Legal Reform in Turkmenistan

The Legal Transition Team will continue to assist the Bank with its focus on activities in Turkmenistan relating to supporting private sector development. However this will prove to be challenging as Turkmenistan continues to lag behind other central Asian countries in comparative assessments of legal and regulatory frameworks conducted by the Bank. All legal topics relevant to private sector activities are in serious need of reform. This applies in particular to the framework for taking security, corporate governance and insolvency. The judiciary is not considered to be independent from the government and its decisions are not publicly available, thus creating a rather opaque environment for resolving investment disputes. The legislation for public-private partnerships (PPPs) is rudimentary and not designed to support meaningful private sector involvement in the infrastructure or utilities sectors. Similarly, there is no legislative framework to promote renewable energy and energy efficiency.

 

Access to Finance

Security rights on movable and immovable assets in Turkmenistan are governed by the Civil Code of 1 December 1998 (arts 267-299, 325-329), enacted on 1 March 1999, and the Law on Pledge (Pledge Law) of 1 October 1993. The Pledge Law can only apply to the extent that it does not contradict the Civil Code. The Civil Code primarily covers security over immovable assets (mortgages), possessory pledge (i.e. when the debtor must transfer possession of the collateral to the creditor or a third party) and also the rules of enforcement. The Pledge Law provides more detailed provisions on non-possessory charges and envisages the establishment of a registration system through which non-possessory charges would be publicised. Despite attempts to create a modern system for secured transactions, the legal regime remains very limited in many respects. EBRD is not aware of recent attempts to modernise the legal framework, although the current developments of micro and SME lending (assisted by organisations such as the EBRD) may create momentum for such reform.
 
In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralising different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor’s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. The links below take you to the assessment results for Turkmenistan.
 
 
 
 

Capital Markets

In 2007 EBRD benchmarked securities markets legislation against the “Objectives and Principles of Securities Regulation” published by IOSCO, finding the national framework in “very low compliance” with international standards (see charts below). The assessment showed a framework in urgent need of reform in all elements examined, the only exception being “Accounting”, because of the 1996 Law “on Accounting in Turkmenistan”. In order to understand how securities market legislation works in practice, in the same year the EBRD undertook a Legal Indicator Survey asking practitioners in the region to comment on a hypothetical case study. The Survey concentrated on effectiveness of prospectus disclosure requirements, private and public enforcement mechanisms and authority of the market regulator. Effectiveness of securities markets legislation is perceived as very low as the country lacks a functioning stock exchange and an IPO has yet to be launched. There is no disclosure practice based on prospectus and financial reporting is made in accordance with national standards, which are not compliant with international standards. The functions of the Ministry of Economy and Finance as securities markets regulator extends beyond mere supervision, with the Ministry empowered to enquire into the merits of an issue in certain cases. This form of control is too tight to allow a market to develop effectively.
 
Going forward, commencing constructive dialogue with the private sector and building up consensus for constructive reform, improving legislation in line with international standards, should be a priority action of the government.
 
 

Contract Enforcement and Judicial Capacity

 
 
 

Corporate Governance

The principal legislation on corporate governance is contained in the Enterprise Law of Turkmenistan, dated 15 June 2000 and the Joint Stock Companies (JSC) Law of Turkmenistan, dated 23 November 1999. The JSC Law provides the basic legal framework for the establishment, functioning, re-organisation and liquidation of joint stock companies and the rights and duties of shareholders. Turkmenistan does not have a voluntary national code of corporate governance good practice.
 
According to the results of EBRD’s 2007 Corporate Governance Sector Assessment through which the quality of corporate governance legislation in force in November 2007 was assessed, Turkmenistan was assessed as being in “low compliance” with the OECD Principles of Corporate Governance, showing a number of substantial shortcomings especially on disclosure and transparency, and equitable treatment of shareholders. Among the major flaws highlighted by the assessment, were the weak disclosure and reporting requirements, the lack of protection for minority shareholders, the absence of specific regulation on related party transactions and the weak regulation of conflicts of interest.
 
