Key Points to Consider in Power Purchase Agreements (PPA) in Uzbekistan: Advice for Chinese Investors

The China-Uzbekistan relationship is flourishing, with Uzbekistan’s energy resources attracting Chinese enterprises looking to expand abroad. As Uzbekistan undergoes power sector reform, Chinese investors are advised to pay attention to key points in power purchase agreements (PPAs) to ensure successful ventures in the country.

One major change in the power sector reform is the shift from the National Electric Grids of Uzbekistan (NEGU) to Uzenergosotish (UES) as the exclusive offtaker in PPAs starting from July 1, 2024. Sellers must now enter into PPAs only with UES and separately sign agreements with NEGU for grid connection.

Negotiating a take-or-pay clause in the PPA is crucial for Chinese investors to protect their interests, ensuring the offtaker commits to taking a minimum amount of electricity and paying for it even if not fully consumed. Additionally, incorporating a performance security provision in the PPA is advised to ensure revenue stability for loan repayments.

The choice of currency in billing and payment is another critical aspect, with billing in strong currencies like US dollars or euros recommended to mitigate exchange rate risks. Government protection for the offtaker, local content requirements, and governing laws are also key considerations for Chinese investors looking to navigate the Uzbek energy market.

The Joint Statement on New Era All-Weather Comprehensive Strategic Partnership between China and Uzbekistan has opened up significant investment opportunities in Uzbekistan’s new-energy sector. By addressing these issues during PPA negotiations and amendments, Chinese businesses can ensure legal compliance and maximize returns on their investments in Uzbekistan.