Even with attractive terms and government support, PPP projects require serious preparation. Investors often make mistakes not related to the project’s economics, but to legal and organizational nuances.
Despite the growing attractiveness of the PPP market in Uzbekistan, many investors make mistakes that lead to delays, losses, or project failure.
Underestimating currency risks. Even when calculating in dollars, actual payments may be made in soums at the official exchange rate. Sharp exchange rate fluctuations can alter the project’s economics. Solution: currency clauses/indexation and compensation triggers.
Ignoring local approvals. The “land, construction permit, and grid connection” package requires time and on-the-ground work. Solution: an experienced local consultant/partner.
Overestimating the speed of decisions. Actual approval deadlines can exceed the plan by 30-50%. Solution: a time buffer and staged payments based on milestones.
Weak exit strategy. Exit/transfer of rights, refinancing, and compensation for early termination are not fully addressed. Solution: specify these at the outset.
Political risks. Change of responsible persons/priorities. Solution: contractual independence of obligations and pre-trial settlement mechanisms.
Underestimation of performance indicators and accessibility conditions.
The lack of clearly defined key performance indicators (KPIs) and procedures for verifying the quality of work or services often leads to disputes between the state and the investor.
Solution: Include a KPI system in the contract, establish a service level agreement (SLA), as well as a procedure for regular measurements, penalties for non-fulfillment, and bonuses for exceeding target indicators.
Recommendations for Businesses
Conduct comprehensive due diligence of land rights, licenses, financial models, and government obligations (including infrastructure readiness and social acceptability).
Include currency and tariff clauses to protect the project’s economics.
Agree on a risk balance: government – tariffs/demand/regulation; investor – construction/operation/capital expenditures.
Include an arbitration clause – for large transactions, it is advisable to choose an international forum (London Court of International Arbitration (LCIA), International Chamber of Commerce (ICC).
Consider industry niches: in addition to energy, education, healthcare, and housing and utilities are promising.
Evaluate the payback period and internal rate of return (IRR) at the negotiation stage, based on realistic sector parameters.
Select a reliable local legal partner and build relationships with industry ministries and local authorities.
Pay attention to PR and communications: transparency, dialogue with communities, and social initiatives reduce reputational risks.
In Uzbekistan, PPPs have become a distinct form of government-business relations. According to estimates by the Ministry of Economy and Finance of the Republic of Uzbekistan and the IMF, the total project portfolio is approximately $30 billion, with energy leading the way, and social and utility projects gaining momentum.
For investors, PPPs offer a long-term market presence with a predictable return on investment, while for the government, they offer a way to modernize infrastructure without placing an excessive burden on the budget.
The key to success is high-quality legal and financial drafting of the contractual structure, accurate risk allocation, and disciplined execution throughout the entire project horizon.