Violations in the Privatization of State Property in Uzbekistan

Privatization of state property in the Republic of Uzbekistan is governed by the Law “On Privatization of State Property” dated February 14, 2024, No. ZRU-907. This law establishes the principles of legality, openness, transparency, accountability, and prohibition of corruption as key benchmarks for the privatization process. However, in practice, the privatization process is associated with risks of violations that can undermine trust in reforms, reduce investment attractiveness, and lead to socio-economic consequences.

1. Classification of Violations in Privatization

Violations can be broadly divided into three groups:

Violations Related to the Principles of Privatization

• Lack of openness and transparency in the publication of information about the sale of assets;
• Restriction of equal access of participants to information;
• Creation of conditions for unfair competition or favoritism.

Procedural Violations

• Non-compliance with the procedure for preparing assets for sale (incomplete cadastral data, lack of valuation, or falsified valuation);
• Conducting tenders in violation of regulations (e.g., restricting the number of participants, artificially reducing competition, failing to comply with the deadlines for publishing announcements);
• Manipulations with the choice of privatization method contrary to the established criteria.

Violations Committed by Buyers

• Failure to fulfill the terms of the sale and purchase agreement (late payment, evasion of investment or environmental obligations);
• Concealment of affiliation with other bidders, which violates the principle of fair competition;
• Abuses related to the transfer of privatized property to third parties without complying with legal requirements.

 

2. Legal Consequences of Violations

The law directly provides for liability for violations of privatization legislation:

Civil-Law Consequences

• Collection of penalties and fines;
• Termination of the sale and purchase agreement;
• Invalidation of tenders or transactions.

Administrative Liability

• Sanctions in the form of fines for violating tender procedures, concealing information, or failing to submit reports on time.

Criminal Liability

• Possible in cases of corruption, abuse of power by officials, falsification of documents, and valuation reports.

 

3. Prevention and Control Mechanisms

To minimize violations, the law provides for:

• Mandatory engagement of independent appraisal organizations to determine the starting price of assets;
• Use of electronic online auctions and exchange trading;
• Publication of information about each asset at least 30 days before the auction;
• Monitoring of buyers’ obligations until they are fully fulfilled.

In addition, the State Assets Management Agency (SAMA) plays a key role by exercising oversight, publishing reports, and ensuring transparency of procedures.

 

4. Socio-Economic Consequences of Violations

• Reduced investor confidence: violations create reputational risks for Uzbekistan’s investment climate.
• Loss of budget revenues: artificial undervaluation of starting prices and non-transparent transactions reduce inflows to the Privatization Fund.
• Increased social tension: the perception of privatization as an unfair process may provoke protests and public dissatisfaction.

Privatization in Uzbekistan is intended to ensure the efficient use of state property, stimulate investment, and foster competition. However, violations in this process can undermine these objectives. Effective control, transparency, and strict accountability for non-compliance are key conditions for successful privatization.

 

Violations in State Property Privatization

Type of Violation	Articles of Law ZRU-907	Possible Consequences and Liability
Violations of legality, openness, and competition principles: incomplete disclosure of information on privatized assets, restriction of equal access to bidders, artificial advantages	Arts. 4–9 (principles of legality, openness, competitiveness, anti-corruption)	Invalidation of auctions; administrative sanctions for failure to publish information; disciplinary/criminal liability of officials for corruption
Violations in preparation of assets for sale: lack of valuation or its falsification; incomplete cadastral data; concealment of restrictions	Arts. 16–18 (preparation, valuation, starting price)	Recognition of valuation report as unreliable; cancellation of privatization transaction; liability of appraisal organization; fines, civil-law consequences
Violations of tender procedure: failure to meet publication deadlines (less than 30 days), limiting the number of participants, including competition-restricting requirements in announcements	Arts. 20–23 (auction, competitive bidding, public negotiations, competitive dialogue)	Annulment of tenders; return of assets to state ownership; fines; removal of auction operator
Buyer’s failure to fulfill contract obligations: late payment, failure to meet investment and environmental commitments	Arts. 30–34 (contract, payments, consequences of breach)	Collection of penalties; termination of contract; return of assets to the state; statute of limitations – 3 years
Abuses in transfer of property: transfer of privatized property without observing contractual/legal restrictions	Arts. 28–29 (requirements for buyers and their cancellation)	Liability applied to new owner; judicial termination of contract; annulment of property rights
Corruption and conflict of interest by officials: favoritism, lobbying for certain bidders, disclosure of confidential information	Arts. 9, 41 (anti-corruption, liability)	Criminal liability for abuse of power and bribery; disqualification of officials; invalidation of transactions

