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23 ¬ FOREWORD BY DEPUTY PRIME MINISTER —FINANCE MINISTER JAMSHID KUCHKAROV

24 ¬ UZBEKISTAN’S ENERGY SECTOR AT THE

THRESHOLD OF MAJOR REFORMS

Jurabek Mirzamahmudov, first deputy minister of energy

25 ¬ OIL AND GAS SECTOR OVERVIEWUnveiled in July, a new roadmap for Uzbekistan’s energysector lays out plans for the restructuring and moderni-sation of state-owned firms and a major expansion of theindustry with foreign investment

27 ¬ INTERVIEW WITH THE DEPUTY CHAIRMAN OFUZBEKNEFTEGAZ Ulugbek Ashurov

28 ¬ INTERVIEW WITH THE CHAIRMAN OF THEBOARD, UZTRANSGAZSayidov Ulugbek

29 ¬ POWER L SECTOR OVERVIEWA radical restructuring and upgrading of Uzbekistan’spower sector is creating opportunities for foreign in-vestors and adding new generation sources, from renew-ables to nuclear

31 ¬ INTERVIEW WITH THE DEPUTY CHAIRMAN,THERMAL POWER PLANTSFayzulla Shaismatov

32 ¬ INTERVIEW WITH THE FIRST DEPUTY CHAIR-MAN OF THE BOARD, UZBEKISTAN NATIONAL POWER NETWORKSElmurodov Kholik

33 ¬ CHEMICAL SECTOR OVERVIEW Policymakers have unveiled an ambitious plan to revitalizeand expand Uzbekistan’s chemicals industry with the helpof foreign investors to serve booming domestic demandand boost exports

35 ¬ INTERVIEW WITH THE HEAD OF THE PPP DEVELOPMENT AGENCYGolib Kholjigitov

The modernization of the talimarjan Power plant

1_21-35_Uzbekistan_16p.qxp_1_21GM 14/10/2019 17:04 2

New Uzbekistan under the leadershipof His Excellency President ShavkatMirziyoyev is transforming in many

ways. Economic reforms, including state-owned enterprise reforms and liberalisation,are among the key pillars of current struc-tural transformations in Uzbekistan.

To ensure our economic reforms benefit fromthe best international practice, the Presidentcreated the Economic Council this January. Itcomprises senior Uzbek government officialsas well as international scholars and practition-ers, including those at Growth Dialogue, a think-tank under George Washington University,chaired by Michael Spence and Danny Leipziger.

In its inaugural meeting on July 18 2019,the Economic Council agreed to implementreforms in nine priority areas, of which theenergy sector stands out. With expected GDPgrowth of over 5% per annum in the mediumterm, the country simply needs much moreenergy to fuel its growth. With the currentmismatch of energy supply vis-à-vis growingdemand, reforms in the energy sector areviewed as a real driver both in terms of en-ergy-growth nexus and exports, especiallyto Uzbekistan’s southern neighbours.

Therefore, the government has embarkedon a wide-ranging reform agenda in the en-ergy sector. Unbundling state monopolies —Uzbekenergo into generation, transmissionand distribution and Uzbekneftegaz into ex-ploration, transportation and distributioncompanies — has created opportunities forthe private sector, including foreign investors.While Uzbekistan is a late reformer as un-bundling took place long ago in other devel-oping countries, we can learn from these ear-lier reforms to make the right decisions.

At the same time, we have to work on ad-ministered tariffs to make this sector more at-tractive. Working together with our trustedadvisors at the World Bank, ADB and EBRD,the government is decisively pursuing gradualliberalisation of energy prices in the country.

Last August we raised electricity prices by18% (retail) and 36% (corporate). Natural gasprices rose by 19% (retail) and 25% (corpo-rate) while gasoline and diesel went up by13%. This followed a circa 10% increase in en-ergy tariffs in November 2018.

With expected tariff increases in the future(eventually leading to free market prices inthe medium term), we believe the power sec-tor should be even more attractive to in-vestors. This is very important as we wantto nearly triple Uzbekistan’s power genera-tion capacity to over 30,000MW by 2030.

Substantial investments in the power sectorare expected through the Public Private Part-nership (PPP) mechanism. For example, withthe advisory support of the International Fi-nance Corporation (IFC), a pilot project (as partof scaling solar programme) is being imple-mented to build a 100MW solar photovoltaic(PV) station in the Navoiy region. The interna-tional competitive tender recently ended withfive bidders, namely Total Eren (France), TBEASolar (China), Masdar (UAE), Acwa Power(Saudi Arabia) and Jinko Solar (China), reach-ing the final stage. Masdar won the tender withthe offer of 2.679 US cents per kWh. Given thesuccess of this tender, we are soon to launchtwo more tenders for 900MW solar PV stations.

Moreover, transaction advisory mandateshave been signed for a further 1,300MW CCGTgreenfield project in the Sirdarya region withthe IFC and for a 1,000 MW solar PV project inthe Surkhandarya region with the ADB. Theseprojects will pave the way for more PPP-basedconventional and renewable energy projects.By 2030, we plan to increase the installed ca-pacity of solar power plants to 5,000MW. Fur-thermore, through the PPP mechanism, wind(2,000MW) and gas-fired CCGT (3,400MW)power stations are also planned by 2030.

In the oil and gas sector, the investment pro-gramme for the next decade is estimated at$34bn, consisting of 40 projects including explo-ration, development, transportation and storageof natural gas and petrochemical processing.

A substantial proportion of these invest-ments will be covered through FDI. There-fore, the government is keen to open up fur-ther new investment blocks for foreign in-vestors. This, together with investments inUzbekneftegaz, would increase the domesticproduction of natural gas to 74.8bn cubic me-tres (+23% vs 2018) and liquid hydrocarbonsto 7.1m tonnes (+130% vs 2018) by 2025.

In chemicals, together with Boston Con-sulting Group, we have developed our Strat-egy 2030 based on three priority areas: fer-tilisers, gasochemical and other chemicalproducts. This strategy mostly relies on FDI(through privatisation and greenfield invest-ments) which has already started workingwith Indorama Corporation firmly on theground. At the moment, several SOEs pro-ducing fertilisers are up for sale.

CORPORATE GOVERNANCE AND INSTITUTIONAL DEVELOPMENTThe government is keen to improve corporategovernance in SOEs. Together with internation-al organisations such as the World Bank, ADB,

EBRD as well as local and inter-national consulting firms, wehave identified key areas of con-cern. Based on that, there is afirm commitment and politicalwill to address these concerns.

As a result, more transpar-ency, independent directors,IFRS implementation, creditratings and access to capitalmarkets (including IPOs) arereflected in all the roadmaps toreform the SOEs. To illustrate,Uzbekneftegaz and Uztransgazwill have IFRS reporting in 2020while Thermal Power Plants,UzHydro and National ElectricSystems will move to IFRS by2021. The World Bank, ADBand EBRD have confirmedtheir commitment to assist newly formed powercompanies in corporate governance implemen-tation, including selection of independent di-rectors with international experience.

It is important to mention that a focus oncorporate governance is happening withinthe framework of a broader strategy tostrengthen institutions in Uzbekistan. Devel-opment Strategy 2017-2021 is based on fivepillars, including development of the institu-tional framework of the state administrationand rule of law and legal reforms.

To measure our progress in structural re-forms, the government is following 24 globalratings and indices, including WorldwideGovernance Indicators (World Bank) and theCorruption Perception Index (TransparencyInternational). Line ministries and agencieshave developed roadmaps with clear mile-stones to improve each indicator. While theprogress may take time, we believe we areon the right path with the right partners.

VISIONOur leader, His Excellency President ShavkatMirziyoyev, has set ambitious objectives for thegovernment. When we succeed, Uzbekistan willbe a different country with a modern economyand well-functioning energy market benefittingfrom strong private sector participation.

This vision requires well-sequenced andirreversible reforms to attract substantial in-vestments. Therefore, under the President’sleadership, the government of Uzbekistan isstrongly determined to continue with the re-forms, embrace new challenges ahead andbuild trusted relationships with investors.

Uzbekistan is open for business! l

UZBEKISTAN SPECIAL REPORT:: Foreword by Deputy Prime Minister — Finance Minister Jamshid Kuchkarov ¬ 23

President Shavkat

Mirziyoyev, has

set ambitious

objectives for the

government. When

we succeed,

Uzbekistan will be a

different country

with a modern

economy and well-

functioning energy

market benefitting

from strong private

sector participation

‘‘

‘‘

GlobalMarkets

UZBEKISTAN: ON THE RIGHT PATH WITH THE RIGHT PARTNERS

IMF/WORLD BANK EDITION THURSDAY OCTOBER 17, 2019

Deputy Prime Minister — Finance Minister Jamshid Kuchkarov


Uzbekistan’s turbulentpast has left its markon every aspect of

the country’s economic and social life, but we are nowlooking to the future. Thenew government, headed byPresident Shavkat Mirziy-oyev, is searching for ways toreform outdated managerialand technological practicesand bring the country intothe 21st century.

Several government de-crees have been adopted re-cently aimed at radically in-creasing the efficiency of fueland energy complex man-agement as well as switchingto modern methods of organ-ising the production, trans-portation, distribution and

marketing of electricity both within Uzbek-istan and beyond its borders.

The energy sector rightly deserves specialconsideration. Uzbekistan is one of the mostenergy-intensive economies in the world andits industrial sector, which utilises inefficientand obsolete technology in its productionprocesses, accounts for around 40% of totalenergy consumption. For years this sectorwas run using non-economic methods, apractice which is no longer sustainable.

In the power generation industry, the mostcritical problems are the growing shortfallof electricity supply and significant wear andtear on equipment, including the distributionnetworks. According to analysts, one of themain causes is the insufficiently effectivemanagement of the electricity industry andhistorical underinvestment into new tech-nologies throughout the sector.

