Tamerlane #34: May 17-24
EBRD Annual Meeting highlights, Uzbekistan and China agreements at Xi'an summit, TBC purchases remaining 49% stake in Payme, Jan-Apr trade turnover reaches almost USD 20 billion
Top News
The European Bank for Reconstruction and Development’s (EBRD) Annual Meeting in Samarkand from May 16-18 resulted in hundreds of agreements worth billions of dollars, including USD 3.8 billion worth of energy contracts and hundreds of millions of dollars in loan agreements for Uzbek commercial banks. The United Arab Emirates’ TAQA signed a USD 1.2 billion deal with the Ministry of Investment, Industry, and Trade and the Ministry of Energy to build combined cycle gas turbine plant with a total capacity of 1.6 GW, while Masdar agreed to launch USD 2.6 billion in new solar and wind projects and Saudi Arabia’s ACWA Power will develop a USD 88 million green hydrogen production project. Several leading Uzbek banks, including Ipak Yo’li, Sanoat Qurilish Bank (Uzpromstroybank), Hamkorbank, Davr Bank, Asia Alliance Bank, and others signed partnership and financing agreements with the EBRD and other European banks. The EBRD will support the construction of new schools in Uzbekistan through a public-private partnership with the Ministry of Economy and Finance, with the first phase expected to cost USD 55-75 million, and also agreed to loan pharmaceutical distributor Meros Pharm USD 23 million for working capital and geographical expansion. Additionally, the European Union and the French Development Agency announced an agreement with the government of Uzbekistan to support the country’s transition to the green economy by 2030.
Uzbekistan and China signed more than 40 agreements and adopted the “Program for the Development of Comprehensive Strategic Partnership in a New Era” for 2023-2027 at the China-Central Asia summit in Xi’an on May 18. The documents, signed by President Shavkat Mirziyoyev, Chinese President Xi Jinping, and other Central Asian leaders included intergovernmental collaboration in economic development, agriculture, infrastructure, and investments, as well as a raft of commercial agreements between Uzbek and Chinese businesses, including loan and financing agreements for the National Bank of Uzbekistan and Asaka Bank. Additionally, Uzbekistan and China agreed to build 11 new solar and wind power plants in Uzbekistan worth USD 4.4 billion with a total capacity of 4.8 GW. The summit in Xi’an took place amid the backdrop of the G7 meeting in Japan and the continuing fallout of Russia’s war in Ukraine, with China seeking to expand and strengthen its presence in Central Asia and establish itself as the region’s primary power broker. President Xi Jinping referenced historical Silk Road ties and called for a “shared future” between China and Central Asia at the Xi’an summit based on strategic cooperation, common development, and regional security, although some commentators noted the China-Central Asia summit fell short of offering the promised “new blueprint” for relations.
Georgian TBC Bank Group completed its takeover of Uzbek payment service company Payme after it purchased the remaining 49% stake for USD 55.7 million, valuing Payme at USD 113.6 million. TBC Bank Group acquired a 51% stake in Payme (Inspired LLC) in April 2019 for USD 5.5 million at a valuation of USD 10.8 million. In 2022, Payme recorded revenue of USD 17.5 million and pre-tax profit of USD 11.4 million with 3.1 million active users. TBC Bank Group CEO Vakhtang Butskhrikidze commented that the acquisition reflected the Georgian bank’s strategy to “create a leading fintech ecosystem” in Uzbekistan.
From January to April 2023, Uzbekistan’s total foreign trade turnover reached USD 19.6 billion, a 13.4% yoy increase, with exports totaling USD 7.7 billion (up 6.2% yoy) and imports rising 18.6% yoy to 11.9 billion. China remained Uzbekistan’s top trading partner, with trade turnover topping USD 3.3 billion (17% of total trade), followed by Russia at USD 2.9 billion, Kazakhstan (USD 1.5 billion), Turkey (USD 1.1 billion), and South Korea (USD 802 million). CIS countries accounted for 32.7% of Uzbekistan’s total foreign trade turnover, up slightly from the same period in 2022 (32.2%) but down significantly from 2021 (39.4%). Russia was the top export destination for Uzbek goods (10.3% of total exports), followed by China (7.7%) and Turkey (5.9%). Uzbekistan exported more than USD 3 billion worth of gold and USD 1.5 billion of industrial goods in the first four months of 2023, while textile exports fell 7.6% yoy to USD 998 million. China was the top exporter to Uzbekistan (22.9% of total imports), followed by Russia (18.1%) and Kazakhstan (9.1%). Imports of food products topped USD 1 billion, driven primarily by grain imports (USD 442 million) while imports of oil and gas reached nearly USD 775 million. Other major categories of imports for Uzbekistan included automobiles (USD 1.3 billion), transportation equipment (USD 828 million), iron and steel (USD 765 million), medical and pharmaceutical products (USD 524 million), and plastics (USD 278 million).
