Uzbekistan To Draft New PSA Law

Uzbekistan plans to draft a new law this year to govern production-sharing agreements (PSAs) with international investors, the head of the central Asian republic's national oil and gas company has said.

The government in Tashkent introduced its current PSA legislation back in 2001, in a push to attract more investment into its upstream industry.

“This law was adopted more than 15 years ago and naturally not all the issues reflected in it today satisfy our requirements for production-sharing agreements,” Bahodirjon Sidikov, chairman of Uzbekneftegaz (UNG), was quoted by local news network Podrobno.uz on July 13.

“Obviously there were points at which Uzbekistan, for the purpose of attracting foreign investors, offered them certain conditions. Today our ability to attract investments has increased significantly and naturally we believe that the law needs to be revised,” he continued.

According to Sidikov, international experts will be enlisted to draw up a new law by the start of December. Specifically, he said discussions would take place on including a clause requiring PSA operators to supply gas to the domestic market.

Despite producing more gas than it consumes, Uzbekistan has suffered occasional shortages domestically as much of the gas produced at PSA projects is sold to China and other neighbouring countries.

Russia’s Lukoil is Uzbekistan’s leading PSA operator in terms of output, netting 13.4bn m³ in 2018 from the Kandym-Khauzak-Shady and Southwest Gissar projects in the country’s south. The terms of its PSAs allow the company to sell all of this gas to China, although it agreed last year to transfer some supplies to UNG instead, in order to cover domestic shortages.

This arrangement is hardly ideal for UNG, which must pay $146/'000 m³ for Lukoil’s gas – a rate significantly higher than what it sells the gas for domestically. This has led it to accumulate a $600mn debt to the Russian producer.