7. State-Owned Enterprises
State-owned enterprises (SOEs) dominate those sectors of the economy recognized by the government as being of national strategic interest. These include energy (power generation and transmission, and oil and gas refining, transportation and distribution), metallurgy, mining (ferrous and non-ferrous metals and uranium), telecommunications (fixed telephony and data transmission), machinery (the automotive industry, locomotive and aircraft production and repair), and transportation (airlines and railways). Most SOEs register as joint-stock companies, and a minority share in these companies usually belongs to employees or private enterprises. Although SOEs have independent boards of directors, they must consult with the government before making significant business decisions.
The government owns majority or blocking minority shares in numerous non-state entities, ensuring substantial control over their operations, as it retains the authority to regulate and control the activities and transactions of any company in which it owns shares. The Agency for Management of State-owned Assets is responsible for management of Uzbekistan’s state-owned assets, both those located in the country and abroad. There are no publicly available statistics with the exact number of wholly and majority state-owned enterprises, the number of people employed, or their contribution to the GDP. According to some official reports and fragmented statistics, there are over 3,500 SOEs in Uzbekistan, including 27 large enterprises and holding companies, about 2,900 unitary enterprises, and 486 joint stock companies, which employ about 1.5-1.7 million people, or about 13% of all domestically employed population. In 2020, the share of SOEs in the GDP was about 55%, and taxes paid by 10 largest SOEs contributed 63.3% of total state budget revenues.
The published list of major Uzbekistani SOEs is available on the official GOU website (listing large companies and banks only): http://www.gov.uz/en/pages/government_sites .
By law, SOEs are obligated to operate under the same tax and regulatory environment as private businesses. In practice, however, private enterprises do not enjoy the same terms and conditions.
In certain sectors, private businesses have limited access to commodities, infrastructure, and utilities due to legislation or licensing restrictions. They also face more than the usual number of bureaucratic hurdles if they compete with the government or government-controlled firms. Most SOEs have a range of advantages, including various tax holidays, as well as better access to commodities, energy and utility supplies, local and external markets, and financing. There are cases when gaps in the legislation are used to ignore the rights of private shareholders (including minority shareholders and holders of privileged shares) in joint stock companies with a state share.
A May 2019 IMF Staff Report concluded that SOEs absorbed disproportionate shares of skilled labor, energy, and financial resources, while facing weak competition enforcement and enjoying a wealth of investment preferences. The GOU has officially recognized the problem. President Mirziyoyev said strong involvement of the state in the fuel and energy, petrochemical, chemical, transport, and banking sectors was hampering their development. In 2020, he issued several decrees and resolutions to improve the competition environment and reduce the dominance of SOEs in the economy. New legislation has strengthened the role of the Anti-Monopoly Committee, overturned over 600 obstructing laws and regulations, abolished 70 (out of 266) types of licenses and 35 (out of 140) permits for various types of businesses. The Presidential decree on SOE reformation and privatization (adopted October 27, 2020) orders 32 large SOEs to optimize and transform their corporate structure, 39 SOEs to introduce advanced corporate governance and financial audit systems, the privatization of state-owned shares in 541 enterprises through public auctions, and the sale of 15 public facilities to the private sector. The reform covers large SOEs in the energy, mining, telecommunications, transportation, construction, chemical, manufacturing, and other key industries. Another decree orders large-scale privatization in the banking sector. In 2020, the government started projects to privatize six state-owned banks in cooperation with international financial institutions. In addition to privatization efforts, the GOU intends to attract private investments to the public sector through promotion of public-private partnerships (PPP). The new law on PPP, adopted in 2019, and a number of follow-up regulations introduced in 2020 create a more favorable environment for such partnerships.
Implementation of this SOE optimization and reform program will likely take some time, as the GOU seeks to avoid high social costs, such as mass unemployment. In September 2020, the IMF staff noted, “The crisis should not delay the reform of the state-owned banks and state-owned enterprises—including by improving their governance—and the agricultural sector. As the crisis abates, the authorities should also continue with reducing the role of the state in the economy, opening up markets and enhancing competition, and improving the business environment.”
GOU policy papers indicate it is prioritizing further privatization of state-owned assets. The GOU’s goal is to reduce the public share of capital in the banking sector and business entities through greater attraction of foreign direct investments, local private investments, and promotion of public-private partnerships.
The new public sector optimization policy was first announced in 2018. A special working group headed by the Prime Minister performed careful due diligence on about 3,000 enterprises with state shares and developed proposals for their reorganization and privatization. Based on the results, the GOU approved a program that covers over 620 SOEs in the energy, mining, telecommunications, transportation, construction, chemical, manufacturing, and other key industries. The program foresees privatization of 541 state-owned enterprises, six state-owned banks, and the sale of 15 public facilities to the private sector. In a longer-term perspective, the government plans to privatize over 1,115 SOEs and offer about 50 SOEs for public-private partnership projects. Companies that operate critical infrastructure and enterprises that qualify as companies of strategic importance will remain in full state ownership.
