Tamerlane #40: July 5-12
Mirziyoyev wins reelection with 87% of vote, several mayors and SOE heads fired for not attracting investments, 2022 FDI to Uzbekistan totaled USD 2.5 billion, ADB loans USD 125 million for power grid
Top News
President Shavkat Mirziyoyev won reelection to a new seven-year term with 87.1% of the vote in a snap presidential election that saw turnout of 79.8%. The Organization for Security and Cooperation in Europe (OSCE), which had international election observers in Uzbekistan, called the vote “technically well prepared” and noted the impact of legal reforms on the election process but concluded it “lacked genuine competition.” However, Uzbekistan’s Central Election Commission asserted the election was held “in full compliance with...democratic principles.” Robakhon Makhmudova from the Social Democratic Party “Adolat” came in second place with 4.4%, followed by the People's Democratic Party Ulugbek Inoyatov with 4% and the Ecological Party’s Abdushukur Khamzayev with 3.7%. Temur Umarov, a fellow at the Carnegie Russia Eurasia Center, suggested the order in which the opposition candidates placed reflected the regime’s understanding of citizens’ priorities and values, ranging from social welfare issues (Makhmudova) to environmental concerns (Khamzayev). VOA’s Navbahor Imamova noted that none the opposition candidates challenged President Mirziyoyev’s record or even suggested voters select a candidate other than the incumbent president. The Jizzakh region recorded the highest turnout with 85.3%, while Tashkent had the lowest turnover with 73%. President Mirziyoyev’s predicted landslide reelection comes on the heels of a constitutional referendum in April and will serve to bolster the government’s economic and political reform program that the incumbent put at the center of his campaign, although analysts have highlighted the crackdown on opposition bloggers and free speech in the lead up to the vote. The US Embassy in Uzbekistan, while supporting the OSCE’s conclusions about the lack of competition in the presidential election, pledged to “help advance” Mirziyoyev’s reforms and efforts to strengthen ties between the United States and Uzbekistan.
After the presidential election, President Shavkat Mirziyoyev dismissed several mayors, government officials, and heads of state-owned enterprises for failing to bring in investments and “betrayal” for not completing funded projects. The mayors of the cities of Navoi and Yangiyul, 10 district mayors, the heads of the national railroad company Uzbekistan Temir Yullari and water management company Uzsuvtaminot, the Chairman of the Committee on Roads, Deputy Minister of Water Resources, and Deputy Minister of Transport were all removed from their positions, with President Mirziyoyev declaring, “there is no room for betrayal.” The major issues reportedly stemmed from the officials’ failure to bring in new investments and utilize funds allocated by the government for major development projects. The president also reprimanded the leadership of Thermal Power Plants JSC, Sanoat Qurilish Bank, and the textile association Uztekstilprom. Since 2019, Thermal Power Plants has allegedly only disbursed USD 135 million of the allocated USD 690 million for additions to the Talimarjan power plant. Mirziyoyev put attracting foreign investment at the center of his presidential campaign, and the shakeup is likely intended to send a message about the government’s new priorities for attracting investments and producing results for the country’s ambitious modernization and development program.
Uzbekistan attracted USD 2.5 billion in foreign direct investment (FDI) in 2022, an 11% yoy increase, according to the United Nations Conference on Trade and Development (UNCTAD). Even though global FDI inflows fell 12.4% to USD 1.3 trillion, and inflows to developing economies increased only 4%, Uzbekistan benefited from the doubling of reinvested earnings, which reached USD 1.2 billion. Overall, 2022 FDI flows to Central Asia grew 39% to USD 10 billion, led by Kazakhstan with USD 6.1 billion, nearly double the previous year’s inflows. Uzbekistan also ranked among the top five FDI recipients among landlocked developing countries, along with Kazakhstan, Ethiopia, Mongolia, and Uganda.
The Asian Development Bank (ADB) will provide a USD 125 million loan to support the modernization of Uzbekistan’s power transmission grid, improve energy efficiency, and facilitate the integration of renewable energy sources. The loan, part of the ADB’s Digitize to Decarbonize–Power Transmission Grid Enhancement Project, will be used to refurbish and modernize 360 kilometers of transmission lines in seven regions and increase capacity at four substations. The project will also help digitize Uzbekistan’s power transmission grid and give the National Electric Grid increased ability to manage the country’s power supply, as well as support corporate governance reforms at the state-owned grid operator.
