Research article, 2026,1,2[1]

European Economic Integration and the Future of Uzbekistan’s State Enterprises: Strategic Reforms, Institutional Convergence, and New Opportunities for Sustainable Growth

 

Rasulev Alisher Fayziyevich¹, Shomurodov Tokhir Boymurod ugli², Babajanova Malika Ruzimovna³, Abdukadoriya Kamola Azimovna⁴ , Rahil Najafov ⁵, Kamran Asadov⁶

 

¹Doctor of economic sciences, professor at Tashkent State Economic University “Fundamental economics” department “Economics” faculty. E-mail: arasulev@yadex.ru; https://orcid.org/0000-0002-8526-6777

²PhD researcher of “Beijing technology and business university”, Senior lecturer at Tashkent State Economic University “Fundamental economics” department “Economics” faculty. E-mail: t.shomurodov@tsue.uz; https://orcid.org/0000-0002-8107-7792

³Assistant teacher at Tashkent State Economic University “Fundamental economics” department “Economics” faculty.
E-mail: malikababajanova2021@gmail.com

⁴Assistant teacher at Tashkent State Economic University “Fundamental economics” department “Economics” faculty.
E-mail: azimovna@internet.ru

⁵Dr., International Meetings and Conferences Research Association, E-mail: rnacafov@gmail.com; https://orcid.org/0000-0003-2460-6333

⁶PhD student, Azerbaijan National Academy of Sciences, Institute of History, E-mail: kamranasadov@gmail.com; https://orcid.org/0000-0003-1115-3566

 

Citation in APA 7:  Rasulev, A. F., Shomurodov, T. B., Babajanova, M. R., Abdukadoriya, K. A., Najafov, R., & Asadov, K. (2026). European economic integration and the future of Uzbekistan’s state enterprises: Strategic reforms, institutional convergence, and new opportunities for sustainable growth. Bank and Policy, 6(1), 26–40.

 

Received: 17.09.2025

Accepted: 24.11.2025

https://doi.org/10.56334/bpj/6.1.2

Abstract

As Uzbekistan expands its international economic orientation, the issue of modernizing state enterprises increasingly intersects with the country’s strategic shift toward cooperation with Europe. This article examines the transformation of Uzbekistan’s state-owned enterprises within the broader context of regulatory harmonization, market transparency, and institutional reforms oriented toward eventual integration with the European economic system. We argue that privatization, ownership restructuring, and competitive market liberalization should not merely be seen as internal modernization tools, but as necessary steps to align Uzbek economic governance and business practices with European standards of accountability, legal stability, and investment security. Theoretical and historical analysis shows that the success of these reforms depends on understanding property relations as evolving social institutions shaped by cultural, political, and global market dynamics. European integration thus represents both a challenge and an opportunity: it demands deep restructuring of state-enterprise governance while simultaneously offering access to capital, technology, and new export markets for Uzbekistan. In contemporary economic policy discourse, the reduction of excessive state participation in the economy—combined with the opening of markets and stimulation of competition—has become an important foundation for countries seeking deeper integration into the European economic space. For Uzbekistan, the modernization of state enterprises is not only a domestic reform project but also a prerequisite for aligning national economic practices with those institutional norms that characterize successful European market economies.

Keywords: European integration, state-owned enterprises, privatization, EU market alignment, institutional convergence, economic reform, regulatory harmonization, property transformation, foreign investment, international competitiveness.

 

 

Introduction

Despite the disruptive effects of the COVID-19 pandemic and the broader uncertainty of the global economic environment, Uzbekistan’s leadership has demonstrated strategic continuity in structural reform. The Presidential decree of October 27, 2020—aiming at reforming more than 2,000 state assets—marks a critical milestone in shifting toward market-driven enterprise organization compatible with European standards of corporate governance, financial transparency, and regulatory compliance. State-owned enterprises currently play a dominant role in Uzbekistan’s economy—producing half of national GDP, supplying a significant share of budget revenues, and operating in vital sectors such as energy, transportation, finance, manufacturing, agriculture, and infrastructure. However, as Uzbekistan pursues closer alignment with European partners and seeks integration into European supply chains and investment markets, it becomes increasingly important to ensure that these enterprises transition from isolated administrative structures to robust, internationally competitive market actors. Unlike many post-Soviet countries that undertook privatization rapidly in the early 1990s, Uzbekistan is in a unique position: it can now modernize using 30 years of European post-socialist reform experience as reference. Rather than repeating mistakes of rushed privatization or unregulated market opening, Uzbekistan can adopt a phased approach, grounded in European lessons relating to corporate restructuring, anti-monopoly protections, transparency regulations, and investor safeguards.

The strategic perspective is therefore clear:

• reforms of state enterprises are not merely internal economic adjustments;
• they are structural transformations preparing Uzbekistan for deeper economic relations with Europe, and potential participation in broader frameworks of European trade, mobility, energy cooperation, and financial integration.

