Uzbekistan strengthens legislation on public-private partnerships | Dentons

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Uzbekistan continues 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 the shortcomings of Law No. 537 on Public-Private Partnership adopted on May 10, 2019 (the PPP law; our overview of the PPP law is available here).

Below is our summary of the main changes made to PPPs by Law n ° 669.

Fixing prices in foreign currency

Previously, Foreign Exchange Regulation Law No. 573 of October 22, 2019 contained an absolute ban on fixing the prices of goods, services (and works) in Uzbekistan to foreign currencies and other conditional units. Law No. 669 amended this prohibition by authorizing, on an exceptional basis, on the basis of the decisions of the President of Uzbekistan, the anchoring of the prices of goods (works, services) sold in Uzbekistan within the framework of projects involving foreign investments attracted under PPP agreements and investment agreements with the government of Uzbekistan.

Project company

Law No.669 introduced the concept of project company into the PPP law, defining it as a legal entity established by the successful bidder, the reserved successful bidder, the private initiator or the participant in direct negotiations for the sole purpose of the contract. PPP project implementation and registered in in accordance with the legislation of Uzbekistan. In addition, the amendments also make it possible to sign the PPP agreement directly with the project company.

Concessions

Law No. 669 incorporates concessions into 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 planned economic activity. by concession agreement. Previously, concessions were governed by Law No. 110-I on Concessions and were not included in the PPP law. As a result of the changes, concessions are now governed by the PPP law and the “Concessions” law is no longer in force.

Information on public-private partnership projects

Law No. 669 specified the scope of information on 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, with the exception of cases involving state secrets, should be published:

  • Name of the parties to the project;
  • Project scope (sector);
  • Location of the project;
  • Duration of project implementation (duration of the project);
  • Prices of goods (works, services) to be collected from consumers (if applicable);
  • Total value of the project;
  • Amount and type of government support (if applicable).

Prior to the amendment, the PPP Law contained a general provision requiring the publication of information on PPP projects, without a clear list of information to be published.

Local executive bodies

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

Change of law

Law No. 669 amends the provision relating to the amendment of the Law on PPP. In particular, in the event of changes in the legislation in force on the date of conclusion of the PPP agreement which directly result in an increase in the expenses of the private partner or a reduction in its income under the PPP project, the private partner will have the right to the right to demand a compensatory increase in the costs of availability of PPP objects and / or of the user fees, as well as to demand from the public partner a flat-rate compensation. The procedure and conditions for applying these guarantees should be defined in the PPP agreement.

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

This amendment guarantees the rights of the private partner in the event of an unfavorable modification of the law. However, since taxes and duties are excluded from this amending law provision, increases in taxes / duties after the conclusion of the PPP agreement could constitute an additional burden on the private partner.

Unsolicited proposals

Law n ° 669 simplified 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 a selection of interest from other applicants and, if a positive response is received, the award must go through a one-step tendering process. If the private initiator is not selected as the successful bidder, he can claim reimbursement of costs incurred not exceeding 1% of the overall value of the project.

Modification, addition or termination of the PPP agreement

Law n ° 669 introduces changes to the procedure for modifying and terminating the PPP agreement as follows:

  • Modification / 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.
  • Modification / termination of a PPP agreement on a PPP project with a total value of the equivalent of over US $ 1 million is carried out in coordination with the PPPDA.
  • Modification / termination of a PPP agreement on a PPP project with a total value of the equivalent of over US $ 10 million is carried out in coordination with the Cabinet of Ministers of the Republic of Uzbekistan.

This amendment aims to protect the public interest against unfair changes to the PPP agreement.

Signature bonus

Law n ° 669 introduces a signing bonus to be paid to the PPPDA in an amount set by the government.

Direct agreements

In order to guarantee the rights of lenders, Law No. 669 specifies the mandatory provisions of direct agreements which include:

  • the rights and obligations of lenders in the exercise of intervention rights;
  • obligation of the public partner to make certain payments due under the PPP agreement to be made directly to lenders instead of the private partner, in case of substitution of the private partner;
  • the terms and conditions to mitigate the risk of termination of the PPP agreement;
  • the terms of payment in the event of early termination of the PPP agreement;
  • procedure for exchanging information on the implementation of the PPP project and guaranteeing the rights and obligations of the parties.

At the same time, under Law No. 669, financial parties cannot be parties to the PPP agreement as previously allowed by the PPP law. This means that it is necessary to enter into a separate agreement (eg a direct agreement) to stipulate the financing conditions and the rights of the lenders.

Right of a project company to open bank accounts outside Uzbekistan

Under Law No.669, the private partner who is a resident of Uzbekistan (e.g. a project company), has the right to open overseas bank accounts for the purposes stipulated in the PPP agreement. and / or the government support agreement. This is a positive amendment for the bankability of PPP projects as it provides a waiver of the currency regulation law which allows the resident private partner to directly open bank accounts abroad. According to the Law on Currency Regulation, legal persons resident in 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 if there are international treaties of Uzbekistan which provide for the opening of these accounts abroad.

Modification of tender documents

The extension period in the event of modification of the tender documents has been reduced from 30 to 15 calendar days.

This amendment to the PPP law allows flexibility for the PPP tendering process and avoids excessive extension of the submission deadlines in the event of minor changes to the tender documents.

Conclusion

In general, Law No. 669 filled the majority of the existing loopholes in the PPP Law and clarified the mechanism for implementing PPP projects in Uzbekistan. The PPP amendments under Law No. 669 are expected to bring Uzbekistan’s PPP legal framework in line with international best practices and help reduce spending on the state budget. from Uzbekistan to the development of economic and social sectors.

  1. Law No. 110-I of the Republic of Uzbekistan on Concessions of August 30, 1995.

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