Август 22, 2019

Energy Sector of Uzbekistan

  1. State regulation

1.1.        State- owned corporations in the field of energy

1.2.        Government bodies in the field of energy

  1. Tax and customs benefits

2.1.        General tax incentives in cases of modernization of production facilities

2.2.        Customs incentives in the field of hydropower

2.3.        Benefits to manufacturers of electric energy metering devices

2.4.        Tax incentives for renewable energy producers

  1. Licensing

3.1.        Licenses for design and construction activities

3.1.1.    Design, construction and operation of high-risk facilities and potentially hazardous industries

3.1.2.    Development of architectural and urban planning documentation

3.1.3.    Repair, construction and installation works at heights using industrial mountaineering methods

3.1.4.    Accreditation of legal entities involved in the examination of construction projects

3.1.5.    Licensing of projects on a turnkey basis (Engineering Procurement Construction)

3.2.        Other permits and expert opinions

  1. Pricing and tariffs
  2. Public-Private Partnership in Renewable Energy

1. State regulation

1.1. State-owned corporations in the field of energy

Until recently, Uzbekenergo State Joint Stock Company has been a sole participant in energy market (natural monopoly). Recently, this corporation has undergone a number of changes and, as a result, the government delegated administrative regulatory powers to manage the energy sector to other (new) market participants. However, this company still exists and at this transitional stage has the following main powers in the energy sector:

  • establishes development programs of the electric power industry;
  • carries out modernization of generating capacities and electric networks (with the exception of hydropower);
  • establishes the mode of operation of the unified energy system;
  • manages the main power lines;
  • develops regulatory instruments in the field of electricity;
  • works on the demonopolization of enterprises in the energy sector.

The first large state corporation separated from the structure of Uzbekenergo was Uzbekgidroenergo[1] JSC. The assets of the entire hydroelectric branch (subsidiary companies) of Uzbekenergo and the Association of Uzsuvenergo of the Ministry of Agriculture and Water Management were transferred to Uzbekgidroenergo. To date, Uzbekgidroenergo has the following main powers in the field of energy:

  • implements the Program of measures for the further development of hydropower for 2017-2021;
  • carries out centralized technological management of hydropower facilities;
  • implements investment projects for the construction and modernization of hydropower plants;
  • cooperates with international companies and financial institutions to attract foreign investment;
  • carries out operational dispatch control through the National Dispatch Center;
  • carries out 100% purchase of electricity produced by enterprises of Uzbekgidroenergo.

It is worth noting that, according to the Program on further development of renewable energy, Uzbekenergo is expected to be reorganized with the creation of three joint-stock companies on its basis: Thermal Power Plants JSC, National Electric Networks (“NES”) of Uzbekistan JSC and Regional Electric Networks JSC.

At present, NES of Uzbekistan performs the function of a Single Purchaser of Electric Energy. Moreover, this corporation will exclusively conduct transportation through the main power lines and international energy transit. In addition, NES of Uzbekistan will perform the functions of a single dispatch control operator of (private) power producers and the main power lines. Regional Electric Networks executes the management of the companies of territorial electric networks, which distribute and directly sell electricity to end consumers. Thermal power plants will directly manage the heat energy sector.

Along with the above-mentioned corporations, there is National Energy-Saving Company JSC. The main objective of this company is the introduction of modern energy-saving technologies in government bodies and organizations and for this reason acts as the sole supplier of goods (works, services) for the introduction of energy-efficient technologies to the public sector.

Currently instead of historical JSC Uzbekenergo, there are the following companies:

  1. Thermal Power Plants JSC,
  2. National Electric Networks of Uzbekistan JSC,
  3. Regional Electric Networks JSC,
  4. Uzbekgidroenergo JSC.

1.2. Government bodies in the field of energy:

Cabinet of Ministers of the Republic of Uzbekistan
  • adopts government programs in this area;forms the balance of production and consumption of electric energy;
  • determines the procedure for financing electric power facilities;
  • contributes to the implementation of projects for the production of electric energy using renewable energy sources;
  • forms a tariff policy on the market of renewable energy sources.

 

Ministry of Energy of the Republic of Uzbekistan
  • acts as the state governance body in the energy sector;
  • implements investment projects in the fuel and energy industry;
  • attracts private capital to the processes of extraction and production of energy resources;
  • taking part on behalf of Uzbekistan, implements production sharing agreements;
  • issues licenses for certain types of activities in the energy sector;
  • agrees model contracts for the supply of energy resources (electricity, natural gas, etc.);
  • ensures the development and implementation of investment projects with the participation of foreign capital in the fields of oil, gas, electricity, the peaceful uses of atomic energy and the coal industry;
  • realizes property rights to its own property, manages state shares;
  • forms a policy for the development of renewable energy sources;
  • coordinates the construction of renewable energy facilities. 

