PPP Agreement in Uzbekistan

Public-private partnership is one of the most significant legal mechanisms for attracting private investment into the development of public, social, and industrial infrastructure. In the context of limited budgetary resources and the need to modernize healthcare, education, transport, utilities, energy, and other sectors, PPP enables the state to utilize private capital, managerial expertise, and technological solutions without fully privatizing the public function.

In the Republic of Uzbekistan, the principal regulatory act governing this area is the Law “On Public-Private Partnership” No. ZRU-537 dated May 10, 2019. The Law regulates relations in the field of PPP, including concessions, but does not apply to production sharing agreements or public procurement. Resolution of the Cabinet of Ministers No. 720 dated October 30, 2024, which approved the regulations governing the implementation and financing of PPP projects, is also of substantial procedural importance.

The central legal instrument for implementing a project is the public-private partnership agreement. It is through this agreement that the rights and obligations of the parties are formalized, risks are allocated, the economic model of the project is defined, property and land arrangements are established, and guarantees, payments, control procedures, liability, and the consequences of early termination are stipulated.

Legal Nature of a PPP Agreement

A public-private partnership agreement has a complex legal nature. On the one hand, it is an agreement between a public partner and a private partner concluded in accordance with the procedure established by law. On the other hand, such an agreement is not an ordinary civil law contract, since it is aimed at achieving a result of public significance: the creation, reconstruction, operation, maintenance, or management of an asset of economic, social, or infrastructural importance.

The Law defines public-private partnership as legally formalized cooperation between a public partner and a private partner for a specified period, based on the pooling of resources for the implementation of a PPP project. A PPP project, in turn, is aimed at addressing economic, social, and infrastructure objectives through the attraction of private investment and/or the introduction of advanced managerial expertise.

Accordingly, a PPP agreement may be characterized as a long-term investment and infrastructure agreement of a mixed public-private nature. It combines elements of a civil law contract, an investment agreement, a concession model, an operation agreement, a service agreement, a property transfer agreement, and, in certain cases, project financing.

Parties to a PPP Agreement

The parties to the agreement are the public partner and the private partner. The Republic of Uzbekistan, state administration bodies, local executive authorities, as well as other legal entities or associations thereof authorized by the Cabinet of Ministers may act as a public partner. A private partner may be an individual entrepreneur, a legal entity, or an association of legal entities registered in Uzbekistan or abroad that has entered into a PPP agreement.

A distinctive feature of the model is that authorized legal entities or associations thereof may act on behalf of the public partner. However, the public partner remains fully responsible for the performance of obligations under the agreement. Similarly, the private partner may delegate its rights and obligations to one or more organizations but remains responsible for the performance of the agreement.

For major projects, it is generally advisable in practice to use a special purpose vehicle — an SPV. The Law expressly provides for such a structure as a legal entity established by the successful bidder, reserve bidder, private initiator, or participant in direct negotiations exclusively for the implementation of a PPP project.

Place of the Agreement in the Project Implementation Procedure

A PPP agreement does not arise in isolation. It is preceded by the stages of project initiation, development, and approval. A project may be initiated either by a public authority or by a private initiator. The initiation process includes development of the project concept, its assessment, coordination and approval, review by the authorized body, and inclusion of the concept in the PPP Project Register.

Under Resolution of the Cabinet of Ministers No. 720, the public partner prepares the tender documentation and the draft PPP agreement. If the total project value exceeds the equivalent of USD 1 million, the tender documentation and the draft agreement are subject to approval by the authorized body. Such approval is carried out within 10 business days, after which the public partner approves the documents within 3 business days.

Of important practical significance is the rule that the draft PPP agreement constitutes an integral part of the tender documentation. This means that an investor must analyze not only the qualification and technical requirements of the tender, but also the draft agreement itself, including payment procedures, termination conditions, risk allocation, financing requirements, guarantees, and the procedure for transferring the asset.

Principal Terms of a PPP Agreement

Article 27 of the Law establishes a list of the principal terms of a PPP agreement. In substance, this list forms the minimum legal architecture of the project. The agreement must contain information on the parties, subject matter, obligations and liability of the parties, risk allocation, performance parameters of the asset, timelines for works and services, rights to infrastructure, procedures for the allocation of land plots, tariffs, security for obligations, the term of the agreement, payments, procedures for amendment and termination, monitoring, insurance, project documentation, dispute resolution, employment matters, representations and warranties, ownership of interests in the private partner, confidentiality, and terminology.

