This chapter discusses the business and economic environment in Kazakhstan and ownership landscape of the country’s state-owned enterprise sector – with information on its size, sectoral distribution and economic and financial performance. It then provides information on the legal and regulatory frameworks bearing on SOE governance, including details on the general corporate governance framework as well as on sectoral laws and regulations applicable to SOEs. It finally describes ownership arrangements and examines how the state and holding companies exercise ownership rights, with a particular focus on policies and practices underpinning board and executive appointments, privatisation and financial oversight of SOEs.
OECD Review of the Corporate Governance of State-Owned Enterprises in Kazakhstan
Corporate Governance
1. The state-owned enterprise landscape in Kazakhstan
Abstract
1.1. Economic and political context of Kazakhstan
The Republic of Kazakhstan (hereafter ‘Kazakhstan’) is a transcontinental country located mostly in Central Asia, bordering the People’s Republic of China (hereafter ‘China’), the Russian Federation (hereafter ‘Russia’), Kyrgyzstan, Uzbekistan, and Turkmenistan. It is the largest landlocked country in the world and the ninth largest territory, with a population of 19.4 million (mn) in 2022. Kazakhstan gained independence from the Soviet Union in 1991 and is now a member of a number of transatlantic organisations1 (World Bank, 2023[1]). The role of capital city shifted from Almaty to Astana in 1998; since then the population of Astana has more than doubled in size. As of 2021, 42% of the population were living in rural areas, steadily declining since 1991 (World Bank, 2021[2]).
Kazakhstan’s administrative division includes a relatively small number of government units compared to the rest of Central Asia, including 14 administrative zones, 17 regions, and 170 districts. In 2022, following the so-called 2022 Kazakh unrest in the same year, the government made changes to the first tier of its three-level administrative division,2 increasing the number of districts and introducing general administrative and territorial reforms (Smagulova, 2022[3]).
1.1.1. Economy
Kazakhstan underwent significant economic transformation after gaining independence in 1991. Since then, the country’s gross domestic product (GDP) annual growth rate averaged 4.57% from 1995 until 2022, increasing per capita GDP 20-fold, from USD 700 to USD 14 000. Its poverty rate3 was at USD 5.3% in 2020, placing the country’s performance above the global average (World Bank, 2023[1]). These gains have been heavily linked to Kazakhstan’s valuable resources, the extraction of which account for over a fifth of the country’s GDP. Commodity exports, such as energy and metals, represent more than 80% of total exports in Kazakhstan.
In the past ten years, however, Kazakhstan’s economy has suffered from multiple crises, including falling global oil prices, the effects of the COVID-19 pandemic, and the war in Ukraine and its related sanctions – all revealing economic vulnerabilities, institutional inefficiencies, and the urgent need to accelerate economic diversification. The pandemic caused Kazakhstan’s GDP to contract by 2% in 2020, with a particularly negative impact on small and medium-sized enterprises (SMEs) in sectors such as trade, tourism, and catering, which are estimated to employ around 1.6 million workers. At least 1.5 million citizens are estimated to have been on unpaid leave or have lost their jobs due to the outbreak of the pandemic. Inflation has been rising since, also putting further pressure on public finances.
Fears that the economic consequences of the war in Ukraine might derail the post COVID-19 recovery have not yet materialised for Kazakhstan. Growth in the first half of 2022 was supported by an important boost to consumption driven by public sector wage hikes, and a sharp increase in trade flows – particularly export commodities. The drastic increase in global commodity prices linked to the war in Ukraine in 2022 have allowed Kazakhstan to benefit from a strong economic and fiscal performance, with a current account surplus of 3.9% of GDP in 2022, and an annual increase of government revenues by 3.4 pp to 20.5% of GDP, of which 6.6 pp is attributable to oil revenues only (OECD, 2022[4]).
Kazakhstan is one of the world’s largest producers of uranium, and enormous deposits of other metals, including gold, iron, chrome, copper, zinc and vanadium as well as rare earths. Kazakhstan also has the second-largest oil reserves and the second-largest oil production after Russia among the former Soviet republics. It counts China, Italy, Russia, the Netherlands, Uzbekistan, India, Türkiye, and France as its main export destinations. In the first half of 2022, crude oil exports rose by 85% in value, with 89% of this increase attributable to higher prices rather than increased volumes. Although, a reduction in Russian demand for mineral and energy exports is noticeable, especially for iron ores, gold, silver and rolled ferrous metals, Kazakhstan has been benefitting from increased oil exports to European countries (OECD, 2022[4]). The increase in the price of crude oil has thus cushioned a spill-over from Russia’s economic collapse as of late 2023.
Table 1.1. Selected economic and social indicators for Kazakhstan (2018-22)
Note: n.d. stands for no data.
* Bureau of National Statistics dated 4 January 2023.
Source: World Bank (2023) except for poverty headcount ratio, https://www.statista.com/statistics/818364/poverty-headcount-ratio-in-kazakhstan/.