 

«Uzenergoinspection» at the Ministry of Energy
  • participates in the procedure for determining readiness for operation of electric power facilities and consumers;
  • monitors the implementation of safety in the field of energy production and consumption. 

 

Ministry of Economics and Industry
  • develops program measures in the field of reducing the resource and capital intensity of social facilities;
  • designs urban agglomerations taking into account the introduction of energy-saving, environmentally friendly technologies;
  • introduces power plants using renewable energy sources, including alternative and low-grade fuels;
  • prepares analytical materials on the state of industrial development, including localization, the course of implementation of measures to increase production energy efficiency. 

 

Secretariat for the Development of Fuel, Energy and Basic Industries
  • examines proposals for the modernization of the fuel and energy industry, nuclear and alternative energy with the  introduction of new technologies on;
  • development of normative legal regulations in the field of peaceful use of atomic and renewable energy;
  • implementation of tasks for further localization of the production of import-substituting products based on local raw materials; 

 

2. Tax and customs benefits

2.1. General tax incentives in cases of modernization of production facilities

The taxable profit of legal entities is reduced by the amount of: funds,

  • channeled to modernization, technical and technological re-equipment of production;
  • acquisition of new technological equipment;
  • expansion of production in the form of new construction;
  • reconstruction of buildings and structures used for production needs;
  • as well as for repayment of loans received for these purposes, reimbursement of the cost of the leased asset, less the depreciation accrued in the corresponding tax period, but not more than 30 percent of taxable profit.

The taxable profit is reduced within five years starting from the tax period in which the above expenses were incurred, and for technological equipment — from the moment it was put into operation.In accordance with Art. 221 of the Tax Code of the Republic of Uzbekistan import is exempted from value added tax:

  1. the technological equipment imported into the territory of the Republic of Uzbekistan according to the list approved in accordance with the legislation, as well as the components and spare parts provided that their delivery is provided for by the terms of the contract for the supply of technological equipment;
  2. property imported as investment obligations according to the agreement concluded between the investor and the authorized state body for managing state property.

2.2. Customs incentives in the field of hydropower

For the purposes of implementing the Program of measures for the development of hydropower for a period up to January 1, 2022, the following are exempted from customs payments:

  • equipment;
  • raw materials;
  • components, devices, spare parts;
  • technological documentation

not produced in the Republic, imported as part of the implementation of investment projects according to the lists approved by the Cabinet of Ministers.

2.3. Benefits to manufacturers of electric energy metering devices

Domestic manufacturers of electric energy metering devices for a period up to January 1, 2022 are exempted from customs payments (excluding customs clearance fees) for the import of components, raw materials and materials used for the production of electric energy metering devices and related equipment delivered under concluded agreements with JSC «Uzbekenergo», as well as value added tax for the sale of these electric energy meters and related equipment.

2.4. Tax incentives for renewable energy producers

Manufacturing organizations from the date of commissioning of plants for the production of renewable energy are exempted for a period of 10 years from payment of

  • property tax in terms of renewable energy production plants;
  • and land tax on land plots occupied by these facilities;
  • as well as value added tax; and
  • compulsory contributions to the Republican Road Fund and Extrabudgetary Fund for the Reconstruction, Overhaul and Equipping of Comprehensive Schools, Professional Colleges, Academic Lyceums and Medical Institutions under the Ministry of Finance of the Republic of Uzbekistan in terms of energy sold to the structural enterprises of

Organizations specializing in the renewable energy production plants for a period of 5 years from the date of their state registration:

  • from all types of taxes; and
  • compulsory contributions to the Republican Road Fund and Extrabudgetary Fund for the Reconstruction, Overhaul and Equipping of Secondary Schools, Professional Colleges, Academic Lyceums and Medical Institutions under the Ministry of Finance of the Republic of Uzbekistan.

2.5. Compensation Payments

Starting from 2020, the Government will actively assist in the implementation of energy-efficient technologies. Namely, at the expense of the state budget, it will provide individuals and legal entities with compensation to cover interest expenses on bank loans for the purchase of renewable energy sources and other energy-efficient equipment:

  • to individuals — on loans up to 500 million UZS — in the part exceeding the refinancing rate, but not more than 8 percentage points;
  • to legal entities — on loans up to 5 billion UZS — in the part that exceeds the refinancing rate, but not more than 5 percentage points.

3. Licensing

3.1. Licenses for design and construction activities

In the field of construction of energy facilities, the licensor is the Ministry of Construction of the Republic of Uzbekistan. The following types of licenses and certificates must be obtained:

    • Design, construction and operation of high-risk facilities and potentially hazardous industries (license is valid for 5 years).
    • Development of architectural and urban planning documentation (with unlimited validity).
    • Production of repair, construction and installation work at heights using industrial mountaineering methods (issued for a period of 5 years).
    • Examination of construction projects (accreditation of persons engaged in such activities).