Systematically, these terms may be divided into several groups:

Group of Terms	Content
Organizational and legal terms	Parties, subject matter of the agreement, term, procedure for entry into force, applicable law
Investment and financial terms	Amount of investment, sources of financing, payments, availability payments, user fees, revenue sharing
Technical terms	Asset parameters, design, construction, reconstruction, operation, KPIs
Property-related terms	Rights to the asset, infrastructure and property, timing of transfer of title
Land-related terms	Procedure for allocation of a land plot, lease term, terms of use
Risk-related terms	Allocation of construction, operational, tariff, currency, land, and regulatory risks
Control-related terms	Monitoring, reporting, performance control, access to information
Protective terms	Private partner guarantees, creditor protection, insurance, compensation upon early termination
Jurisdictional terms	Dispute resolution procedures, applicable procedures, judicial or arbitral remedies

Thus, a PPP agreement is not merely a contract for the performance of works or provision of services, but a comprehensive document governing the entire project lifecycle — from preparation and financing through operation, supervision, completion, and transfer of the asset.

Term of the Agreement

The term of a PPP agreement is of material importance because projects of this category usually require substantial capital expenditure and a long payback period. The Law establishes minimum and maximum limits: the agreement may not have a term of less than 3 years and may not exceed 49 years. The parties may agree to extend or shorten the term within these limits where the relevant circumstances and conditions are provided for in the agreement.

This range reflects the investment nature of PPPs. For capital-intensive projects — for example, the construction of hospitals, roads, water supply facilities, or energy infrastructure — an excessively short agreement term may render a project economically unviable. The term should therefore be determined with due regard to the financial model, payback period, cost of capital, projected demand, and the amount of government support.

Risk Allocation as a Central Element of the Agreement

Risk allocation is a key feature of a PPP agreement. Unlike the traditional public procurement model, where the state generally pays for the outcome of completed works or services, under a PPP the private partner assumes a portion of the project risks, including design, construction, financing, operation, technical condition, service quality, and compliance with performance indicators.

At the same time, not every risk should automatically be assigned to the private partner. An effective PPP model assumes that a risk is borne by the party best positioned to control or mitigate it. For example, construction risk is generally appropriately allocated to the private partner, whereas risks relating to the provision of a land plot, changes in regulated public tariffs, or delays in administrative approvals are more appropriately allocated to the public partner.

Resolution No. 720 expressly provides that the tender documentation must reflect the obligations and risks assumed by the parties to the agreement. In addition, the draft agreement is included in the tender documentation, enabling potential investors to assess the project’s risk allocation model in advance.

Property and Land Plots under a PPP Agreement

The property-related section of the agreement is of particular importance because many PPP projects involve the creation, reconstruction, modernization, or operation of public infrastructure assets. The Law provides that the agreement may include an obligation of the public partner to transfer to the private partner, for possession and use, property constituting the PPP asset and/or other property required for project implementation. No additional contracts or agreements are required for such transfer where it is effected pursuant to the PPP agreement and applicable legislation.

Land-related matters must also be specifically regulated. If a land plot is required for implementation of the project, the public partner provides it to the private partner on lease for the term and on the conditions specified in the agreement. If the public partner does not hold a permanent right of use over the relevant land plot, the land plot is first allocated to the public partner and subsequently leased by it to the private partner. Failure to perform the obligation to provide the land plot constitutes grounds for unilateral termination of the agreement by the private partner.

The agreement must also determine the procedure for transfer of ownership rights to the PPP asset. The Law provides for the possibility of transferring such rights to the public partner, the state asset management authority, or the private partner in accordance with decisions of the President of the Republic of Uzbekistan. The agreement must specify the point at which ownership is transferred: commissioning of the asset, expiry of the agreement term, or another point determined by the parties.

Payment Mechanisms and Tariffs

The economic sustainability of a PPP agreement depends on the proper choice of payment model. The Law distinguishes, in particular, between availability payments and user fees. An availability payment means payments made by the public partner to the private partner during the use, operation, or maintenance of the asset in order to ensure its availability. A user fee means payments collected by the private partner from consumers of goods, works, or services.

The agreement must determine the forms, amounts, timing, conditions, and procedures for payment of remuneration, availability payments, and user fees, as well as any possible distribution of revenues or profits generated in connection with implementation of the project.