To help find solutions to the growingproblems within the sector, a new Ministryof Energy was established, tasked by thestate to deal with all issues related to thefuel and energy sector of the country.

The Ministry of Energy now directly in-cludes the Uzatom Agency, Uzneftegazinspec-tion, Uzenergoinspection, and the Implemen-tation Group, which co-ordinates projectsunder production sharing agreements.

The Ministry also co-ordinates the activitiesof the Uzbekneftegaz, Uztransgaz and Region-algaz joint stock companies, as well as the

entities created from Uzbekenergo JSC: Ther-mal Power Stations, National Electric Gridsof Uzbekistan and Regional Electric Grids.

It is also important to address the expect-ed shortage of natural gas, which is todaythe main raw material for electricity gen-eration, along with the inadequate energy-saving measures by modern standards andthe significant untapped potential for theuse of renewable energy sources.

A significant role in ensuring the coun-try’s energy efficiency is given to diversi-fication of energy sources. To this endUzbekistan has made a historic decisionto begin the development of nuclear ener-gy generation.

The Agency for the Development of Atom-ic Energy of Uzbekistan was founded in July2018, and in October last year, a project waslaunched to build the country’s first nuclearpower plant using Russian technology.

In May 2019, two new laws were adoptedin Uzbekistan: “On the use of renewable en-ergy sources” and “On public-private part-nership”. This created a legislative basisfor attracting investment in the energy in-dustry, as well as a system of incentives forusers and manufacturers of renewable en-ergy equipment.

By 2025, the share of electricity produc-tion using renewable and alternative ener-gy sources is planned to increase to at least20% of total generation.

The fundamental reform of the fuel andenergy complex also applies to the oil andgas industry. For decades, the industry hasbeen driven by non-economic methods,which led to lags in the growth of hydrocar-bon reserves and an increasing deficit innatural gas, especially in the private enter-prise sector.

In July 2019, a resolution of the Presidentwas adopted, aimed at large-scale reform ofthe industry. During the restructuring, ex-cessive intermediate management links havebeen reduced through the merger of sub-holding companies of Uzbekneftegaz and thewithdrawal of Uztransgaz from this system.

Uzbekneftegaz’s stake in the authorisedcapital of Uztransgaz has been transferredto the state through the State Assets Man-agement Agency.

EFFICIENCY DRIVEMeasures to improve the efficiency of

processing, transportation and sale of nat-ural gas, and analysis and optimisation ofinvestment projects were identified.Uzbekneftegaz has begun the process ofimproving mechanisms for the sale of fin-ished products, strengthening financialdiscipline and optimising pricing at enter-prises in the oil and gas industry.

The process of reforming the fuel andenergy sector is based on accumulated ex-perience, analysis and support of the bestinternational models. World experts in thisarea have been engaged and substantialassistance is being provided by interna-tional financial institutions (IFIs).

For example, the World Bank is support-ing projects to increase the energy efficien-cy of district heating, develop the energymarket, and modernise the mechanism ofelectric power transmission. Energy effi-ciency will help minimise operating andmaintenance costs, improve productivityand generate real cashflows. It will alsocontribute to mitigation of the effects of cli-mate change.

The Asian Development Bank is promot-ing regional co-operation projects to ex-pand cross-border energy trade and inte-grate renewable energy sources into thegrid, develop sustainable hydropower proj-ects and increase the efficiency of electric-ity production.

The European Bank for Reconstructionand Development is participating in theimplementation of the Talimarzhan ener-gy project and modernisation of theTashteplotsentral and Muruntau trans-mitting stations.

Uzbekistan’s economy has been devel-oping rapidly in recent years, leading to asignificant increase in energy consump-tion. Over the next 10 years we expect con-sumption to more than double. It is there-fore crucial to ensure the country’s energysecurity, taking into account the constantgrowth of needs, reforming of managerialstyles, attracting foreign investment andcreating new jobs.

This complex and demanding work isbeing done today with the assistance ofIFIs and consultants as well as dedicatedefforts by the Uzbekistan government, itsnew Ministry of Energy and thousands ofpeople in the sector who are building forfuture generations. l

24 ¬ UZBEKISTAN SPECIAL REPORT:: Statement by Jurabek Mirzamahmudov, first deputy minister of energy

GlobalMarkets

By 2025, the

share of electricity

production using

renewable and

alternative energy

sources is planned

to increase to at

least 20% of total

generation

‘‘

‘‘UZBEKISTAN’S ENERGY SECTOR AT THETHRESHOLD OF MAJOR REFORMS

Jurabek Mirzamahmudov, first deputy minister of energy




OIL AND GAS 25SEPCIAL REPORT: UZBEKISTAN

By Lucy Fitzgeorge-Parker

Even by the standards of Central Asia, Uzbekistanis rich in natural resources. The country boasts

more than 270 hydrocarbon deposits and is secondin the region for natural gas production, and in thetop 20 globally.

A recent independent audit put Uzbekistan’s re-serves of natural gas at more than one trillion cubicmetres, while liquid hydrocarbon reserves are esti-mated at around 150 million tonnes. Income from theoil and gas sector accounts for 10% of GDP and 15%of budgetary revenues.

Unfortunately, the potential of the industry hasnot previously been fully realised due to inefficientmanagement and lack of investment in exploration,infrastructure and technology.

As a result, despite an 8% increase in natural gasproduction in Uzbekistan over the past 20 years, theproportion produced by Uzbek firms has fallen to 29%.Moreover, for the past five years, the rate of naturalgas reserves replacement has averaged barely 70%.

The sector is clearly ripe for reform — and, undernew president Shavkat Mirziyoyev, policymakershave taken up the challenge. In 2018, a comprehensivestudy of the oil and gas industry was commissionedby the government, with the backing of the AsianDevelopment Bank.

“We were given the goal of working out how to bringthe sector up to international standards,” says Ulug-bek Ashurov, deputy chairman of Uzbekneftegaz. “Wespent a year studying the practices of internationaloil companies, as well as taking an inventory of thesituation in Uzbekistan.”

The results of this investigation were revealed inJuly, when President Mirziyoyev laid out plans for aradical overhaul of Uzbekistan’s energy industry.

At the heart of the government’s programme is amajor restructuring of state-owned oil and gas giantUzbekneftegaz (UNG).

This included the merger of four subsidiaries ofUNG — drilling company Uzburneftgaz, oil and gasproducer Uzneftegazdobycha, petroleum refiningfirm Uznefteprodukt, and machinery and equipmentmanufacturer Uzneftegazmash — with the parentcompany.

Six oil and gas producing and gas processing en-tities were also brought under the direct manage-ment of UNG, while all the company’s service com-

panies and nearly 300 non-core assets were markedfor disposal.

UNG is now responsible for upstream and down-stream operations in the state sector, comprising ex-ploration, production, recycling and reproduction.

Midstream operations have been handed to Uz-transgaz, which has been unbundled from UNG andtransferred to the ownership of the Agency for Man-agement of State Assets.

As well as sole responsibility for Uzbekistan’s high-pressure pipelines, Uztransgaz’s remit includes pur-chasing natural gas from extraction and processingorganisations, and selling it to end users and newregional gas distribution entity Hududgaztaminot.

The latter was established to manage the local dis-tribution of gas to consumers within Uzbekistan,with responsibilities including the operation andmaintenance of distribution networks, and the pur-chase, storage and sale of liquified gas to consumers.

Hududgaztaminot’s corporate structure includes14 local distributors, which have been earmarked aspotential candidates for foreign investment throughpublic private partnerships.

REFORM IMPLEMENTATIONA working committee, chaired by prime minister Ab-dulla Aripov has been established to oversee the im-plementation of the government’s programme forthe energy industry.

The committee has been tasked with monitoringthe progress of reforms, ensuring continued techni-cal and financial support from international devel-opment institutions, government bodies and consult-ants, and approving roadmaps for the achievementof the key goals of the project.

These include modernising Uzbekistan’s gas trans-mission system — more than half of the country’s13,000km of main gas pipelines are more than 30years old and 58% of its gas compressor units needreplacing — and, above all, increasing hydrocarbonproduction volumes.

This will be achieved both through explorationand the enhanced exploitation of existing fields inconjunction with leading international oil and gascompanies.

On the exploration side, UNG is already workingwith long-standing global partners including Russia’sLukoil and Gazprom, China National Petroleum Cor-poration and Korea National Oil Corporation, as well

as new market entrants from countries includingthe UK, France, India and Azerbaijan.

The Uzbek government has announced plans tooffer more than 50 investment blocks to foreign in-vestors, with a focus on hard-to-recover hydrocarbonfields. Indeed, the decree mandates the transfer ofthe latter to companies with relevant experience.

The expansion of geological exploration of poorlystudied areas and blocks with complex geologicalstructure is already under way with the help of for-eign firms including Total, BP, Mubadala Petroleum,SOCAR, Thyssen Krupp, Tatneft, ONGC Videsh andEpsilon Development.

Tatneft and Mubadala Petroleum, along with othercompanies from Russia and the United Arab Emi-rates, are also working with UNG on increasing hy-drocarbon production in depleted, stripped and sus-pended oil and gas fields, as well as those with hard-to-recover reserves.

Ashurov notes that the increase in production willhelp to meet a rise in demand for hydrocarbons driv-en by the rapid growth of the Uzbek economy. GDPis expected to expand by at least 5% over the comingyears as the government’s reform agenda bears fruit.

The increase in domestic demand may be muted,however, by a parallel programme to improve energyefficiency in Uzbekistan, both in industry and in thehousehold sector.

That will increase the potential for a substantialrise in natural gas exports. Already more than 15%of Uzbekistan’s natural gas production is sold outsidethe country. Some goes to Russia but most goes east,to Tajikistan, Kyrgyzstan, the south of Kazakhstanand China.