3.1.1. Design, construction and operation of high-risk facilities and potentially hazardous industries

To obtain this license, the applicant (legal entity) must have in its personnel specialists  with at least five years of experience in this industry and submit the following documents:

  1. an application for a license, a copy of the certificate of state registration and a document confirming the payment of a fee for considering the application;
  2. characteristic of technical means necessary for the design, construction and operation of these facilities;
  3. a list of employees involved in the design, construction, operation of high-risk facilities and potentially hazardous industries, with an indication of
    • positions held
    • specialties by education,
    • work experience in the specialty,
    • a list of the main facilities in the design of which these employees took part.

3.1.2. Development of architectural and urban planning documentation

Licensing requirements for the development of architectural and urban planning documentation differ depending on the class of documentation and categories of complexity of the object. Most energy facilities fall under Class A and the third category of complexity. Given these circumstances, legislation, inter alia, requires the applicant to meet the following requirements:

  • carrying out activities for at least one year;
  • the applicant should have necessary conditions for carrying out a licensed type of activity;
  • Personnel should comprise of at least 25 specialists, including a director, at least 3 chief project engineers, 1 chief project architect and 3 architects at the main place of work, the remaining 17 specialists at the main place of work or part-time;
  • copies of the order for employment at the enterprise;
  • availability of documents confirming professional training of specialists;
  • experience of personnel in the industry;
  • the availability of documents of the quality control system of the developed documentation and architectural supervision;
  • a list of all completed design work of at least ten objects.

3.1.3. Repair, construction and installation works at heights using industrial mountaineering methods

License requirements include:

  • the presence in the staff of at least two specialists with documents (diplomas, certificates of special training) with a practical experience of at least three years in this field;
  • availability of the necessary equipment, inventory, as well as other special technical means to ensure compliance with labor protection and safety regulations.

To obtain the license, applicant submits the following documents:

  • an application for a license, a copy of the certificate of state registration and a document confirming the payment of a fee for considering the application;
  • a list of specialists who have documents for the right to carry out repair, construction and installation works at heights, indicating the positions held, specialties in education and length of service in the specialty;
  • description of the technical means necessary for the performance of work at heights.

3.1.4. Accreditation of legal entities involved in the examination of construction projects

The following are the requirements and conditions for accreditation:

  1. the absence in the composition of founders and (or) beneficiaries of examination bodies or officials of state governance and economic management bodies, local government bodies and (or) their affiliates;
  2. the availability of appropriate buildings and structures, technical and technological, hardware and software, necessary for the activities of the examination body on the basis of property law or other property law;
  3. the presence of the applicant’s staff of at least five specialists (architects, specialists in urban planning and construction, designers , technologists, engineering equipment, networks and systems, transport specialists and special sections of the project) who have the appropriate professional education in the examination of construction projects and at least five years of experience in design work;
  4. the formation of a database containing regulatory legal acts and regulatory acts in the field of technical regulation.

The applicant must fill out the application and enclose (1) copies of documents confirming the ownership of the buildings, structures, equipment and inventory necessary for carrying out activities on the examination of property rights to the consumer and (2) copies of specialist diplomas.In the course of design, reconstruction and construction of all buildings and structures it is mandatory to provide: (1) ensuring the energy efficiency of buildings; (2) providing a section of energy efficiency indicators of buildings and structures, taking into account the requirements of building codes and rules during the examination of project documentation. It should be noted that regulatory documents for determining the energy efficiency classes of buildings and structures are under development.

3.1.5. Licensing of projects on a turnkey basis (Engineering Procurement Construction)

As an exception, the National Agency for Project Management  (NAPM) has the right to simultaneously allow contractors, including foreign ones, to implement projects on a turnkey basis ( Engineering Procurement Construction ) (hereinafter — EPC Contractors) by fast-track included in the state development programs, without obtaining an appropriate license and (or) building permit , subject to assignment to ЕРС Contractors full responsibility for the quality implementation of projects. But at the same time, EPC contractors should have practical experience in similar projects, certain financial indicators, the number of competent engineering staff and meet other criteria established by NAPM. This Agency also has the right to determine requirements and coordinate the use by EPC contractors of international and (or) national regulatory documents in the field of technical regulation.

