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    Uzbekistan pushes ahead with NOC's unbundling


Tashkent wants to unbundle national oil company Uzbekneftegaz's various activities to improve the transparency, efficiency and regulation of its oil industry.

by: Dalga Khatinoglu

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Natural Gas & LNG News, Asia/Oceania, Premium, Corporate, Corporate governance, Exploration & Production, News By Country, Uzbekistan

Uzbekistan pushes ahead with NOC's unbundling

Uzbek President Shavkat Mirziyoyev issued a decree on November 19 transferring control of some of national oil company Uzbekneftegaz’s activities to the state committee on geology and mineral resources, local state media have reported.

The committee will assume responsibility for Uzbekneftegaz’s exploration work, including geological and geophysical surveying and other research, as well as exploratory drilling, by 2020. It will coordinate in these activities with Uzbekistan’s energy, economy and industry and finance ministries.

Mirziyoyev’s administration is looking to unbundle Uzbekneftegaz’s various activities in order to improve the efficiency, transparency and regulation of Uzbekistan’s oil and gas industry. It also wants to streamline the business by divesting non-core assets, helping it tap international financing and potentially hold an initial public offering of its stock in the future.

The president also signed an order in July 2019 on spinning off Uzbekneftegaz’s gas transport subsidiary Uztransgaz and selling a 49% stake of the company off to private investors. He said Uztransgaz had been badly managed for decades, suffering from rampant corruption. Uzbekistan’s gas pipeline network is badly in need of repair because of a lack of investment, with around fifth of the gas transported through the grid being lost. This has undermined Tashkent’s efforts to boost gas exports.

While overall Uzbek gas production has risen 8% over the past 20 years, thanks to heavy investment by Russia’s Lukoil, Uzbekneftegaz’s output has fallen by 29% during the period, according to Mirziyoyev. Uzbekistan’s marketable gas production climbed 6.1% yr/yr to 56.6bn m3 in 2018, with Lukoil accounting for 13.42bn m3 of this volume.

While Uzbekistan sends contractual supplies of gas to China, it sometimes struggles to meet domestic demand, largely because of the heavy grid losses. It reached a deal to purchase some gas from Lukoil in 2018 that had been reserved for export, causing it to clock up $600mn in debt to the Russian company by the end of that year.

The government has raised domestic gas prices six times since 2014 in order to discourage wasteful consumption and scale back subsidies. The last hike came in August, when prices were increased by 18.7% to soms 380 ($40)/1,000 m3. Even this price is far below regional averages, although another rise is expected soon.

Further reforms are on the way at Uzbekneftegaz, which owns close to 200 subsidiaries. The government has asked the Asian Development Bank to help with the company’s re-organisation.