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Uzbekistan chaired Shanghai Cooperation Organization (SCO) summit that was held in Wuhan, Central China’s Hubei Province last week. Against the backdrop of the transformation of the world’s economic layout, triggered by the rise of Asia as new development hub, the SCO has provided a reliable platform helping the region to become one of the world’s economic development centers, SCO Secretary General, Vladimir Norov, said at a parallel session of the SCO Forum on Wednesday – write Graham Paul.
But Chinese media weren’t so unified in their opinion about Uzbekistan’s great prospects as an economic development center and an investment attractive region. One of the leading media in the region, iFeng, noted that some of the country’s energy investment projects have forced energy investors from all over the world to write off huge investments[1] of money in their annual reports because they have no return. Uzbekistan’s state-owned oil and gas company ‘Uzbekneftegaz’ owed China Petroleum more than US$16 million in service fees and equipment supply costs in 2019. Uzbekistan’s current Minister of Energy and former chairman of the company’s board of directors, Alisher Sultanov, reversed the debt and responded by asking the latter to prove the existence of the debt in court. In addition, the Uzbek natural gas chemical joint venture owes to its South Korean investors – Samsung and Lotte – more than $300 million. This sum may turn into a loss for the two companies. In the second quarter of 2020, the Russian Lukoil Company confirmed a loss of 39 billion rubles in the impairment of assets in the field of foreign exploration and exploitation. The loss mainly came from its branch in Uzbekistan.
Uzbekneftegaz, indeed, has many financial problems – articles on the subject regularly appear in the local media. For example, at the beginning of the year, the company reported that in 2020 it managed to increase its net profit by 3.6 times. However, Uzbekneftegaz’s debts have grown 441 times[2]. At oil depots, illegal payments and other unreasonable expenses are regularly revealed[3].
Moreover, in 2019 there was a publication that generally stated that Uzbekneftegaz was practically bankrupt[4]. According to the publication, the corporation is being dragged down by interest payments on a loan from the Fund for Reconstruction and Development of Uzbekistan in the amount of two billion dollars.
But the situation is much more grave, even at first sight. At all international venues and public events, Uzbekistan actively informs foreign investors about the attractiveness of Uzbekistan. But foreign backers are still dubious about the situation, and ones who have entered the country, as we could see, sometimes just lose money.
One of the recent events last year, the head of the Canadian SkyPower Global Kerry Adler, which intends to invest $ 1.3 billion in solar energy in Uzbekistan, turned to Shavkat Mirziyoyev. According to Adler, two years after the conclusion of the contract, the authorities still have not provided guarantees for the purchase of energy. The company asks Uzbekistan to fulfill its obligations, even if more attractive offers have appeared[5]. Founder and CEO of SkyPower Global also noted that the Ministry of Finance of Uzbekistan, despite the instruction of the president in 2018, still has not provided a guarantee for the fulfillment of obligations in terms of payment for the supplied electricity, which was supposed to be 6 cents per 1 kWh.
Kerry Adler also warned that SkyPower can go to the court: «If we take action, the deal could be worth $ 1.8 billion. Uzbekistan is a member of the Energy Charter. We can file a complaint with a court in The Hague. It will be easy to prove that the terms of the agreement are not being met», – noted the top-manager. In public, there were no further developments of the situation since 2020.
Other cases are regularly popping up. British American Tobacco, which loaned Uzbat AO, a local joint venture, 6,308,000 British pounds, is writing the whole amount off citing “changes in local legislation,” per its 2019 annual report[6].
Coca-Cola’s JV Muzimpex ran into a criminal investigation and subsequent liquidation by Uzbek authorities in 2014, according to U.S. State Department[7].
The main issue is that the loans and agreements made with Uzbekistan are not honored. Some of debts are being collected on the presidential level. In 2019 the President of the Uzbekistan, in Forbes article, has himself noted, that half of energy projects in the last 20 years in the country were based on corruption[8].
According to the Corruption Perception Index, Uzbekistan is listed on the 146th place, out of 180 countries. Although it has managed to climb up a few ranks (+9 since 2012), the situation is still very worrisome for any foreign investor.
The country has plans of attracting over 7.5 bil USD as investment in 2021, but the reality can be sadder. Shavkat Mirziyoyev’s administration is actively telling the world, that the situation with corruption and lackluster management of the country is being reversed. But most of the cases, mentioned above, had happened during the current administration in the office, which marks the main question: did really corruption and lackluster management in the country had disappeared, or not?
[1] https://finance.ifeng.com/c/86rDWGKMroK
[2] https://kapital.uz/uzbekneftegaz
[3] https://news.mail.ru/economics/45675502/
[4] https://vesti.uz/uzbekneftegaz-okazalsya-polnym-bankrotom/
[5] https://www.gazeta.uz/ru/2020/03/02/skypower/
[6] https://www.bat.com/group/sites/UK__9D9KCY.nsf/vwPagesWebLive/DOBYQMNR/$FILE/
British_American_Tobacco_(Investments)_Limited_-_Annual_Report_2019.pdf, page 19
[7] https://2009-2017.state.gov/e/eb/rls/othr/ics/2014/229091.htm
[8] https://forbes.kz/process/energetics/neftegaz_uzbekistana_polovina_proektov_za_20_let_vyipolnyalas_za_vzyatki/
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