Local Markets
The State Assets Management Agency (UzSAMA) published updated corporate governance reforms, ethics rules, and anti-corruption policies for state-owned enterprises developed with support from the Asian Development Bank and the European Bank for Reconstruction and Development. The new policies aim to eliminate conflicts of interest for SOE management, protect the rights of minority shareholders, increase transparency, introduce ethical standards for employees, and establish whistleblower protections. Observers of Uzbekistan’s corporate governance reforms will likely welcome the new policies but reserve judgement until the implementation and enforcement of the rules are confirmed and observed.
On July 7, Sanoat Qurilish Bank (Uzpromstroybank) held an investor day attended by representatives from the European Bank for Reconstruction and Development, JP Morgan Chase, Raiffeisenbank, Rothschild & Co, Deutsche Bank, and other global financial institutions as the Uzbek bank prepares for privatization. Sanoat Qurilish Bank, which is being supported by the International Finance Corporation as it reforms its business model before scheduled privatization in 2023, signed a EUR 15 million loan agreement with Raiffeisenbank and a USD 15 million short-term loan agreement ICBC Standard at the investor day event.
UzSAMA launched the privatization process for the state’s 85.6% stake in electronics producer Foton. The privatization of the small company, with around 300 employees and UZS 1.1 billion (USD 93,330) in share capital, is part of the government’s plan to sell off small assets to build momentum for the privatization of larger state-owned enterprises.
The Uzbek Currency Exchange signed a strategic agreement with Bloomberg to provide exchange and trading statistics including FX, government bonds, derivates, and interbank money market data. The Currency Exchange said the agreement with one the world’s largest financial data providers would open a “window into the Uzbek exchange and financial markets for potential investors worldwide.”
According to the Central Securities Depository, among foreign holders, Kazakh investors own 93% of Uzbek corporate bonds, followed by Swiss (3.5%) and Russian (3.4%) bondholders, while Hungarian shareholders account for almost 31% of foreign investments in the local equities market. However, foreign investors hold only 3% (UZS 25.3 billion or USD 2.2 million) of local corporate bonds and 4% (UZS 7.2 trillion or USD 620 million) of stocks.
Macroeconomics
The World Bank will provide a USD 46.3 million grant to support Uzbekistan’s reduction of greenhouse gas emissions, help the country access international carbon credits, and promote efficient energy resource use. The grant is part of the World Bank’s Innovative Carbon Resource Application for Energy Transition Project for Uzbekistan (iCRAFT) program that provides incentives for energy subsidy reforms through carbon emission reduction credits, which can be sold in international carbon markets. The World Bank projects iCRAFT could help Uzbekistan reduce greenhouse gas emissions by 60 million metric tons by 2028. Uzbekistan’s subsidized energy and electricity prices have disincentivized efficient energy solutions for businesses and households, and the World Bank’s program is designed to support the government’s long-awaited liberalization of the energy sector.
Fitch Ratings suggests the privatization of Uzbekistan’s banking sector could take longer than expected and will depend on state-owned banks’ ability to transform their business models. While OTP’s acquisition of Ipoteka Bank has the potential to spur interest among international investors in Uzbekistan’s banks, their dependence on the public sector, portfolio of preferential loans at below market rates, and exposure to structural weaknesses in the Uzbek economy could delay future privatizations. The International Finance Corporation and the European Bank for Reconstruction and Development are currently helping Sanoat Qurilish Bank and Asaka Bank, respectively, transform their business models in preparation for privatization by the end of 2023, although Fitch thinks mid-2024 is more likely. State-owned banks currently account for nearly 70% of Uzbekistan’s bank assets.
In May, the Central Bank of Uzbekistan (CBU) sold 11 tons of gold, the second largest amount behind only the Central Bank of Turkey (63 tons), as the CBU’s gold reserves decreased by nine tons or USD 980 million. Uzbekistan exported USD 1.3 billion worth of gold in May and USD 4.4 billion since the beginning of the year.
