Kazakhstan started implementation of the new overall plan of privatisation. In 2021-2025, the state is going to sell by auction or place into trust to investors over 670 facilites.
Follow us on LinkedIn
Some of these facilities such as hydropower plants, national railway transportation, oil refineries, commercial seaport, airports, Kazpochta [Kazakh post], have a special place in the national economy.
Historical initiative
Just like in many former Soviet republics, Kazakhstan has had a few privatisation campaigns after the collapse of the USSR and gaining independence. Denationalisation in the crisis 90s had its peculiarities – transition of houses to private ownership, collective administration of enterprises. Foreign investors appeared only in early 2000s. Transition of national facilities to private ownership has become the basis for the revival of many unprofitable businesses in the mining and processing industries.
Privatisation campaigns of the last decade provoke special interest. Two overall plans have been implemented in this period. The first period, 2014 to 2016, meant to sell 833 facilities. Out of them, according to the ministry of finance of Kazakhstan, only 239 or 29 per cent were sold.
Most of them, according to the list published on privatization.gosreestr.kz, refer to minor pubic utilities. These are policlinics, sports clubs, district and city-level newspapers, microfinance organisations, etc. The largest are Zhambyl HPP, Kazmunaigaz (share in subsidiaries), Kazakh Institute of Oil and Gas.
This period is remembered for the largest event in the stock exchange – KEGOC public company’s shares were first listed for sale under the People’s IPO programme. This event is still called the historical one as the securities of the system operator of the unified power system of Kazakhstan have increased threefold since 2014 – from 505 tenge (2.8 dollars) to 1,689 tenge (4 dollars) per share. The difference between the value of shares in dollars and tenge can be explained by the depreciation of the national currency in 2014-2020.
The privatisation campaign of 2016-2020 was the most widespread one by the number of facilities sold. It was adopted as the adjusted option of the overall plan of previous two years and many facilities set for the auction previously “moved” there. According to the Committee of State-owned Property and Privatisation of the Ministry of Finance of Kazakhstan, 862 facilities were to be privatised in 2016-2020. In fact, a little more than half of them – 506 state-owned companies – were sold or transferred in trust.
According to the official reply of the Committee chair, Bakytbek Tashenev, to CABAR.asia, the total amount received by the national budget after this stage of privatisation was 629.5 billion tenge. It is impossible to convert this amount into dollars because of different devaluation processes that took place in 2016-2020. But, according to the current exchange rate, it is equal to 1.47 billion dollars.
“Three pillars” of another privatisation
On December 29, 2020, Prime Minister of Kazakhstan Askar Mamin signed the decree of the government of Kazakhstan “On some issues of privatisation for 2021-2025” and approved the overall plan for the next five years. This campaign is very different from the previous ones by the quality of assets, rather than the quantity.
Among 674 facilities listed in the plan for 2021-2025, there are two largest hydropower plants, Kazakhstan Temir Zholy national operator of railway transportation, Atyrau oil refinery and Pavlodar petrochemical works, Aktau seaport, Ekibastuz HPP-1, HPP-2, Air Astana and QAZAQ AIR airlines. Among the top-65 largest privatisation targets in the next five years, there are airports of the six regional centres, regional power distributors, stabilisation funds, heating and water supply companies. Some of them are planned to be sold to strategic investors, some are planned for IPO, and the rest are going to be sold by auction.
The total amount of assets that the state is going to transfer to the competitive environment will be 5 trillion tenge (11.8 billion dollars). This figure was voiced by President Kasym-Zhomart Tokayev at the meeting of the Security Council. The head of state reminded about the three main goals of the privatisation campaign.
The first goal is the denationalisation of the country’s economy. Kazakhstan is striving for the standards of OECD countries, where the share of the state in economy is 15 per cent of GDP.
“By the time of adoption of the overall privatisation plan for 2016-2020, the share of the state in the economy was 19.1%, and 14.9% by results of 2019. Therefore, we think that the main goal was reached, which proves the efficiency of privatisation in the last five years. By the end of 2015, we are planning to reduce the participation share of the state in the national economy to 14 per cent,” said Bakytbek Tashenev, the head of the Committee of State-owned Property and Privatisation.
The economist, expert of international broker group in Tickmill, Arman Beisembaev, thinks that the state must switch to the market. Moreover, it should have been done “literally yesterday.”