The transformation of state enterprises and the reduction of state dominance in economic life have become central topics in studies of international integration and cross-border economic convergence. In the case of Uzbekistan, these reforms are not merely internal market liberalization processes, but rather foundational steps toward gradual alignment with European economic norms and best practices. Opening domestic markets, stimulating competition, and moving toward institutional transparency are all essential prerequisites for participating effectively in broader European and global economic frameworks.

Despite the global disruptions caused by the coronavirus pandemic and its associated constraints, the leadership of Uzbekistan has maintained a consistent commitment to structural modernization. The presidential decree of October 27, 2020, which initiated the reform of more than 2,000 state-owned assets—including auctions, privatization, and transformation of enterprise ownership—signals a long-term strategic vision compatible with European regulatory standards such as property rights protections, competitive neutrality, and anti-monopoly principles. State-owned enterprises currently remain central to Uzbekistan’s economy, generating approximately half of national GDP and a significant share of foreign trade revenue. They dominate critical sectors such as energy, transport, finance, agriculture, and strategic industrial production. However, as Uzbekistan seeks closer association with European financial institutions, investment networks, logistical corridors, and industrial cooperation programs, these enterprises must evolve from protected state structures into competitive, transparent, and internationally integrated economic entities.

In many European post-transition economies—such as Poland, Czech Republic, Lithuania, and Slovenia—similar transformations were implemented during the 1990s and 2000s. Uzbekistan is now in the advantageous position of being able to draw upon three decades of accumulated European experience in market liberalization, foreign investment protection, and regulatory institution-building, thereby avoiding the pitfalls of abrupt privatization and oligarchic capture that some countries encountered during their early reform periods. Therefore, the contemporary reform path of Uzbek state enterprises must be understood not only as domestic economic restructuring, but as a necessary preparatory stage for broader European economic integration, increased trade with EU partners, and inclusion in globalized production and investment flows.

Literature Review  

The ideological roots of economic governance reform can be traced to classical European political philosophy. The separation of powers articulated by Charles Montesquieu in 1748 provides a conceptual foundation for limiting the arbitrary dominance of state authority and allowing independent institutional actors—legislative, executive, and judicial—to function as mutual regulators. This framework is essential for the construction of modern regulatory institutions compatible with European legal traditions and market-governance standards.

In the late 19th century, the theory of public self-government advanced by scholars such as Lazarevsky, Gradovsky, and Bezobrazov marked a shift toward decentralized state functions and the empowerment of local administrative communities. Although developed in a Russian and post-imperial intellectual context, these ideas parallel contemporary European principles of subsidiarity and decentralized local governance—currently embedded in EU administrative models. Lazarevsky’s definition of self-government as “decentralized public administration supported by legal guarantees ensuring the integrity of local authority” resonates with modern European approaches to economic governance, in which state enterprises must operate within transparent frameworks, be accountable to stakeholders, and be subject to impartial regulatory oversight rather than direct political control.

More contemporary economic research also strengthens the argument for restructuring state enterprises. Studies by Hu Yifan, Song Ming, and Zhang Junxi demonstrate that privatization—especially full rather than partial—results in tangible productivity gains, better wage mechanisms, and improved cost management without widespread employment displacement. These findings align with the European Bank for Reconstruction and Development (EBRD)-backed privatization models, which emphasize gradual restructuring, corporate management improvement, and targeted post-privatization investment.

Together, these theoretical foundations—classical European institutional theory and modern privatization economics—form a coherent intellectual basis for Uzbekistan’s current reform trajectory as it aligns itself with European economic norms and regulatory standards.

Analysis and Discussion

Comparative international experience reveals that integration-oriented enterprise reform can generate sustainable economic benefits when guided by deliberate institutional strategy. The Malaysian example of GLC transformation, supported by McKinsey & Company and the Boston Consulting Group, demonstrates how strategic corporate governance reform can raise productivity, increase capitalization, and transform domestic enterprises into global competitors. While geographically distant from Europe, Malaysia’s reform logic—corporatization, transparency, auditing, and market expansion—closely mirrors European principles of competitive liberalization.

In Europe, particularly Central and Eastern Europe (CEE), reform experiences show that privatization alone is not inherently beneficial. Early 1990s transformations occurred in an environment of institutional vacuum and weak oversight. In this context, claims that privatized enterprises outperform state enterprises were often oversimplified and context-blind. Countries that achieved more successful transitions—such as Poland and Slovenia—implemented gradual, institution-centered reforms with strong regulatory oversight. Instead of wholesale divestment, they prioritized the creation of competitive market conditions, legal guarantees, and anti-monopoly frameworks.