Ashurov sees great opportunities for UNG to serverising demand from China for natural gas. “China isa huge market and we can see that they are now im-plementing a policy of moving away from coal to-wards cleaner energy sources,” he says. “Naturalgas is a much safer and more ecological product.”

UNG is also looking to develop new export marketsfor both natural gas and other hydrocarbon products.“We know there is huge demand for natural gas inIndia and Pakistan, and we are ready to enter dis-cussions with those countries,” says Ashurov.

“We also see opportunities for exporting productssuch as LPG gasoline to Tajikistan and we are ex-ploring the options for working in Afghanistan, whichcould be a major export market for us.”

Reforms set to revitalise Uzbekistan’senergy industryUnveiled in July, a new roadmap for Uzbekistan’s energy sector lays out plans for the restructuring and

modernisation of state-owned firms and a major expansion of the industry with foreign investment


www.globalcapital.com/globalmarkets26 OIL AND GAS


SPECIAL REPORT: UZBEKISTAN

PETRO INDUSTRY DEVELOPMENTAnother key objective of the government’s reformsis the development of Uzbekistan’s petrochemicalindustry, particularly in the sphere of high value-added products. Responsibility for this part of theprogramme has been assigned to UNG, along withstate-owned chemicals producer Uzkimyosanoat.

“We are currently solving a large-scale task of ex-tracting valuable components from available rawmaterial resources by means of their deep process-ing,” says Ashurov.

Progress is already being made in this area. Overthe past two years, a number of key projects havebeen implemented, including the development of acomplex of fields at Kandym.

In April 2018, a new gas processing facility withan annual production capacity of 8.1 billion cubic me-tres of hydrogen sulphide-containing gas was com-missioned at the site. The complex is jointly ownedby Lukoil and UNG, and was funded by internationalbanks including ING, UniCredit and Deutsche Bank.

Kandym is located in the Bukhara region, whichis also home to one of Uzbekistan’s largest refineries.A second major refinery, in the Fergana region, isone of the facilities where policymakers are hopingto bring in foreign investment.

“We are already in negotiations on this projectand expect to have reached agreement by the end ofthe year,” says Ashurov.

A year earlier, the government of Uzbekistansigned a production-sharing agreement with Swissand Cypriot investors and Uzneftegazdobycha forthe Uzbekistan Independence gas field in the south-ern Surkhandarya region, the value of which is es-timated at more than $5bn.

The first phase of the project, due to be completedby 2023, will see the construction of a gas processingplant with a capacity of 5 billion cubic meters of nat-ural gas per year. That will be followed within threeyears by the construction of a gas chemical complexwith a production capacity of 500,000 tonnes of poly-mer products.

Uzbekistan’s other major hydrocarbon productionfacilities include the Mubarek gas processing com-plex and gas chemical complexes at Shurtan andUstyurt.

As part of the government’s programme, the Shur-tan gas chemical complex — which was completedin 2000 — is being expanded with the constructionof a plant for the production of synthetic liquid fuel(GTL) based on purified methane.

Work is also underway at the Bukhara refinery,where the modernisation and reconstruction of ex-isting facilities is proceeding in parallel with the con-struction of a new gas chemical complex based onmethanol-to-olefins (MTO) technology.

UNG has partnered with American chemicalsgiant Air Products, Mubadala and firms from SouthKorea and Singapore on the Bukhara projects.

FUNDING TARGETSAlong with substantial increases in production andthe introduction of new products, the July decreealso calls for dramatic improvements in corporategovernance and management across the Uzbek oiland gas industry.

“Our president has set us the goal of making alloperations in the sector transparent and efficient,”says Ashurov.

UNG and Uztransgaz have introduced supervisory

boards and are in the process of recruiting independ-ent directors. Both companies have also been man-dated to appoint external auditors and move to IFRSaccounting standards in 2020, as well as to obtain aninternational credit rating.

That in turn will pave the way for the issuance ofdebut Eurobonds next year and initial public offer-ings (IPOs) over the following three years. The com-panies will remain under state control, however, withthe government retaining a 51% stake in each.

Key to attracting investment in both companies,as well as the sector as a whole, will be the liberali-sation of tariffs. Prices of natural gas and gasolinein Uzbekistan have traditionally been well belowthose in other Central Asian states due to generousgovernment subsidies.

These are now being phased out. An increase intariffs was implemented on August 15 and furtherrises to bring the price of gasoline in line with marketrates are promised next year.

For natural gas, policymakers have moved from asingle fixed price to a variable tariff range. Underthe new regime, tariffs are higher for large con-sumers and non-energy efficient companies.

“Our goal is to implement step-by-step increasesacross the board to bring internal prices up to inter-national levels,” says Ashurov. “It is important tonote, however, that at the current level UNG is al-ready profitable.”

The final key plank of the government’s energystrategy calls for the introduction of modern infor-mation and communication technologies in all op-erations of UNG and Uztransgaz, including automat-ed systems for controlling and recording the produc-tion, transportation and sale of oil and gas products.

“It is safe to say that the Uzbek oil and gas industryis rapidly gaining momentum,” says Ashurov. “Theindustry is currently implementing both large-scaleinvestment projects and structural transformations.

“This will enable UNG to significantly increasethe production of highly liquid products necessaryto meet the needs of the population, industry, trans-port and agriculture, and remain a crucial contrib-utor to the economy going forward.” GM

OILThe construction of a plant for theproduction of synthetic liquid fuel (GTL)based on purified methane from theShurtan Gas Chemical ComplexThe plant will produce high-qualitydiesel and aviation fuels that meetstringent environmental standards,unparalleled in quality and theabsence of harmful impurities. Thetotal cost of the project: $2bn,financed by Korea Exim Bank, alongwith 15 commercial banks.

Creation of a gas-chemical clusterbased on methanol-to-olefins (MTO)technology. This will enable the manufacture of

new types of products, such aspolyethylene terephthalate,polystyrene, polyvinyl chloride,propylene oxide polyol, gasoline anddiesel fuel, in accordance with therequirements of Euro-5.

This project is in collaborationwith Air Products and Mubadala, aswell as engineering and constructioncompanies from South Korea andSingapore.

GASA joint venture with Forus JSC, aRussian company, to reconstruct thestorage facility at Gazli. This will more than triple the gasstorage capacity to 10 billion cubic

metres. Work is already underway onthe first phase of the project, whichwill double the storage capacity to sixbillion cubic metres by the end of 2021. The second phase is due to becompleted in 2024.Infrastructure at the facility will bemodernised in parallel with thereconstruction work. The total cost of the project: $850m

A new gas processing facility withintended annual production capacity:8.1 billion cubic metres of hydrogensulphide-containing gasThe complex is jointly owned byLukoil and UNG, and is funded byinternational banks including ING,

UniCredit and Deutsche Bank.

‘Uzbekistan Independence’ gas fieldin the southern Surkhandarya region In 2017 the Government of Uzbekistansigned a production-sharingagreement with Swiss and Cypriotinvestors and Uzneftegazdobycha.

The total cost of the project: $5bn.The first phase of the project, due

to be completed by 2023, will see theconstruction of a gas processing plantwith a capacity of five billion cubicmeters of natural gas per year. Thatwill be followed within three years bythe construction of a gas chemicalcomplex with a production capacity of500,000 tonnes of polymer products.

Investment highlights: oil and gas

Construction of the Oltin Yo’l GTL plant near the Shurtan GasChemical Complex


GGlloobbaallMMaarrkkeettss:: HHooww hhaass tthhee ggoovveerrnnmmeenntt’’ssssttrraatteeggyy ffoorr tthhee eenneerrggyy sseeccttoorr aaffffeecctteeddUUzzbbeekknneefftteeggaazz ((UUNNGG))??UUlluuggbbeekk AAsshhuurroovv:: Our primary task is tocreate a new vertically integrated com-pany that corresponds to internationalstandards of efficiency, transparency andcorporate governance.

We have already started our work on thetransformation of the company. We beganby realising nearly 300 non-core assets, aprocess which is due to finish by the end ofthis year.

We have also started work on the sale ofour service companies, which will takeplace next year, in order to increase com-petition in the market and lower the price.This will be done under open tender andwe expect the majority of buyers to comefrom the private sector.

The next step is to make the companymore attractive for public market investors.Our financial statements have been auditedby EY for the past three years and we arecurrently preparing to move to IFRS stan-dards at the start of next year.

We are also working on improving ourcorporate governance. We have created asupervisory board and are planning to ap-point independent directors with good ex-perience of the international oil and gas in-dustry. The process is already underwayand we expect it to be completed by the endof the year.

In addition, we are looking to appoint ex-ecutives from outside Uzbekistan to ourmanagement board. We are currently re-cruiting internationally for a first deputychairman, who will be responsible for theimplementation of our investment pro-gramme, and for our deep processing anddownstream projects.

Once we have completed our organisa-tional restructuring, we want to achieve aninternational credit rating and then issuea Eurobond.

GGMM:: WWhhyy iiss ccaappiittaall mmaarrkkeettss aacccceessssiimmppoorrttaanntt ffoorr UUNNGG??UUAA:: We want to change the way we fund our-selves. Until now, all our financing has comedirectly from the state or with a sovereignguarantee. We want to issue a Eurobond inorder to diversify our funding sources andreduce our reliance on government support.

We have had discussions with large in-vestment banks and financial institutions,and the feedback we have received is thatthere is strong appetite for our bondsamong global investors.

Some banks have encouraged us to cometo market this year, but we believe it is im-portant to finish our corporate transforma-tion first. What we are hearing from in-vestors is that their top priority is havingaccess to high-quality and transparent fi-nancial statements.

Once we are confident that we are up tointernational standards, and have seen anincrease in our production levels, then wewill be ready to issue a Eurobond.

After that, the government’s strategycalls for the privatisation of UNG via an IPObefore the end of 2024. We will remain state-controlled but investors will have an oppor-tunity to buy up to 49% of the company.

