Strengthening the Economic, Financial and Technological Dimensions of Water Efficiency in Uzbekistan

Annex A. PPPs: definitions and status in Uzbekistan

Defining PPPs

The OECD defines a public-private partnership as a long-term contractual agreement between the government and a private-sector partner, with the latter traditionally financing and delivering public services using a capital asset and sharing the associated risks with the government (OECD/ADB, 2019[1]).1

A public-private partnership (PPP) is defined as an agreement between the government and one or more private partners (which may include the operators and the financers) according to which the private partners deliver the service in such a manner that the service-delivery objectives of the government are aligned with the profit objectives of the private partners and where the effectiveness of the alignment depends on sufficient transfer of risk to the private partners (OECD, 2008[2]).

PPPs assume a variety of forms, structures and contracts. The private party is traditionally responsible for the design, construction, financing, operation, management and delivery of the service for a predetermined period of time, receiving compensation from fixed payments or tolls charged to service-end users (OECD/ADB, 2019[1]).

Effective management and strong institutional capacity are prerequisites for successful PPP projects and for their long-term fiscal sustainability. Without strong legal, regulatory and compliance frameworks, risk sharing, budget liabilities and negotiations can cause disputes and hinder successful PPP progress or implementation (OECD/ADB, 2019[1]). PPPs typically do not fit one specific category or design, but rather are based on hybrid models, adopting several features of contracts in line with the political and economic context of a country, designed to fit local needs.

Potential benefits and challenges of PPPs in the water sector

Potential benefits

Capital provision: Public-private partnerships can provide access to upfront capital (Lima, Brochado and Marques, 2021[3]). This capital can be used to develop new water infrastructure assets with minimal public financial commitments, advancing infrastructure development while providing relief from fiscal burdens. (Ameyaw and P.C. Chan, 2016[4]). By leveraging PPPs, operational efficiency can be enhanced and outdated infrastructure can be modernised.

Knowledge and technology transfer/expertise: Private-sector partners in PPPs can bring new processes, technologies and practices to water-management projects. PPPs can also provide training for public-sector employees, sharing best practice and setting benchmarks for standards, thus improving efficiencies. This can strengthen the expertise of existing staff, who are then better able to run operations and create foundations for local knowledge.

Operational efficiencies: If solid contractual agreements are in place, a system of internal control and financial reporting can be effectively implemented. Contractual agreements and controls bind private-sector partners to performance standards, ensuring consistent compliance and thus higher levels of service delivery.

Expanding access: PPPs can generate broader access to improved infrastructure, environmental improvements and regional economic development. These benefits extend beyond the PPP and can promote economic development in rural areas where previous water access may have been limited.

Competition: Competition in tendering and bidding processes for PPP fosters an environment where private-sector firms remain incentivised to enhance operations and deliver the best value for money to secure contracts. These dynamics drive continued innovation and improvements in processes, technologies and workforce capabilities.

Challenges of PPPs

Monopolies: For larger-scale PPP projects, there may be a limited number of private partners willing or able to complete the tasks specified in the PPP contract. This places the government in a position of having limited bargaining power and can inadvertently create a monopoly for service providers in certain areas. Local providers may then be unable to bid for these projects and may struggle to provide services in a particular segment of water infrastructure.

Social acceptability: Communities may be unwilling or distrustful of large-scale private-sector actors taking responsibilities for water services, as they may perceive this as a hidden way to appropriate water resources, which are typically publicly-owned or seen as a common public good. This can create a hostile atmosphere, with local vendors or consumers unwilling to use water infrastructure financed or managed by private partners, and occasionally social unrest.

Performance: PPPs typically define performance targets: although this can increase efficiency, it can result in private sector operators taking shortcuts in order to meet targets or neglecting long-term maintenance. The resultant effect can be degradation of service quality over time or negative impacts on the environment, if the infrastructure is not adequately maintained (this applies particularly to underground assets, whose serviceability is more difficult to monitor).

The status of PPPs in Uzbekistan

Governance arrangements for PPPs in Uzbekistan are not yet fully streamlined

The governance framework for PPPs in Uzbekistan involves multiple stakeholders, including several ministries and the Centre for Public-Private Partnership Projects under the Ministry of Economy and Finance of the Republic of Uzbekistan. Co-ordination among these entities can sometimes be challenging due to overlapping responsibilities.

