Disputes under PPP Agreements in Uzbekistan

Public-private partnership is a complex legal arrangement combining the public interest of the state with the commercial interest of a private investor. Unlike an ordinary construction, supply, or services contract, a PPP agreement is aimed not only at the performance of a private-law obligation, but also at achieving a socio-economic result: the construction, reconstruction, operation, maintenance, or management of an infrastructure facility.

This is precisely why disputes arising from PPP agreements are particularly complex. They are rarely limited to a simple issue of contractual non-performance. As a rule, such disputes simultaneously involve contractual obligations, budget financing, tariff regulation, land rights, state support, changes in legislation, public oversight, and the interests of consumers and creditors.

The Law of the Republic of Uzbekistan “On Public-Private Partnership” establishes a general rule: disputes arising in the field of PPP shall be resolved in accordance with the procedure established by law. However, this wording is framework-based in nature. It does not establish a single special procedure for resolving all PPP disputes, but instead requires each dispute to be classified according to its subject matter: contractual, investment, administrative, land-related, property-related, financial, or mixed.

Legal Nature of Disputes under a PPP Agreement

A PPP agreement is a document concluded between a public partner and a private partner in accordance with the procedure and on the terms provided for by the PPP Law. The agreement itself must contain provisions regarding the obligations and liability of the parties, the procedure for allocating land plots, tariff adjustments, security for the performance of obligations, the term of the agreement, payments, procedures for amendment and termination, monitoring, insurance, as well as the procedure for dispute resolution.

Accordingly, a dispute under a PPP agreement may be defined as a legal conflict between the public partner and the private partner and, in certain cases, a creditor, service users, or other interested persons, arising in connection with the preparation, conclusion, performance, amendment, termination, or consequences of termination of a PPP agreement.

The doctrinal peculiarity of such disputes lies in their mixed legal nature. They have a civil-law component because they concern the parties’ obligations, damages, payments, and property. At the same time, they also contain a public-law element because the public partner operates in the sphere of public infrastructure, while the project may involve budgetary funds, tariffs, land plots, and state supervision.

MAIN TYPES OF DISPUTES UNDER PPP AGREEMENTS

1. Disputes at the Agreement Conclusion Stage

The first category of disputes arises even before the agreement is signed. These are conflicts relating to tender procedures, prequalification, evaluation of bids, refusal to implement a private initiative, declaration of a tender as unsuccessful, or refusal to conclude an agreement with the successful bidder.

Such disputes are predominantly procedural in nature. Their subject matter may involve violations of the principles of transparency, competition, objectivity, or non-discrimination. The Law identifies equality of the parties, transparency of procedures, competition, objectivity, and the prohibition of discrimination and corruption as the fundamental principles of PPP.

Of particular importance is the fact that the draft PPP agreement is included in the tender documentation. Under Resolution of the Cabinet of Ministers No. 720, the draft agreement constitutes an integral part of the tender documents. This means that already at the tender stage, a potential investor must assess not only the technical and financial criteria, but also the future contractual model of the project.

2. Disputes Concerning Performance of Obligations

The most common category consists of disputes arising from breaches of obligations. They may concern the timelines for design, construction, reconstruction, commissioning of the facility, quality of services, compliance with KPIs, financing, maintenance, reporting, and transfer of the facility.

The Law expressly provides for the property liability of the parties to the agreement for non-performance or improper performance of obligations. Where one party breaches its obligations, the other party is entitled to claim compensation for the damage caused in accordance with the PPP agreement.

Typical grounds for claims by the public partner include delays in construction, failure of the facility to comply with established parameters, violation of quality standards, failure to submit reports, or improper use of property or budgetary support. Typical grounds for disputes initiated by the private partner include delays in the transfer of property or a land plot, failure to pay an availability payment, unjustified interference with operations, refusal to adjust tariffs, delays in issuing permits, or changes to project conditions.

3. Payment and Tariff Disputes

The payment mechanism is a central element of the economic model of a PPP. The Law permits various types of payments: availability payments, user fees, payments by the private partner to the public partner, and other payments, including the distribution of project revenue or profit.

