PPP brings know-how and expertise into the country
In an interview with GlobalMarkets, Golib Kholjigitov, head of Uzbekistan’s PPP Development Agency, lays out the advantages that working with the private sector can bring in terms of lower costs and more efficient delivery of much-needed infrastructure projects
GlobalMarkets: How has Uzbekistan’s PPP framework developed?
Golib Kholjigitov: The PPP Development Agency was established in October 2018 and the law on public-private partnerships (PPP) was adopted in May this year.
We have co-operated very closely with international financial institutions (IFIs) throughout the process. The first draft of the PPP legislation was prepared by the European Bank for Reconstruction and Development (EBRD).
We subsequently customised it to local requirements with parliament and the relevant ministries, and then confirmed again with IFIs including the World Bank and Asian Development Bank that it meets international standards.
We are currently working actively with IFIs, along with our government ministries, to develop a strong, diversified pipeline of projects.
For us, the involvement of the IFIs in the initial stages of our PPP development is key. As a country that is just opening up, and where the institutions are new and haven’t been tested over time, having the support of institutions such as the World Bank, IFC and EBRD is vital in giving confidence to investors.
For the first few years, we will use IFI support actively. After that, once we have the expertise, the documentations and the relationships with investors, we will start preparing transactions on our own.
GM: Which sectors are you focusing on?
GK: We have several priority areas, including energy, transportation, water, healthcare, agriculture and education.
The energy sector is particularly important for us. It provides the foundation for any economic growth and the current technology is quite outdated, with low efficiency and instability in some areas. We are therefore very focused on encouraging investment in electricity generation and distribution.
We want to support the government’s strategic plan for the development of the energy sector. This includes the diversification our generation capacity with a focus on renewables and the modernisation of outdated infrastructure.
The government also wants to improve the financial sustainability of the sector. Over the past decade, high levels of energy subsidies meant that our energy companies were loss-making and incurred debts.
Demand for electricity in Uzbekistan is forecast to grow by 40%-70% over the next 10 years, so it is clear that considerable investment is needed in the power sector. We estimate the figure at around $15bn.
GM: What are the advantages of the PPP format?
GK: Given the level of investment required, the government is keen to leverage private sector funding to solve public sector issues such as the contingent-liability structure. With PPP, most of the risks are taken by the private sector, from market risk to operational risk.
We also know from experience in other jurisdictions that the cost overrun on PPPs is nearly three times lower than on projects using traditional procurement.
Similarly, PPP projects tend to be delivered in a more timely manner and to a higher standard, because deadlines and key performance indicators are built into the contracts and power purchasing agreements. These are powerful motivating factors for private companies.
The other big advantage of PPP is that it brings know-how and expertise into the country. Foreign companies will not just be responsible for building assets but also for operating them, maintaining them and managing them to international standards — which is exactly what our country needs.
GM: How many projects are you currently working on?
GK: We have close to 30 projects in the pipeline, of which 17 are at an advanced stage and two are in the final bidding round. For others we are about to sign transaction advisory consultancy agreements with IFIs and for some pre-feasibility studies are already underway.
Most of these projects are in the energy, power, transportation and healthcare sectors. Those in the final bidding stage are a 100MW solar plant in the Navoiy region and the creation of dialysis centres in three regions. Both of these are pilot projects. We want to start small in order to gain expertise and build capacity.
We are not just working on projects on an individual basis. In power generation, our approach is programmatic. We want to build new solar plants with total capacity of 5GW over the next 10 years.
We have seen strong interest from investors. For the Navoiy solar project, we had initial expressions of interest from 42 companies from countries including France, Saudi Arabia, UAE and China. That was a good signal for us that we are on the right track.
GM: What concerns are investors raising?
GK: The level of engagement of investors at present depends on their risk appetite. Some are actively involved and some are waiting to see how the first pilot projects turn out.
From investors who come to the agency, the reaction has been positive. They can see that we have a strong pipeline and that we are committed, and they appreciate our professionalism. They can see that our staff have a high level of international experience and expertise.
It is one thing to make policy. You also have to implement it, which is much more difficult. When investors see that we speak their language and understand their concerns, they are very keen to get involved.
If anything, at the moment we have too much interest from investors! PPP is a complex structure, so we have to be careful about taking on too many projects at once.
The IFIs are being very helpful in the project preparation process. They are doing market-sounding activities to gauge the level of interest for projects and signing consulting agreements.One of the key concerns is our tariff policy. Foreign investors obviously want to be sure that they will be able to recover their costs and make a profit. This is a sensitive issue from the social perspective, but one we are working on. We are committed to ensuring that tariffs are reasonable and sustainable for both population and investors.