The Cabinet of Ministers of the Republic of Uzbekistan is tasked with ensuring the implementation of a unified state policy in PPPs. In situations of uncertainty regarding the appointment of a public partner for PPP projects, the Cabinet of Ministers designates the public partner. The cabinet also holds responsibility for adopting regulatory legal acts concerning PPPs, approving the concept of PPP projects with a total value exceeding USD 10 million and establishing procedures for maintaining the PPP project register.

In 2024, responsibility for public-private partnership (PPP) development in Uzbekistan was consolidated under the Ministry of Economy and Finance. The Public-Private Partnership Development Agency (PPDA) was abolished by Cabinet of Ministers Resolution No. 720 (30 October 2024). Its functions were transferred to the Ministry of Economy and Finance. Under Presidential Resolution No. PP-308 (30 August 2024), a dedicated Centre for Public-Private Partnership Projects was established as a state institution within the Ministry. The Centre operates within the Ministry’s existing staffing structure and is tasked, among other functions, with managing funds from the Public-Private Partnership Fund.

Risks remain regarding the strategic implementation of PPPs across different ministries, with limited fiscal oversight posing potential risks, alongside restricted expertise for ministries to systematically implement PPPs. This results in confusion and overlap between ministries, with no clear delineation of responsibilities, thus hampering a full range of private sector investment.

The framework for introducing PPPs in Uzbekistan continues to evolve and grow, with specific areas still requiring further refining.

The PPP legal framework has evolved in recent years. Key provisions of the initial PPP law, adopted in 2019 (No. 537), covered the following aspects:

• Defining the scope of PPP projects, with the primary focus placed on the design, construction, supply, financing, reconstruction, upgrading, operation and maintenance of property, property complexes or public infrastructure.

• Specifying key principles for PPPs, including equality between the public and private partners, transparency of rules and procedures in implementing public-private partnerships, competitiveness and objectivity in the selection of a private partner, non-discrimination and prohibition of corruption.

• Specifying a reasonable allocation of benefits to private partners, including ensuring subsidies to private partners, contributions in the form of assets and property necessary for implementation of private-public partnership projects, budgetary funds from the government, provision of loans and other financing, state guarantees, tax and other benefits.

In 2021, Law No. 669 was adopted to address gaps and shortcomings in the PPP Law identified during the testing period since 2019. This included prohibitions on pegging prices for goods, works and services, introducing the concept of project companies and defining concessions. The law also set out the information that must be disclosed on the official websites of both the public partner and the Centre for Public-Private Partnership Projects (formerly PPPDA) in the context of PPP projects.

Despite some limitations, early indicators from nascent PPP projects suggest potential benefits, particularly in projects such as the reconstruction of Samarkand International Airport, which has already demonstrated success since the adoption of Law No. 669. This revision has provided a more robust legal framework, enhancing investor confidence and streamlining project implementation processes.

The development and early implementation of the PPP framework benefitted from the involvement of international financial institutions (IFIs), such as the International Finance Corporation (IFC), the Asian Development Bank (ADB) and the European Bank for Reconstruction and Development (EBRD). These partnerships supported the establishment of the first PPP tenders in Uzbekistan, notably in the renewable-energy sector, where pilot projects for utility-scale solar and wind power plants were introduced under build-own-operate-transfer (BOOT) models (Freshfields, 2024[5]).

In 2021, Uzbekistan either awarded or signed over 150 PPP projects, a threefold increase from 2020, with approximately 10 involving international bidders and lenders. The total value of these agreements exceeded USD 2 billion, underscoring the growing momentum of PPP adoption in Uzbekistan (Kosta Legal, 2022[6]). While many PPPs are still in their early stages, making it difficult to fully evaluate their impacts and long-term benefits, the number of PPPs has increased across the country. As of August 2024, the national PPP project registry listed over 900 ongoing projects (PPPDA, 2024[7]).

Despite clear increases in the volume of PPPs, Uzbekistan currently lacks a cohesive policy and regulatory framework, as well as an appropriate institutional structure for conducting fiscal analyses of PPP projects. There is no established or standardised methodology for evaluating their fiscal impact. This suggests that the outcomes of PPPs may not be adequately evaluated and may not be achieving their full potential for success.

The dismantling of the Contingent Liabilities Unit, previously responsible for monitoring the fiscal exposure of PPP and SOE portfolios, is notable, particularly given the country’s expanding portfolio of externally financed projects. While the PPP Law introduced a diversified approach to project development and decision-making based on investment value, the absence of comprehensive fiscal-oversight mechanisms remains a critical gap. (World Bank, 2023[8]).