Local Markets
According to a review by Spot.uz, in May, term deposit rates in soum at Uzbek banks range from 15% to 25%, putting further pressure on Uzbekistan’s nascent local bond market, where coupon rates range from 18% to 28%. TBC Bank is offering two-year soum deposits at 25%, higher than nearly all the coupon rates offered by corporate bonds on the Republican Stock Exchange Toshkent with the exception of two recent issuances by microfinance companies at 28% and 27%. Local brokers have had difficulty finding buyers for corporate bonds with high bank deposit rates, while the weighted average yields on local government bonds hovers around 17%.
The Republican Stock Exchange Toshkent published Q1 2023 Exchange Review, which noted that trading volume fell 45.4% yoy to UZS 1.7 trillion (USD 150 million). At the end of March, the RSE Toshkent’s market capitalization stood at UZS 126.1 trillion (USD 11 billion). After the former OTC trading platform Elsis-Savdo was shut down by the Ministry of Economy and Finance in January, the RSE Toshkent debuted its own OTC trading platform on January 30, which in the remainder of Q1 recorded 1,346 trades totaling UZS 29.4 billion (USD 2.6 million).
State-owned holding company Uzkimyosanoat published an announcement that it is prepared to purchase the remaining 14.2% stake in plastic maker Jizzakh Plastmassa at market value. Uzkimyosanoat owns an 85.58% stake in Jizzakh Plastmassa, which launched an IPO on the RSE Toshkent in 2020 and had been scheduled for privatization by the State Assets Management Agency in 2019.
Macroeconomics
First Deputy Minister of Energy Azim Ahmedkhadjaev announced plans to present a new energy program for Uzbekistan by September that will include the long-awaited liberalization of gas and electricity prices. The announcement, which came at an energy forum in Tashkent, included pledges to introduce “social consumption standards” and differentiated tariffs for energy and electricity consumption, invite foreign companies to deliver electricity in Uzbekistan’s regions, and establish an independent regulator to manage tariffs and mediate between energy producers and consumers. The government is still discussing earlier announced plans to create an electricity market for private companies and to transition Uzbekistan to a wholesale competitive electricity market by 2025. Uzbekistan has repeatedly delayed reforms to liberalize the country’s energy and electricity markets, with Deputy Minister of Economy and Finance Dilshod Sultanov announcing in March there no plans to increase energy tariffs for consumers in 2023.
Uzbekistan will import 1.285 billion kWh of electricity from Tajikistan from May to September, the largest volume since 2019, as the country seeks to ensure uninterrupted supply for consumers and prepare electrical infrastructure for the critical autumn-winter period. Uzbekistan resumed the purchase of electricity from Tajikistan in 2018, when it imported 1.480 kWh of electricity primarily produced by Tajikistan’s hydroelectric power stations. In Q1 2023, Uzbekistan’s electricity production fell by 5% yoy to 18.5 billion kWh.
Uzbekneftegaz will reportedly begin developing hydrocarbon fields in Azerbaijan in partnership with Azeri state-owned oil and gas giant SOCAR, which is also expected to engage in geological exploration projects in Uzbekistan. Uzbekneftegaz informally announced the partnership at an oil and gas conference in Uzbekistan, with the two companies also expected to establish a joint venture for specialist trainings and the joint project set to begin in 2024. Uzbekneftegaz’s potential work in Azerbaijan would be the company’s first project outside of Uzbekistan.
The Ministry of Energy announced UAE’s Masdar won a tender for the construction and operation of a 300 MW solar power plant in the Kashkadaryo region with a total estimated cost of USD 250 million. Masdar beat competition from Saudi Arabia, China, India, Russia, and Singapore to build the solar power plant by offering 3 cents per kWh of electricity and USD 6.33 per 1 MWh of battery system availability. Masdar’s proposal still needs to be approved by Uzbekistan’s Tender Commission, which is supported by consultants from the Asian Development Bank.
