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30 October 2019

Wiebke Schloemer: Uzbekistan is undergoing an unprecedented economic transformation

Uzbekistan is undergoing an unprecedented economic transformation. In the last three years, this nation of 33 million—the largest in Central Asia—has opened up and embraced a free market economy after 25 years of centrally-planned economic management. The Uzbek government has rapidly embraced vital reforms critical to its future development such as liberalizing trade and the currency regime. These are welcome advancements that will establish a foundation for future growth and development.

While this progress has been noteworthy, the country cannot afford to rest on its laurels. To maintain sustainable growth, the government will need to allow private companies room to operate in a competitive environment and ensure an equal playing field—not an easy task for a country where State-Owned Enterprises (SOEs) have long dominated the economy. Public-Private Partnerships (PPPs) are a critical tool to accelerate this necessary transition. They allow the government to leverage private sector capital and expertise to spur development where public funds are limited and balance risk between public and private players. 

PPPs are being implemented in an effort to transform some of Uzbekistan’s most challenged public services in energy, infrastructure, water and health sectors. Routine interruptions in services such as electricity, gas and water are some of the biggest obstacles to doing business in the country. The World Bank estimates that 20 percent of Uzbekistan’s electricity and 30 percent of its natural gas is lost in transit as a result of old infrastructure.

But change is coming rapidly. IFC, a member of the World Bank Group, has partnered with the Uzbek government to structure two PPPs that will attract private investment to generate more reliable, efficient and cleaner energy. On October 4, the government announced the winning bidder that will develop the first solar power PPP in the country, which will increase the use of clean, renewable energy in the country. The government also recently announced a PPP to develop a 1300-megawatt gas-fired power plant in the Syrdarya region. This plant will greatly surpass current gas fired power generation plants in efficiency and accelerate the replacement of old, inefficient plants.

With these auctions, Uzbekistan has demonstrated to the world that it is now open for business. The first competitive and transparent bidding process attracted five quality bidders that submitted competitive tariffs with the winning bidder offering US2.7 cents per kilowatt hour, one of the lowest tariffs for solar power in emerging markets. Developed as part of the World Bank Group’s Scaling Solar program, which entails a standardized bidding process with risk mitigation and financing options, the tender attracted strong international investor interest. The success of this first bidding round led the government to recently announce a PPP tender for two solar projects of up to 200 megawatts each, followed by another round for 500 megawatts. Uzbekistan is making clear progress towards meeting its target of five gigawatts of renewable energy by 2030.

Building on this success, the PPP model is now expanding beyond the energy sector to other areas in need of upgrading, including healthcare. The Ministry of Health is working with the IFC to design a PPP that draws on private investment to address the acute shortage in dialysis care for patients suffering from kidney failure. The government is also working to identify other priority health projects in the country to develop through the PPP model.

Although there’s still much to be done, Uzbekistan doesn’t have to do it alone. PPPs help attract private investors to lend their expertise and drive development. Introducing private sector investment will go a long way to ensuring the provision of vital infrastructure and services that will propel Uzbekistan to the next stage of its economic development.

 

Wiebke Schloemer, IFC Director for Europe and Central Asia