes its principles, and outlines the procedures for initiating, selecting, and implementing projects.

The system is further detailed by subordinate legislation, including:

– Presidential Decree No. DP-308 (August 30, 2024): This strategic document outlines concrete measures for PPP development for 2024-2030, setting ambitious investment targets and prioritizing sectors such as transportation, energy, water management, education, and healthcare;
– Resolution of the Cabinet of Ministers No. 558 (October 23, 2023): This resolution approved the “Regulation on the Procedure for Managing the State’s Fiscal Liabilities Arising from Public-Private Partnership Projects.” It establishes a critical system for identifying, assessing, approving, and managing the state’s direct and contingent financial obligations, ensuring fiscal sustainability and transparency;
– Resolution of the Cabinet of Ministers No. 573 (September 21, 2020): This resolution governs the “Guarantee Fund for Servicing the State Debt,” which serves as a financial mechanism to cover certain state obligations, including those arising from PPP projects.

2. Key Principles and Definitions

The PPP Law enshrines fundamental principles that create a level playing field:

Equality of Parties: The state and private partners are recognized as equal parties to the agreement;
Transparency: Rules and procedures must be open, transparent, and understandable;
Competitiveness and Objectivity: The selection of a private partner is based on fair and objective criteria through tender processes;
Non-Discrimination: Equal rights are guaranteed to all participants, including foreign entities, excluding discriminatory measures;
No Tolerance for Corruption: Procedures are designed to prevent corruption.

Key definitions include:

PPP Project: A set of measures implemented based on attracting private investment and/or advanced management experience, aimed at solving economic, social, and infrastructure tasks;
Private Partner: An individual entrepreneur, legal entity, or association of legal entities, registered in Uzbekistan or a foreign state, that has concluded a PPP agreement;
Concession: A form of PPP where the state grants a private partner the use of property and land plots for a specific type of economic activity.

3. The Project Lifecycle and Institutional Framework

Initiating a Project: A PPP project can be initiated by a state body (state initiator) or by a private entity (private initiator). The private initiative mechanism is a notable feature, allowing investors to propose projects directly to a potential state partner by submitting a project concept.

Approval and Tender: The project concept must be approved. Depending on the project’s value, approval authority rests with the relevant state body, the authorized state body, or the Cabinet of Ministers.

The authorized state body is the Agency for the Development of Public-Private Partnership under the Ministry of Finance, which plays a central role in methodology, coordination, and maintaining the PPP Project Registry.

Selection of a Private Partner: The primary method for selecting a private partner is a competitive tender, which can be single-stage (for projects up to $1 million) or two-stage (for projects over $1 million). Direct negotiations are permitted in specific cases, such as those related to national defense and security, or involving exclusive rights held by a specific person.

The PPP Agreement: The agreement is a comprehensive document detailing the rights and obligations of the parties, risk distribution, financing, tariffs, the term of the agreement (from 3 to 49 years), and conditions for its amendment or termination.

4. Legal Guarantees for Foreign Investors

The Uzbek PPP framework provides several robust guarantees specifically designed to attract and protect foreign investment:

Principle of Non-Discrimination: The PPP law explicitly guarantees foreign private initiators, applicants, and partners equal rights and a legal regime that excludes discriminatory measures. They compete on an equal footing with domestic entities.

Protection Against Adverse Legislative Changes (Stabilization Clause): Article 34 of the PPP Law offers a crucial guarantee. If a change in legislation after the signing of the PPP agreement directly leads to an increase in the private partner’s costs or a decrease in its revenues, the private partner has the right to demand compensation. This can include an increase in availability payments or user fees, a one-time compensatory payment, or amendments to the agreement to restore the project’s economic equilibrium. This protection does not generally apply to changes in tax legislation, unless such changes are discriminatory towards a specific PPP project.

Protection of Creditor Rights: The PPP law acknowledges the importance of project finance. Article 35 allows for direct agreements between creditors and the state partner. These agreements can stipulate rights in case of default or replacement of the private partner, ensuring continuity and protecting lenders’ interests. Private partners are also permitted to provide creditors with various forms of security, including pledges of their rights under the PPP agreement.

Transparent Fiscal Management of State Liabilities: The Regulation No. 558 provides predictability for investors regarding state obligations. It mandates a thorough assessment and approval process for all state fiscal liabilities (direct and contingent) associated with a project. This reduces the risk of the state being unable to meet its payment obligations, as these liabilities are now systematically identified, quantified, and integrated into budgetary planning. The involvement of the Ministry of Economy and Finance ensures central oversight.

Financial Safeguards through the Guarantee Fund: The Guarantee Fund (Resolution No. 573) serves as a dedicated financial vehicle. Among its sources of funding are one-time payments from tender winners. Its purposes now explicitly include covering payments arising from the state’s contingent liabilities under PPP agreements. This provides a concrete financial backstop for certain state guarantees, enhancing investor confidence.

Comprehensive State Support Mechanisms: Article 38 of the PPP Law enumerates various forms of state support that can be negotiated, including subsidies, contributions in kind, budgetary loans, tax benefits, and other guarantees. For projects with foreign investment, in exceptional cases and by decision of the President, tariffs for goods and services can be pegged to foreign currencies to mitigate exchange rate risk.

5. Recent Strategic Developments

Presidential Decree PP-308 signals a strong, high-level commitment to PPPs. It outlines a massive pipeline of projects until 2030 and introduces practical measures such as:

– Creating a Project Office “Center for Public-Private Partnership Projects” to promote projects and build capacity;
– Developing an electronic PPP platform to digitalize all stages of project implementation;
– Mandating a comprehensive inventory of underutilized state assets (hospitals, cultural centers) for potential transfer to the private sector via PPP.

6. Conclusion

The Republic of Uzbekistan has established a sophisticated, transparent, and investor-friendly legal framework for Public-Private Partnerships. The system is built on principles of equality and non-discrimination, while offering concrete legal guarantees to foreign investors, including protection against adverse legislative changes, strong creditor rights, and a structured mechanism for managing state fiscal obligations. Coupled with a clear strategic vision and a robust pipeline of projects, Uzbekistan’s PPP regime presents a compelling and secure opportunity for foreign investors seeking to participate in the nation’s significant infrastructure and social development.

Authors:
Dr. Zurab Simonishvili – Partner
Ruslan Kholmatov, LL.M. (Penn) – Senior Associate
Email: info@lexminster.com
Website: lexminster.com