The Centre for Public-Private Partnership Projects (formerly PPPDA) in Uzbekistan

The Centre for Public-Private Partnership Projects is responsible for implementing PPPs in accordance with state policy, participating in the development and execution of state programmes and ensuring interdepartmental co-ordination during PPP-project preparation and implementation. The Centre supports various ministries, state committees, departments and local authorities in executing state programmes and developing PPP project concepts. It also facilitates interactions with investors, international financial and donor organizations, the scientific and expert community, and other PPP stakeholders. Additionally, it prepares methodological documents, guidelines and instructions related to PPPs, reviews and provides feedback on the technical and economic parameters of PPP projects and develops draft model agreements.

Table A A.1. Agencies in Uzbekistan related to water-supply and sewerage services

Agency	Responsibility
Parliament “Oliy Majilis”	Responsible for the adoption of laws and state budgets, including the new Water Code, and for setting the structure and powers of judicial branches of government.
Ministry of Economy and Finance	Develops economic programmes in Uzbekistan, supports utility-sector reform, co-ordinates with other ministries and sets tariff levels.
Ministry of Health	Supervises the quality of tap water in the water-supply network through sanitary and epidemiological services and oversees compliance with established state standards.
Ministry of Mining, Industry and Geology	Holds overarching responsibility for groundwater permits.
National Committee on Ecology and Climate Change	Holds overarching responsibility for pollution control, and for the management of surface water, groundwater and soil
Ministry of Construction, Housing and Communal Services	Oversees Uzsuvtaminot, the public company responsible for national WSS services. It also develops tariff proposals and submits them to other ministries for approval.
Councils of People’s Deputies	Responsible for tariff setting at the local level.

Note: This table is not a comprehensive overview of all ministries and bodies responsible for policies related to water supply and sewerage. It is designed to provide an overview of the separation of responsibilities. Other ministries may also play a role, particularly at the local level.

Source: (World Bank, n.d.[9]).

References

[4] Ameyaw, E. and A. P.C. Chan (2016), “Critical success factors for public-private partnership in water supply projects”, Facilities, Vol. 34/3/4, pp. 124-160, https://doi.org/10.1108/f-04-2014-0034.

[5] Freshfields (2024), A general introduction to public-private partnerships in Uzbekistan, https://www.lexology.com/library/detail.aspx?g=4150f3aa-959f-4f2a-a998-72d3917eb35b#footnotes_entry_29405260579070114.

[6] Kosta Legal (2022), A general introduction to public-private partnerships in Uzbekistan, https://www.lexology.com/library/detail.aspx?g=f9f35dd2-0864-4bb7-8a1f-96ba69d05563.

[3] Lima, S., A. Brochado and R. Marques (2021), “Public-private partnerships in the water sector: A review”, Utilities Policy, Vol. 69, p. 101182, https://doi.org/10.1016/j.jup.2021.101182.

[2] OECD (2008), Public-Private Partnerships: In Pursuit of Risk Sharing and Value for Money, OECD Publishing, Paris, https://doi.org/10.1787/9789264046733-en.

[1] OECD/ADB (2019), “Public-private partnerships”, in Government at a Glance Southeast Asia 2019, OECD Publishing, Paris, https://doi.org/10.1787/15cb126c-en.

[7] PPPDA (2024), Register of PPP projects, https://www.pppda.uz/en/register/register-of-ppp-projects.

[8] World Bank (2023), Central Asia: Uzbekistan Infrastructure Governance Assessment, https://thedocs.worldbank.org/en/doc/9a1b20251d1688c58b83ce8d3baa250f-0080012023/original/Uzbekistan-InfraGov-Report.pdf.

[9] World Bank (n.d.), Uzbekistan: General Water Security Assessment, https://documents1.worldbank.org/curated/en/099062424121035288/pdf/P1700301356bad0519ce81fc808f542aeb.pdf.

Note

← 1.  Other phrases for this mode of operation also include private sector participation (PSP) and privatisation. Although these definitions are often used interchangeably within the literature, PSP contracts tend to involve a transfer of obligations to private partners, without partnership. Privatisation differs, and tends to involve sale of shares or ownership, and does not frequently occur in sectors which are considered public services.