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March 2020 – A draft Presidential Decree “On Measures of Further Reduction of the Presence of the State in Economics, thorough Reform of Enterprises with State Participation and the Introduction of Modern Methods of Corporate Governance in their Activities” (“Draft Decree”) was recently published in the online-system for public discussions of legislative draft projects.

As of 13 March, if the Draft Decree is adopted, it will introduce the following changes to State policy:

• State participation will be restricted in areas in which the private sector successfully operates. The State will introduce the “Yellow Pages Rule” and sell shares in the companies that compete with the private sector;
• Legislation on privatisation shall be improved, in order to optimise and unify the norms into a single legal act of direct effect;
• The State will dispose of vacant facilities and non-core assets by transferring them, either by virtue of sale or on a zero-costs basis (with the assumption of investment obligations) to the private sector;
• The State will attract the private sector to participate in public-private partnerships in the areas of transport, utilities, road construction, energy, social projects and education;
• The State will keep its ownership in companies that are essential to ensure the social needs of the population, public order, security and the interests of the State;
• The State will ensure the complete transition of companies to market conditions, as well as the adoption of corporate governance principles for company activities;
• The effectiveness of Executive Bodies of the companies shall be assessed on the basis of key performance indicators (KPIs), whereas the Supervisory Board shall be assessed by the level of implementation of corporate governance principles;
• The State shall separate the functions of owner and regulator in state-owned companies.

According to the proposed draft, the Prime Minister will be ordered by 1 September 2020 to develop a plan to implement this strategy, with the involvement of international financial institutions and experts. In addition, by 1 May 2020, the Prime Minister will have to adopt a roadmap for reforms of the following state-owned companies within the indicated deadlines:

With regard to privatisation matters, the State will only retain its ownership over companies that:

(a) operate in the area of a natural monopoly;

(b) provide the basic necessary services to the public, the implementation of which by private enterprises is impractical or unprofitable;

(c) carry out activities in the field of strategic interests or perform systemically important functions for the economy, specifically:

• develop, manufacture, sell, repair, modernise and dispose of weapons, military and special equipment, ammunition and perform other activities to ensure the security and defence of Uzbekistan;
• mine, produce, transport and process radioactive elements, bury radioactive waste, sell uranium and other fissile materials, as well as products from them;
• mine precious metals;
• conduct construction and installation works, operate and repair nuclear energy facilities (including the installation of equipment, systems and apparatus at such facilities);
• implement major infrastructure projects in the national interest;

(d) are in the temporary possession of the state, if necessary to solve structural problems.

The strategy also envisages that the State Asset Management Agency (“SAMA”) shall conduct an audit of all state-owned companies. Based on the audit results, the State will formulate a list of companies that are to be sold or retained. If the State decides to retain its ownership in a company, it should provide a justification for such decision. A list of such companies with appropriate justifications will be published on the SAMA website.

All other companies under state ownership shall be offered for privatisation, transfer to public-private partnership, reorganisation or liquidation before 2025.

Before 2023, the State will abolish the practice of providing state guarantees for financing investment projects of companies with state participation, retaining this mechanism exclusively for strategically important infrastructure and socially significant projects. Companies with state participation shall be independently responsible for the fulfilment of obligations in connection with the attraction of financing.

According to the draft, it is the intention of the State to ensure that companies with state participation should carry out their business activities equally with private companies and exist in the same organisational and legal forms as private companies.

Lastly, the strategy provides for broad reforms of the corporate governance of state-owned entities with the adoption of best practices in governance, management, risk evaluation, disclosure, and others.

The full version of the document is available online: https://regulation.gov.uz/ru/document/14177

For more information please contact Joel Benjamin, Managing Partner Central Asia, at , and Muborak Kambarova, Counsel, at .