This lesson is especially relevant for Uzbekistan: privatization must follow institutional convergence with European regulatory norms, not precede it. Fast privatization without strong regulatory institutions risks repeating the experience of Russia and Ukraine, where opaque privatization processes facilitated the emergence of oligarchic conglomerates, capital flight, artificial price increases, and systemic corruption.

Another important insight concerns foreign investment behavior. In various CEE economies, foreign buyers sometimes acquired enterprises not to expand them but to shut down production and eliminate competition within European markets. This underscores a crucial principle: state-asset divestment must be accompanied by protective regulatory mechanisms, including:

• antitrust frameworks
• production continuity conditions
• employee protection clauses
• domestic-market safeguards
• strategic-sector investment criteria

Such norms are characteristic of European economic governance and must become integrated into Uzbekistan’s legal environment if the country is to engage European partners on favorable terms.

Voucher privatization programs in CEE—while innovative—also demonstrated limitations. The universal distribution of privatization certificates democratized ownership on paper but often resulted in concentration of shares through secondary market aggregation by financial intermediaries. Poland’s more controlled approach and Romania’s structurally centralized mechanism illustrate contrasting models, but both highlight the essential role of clear state supervision during transition. Finally, the relationship between state dominance and corruption remains critically important. In CIS countries with excessive state economic presence and insufficient transparency—such as Russia and Ukraine—privatization processes became vulnerable to rent-seeking behavior, clientelism, and elite capture. By contrast, European transition economies that embedded privatization within rule-of-law frameworks experienced reduced systemic corruption and more equitable economic outcomes.

For Uzbekistan, the European integration path suggests that the success of enterprise reform requires not only ownership restructuring but also deep legal and institutional modernization—including judicial independence, transparent procurement procedures, competition law enforcement, and investor-protection mechanisms.

In the long term, privatization—in accordance with transparent, European-style regulatory frameworks—contributes to the reduction of corruption by constraining the discretionary influence of officials and enforcing competition and market accountability. This aligns with European institutional principles, where competitive neutrality and transparency are regarded as structural safeguards against rent-seeking and administrative capture. However, in the short term, the implementation of privatization within a developing institutional system may generate vulnerabilities: complex decision-making, confidential negotiations, and high-value asset transfers create environments where corruption risk can emerge if regulatory oversight remains weak or non-European in its standards of compliance. Consequently, for Uzbekistan, the immediate requirement is not merely privatization, but privatization carried out in alignment with European-inspired legal norms, regulatory monitoring procedures, and anti-corruption safeguards.

The negative historical memory associated with rapid and poorly regulated privatization—such as the “Chubais” voucher campaign in Russia during the 1990s—illustrates how privatization without institutional maturity can produce oligarchic structures rather than market competition. The Russian case demonstrated that the absence of transparent tenders, independent regulatory bodies, and judicial enforcement allowed strategic enterprises in mining, metallurgy, chemicals, machinery, and communications to be appropriated by informal networks of private interests. This “black redistribution” of state assets created systemic distrust of privatization and chronic social resentment—effects that remain visible in Russia’s economic and political landscape to this day.

In contrast, the European approach to privatization generally emphasizes gradualism, judicial oversight, fairness of access, and post-privatization compliance—creating conditions in which enterprises become market-driven rather than predatory or extractive. For Uzbekistan, this experience serves as a strategic lesson: European integration requires reform not only of ownership structures but also of governance culture.

Moreover, Uzbekistan faces structural imperatives that reinforce the need for reform. excessive state dominance—especially when accompanied by insufficient public scrutiny—creates favorable environments for corruption. By 2020, Uzbekistan ranked 153rd out of 180 countries in Transparency International’s global corruption perception index, a signal that institutional modernization is urgently needed. International advisory bodies such as the World Bank and the European Bank for Reconstruction and Development (EBRD) recommend carefully sequenced privatization accompanied by regulatory strengthening.

Second, the dominance of state-owned enterprises discourages domestic and European private investors from market participation—because markets lack level-playing-field conditions. From a European perspective, private capital prefers jurisdictions where the state functions as a regulator rather than a competitor.

Third, prolonged dominance of state-owned monopolies often leads to inefficiencies—low product quality, high production costs, and operational rigidity—all ultimately financed through higher prices, reduced competitiveness, and fiscal burden upon the state and population.

Empirical data confirms this: a focused assessment of 1,703 state-owned enterprises with at least 50% state participation showed a clear decline in profitability. Loss-making enterprises increased from 181 (10.6%) in 2017 to 241 (14.2%) in 2019. This trend signals not temporary imbalance, but structural inefficiency—precisely the type of inefficiency European reform models aim to eliminate through competition and accountability standards.

Energy production exhibits similar challenges. Natural gas production fell progressively—from 39.3 billion m³ in 2017, to 35.4 billion in 2018, and 33.5 billion in 2019—leading to decreasing tax revenues from enterprises such as Uzbekneftegaz, Uztransgaz, and Khududgaztaminot. This dynamic not only threatens domestic energy security but also limits Uzbekistan’s capacity to participate in European-integrated gas distribution networks and regional energy interconnectivity projects.

