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Businesses in Kazakhstan reluctant to enter long-term contracts amid falling oil prices

08 december 2014, 14:30
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©Tengrinews
©Tengrinews

Kazakh businessmen are reluctant to enter long-term contracts with Samruk Kazyna because of the falling oil prices, a Tengrinews correspondent reports citing CEO of Samruk Kazyna Contract Serikbek Yelshibekov as saying in Almaty Mayor’s Office at Public Procurement Order-2015 event earlier this month.

Samruk Kazyna is a National Welfare Fund that owns in whole or in part many important companies in the country, including the national railway company Kazakhstan Temir Zholy, national postal service KazPost, the state oil and gas company KazMunayGas, the state uranium company Kazatomprom, the country's largest air carrier Air Astana, and numerous financial groups.

The state is the sole shareholder of the fund, which controls $78 billion in assets, which is more than 50% of the country’s GDP.

Samruk Kazyna Contract is a subsidiary of this large company responsible for monitoring the share of Kazakhstan content in procurement of the Fund, implementation of the marketing of prices on goods, works and services purchased by companies of Samruk Kazyna, and controlling procurements made by them.

Kazakh content in the goods and services produced by the holding equals 71%, Umirzak Shukeyev, Chairman of the Board of Samruk Kazyna, said.

The companies of Samruk Kazyna family have signed 771 long-term contracts for a total of 1.15 trillion tenge so far. Of these, 171 were signed in Almaty.

CEO of Samruk Kazyna Contract Serikbek Yelshibekov, however, noted that the falling oil prices made local businessmen reluctant to sign long-term contracts with the Fund.

"In accordance with the instruction of the Prime Minister of Kazakhstan (Karim Massimov), a majority of the fund's companies have developed five-year production plans. On the basis of these plans, five-year procurement plans were made. This all calls for longer term contracts," he said.

"The falling oil prices have slowed down signing of long-term contracts in the company. This is due not only to the fact that budgets are being revised but also to the fact that the entrepreneurs fear they might find themselves in a difficult position, because the situation with oil prices is not entirely clear," Yelshibekov said.

Yelshibekov informed that Samruk Kazyna was preparing new rules for suppliers in the context of Kazakhstan's nearing ascension into the World Trade Organization (WTO). Kazakhstan has finished negotiating terms with nearly all of its foreign counterparts and is expected to finalise all the procedures and finally enter the WTO in January 2016.  

One such novelty is improved qualification screening - a rating system where providers of goods and services have to acquire as many points as possible to improve their chances to get the contract they are bidding for. To get a large number of points, they have to meet the requirements like qualification of personnel, solvency and experience of the company. The higher the level of the public procurement a company is bidding for is, the greater is the number of points the supplier needs to qualify for participation in the competition.

According to Yelshibekov, some local companies have already been tested in the new screening system. Before the end of 2014 it is planned to check two large enterprises. "Since Kazakhstan is joining the WTO in January 2016, we must begin screening our suppliers in the beginning of 2015. It is clear that the process is long, and we are planning to complete it by the end of 2015," Yelshibekov said.

Writing by Dinara Urazova, editing by Tatyana Kuzmina (Alisher Akhmetov contributed to the story)


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