Authorities in Uzbekistan have laid out a plan to break up state-owned oil and gas conglomerate Uzbekneftegaz in a bid to increase transparency and provide equal terms for other players in the country’s oil and gas sector, writes Vladimir Afanasiev.

According to Uzbekneftegaz chairman Bakhodirzhon Sidikov, the company may be split into three businesses as early as the end of this year.

The first company will encompass Uzbekneftegaz’s oil and gas assets. It will also include gas processing and polymers plants as well as oil refineries.

The second company will take ownership and control of Uzbekistan’s oil and gas trunkline networks, which are currently operated by a subsidiary of Uzbekneftegaz.

Major players in Uzbekistan, such as Russian oil producer Lukoil, China National Petroleum Corporation and others, want to see the networks operated by a government-owned organisation independent from the oil and gas producer, Sidikov says.

Finally, the third company will embrace regional gas distribution to deliver gas to end users in the country, he says.

Initially, the authorities expect a single company to deal with regional gas distribution and sales.

However, this operator will later be split into several units, with the government hoping for private investors to buy minority stakes in the newly established gas distributors.

According to Sidikov, Uzbekneftegaz has sought advice for its reform plan from Boston Consulting Group. A steering committee has already been established, with Lukoil and other international players offering advice on the deregulation.

“We need to understand how smoothly we can effect this transformation, because in our opinion it is a very difficult task,” Sidikov says. “However, the country needs to use its energy resources more efficiently. Private companies are more inclined to do that.”

Sidikov has acknowledged the challenges facing deregulation, including the secrecy that surrounded the oil and gas industry during the nearly three-decade tenure of former president Islam Karimov.

“For every information disclosure to a potential partner, we had to obtain a Presidential decree to permit us to do that,” Sidikov says.

“We are preparing changes to legislation so we can openly share information on Uzbekistan's oil and gas reserves, fields and production statistics with investors.”

Uzbekneftegaz long neglected to provide sufficient investment in its upstream projects, especially its oil producing sector, Sidikov acknowledges.

To reverse the decline, President Shavkat Mirziyoyev has signed a decree to speed up exploration activities in the country, according to Sidikov.

A second decree calls for Uzbekneftegaz to carry out a massive well workover programme to tap remaining reserves at its existing fields, bringing in foreign partners and investors.

Uzbekneftegaz is also going deeper with drilling, with good results from wells already seen in the Ustyurt gas province.

“We will consider moving drilling rigs to other regions [of the country] to explore deeper layers,” Sidikov says.

Authorities hope the country’s gas production will rise to 70 billion cubic metres by 2025.

Uzbekistan expects its total gas output this year to hit about 63 Bcm, of which 43 Bcm will be produced by Uzbekneftegaz and around 16 Bcm by privately held Russian company Lukoil.

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Uzbekneftegaz set to face sweeping changes