Implementing a PPP project is more than just an agreement between the state and the investor. It’s a multi-stage process where balancing the interests of the parties is crucial. In our previous publication, we discussed the legal interactions between the state and business. In this article, we’ll examine the procedures and mechanisms for implementing PPP projects, as well as examples of completed projects.
The classic mechanism for selecting private partners is an open competition, where cost, technical solutions, financing terms, and the participant’s experience are evaluated.
The PPP project implementation process includes several sequential stages:
Initiation. A government agency or private investor submits an application with a project concept. At this stage, a preliminary assessment of economic feasibility and compliance with industry priorities is conducted. The PPP project concept with a total cost of up to the equivalent of USD 1 million is independently approved by the government partner.
Expertise. The PPP concept and project, with a total cost of USD 1-10 million, are approved by the authorized body (the Ministry of Economy and Finance). The authorized body conducts a comprehensive project analysis, including price and quality, risk analysis, design, supply and demand, financial evaluation, terms related to the foreign direct investment agreement, verification of fiscal obligations, types of state aid, and government and fiscal obligations. For projects over $10 million, after approval by the authorized body, approval by the Cabinet of Ministers is required. This stage typically takes 3-6 months.
Competitive selection. For PPP projects with a total value of up to the equivalent of $1 million, a single-stage tender is conducted. For public-private partnership projects with a total value exceeding $1 million, a two-stage tender is conducted: Stage 1 reviews the applicants’ qualification documents and assesses their compliance with the qualification criteria; Stage 2 reviews and evaluates their technical and economic (financial) proposals.
Evaluation criteria include technical competence, financial terms, and experience in implementing similar projects. The tender process takes 2-4 months.
Contract conclusion. After selecting the winner, the parties agree on the terms of the agreement, which specify risk allocation, the parties’ obligations, the financing procedure, dispute resolution mechanisms, and the term of the PPP agreement (at least 3 years and no more than 49 years). Contract preparation typically takes another 2-3 months.
Therefore, the full cycle from initiation to signing of a PPP agreement for a large project takes an average of 12-18 months.
In exceptional cases, a PPP agreement may be concluded without a tender based on direct negotiations in accordance with the decision of the potential public partner in the following cases:
- ensuring the defense and security of the state;
- ownership of exclusive rights to the results of intellectual activity, other exclusive rights, land, or other real estate necessary for the implementation of the PPP project;
- established by decisions of the President of the Republic of Uzbekistan or the Cabinet of Ministers of the Republic of Uzbekistan.
Thresholds for project approvals subject to direct negotiations have been established:
- projects worth over $1 million USD are subject to approval by the authorized body after the terms of the PPP agreement have been agreed upon by the public and private partners;
- projects worth over $10 million USD are subject to a positive conclusion from the public partner, the Committee for Competition Development and Consumer Protection, and representatives of the authorized state body, and are implemented in accordance with the decision of the Cabinet of Ministers of the Republic of Uzbekistan.
PPP Project Financing
The PPP project financing structure in Uzbekistan typically includes multiple capital sources, which helps spread risks and reduce the cost of raising funds.
Investor Equity. In most projects, the investor’s equity share (equity investment) is 20-30%. This ensures the investor’s commitment to the project’s success and serves as an indicator of financial stability.
Bank Financing. The bulk of capital (60-70%) is raised through project financing from commercial banks. Large projects involve both local banks (Asaka Bank, Uzpromstroybank, Ipoteka Bank) and international financial institutions. Loans are provided for terms of 10-25 years, guaranteed by the project’s future cash flows.
International Financial Institutions. The Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD), and the International Finance Corporation (IFC) play a significant role. These institutions not only provide financing on preferential terms but also help structure risks (guarantees/covenants), which can reduce the cost of debt by 1-2 percentage points.
Bond loans. For large infrastructure projects, project bonds can be issued, although this instrument has been used only sparingly so far.
The key requirement for investors is financial stability and experience implementing similar projects. To participate in competitions for large projects, investors must confirm the availability of their own funds and/or financing guarantees from banks/IFIs.
Benefits and State Support
The Law of the Republic of Uzbekistan “On Public-Private Partnership” does not automatically provide universal tax holidays for PPPs. However, investment incentives established by the Tax Code of the Republic of Uzbekistan apply to projects depending on the investment volume and the fulfillment of other conditions. Accordingly, PPP projects that meet these criteria are eligible for benefits, including investment tax deductions and preferences.
Support also includes:
- Provision of land plots for lease for the term and under the terms specified in the PPP agreement;
- State guarantees for the purchase of products (e.g., electricity);
- Compensation mechanisms in the event of changes in the legislation of the Republic of Uzbekistan that result in increased expenses or decreased income for the private partner under the PPP. The procedure, conditions, and limitations for limiting and excluding the application of guarantees must be stipulated in the PPP Agreement.
Practical Risks
Despite government support, investors face a number of key risks:
Currency. Most settlements are pegged to the dollar or euro, making projects vulnerable to fluctuations in the UZS/USD exchange rate.
Tariff. Profitability depends on regulated tariffs, particularly in the housing and utilities and energy sectors.
Regulatory. Changes in tax, land, or currency legislation can alter the economics of a project.
Fiscal. Government guarantees create budgetary obligations that require monitoring.
Judicial. The choice of jurisdiction for dispute resolution and a properly formulated arbitration clause are important.
Most major agreements include arbitration clauses. Uzbekistan is a party to the Convention of the International Centre for Settlement of Investment Disputes (ICSID), allowing investors to resort to international arbitration.
Examples of Completed Projects
Energy. Masdar (UAE) and ACWA Power (Saudi Arabia) have signed agreements to build solar and wind power plants with a combined capacity of over 2 GW. Most of these projects have 25-year Power Purchase Agreements (PPAs) (terms may vary depending on the technology and location).
Specific example (renewable energy source, RES). A solar power plant in the Navoi region with a capacity of approximately 400 MW. The project cost is approximately $300 million, the construction period is up to 18 months, and the purchase agreement is up to 25 years. The guaranteed tariff is approximately 2.9 cents per kWh with indexation (the specific terms of the transaction depend on the documentation).
Healthcare. A project to create a network of dialysis centers: the state provided the premises and guaranteed payment for patients’ services, while the private partner provided the equipment and management. The project opened approximately 12 centers in regional capitals, with a total cost of approximately $15 million and a payback period of approximately 8 years.
Education. School construction projects are being implemented in the Tashkent region: investors construct and maintain the buildings, while the state funds the educational process. A typical project envisions a school for approximately 1,000 students, costing $3-5 million. The state pays the investor an annual infrastructure maintenance fee for up to 15 years.
Transportation. Pilot road reconstruction projects were launched in 2023-2024. A private investor carries out repairs/modernization, and the state reimburses the costs through availability payments for up to 10 years. Example: reconstruction of a 50-km section of the Fergana region costing approximately $25 million.
Housing and Utilities. Modernization of water supply systems in Samarkand and Bukhara: a private operator invests in replacing pipes, pumping stations, and meters, while the state provides phased tariff increases and/or availability payments to recoup the investment. The project cost in Samarkand is approximately $40 million, with a completion period of up to 12 years.
The payback period for capital-intensive energy projects is typically 10-15 years, while for social projects it’s 7-10 years. According to international institutions, the internal rate of return for renewable energy projects in the region reaches 10-14%.
In the third article, we will examine the most common mistakes investors make in PPP projects and how to avoid them when preparing the deal.
This material was prepared by Andrei Gusev, Senior Partner at Nordic Star, and Aleksey Niyazmetov, Partner at TOP ADVISOR.