Electricity generation by thermal power plants showed a modest rise of 3.7% in 2020 compared to 2019, but such growth occurred against the backdrop of technological degradation. Nearly 87% of the 85 power generation units in operation have exceeded their recommended lifespan of 25–30 years. Likewise, high-voltage transmission infrastructure—of which approximately one-third has been in operation for over three decades—suffers from severe depreciation, posing systemic risks to supply reliability.

From an EU-oriented perspective, these aging capital assets reflect the urgent need for modernization investment. In the European framework, modernization typically proceeds through:

• access to transnational financing
• integration of foreign investment capital
• joint ventures
• PPP (public-private partnerships)
• technology transfer
• market and tariff liberalization
• alignment with EU regulatory norms

For Uzbekistan, European integration provides not only a conceptual direction, but also a practical pathway: accessing European funds, investment frameworks, energy-efficiency programs, and industrial-modernization initiatives.

Ultimately, the challenge for Uzbekistan is not simply whether to privatize, but how to privatize:

– slowly or quickly?
– with strong or weak institutional oversight?
– through domestic or international investment channels?
– with regulatory convergence toward Russia or toward Europe?

The evidence suggests that the European path—marked by transparency, judicial independence, competition policy, and regulatory harmonization—offers the most sustainable and socially equitable foundation for Uzbekistan’s long-term economic modernization and international integration.

European Integration Perspective on Energy Infrastructure, Privatization, and Institutional Reform

Over 55% of substations and transformer stations used for electricity distribution have already exceeded their standard operational life and require urgent replacement. Within the European regulatory framework, such levels of infrastructure depreciation would trigger immediate modernization requirements under energy-security directives and technological compliance standards (Glinkina, 2004). Uzbekistan’s current production capacity is insufficient to meet projected demand growth, with the Ministry of Energy forecasting annual demand increases of 6–7% and requiring an additional 15 GW of capacity by 2030. Financing these upgrades—estimated at $15 billion—would exceed the capabilities of the state budget alone. In European practice, such investment deficits are typically resolved through private-capital participation, cross-border financing, and PPP (public-private partnership) mechanisms supported by international capital markets (Sabates-Wheeler & Waite, 2003).

These structural challenges indicate not only technical degradation, but a broader systemic inefficiency that reflects the legacy of state-owned monopolies. The deterioration of industrial equipment across the entire electricity supply chain—from generation to delivery—signals a lack of competitiveness and non-compliance with modern standards of technological sustainability and service reliability (Ferenčuhová & Gentile, 2016).

In alignment with European approaches, privatization of state-owned energy enterprises is expected to significantly increase economic efficiency, expand production volume, and encourage cost reduction under competitive pressure. When privatized enterprises operate without preferential subsidies, they typically utilize assets more efficiently and contribute more predictably to the tax base (McConnell & Brue, 1992). Therefore, reform and privatization of state assets not only improve market competition, but also reduce political risk, enhance sovereign creditworthiness, and facilitate access to European financial markets under more favorable conditions (Ali, 2004).

Figure 1 — Natural Gas Production in Uzbekistan (billion m³)

 

The chart visually confirms a substantial downward trend in gas output from 39.3 → 35.4 → 33.5 billion m³, representing a multi-year decline.

However, drawing from the post-socialist experience of European states, it must be acknowledged that privatization carries inherent risks—particularly increased unemployment during restructuring and short-term declines in output. Yet, as shown in Poland, Slovenia, and the Czech Republic, these transitional shocks were mitigated through strong labor-market policies and gradual sectoral liberalization (Smith, 2007). As long as assets transfer into “competent hands,” both employees and the state ultimately benefit from higher productivity, increased revenue, and reduced fiscal exposure (Rasulev et al., 2021).

The research findings strongly suggest that strengthening fiscal oversight of state-owned enterprises is critical, given their direct influence on national fiscal stability. SOEs often perform quasi-fiscal roles—borrowing externally or assuming project debt obligations in ways that ultimately impose contingent liabilities on the state budget (Rasulev, Voronin & Mukhitdinov, 2020). In 2019, 67% of total external state-backed borrowing ($5.3 billion) was directed to SOEs and state-owned banks. By mid-2020, SOE loans constituted two-thirds of Uzbekistan’s external debt ($12.1 billion), primarily allocated to transport infrastructure, energy, utilities, and the chemical sector.

Similarly, in 2019–2020, 96.5% of domestic public debt obligations were linked to state-owned enterprises. The excessive dependence of SOEs on state-guaranteed borrowing mirrors patterns observed in Balkan countries prior to their regulatory alignment with EU standards (Sabates-Wheeler & Waite, 2003). This model amplifies fiscal risk and degrades long-term macroeconomic stability.