In response to increasing auto loans and growing concerns about a speculative, the Central Bank of Uzbekistan (CBU) proposed to change risk measurements for banks’ car loans based on the loan-to-value ratio. The CBU’s proposal, which was included as part of the draft amendment for increasing capital adequacy requirements for commercial banks, will force banks to account for risky auto loans with minimal or no down payments, a trend which has increased recently as banks struggle to maintain margins.
The EBRD will lend Samarkand USD 49 million for the purchase of electric busses as the city becomes the first municipality in Uzbekistan to join the development bank’s “Green Cities” program. The long-term sovereign loan, provided to state-owned SamarqandYo'lovchiTrans, will finance the purchase of up to 100 electric busses, charging units, and supporting infrastructure as part of a larger project to develop and modernize Samarkand’s transportation system as the city emerges as a popular tourist destination.
According to TASS, Kazakh authorities are mulling the possibility of transporting Russian gas through Kazakhstan to Uzbekistan. Kazakh Minister of Energy Almasadam Satkaliyev also reportedly told journalists that Kazakhstan is in negotiations to build a gas pipeline from Russian to China running across northern Kazakhstan.
In the first four months of 2023, more than two million tourists visited Uzbekistan, putting the country on track to exceed the 2022 total of 5.2 million visitors but still below pre-pandemic highs of 6.7 million foreign tourists. More than 90% of tourists to Uzbekistan came from CIS countries including Tajikistan (623,800), Kazakhstan (558,800), Kyrgyzstan (487,700), and Russia (207,700).
Business
On May 17, the State Development Bank of China agreed to provide a credit line of CNY 1.18 billion (USD 167.8 million) to the National Bank of Uzbekistan. The agreement, which was signed at an Uzbek-Chinese business forum held in Xi’an before President Shavkat Mirziyoyev’s state visit to China for the China-Central Asia Summit, will support financing for transportation infrastructure projects.
State-owned Uzbekistan Airports will receive up to EUR 28 million to upgrade airport equipment and EUR 1 million to optimize the company’s business processes from the EBRD. Uzbekistan Airports, which manages the country's major airports including the Tashkent, Samarkand, and Bukhara airports, will use the long-term financing to purchase refueling vehicles, baggage tractors, busses, de-icing machines, and other critical machinery. The agreement marks the first direct deal between the EBRD and an Uzbek state-owned enterprise without state guarantees.
Russian online retailer Wildberries will reportedly build a 3,200 square meter warehouse and logistics center in the Fergana region. The logistics center, which will be built in Boboshbek production, logistics, and trade complex in the Uchkuprik district, will be Wildberries second in Uzbekistan, after the company announced plans in November 2022 to build a USD 130 million complex in Tashkent.
The lslamic Corporation for the Development of the Private Sector agreed to open a financing line of USD 15 million and EUR 5 million to Ipak Yo’li Bank to support private sector lending using the Murabaha Islamic financing structure.
Government & Politics
China has reportedly completed a feasibility study on the construction of the 280-mile Uzbekistan-Kyrgyzstan-China railway project, and Minister of Transport Ilkhom Makhkamov announced Uzbekistan had signed a roadmap agreement for the railway with China and Kyrgyzstan at the China-Central Asia summit in Xi’an. The transportation infrastructure project, which also includes the construction of a highway and is expected to cost between USD 3-6 billion, will significantly increase cargo transportation capacity between Central Asia and China and cement Central Asia’s position as a critical node in trade networks between Europe, China, and the Middle East.
The President of Singapore Halimah Yacob arrived in Tashkent on May 23 for a visit to Uzbekistan and met with President Shavkat Mirziyoyev on May 24 to discuss bilateral economic, cultural, and political collaboration. During President Yacoub’s visit, which included a trip to Samarkand, agreements were signed between Singapore and Uzbekistan’s ministries of internal affairs, justice, and culture, while the Uzbek Presidential Administration announced the establishment of a joint educational and training center for public administration. At an Uzbekistan-Singapore business forum held during the visit, Singapore-based Changi Airports agreed to help develop a feasibility study for the construction of a new airport in Tashkent and provide consulting services for the current Tashkent International Airport.
The Russian Foreign Ministry told TASS an agreement to build a Russian-designed nuclear power plant in Uzbekistan is at “high readiness” as discussions between Moscow and Tashkent continue. On Monday, Uzbek Foreign Minister Bakhtiyor Saidov met with Russian Foreign Minister Sergei Lavrov in Moscow and discussed the two countries’ “strengthening of the strategic partnership,” Russia’s war in Ukraine, and regional security.