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30.09.2022

Uztransgaz: on the road to transformation and liberalization

Uzbekistan has adopted a number of regulatory documents governing the implementation of Uztransgaz JSC's transformation processes. These include a variety of regulations, such as presidential decrees and resolutions. One of them is the Resolution of the Cabinet of Ministers of the Republic dated August 15, 2022 "On the initial (IPO) and secondary public offering (SPO) of shares in stock exchange large companies with state participation." These regulations serve as the foundation for Uztransgaz JSC's system reforms.

First, focus was brought to the Supervisory Board and Management Board of the Company's membership of foreign industry experts. An announcement of vacancies was posted on the company's website, the Linkedin portal, and the international publication Financial Times in order to attract qualified foreign specialists in the oil and gas industry to the Supervisory Board and Management Board of Uztransgaz JSC. Those CVs that met the requirements were chosen, and interviews with candidates were conducted via videoconference in collaboration with the Ministry of Finance. Based on the interview results, a list of the most suitable candidates (short-list) was compiled and sent to the Ministry of Finance on May 4 and July 9, 2021 for a further selection stage.

In accordance with the President's Decree No. DP-101 "On the Next Reforms to Create Conditions for Stable Economic Growth by Improving the Business Environment and Development of the Private Sector" dated April 8, 2022, Uztransgaz JSC was tasked with obtaining an international credit rating of JSC "Uztransgaz" - until the end of 2024, providing for the preservation of the main networks at the full disposal of the state.

In accordance with the President's Resolution No. PR-280 "On additional measures to reform the natural gas market," a Roadmap for obtaining an international credit rating for Uztransgaz JSC was developed and sent to the Ministry of Finance of the Republic of Uzbekistan. This Roadmap anticipates obtaining a corporate credit rating by the end of the first half of 2023. Rothschild&Cie, an international investment bank, was involved as a rating consultant. Currently, work is being done to collect, analyze, and provide the necessary data to a rating consultant.

Uztransgaz JSC is also taking steps to improve financial recovery and operational efficiency. The international consulting firm KPMG was brought in to help Uztransgaz JSC improve its operational efficiency, and the activities of the company's structural divisions were studied.

Based on the findings of the study, a Strategy for improving the reliability and efficiency of manufacturing processes, as well as a Roadmap for its implementation, were developed. The practical application of these recommendations will increase the reliability and efficiency of production processes, as well as increase profitability by reducing costs. According to the document, the savings from automation of production processes will be in amount 250 billion soums in operating costs, and the implementation of measures to improve energy efficiency will save approximately 120 billion soums in electricity costs per year.

Furthermore, the introduction of additional capacities as a result of the modernization of the main gas supply system will provide an opportunity for additional income in the range of 885-1,479 billion UZS. The possibility of saving up to 10% of the volume of purchases by improving supply chain efficiency, as well as other measures to improve operational efficiency, was also mentioned. The reports, following review by the company's specialists, were forwarded to the Ministries of Energy and Finance via a corresponding letter dated November 25, 2021. Changes and additions were made to the reports in response to the Ministry of Energy's proposals and comments.

Financial statements prepared in accordance with International Financial Reporting Standards receive special attention (IFRS). The consolidated financial statement for 2020, in particular, was prepared in accordance with IFRS. Deloitte audited the consolidated financial statements under IFRS for 2020 in accordance with international audit standards. Financial statements for 2021 were prepared in accordance with IFRS, and a positive audit report was received on May 31, 2022.

Consolidated financial statements prepared in accordance with IFRS for 2021 will be received in November 2022. Deloitte audits the company's consolidated financial statement for 2021 in accordance with international auditing standards. The auditor's report will be received in December of this year. The preparation of the IFRS consolidated financial statements for 2022 is scheduled for June 2023, and the audit is scheduled for August 2023.

The international audit firm ERNST & YOUNG ADVISORY LLC was involved in auditing the procurement process, and an audit report was received. Based on the report's recommendations, an action plan was developed to improve Uztransgaz JSC's procurement policy and the effectiveness of anti-corruption systems.

Certain work has also been done on the privatization of the state stake in Uztransgaz JSC. The Resolution of the Cabinet of Ministers of Uzbekistan dated on August 15, 2022 "On the initial (IPO) and secondary public offering (SPO) of shares in the stock exchange of large companies with the participation of the state" states that in 2022-2023, shares of large state-owned enterprises will be listed on the stock exchange as part of the approved roadmap of initial (IPO) and secondary public offering (SPO).

According to this Roadmap, it is necessary to develop a plan of practical measures to bring the company to an IPO with the support of the underwriter and other consultants, when Uztransgaz JSC receives a corporate credit rating from international rating agencies. The practical measures plan must be approved by the Cabinet of Ministers. It is planned to involve an underwriter and other consultants to prepare for the IPO after receiving a credit rating from international rating agencies.