Tashkent has scored a few successes since announcing a privatization drive in 2019. But it has failed to attract big-ticket international investors despite a raft of market-friendly reforms.

Now, President Shavkat Mirziyoyev has signed off on a new phase of the campaign setting out ambitious goals – but the timing looks somewhat unfortunate, Eurasianet said.

One major Western investor has just launched international arbitration proceedings in a long-running dispute involving a joint venture in the chemicals sector.

The action was filed in London this month by Spanish-headquartered Maxam, which develops explosives for the mining and civil engineering industries. The disagreement relates to its stake in the Maxam-Chirchiq chemicals company, in which its partner is state-owned chemicals firm Uzkimyosanoat.

A spokesperson for Maxam acknowledged the company’s difficult relationship with the Uzbekistan government. The company is believed to be suing for damages over allegations of continuous breaches of contract, which the spokesperson declined to specify.

“Maxam had high hopes for peaceful resolution with the government of Uzbekistan, not least because of its considerable investment in the country, but it reached a point where they were not able to resolve their issues through dialogue and negotiation,” a source close to the dispute told Eurasianet. “Bringing the claim to the international arbitration court is their last resort remedy.”

Since Mirziyoyev came to power in 2016, “investment disputes have been more limited in scope,” the U.S. State Department noted in a recent investment climate statement, but they “still exist.”

In the latest privatization phase, which Mirziyoyev’s office announced on March 24, Tashkent is inviting investors to buy up stakes in 1,000 companies and 1,000 properties, though no list has yet been published.

Another goal of this phase is to create a class of small investors in Uzbekistan by listing some flagships of Uzbek industry on the domestic stock exchange, to kickstart the government’s delayed initial public offering (IPO) program.

The government plans to list small stakes in 40 enterprises in sectors ranging from mining to telecoms and banking, as a prelude to international listings of major companies that have been in the works for over three years. The firms include Uztelecom; the Navoi and Almalyk mining and metallurgy plants; and the National Bank of Uzbekistan (NBU) and Sanoat Qurilish Bank.

The state bullishly believes it can raise 13 trillion soms, or $1.1 billion, this year by selling off stakes of around 2 percent to Uzbek investors in what Tashkent bills as a “People’s IPO” program.

But a recent IPO suggests that may be overreaching.

After postponing its listing several times owing to low demand, vehicle manufacturer UzAuto Motors raised only $5 million through the sale of a tiny fraction of its shares last month.

That fell far short of the $90 million it initially hoped to raise by selling 5 percent of shares, a target scaled back after its underwriter concluded there would be insufficient appetite, Kursiv.kz, a Kazakh business news outlet, reported.

It listed just 1 percent of shares, hoping to raise $17.3-19.5 million, but could not even sell that amount. Investors bought only 0.29 percent of its shares, for $5 million.

That still made this Uzbekistan’s largest ever IPO.

Just two Uzbek companies had previously conducted listings, both on the domestic stock exchange, and they were not roaring successes.

Glass factory Kvartz attracted 7.5 billion sum ($940,000 at the exchange rate at the time) with its listing in 2017. Plastics producer Jizzax Plastmassa attracted 1.35 billion sum (then worth about $140,000) with its 2019 IPO, according to  data published by Kursiv.uz.

UzAuto Motors put a brave face on the underwhelming sale, calling it a “start for the national program of privatization of state-owned entities and a new chapter of the capital market development in our country.”

Still, creating a class of small investors may be an uphill struggle, given that institutional investors snapped up 80 percent of the UzAuto shares sold and only a fifth went to retail investors.

Uzbekistan’s privatization drive has been dogged by circumstances beyond its control, including the coronavirus pandemic and Russia’s invasion of Ukraine. Still, privatizations raised 11.3 trillion soms, or $993 million, last year. That was 10 times more in one year than in the previous decade, Mirziyoyev’s office reported.

Progress was patchy around the country, with five regions not managing to sell even 30 percent of assets up for grabs.

The president’s office highlighted as successes the sale of Uzbekistan’s Coca-Cola franchise to a Turkish firm for $7 million above the valuation in 2021, and the sale of the state’s stake in Ipoteka Bank to Hungary’s OTP Bank for $324 million, completed last year after being derailed amid market jitters over the Ukraine war.

This, along with the state’s sale of its stake in UzAgroExportBank, has kickstarted privatization in the banking sector, where the government is trying to slash its ownership of assets by half to 40 percent.