Eye on Emerging Markets | Q3 2022
Structuring Renewable Energy Projects in Uzbekistan
In 2021, the population of Uzbekistan surpassed 35 million. This, as well as the country’s continued economic development, has further pushed demand for electricity which is estimated to grow to over 100 TWh by 2030, a substantial increase from 61 TWh in 2018.
After joining the Paris Agreement, Uzbekistan pledged to reach carbon neutrality by 2050. The President’s decrees further established interim goals in respect of renewables: to increase the share of renewables to 20% of all sources of electricity production by 2025 and to 25% by 2030. In 2020, the Ministry of Energy of Uzbekistan published a concept note on the power capacity development in the country for the 2020-2030 announcing its plans to develop 5 GW of solar and 3 GW of wind power. After procuring low tariffs from developers via competitive tenders, the Ministry of Energy suggested to increase the projected PV solar and wind capacity to 7 GW and 5 GW, respectively.
To achieve these ambitions goals, Uzbekistan would require a solid pipeline of projects, backed by reliable sponsors and lenders. In one of the recent reports developed with the support of EBRD, it was opined that that it is “technically and economically possible” for Uzbekistan “to achieve carbon neutrality by 2050”.
While some initial renewable projects have been implemented based on bilateral investment agreements (“IA”) under Uzbekistan’s foreign Investments Law, recent renewable energy (“RE”) projects tendered as public-private partnerships (“PPP”) under the PPP Law helped to procure increasingly competitive tariffs, which now may be indexed to foreign currencies. Following the adoption of a new law on currency regulation (“Currency Law”) in October 2022, projects implemented via PPP or IA have been excluded from the restriction prohibiting indexation of prices/tariffs to foreign currencies, provided a Presidential decree allowing such indexation is issued.
PPP and IA structures have, however, different regimes applying to opening/utilization of foreign accounts. As a general rule established by the Currency Law, resident companies, such as RE project companies, are required to obtain a Presidential decree which would authorize them to open offshore accounts. The PPP Law, however, provides for an exception to this rule authorizing a private partner (that is a resident of Uzbekistan) to open offshore accounts, provided that such authorization and the purposes for use of the offshore accounts are reflected in the relevant PPP agreement or GSA.
Written by Sherzod Yunusov, Kinstellar
Scroll down
Projects initiated by the government would require a more rigorous procedure should they be structured via PPP. In particular, the PPP law mandates that for projects worth over USD 1 million a 2-staged tender shall be conducted (consisting of RFQ and RFP stages). Those bidders that have been prequalified during an RFQ stage, would be eligible to participate in the RFP stage, which usually includes the following documents: (i) instructions to potential bidders, (ii) a draft PPA/PPP, (iii) a draft government support agreement (GSA), and (iv) a draft land lease agreement (LLA).
In a typical RE PPP transaction, JSC National Electric Grid of Uzbekistan would act as the public partner and purchaser of generated energy under the PPA/PPP. The Ministry of Finance is authorized under the PPP Law to execute a Government Support Agreement on behalf of the Government. Until recently, LLAs were normally executed with the public partner. As part of the ongoing land reform, non-agricultural land plots for PPP projects are set to be leased through a governmental body, such as the Ministry of Energy.
Both PPPs and IAs are often governed by Uzbek law. Due to this, sponsors and lenders should be aware of peculiarities under Uzbek contract law that, similarly to many other civil law jurisdictions, has a concept of “essential terms” set forth for certain agreements, including in respect of PPPs and IAs. For example, article 27 of the PPP Law lists the provisions that “must” be indicated in a PPP agreement. In the absence of such essential terms, an Uzbek court (or an arbitration institution applying Uzbek law) taking a formalistic approach to interpretation may find a non-compliant PPP agreement as not concluded (since the parties have not reached an agreement as to all essential terms provided for by the applicable law) or invalid (since the agreement does not comply with the requirements of the law as to its content).
Although the PPP law was introduced relatively recently (first coming into force in June 2019 and substantially amended in January 2021), it appears that going forward renewable energy projects in Uzbekistan will be predominantly based on PPP models, as the Government reportedly intends to structure upcoming projects in this space as PPPs, to offer private investors a balanced risk allocation and continue to procure competitive tariffs.
Scroll down
Back >
Back >
“
“
The Ministry of Finance is authorized under the PPP Law to execute a Government Support Agreement on behalf of the Government. Until recently, LLAs were normally executed with the public partner. As part of the ongoing land reform, non-agricultural land plots for PPP projects are set to be leased through a governmental body, such as the Ministry of Energy.
“
“
PPP and IA structures have, however, different regimes applying to opening/utilization of foreign accounts. As a general rule established by the Currency Law, resident companies, such as RE project companies, are required to obtain a Presidential decree which would authorize them to open offshore accounts.
Get in touch
Sherzod Yunusov
Partner, Kinstellar
E: sherzod.yunusov@kinstellar.com
T: +998 78 150 6221
View Profile
View Profile
Eye on Emerging Markets | Q3 2022
Scroll down