 

Violations by Buyers of Obligations under Privatization

1. Types of Buyer Violations

1.1. Financial Obligations

• Late payment of the asset purchase price – payments must be made within the deadlines (from 1 to 36 months depending on asset value, Art. 31);
• Failure to make the initial installment (at least 35%) within one month – mandatory for installment payment; late payment leads to interest charged at the Central Bank rate;
• Breach of the installment schedule – if payments are not made on time, the contract is subject to termination.

1.2. Investment and Social Obligations

• Failure to modernize, build, or maintain the asset – especially in competitive sales with reconstruction obligations;
• Ignoring environmental requirements – the buyer must comply with environmental and nature protection requirements (Art. 28);
• Failure to preserve jobs or social infrastructure – where such obligations are stipulated in the sale contract.

1.3. Legal and Contractual Breaches

• Transfer of assets to third parties without fulfilling privatization requirements (e.g., resale despite restrictions) – Art. 28 stipulates obligations transfer to the new owner, but failure is still a violation;
• Non-compliance with other contractual obligations (deadlines, quality, provision of documents and reports);
• Ignoring written notices from the authorized body – the buyer must respond (Art. 34).

 

2. Consequences of Violations

2.1. Civil-Law Consequences

• Penalties (late fees, fines) as specified in the contract (Arts. 30, 34);
• Termination of the sale contract and return of the asset to the state;
• Refusal to issue a state ownership certificate until obligations are fulfilled (Art. 32).

2.2. Administrative Consequences

• Ban on further participation in privatization tenders;
• Inclusion in the register of unscrupulous participants.

2.3. Judicial Protection and Statute of Limitations

• The authorized body may file a claim to terminate the contract and reclaim the asset;
• Limitation period – 3 years for all disputes related to performance of the contract (Art. 34).

 

3. Examples of Typical Buyer Violations

• Auction winner refuses to sign the contract within 10 working days → deposit is not refunded, asset is re-auctioned (Art. 20);
• Buyer breaches installment schedule → interest is charged at the Central Bank rate, persistent non-payment leads to termination;
• Obligations to reconstruct the asset are not fulfilled on time → contract terminated, asset returned to the state, penalties imposed;
• Asset resold to third parties without compliance (e.g., without preserving social facilities) → obligations remain, but buyer remains liable for non-compliance.

 

4. State Control and Response

• The authorized body (SAMA and its territorial offices) must monitor compliance with obligations (Art. 37);
• In case of violation, the buyer receives a written notice of non-compliance;
• If the buyer fails to act, the contract may be terminated, the asset returned, and penalties collected.

 

Buyer’s Breaches under Privatization

Violation	Consequences	Articles of Law ZRU-907
Refusal of auction winner to sign the sale contract within 10 working days	Deposit not refunded; asset re-auctioned; winner loses right to asset	Arts. 20, 21
Late or partial payment of purchase price	Accrual of interest at CB rate; persistent violation → termination, asset returned	Arts. 31, 34
Failure to pay ≥35% initial installment within 1 month for installment plan	Interest charged; risk of termination and asset return	Art. 31
Breach of installment payment schedule	Fines and interest charged; repeated breach → termination	Arts. 31, 34
Non-fulfillment of contract obligations (investments, reconstruction, environmental/social obligations)	Penalties; termination; asset returned to state	Arts. 28, 30, 34
Ignoring written notices of the authorized body	Additional sanctions including court enforcement and termination	Art. 34
Unauthorized resale of asset without fulfilling obligations	Obligations transfer to new owner; breach leads to court liability	Art. 28
Delay in submitting documents/reports as required	Fines; in serious cases – contract termination	Arts. 30, 34
Failure to fulfill obligations within limitation period	Authorized body may sue within 3 years	Art. 34