Before that, however, we will need tomake substantial improvements to our prof-itability and our production capacity.

GGMM:: WWhhaatt lleevveell ooff iinnvveessttmmeenntt ddooeess UUNNGG rreeqquuiirree??UUAA:: We have around 40 projects lined up forthe next 10 years with a total cost of around$34bn. We expect half of this to come fromforeign direct investment and loans.

GGMM:: WWhheerree ddoo yyoouu sseeee tthhee ggrreeaatteesstt ooppppoorrttuunniittiieess ffoorr ddeevveellooppmmeenntt??UUAA:: The investment policy of UNG is aimedfirstly at replenishing reserves and in-creasing hydrocarbon production with theuse of advanced technologies, carrying outgeological exploration on poorly exploredand complex subsoil areas, and intensify-ing production at fields with hard-to-re-cover reserves.

We want to modernise and improve the ef-ficiency of our existing oil refineries, as wellas introducing advanced information andcommunication technologies across the in-dustry. We want to digitalise all our process-es, starting with our wells and finishing withthe distribution of our final products.

It is also important to remember that theenergy sector in Uzbekistan not only coversthe extraction of resources from the earth butalso the system of complexes for processingraw materials and manufacturing products.

We want to deepen the processing of hy-

drocarbons and intro-duce new high added-value petrochemicalproducts to serve thedomestic market andfor export.

GGMM:: WWhhaatt aarree tthhee kkeeyyddeevveellooppmmeenntt pprroojjeeccttss iinntthhiiss aarreeaa??UUAA:: One of our biggestprojects is the con-struction of a plant forthe production of syn-thetic liquid fuel (GTL) based on purifiedmethane from the Shurtan Gas ChemicalComplex, which is one of the world’slargest gas processing and polymer pro-duction plants.

The plant will produce high-quality dieseland aviation fuels that meet stringent en-vironmental standards, unparalleled inquality and the absence of harmful impu-rities. The project will cost $3.7bn and isbeing financed by our own resources atUNG and international loans.

We are also implementing a series oflarge projects , one of which is moderinisingof the Bukhara refinery, that allows the re-lease of high-quality fuel — gasoline anddiesel fuel — in accordance with the re-quirements of the Euro-5 Directive.

Furthermore, work is underway to estab-lish a gas chemical cluster based onmethanol-to-olefins (MTO) technology. Weare collaborating on this project with AirProducts, as well as with the engineeringand construction companies from SouthKorea and Singapore.

The implementation of the gas chemicalcluster project will allow the production ofnew types of products, such as polyethyleneterephthalate, polystyrene, polyvinyl chlo-ride, propylene oxide polyol. l

We want to

deepen the process-

ing of hydrocarbons

and introduce new

high added-value

petrochemical prod-

ucts to serve the

domestic market

and for export

Ulugbek Ashurov, deputy chairman, Uzbekneftegaz

ENERGY COMPANY UNG LOOKS TO GIVEWARM WELCOME TO FOREIGN INVESTORS

Q U

UZBEKISTAN SPECIAL REPORT INTERVIEW:: Ulugbek Ashurov, deputy chairman, Uzbekneftegaz ¬ 27

GlobalMarketsIMF/WORLD BANK EDITION THURSDAY OCTOBER 17, 2019

‘‘‘‘


GGlloobbaallMMaarrkkeettss:: WWhhaatt iiss yyoouurr ggooaall ffoorr tthheenneexxtt ffiivvee yyeeaarrss?? SSaayyiiddoovv UUlluuggbbeekk: Our mission is to trans-form Uztransgaz into a world-class com-pany in collaboration with internationalexperts.

The first tasks are to make the companyprofitable and self-sustaining, and toachieve the highest standards of corporategovernance. We want to make sure everyaspect of our operations is fully transparent,from human resources and procurementto the realisation of investment projects.

To achieve this, we are bringing in exter-nal consultants in all areas with the supportof a grant from the Asian DevelopmentBank (ADB).

We are currently working to move toIFRS reporting standards from the start ofnext year and to obtain an internationalcredit rating. We will then raise fundingthrough the Eurobond market. We will also

continue to attract long-termfinancing from internationalfinancial institutions.

After that, we will start toprepare to undertake an IPObefore the end of 2024, as man-dated by the president’s de-cree of July 9.

The size of the initial staketo be sold has yet to be deter-mined. However, the statewill retain at least 51% of thecompany. This is because wehave a natural monopoly andit is important for the govern-ment to be able to guarantee

all production companies access to the gastransportation system.

There is a lot of work to be done but weunderstand the challenges. I am confidentthat in three years Uztransgaz will be a verydifferent company, based on the directionof travel set by our president.

GGMM:: WWhheenn ddoo yyoouu eexxppeecctt UUzzttrraannssggaazz ttoo bbeepprrooffiittaabbllee??SSUU:: If prices were based solely on marketmechanisms we would be profitable. How-ever, at the moment, some sectors are stillreceiving gas at below-market prices.

The government is working hard to closethis gap. Tariffs were increased on August15 and, as a result, we expect to show a full-year profit in 2020.

The purpose of unbundling Uztransgazfrom Uzbeneftegaz was to make the com-pany profitable and reduce its dependenceon government support.

GGMM:: HHooww mmuucchh iinnvveessttmmeenntt ddooeess UUzzttrraannssggaazz nneeeedd?? SSUU:: Our key focus areas at present are themodernisation of our gas transportationsystem, and the expansion of export andtransit opportunities.

More than half of our main gas pipelinesare more than 30 years old. We also urgent-ly need to upgrade our network of gas com-pressor units. We have 250 units in total, ofwhich 145 are outdated and need renovatingor replacing.

We want to work with a single internation-al partner on the gas compressor networkproject and will put it out to public tender.

We estimate the total cost of modernisingour gas transport system at around $1.5bn.We have secured funding from the ADB forpart of the project, and we also plan to workwith the European Bank for Reconstructionand Development, World Bank and Japan-ese public sector funds.

GGMM:: WWhhaatt aarree tthhee bbiiggggeesstt cchhaalllleennggeess yyoouu ffaaccee?? SSUU:: One of the hardest tasks is to changeour corporate culture and mindset of ouremployees. We have brought in externalconsultants to help with this and they arecurrently conducting training to bringour staff up to international standards.

Another major project is the digitalisationof our operations. We need to integrate allour processes, from pipelines to compressorstations, in one platform. This will hugelyimprove the efficiency of our operations. Weare working closely with our strategic part-ner, Gazprom, in this area.

Our other main challenge is to improveour gas storage facilities. In our region,levels of gas consumption are very differ-ent in winter and summer. We need to beable to store gas produced during thesummer period so that we can meet cus-tomers’ requirements and increase ex-ports in winter.

We have a large underground gas storagefacility at Gazli, one of Uzbekistan’s largestgas fields. We have set up a joint venturewith Forus JSC, a Russian company, to re-construct the storage facility. This will morethan triple the gas storage capacity to 10billion cubic metres.

Work is already underway on the firstphase of the project, which will double thestorage capacity to six billion cubic metresby the end of 2021. The second phase is dueto be completed in 2024. Infrastructure atthe facility will be modernised in parallelwith the reconstruction work.

The total cost of the project, which alsoincludes additional exploration and devel-opment of the gas and oil fields at Gazli,is $850m.

GGMM:: IIss UUzzttrraannssggaazz rreeaaddyy ffoorr pprroojjeecctteedd iinnccrreeaasseess iinn ggaass pprroodduuccttiioonn??SSUU:: We are working closely with Uzneftegazand are confident that we will be able tocope with the expected increase in produc-tion. Part of this will obviously be suppliedto the internal market, where we are expect-ing a steady rise in demand in line with thegrowth of the Uzbek economy.

We are also ready to support the plannedincrease in exports. Uzbekistan is located ontwo main gas transit corridors. One runs fromTurkmenistan via Kazakhstan to Russia, whilethe other connects Turkmenistan to China.

We currently supply around eight billioncubic metres of gas to China but have the ca-pacity to increase that by a further 25%. In fu-ture, we want to utilise to the maximum allour export capacity. l

GlobalMarkets

28 ¬ UZBEKISTAN SPECIAL REPORT INTERVIEW:: Sayidov Ulugbek, chairman of the board, Uztransgaz

UZTRANSGAZ TRANSFORMATION AIMS TO FUEL UZBEKISTAN’S ECONOMIC GROWTH

Our key focus

areas are the

modernisation of

our gas transporta-

tion system, and

the expansion of

export and transit

opportunities

‘‘

‘‘



POWER SECTOR 29SPECIAL REPORT: UZBEKISTAN


The restructuring of Uzbekistan’s energy industryhas been mirrored in its power sector, where pol-

icymakers have embarked on a radical programmeof reforms to increase capacity and attract foreigninvestment.

The country’s power complex has traditionallystruggled to meet the demands of a rapidly growingpopulation and developing economy due to outdatedinfrastructure and inefficient management.

With consumption forecast to surge over the comingyears, as economic reforms spur a jump in industrialproduction, the need for change has become urgent.

“We are seeing new industries coming on line inprocessing, textiles, agriculture, manufacturing andmetallurgy, as well as a huge expansion in tourismand other services,” says Jurabek Mirzamahmudov,first deputy minister of energy. “All of these will needaccess to a stable and reliable electricity supply.”

Meeting this demand will not come cheap. Overthe next five years, officials estimate that more than$2.8bn will be required to upgrade existing infra-structure, while adding new power generation couldcost as much as $14.4bn.

“The aim is to create a modern, highly efficientelectric power complex based on the use of advancedworld experience to create an optimal, economicallysound structure of generating capacities and electricgrid facilities,” says Fayzulla Shaismatov, deputychairman of Thermal Power Plants.