Ratings agencies such as Fitch and S&P Global Ratings note that the timely servicing of SOE debt—especially under pandemic-era pressures—constitutes a critical determinant of sovereign credit rating. In accordance with international norms, the debt obligations of SOEs, including those without explicit government guarantees, are treated as contingent liabilities of the country’s sovereign financial system (Smith, 2007). Therefore, European integration requires the establishment of an environment in which SOEs become financially autonomous, capable of servicing debt obligations, accessing capital on commercial terms, and financing investments independently of state guarantees.

Many state-owned enterprises in Uzbekistan currently lack transparency and fail to apply international accounting standards, which prevents accurate financial assessment and obscures real fiscal exposure. The absence of proper corporate governance and reporting systems limits the state’s capacity to impose shareholder discipline and evaluate true enterprise performance (Glinkina, 2004).

The core objective of Uzbekistan’s property reform is therefore to raise the operational efficiency of SOEs and to modernize the national economy in accordance with global norms. The reform agenda emphasizes corporatization, the adoption of modern governance structures, IFRS-standard reporting, financial audit, and fiscal autonomy. These measures are consistent with the European philosophy of economic structuring, where the state acts primarily as regulator rather than operator (McConnell & Brue, 1992).

From this perspective, Uzbekistan’s post-2017 liberalization—beginning with foreign-exchange liberalization (2017), tax reform (2019–2020), and ongoing SOE restructuring—constitutes a progressive convergence with European practices. However, past reform attempts failed due to inadequate institutional frameworks and insufficient regulatory maturity (Rasulev et al., 2021). It is notable that now, unlike in earlier decades, reforms are being preceded by careful institutional groundwork: since 2019, the State Assets Management Agency has systematically catalogued SOEs, laying the informational foundation for an ordered privatization program.

In the energy sector, this preparatory work includes:

1. Formation of the Ministry of Energy in 2019 to establish a clear regulatory authority.
2. Reorganization of Uzbekenergo into three differentiated entities aligned with European unbundling models—generation, transmission, distribution.
3. Similar functional disaggregation of Uzbekneftegaz, with future plans to attract domestic and international investment through IPOs and SPOs.

These steps parallel EU energy-sector restructuring policies, where market segmentation and competition promotion became prerequisites for liberalization and integration (Ferenčuhová & Gentile, 2016).

The Presidential Decree UP-5992 (May 12, 2020) initiated banking-sector privatization, consistent with European capital-market integration norms. Subsequent Decree UP-6096 (October 27, 2020) empowered the Ministry of Finance to exercise shareholder authority over state assets, reinforce financial reporting obligations, and develop recovery strategies for distressed enterprises.

Meanwhile, the Ministry of Economic Development, the Antimonopoly Committee, and the Anti-Corruption Agency have been tasked with auditing privileges, reviewing enterprise activity, and ensuring market-based behaviour, aligning with European competition-law frameworks (Khamidulin, 2020).

Ultimately, successful reform requires coordinated governance among key institutions—the Ministry of Finance, Ministry of Economic Development, Central Bank, regional authorities—and sustained presidential support. The Presidential decree further clarifies the division between public and private domains: while strategic functions remain with the state, industrial production, automotive and textile manufacturing, and other sectors are to transition to private ownership.

Finally, Uzbekistan’s privatization roadmap includes the transfer of major resource-based enterprises to strategic investors. As one of the world’s leaders in gold, uranium, copper, and natural gas reserves, Uzbekistan’s mining-energy sector has substantial potential to attract European capital, technology, and expertise—provided the reform process ensures transparency, regulatory protection, and alignment with European market expectations.

Privatization and Asset Disposal within a European Integration Framework

In February 2021, Uzbekistan adopted a list of 11 major state properties designated for auction, including the Poytakht business center, newspaper production facilities, the Malika commercial complex, hotel and recreation properties, and additional infrastructure sites (Presidential Decree UP-6167). Under the current framework, 95% of revenues from these transactions are directed to the State Budget, with 5% retained by the Fund for the Transformation and Privatization of State Assets. This revenue distribution model reflects the harmonization of fiscal responsibility and privatization income allocation commonly observed in European transition economies such as Romania and Poland (Glinkina, 2004).

Further, shares of 18 enterprises were also put up for sale beginning April 2021, including strategic industrial assets such as the Fergana Oil Refinery (100%), Quartz (89.5%), Kokand Mechanical Plant (64.1%), Uzbekkhimmash (44.7%), and the Samarkand Winery named after Khovrenko (71.2%). Significantly, these privatization initiatives are structured through joint-stock company models—an institutional form that aligns with EU-recognized corporate governance frameworks (McConnell & Brue, 1992).

