THE PPP PROGRAM
The Investor Uzbekistan 2023 I Finance I Analysis
“UZBEKISTAN IS KEEN TO CATALYSE PRIVATE SECTOR INVESTMENT IN ORDER TO REACH ITS GDP, ENERGY AND INFRASTRUCTURE GOALS, AND PPPS WILL BE KEY MECHANISM TO ATTRACT FOREIGN INVESTORS TO THE REGION.”
Public-private partnerships (PPPs) are an increasingly popular method of financing and operating infrastructure projects around the world. In simple terms, PPPs involve the collaboration between government agencies and private sector entities to provide public services or infrastructure. The private sector contributes capital and expertise, while the government provides legal, regulatory and social frameworks.PPPs have become an attractive option for governments around the world because they allow for large-scale investment in infrastructure and services without requiring governments to bear the full cost. At the same time, PPPs can provide private sector companies with access to new markets and a chance to work closely with governments.
Many countries have implemented successful PPPs, with some notable examples including the United Kingdom, Canada, Australia, and the United States. In the United Kingdom, PPPs were first introduced in the 1990s and have since been used to finance and operate hospitals, schools, and transportation infrastructure. Canada has been using PPPs for over two decades, with successful projects including the Toronto Pearson Airport and the Alberta Schools Alternative Procurement program.
Australia has been a leader in the use of PPPs, with a variety of successful projects in transportation, health care, and social housing. In the United States, PPPs have been used to finance and operate airports, highways, and other infrastructure projects.In Uzbekistan, the concept of PPPs is not new, but the government has recently renewed its focus on implementing PPPs as part of its ongoing efforts to modernize the economy and attract foreign investment. The country has a large infrastructure deficit and a need for significant investment to improve its transport, energy, and water systems. PPPs have the potential to be a key tool for meeting these infrastructure needs.
One of the most successful PPPs in Uzbekistan to date is the Talimarjan Power Plant project, a U$1.2 billion investment that involved the renovation of a power plant and the construction of a new combined cycle gas turbine. The project was financed by a consortium of international investors, including the International Finance Corporation and the Asian Development Bank, and was implemented by a joint venture between Uzbekenergo and Korea Electric Power Corporation.
The Talimarjan project has been praised for its successful implementation, which included the establishment of a transparent and competitive bidding process, effective risk allocation, and the use of international best practices in project design and management. The project has also been cited as an example of the potential benefits of PPPs for Uzbekistan, including increased access to international capital markets and the transfer of technology and expertise from international partners.Another successful PPP project in Uzbekistan is the Tashkent Metro Line 3 project, which involves the construction of a new subway line in the capital city. The project is being implemented by a consortium of international investors and local partners and is expected to cost approximately U$1.5 billion. The project has been praised for its innovative financing structure, which includes the use of long-term debt financing and equity contributions from investors.
By the Resolution of the Cabinet of Ministers of the Republic of Uzbekistan No. 594 (22.09.21), Veolia Energy Tashkent was given the tasks of operation, maintenance and management of the district heating system in Tashkent for 30 years under public-private partnership. As a result of the project, Veolia will increase heat supply efficiency by 50% and reduce heat loss from 44% to 20%, annual natural gas consumption by 45%, electricity consumption by 25% and drinking water consumption by 40%.
While the implementation of successful PPPs in Uzbekistan is still in its early stages, the government has taken a number of steps to create an enabling environment for PPPs. In 2019, the government adopted a new PPP law that aims to provide a clear legal framework for the implementation of PPP projects.
Uzbekistan is keen to catalyse private sector investment in order to reach its GDP, energy and infrastructure goals, and PPPs will be key mechanism to attract foreign investors to the region. Uzbekistan to implement PPP projects worth almost U$14 billion until 2026 including airport upgrades, toll roads, new power plants and other projects. The portfolio of the PPP Development Agency for 2022-2026 includes 154 investment projects. Their total estimate is U$14 billion.
The largest of the initiatives in this area is the program for the modernization of airports in Uzbekistan, which, according to calculations, will require U$3.8 billion. Separately, the modernization of the air harbors of Bukhara and Urgench for U$100 million is indicated. One of the most expensive projects will also be the Tashkent-Andijan toll road, the construction of which will cost U$2.83 billion. Another route between Tashkent and Samarkand is estimated at U$1.4 billion. In recent years, Uzbekistan has implemented or started implementing 312 PPP projects, estimated in total at more than U$10 billion. The main areas were energy and utilities, the report emphasizes.
In order to reach its goals, Uzbekistan has adopted a public-private partnership law and created a new public body under the Ministry of Finance – the PPP Development Agency (PPPDA). In 2021, the PPP agency implemented 183 PPP projects with a combined value of U$2.6 billion, including 5 in the energy sector. The President of Uzbekistan has also recently adopted a new decree encouraging a dramatic increase in the number of PPP projects in the energy, transport, utilities, healthcare, education, water management sectors, including those involving small and medium hydroelectric power plants.
Indeed, a number of private sector investors have been keen to invest in the region, such as ACWA Power (a leading Saudi developer, investor and operator in power generation, who has invested in four projects in Uzbekistan recently), and Masdar (a subsidiary of Mubadala Investment Company and one of the world’s leading renewable energy companies, who has also invested in a number of wind and solar projects in Uzbekistan, including a 100MW solar plant in the Navoi region, a further two solar projects in Jizzakh and Samarkland, a 1.5GW wind project and a 457MW solar project in Sherbad).
It is worth noting that Uzbekistan has also created close ties with international finance institutions such as the World Bank, IFC, ADB and EBRD, who are supporting a significant number of energy projects (both renewable and conventional), as well as projects in the schools, healthcare, transport, district heating and waste management sectors. The PPP law does not name areas in which PPP projects may be implemented, however a mandatory requirement for PPP projects is that they should be aimed at solving economic, social and infrastructure issues. A project can be initiated by the Government or, notably, by the private partner.
In latter cases, the private initiator may propose a project to be approved by the relevant government authority, however this must remain "unclaimed" by other potential private partners for a period defined by law (45 days). Where no other private partner expresses an interest in implementing the project under the conditions proposed by the project initiator, the PPP can proceed. Alternatively if an interest is expressed and the PPP project's concept has been approved, the public partner will run a tender process and the private initiator will be reimbursed for the costs relating to preparation of the PPP project. Where the PPP project value is less than U$1 million, the tender will be a single-stage process. The tender will consist of two stages where the PPP project value is more than U$1 million.
In addition, the PPP law allows execution of a government support agreement envisaging provision of additional guarantees and support measures to the private partner. The government support agreement is executed between the private partner and the Government of Uzbekistan represented by the Ministry of Finance.
In Uzbekistan, PPPs are the engine driving infrastructure development. The country is working with international partners to implement bold policies and efficient project delivery in order to bring the country’s ambitious program to the next level.