3.2. Other permits and expert opinions:

  • Architectural and planning assignment (APZ);
  • Development of pre-project and project documentation of projects according to the technical specifications of the state body (initiator), if the amount of the project is more than 10 billion soms;
  • Coordination of design estimates and documentation;
  • Conclusion of an expert on industrial safety;
  • The conclusion of the state environmental review;
  • compulsory civil liability insurance for harm to life, health and (or) property of other persons and the environment in the event of an accident at a hazardous production facility;
  • Coordination of project documentation with the architectural and urban planning council under the Ministry of Construction regarding its compliance with the architectural and planning assignment;
  • The conclusion of the state examination on the subject of fire safety and earthquake resistance of the facility;
  • Permission to carry out construction and installation works;
  • Permission for special water use;
  • Obtaining technical conditions for connecting manufacturers to the unified electric power system;
  • Development of a project for connecting manufacturers’ electrical installations to a single electric power system;
  • Connection of legal entities-consumers to electric networks;
  • Licensing of export and import of specific goods;
  • Certification of imported goods;
  • Permission to attract foreign labor;
  • Proof of the right to work.

4. Pricing and tariffs

Uzbekistan has established a state mechanism of determining price for energy resources. The government periodically passes the act, which indicates the basic prices for the consumed energy. Particularly, these tariffs are set when selling electricity to consumers. Depending on the amount of energy used, consumers are divided into groups with the corresponding price categories. There are currently four groups of consumers of electric energy.According to the legislation, electric power producers are obliged to sell power to the Single Purchaser of Electric EnergyNES of Uzbekistan and its territorial divisions, as well as to Uzbekgidroenergo on a contractual basis. Renewable energy producers can also connect to the grids of the unified electric power system of consumers of electric energy on the basis of block stations.The price for the transferred electric energy from renewable sources is determined in the following order: [Wholesale price for electric energy = Tariffs for consumers — VAT[2] — the cost of transmission of a unit of electricity — the value of the distribution and sale].At the same time, indicators of the cost of transmission and the cost of distribution and sale are determined depending on the geographic location of the manufacturer from the nearest transmission lines, transmission losses and the manufacturer’s capacity. However, the price for end consumers cannot be higher than the upper limit set by the Government.

5. Public-Private Partnership in Renewable Energy

With the adoption of the law on the use of renewable energy sources, this industry began to acquire private commercial interest. In this area of renewable energy, in recent years, the Government has adopted two state programs: for 2015-2019 and for 2017-2021; According to the Program for 2017-2021, it is planned to implement 810 projects for a total amount of 5.3 billion dollars in the period 2017-2025.The government adopted an act to attract private investment in this industry for (1) the creation of photovoltaic plants with an investment volume of up to one billion US dollars and (2) the modernization of existing and commissioning of new generating capacities with a total capacity of 1,984 MW and a design value of 2.6 billion US dollars. The first experiment was launched on the territory of the Navoi region.The executive body is Uzbekenergo (Public Partner). Since September 2019, based on the experience of building photovoltaic stations, projects are intended to implement into other regions. The procedure for selecting an investor will be held within the framework of the Law ZRU-537 of 05.05.2019 “On Public-Private Partnership”, taking into account the characteristics of the energy industry, where, for example, international financial institutions and consulting companies will develop tender documentation.Due to the fact that the size of investment in the creation of photovoltaic plants projects exceeds USD 1 000 000, tender is conducted in two stages. The two-stage tender includes the stages of prequalification and selection of the tender winner:

  • At the first stage, technical solutions specified in the conditions of tender documentation are evaluated. It is allowed to conduct negotiations with bidders on the parameters of the subject of the tender;
  • at the second stage, the submitted technical and commercial (financial) proposals are considered and evaluated, taking into account the specified parameters of the tender subject, with the obligatory indication of the price (tariff).

This procedure will be carried out in the following sequence:

  • In the energy sector, mostly the Public Partner or the relevant state bodies will initiate the concept of a public private partnership project (hereinafter — PPP).
  • Public Private Partnership Development Agency approves the concept of a PPP project.
  • The Public Partner or the Cabinet of Ministers approves the concept of a PPP project, depending on the volume of investments.
  • The PPP Development Agency includes the concept of a PPP project in the Register of State Private Partnership Projects.
  • The State Partner creates a tender commission.
  • After the development of tender documentation, the Tender Commission approves the preliminary tender documentation.
  • The tender commission announces a tender with the attachment of documents on prequalification.
  • After receiving applications for prequalification, the Tender Commission evaluates these applications and selects investors who have passed prequalification.
  • State partner holds a conference of tenderers and, taking into account the proposals received from tenderers, submits to the Government the final draft of the tender documentation.
  • The Tender Commission approves the final tender documentation and publishes it.
  • Tender Commission is conducting the tender and opening of tender proposals.
  • Based on the results of the evaluation of tender proposals, the Public Partner, together with the Ministry of Investment and Foreign Trade, makes a decision on the implementation of the PPP project.
  • Public partner signs an agreement with the winning investor.

[1] This company is in charge of the power energy generated from hydro resources.

[2] At the same time, calculations without value added tax are made during the period of benefits and preferences for exemption from value added tax.