The sale of state shares is currently executed by transferring ownership into the authorized capital of UzAssets JSC at face-value rates. This mechanism reflects institutional similarities to European privatization models in which asset-holding organizations temporarily manage state shares before competitive market sale (Sabates-Wheeler & Waite, 2003).

For example, ownership of shares held by Uzkimyosanoat JSC is transferred at book value into UzAssets as a unified package, illustrating a consolidation process intended to simplify privatization transactions and improve transparency in auction execution (Rasulev et al., 2021). Historically, however, not all privatization decisions have aligned with long-term national strategy. In 2019, under Presidential decree, Indonesia’s PT Trans Asia Resources was initially expected to acquire 100% ownership of the Fergana Oil Refinery from Uzneftmakhsulot—with a preliminary payment of only $16 million. Later, the asset was instead transferred to Jizzakh Petroleum LLC, illustrating a form of partial privatization and operational trust management rather than outright sale. The restructuring of Jizzakh Petroleum in 2020—shifting ownership from Uzbekneftegaz and Gas Project Development Central Asia to Belvor Holding Ltd of Cyprus (68%), later equalized to 49% each with Uzbekneftegaz—shows an evolving approach that increasingly involves foreign private capital, a practice often observed in European post-transition economies (Smith, 2007).

However, while modernization plans—such as the $300 million investment into Euro-5 fuel capacity—are encouraging, the long-term strategic implications of foreign ownership must be assessed carefully. The experience of CEE states shows that foreign acquisition can be either beneficial or predatory depending on institutional safeguards (Ferenčuhová & Gentile, 2016).

From a European integration perspective, our analysis supports the conclusion that full divestment of strategic energy infrastructure—such as oil refiners—is undesirable. Rather than disposing of core industrial assets through one-time sale proceeds, the state could instead leverage bond financing, incremental privatization, PPP financing, or energy-sector modernization programs in alignment with EU-style public-investment frameworks (Khamidulin, 2020). This approach would maintain strategic control over energy sovereignty—consistent with European security-of-supply doctrine.

Thus, privatization must not be interpreted as an immediate liquidation of state property but as a staged, institutionally governed process of gradually introducing market principles, external investment, and professional management cultures. International experience demonstrates that privatization is not a singular event, but rather a complex procedural continuum shaped by macroeconomic conditions and national priorities (McConnell & Brue, 1992).

In this context, asset reform must be synchronized with monetary, fiscal, and industrial policies to prevent inflationary shocks, ensure social protections, and maintain coherence between privatization and social-welfare objectives (Rasulev, Voronin & Mukhitdinov, 2020). European post-socialist countries such as Slovenia demonstrated successful transitions by matching privatization with labor-market retraining, unemployment-support schemes, and industrial-cluster development (Smith, 2007).

Additionally, structural reforms must accompany ownership reform in sectors still monopolized—particularly automotive production, electrical equipment, housing-utilities, and other areas—consistent with EU competition-law principles of market fairness and anti-monopoly regulation (Sabates-Wheeler & Waite, 2003).

However, certain industries—especially extractive sectors and those critical to national security—must remain under majority state ownership. This aligns with European standards permitting state-ownership dominance in strategic sectors such as energy, mining, and telecommunications, where Hungary, France, and Finland still maintain significant state control (Glinkina, 2004).

Maintaining a sovereign position in these industries ensures domestic access to raw materials and energy resources at affordable prices, supports long-term industrial strategy, prevents foreign monopolization, and ensures state-led environmental regulation.

Oversight of enterprises with state shareholding should involve the State Assets Management Agency, Accounts Chamber, the Ministry of Finance, and public-representative bodies—ensuring shareholder accountability, workforce protection, and equitable income distribution. This multi-institution oversight reflects European governance practice wherein social accountability and stakeholder representation are prioritized alongside profit generation (Ferenčuhová & Gentile, 2016).

Ultimately, regulatory mechanisms must ensure fair competition and equal access to markets for all entities, regardless of ownership form—including private capital, joint-stock corporations, and cooperative enterprises. This is consistent with European market-access doctrine and the principle of competitive neutrality (Smith, 2007).

