Transformation of natural monopolies: Uzbekistan’s experience
The practice of developed countries shows that the economy cannot be established sufficiently without attracting investment.
Taking this into account, in order to create conditions for the formation of good investment environment in the country, to accelerate and encourage it, under the leadership of President Mirziyoyev, large-scale reforms are being implemented to create a favourable investment climate in all sectors of our Republic, reduce the share of the State and large enterprises in the economy by attracting investment, transition to market mechanisms in certain sectors and large enterprises, and develop competition. Among them, a number of works have been carried out in strategic enterprises operating in the sphere of natural monopoly to set up production of nationally competitive products, broad introduction of advanced technologies, and radical transformation of the activities of these enterprises in terms of increasing labor productivity.
The purpose of the Natural Monopolies Act is to regulate relations linked to the activities of natural monopolies in the commodity markets of Uzbekistan (pipeline transportation of oil, oil products and gas, production and transportation of electric and thermal energy, transportation on railways taking into account the use of railway infrastructure, general postal services, water pipelines and sewerage services, air navigation, ports and airport services).
At the same time, it is noted that the creation of competitive conditions to meet the demand for certain types of goods (works, services) in the activities of subjects of natural monopolies is impossible or economically impractical due to technological features.
The draft state program for the implementation of the Strategy of action on the five priority areas of the Republic of Uzbekistan in the “Year of active investment and social development” in 2017-2021 establishes the improvement of the provisions of the Law “On Natural Monopolies” and “On Competition”, as well as improving public administration in the transport and energy industries.
In particular, a new draft law on competition, prepared by the committee with the support of international experts, has been approved by the Legislative Chamber of the Oliy Majlis.
This law combined the Competition Act of 2012 and the Natural Monopolies Act of 1999, and unified most of the requirements for natural monopolies and entities with dominant positions.
It defines the priorities of the state competition policy, i.e. protection of competition, prevention and suppression of anticompetitive actions, ensuring freedom of economic activity and free movement of goods on the territory of the republic, creating conditions for effective functioning of commodity and financial markets.
In addition, new concepts such as antitrust compliance and the digital platform are introduced with the law. Natural monopoly entities are also added to the ranks of entities with a dominant position.
The law introduces the institution of supreme bargaining power, and according to this provision, due to their ability to unilaterally influence the determination of the conditions of the transaction, the sales area and the price, their bargaining power is determined when concluding contracts with other entities.
In order to ensure a healthy competitive environment among economic entities, the law introduces a system of evaluation of state aid that may have a negative impact on the competitive environment and prohibits related parties from engaging in simultaneous trade processes. Administrative penalties for violating competition law are also strengthened.
The adoption of this law will reduce anti-competitive actions, ensure freedom of economic activity and free movement of goods, develop a competitive environment and efficient functioning of commodity and digital markets, and create a legal basis for reducing state involvement in the economy.
The project provides the creation of a state body implementing a unified state policy for state management of the energy sector, including electricity, oil and gas, and the introduction of modern mechanisms of corporate governance in the activities of economic management bodies and enterprises of the energy complex.
The project also includes the following:
• creation of a state body implementing a unified state policy in the field of state management of transport, including air, rail and road transport;
• transfer of state-authority tasks from Uzbekistan Railways JSC and Uzbekistan Havo Yollari NAC to a new state management body in the field of transport;
• removing railway stations and railway infrastructure from Uzbekistan Railways JSC, ensuring openness and transparency in their activities and introducing public-private partnership in the field.
Also: Establishment of the joint-stock company “Thermal Power Plant” in the field of state regulation of the activities of natural monopoly subjects, which manages thermal power plants and energy centers that produce electrical and thermal energy; on the basis of the liquidated branches “Uzelektrarmoq” and “Energosotish”, the creation of a joint-stock company “Uzbek National Electric Networks”; creation of joint-stock companies “Territorial Electric Grids” to manage regional electric grid enterprises that distribute and sell electricity to end consumers, as well as maintaining the trunk lines of “Uzbekistan National Electric Networks” JSC in full state ownership.