1.1.2. Government
Kazakhstan’s political system is a Presidential republic, where the President serves as the head of state and is elected by popular vote for a non-renewable term of seven years. The Prime Minister is the head of government. The legislature is a bicameral parliament, consisting of the Mazhilis (lower house) of 107 members and the senate (upper house) of 49 members. The judicial system is independent, with the highest court being the Supreme Court of Kazakhstan. Other courts include regional and district courts. Kazakhstan has a multi-party system, but the ruling Amanat (formerly – Nur Otan) party has dominated the political scene since its formation in 1999 (Ministry of Justice, 2023[5]).
As a unitary state, the Constitution established the central government as the supreme authority with a Presidential system of government. This form of government vests executive power in the President, who, next to the Parliament, holds the sole right to act on behalf of the Kazakh people. In theory, this allows the President to terminate the powers of the government and to remove any of its members or ministers.
The Kazakh Constitution underwent a series of amendments since its enactment in 1993. Several of those changes sought to define the President’s decision-making authority more explicitly. Legal provisions were introduced to require certain conditions and specificities to apply before changes delegated by the Presidential administration may be passed. For example, according to resolution No. 47/506 in June 2022, the President is now required to seek approval from local assemblies before appointing mayors and governors. The resolution also prohibits the President’s affiliation with a political party during their Presidential tenure (Knox, 2008[6]).
In early January 2022, Kazakhstan experienced mass protests, due to fuel price increases, which escalated into violence. The events are widely reported to have triggered a significant shift of power away from the country’s previous political elite. Economic, political, and social reforms have been enacted along with a referendum to approve constitutional changes aimed at limiting Presidential powers in favour of the parliament and significant decentralisation of certain powers.
1.1.3. Legal system
Today, Kazakhstan’s legal system is based on a strict hierarchy of sources of law, subject to the supremacy of the Constitution. Upon Kazakhstan’s independence in 1991, the Constitution laid out the fundament for Kazakhstan’s transformation into a democratic and secular state. On the official website of the President of Kazakhstan, the system is described as that of a “social state”.
The judicial system of Kazakhstan consists of the Supreme Court of Kazakhstan, local and other courts established pursuant to the Constitution of Kazakhstan and the constitutional law. It vests power in the Supreme Court as the ultimate judicial authority. Permanent judges and jurors are the only persons to assume the right to exercise judicial power by means of civil and criminal court proceedings, and as administered by the courts.
Article 3 of the Constitutional law “On Judicial System and Status of Judges” No. 132/2000 further describes the various local courts that exist next to the Supreme Court. The local courts include:
1. regional courts and courts equivalent to them (the city court of Astana, city courts of the cities of significance)
2. district courts and courts equivalent to them (a city court, inter district court)
3. other courts, including the specialised courts (martial, commercial, administrative, juvenile, and others) may be founded in the Republic of Kazakhstan, which are formed by the President of Kazakhstan to the status of the regional or district court
4. the court of the Astana International Financial Centre (AIFC), which is not part of the judicial system of Kazakhstan and has a special status.
The judicial system of Kazakhstan co-exists with that of the AIFC. The AIFC Court is an independent common law court which operates to resolve civil and commercial disputes in the AIFC. The AIFC is a regional centre for business and finance based in the capital and operates with the intent to connect the economies of Central Asia, the Caucasus, the Eurasian Economic Union (EAEU), Western China, Mongolia, the Middle East and Europe. As such, the AIFC deals with cases, including arbitration awards, mediation settlements and disputes, that tend to involve a non-Kazakh party.
The AIFC reports that in 97.7% of the total number of cases, at least one of the parties involved had business interest in Kazakhstan and agreed to use the AIFC Court and IAC on a voluntary basis. Kazakh law was applied in 97.5% of the cases, whereas AIFC law was applied in 2.3% of the cases. This suggests that most of the involved parties prefer to have their respective cases be dealt with in the AIFC independent court, rather than the courts of the Republic of Kazakhstan. Most types of commercial disputes concerned contracting (typically non-payment and non-fulfilment of other contract obligations) (43.8%), construction (15.8%), employment (15%), company (10.5%), transportation (6%), property (4%), logistics (3%), and PPPs (2%) (AIFC, 2023[7]).
1.1.4. Business and investment climate
As of January 2023, the stock of foreign direct investment (FDI) totalled USD 169.2 billion, the highest across Central Asia. Kazakhstan adheres to the OECD Declaration on International Investment and Multinational Enterprises, meaning it is committed to certain treaty standards, including National Treatment of investors. With the COVID-19 pandemic, Russian military actions against Ukraine, and the mass protests in January 2022, the government was incentivised to further assure investors by removing bureaucratic barriers to trade and investment, with streamlined regulations and tax incentives. The President also announced further privatisations, and the aim to reduce monopolies and oligopolies in the economy. In 2022, this ambition was reiterated through the new Investment Policy Concept, which outlined a headline target of increasing the inflow of FDI to USD 25.5 billion by 2026. An active dialogue with foreign investors through the President’s Foreign Investors Council and the Prime Minister’s Council for Improvement of the Investment Climate feed into the reform process (OECD, 2023[8]).
