Hybrid Conference Devoted to Investment Potentials in Uzbekistan Held in Brussels
On May 4, a hybrid conference was organised by the Embassy of Uzbekistan in Brussels on occasion of the signing of a USD 1.2 billion deal between Uzbekistan’s Ministry of Energy and Dutch-registered company Stone City Energy for the construction of a Thermal Power Plant (TPP) in the Surkhandarya Region in South-East Uzbekistan. Stone City Energy will be responsible for designing, financing, building, commissioning, operating and managing the 1,560 MW power plant for a period of 25 years. The TPP will employ the latest technologies manufactured by Siemens Energy.
This project is an important milestone for the foreign investment community and living proof of the economic and political opening in Uzbekistan and the improving investment climate, with energy as one of the most attractive sectors. Statistics speak for themselves: Uzbekistan is radically climbing up in the statistical indexes on investment climate.
In his introductory remarks, Ambassador Dilyor Khakimov recalled that Uzbekistan’s foreign policy interests are based primarily on priorities of internal developments in Uzbekistan, a shift to the economization of international cooperation and strengthening of economic pragmatism in external relations. Uzbekistan is taking a whole of government approach advocating within the government to create a good investment climate and dialogue with investors.
Why the energy sector? Alain Danniau, Managing Director and CEO of Stone City Energy, emphasised that Uzbekistan is the largest electricity producer in Central Asia and that energy consumption is expected to almost double in the next 10 years.
While the Government of Uzbekistan intends to reduce the country’s reliance on natural gas from the current 76 percent to 50 percent by 2030, the development of Uzbekistan’s renewable energy sector (solar and win in particular) is still at a nascent stage. Furthermore, new power plants will be built with an efficiency above 60 per cent. The Uzbek government has implemented critical energy reforms including the unbundling of Uzbekenergo and tariff reform to facilitate cost recovery in the sector. Also, the Uzbek government is continuing to reform Public-Private Partnership (PPP) legislation to create an international acceptable and bankable PPP framework in the country.
The increase in generation capacity is a priority and several tenders organised by renowned international financial institutions (such as IFC, ADB or EBRD), alongside bilateral transactions, are ongoing with the intention to more than double the installed capacity over the next 10 years. While a lot of large projects exist in the energy sector, this is the first truly private finance project in Uzbekistan and the Central Asian region.
Klaus Hachmeier, Senior Director of Siemens Energy, recalled that the CEO of Siemens Christian Bruch had visited Uzbekistan a few weeks ago to sign a number of agreements and establishing MoUs and working groups in the area of power generation, modernization of the grid, decarbonization of industrial sectors such as chemistry and metallurgy, and renewable energy and hydrogen. Mr Hachmeier highlighted the importance of a holistic approach addressing not only economic but also social aspects and local content such as education for the benefit of local communities. This includes for example vocational training, to stimulate local production and employment and creating a lasting effect beyond a specific project.
Ambassador Urban Rusnak, Secretary General from Energy Charter stated that the average age of power generation facilities in Uzbekistan is above 50 years (with an efficiency of only 28 percent) and therefore a project like this can contribute to the gaols of the Paris Agreement, ratified by the Uzbek government in 2018. The Surkhandarya TPP will increase the stability, reliability and robustness of the national grid. The implementation of this project could be considered as the beginning of overall modernisation of Uzbek power system.
Despite the fact that we are not talking about a renewable energy project but rather a low emission project, it is fully aligned with the Strategy of the Republic of Uzbekistan on Transition to "Green" Economy for the Period 2019-2030 and the A Low-Carbon Road Map for the Power Sector in the Republic of Uzbekistan until 2050, developed with the support of the EBRD and the Government of Japan. According to this roadmap, until 2030 Uzbekistan NEEDS to build 8 GW of new renewables capacities and modernise 10 GW of existing natural gas capacities. To achieve clean energy transition, Uzbekistan will need USD 94 billion investments in coming 30 years, according to Energy Charter estimates.
Energy Charter is furthermore working with Tashkent on an Investment Facilitation Toolbox and is also conducting a yearly Energy Investment Risk Assessment for Uzbekistan.
Ali Marossi, from the Hague Center for Law and Arbitration, provided an overview of the key investment law and dispute settlement mechanisms in Uzbekistan. As per the “Law of the republic of Uzbekistan on investment and investment activities” of 2020, the state of Uzbekistan provides several guarantees for investors, including non-discrimination, non-interference from state bodies as long as the companies act within the compounds of Uzbek law.
Article 46, for example states that “foreign investors shall have the same rights and protections as Uzbek investors with the exception to the activities threatening national security, or generally recognized principles and norms of international law. Article 19 adds that “if any subsequent legislation enacted by the government of Uzbekistan worsen the investment conditions, the particular legislation can be validly ignored by the investor”. Lastly, article 21 states investment and other assets of investors are not subject to nationalization.
Concerning dispute resolution, Uzbekistan has ratified the International Centre for Settlement of Investment Disputes (ICSID) Convention which provides for a dispute settlement mechanism tailored to issues between the state and foreign investors.
The hybrid conference counted with the participation of Mr Štefan Füle, former European Commissioner for Enlargement and European Neighbourhood Policy, who had recently been to Uzbekistan as international consultant to President Mirziyoyev. Mr Füle in his remarks took a macro-perspective, highlighting that the peace of reforms had been unprecedented (The Economist named Uzbekistan country of the year in 2019). Hardly have we seen a county change so rapidly within such a short period of time. Change has also been forthcoming from the EU side, with a new EU Central Asia strategy focus on resilience prosperity and regional cooperation. Last month, Uzbekistan became the 9th beneficiary of the EU’ GSP+ scheme of trade preferences. Negotiations for the Enhanced Partnership and Cooperation Agreement (EPCA) are furthermore at a very advanced stage and will be finalised before the end of the current year.
In conclusion, the announcement of the Thermal Power Plant (TPP) in the Surkhandarya Region as the first fully private investment in Uzbekistan is a momentous occasion. It is proof that the comprehensive reforms initiated by President Mirziyoyev are starting to bear fruits. As speakers remarked, the window of opportunity is open and widening, and the legal framework for investors is solid. Now is the time to invest in Uzbekistan!