Senior government officials see privatization and public-private partnerships as a solution to improve the economic performance of inefficient large SOEs and as an instrument to attract private investments. They view such investments as critical for the creation of new jobs and mitigation of state budget deficits. The GOU believes it needs to prepare SOEs for privatization by introducing advanced corporate governance methods and restructuring the organization and finances of underperforming SOEs.
By law, privatization of non-strategic assets does not require government approval and can be cleared by local officials. Foreign investors are allowed to participate in privatization programs. For investors that privatize assets at preferential terms, the payment period is three years, and the investment commitment fulfillment term is five years. Large privatization deals with the involvement of foreign investment require GOU approval. Formally, such approval can be issued after examination by the Contracts Detailed Due Diligence Center under the Ministry of Economy.
C. Do these programs have a public bidding process? If so, is it easy to understand, non-discriminatory and transparent? Please provide a link to the relevant government website.
Privatization programs officially have a public bidding process. The legislation and regulations adopted in 2020 for acceleration of the privatization program are intended to ensure the transparency and fairness of the process, as well as facilitating greater involvement of international financial institutions and foreign experts as consultants. In the past, however, privatization procedures have been confusing, discriminatory, and non-transparent. Many investors note a lack of transparency at the final stage of the bidding process, when the government negotiates directly with bidders before announcing the results. In some cases, the bidders have been foreign-registered front companies associated with influential Uzbekistani families. The State Assets Management Agency of Uzbekistan coordinates the privatization program (https://davaktiv.uz/en/privatization).
8. Responsible Business Conduct
There is no legislation on responsible business conduct (RBC) in Uzbekistan, and the concept has not been widely adopted, though many companies are active in charitable and corporate social responsibility activities, either through their own initiative or because they were mandated by local government officials.
Historically, the level of forced labor involved in the annual cotton harvest (September – November) was high, as citizens were pressed into service in the fields to meet government targets for cotton production. However, much has changed since President Mirziyoyev took office and the GOU has reversed course and worked hard to eradicate forced labor from the harvest and move away from Soviet-era cotton production targets. According to the International Labor Organization (ILO) 2020 monitoring reports, the total percentage of the approximately two million pickers recruited for the 2020 harvest who experienced some coercion fell from 6% to 4% – a year-over-year reduction from approximately 102,000 to 80,000 pickers.
Efforts to eliminate trafficking in persons and forced labor leaped forward in 2020 with the government’s February 2020 decision to end the state quota system for cotton. Dismantling the complex quota system required further development of the cluster system, first introduced in 2018 as a means to reduce forced labor. By the end of 2020, the number of clusters (privately operated, vertically integrated, cotton textile producing enterprises, including those with foreign capital) in Uzbekistan exceeded 90 and the percentage of land cultivated by or on behalf of private businesses grew considerably. With increased privatization of cotton production, the government ceded decisions about labor to private businesses.
Relevant government agencies and departments inspect both newly registering and operating local businesses and enterprises for enforcement of the Labor Code in respect to labor and employment rights; the Law on Protection of Consumer’s Rights for consumer protections; and the Law on Protection of Nature for environmental protections. Labor or environmental laws and regulations are not waived for enterprises with private and foreign investments.
Legislation, including the Law on Joint-Stock Companies and Protection of Shareholder’s Rights, issued in 1996 and last updated in 2018, sets a range of standards to protect the interests of minority shareholders. In 2018, the GOU approved corporate governance rules for SOEs. Their introduction is in progress.
The Law on the Securities Market requires businesses that issue securities (except government securities) to publish annual reports, which should include a summary of business activities for the previous year, financial statements with a copy of an independent audit, and material facts on the activities of the issuer during the corresponding period.
There are no independent NGOs, investment funds, worker organizations/unions, or business associations promoting or monitoring RBC in Uzbekistan. Some international organizations, like the Asian Development Bank, provide technical and advisory assistance to the government and local enterprises.
Uzbekistan adopted its Corporate Governance Code in 2015 as a voluntary requirement. The same year, the GOU set corporate governance requirements for joint-stock companies (Decree UP-4720).
At present, Uzbekistan does not adhere to the OECD guidelines regarding responsible supply chains of minerals from conflict-afflicted and high-risk areas, and there has been no substantial evidence to suggest the government encourages foreign and local businesses to follow generally accepted CSR principles such as the OECD Guidelines for Multinational Enterprises. Uzbekistan does not participate in the Extractive Industries Transparency Initiative (EITI).
Uzbekistan’s legislation prohibits the private security industry or use of private security companies within the country.
Department of State
- Country Reports on Human Rights Practices;
- Trafficking in Persons Report;
- Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities and;
- North Korea Sanctions & Enforcement Actions Advisory
Department of Labor
Uzbekistan’s legislation and Criminal Code both prohibit corruption. President Mirziyoyev has declared combatting widespread corruption one of his top priorities. On January 3, 2017, he approved the law “On Combating Corruption.” The law is intended to raise the efficiency of anti-corruption measures through the consolidation of efforts of government bodies and civil society in preventing and combating cases of corruption, attempted corruption, and conflict of interest, ensuring punishment for such crimes. On June 29, 2020, Presidential Decree UP-4761 created an Anti-Corruption Agency. Subordinate to the president and reporting to Parliament, the agency is responsible for developing and implementing state policy to prevent and combat corruption. Earlier in 2019, the GOU adopted the 2019-2021 Anti-Corruption Program to strengthen the independence of the judiciary system, develop a fair and transparent public service system requiring civil servants to declare their incomes and establishing mechanisms to prevent conflicts of interest, and facilitate civil society and media participation in combating corruption.