Disputes in this area may arise from delays in budgetary payments, incorrect calculation of availability payments, disagreement over tariffs, changes in the volume of services, inflation, currency fluctuations, or changes in factors affecting the cost of goods, works, and services. Resolution of the Cabinet of Ministers No. 720 provides that, in the event of a sharp change in factors affecting the level of prices or tariffs under a PPP project, the private partner is entitled to initiate their revision by submitting the relevant documents to the public partner.

Tariff disputes are particularly sensitive because they simultaneously affect the interests of the investor, the state, and end consumers. Therefore, the agreement should establish in advance the tariff formula, grounds for revision, inflation index, foreign currency component, procedure for substantiating costs, and the time limits for considering an application for tariff revision.

4. Land and Property Disputes

A land plot and an infrastructure facility often form the material basis of a PPP project. Consequently, disputes may arise due to failure to provide the land plot, absence of the necessary rights on the part of the public partner, changes to the boundaries of the land plot, encumbrances, cadastral issues, access to utility networks, or termination of the lease.

The Law provides that termination of a PPP agreement constitutes grounds for termination of contractual relations concerning the lease of the land plot allocated for implementation of the project. Resolution of the Cabinet of Ministers No. 720 also provides that the PPP agreement must determine the procedure for transferring ownership rights to the PPP facility to the public partner, the state asset management authority, or, in the cases provided for, the private partner.

Property disputes may concern the moment at which title passes, the value of inseparable improvements, the condition of the facility upon transfer, repair obligations, compensation for investments, and rights to equipment created or acquired by the private partner.

5. Disputes Concerning Changes in Legislation

The long-term nature of PPP arrangements makes disputes connected with changes in legislation particularly important. If a change in the legislation that was in force as of the date of conclusion of the agreement directly increases the private partner’s costs or reduces its project revenues, the private partner may be entitled to demand a compensatory increase in the availability payment or user fee, a one-off compensation payment, or amendments to the agreement, provided that this is stipulated by the agreement itself.

An important practical conclusion follows from this: protection against changes in legislation should not take the form of a general declaration but should instead be structured as a detailed contractual mechanism. The agreement should define which legislative changes qualify for compensation, how the compensation is calculated, which documents must confirm increased costs or reduced revenues, within what period notice must be submitted, and how a dispute is to be resolved if the parties disagree.

6. Monitoring and Reporting Disputes

Monitoring is not only an instrument of control but also a source of evidence in future disputes. The Law provides that the authorized body monitors the implementation of PPP projects for compliance with the terms of the agreement, while the private partner is required to provide access to facilities and documents for monitoring purposes.

Resolution of the Cabinet of Ministers No. 720 further specifies that the public partner and the authorized body monitor the implementation of registered PPP projects and compliance with the terms of the agreement. Where necessary, access must be provided to PPP facilities and the relevant documents, and the authorized body may engage specialists from ministries, agencies, international organizations, and consulting companies.

Reporting also has evidentiary significance: every six months, the public partner submits to the authorized body a project implementation report signed by the parties to the agreement. If the report is signed without reservations, it may subsequently be more difficult for a party to rely on violations of which it was already aware.

7. Disputes Involving Creditors

Large PPP projects are often financed by banks, international financial institutions, or other creditors. Accordingly, disputes may arise not only between the public and private partners but also with the participation of creditors, including in relation to default, replacement of the private partner, enforcement against rights under the agreement, payments upon early termination, and the exercise of step-in rights.

The Law permits the inclusion in the agreement of provisions safeguarding creditors’ rights, including the amount of compensation payable upon early termination of the agreement. In addition, the creditor and the public partner may remove the private partner or its management from implementation of the project and replace it with a new private partner without conducting a new tender, where this is provided for by the terms of the agreement.

Such provisions are crucial for project financing. Without a direct agreement with creditors, a default notification mechanism, a cure period, and a procedure for replacing the private partner, the project may be regarded as unsuitable for financing.

