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Uzbekneftegaz to be split as Uzbekistan woos foreign cash - Bloomberg

22 May 2019

Uzbekistan plans to split up its state energy company amid efforts to boost efficiency, improve transparency, and attract foreign capital.

The overhaul comes as Central Asia’s most populous nation -- and one of the top three natural-gas producers in the former Soviet Union -- opens up after decades of isolation. The government has stepped up efforts to bring in more outside investment as it targets a 17% increase in gas production by 2025.

Uzbekneftegaz will be split into three separate companies by the end of this year, Chairman Bakhodirjon Sidikov said in the Uzbek capital, Tashkent. One will produce gas and oil and run refineries, one will operate pipelines, and the third will oversee gas distribution, he said.

By dividing up Uzbekneftegaz -- the country’s largest employer -- the government is seeking to prevent potential conflicts of interest as it courts foreign investors following the death of longtime leader Islam Karimov in 2016. His successor, Shavkat Mirziyoyev, has won praise from the International Monetary Fund for a wave of reforms that included liberalizing foreign exchange and improving the quality and availability of economic data.

FDI Boost

Amid the changes at Uzbekneftegaz, the government is considering selling part of its 100% stake, according to 40-year-old Sidikov. It also plans to introduce public-private partnerships in the gas distribution system and is seeking more than $30 billion of foreign direct investment for projects across the company in the next six years, he said.

Uzbekneftegaz attracted $1.2 billion of FDI in the first four months of 2019, more than double an initial target of $550 million.

“We used to have a lot of issues with attracting foreign investment because all information was considered confidential,” Sidikov said. “Now we have instructions from our president, and Uzbekneftegaz will be an open company.”

That openness extends to its foray into international debt markets. Uzbekneftegaz is talking with Credit Suisse Group AG and others to raise $1 billion in a debut eurobond sale around the middle of next year, according to Sidikov. The Uzbek government, aiming to set a benchmark for corporate issuers, also sold $1 billion of eurobonds in February.

Production Target

Uzbekneftegaz plans to pump 43 billion cubic meters of gas this year. The country as a whole expects to increase production to 63.6 billion cubic meters, from 60 billion in 2018, and is targeting 70 billion by 2025.

Foreign producers Lukoil PJSC, Gazprom PJSC and China National Petroleum Corp. are already producing gas in Uzbekistan. Mirziyoyev has now given “clear instructions” to Uzbekneftegaz to invite more major energy companies such as BP Plc and Total SA to explore and develop the country’s gas reserves, Sidikov said.

The country’s domestic demand for gas is about 40 billion cubic meters a year. It exported as much as 9 billion cubic meters to China via three pipelines last year, and has ambitions to send more via a planned fourth line, according to the chairman. It also ships the fuel to Russia, Kazakhstan, Tajikistan and Kyrgyzstan.