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In-depth Review of the Investment Climate and Market Structure in the Energy Sector of Uzbekistan

Published in 2005


Despite significant hydrocarbon reserves, Uzbekistan has yet to make its mark on the international energy scene. Foreign investment has been limited, and Uzbekistan has no direct access to international markets for its energy products. However, as the Charter's new in-depth review of Uzbekistan's investment climate and market structure makes clear, there are signs that efforts to improve the investment climate are underway.

Proven gas reserves in Uzbekistan amount to about 1.85 trillion cubic metres, exceeding the confirmed oil reserves of around 600 million barrels by a factor of twenty on an energy equivalent basis. The Uzbek energy sector is in need of investment: years of low cost recovery and reinvestment have left the domestic energy infrastructure in urgent need of rehabilitation.

The Energy Charter Secretariat's findings, which are based on the in-depth review, highlight several reasons why foreign investment in the energy sector has been below potential. Investment for export purposes in the oil sector is not considered an attractive option because of the limited reserves and the absence of an adequate export pipeline. There are existing gas pipelines leading out of Uzbekistan, notably through Kazakhstan towards Russia. However, these main export pipelines are operated by Gazprom, and this may discourage other parties from investing in upstream gas because of uncertainty over access to the Gazprom network.

Considering the domestic investment climate, a disincentive to foreign investment has been the dominant role of the state in the energy sector, and the fact that regulated prices of energy products to Uzbek consumers have in the past been well below market levels. There has also been a hesitant approach towards privatisation.

The report commends some recent policy changes and measures taken by Uzbekistan to improve the climate for investments, but argues that these need to be continued and expanded if the country is to realise its potential. In particular, it recommends further efforts to improve the consistency and transparency of legislation, and also to define and limit the role of the state in the energy sector.

The In-depth Review of the Investment Climate and Market Structure in the Energy Sector of Uzbekistan is available in English.