To reduce the drain on the state budget, as well asenhance the flow of technology and know-how intothe country, the government is looking to attract for-eign investors to a sector that until recently waslargely off-limits to outsiders.

“We have never had private sector investment inour power generation or distribution network, sothis is a huge opportunity,” says Mirzamahmudov.“And on the first come, first served principle, thosewho get in earliest will benefit the most.”

The key step in the opening up of the sector was

taken in March, when a decree by President ShavkatMirziyoyev ordered the break-up of Uzbekenergo,Uzbekistan’s notoriously inefficient state-owned elec-tricity giant.

Previously, the firm was responsible for the pro-duction, transmission, trade and distribution of near-ly all Uzbekistan’s electricity.

The new structure, devised in collaboration withinternational financial institutions (IFIs) includingthe World Bank and Asian Development Bank(ADB), splits these roles between three new jointstock companies.

Responsibility for electricity generation has beenassigned to Thermal Power Plants. National ElectricNetworks of Uzbekistan now oversees transmissionand trade, including imports and exports, while Re-gional Electric Networks distributes and marketselectricity to end users.

“We want to introduce modern corporate gover-nance into all three companies,” says Mirzamahmu-dov. “We are in discussions with IFIs to bring in for-eign experts, not only as consultants but also poten-tially as senior managers.

“We also plan to move all the companies to IFRSreporting standards to improve transparency.”

At Thermal Power Plants (TPP), these changeswill apply not only to the company itself but also toits subsidiaries. The firm, which last year generated90% of Uzbekistan’s electricity, controls 10 powerplants across the country. Most are gas-powered, al-though two in the Tashkent region use coal.

Under the new system, these plants have also beenrestructured as joint stock companies with their ownsupervisory boards and independent directors, withTPP effectively acting as a holding company, as partof the preparation for a planned programme of pri-vatisations.

A pilot deal is already in the works. In March, dur-ing a visit by President Mirziyoyev to the United ArabEmirates, Abu Dhabi-based investment companyMubadala agreed to start negotiations to take a stakeof at least 50% in the Talimarjan thermal power plant

in Kashkadarya province.The plant has already been expanded in recent

years with the addition of two combined-cycle plantswith a total capacity of 900MW constructed by Dae-woo and Hyundai.

A second project is underway to build another twocombined cycle gas turbines (CCGTs) with a capacityof at least 900MW, with $790m of financing backingfrom the ADB and European Bank for Reconstruc-tion and Development.

Further privatisations of existing power plants arescheduled to follow. In the meantime, investors keento gain access to the sector also have the option ofgetting involved in greenfield projects.

Work is already underway on the construction oftwo combined cycle gas turbine plants by Turkishcompanies in the Sirdaryo and Tashkent regions,and in September Saudi Arabia’s ACWA Powersigned an agreement with the Ministry of Energy tobuild two power plants with a total capacity of2,250MW.

RENEWABLE ENERGY TO THE FOREOne of the plants will be gas-fired but the other willutilise wind power, as part of an ambitious plan bythe Uzbek government to build renewable energycapacity.

“We have large reserves of natural gas but likeany resource that will deplete over time,” saysMirzamahmudov. “That’s why we are actively work-ing to introduce new power generation sources, aswell as increasing the efficiency of existing plants,in order to reduce gas consumption.”

At present, Uzbekistan has a total installed capac-ity of 11.2GW. Policymakers are aiming to triple thatby 2030, with nearly half of new capacity coming fromrenewable sources.

Part of this increase will come from hydroelectricpower. Currently Uzbekistan’s only renewable ener-gy source, the government is aiming to double itsshare in the country’s energy mix over the next 10years to around 13%.

The remainder of the renewable energy quota —and a fifth of total electricity generated in Uzbekistan— will be provided by new solar and wind power in-stallations.

A survey by the Uzbek government, in conjunctionwith the ADB, shows high potential for solar power

Powering up Uzbekistan’s electricity supply

A radical restructuring and upgrading of Uzbekistan’s power sector is

creating opportunities for foreign investors and adding new generation

sources, from renewables to nuclear


in the south of the country, especially in the Surx-ondaryo region, as well as in the Fergana Valley. Forwind power, the most promising regions are Navoiy,Bukhara and Karalkalpakstan.

The majority of new capacity will come from solarpower, which is expected to provide 5GW of installedcapacity by 2030. Wind power will account for a fur-ther 3GW. All of these new facilities are scheduledto be built by foreign investors through public-privatepartnerships.

Initial indications suggest that interest in the sec-tor will be intense. A pilot 100MW solar power plantproject in the Navoiy region, developed with the sup-port of the International Finance Corporation, at-tracted expressions of interest from 24 firms, of which11 qualified for the second phase of the tender.

IFIs have also backed wind power initiatives, in-cluding a 0.75MW pilot project near Lake Charvakin the Tashkent region and feasibility studies for

new installations in the Karakalpakstan region. Mirzamahmudov notes that adding renewable en-

ergy capacity will also require the expansion ofUzbekistan’s gas-fired power network. “We will needadditional capacity to regulate supply and ensuresufficient reserves,” he says.

New gas-fired power plants will be overseen by anew department of the Ministry of Energy, createdin August by presidential decree, which has beentasked with co-ordinating and overseeing the devel-opment of energy-efficient technologies.

“This unit has the responsibility of ensuring thatnew CCGTs are built to maximise efficiency and re-duce the consumption of gas,” says Mirzamahmudov.

For nuclear power, meanwhile, policymakerslooked closer to home for help. Uzbekistan signedan intergovernmental agreement with Russia in Sep-tember 2018 for the development of the country’sfirst nuclear power plant.

The facility, which will be constructed by Russianstate-owned giant Rosatom, will have two blockswith a combined capacity of 2.4GW. The first is dueto come on line in 2028 and the second in 2030.

“We want to add nuclear power as well as renew-ables to ensure the sustainability of our energy mix,”says Mirzamahmudov. “With nuclear, you can planyour energy strategy for the next 60 years — and weare one of the top countries in the world for uraniumproduction, so we have the raw material.”

TARIFF REDUCTIONSFor all current and potential investors in Uzbek-istan’s electricity generation sector, one of the keyissues will clearly be the future direction of tariffs.

Traditionally, electricity prices have been heavilysubsidised by the state but President Mirziyoyev’sgovernment has undertaken to introduce market

mechanisms. A rise in tariffs was im-plemented in August and further in-creases are promised.

“This will be a sensitive issue, be-cause tariffs are not only a mechanismto attract investors but also have ahigh social impact,” says Ergashevich.“To protect the population, the gov-ernment has therefore decided to im-plement gradual increases in tariffs.

“Nevertheless, we have a strongunderstanding that tariffs should becost-covering.”

Following the unbundling ofUzbekenergo, each power plant inUzbekistan will now negotiate tariffsseparately with the monopoly pur-chaser, National Electric Networks.

The company, which is scheduled toremain in state ownership, is also re-sponsible for co-ordinating cross-bor-der electricity trade and transmission.

At present, Uzbekistan importselectricity from neighbouring coun-tries including Kyrgyzstan, Tajik-istan, Kazakhstan and — since lastyear — Turkmenistan.

“We are trying not to utilise older generation unitsthat are not energy efficient so we are not running at100% of our installed capacity,” says Mirzamahmudov.“We have therefore enhanced regional co-operationin this area in order to meet increasing demand.”

At the same time, Uzbekistan is also looking to stepup exports of electricity to Afghanistan. The countryhas been selling electricity to its southern neighboursince 2002 and last year delivered 2.6bn kWh.

National Electric Networks is now working on anew 154km transmission line to Afghanistan. TheUzbek government has agreed to provide a discountfor the construction of the line in return for a 10-year contract from the Afghan purchaser, a condi-tion set by the ADB for the provision of project fi-nance.

REGIONAL DISTRIBUTIONThe final pillar of Uzbekistan’s new power complexis Regional Electric Networks, which is responsiblefor delivering electricity to end users.

The company comprises 14 regional electricpower networks, which supply around 300,000 Uzbekbusinesses and seven million households. Individualand communal domestic consumption accounts for35% of the total, with industry and agriculture takinga further 41% and 20% respectively.

As with the other parts of Uzbekistan’s power net-work, the lines and facilities operated by RegionalElectric Networks are severely outdated. The com-pany estimates that around 58% of all types of over-head power transmission lines require modernisa-tion and one-third of all substations.

“More than 55% of the elements of distributionpower networks are operated with a period of morethan 30 years and have practically exhausted theirresources,” says a company spokesperson.

“The deterioration of power lines and trans-former units means there will be a problem withthe supply of electricity in the near future. As wellas modernising existing infrastructure, we urgent-ly need to commission new facilities.”

Under the new power sector strategy, RegionalElectric Networks has been tasked with construct-ing and reconstructing at least 15,000km-17,000kmof transmission lines and 450 transformer substa-tions annually for the next 10 years.

The company is also implementing a new auto-matic system for the commercial accounting ofpower consumption to reduce loss and theft of elec-tricity, improve collection of revenues, and allowremote power connection and disconnection.

“After the implementation of the project, theshare of average commercial losses from the totalforecast losses will decrease from 12.5% to 5.0%,”says a company spokesperson.

The total cost of Regional Electric Networks’ ex-pansion and modernisation programme is estimat-ed at $1.7bn over the next 10 years.

