The Republic of Uzbekistan has adopted its first statute providing comprehensive regulation of its renewable energy sector. The Renewable Energy Law1 entered into force on 22 May 2019
The country's previous legislation in this area consisted mainly of different Presidential resolutions, often relating to particular projects. But in his Development Strategy of Uzbekistan for 2017-2021,2 the country's new President, Shavkat Mirziyoyev (who took office in 2016), stressed the importance of moving toward greater use of renewable energy.
The purpose of the Renewable Energy Law is to help diversify Uzbekistan's economy and to lessen its reliance on fossil fuel based energy by developing and regulating a renewable energy sector. The Law focuses both on the use of renewable sources of energy ("Renewables") and on the production of equipment used in the renewable energy sector ("Equipment"). Under the Law, the term "Renewables" includes naturally replenished energy sources, such as sunlight, wind, geothermal heat, natural water waves and biomass.
The key provisions of the Renewable Energy Law are summarized below
1. Regulatory Body
The Law names the recently established Ministry of Energy (the "Ministry")3 as the main state authority responsible for developing the use of the Renewables in Uzbekistan. The Ministry's responsibilities include the preparation of regulations, the initiation of state support for producers of energy from Renewables and producers of Equipment, and the maintenance of a state registry of Renewables, energy from Renewables and Equipment. The parameters of exactly what must be included in the state registry, and whether registration is the responsibility of the Ministry or the relevant producers/users, remains to be clarified.
Tariffs for electricity generated from Renewables will be determined based on a competitive bidding process. The Law is silent with respect to pricing mechanisms for determining tariffs and with respect to how the competitive bidding process will be conducted. Regulations addressing such matters are expected to be adopted. It is understood, however, that at the bidding stage bidders will not be required to have existing production in place and may bid based only upon presentation of their proposed project.
Invitations to bid are expected to be published from time to time in the Ministry's website. The website is currently under construction.
3. Incentives and Benefits
State support for investors, for producers of energy from Renewables and for producers of Equipment may be in the form of;
- tax, customs and "other incentives and preferences";
- assistance with creation and application of innovation technologies;
- a state guarantee to connect the Equipment to the unified national electrical network.
While the steps to obtain these types of support have not been clarified, it appears that a party seeking such support must first apply to the Ministry, which then decides whether to recommend that the Cabinet of Ministers approves specific state support to the applicant.
The Law does not specify who may be considered an "investor" for purposes of state support. It also is not clear what conditions must be satisfied for either an investor or a producer to qualify for state support. Nor is it clear what types of "other incentives and preferences" may be granted. While it is possible that the regulations to be adopted will provide certain guidelines, it is expected that a certain amount of discretion will rest with the Ministry which it may exercise on a case-by-case basis depending on the amount of investment, the level of production and other factors of each particular case.
3.2 Certain Tax Exemptions
Producers of energy from Renewables are exempt for 10 years from:
- property tax for Equipment;
- land tax for the land plots occupied by their Equipment with a nominal capacity at least 0.1 MW.
These tax exemptions are effective from the date of exploitation of the Equipment.
Producers of Equipment (but not producers of energy from Renewables) are exempt from payment of all taxes for 5 years from the date of state registration of the company. This appears to include an exemption from corporate income tax.
The above exemptions appear to be automatic once the necessary registration requirements are satisfied and do not require approval of the Ministry
3.3 Sales of Energy
Flexibility is allowed in the sale of energy produced from Renewables. Uzbek legislation generally requires electric energy produced by power generating companies to be sold to the single purchaser of electric energy - the state enterprise National Electric Networks of Uzbekistan JSC.4 In turn, the single purchaser of electric energy concludes contracts with territorial electricity networks for distribution of electric energy to final consumers. However, the Renewable Energy Law allows territorial electricity networks to conclude electric energy purchase contracts directly with the producers of energy from Renewables, provided that the consents of the single purchaser of electric energy and local municipalities are in place. Further, the Renewable Energy Law provides that producers of energy from Renewables (all types) and producers of Equipment may establish their own local area networks and conclude contracts with third parties (final consumers) for direct sales of energy.
The Law requires that produced Equipment and energy produced from Renewables (unless produced for the producer's own use) must be certified. This is in keeping with Uzbekistan's practicing of requiring certification for many items. At the present time it is not clear which body will be responsible for these certifications.
Adoption of the Renewable Energy Law is a significant step in the development of a renewable energy sector in Uzbekistan. Nevertheless, many issues remain open under the Law. Implementing regulations must be adopted, and guidance from the authorities must be provided, in order to fully realize the purpose of the Law.
This LEGAL ALERT is issued to inform Baker McKenzie clients and other interested parties of legal developments that may affect or otherwise be of interest to them. The comments above do not constitute legal or other advice and should not be regarded as a substitute for specific advice in individual cases.
1 Law No. ZRU-539 On Use of Renewable Sources of Energy dated 21 May 2019 (the “Renewable Energy Law” or "Law").
2 Decree of the President of Uzbekistan No. UP-4947 On Strategy of Actions for the Development of the Republic of Uzbekistan dated 7 February 2017.
3 The Ministry of Energy was formed in March 2019. Gas, oil and other energy matters previously were regulated by several state owned companies.
4 Resolution of the President of Uzbekistan No. PP-4249 On Strategy of Further Development and Reform of the Electric Power Industry of the Republic of Uzbekistan dated 27 March 2019.