Turkish company commits $357 million to modernize Samarkand power distribution network

Grid assets to remain state-owned

Regional Electric Networks, together with the Agency for Management of State Assets, will inventory Samarkand region’s power grids and related infrastructure, including equipment, facilities, information systems and technological systems.

The assets will then be provided to the private partner free of charge for operation. Aksa will not be allowed to acquire ownership of or dispose of the assets.

If additional land is required to expand the network or build new facilities, the operator will be able to lease land at a rate equivalent to the applicable land tax.

State guarantees operator’s revenue

The agreement provides the private partner with guaranteed income for services delivered under the terms of the public-private partnership.

Regional Electric Networks will reimburse the operator for the costs of modernizing and expanding the distribution networks through monthly payments. The payments will be denominated in foreign currency but made in Uzbek soums.

The operator will also receive separate payments for operating the power grids at a price set in the national currency.

To secure its obligations, Aksa must provide a bank guarantee. The guarantee will amount to $5 million during the first two years. In subsequent periods, it must be at least $5 million or 5% of the investment envisaged under the relevant five-year plan, whichever is higher.

What will happen to existing grid workers

The resolution also sets out arrangements for transferring employees of the state-owned grid company to the private operator.

Regional Electric Networks will provide Aksa with information on its employees, including their qualifications, work experience and positions. The private partner will then decide which employees to offer jobs to. Employment terms for those transferred must not be less favorable than those stipulated in their existing labor contracts.

Employees who accept the offers will have their employment with the state-owned company terminated in accordance with the law. Regional Electric Networks will be responsible for severance payments and other mandatory compensation arising from the transition.

Aksa will subsequently be responsible for payments related to the termination of employment contracts it concludes with the workers.

The agreement must also limit the number of foreign specialists brought into the project, establish a strict quota for foreign workers and require the transfer of expertise to local staff. It specifically prohibits unjustified dismissals of local employees.

Operator allowed to open foreign bank accounts

The private partner will be allowed to open accounts with foreign banks to receive and use loans and other funds in foreign currency.

The company will also be able to make direct payments to foreign contractors, suppliers and creditors without routing the transactions through banks in Uzbekistan. All taxes and fees required by Uzbek law must still be paid.

The Ministry of Energy and the Ministry of Economy and Finance will oversee implementation of the project and the parties’ obligations. Energy Minister Sherzod Khodjaev has been designated responsible for executing the resolution, while Prime Minister Abdulla Aripov will coordinate the work of the relevant agencies. Khodjaev was appointed energy minister on July 27, replacing Jurabek Mirzamakhmudov.

After a presidential presentation on August 13, Khodjaev said the Samarkand project would be Uzbekistan’s first case of transferring power grids to a private operator with binding investment commitments. He said Aksa would handle the operation, construction, reconstruction and modernization of the networks, with the workforce remaining predominantly local. Only 10–15 foreign specialists are expected to be brought in.

Aksa has already identified around 400 priority microprojects to be implemented over two years, following a “neighborhood by neighborhood” approach. At least 90% of products used in the modernization of the networks are expected to be purchased from local manufacturers.

The authorities will assess whether to extend the model to other regions after the project is completed.

The broader transfer of Samarkand’s regional power grids to private management is part of Uzbekistan’s effort to at1tract private investment into electricity distribution. President Mirziyoyev has said Aksa will modernize the network, invest in it and gradually halve electricity losses, potentially saving an average of $20 million a year.