Regions and Countries

	Table of Contents
p. 9 of 19 BACK | NEXT I. Country Performance Assessment II. Country Operational Strategy III. Sector Strategies A. Agriculture B. Infrastructure C. Social Infrastructure and Environment D. Governance Dimensions of ADB Operations E. Gender Dimensions of ADB Operations F. Private Sector Development IV. Regional Cooperation V. Donor Activities and Aid Coordination VI. Cofinancing and Catalyzing External Resources VII. ADB’s Operational Program VIII. Economic and Sector Work Program IX. Local Cost Financing

Country Assistance Plans - Uzbekistan : III. Sector Strategies

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B. Infrastructure

1. Energy

42. Energy resources - oil, natural gas, coal, and hydroelectricity - are abundant in Uzbekistan. The country has significant reserves of natural gas sufficient for both domestic and export markets. Neighboring countries are similarly rich in oil and hydroelectric power reserves. Substantial trade in energy is ongoing in the region and the complementary energy reserves offer the potential for encouraging regional growth and development if policy issues can be resolved and infrastructure investment undertaken. There is the limited infrastructure for transporting energy, including oil and gas pipelines and electric transmission lines, other than in the directions served during the Soviet era. The maintenance and investment plans should be viewed with regional supply and demand balances and costs and benefits apportioned through the system in an equitable, transparent, and administratively feasible manner.

43. ADB's regional cooperation initiative provides a model for possible ADB activities in the energy sector. Electricity and hydrocarbon projects should contribute to increasing the regional trade in energy, enhancing the commercial orientation of such trade to encourage wider private sector participation, and to resolving difficult policy issues. The cross-border electricity trade is a natural starting point for ADB assistance. The preliminary goals would be to identify further infrastructure needs and policy issues that impede increased trade. In the Phase II of the regional initiative in support of economic cooperation in Central Asia, ADB has initiated to examine especially the investment, maintenance, and operational needs of the regional electricity grid. Some projects may require considerable intraregional coordination where ADB's presence in brokering fair and equitable long-term supply and purchase agreements may make a difference. Similarly ADB's presence may bolster the financing capabilities of the poorer countries to enable them to participate in properly structured projects. In all activities, ADB will act to support the participation of the private sector. ADB's program of assistance in this sector could cover generation and transmission projects which address the national environmental issues as well as contribute to reliable and efficient power supplied to the regional grid. This approach is consistent with the Government's sector development and priorities in the energy sector. The Government supports the ADB's regional cooperation initiative.

2. Transport

44. The future economic development of Uzbekistan hinges on the provision of an efficient and cost-effective transport system. This is particularly important in the context of the land-locked nature of Central Asian republics, especially Uzbekistan, which is one of only a few doubly-landlocked nations. Development of the transport sector, both railways and roads, with sound sector policy to enable market-based transport management and operations, is of paramount importance to facilitate sustainable economic development, providing more employment opportunities and generating additional incomes in poor areas thus contributing to poverty reduction. Cooperation to develop and maintain regional infrastructure and a policy environment conducive to trade and commerce are also critical.

45. The Government's emphasis of the transport development strategy is on (i) developing a step-by-step approach to restructure institutions and reform sector policies to enable marked-based transport management and operations; (ii) establishing an appropriate policy, legal, and regulatory framework for the sector; and (iii) providing adequate transport infrastructure and maintenance to support the transition to a market-based economy.

46. Some progress has been made in the railway sector, and to lesser extent, in the road sector in sector reforms and institutional restructuring. ADB's policy dialogue with the Government in the transport sector has centered on (i) improving the policy and regulatory framework; (ii) restructuring of the Government organizations and state-owned enterprises to enable separation of policy and implementation functions; (iii) promoting competition in the provision and operation of the transport facilities and services; (iv) improving funding and cost recovery including increased transparency and accountability of the off-budget funds, and removing subsidy-induced distortions in pricing or transport services; and (v) establishing sound operation and maintenance procedures.

47. ADB's future assistance will focus on further strengthening efforts and on establishing planning and management frameworks; training of staff, particularly in the areas of planning, accounting, project management; and rehabilitation and upgrading infrastructure. As integral part of the regional cooperation strategy, ADB's activity in transport rail and road projects will contribute to the development of transport corridors that facilitate economic growth in less developed and poor regions as well as regional cooperation and to an easing of barriers to trade and traffic. In view of the performance-based operations, lack of progress in carrying out the needed reforms and implementation would put ADB operations at considerable risks. Substantial progress of the portfolio performance, including clear evidence of satisfactory implementation performance and positive development in policy dialogue on sector reforms and compliance of policy-related loan covenants is required before processing the second or third project in the transportation sector.

3. Finance and Industry

48. In the aftermath of the East Asian and Russian crises, the Government recognizes the need for thorough banking and financial sector reforms. Key reforms measures that have been initiated include (i) strengthening banking regulation and supervision, (ii) providing training for financial sector personnel to improve their managerial and technical capabilities, (iii) restructuring banks with poor loan portfolios, (iv) encouraging the growth of private banks, and (v) developing the other capital market institutions.

49. The key policy measures planned to be introduced to improve governance standards in the financial sector include: (i) setting a ceiling for the maximum permissible individual shareholding in any commercial bank, (ii) increasing the minimum authorized capital for commercial banks, (iii) banning cross ownership of bank shares, (iv) introducing a corporate governance system for banks to improve the transparency of financial disclosures and shareholders' roles, and (v) improving banks' external and internal audit systems to ensure compliance with central bank regulations. The Government is also considering the privatization of four state-owned banks.

50. The need to support basic reforms is particularly important in the financial sector where reforms are central to the ability of the country to progress in areas such as privatization, agriculture, and enterprise reform. The ADB's assistance in this sector will be integral part of a systematic reform program involving coordinated efforts with other international funding agencies, especially the World Bank and EBRD, with respect to policy reforms, and institutional restructuring, and investment.

51. There are considerable opportunities for SME development in view of the country's natural resource endowment, skilled/educated workforce, strategic geographic location, and satisfactory transport networks. Despite these potentials, the development of SMEs has been hampered by: (i) internal constraints within SMEs relating to management information, technology, and processing skills; (ii) overall legal policy and regulatory constraints; and (iii) lack of credit to support SMEs' acquisition of imported capital goods, materials, and technology.

52. The need to develop the SME sector has been recognized to increase industrial value added, promote exports by developing backward and forward linkages and generate additional employment opportunities. The envisaged SME loan will help finance the critical foreign exchange needs of viable SMEs. It will also open up opportunities for policy dialogue with the Government to improve the overall legal, regulatory, and policy framework in Uzbekistan to foster SME development.

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