A new law that will impact purchases of state-owned property in Uzbekistan has been approved. The Law LRU-907, “On privatization of state property” was approved by the President of the Republic of Uzbekistan on February 14, 2024 and will go into effect from May 16, 2024. The full text of the law (in Uzbek) is available here.

The law is developed in line with the Strategy “Uzbekistan – 2030” and Strategy for the Management and Reform of State-Owned Enterprises in 2021-2025, aimed at reducing state participation in the economy to a reasonable level and radically improving the investment environment.

A Dentons team participated in the drafting of this law. It takes into consideration current legal provisions, the international practices of other countries and how best to develop investment attractiveness. The drafting of the law included a comprehensive review of the existing legal framework and administrative procedures governing the privatization of state-owned enterprises.

Below we provide a brief overview of the key developments.

Is it relevant for your company and business?

Who will regulate this process?

The State Assets Management Agency of the Republic of Uzbekistan (Agency) is the authorized state body for privatizing state property. Among other activities, the Agency is empowered to:

• Follow a unified state policy in the privatization of state property
• Act as a seller of state property and sign, accordingly, Sale and Purchase Agreements (SPA) for privatized state property
• Determine the methods for privatizing state property
• Determine the starting price of state properties
• Create and execute a privatization program
• Monitor privatization processes

Special authorized bodies will be separately designated by the president to privatize large state-owned enterprises.

What is the new privatization procedure?

Below are the stages of the new privatization procedure:
I. The privatization program is formed.

• The Agency (or its local branches) drafts the privatization program.
• The Agency sets out the main goals and objectives and the list of state property subject to be privatized.
• The program is approved by the following governmental bodies:
  • for property owned by the republic—by the president or Cabinet of Ministers.
  • for municipal property
    • for entities with a state share—Jokargy Kenes (parliament) of the Republic of Karakalpakstan, People’s Deputies, regional and city Kengashes (with the approval of the chairman of the Council of Ministers), regional and municipal khokims.
    • for real estate—the chairman of the Council of Ministers, regional and city khokims (with the approval of the Jokargy Kenes, people’s deputies, regional and city khokims)
  (After the program has been approved, it is prohibited to alienate write off, pledge or otherwise dispose state property subject to privatization).

II. State property to be privatized is prepared.

• A privatization roadmap is drafted and approved.
  The structure, inventory and method of valuation (through a valuation report reliability examination) are determined. This includes measures aimed at increasing investment attractiveness.

III. The state property is assessed and a starting price is determined.

• The Agency involves valuation organizations to conduct and issue the valuation report (this report will be used to determine the privatization method).
• The Agency sets the starting price for the state property.

How can state property be privatized?

The law allows for eight methods of privatization:

• Electronic online auction
• Competitive bidding
• Stock swap
• Public invitation to negotiate
• Competitive dialogue
• Contribution of real estate, shares and the enterprise to the charter fund of another company
• Contribution of real estate, shares and the enterprise to the authorized fund of another company in the form of a property complex
• Lease of enterprise with the condition of subsequent sale

The Agency, in consultation with professional consultants, determines the privatization method considering the peculiarities of the object, financial indicators and the privatization goals.
The law defines “purchaser” as a person or their representative that has signed an SPA or exchange agreement with the Agency or its local branches for privatizing state property. Importantly, the Agency is obliged to further monitor the purchaser’s execution of the SPA (i.e., payment of the redemption value, fulfillment of obligations under the SPA).
In addition to the terms and conditions of the SPA, the law also requires the purchaser to:

• Comply with the environmental protection rules and maintain the facility in proper condition
• Maintain facilities of civil protection, social, environmental and mobilization significance
• Consider the limited use of other persons’ land, including the right to enter and use various infrastructural systems

Note that the state acquires property from individuals through court decisions or voluntary transfers for state revenue. If former owners' rights are restored to privatized property by the court, it's not returned directly but compensated from a fund replenished by selling other state property.
The Law also stipulates special requirements for drafting and executing the SPA, as well as a special procedure for registering the title to privatized state property.
Details on the privatization of a specific asset, privatization program, bidding, notifications, reports on the results of privatization and sale will be available on the Agency’s official website.

What actions should you take?

As a purchaser of privatized state property, you should maintain the property, adhere to environmental regulations, ensure access to necessary infrastructure and fulfill any other obligations stipulated in the SPA and the Law.
We are happy to discuss in more detail with you any questions or concerns you may have.