 
 

Debt restructuring and bankruptcy

A complete assessment of all insolvency laws in the EBRD’s countries of operations, including Turkmenistan, was completed in 2009. The general insolvency assessment indicates that the Turkmen laws “on the books” are in very low compliance with recognised international standards of best practice.
 
The assessment included a special part on the law relating to insolvency office holders (trustees, administrators etc.). The assessment in this area was based upon the EBRD Office Holder Principles (‘the principles’) that were developed in 2007. It is an important area for assessment since in almost every case the respective laws of the countries that are assessed require the appointment of an office holder to administer the case. The quality of insolvency office holders, their appointment and supervision may have a crucial impact on efficient implementation of the law. This area was therefore selected to be assessed in depth and rated separately. The law is totally inadequate in this area. There are practically no provisions directed at insolvency office holders.
 
 

Electronic Communications

To support the evolution of policy and regulatory environment that best enables the significant new investment in infrastructure, EBRD’s Legal Transition Team previously worked with ICTPA and CRC on modernising sector policy and enhancing effectiveness of regulatory implementation.
 
 
EBRD Legal Reform Projects
 
The Ministry of Communications (the ‘Ministry’) is the central authority in the communications sector in Turkmenistan, being regulator and operator, controlling eight State Enterprises in the post and communications sector. Law is made by the Cabinet of Ministers and the Deputy Chairman of the Cabinet of Ministers (Deputy Prime Minister) has overall responsibility for the sector. The President and the Cabinet of Ministers defines policy for the sector and the Ministry is tasked with its implementation. Under the 2000 Law on Communications, the Ministry provides proposals for the development of the sector and is the regulatory body that regulates the co-operation between operators. It also receives applications for, and issues, licences (under the “Law on Regulation of Licences”), carries out spectrum management (under “Law on Frequency Management”) and establishes tariffs caps for residential line rentals and local calls. The General Director of Turkmen Telecom reports to the Cabinet of Ministers, as does the Minister for Communications. Thus there is no real concept of separation of powers as understood under modern regulatory practices and political interference is inevitable under the vertical structure of Ministry, Regulator and State owned operator.
 
 
 

Energy and resource efficiency

There is no policy or legal framework promoting renewable energy in Turkmenistan.
Similar to the renewable energy sector, there is no policy or legal framework regulating or promoting energy efficiency in the country. It is understood that the country’s energy strategy is being developed at present, which, among its priorities, will envisage increase of fuel efficiency in power stations via modernisation of fuel systems, increase of municipal and industrial energy efficiency as well as improvement of residential energy efficiency.
 
 

Energy legal and regulatory reform

The country’s oil and gas sector is managed by the State Agency for the Management and Use of Hydrocarbon Resources under the President of Turkmenistan (the Agency) was established in March 2007 by a Presidential Resolution. The law on Hydrocarbon Resources was signed into law in 2008 and governs the legal framework, however since 1993 electricity has been provided to Turkmen citizens free of charge (within set limits).
 
 
 

PPP/Concessions

No clear policy framework that would promote PPP in Turkmenistan has been identified. The Turkmenistan Law on Foreign Concessions (the “Law”) adopted in 1993 remains the piece of special legislation that is somewhat relevant, to an extent only, to the Concession/PPP subject area in addition to the general contract law rules Despite certain positive components, the Law does not constitute a sufficiently solid legal basis for the development of PPP in infrastructure and utility services in Turkmenistan. Concessions have been awarded in natural resources sector only. According to the recent EBRD 2012 PPP/Concession Assessment the Turkmenistan legislation was rated as being in “low compliance” with the best international standards and its application as “low effectiveness”.
 
 
 

Public Procurement

Public Procurement is not managed by a specialised government agency in Turkmenistan. In the assessment of Public Procurement the country was rated as in low compliance with international standards, its scores noted as the lowest in the EBRDs countries of operations.