Uzbekistan’s largest state-owned enterprise, Uzbekneftegas (UNG), will be restructured to improve its long-term sustainability and credit quality following a decision by the country’s government to implement a corporate transformation plan prepared with support from the Asian Development Bank (ADB).
Image: Bukhara Oil Refinery. Photo: Courtesy of Uzbekneftegaz.
The decision was announced in a decree signed by the President of Uzbekistan, Mr. Shavkat Mirziyoyev, on 10 July and is a part of a series of comprehensive energy sector reforms underway in Uzbekistan to strengthen the country’s resilience to external economic shocks and increase economic growth.
UNG’s financial sustainability is critical to the country’s economy and energy sector. The company provides more than 80% of Uzbekistan’s energy and electricity, contributes almost 20% of the national tax revenues, and accounts for 10% of gross domestic product.
Weak corporate governance and financial management systems, however, have raised concerns about the resilience of the company to withstand external economic shocks and the risks that could pose to the country’s economy and development.
In 2018, the government requested ADB technical assistance to help UNG develop a corporate transformation plan to improve transparency in its financial reporting and increase financial discipline, efficiency, and production.
Under the terms of the transformation plan, UNG will be restructured into a corporate legal entity that is run independently with enhanced governance and financial management structures. Meanwhile, Uztransgaz, a subsidiary of UNG that controls gas transmission in Uzbekistan, will be unbundled from the parent company and function as a standalone entity. The move is expected to remove any conflict of interests between gas producers and suppliers, while improving transparency.
“ADB commends the government for taking another important step in its energy reforms,” said ADB Country Director for Uzbekistan Ms. Cindy Malvicini. “Unbundling UNG into independent production, service, and transmission companies—and divesting non-core assets—is consistent with good international practice.”
The transformation of UNG will bring the company in line with international financial reporting, auditing, and governance standards that are expected to improve its ability to raise capital from international investors to finance the expansion and modernization of its gas transmission network.
Modernizing and reforming Uzbekistan’s energy sector is the centerpiece of the government’s ambitious program to transition Uzbekistan to an industrialized and upper middle-income country by 2030. The reforms are designed to help the country meet local demand for energy and supply surplus power to neighboring countries through an increased regional power trading network.
Since joining ADB in 1995, Uzbekistan has received 72 loans totaling $7.7 billion, including two private sector loans totaling $225 million. ADB also provided $6 million in equity investment, $218 million in guarantees, and $93.1 million in technical assistance grants. In 2018, ADB committed five loans totaling $1.1 billion to improve power generation efficiency; primary health care services; access to finance for horticulture farmers and businesses; access to drinking water in the western part of Uzbekistan; and economic management in the country.
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. In 2018, it made commitments of new loans and grants amounting to $21.6 billion. Established in 1966, it is owned by 68 members—49 from the region.
Source: Company Press Release