The tariff mechanism must be legally and economically sustainable. Where tariffs are regulated by the state, the agreement must establish the procedure for setting and adjusting them. Where the project depends on user payments, the investor must assess effective demand, the social sensitivity of the tariff, and the risk of administrative price restrictions. Where the project is based on availability payments, the budgetary provision for the public partner’s obligations becomes critical.

Amendment, Supplementation, and Termination of the Agreement

A PPP agreement may be amended, supplemented, or terminated by mutual agreement of the parties or by a court decision, unless otherwise established by legislation or by the agreement itself. The Law establishes a differentiated procedure depending on the value of the project:

Project Value	Procedure for Amendment, Supplementation, or Termination
Up to and including USD 1 million	The public and private partners act independently in accordance with the procedure established by the agreement
Over USD 1 million	Approval of the authorized state body is required
Over USD 10 million	Approval of the Cabinet of Ministers of the Republic of Uzbekistan is required

These rules demonstrate that the higher the project value, the greater the degree of public oversight over changes to the contractual structure. This is due to the fact that major projects may have significant budgetary, social, and infrastructure implications.

In practical terms, the agreement should regulate in detail the grounds for early termination, including a material breach by the private partner, a breach by the public partner, failure to provide land, inability to obtain financing, force majeure, changes in legislation, prolonged suspension of the project, inability to operate the asset, failure to meet KPIs, non-payment, nationalization, or other public measures.

Liability of the Parties

The Law establishes the property liability of the parties for failure to perform or improper performance of their obligations under the agreement. If one party breaches its obligations, the other party is entitled to claim compensation for losses caused by such breach in accordance with the agreement.

However, for an investment agreement, a general reference to liability is insufficient. It is advisable for the agreement to specify:

1. types of breaches;
2. cure periods;
3. fines and penalties;
4. compensation for direct losses;
5. exclusion or limitation of indirect losses;
6. liability for construction delays;
7. liability for failure to achieve availability or quality indicators;
8. liability for breach of payment obligations;
9. consequences of prolonged non-performance;
10. the right to termination and compensation in the event of early termination.

Such an approach increases project predictability and reduces the risk of arbitrary interpretation of the agreement.

Guarantees for the Private Partner

Guarantees for the private partner are of fundamental importance for attracting investment and project financing. The Law provides a protection mechanism in the event of changes in legislation: if a change in legislation 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 is entitled to require a compensatory increase in the availability payment and/or user fee, a one-time compensation payment, and/or amendments to the agreement, provided that this is contemplated by the agreement.

This leads to an important practical conclusion: protection against changes in legislation should not remain abstract. It must be expressly and comprehensively stipulated in the agreement. The agreement should determine which changes qualify for compensation, how compensation is calculated, applicable notification periods, the evidence to be provided by the private partner, and how payments or tariffs are to be adjusted.

Creditor Protection and Financing Agreements

For major infrastructure projects, the PPP agreement must be bankable. The Law provides special mechanisms for creditor protection. The private partner may provide security to creditors, including rights under the PPP agreement, rights under contracts entered into for the performance of the agreement, assets, pledges of shares, assignments of rights, profits, and amounts receivable under the project.

In addition, the creditor and the public partner are entitled to remove the private partner or its management from implementation of the project and replace it with a new private partner, or replace its management, on the terms provided for in the agreement. The new private partner must satisfy the requirements necessary for completion of the works and/or provision of the services. No new tender is conducted in the event of such replacement.

These provisions make it possible to incorporate into the project structure direct agreements with creditors, default notification procedures, a mechanism for replacement of the private partner, and procedures for payments upon early termination.

Register, Legal Validity, and Monitoring of the Agreement

Resolution No. 720 places particular importance on the inclusion of the project and the agreement in the PPP Project Register. Once the agreement has been formalized, the authorized body registers the submitted documents, affixes the relevant stamp, and publishes information regarding the project on official resources.

It is particularly important that the project concept, the project appraisal document, and the PPP agreement, if not included in the PPP Project Register, are deemed invalid and to have no legal force. This rule significantly increases the importance of the registration stage and requires the parties not merely to sign the agreement, but also to ensure its proper inclusion in the Register.

Monitoring and reporting represent a continuation of the public-law nature of the agreement. The public partner is entitled to monitor compliance with the terms of the agreement, require reports and remediation of violations, while the private partner is required to comply with the requirements of legislation and the agreement.