Table 1 – Enterprises Included in Privatization and Their Strategic Context

Enterprise	State Share Sold	Sector	Privatization Mechanism	EU-Relevant Policy Consideration
Fergana Oil Refinery	100%	Energy – Refining	Sale to foreign trust management (Jizzakh Petroleum)	Strategic national asset – risk of loss of sovereign energy capacity (Smith, 2007)
Quartz	89.5%	Industrial manufacturing	Direct auction of state shares	Fully competitive sector – suitable for free-market placement
Trest-12	51%	Construction services	JSC transfer into UzAssets capital	Partial privatization — requires regulation of procurement transparency
Kokand Mechanical Plant	64.1%	Engineering & Machinery	Joint-stock sale	High modernization potential through EU technology partnerships
Uzbekkhimmash	44.7%	Chemical Equipment	Transfer to UzAssets at par value	State must ensure compliance with EU emission and safety standards
Zhizzak Plastics	85.8%	Plastics manufacturing	Direct auction	Subject to European product-safety and plastics disposal directives
Samarkand Winery (Khovrenko)	71.2%	Food/Alcohol Production	Direct sale of state share	Eligible for EU export marketing under GI-style branding
Poytakht Business Center	n/a	Commercial Real Estate	Asset auction	Real-estate privatization may attract foreign investment
Malika Shopping Complex	n/a	Retail/Services	Asset auction	Supports development of SME-oriented service markets
Newspaper printing facilities	n/a	Media/Print	Asset disposal	Requires protection of informational independence (Glinkina, 2004)
Tourism-hotel-recreation assets	n/a	Hospitality	Privatization of infrastructure	High potential for EU tourism integration networks

Public Communication, WTO Integration, and Social Trust in Reform

An equally critical dimension of successful reform is ensuring continuous, transparent communication of reform goals, procedures, and outcomes to the broader public. Public support functions as an institutional stabilizer: it reduces informal economic activity, increases legitimacy of privatization measures, and fosters societal trust in economic transformation (Glinkina, 2004). Without clear messaging and public engagement, privatization can be easily misinterpreted as asset confiscation rather than modernization.

In the context of European integration, Uzbekistan must strengthen its legal architecture in areas such as antimonopoly regulation, competition protection, consumer rights, banking transparency, and financial accountability (Smith, 2007). Similarly, the protection of private property—central to European jurisprudence—is essential in enabling investor confidence and avoiding perceptions of arbitrary state intervention (McConnell & Brue, 1992). As Uzbekistan restructures its economy, the implementation of Western-style social protection frameworks will be required to safeguard vulnerable groups and mitigate transitional unemployment arising from enterprise restructuring (Ferenčuhová & Gentile, 2016).

In addition, the role of privatization grows strategically in the context of Uzbekistan’s gradual accession to the WTO. As Khamidulin (2020) observes, integration initiatives often reflect the aspirations of each participating nation to resolve domestic challenges while building opportunities through transnational cooperation. However, alignment with European and global institutions requires a carefully balanced strategy that respects national interests while harmonizing economic norms with international standards.

Successful integration depends on long-term cooperation, trust-building, and consensus-formation among regional stakeholders. Without a shared strategic vision, economic cooperation risks degenerating into competition for resources rather than collaborative development (Khamidulin, 2020). This directly applies to Uzbekistan’s privatization process: it must prevent regions from becoming peripheral raw-material appendages serving external centers of consumption, while simultaneously avoiding isolationist tendencies of self-sufficiency that reduce efficiency and hamper global integration.

Instead, regional production chains should be oriented toward higher-value activities—manufacturing, innovation, and processing industries—leveraging local labor capacity while enhancing competitiveness in the global division of labor (Sabates-Wheeler & Waite, 2003). Here, the European model of regional specialization and cross-border industrial cooperation can serve as a useful blueprint.

In sum, the privatization process must remain anchored in clear communication, balanced regional development, and adherence to international best practices in economic openness and competition.

Conclusion  

A systematic, staged reform of state-owned enterprises—transparent to citizens, consistent with international norms, and mindful of economic security—will substantially reduce systemic risks and open pathways to sustained growth. This approach will position Uzbekistan not merely as a post-Soviet reformer, but as an emerging economic partner integrated into European and global markets (Rasulev et al., 2021).

We propose the following strategies as mechanisms for improving property relations during Uzbekistan’s transition toward EU-compatible governance:

1. Limiting bureaucratic discretion over state property

Reducing opportunities for administrative abuse by limiting officials’ discretionary management over state assets aligns with European anticorruption frameworks. Competition law and administrative process must be codified in transparent statutory forms.

2. Strengthening property-rights protection mechanisms

Beyond state enforcement, diversified instruments of contract enforcement—including self-enforcement mechanisms, consortium-based governance, and stakeholder monitoring—should be developed. These instruments allow economic actors to enforce agreements directly, rather than relying solely on state arbitration.

3. Increasing societal responsibility and civic oversight

The development of civil society monitoring over both state and business activities parallels European traditions of participatory governance and social accountability. Cooperative enterprises, employee-shareholding models, and “people’s enterprises” can serve as organizational embodiments of collective economic responsibility.

4. Creating a coherent model of national property

A modern national property framework must:

• constitutionally define natural resources as collective national wealth,
• ensure competitive and transparent exploitation of these resources,
• allow for the accumulation of a national dividend, in which rent from national natural resource exploitation is partially reinvested into development funds.

This system would strengthen macroeconomic sovereignty while preventing the concentration of natural-resource rents in private monopolies.