Again, the government is looking to source someof this from foreign investors. “We want to bringin private sector investment, including from outsideUzbekistan,” says Mirzamahmudov. “We are alsoconsidering privatisation as an option. GM

30 POWER SECTORIMF/WORLD BANK EDITION THURSDAY OCTOBER 17, 2019


© U

ZBEK

ENER

GO

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The modernisation and upgrade of 22 main power substations in Uzbekistan « Starting date: 2017 « Finish date: 2022 « Finances: World Bank’s loan: $150m« The total cost of the project: $292m

The construction of the Takhiatash-Sarimoy transmission line in theKhorezm region

« A 340 km stretch of line « The total cost of the project: $258mn« $150m by the Asian Development Bank (ADB) « Finishing date: 2019

An overhead transmission line from Navoiy TPP to Besopan « The total cost of the project: $80m, partly funded by the

European Bank for Reconstruction and Development (EBRD) « Electricity for the newly established mining and metallurgical

production facilities in the Navoiy region and to develop the powergrid in the northwest

A high-quality power supply to the Tashkent Metallurgical PlantConstruction of Puli Khumri (Hoja-Alvon) power line

« The total length of the line is 245.6km, of which 45km runsthrough the Surkhandarya region and 200.6km through Afghanistan

Investment highlights: electricity


GGlloobbaallMMaarrkkeettss:: WWhhaatt hhaass tthhee ggoovveerrnnmmeenntt’’ssnneeww eenneerrggyy ssttrraatteeggyy mmeeaanntt ffoorr TThheerrmmaallPPoowweerr PPllaannttss??FFaayyzzuullllaa SShhaaiissmmaattoovv:: The biggest change inour company has been the attitude to effi-ciency. Uzbekenergo was a large and cum-bersome vertically integrated company.

It was very difficult to identify bottle-necks because financing was centralised.The inefficient parts of the business werecovered by the more efficient, mainlythrough income generated from the saleand export of electricity.

After unbundling, we know what ourweak spots are and where we need to focusour efforts to minimise the costs of produc-tion and to improve the management effi-ciency of our power plants.

We are working to implement modernmanagement principles in all our entities,and we are very focused on corporate gov-ernance and transparency. We are intro-ducing supervisory boards with independ-ent members in our power plants.

We want to do this and we have to do it,because we currently rely heavily on inter-national financial institutions (IFIs) for fi-nancing, and their requirements on trans-parency and efficiency are very stringent.They also set high standards for us in termsof environmental impact.

GGMM:: WWhhaatt hhaass cchhaannggeedd ffoorr tthhee ppoowweerr ppllaannttss??FFSS:: Every plant now has a power pur-chase agreement with National ElectricGrid. The cashflow goes directly to theplant and the management can decidehow to use the money.

This was done to create a sense of assetownership and economic incentives. Previ-ously nobody cared about efficiency be-cause they received funding from the par-ent company on demand.

Now each power plant has started tomake a more accurate assessment of theircosts, look for bottlenecks and weak spots,and work on improving them.

There is still long way to go but we havealready achieved a shift in attitudes. Themanagers of the power plants now knowtheir income is dependent on how efficient-ly they work. They are the masters of theirown businesses.

GGMM:: HHooww mmuucchh iinnvveessttmmeenntt ddoo yyoouu nneeeedd oovveerrtthhee nneexxtt 1100 yyeeaarrss??

FFSS:: According to forecasts for demandgrowth, we need to at least double our ex-isting capacity, which will require a con-siderable amount of investment.

Unfortunately around 80% our generat-ing units are outdated and obsolete, withan average age of more than 30 years, so wealso have to decommission most of the ex-isting units.

This means the pace of renovation has tobe very rapid, which is why the governmentwants to open the door to private invest-ment. Attraction of private investment isset to be the primary goal because the gov-ernment has realised that it is too heavy aburden for them to bear alone.

GGMM:: WWhhaatt aarree tthhee mmaaiinn cchhaalllleennggeess yyoouu ffaacceettooddaayy??FFSS:: Our biggest challenge is to increase ef-ficiency. Once private investors start build-ing independent power producers (IPPs) itwill become an existential matter for us,because we will have to compete in theopen market against firms with the mostadvanced technology and managementsystems.

It will take two to three years for new in-vestors to construct and commission theirpower plants, so that’s how long we have tostructure our operation to become compet-itive enough to survive.

Another major challenge is changing theattitude of our staff. After many yearsworking under the old management systemit’s difficult to break the inertia in theirminds and switch them to a “business ori-ented” mode.

Fortunately, we have very strong supportfrom IFIs including the World Bank, Euro-pean Bank for Reconstruction and Devel-opment (EBRD) and Asian DevelopmentBank (ADB). They are helping a lot by run-ning seminars and providing access to con-sultants in this sector.

We are trying to ensure that we meet thehighest standards in corporate governance,and in parallel to educate our employees.We are running courses on topics includingcorporate governance and project financein order to build capacity in our workforce.

We also want to bring more internationalmanagers into the company. With the helpof the IFIs, we are currently looking outsideUzbekistan for a new deputy chairman, whowill be responsible for adopting interna-

tional standards of expertise, gov-ernance and management.

GGMM:: HHooww iimmppoorrttaanntt iiss kknnoowwlleeddggee ttrraannssffeerr?? FFSS:: It is the number one priority forus at the moment. Most of our fleetof generation units are obsolete,and new units need experiencedpeople who are educated to workon these units efficiently. It’s notenough to buy new equipment —you need people who can operate it.

We are also aware that greentechnologies are very much in focusat the moment and that we need tokeep up with this trend. We are pay-ing a lot of attention to energy-sav-ing technologies.

GGMM:: WWoouulldd yyoouu ccoonnssiiddeerr rraaiissiinngg ffuunnddsstthhrroouugghh tthhee ccaappiittaall mmaarrkkeettss?? FFSS:: To develop further and expand ourcompany we will need access to capitalmarkets, but first we need to completethe process of becoming self-sustainable.

Cost-covering tariffs were only intro-duced in August. It will take a couple ofyears at least to get on a solid footing afterthat, because to access the capital marketsyou have to be strong enough to persuadeyour counterparts to lend you money.

At the moment we rely heavily on statesupport, but the government has made itclear that in future this will be reduced andwe will have to take care of ourselves.

So first we need to achieve self-sufficien-cy, then in two or three years we will beready to get an international credit ratingand enter the capital markets. l

UZBEKISTAN SPECIAL REPORT INTERVIEW:: Fayzulla Shaismatov, deputy chairman, Thermal Power Plants ¬ 31

First we need to

achieve self-sufficien-

cy, then in two or

three years we will be

ready to get an inter-

national credit rating

and enter the capital

markets

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GlobalMarkets

POWERING UZBEKISTAN’S NEW ENERGY STRATEGY


© A

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Fayzulla Shaismatov, deputy chairman,Thermal Power Plants

Talimarjan power plant


GGlloobbaallMMaarrkkeettss::WWhhaatt iiss tthhee rreemmiittooff UUzzbbeekkiissttaann NNaattiioonnaall PPoowweerrNNeettwwoorrkkss??EEllmmuurrooddoovv KKhhoolliikk::The main activitiesof the company arethe operation anddevelopment of themain electric net-works of Uzbek-istan, the supply ofelectricity throughthe main powergrid of the country,and the implemen-tation of interstatetransit in co-opera-tion with the powersystems of neigh-bouring states.

Currently, our organisation consists of14 regional power transmission lines and77 substations. Overall, 4,713 specialistswork in the company.

GGMM:: WWhhaatt aarree tthhee mmaaiinn cchhaalllleennggeess yyoouu ffaaccee??EEKK:: The total length of Uzbekistan’s powergrid is around 255,000km, more than sixtimes the length of the Equator. Amongthem 9,700km is 220-500 kV main over-head power transmission lines which areserviced by our organisation. It is clearthat such a long network needs constantconstruction and repair, modernisationand innovative technologies.

Unfortunately, nearly 62% of our electricnetwork is more than 30-35 years old. Thedistribution networks are extremely wornout, which leads to a large loss of electricity,now accounting for more than 2.8% of thetotal energy supplied by thermal powerplants to the grid.

GGMM:: WWhhaatt aarree yyoouurr mmaaiinn iinnvveessttmmeenntt pprroojjeeccttss??EEKK:: The largest project we are working onat the moment is the modernisation andupgrade of our 22 main power substationsin order to increase the reliability of elec-tricity supply. This involves the renewalof old machinery and power lines withmodern equipment corresponding to in-ternational standards.

The renovation project was started in2017 and will finish in 2022. It is being partlyfinanced by the World Bank, which has pro-vided a loan of $150m. The total cost of theproject is $292m.

Also ongoing is the construction of theTakhiatash-Sarimoy transmission line inthe Khorezm region. A 340km stretch of lineis being built at a cost of $258m, of which$150m has been provided by the Asian De-velopment Bank (ADB). The project is dueto be completed this year.

Work also began this year on the con-struction of an overhead transmission linefrom Navoiy TPP to Besopan. The new line,which will cost $80m and is partly fundedby the European Bank for Reconstructionand Development, will provide electricityfor the newly established mining and met-allurgical production facilities in the Navoiyregion and to develop the power grid in thenorthwest.

Our next major project, which will startthis year, will be in the Tashkent region. Wehave undertaken to provide a high-qualitypower supply to the Tashkent MetallurgicalPlant, as well as to meet the needs of thepopulation and industrial facilities inTashkent and the border areas of Tashkentregion.

GGMM:: DDoo yyoouu hhaavvee aannyy pprroojjeeccttss oouuttssiiddee tthheeccoouunnttrryy??EEKK:: Yes, we are currently working on theconstruction of the 500kV Surkhon-Puli-Khumri power transmission line toAfghanistan.

This will improve our relations withAfghanistan and enhance our ability to ex-port electricity to neighbouring regions,thereby increasing the inflow of foreign cur-rency into Uzbekistan and our standing inthe international arena.

The total length of the line is 246km, ofwhich 45km pass through the Surkhandaryaregion of Uzbekistan and 200km throughAfghanistan.