“We have a feeling that the officials do not understand why we need privatisation. But it was the order from above, so it should be held. Therefore, such incidents happen, like with the plan of officials to place Kazatomprom as IPO (the world’s largest supplier of uranium), which in fact took place a couple of years ago,” said Arman Beisembaev in the interview to the reporter of CABAR.asia.
The second goal of the campaign for 2021-2025, based on the speech of the president, is to reduce the burden on the budget. The point here is to stop governmental grants to unprofitable enterprises and to stop financing various social facilities.
“We need to make private traders earn most of their profits on the market by exporting their goods and services, instead of getting public contracts, benefits, grants and other preferences,” said Kasym-Zhomart Tokayev.
According to the analysis of the list of facilities to be privatised in 2021-2025, the list does not contain facilities that can produce goods or services for export, except plants and transport facilities. Most of the public utility companies are focused on the provision of services to local residents – water supply and water discharge, dentistry services, state policlinics, kindergartens, etc. Many of such enterprises are community-focused and they won’t survive without public contracts.
In early March 2021, 10 deputies turned to the prime minister and asked not to privatise children’s music schools of Almaty. In their letter to Askar Mamin, people’s representatives wrote that transfer of music schools to private owners could lead to the increase in tuition fees and would make music education unaffordable to hundreds of Almaty-based families.
“Officials and money-makers in education must understand that the public children education should not be on sale just like in the market,” said deputies of the faction ‘People’s Party of Kazakhstan’ and offered to ban privatisation of musical and other educational institutions in the country.
Minister of Education of Kazakhstan Askhat Aimagambetov responded to the deputies’ request and referred them to local executive bodies as the decision-maker was the akimat of Almaty. Currently, it is revising the decision.
Economist Arman Beisembaev noted that privatisation of social facilities would definitely cause negative reactions in the society. This is due to the people’s distrust in the authorities and general social tension based on the decreasing living standards and real income. In addition, privatisation of social facilities runs contrary to the politics of the state that calls itself a socially-oriented state.
“Privatisation of social (which means that it provides cheap or free of charge services) facility will turn it into a common business project. It provides for the tuition fee or increase in payment, which will make the services unaffordable to most of the people that get poorer,” said Beisembaev.
The third goal of privatisation in the next five years is to increase economic efficiency of an enterprise, to increase its contribution to the national economy. A striking example of enterprises that can ‘die’ because of the state business management is the Vostokmashzavod in Ust-Kamenogorsk (Eastern Kazakhstan region). Once thriving enterprise that was manufacturing equipment for heavy industry went into debt and was losing customers after the collapse of the USSR and transfer to the ownership of the state. However, production capacities allow it to produce car casting for rail waggons and other products.
According to the financial returns, the net loss of the company in 2019 was 2.5 billion tenge (6.5 million dollars). On December 30, 2020, the plant was sold to the private investor for 100 million tenge, or 328 thousand dollars (according to the privatisation facility register website). This plant was put up for auction five years ago for 700 million tenge.
Is it strategically unsafe?
The new privatisation programme has just been launched, but citizens have started to collect signatures to file a petition of protest to the president. On April 1, the website of the Pravo Golosa [Voting Right] civil initiative project (VKO) published the message calling to prohibit the sale of Ust-Kamenogorsk and Shulbinsk HPPs that were scheduled for privatisation on a priority basis. The publication was supported by nearly 10 thousand people.
Shulbinsk HPP. Photo: samruk-energy.kzTwo above-mentioned hydropower plants are a part of the chain of Irtysh HPPs in Eastern Kazakhstan. According to the roadmap of the privatisation plan for 2021-2025, 100 per cent share of ownership in these two facilities was to be sold on May 17, 2021. In other words, just five months after the government’s decree on privatisation was signed. No information about the possible sale of these strategic facilities were available in the press until December 29, 2020.
“An attempt to transfer facilities whose performance has an impact on the most part of economy of Eastern Kazakhstan and the fate of towns therein looks like squandering of the state property for some purpose of “transfer to the competitive environment.” [...] We should not let the national-level facilities become the means of profit generation for private companies or individual businessmen,” said Irina Torlopova, the initiator of the ‘Pravo Golosa’ project, in her message.
