Kazakhstan to tramp on quasi-public sector

The Ministry of National Economy presented their draft law limiting state involvement in business activities.

During the sitting in the Kazakh Parliament’s lower chamber, Vice-Minister of National Economy Timur Zhaksylykov had to explain the growing number of subsidiaries in the so-called quasi-public sector, Tengrinews correspondent reports.

“We seem to be reducing them every year but they grow back like mushrooms the next year, and even more of them. Thousands of "daughters" and even "granddaughters" have already sprung out of our national companies operating under the umbrella of Samruk Kazyna fund. How do we regulate this?" Deputy Meyram Pshembayev asked.

Samruk Kazyna is a sovereign wealth fund that owns all the largest national companies in Kazakhstan, including oil and gas company KazMunayGas, uranium company KazAtomProm, and airline Air Astana. 

The Vice-Minister answered: "The draft is aimed at restricting participation of the state in the quasi-public sector. All these principles are intended to limit the possibility of creating an uncontrolled number of "daughters", “granddaughters” and the rest. All companies would be affected by this bill."

The amendments provide for limiting the establishment of state-owned companies and subsidiaries to these instances:

• in the absence of other possibilities to provide national security and defense of the state or protect the interests of the society;
• for use and maintenance of strategic facilities owned by the state;
• for carrying out activities by organizations in areas of state monopolies, as well as those created to analyze the effectiveness and develop proposals for improvement of public policies;
• absence on relevant private market players producing and/or supplying similar or substitutable products;
• in cases such establishment is directly provided by the laws of the Republic of Kazakhstan, the Presidential Decree or government decisions.

Zhaksylykov noted that these amendments would help close the loopholes used by enterprises.

"Despite all the fighting against unwarranted government involvement in business, no positive or significant results have been achieved because there is still a loophole that allows by hook or by crook maintaining a presence in the competitive market and trampling down the meadow, continuing to push private businesses out of this competitive sector," he said.

“We believe that the rules that we are working on now will help close such loopholes, will create more opportunities for businesses and reduce involvement of the state," the speaker added.

However not everyone agrees that the bill will be effective. According to MP Nurtai Sabilyanov, the proposed amendments will only create additional loopholes for state-owned companies. In particular, he was troubled by the point where establishment of state-owned companies was directly provided by a government decision.

"There are situations, where other opportunities to ensure national security and defense of the state and protect the public interest do not exist. (…) There may be a situation when the government cannot set up a company and at the same time there is no one at the market to provide this service when needed. This is why this clause has been included," the Vice-Minister clarified.

In addition, according to the bill, in accordance with the law on private entrepreneurship the government is prohibited from creating and participating in organizations related to small business enterprises.

In order to ensure participation of business entities in the public procurements organized by Samruk Kazyna the draft law provides for an obligation to carry out procurement tenders on a competitive basis with the participation of private businesses outside the fund’s group of companies. It is only in their absence that Samruk Kazyna is allowed to procure goods from its affiliates.

Organizations with state participation that have been created in violation of these principles will have to be privatized.

The draft law establishes the so-called Yellow Pages Rule. The essence of this principle is the following: if the government intends to provide a service that is already provided by at least three private companies listed in the phone directory, then provision of the services by the executive branch is not considered appropriate.

The current legislation allows state companies to carry out new activities without having to obtain consent of the antimonopoly body even in the areas where there are private companies. This allows state-owned companies to occupy dominant positions in the market.

To address this problem, a regulation is being considered to establish an annual check of commodity markets by the antimonopoly body to identify types of activities and state-owned companies. If any of the latter are found in the market niches that are not lacking private companies, the state-owned businesses will the transferred into the competitive environment, i.e. privatized.

Reporting by Renat Tashkinbayev, writing by Dinara Urazova