GGMM:: WWhhaatt eeffffeecctt hhaavvee iimmpprroovveemmeennttss iinn rreeggiioonnaall ccoo--ooppeerraattiioonn hhaadd oonn yyoouurr wwoorrkk?? EEKK:: In the last three years, we have seendramatic change. Previously, working on our transmission lines outside Uzbek-istan was very challenging due to the difficulty of moving equipment and

personnel across borders.Today, thanks to the efforts of our pres-

ident, this has become much easier. Wehave been able to monitor and make re-pairs to our lines in Tajikistan, Kaza-khstan and Turkmenistan, and our region-al partners have been able to come andwork in Uzbekistan. This has been mutu-ally beneficial.

GGMM:: AArree yyoouu rreeaaddyy ttoo ssuuppppoorrtt tthhee eexxppaannssiioonnooff rreenneewwaabbllee eenneerrggyy iinn UUzzbbeekkiissttaann??EEKK:: It is very important for us to be pre-pared for the transmission of generatedelectricity by renewable energy sources.

As a company, we are very supportive ofinitiatives to produce cleaner energy andimprove efficiency. We are working onbringing the issues of energy efficiency andenergy conservation to the general publicand introducing proposals to start educa-tion on the topic at pre-school age.

We also closely work with citizens, rais-ing awareness about what steps must begone through to produce electricity, how itcan be delivered, and the continuous andquality distribution of energy to consumers.Energy efficiency and efficient use of nat-ural resources are inseparably linked withthe development of society. I think this isour duty to the future generation and ourdebt to nature.

GGMM:: WWhhaatt ootthheerr cchhaannggeess aarree yyoouu mmaakkiinngg aattNNaattiioonnaall PPoowweerr NNeettwwoorrkkss??EEKK:: We are making gradual changes toour company management, partly as a re-sult of the projects we are working on.New technologies require a different ap-proach to planning and forecasting, sothis is helping us to change our manage-ment patterns.

We are also working with IFIs to improveour internal standards. We recently under-took a project with the ADB on upgradingour information communication technologies.

We also understand that we need to bringin expertise and technology from outsideUzbekistan in order to build a moderntransmission network.

We are open to innovation and keen towork with foreign partners with experiencein the energy sector, and hope we can pro-vide a platform for mutually beneficial co-operation. l

32 ¬ UZBEKISTAN SPECIAL REPORT INTERVIEW:: Elmurodov Kholik, First Deputy Chairman of the Board, Uzbekistan National Power Networks

GlobalMarkets

It is very impor-

tant for us to be

prepared for the

transmission of

generated electricity

by renewable

energy sources

‘‘

‘‘

NATIONAL POWER NETWORKS: MANAGINGTHE TRANSMISSION TRANSITION

Elmurodov Kholik, First Deputy Chairman of the Board, JSC “Uzbekistan National Power Networks”



For a country rich in hydrocarbons and boasting alarge domestic market, Uzbekistan has tradition-

ally underperformed when it comes to the productionof chemicals.

The industry currently accounts for just 2% of thecountry’s total production volume and 1% of GDP.“These are very small numbers,” says Temirov Odil,chairman of local chemicals company Uzkimyosanoat.“For developed countries the figure is more than 10%.”

Uzbekistan’s reformers are aiming to close thatgap. The process began two years ago when Presi-dent Shavkat Mirziyoyev ended the practice of price-setting by the government for chemical products, al-lowing the sector to move to market principles.

The next step was a year-long analysis of the Uzbekchemical industry, undertaken in conjunction withBoston Consulting Group, to assess market demandand identify key areas for investment.

The results of this study were released in April,when the government unveiled an ambitious $12bnstrategy to modernise and restructure the sectorwith the help of foreign investors.

The primary objective of the programme, whichcomprises more than 30 projects to be completed by2030, is to reduce Uzbekistan’s dependence on im-ported chemicals and service rapidly growing do-mestic demand.

“We are a developing country with a populationof 33 million and economic growth of around 5% perannum,” says Odil. “We can expect a big increase indemand for all basic chemical products.”

A core plank of the strategy — which aims to in-crease chemicals production to 5% of GDP — is theexpansion of Uzbekistan’s organic chemicals industry.

Despite its ample reserves of natural gas, the or-ganic chemicals segment currently accounts for just11% of the country’s chemical output. By 2030, this isscheduled to increase to at least 50%.

Much of this growth is due to come from the man-ufacture of new value-added polymer products in-cluding polyethylene terephthalate (PET), polyvinylchloride (PVC), synthetic rubber, polystyrene, butylacrylate and others.

This in turn will support some of Uzbekistan’slargest and fastest-growing industries. The country’stextile sector last year imported around 70,000 tonnesof PET fibre, while more than 85,000 tonnes of PVCwas purchased from foreign suppliers by Uzbek tex-tile and processing companies.

Household chemicals are also largely sourced fromoutside the country. Around 30,000 tonnes of linearalkylbenzene (LAB) and linear alkylbenzene sulfonicacid (LABSA) are imported annually for detergentsand other household products.

Part of this domestic demand will in future be metdirectly by Uzkimyosanoat, Uzbekistan’s largeststate-owned chemical producer. The firm has an-nounced plans to start production of PVC at its flag-ship Navoiyazot complex. Initially, a new facility willproduce 100,000 tonnes a year of the PVC polymer.

“According to our forecasts that will not be enoughto keep up with increasing in-country demand, sowe will subsequently add a second complex with acapacity of 130,000 tonnes,” says Odil.

Uzkimyosanoat also plans to begin production ofLAB and LABSA using feedstock from the Shurtangas chemical complex and a new gas-to-liquid (GTL)complex due to be created by state oil and gas giantUzbekneftegaz.

“We will produce enough LAB and LABSA to coverfull in-country consumption,” says Odil. “We also ex-pect to be able to export around 20,000 tonnes a yearof household chemicals to nearby countries.”

Overall, policymakers expect domestic demand toaccount for around two-thirds of Uzbekistan’s outputof organic chemicals by 2030, with the rest being soldoutside the country.

The sector development programme also calls fora step-up in output of other chemicals currently pro-duced by Uzkimyosanoat.

These include drilling and water system chemicalsfor the Uzbek oil and gas and petrochemicals indus-try, as well as adhesives and melamine for the woodprocessing and furniture sectors.

FERTILISING GROWTHUzkimyosanoat also manufactures a range of chemicalsincluding cyanic salts and urea for major mining and

metallurgical combines based in Almalyk and Navoiy,respectively Uzbekistan’s leading producers of non-ferrous metals — copper and gold — and uranium.

Production of mineral fertilisers, which currentlyaccount for around 75% of Uzkimyosanoat’s totalchemical output, will also remain a key componentof the government’s strategy for the sector.

Indeed, policymakers see the segment as offeringexcellent opportunities for export growth. “There isstrong demand for mineral fertilisers in other centralAsian countries, Turkey and Ukraine, as well asChina, India and southeast Asia,” says Odil.

Despite being a landlocked country, Uzbekistan hasgood road and rail links to Afghanistan, Tajikistan,southern Kazakhstan and Russia. The governmentis also backing the development of a rail link to China.

Along with the large and growing domestic mar-ket, this export potential is expected to be one of themain attractions of the Uzbek chemical industry forforeign investors, who will have the chance to gainexposure to some of the country’s key assets overthe next four to five years.

April’s presidential decree mandated the privati-sation of a clutch of production facilities and non-core assets under the control of Uzkimyosanoat. Thecompany, which employs 33,000 staff, currently com-prises 14 industrial enterprises and six service or-ganisations.

Topping the list of assets for sale are three fertilis-ers and chemical plants: the Dekhkonobod potassiumplant; Ferganaazot, which produces nitrogen fertilis-er; and the Kungrad soda plant.

The Uzbek government is offering to sell a 51%

Uzbek chemicals sector unveils formula for growth


CHEMICAL SECTOR 33SPECIAL REPORT: UZBEKISTAN

Policymakers have unveiled an ambitious plan to revitalize and expand

Uzbekistan’s chemicals industry with the help of foreign investors to serve

booming domestic demand and boost exports


34 CHEMICAL SECTORIMF/WORLD BANK EDITION THURSDAY OCTOBER 17, 2019


share in each of the three, in return for investor com-mitments to modernise facilities, increase capacity— by more than 100%, in the case of the Kungrad sodaplant — and establish new production lines.

All three are profitable, although a fall in globalpotassium prices has recently affected revenues atDekhkonobod. The most profitable of the three isFerganaazot, which boasts an Ebitda margin ofaround 40%.

The privatisation process is already underway,with EY acting as investment consultant toUzkimyosanoat. More than 150 investors have been

invited to view the privatisation process and morethan 20 have expressed an interest in Dekhkonobod,while the other facilities have each attracted half adozen potential buyers.

“We expect to receive binding offers for the Kun-grad soda plant and Ferganaazot by the end of thisyear, and sign the share and purchase agreement inthe first quarter of 2020,” says Odil.

For foreign firms, however, the most attractive dealsmay be those that involve greenfield projects. In May,US chemicals firm Air Products signed a joint agree-ment with Uzkimyosanoat and Uzbekneftegaz for the

construction of the planned gas-chemical complex using methanol-to-olefins (MTO) technology.

Odil says the involvement of theUzbek government and state-ownedenterprises in both individual proj-ects and the wider sector develop-ment programme helps to inspireconfidence in potential investors.

“With big projects, naturally therisks are also big,” he says. “In-vestors are therefore keen to part-ner with local entities that own themineral resources, feedstock and in-frastructure.”

ECONOMIC ZONESPolicymakers have also provided as-surances to foreign direct investorsregarding the provision of utilities,while further benefits will comefrom a new drive by the Ministry ofEconomy and Production to pro-mote co-operation between sectorswithin Uzbekistan.

To encourage the creation of in-dustry clusters, the government hascreated a series of economic zonesacross the country, including onecomprising the whole of the Navoiyregion.

Other greenfield opportunities upfor grabs include Samarkandkimyo,where the government is offering tosell 100% of the company in returnfor a commitment by the buyer tobuild a new production facility forphosphoric and NPK fertilisers.