The expert in energy, candidate of engineering sciences, ex-chair of the State Committee for Antimonopoly Policy of Kazakhstan, Pyotr Svoik, in the interview to CABAR.asia explained why hydropower plants should not be sold.
“Privatisation of such facilities as HPPs is a crime against the state. Moreover, it is either wilful, corruption, or unintentional. When the natural monopoly facility is sold (electricity prices of HPPs are approved by the government – author’s note), and the right of pricing is not, this right is still conveyed illegally by previous tacit collusion. This is a corruption scheme,” Svoik said.
According to him, the previously stated goals of privatisation are quite inapplicable to such important energy facilities. First, such plants are not unprofitable. Second, the technology of cheap electricity generation and capacities of these HPPs may not be changed after the change of ownership. In other words, there will be no improvement in the “management efficiency.”
“The owner buys not to spend on modernisation, but to invest money once and make profit for life. In other words, investor is needed for corruption only. There is no other explanation for that,” Pyotr Svoik said. “The safety issue is also important. HPP is not just a free market entity, but it is the hydraulic engineering facility that has many restrictions. It is impossible to eliminate government control over these power plants. And here we come again to the issue of potential battles over the sharing of incomes between the state and the buyer.”
This story has another very important point. Back in the Soviet times, construction of the counter-regulator of the Shulbinsk HPP, Bulak HPP, was designed in Eastern Kazakhstan region. Technically, this facility must have been a part of the Shulbinsk HPP. It is valuable because the complementary HPP could be the perfect source of on-peak energy. Kilowatts generated by Bulak HPP could cover the needs in power supply during power shortages.
“This counter-regulator is a gold mine that is very valuable. It must be built anyway. The Bulak HPP is needed by the power system of Kazakhstan. The power that could be generated during peak time is very critical and more expensive than the power generated by Zhambyl plant. In other words, when they sell the Shulbinsk plant, they sell an unborn child, which is very precious, and which is more expensive by its qualities than the Shulbinsk HPP,” Pyotr Svoik said.
According to Arman Beisembaev, the state is not an effective manager. This is evidenced by the fact that various public utility companies fall into decay and disrepair. In this regard, the investor could manage the assets more efficiently in a transparent competitive environment. It’s a different matter whether they could manage the facilities that are under the antimonopoly control.
“However, private owners will not have such opportunities. It’s fine if they can recover their investments and take them away. It’s fine if they won’t lose their businesses becoming efficient. Moreover, selection of a private owner is very important, too. The company might be bought not by the one who wants to work, but by the one who is closer to the government, affiliated persons, who would keep it down and who does not want to or does not know how to work,” the economist said.
By the way, speaking of money. The information about the estimated value of two HPPs has not been made public in the media of Kazakhstan so far. The Committee of State-owned Property and Privatisation in their reply to the request of CABAR.asia said that the budget received 72 billion tenge (165 million dollars) as the estimated value of all republic-owned facilities in 2021-2025, including HPPs. According to the estimate of Pyotr Svoik, who has many years of experience in the power system, this amount is ‘miserable’.
The 'Pravo Golosa' Civil Initiative regarding the HPP privatisation was heard. On April 14, the deputy of Mazhilis of the Parliament of Kazakhstan, Sergei Reshetnikov, addressed the first deputy prime minister of Kazakhstan, Alikhan Smailov, and asked him to exclude Ust-Kamenogorsk and Shulbinsk HPPs from the overall privatisation plan. He gave the following reasons for his request.
“In 2019, the gross income of the Ust-Kamenogorsk HPP was 1.8 billion tenge, Shulbinsk HPP – 1.2 billion tenge. All capital costs and capital repairs were paid at their own expense, and no public investments were raised. Approval of HPP-generated electricity rates is the exclusive right of the state bodies, and this right may not be privatised. However, the sale of plants to a private owner means the unspoken transfer of the right to fix the rates. The owner of two HPPs may dictate their terms. What was the need for selling the strategic government-owned property that brings profit?” Sergei Reshetnikov wondered.
The global experience of privatisation in the OECD countries proves that in case of successful sale of state-owned assets to private ownership, the quality of asset management improves. Whether it happens in Kazakhstan remains to be seen at the end of 2022, when 507 facilities (or 75 per cent of the facilities scheduled for sale) will be sold.
Main photo: nakanune.ru
This article was prepared as part of the Giving Voice, Driving Change – from the Borderland to the Steppes Project.