5. Synchronizing privatization with EU-style structural reforms

Privatization must coincide with:

• development of capital markets,
• diversification of ownership,
• encouragement of SMEs,
• labor-market requalification programs,
• environmentally responsible industrial policy.

6. Ensuring strategic state ownership in critical sectors

Consistent with European practice where France retains control of EDF or Finland retains control in Fortum, Uzbekistan should maintain majority ownership in:

• energy extraction,
• strategic mineral industries,
• critical utilities,
• national transportation infrastructure.

This safeguards:

• energy independence,
• resource sovereignty,
• national security,
• and long-term macro-stability.

Final Perspective

Uzbekistan now stands at a historic crossroads: the shift from a state-dominant system toward a mixed-market, regulated, European-compatible economy. If implemented strategically, and in line with European regulatory models—emphasizing transparency, competitive neutrality, institutional accountability, and citizen engagement—the reforms will foster stable economic growth, enhance public trust, and strengthen Uzbekistan’s credentials as a credible economic partner in the European sphere (Glinkina, 2004; Smith, 2007).

Methodology

This study employs a mixed-method analytical approach combining comparative institutional analysis, historical-political contextualization, and sector-specific economic evaluation. The research draws upon:

• comparative study of post-socialist privatization models in Central and Eastern Europe
• analysis of official data from Uzbek government ministries, the State Assets Management Agency, and the Ministry of Energy
• regulatory and strategic documents related to privatization, banking reform, and WTO accession
• international assessments issued by Fitch Ratings, S&P Global Ratings, and the World Bank
• academic literature on privatization outcomes and property-rights transformation (Glinkina, 2004; Smith, 2007; Khamidulin, 2020)

Qualitative interpretation of these sources was supplemented with quantitative analysis of enterprise performance indicators, debt dynamics, investment requirements, and sectoral profitability. The methodology emphasizes contextual interpretation rather than purely econometric modeling, acknowledging that political, cultural, and institutional factors are critical for understanding Uzbekistan’s economic reform trajectory.

Findings

The research reveals several key insights:

1. Institutional convergence with European economic governance frameworks is essential for successful privatization and improved performance of state enterprises.
2. SOEs in strategic sectors — particularly energy, mining, and transportation — exhibit structural inefficiencies, aging infrastructure, and diminishing competitiveness. These phenomena parallel patterns observed in pre-accession European transition economies.
3. Full privatization of strategic enterprises (e.g., oil refining) may jeopardize energy sovereignty and should instead be guided by controlled ownership diversification, PPP mechanisms, and partial state retention strategies.
4. Excessive reliance on state-guaranteed borrowing for SOEs produces long-term fiscal risks and contingent liabilities that can negatively affect the sovereign credit rating and debt sustainability.
5. Public trust, transparency, and social communication regarding the purpose and progress of reforms are critical — without which privatization may be perceived as asset seizure rather than modernization.
6. Reforms must be synchronized with broader institutional changes — including competition law, property-rights enforcement, capital-market development, and stronger civil-society involvement.

Ethical Considerations

This research adheres to principles of academic integrity, objectivity, and neutrality. No data was collected from human subjects, and all sources were cited appropriately in accordance with APA academic standards. Potential political sensitivities concerning privatization and state ownership were approached with analytical impartiality and respect for national sovereignty and public interest. The study avoids advocacy for any specific privatization entity or foreign investor and prioritizes ethical responsibility in handling economic-policy implications.

Author Contributions

• Rasulev Alisher Fayziyevich (1) – Conceptual framework, theoretical foundation, analysis of privatization models, and interpretation of macroeconomic implications.
• Shomurodov Tokhir Boymurod ugli (2) – Data compilation, institutional-reform mapping, and comparative European analysis.
• Babajanova Malika Ruzimovna (3) – Empirical evaluation of sectoral statistics, SOE performance data, and infrastructure study.
• Abdukadoriya Kamola Azimovna & Kamran Asadov (4 & 6) – Literature review, documentation synthesis, and drafting of methodology and findings sections.
• Rahil Najafov (5) – Editorial revision, European-integration contextualization, language polish, and formatting for journal submission.

All authors contributed to reading, editing, and approving the final manuscript.

Acknowledgements

The authors express their gratitude to the State Assets Management Agency of the Republic of Uzbekistan, the Ministry of Finance, and the Ministry of Energy for making publicly available reports and statistical records utilized in this study. The authors also acknowledge analytical insights provided by various academic and economic experts whose works informed the development of this research.

Funding

This research received no specific financial support from public, commercial, private, or non-profit funding agencies. All authors conducted the research using academic resources and institutional access available to them.

Conflict of Interest

The authors declare no conflict of interest. No author holds financial or managerial interests in any state or privatized enterprise referenced in this study. The analysis presented is strictly scholarly and does not promote the economic interest of any private or state-controlled organization.

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