The proceeds from these privati-sations will be put into an invest-ment fund, which will be used to fi-nance Uzkimyosanoat’s part of the

development programme.Part of this funding will be spent on knowledge

transfer. “For each new project, we will sign licensingagreements to bring in technology and know-how,”says Odil. “We are also planning to send our special-ists abroad for training, as well as bringing expertshere to provide in-country training.”

This will be backed by a drive to improve technicaleducation in Uzbekistan’s universities. This year willsee the opening in Tashkent of a branch of Russia’sMendeleev University of Chemical Technology, theresult of a collaboration between Uzkimyosanoatand the Ministry of Higher and Secondary Education.

The company is also working on a project to createa research and development centre in Uzbekistanfor the chemicals industry. A feasibility study fundedby Korea Eximbank is already underway and officialssay the centre could open as early as 2023.

“This will be an invaluable resource to ensure wehave the expertise in Uzbekistan to drive our industryforward,” says Odil.

Meanwhile, Uzkimyosanoat is also undergoing amajor internal restructuring to improve corporategovernance and transparency.

The resolution passed in April mandated the ap-pointment of independent directors to the firm’s su-pervisory board and the establishment of an auditcommittee, as well as the preparation of financialstatements according to IFRS accounting standards.

Significant progress has already been made. IFRSstandards have been introduced at the entities ear-marked for privatisation, while the parent companyis due to follow suit shortly.

This in turn will pave the way for Uzkimyosanoatto obtain an international credit rating and, in thenear future, access the Eurobond market.

Odil notes, however, that bond buyers will have towait to gain exposure to the company. “First we haveto sell our shares in the main entities listed for pri-vatisation, which will increase our attractiveness forforeign investment,” he says.

In the meantime, the firm is looking to attract fi-nance from international public and private sectorbanks for individual projects.

“One of the reasons for creating joint ventureswith the direct involvement of foreign investors is tobring in project financing from the likes of Export-Import Bank of China and Japan Bank for Interna-tional Cooperation, and from others ECAs,” says Odil.

There are no plans at present to sell equity stakesin Uzkimyosanoat, although Odil says that will comefurther down the line. “Naturally in future the gov-ernment will look to reduce its participation in thecompany,” he says. GM

Uzkimyosanoat investment projects total more than 30 and the total investment is more than $12bn.

Production of paints and varnishes for a growing domestic marketDomestic market size: 80 KTA ($120m)Market expected to double by 2030Currently, the production of paints and varnishes is based on imported acrylic resins

Production of household chemicals Laundry detergents current market size: 40 KTA Expected market size: up to 200 KTA by 2030 Growing household disposable incomes The share of local detergents: 59%Raw materials: soda ash, baking soda, sodium sulfate: produced in UZ

Production of cosmeticsIndicative Capex: $15mConstruction area: 12,000 m2 Production of polyester fibresDomestic market size: $45m with expectations to grow up to$450m by 2030Polyester fibres are most relevant PET segment for UzbekistanUsed for fabrics production, which are further used for the produc-tion of apparel, home furnishings, and other finished textile goods

Production of pesticidesIndicative Capex: $30m-$40mMarket attractiveness:Domestic market size: $30mMarket expected to grow up to $60m-$80m by 2030Carbon black productionCapex: $100mImplementation period: 2020-2023 Project’s main consumer: ‘BRZ’ tyre producerEVA film productionCapex: $2.5mImplementation period: 2020-2021

Production of LAB and LABSAUsing feedstock from the Shurtan Gas Chemical Complex and a newGTL complex due to be created by state oil and gas giantUzbekneftegaz that will use gas-to-liquid (GTL) technology

Investment highlights: chemicals


GGlloobbaallMMaarrkkeettss:: HHooww hhaass UUzzbbeekkiissttaann’’ss PPPPPPffrraammeewwoorrkk ddeevveellooppeedd??GGoolliibb KKhhoolljjiiggiittoovv:: The PPP DevelopmentAgency was established in October 2018and the law on public-private partner-ships (PPP) was adopted in May this year.

We have co-operated very closely withinternational financial institutions (IFIs)throughout the process. The first draft ofthe PPP legislation was prepared by the Eu-ropean Bank for Reconstruction and Devel-opment (EBRD).

We subsequently customised it to localrequirements with parliament and the rel-evant ministries, and then confirmed againwith IFIs including the World Bank andAsian Development Bank that it meets in-ternational standards.

We are currently working actively withIFIs, along with our government ministries,to develop a strong, diversified pipeline ofprojects.

For us, the involvement of the IFIs in the ini-tial stages of our PPP development is key. Asa country that is just opening up, and wherethe institutions are new and haven’t been test-ed over time, having the support of institutionssuch as the World Bank, IFC and EBRD is vitalin giving confidence to investors.

For the first few years, we will use IFI sup-port actively. After that, once we have theexpertise, the documentations and the re-lationships with investors, we will startpreparing transactions on our own.

GGMM:: WWhhiicchh sseeccttoorrss aarree yyoouu ffooccuussiinngg oonn??GGKK:: We have several priority areas, in-cluding energy, transportation, water,healthcare, agriculture and education.

The energy sector is particularly impor-tant for us. It provides the foundation for anyeconomic growth and the current technolo-gy is quite outdated, with low efficiency andinstability in some areas. We are thereforevery focused on encouraging investment inelectricity generation and distribution.

We want to support the government’sstrategic plan for the development of theenergy sector. This includes the diversifi-cation our generation capacity with a focuson renewables and the modernisation ofoutdated infrastructure.

The government also wants to improvethe financial sustainability of the sector.Over the past decade, high levels of energysubsidies meant that our energy companieswere loss-making and incurred debts.

Demand for electricity in Uzbekistan isforecast to grow by 40%-70% over the next10 years, so it is clear that considerable in-vestment is needed in the power sector. Weestimate the figure at around $15bn.

GGMM:: WWhhaatt aarree tthhee aaddvvaannttaaggeess ooff tthhee PPPPPPffoorrmmaatt??GGKK:: Given the level of investment re-quired, the government is keen to lever-age private sector funding to solve publicsector issues such as the contingent-lia-bility structure. With PPP, most of therisks are taken by the private sector, frommarket risk to operational risk.

We also know from experience in otherjurisdictions that the cost overrun on PPPsis nearly three times lower than on projectsusing traditional procurement.

Similarly, PPP projects tend to be deliv-ered in a more timely manner and to a high-er standard, because deadlines and key per-formance indicators are built into the con-tracts and power purchasing agreements.These are powerful motivating factors forprivate companies.

The other big advantage of PPP is that itbrings know-how and expertise into thecountry. Foreign companies will not just beresponsible for building assets but also foroperating them, maintaining them andmanaging them to international standards— which is exactly what our country needs.

GGMM:: HHooww mmaannyy pprroojjeeccttss aarree yyoouu ccuurrrreennttllyywwoorrkkiinngg oonn??GGKK:: We have close to 30 projects in thepipeline, of which 17 are at an advancedstage and two are in the final biddinground. For others we are about to signtransaction advisory consultancy agree-ments with IFIs and for some pre-feasibil-ity studies are already underway.

Most of these projects are in the energy,power, transportation and healthcare sectors.Those in the final bidding stage are a 100MWsolar plant in the Navoiy region and the cre-

ation of dialysis cen-tres in three regions.Both of these arepilot projects. Wewant to start small inorder to gain expertise and build capacity.

We are not just working on projects onan individual basis. In power generation,our approach is programmatic. We want tobuild new solar plants with total capacityof 5GW over the next 10 years.

We have seen strong interest from in-vestors. For the Navoiy solar project, we hadinitial expressions of interest from 42 compa-nies from countries including France, SaudiArabia, UAE and China. That was a good sig-nal for us that we are on the right track.

GGMM:: WWhhaatt ccoonncceerrnnss aarree iinnvveessttoorrss rraaiissiinngg?? GGKK:: The level of engagement of investors atpresent depends on their risk appetite. Someare actively involved and some are waitingto see how the first pilot projects turn out.

From investors who come to the agency,the reaction has been positive. They cansee that we have a strong pipeline and thatwe are committed, and they appreciate ourprofessionalism. They can see that our staffhave a high level of international experienceand expertise.

It is one thing to make policy. You alsohave to implement it, which is much moredifficult. When investors see that we speaktheir language and understand their con-cerns, they are very keen to get involved.

If anything, at the moment we have toomuch interest from investors! PPP is a com-plex structure, so we have to be carefulabout taking on too many projects at once.

The IFIs are being very helpful in theproject preparation process. They are doingmarket-sounding activities to gauge thelevel of interest for projects and signingconsulting agreements.

One of the key concerns is our tariff policy.Foreign investors obviously want to be surethat they will be able to recover their costsand make a profit. This is a sensitive issuefrom the social perspective, but one we areworking on. We are committed to ensuringthat tariffs are reasonable and sustainablefor both population and investors. l

PPP BRINGS KNOW-HOW ANDEXPERTISE INTO THE COUNTRYIn an interview with GlobalMarkets, Golib Kholjigitov, head of Uzbekistan’s PPP DevelopmentAgency, lays out the advantages that working with the private sector can bring in terms of lowercosts and more efficient delivery of much-needed infrastructure projects

Golib Kholjigitov, head of PPP Development Agency

UZBEKISTAN SPECIAL REPORT INTERVIEW:: Golib Kholjigitov, head of PPP Development Agency ¬ 35

GlobalMarketsIMF/WORLD BANK EDITION THURSDAY OCTOBER 17, 2019

If anything, at the

moment we have

too much interest

from investors!

PPP projects tend

to be delivered in a

more timely manner

and to a higher

standard, because

deadlines and key

performance indica-

tor are built into the

contracts

‘‘

‘‘


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