Along with the Anti-Corruption Committee, the Prosecutor General’s Office of Uzbekistan (PGO) is the government arm tasked with fighting corruption. Since Mirziyoyev took office in September 2016, the number of officials prosecuted under anti-corruption laws has increased. According to official statistics, roughly 2,300 corruption-related crimes were registered in 2018-2019. In January-September 2020, Uzbekistani law enforcement agencies initiated 838 corruption related criminal cases and prosecuted 647 government officials, including, six tax collectors, 57 healthcare managers, 89 police officers, 140 education officials, 184 SOE managers, and seven deputy governors. By preliminary assessments, the damage caused by budget embezzlement crimes in 2020 exceeded $24 million, while corruption cost over $20 million. Punishment has varied from fines to imprisonment with confiscation of property.
Formally, the anti-corruption legislation extends to all government officials, their family members, and members of all political parties of the country. However, Uzbekistan has not yet introduced asset declaration requirements for government officials or their family members. In May 2020, the GOU published a new draft of the Law on State Civil Service. It requires obligatory income and asset declaration by all civil servants and their families. The requirement applies to the president, deputies of the Legislative Chamber, members of the Senate, the Central Election Commission, the Ombudsman, deputies of the Parliament of the Republic of Karakalpakstan and local representative bodies of state power, as well as judges. The draft version caused heated discussions among the public and government officials. In October 2020, Director of the Anti-Corruption Agency stated that all waivers must be excluded from the draft of the law. The law is still under consideration.
C. Does the country/economy have laws or regulations to counter conflict-of-interest in awarding contracts or government procurement?
The process of awarding GOU contracts continues to lack transparency. According to a presidential decree issued on January 10, 2019, all government procurements must now go through a clearance process within the Ministry of Economy. Procurement contracts involving public funds or performed by state enterprises with values of over $100,000 need additional clearances from other relevant government agencies.
The law “On Combating Corruption” prescribes a range of measures for preventing corruption, including through raising public awareness and introduction of transparent rules for public-private interactions. The law, however, does not specifically encourage companies to establish relevant internal codes of conduct.
Currently only a few local companies created by or with foreign investors have effective internal ethics programs.
Uzbekistan is a member of the OECD Anti-Corruption Network (ACN) for Eastern Europe and Central Asia. One of the latest OECD reports on anti-corruption reforms in Uzbekistan (March 21, 2019) says that, although Uzbekistan has already undertaken a number of key anti-corruption reforms, the GOU now needs to systematize its anti-corruption policy by making it strategic in nature.
There are very few officially registered local NGOs available to investigate corruption cases and Embassy Tashkent is not aware of any genuine NGOs that are presently involved in investigating corruption. The law “On Combating Corruption” encourages more active involvement of NGOs and civil society in investigation and prevention of crimes related with corruption.
Corruption is still a notable factor in the economy and social sphere of Uzbekistan due to the insufficiency of law enforcement practices and relatively low wages in the public sector. Recognizing the issue, the country’s leadership has initiated legislative and institutional reforms, which has already raised Uzbekistan’s rating in Transparency International’s Corruption Perceptions Index from 157 (out of 180 rated countries) in 2017 to 146 in 2020. U.S. businesses have cited corruption and lack of transparency in bureaucratic processes, including public procurements and licensing, as among the main obstacles to foreign direct investment in Uzbekistan.
Resources to Report Corruption
The government agencies that are responsible for combating corruption are the Anti-Corruption Agency, the Prosecutor General’s Office and the Ministry of Justice. Currently, no international or local nongovernmental watchdog organizations have permission to monitor corruption in Uzbekistan.
Contact information for the office of the Anti-Corruption Agency of Uzbekistan:
- Address: 8A, Shota Rustavely St., 100070, Tashkent, Uzbekistan
- Website: https://anticorruption.uz/en/item/report-corruption
- Hotline telephone numbers: +998(71) 202-0400 (Ext 709), 271-1007
- Email: email@example.com
Contact information for the office of Uzbekistan’s Prosecutor General:
- Address: 66, Akademik Gulyamov St., 100047, Tashkent, Uzbekistan
- Website: www.prokuratura.uz
- Hotline telephone numbers: +998(71) 1007, 202-0486
Contact information for the office of Uzbekistan’s Ministry of Justice:
- Address: 5, Sayilgoh Street, 100047, Tashkent, Uzbekistan
- Website: http://www.minjust.uz/en/, http://www.minjust.uz/ru/anticorruption/feedback/
- Hotline telephone numbers: +998(71) 1008, 262-9245б 207-0443
- E-mail: firstname.lastname@example.org