UZBEKISTAN - The Legal System.

Although Tashkent has a reputation of being ahead of most FSU states in its laws, the legal system for E&P remains vague and President Karimov is generally suspicious of foreign executives demanding better terms. The legislative framework has been amended and expanded somewhat; but it is yet to become in tune with the functioning of a market economy.

The general law on investment has become clearer on who may invest and what is meant by "investment". But clarifications have negative aspects.

On the positive side, virtually anybody can qualify as an investor, be that a foreigner, an Uzbek individual or a multinational company. An investor has the right to acquire movable property and leases on land. The land itself cannot be bought, however.

On the negative side, any kind of contract reached between a foreign company and Tashkent amounts to an investment. Hence, in extreme cases, a foreign firm's local assets may be seized without legal redress.

Yet implementation of the laws tends to be flexible.

There are restrictions on hard currency movements and problems with transportation.

It is important for a foreign investor to have the right contacts, therefore, primarily with people linked to President Karimov, and to have a good knowledge of the way the Uzbeks do business. It is crucial to have the right local partner. For the short- to medium-term - the closer this partner is to Karimov the better, although it is difficult to determine how close the prospective partner can be. But it is more important to have a relationship of trust.

A good knowledge of the workings of the ministries involved is essential, partly because much of the bureaucratic structure installed during the Soviet era is still in place. Sensitivity to politics within the ruling establishment is important to consider. The time factor must be considered as well. Things are done at a slow pace and requests can be delayed.