Creation of JSC “UzGazTrade”, which performs the function of centralized purchase and sale of natural gas, creation of JSC “Uztransgaz” as the sole operator of the main gas transmission system, specializing in transportation, storage and transit of natural gas, connected to JSC “Hududgaztaminot” and the main gas transmission system sale of natural gas to consumers on the basis of direct contracts and maintenance of the main networks of JSC “Uztransgaz” in full state ownership.
In order to promptly introduce modern forms and methods of corporate governance and management in the field of civil aviation, structural change of the enterprise in accordance with global trends and standards, as well as to develop competition in the air transportation market and actively attract investment in the network in the state unitary enterprise NAC “Uzbekiston Airways”, which provides airport services, was divided into “Uzbekistan Airways” JSC and “Uzbekistan Airports” JSC.
At the same time, it is planned to keep the airport services under full control of the state by introducing 11 limited liability companies into the joint-stock company “Uzbekistan Airports” by transforming the enterprises included in the “Uzbekistan Airways” into limited liability companies with the state share in the authorized capital.
Thus, with a view of operative introduction of modern forms and methods of management in sphere of civil aviation, structural transformation of the enterprises of network according to the world tendencies and standards, development of competition in the market of air transportations and creation of conditions for active attraction of investments there was an establishment of “Uzbekistan Airways” JSC within a network of “Uchuchilar majmuasi”, “Havo aloqalari bosh agentligi” and “Uchavitexta’minot” which are part of of “Uzbekiston Havo Yullari”.
By separating the functions of maintaining the railway infrastructure and carrying out transportation, the development of the private market in the sphere of railway transport services continues, and the possibility of broad involvement of small and private businesses continues to be explored.
As a result of energy sector reforms in 2017-2021, many large public-private partnership projects have been implemented for renewable energy generation, including large solar and wind farms, as well as the sale of electricity directly to consumers at mutually agreed prices through long-term contracts.
These active reforms require the introduction of transparent tariff and technical regulation mechanisms, the development of a healthy competitive environment, and equal opportunities for all participants in the use of natural monopoly infrastructure.
Advanced foreign competition and consumer protection mechanisms in developed and developing countries, including the US, Germany, France, the UK and India, are primarily related to network infrastructure and stand-alone market (economic) in monopolized product markets (energy, telecommunications, railways, etc.). The institution of regulators has been introduced, whose main task is to develop a competitive environment in the respective areas, protect consumer rights, ensure equal and fair access to networks and infrastructures, regulate tariffs, eliminate discriminatory and restrictive rules in market participant contracts with legal and natural persons is an achievement.
For example, in the UK there are 6 civil aviation regulators (CAA), gas and electricity markets regulator (Ofgem), utilities regulator (NIAUR), communications industry regulator (Ofcom), railways and roads regulator (ORR), water services regulator (OFwat) are an independent market regulators in sectors.
In Germany, the main task of the Bundesnetzagentur regulatory authority is tariff and technical regulation of the use of infrastructure in the telecommunications, postal and communications, energy and other sectors.
There is also the International Confederation of Energy Regulators (ICER), which brings together the activities of gas and electricity market regulators around the world.
Although these countries have established competition authorities, the lack of capacity to cover all issues in this area in terms of resources and workload has led to the creation of an independent economic regulator.
As a result of the wide-ranging reforms carried out in Uzbekistan, a draft presidential decree on the introduction of independent market regulators and measures to improve the regulation of natural monopoly entities has been drawn up with a view to creating a healthy competitive environment by strengthening the institutional capacity and powers of the anti-monopoly authority.
Today, we have more than 10 inspectorates controlling industries in our country, on the basis of which there is scope for the creation of independent economic regulators.
In particular, in the field of electricity: Electricity Regulatory, Inspectorate for Control of Petroleum Products and Gas.
In the field of transport: Civil Aviation Agency, Inspectorate for the Control of the Safety of Freight and Passenger Transport on Railway, Inspection for Quality Control of Road Construction Works.
In the area of information technology and communications: Inspectorate for Control of Communications, Information and Telecommunication Technologies etc.
Based on the implementation of the New Uzbekistan administrative reform concept, it will be important to achieve decentralization of the economic management system by strengthening cooperation between citizens’ self-government bodies, non-governmental non-profit organizations, local authorities and economic and entrepreneurial entities. As a result, the mechanism of state regulation of the economy will be improved and an organic link with the mechanism of self-regulation of the market will be strengthened.