DISPUTE RESOLUTION PROCEDURES

1. General Procedure under the PPP Law

The PPP Law does not establish a special arbitration or administrative procedure applicable to all disputes. Article 40 establishes the general rule that disputes in the field of PPP shall be resolved in accordance with the procedure established by law.

This means that the dispute resolution procedure depends on the legal nature of the dispute. Contractual disputes between the public and private partners are generally resolved in accordance with the procedure stipulated in the agreement and applicable procedural legislation. Disputes relating to administrative acts, permits, unlawful interference, or actions of public authorities may be administrative-law disputes. Investment disputes involving a foreign investor may additionally fall within the scope of investment legislation.

2. Judicial Resolution of Disputes

The PPP Law expressly provides that an agreement may be amended, supplemented, or terminated by agreement of the parties or by a court decision, unless otherwise provided by legislation or the agreement. At the same time, for projects with a value exceeding USD 1 million, amendment, supplementation, or termination requires approval by the authorized body, while for projects exceeding USD 10 million, approval by the Cabinet of Ministers is required.

Judicial protection is particularly relevant for claims for damages, challenges to unlawful actions or decisions, claims seeking specific performance of obligations, termination of the agreement, recovery of outstanding amounts, recognition of ownership rights, or challenges to refusals to provide the support stipulated by law or the agreement.

3. Negotiations and Mediation

For investment disputes involving a foreign investor, the Law “On Investments and Investment Activities” establishes a sequential model: first, the dispute is resolved through negotiations; if an agreed solution cannot be reached, the dispute must be settled through mediation; if negotiations and mediation fail to produce a result, the dispute is resolved by the competent court of the Republic of Uzbekistan.

It is advisable to use this approach in PPP agreements even where the dispute is not formally classified as an investment dispute. A multi-tier dispute resolution clause reduces the likelihood of premature court or arbitration proceedings and helps preserve the project as an operating infrastructure system.

4. International Arbitration

International arbitration is not available automatically; it requires a proper legal basis. For investment disputes, the Law “On Investments and Investment Activities” provides for the possibility of international arbitration where an international treaty of Uzbekistan and/or an agreement between the investor and the Republic of Uzbekistan contains a relevant and valid arbitration clause. The state’s consent to arbitration must be given in writing and must exist at the time the matter is referred to arbitration.

The Law “On International Commercial Arbitration” defines an arbitration agreement as an agreement between the parties to submit to arbitration all or certain disputes that have arisen or may arise in connection with a particular legal relationship and requires the arbitration agreement to be in writing.

For PPP projects involving a foreign investor, the arbitration clause should be drafted with maximum precision. It should specify the arbitral institution or ad hoc arbitration, the seat of arbitration, the language, the number of arbitrators, the applicable law, the procedure for interim measures, the possibility of consolidation of disputes, and the participation of creditors or the SPV.

Evidentiary Basis in PPP Disputes

PPP disputes almost always require a complex evidentiary record. The key categories of evidence include:

Type of Evidence	Significance in the Dispute
PPP agreement and appendices	Define the rights, obligations, risks, payments, KPIs, and dispute resolution procedure
Project concept and project appraisal document	Confirm the original economic model and project parameters
Financial model	Used to calculate damages, compensation, tariff adjustments, or availability payments
Monitoring reports	Record breaches, delays, quality of services, and compliance with KPIs
Semi-annual reports	Confirm the progress of project implementation and the parties’ positions as of the reporting date
Correspondence between the parties	Proves notices, objections, acknowledgment of breaches, or agreement on amendments
Technical documentation	Confirms the quality, timing, and scope of completed works
Budgetary documents	Important in disputes concerning availability payments, subsidies, and other state payments
Expert opinions	Used in disputes concerning valuation, technical defects, causation, and the amount of damages

Notices are of particular importance. The agreement should provide that a party relying on a breach, change in legislation, force majeure, compensation event, or tariff-related ground must submit written notice within a specified period together with supporting documents.