China Southern Power Grid signed a memorandum of understanding with the Ministry of Energy to build three hydroelectric plants with a total capacity of 820 MW and a projected cost of USD 1.6 billion. The head of state-owned Uzbekhydroenergo, Abdugani Sanginov, met with China Southern Power Grid’s chairman Zhang Tangzhi to discuss the construction of hydroelectric plants on the Pskem River and Lake Karateren that would provide electricity for 1.6 million people, with completion scheduled for 2030.
Tashkent’s construction boom shows signs of slowing as the volume of construction projects by large companies in the capital fell 33% yoy in the first five months of 2023 while cement sales on the Uzbek Commodity Exchange have plummeted. Construction projects from January to May in Tashkent totaled UZS 3 trillion (USD 260 million), according to the city’s statistics department, while the Uzbek Commodity Exchange reported a 40% drop in cement sales to 2.1 million tons from January to June 2023.
The European Bank for Reconstruction and Development (EBRD) appointed Andi Aranitasi as the Head of Uzbekistan. Aranitasi, who previously served as the EBRD’s Head of North Macedonia, replaces Alkis Drakinos, who was appointed Regional Head of the Caucasus. The EBRD has invested nearly EUR 4.4 billion through 144 projects in Uzbekistan.
The Foreign Investors Council, part of the Uzbek Presidential Administration, published on customs regulations in Uzbekistan. The Brief Investor Handbook on Customs focuses on the tax and duties regime, special economic zones, and the government’s 2022-2026 development policy.
Business
The National Bank of Uzbekistan (NBU) signed an agreement to open a USD 100 million credit line with Standard Chartered Bank supported by the World Bank’s Multilateral Investment Guarantee Agency. The loan from one of the United Kingdom’s largest banks will be used to finance the NBU’s investments in small and medium-sized businesses in the alternative energy, engineering, textiles, transportation, and telecommunications sectors.
Mitsubishi Power received orders for two turbines for a new gas turbine combined cycle (GTCC) power plant with a total capacity of 1,600 MW in Uzbekistan’s Syrdaryo region. The GTCC power plant project, jointly being developed by French electric company EDF, Qatari Nebras Power, and Japanese companies Sojitz and Kyuden International, with Chinese Harbin Electric International Company Limited serving as the main contractor, is expected to begin operation by 2026.
Total Energies expressed interest in developing joint renewable energy projects with Uzbekneftegaz and announced plans to open a representative office in Tashkent. Representatives from the French company met with Uzbekneftegaz in Tashkent, with the two sides also discussing potential opportunities in upstream oil and gas projects and production at the Uzbekistan GTL (gas-to-liquids) facility.
Uzum Market reportedly plans to build Uzbekistan’s largest logistics center as the company suspends registration of new sellers after more than 5,000 vendors joined its online marketplace in nine months. According to the company, which is part of the Uzum digital ecosystem, the new logistics center and warehouse will give Uzum Market 112,000 square meters of storage space and employee over 5,000 people. Uzum Market plans to reach 400 pickup points, 10,000 marketplace vendors, and 800,000 products by the end of 2023.
Government & Politics
President Shavkat Mirziyoyev signed a decree paving the way for the phased creation of independent market regulators for the electricity, energy, communication, and transportation sectors. Allowing an independent market regulator to set electricity and energy prices has long been discussed as part of the government’s plan to liberalize markets and phase out state subsidies for electricity and energy prices. Officials are currently studying the experience of countries that introduced independent regulation and tariff setting, including Azerbaijan, Turkey, and several European countries. The liberalization of electricity and energy prices is a critical measure to strengthen Uzbekistan’s energy security and combat frequent shortages and blackouts, and the government is also reportedly considering offering payments for citizen denunciations about illegal use and theft of energy.
Outgoing British Ambassador to Uzbekistan Tim Torlot gave a wide-ranging interview to Gazeta.uz where praised “encouraging signs” from the Uzbek government’s reform program but warned that if the process was not properly carried out, Uzbekistan could “end up with corruption and oligarchy.” Ambassador Torlot, who praised Uzbekistan’s successful multi-vector foreign policy and geopolitical balancing of partnerships with Russia and the West, also noted that measures to implement the rule of law and reform the legal system remained incomplete, which is “one of the reasons why foreign companies do not want to come and invest here.” Torlot is retiring after a 42-year career in the diplomatic service.