Kazakhstan has announced the large-scale state property sale. The privatization officially started in December 2015, when the government by the resolution No.1141 approved the list of state and quasi-public facilities to be sold to private investors within the following four years. The list includes around one thousand communal and republic property enterprises, subsidiaries and affiliates of the national and managing holdings, and the national companies themselves.
The last such large-scale sale occurred in 90s of the last century, when Kazakhstan after gaining its independence transferred its economy from social to capitalist rails. The current list includes many attractive facilities at first sight, including: the national companies (for example, National Exploratory Company “Kazgeology” JSC), and individual "daughters" and "granddaughter" of KazMunayGas (KazTransGas- Almaty JSC, KMG E&P Exploration Assets), and even entire industries. In particular, the State is ready to pass into the hands of private industry almost entire oil refining and downstream sectors.
A little earlier, the Chairman of the Management Board of the Sovereign Welfare Fund “Samruk-Kazyna” Umirzak Shukeev announced the start of the state property sale. According to Mr.Shukeev, the list of facilities for privatization will include 43 major assets and 182 secondary ones. They propose to consolidate assets in “KazMunayGas” and prepare KMG for IPO. It is planned to ensure the structural reforms in "KazTransOil", to privatize the assets such as "Kazmortransflot" or Batumi Terminal, to review all non-core assets in "KazTransGaz" and "KazTransOil", to privatize them and to ensure a unification of the pipeline transport," Mr.Shukeev added.
Head of the national holding made another sensational statement: about the upcoming sale of the refining industry. As a part of the sale, KazMunayGas-Processing and Marketing JSC can exchange the shares of three Kazakhstani-based refineries with the potential investors, Mr Shukeev said. - In KazMunayGas - Processing and Marketing JSC we plan to privatize its controlling stake. In doing so, it is proposed to consider 3 options: to sell 51% of overall KMG PM, if it is more efficient, then to sell separately all 3 refineries or to exchange the shares with the potential partners,"- Mr.Shukeev said at the government meeting in early December 2015. "As to the gas stations, they shall also be privatized and it’s better to use the experience acquired by KMG PM, i.e. to use franchising, and it will probably require certain changes in the legislation,"- he added.
“At the moment, the state has a very large share in business. Back in 2014, the Head of Kazakhstan Nursultan Nazarbayev reported at the extended government meeting that by 2020, the state property share would not exceed 15% of GDP of Kazakhstan, - the Director of Halyk Finance research department Murat Temirkhanov announced at the Fitch Ratings conference in Almaty. - But if you look at the assets of SWF “Samruk-Kazyna”, “Baiterek” holding, “KazAgro”, the Single Pension Savings Fund, you can see that these institutions take over 60% of the economy. National holding share makes up around 50% in GDP in regards to the capital”.
In his opinion, the state property share in the economy never reduces, but increases. “The privatization program for 2016-2020 has been recently approved, and changes are continuously made to it. Since 2014 until now, the state property share has not been reducing, but rather growing up. For example, assets of the fund “Samruk-Kazyna” have increased for 3-4 years.
“We remember that IPO of “Samruk-Energo” was planned for 2015, “Kazakhstan Temir Zholy” for 2016, - the analyst reminds. - The IPO terms for these companies have changed now, they were moved to 2019 and 2020 respectively. The term changes are due to the control changes required in the energy, railway markets. If they were planned for IPO, why did they not prepare the markets at that time?”
Not all buyers came out of the shadow
One and a half years have passed since then, and it is clear that the privatization is stalled. There are two successful deals to mention. In autumn 2015, the press service of “Samruk-Kazyna Contract” LLP reported about the privatization of the 100% subsidiary of “KazMunayGas” - “Kazakh Institute of Oil and Gas” JSC (KING). The unique research and engineering company, created and successfully operating since 2002, was auctioned off for 7.5 bln tenge, which was a little over 30 mln US dollars at the current exchange rate.
In the privatization passport of KING posted on the “Samruk-Kazyna” website, the company assets were estimated at 10.697 bln tenge. It stated that at the time of the privatization, KING had 33 service agreements with companies belonging to “Samruk-Kazyna”, which income amounted to 2.853 bln tenge. And the nine long-term service agreements with third parties, which included such oil and gas giants as the Caspian pipeline consortium and NCProduction Operations Company performing offshore works in the Caspian Sea area. KING joint venture with foreign partners signed the contract for the design, construction, procurement and project management of the Future Growth Project of “Tengizchevroil” in Tengiz.
KING has the sizable property in Astana, Atyrau and Almaty, and the unique laboratory and research base in ecology, petrophysics, hydrodynamics and petrochemistry.
The new owner of the profitable and stable company was not disclosed. According to the law, the buyer at the privatisation tender can remain anonymous.
In December 2015, during the formal visit of the Head of the Government of Kazakhstan Karim Massimov to Beijing, Kazakhstan and China signed the Memorandum of Understanding in order to develop the strategic partnership in the oil and gas industry at the international level, between the national company “KazMunayGas” and the Chinese company “China Energy Company Limited” (CEFC), where the Chinese company expressed its intention to purchase some KMG shares in its foreign asset - KMG International (KMGI) (see “Three billion investment on the Silk Road” Petroleum, No.1-2017).
One year later, on December 15, 2016, KMG and CEFC signed the agreement in Bucharest, to confirm the sale of 51% of KMGI and a package of documents with changes. Under the terms of the agreements, NC KazMunayGas supplies oil to the KMGI group for 15 years, while CEFC grands the access to the financing equal to 3 bln USD. It is expected that the part of these resources will be directed to the implementation of one of the global projects "One Belt, One Road", initiated by the President of China Xi Jinping.
In April, during the briefing in the central communication service, the Chairman of the Management Board of NC “KazMunayGas” Sauat Mynbayev expressed his confidence in the transaction to be closed in the nearest time, despite any collisions related to claims of the law enforcement bodies of Romania against the primary privatization of the Romanian assets of KMGI.
“It seems that we approached the time when we manage to separate the criminal case against the former owners, natural persons, and everything associated with the deal. This case will probably continue, but we believe that it will not affect the deal with CEFC. We hope to close this deal during the second quarter” - Sauat Mynbayev said.
He reminded that the singed deal had a range of suspensive conditions, in particular, it would be approved by the government of Romania and the European Union competent bodies. “Once all these decisions are obtained, the deal is deemed to have been closed”, Mynbayev explains.