There remain challenges to doing business and investing in Kazakhstan. The country's legal framework can be complex or its implementation lacking, and as a result there have been concerns about corruption and lack of transparency in certain areas. Kazakhstan has a relatively open statutory framework for FDI, but regulatory barriers to investment remain. Investment and trade in services is still highly regulated, while key network sectors of the economy remain under state control. Additionally, the extent to which information on legal requirements is readily available to firms and the extent to which public institutions are transparent in their business-related decision-making remain unclear. Investors have thus noted issues including finalising contracts and licensing, uncertainty on legal issues relating to expropriation, ownership titles, and a controversial taxation of dividends for non-residents is in place (U.S. Department of State, 2022[9]) (OECD, 2023[8]). According to Transparency International’s Corruption Perception Index (CPI), Kazakhstan ranked 124th out of 180 countries in 2021, indicating a relatively high level of perceived corruption in the country. Corruption in Kazakhstan has been reported in various sectors, including law enforcement, government procurement, and natural resource extraction industries. The lack of transparency and accountability in these areas has created an environment that make these sectors more vulnerable to corruption. Although the government has taken some steps to address corruption, including establishing anti-corruption agencies and implementing various laws and regulations to combat corrupt practices. However, there have been concerns about the effectiveness of these measures, as corruption continues to be a significant issue in the country (OECD, 2019[10]).
1.1.5. Capital markets
Kazakhstan’s capital market includes two trading venues, Kazakhstan Stock Exchange (KASE) and Astana International Exchange (AIX). KASE is Kazakhstan’s first and oldest stock market. Established in 1997, its opening was accompanied by new legislation and regulation in the trading of securities. Later, in 2017, AIX was created under the legal framework of the Astana International Financial Centre, essentially a special economic zone within the capital, which is based on English common law.4 Law No. 461/2003 defines a “stock exchange” as a Joint Stock Company (JSC) with at least 25% of voting shares owned by the National Bank of Kazakhstan (NBK), which is wholly 100% state-owned. According to this provision, the law thus requires any legally recognised stock exchange to be partially state-owned. AIX hence qualifies as a “regulated securities market” rather than a stock exchange.
In contrast to AIX, KASE is regulated by Kazakhstan's Securities Market law. However, in some respects KASE's listing rules would appear to be less stringent than those of AIX. For example, KASE requires JSCs that aim to issue with KASE's main or alternative market to implement a Corporate Governance Code that was approved by the general meeting of shareholders. AIX's ongoing disclosure obligations require adherence to the corporate governance principles as set out in AIFC's market rules, a mandatory high-level requirement. The corporate governance principles detail a range of reporting items that an issuer must regularly report on.
While AIX’s shareholders mostly consist of non-Kazakh companies and groups,5 KASE’s largest shareholder is the NBK, holding 47% of voting shares. The second largest stake in KASE is held by Moscow Exchange MICEX-RTS, with roughly 13% of voting shares. KASE is thus the only stock exchange recognised under Kazakh Securities Market law, meaning that AIX and KASE are responsible to differing authorised bodies for regulation. Market participants registered with the AIFC are overseen and regulated by the AIFC's independent regulator, the Astana Financial Services Authority (AFSA).
Next to the AIX, the AIFC hosts the AIX Central Securities Depository, which is the centre's clearing organisation, as well as an international court and arbitration centre. The centre's mission is to deliver a fair and transparent capital market environment that connects Kazakhstan's economy with international financial markets. In line with this, AIFC's Investment Tax Residency Programme (ITRP) offers a national long-term investment visa for Kazakhstan in exchange for investments in securities listed on AIX. Despite AIFC operating under its own legal framework, which grants independence to its courts system, several of the financial institutions established under the AIFC are held under the ownership of the National Bank of Kazakhstan. Unlike traditional financial institutions, the AIFC, and by extension, AIX, are overseen by the Management Council, which is chaired by the President of Kazakhstan. As the supreme governing body, the AIFC Management Council is responsible for setting the centre's key performance indicators, as well as monitoring its performance on the achievement of those.
KASE initially catered to foreign exchange and treasury instrument markets. Later, it expanded to also cover equity and corporate debt instruments (Akimov, 2008[11]). Today, the exchange can be divided into four trading markets: the “main” market, “alternative” market, “mixed” market, and “private placement” market. KASE categorises tradeable shares into a premium and standard tier part of the “main” market, where companies with a premium tier listing must abide to more stringent listing requirements. The “alternative” market follows a similar structure as the “main” market but is designed to help smaller companies to access capital. They both include shares and debt securities, with bank certificates and deposits only being traded on the “main” market. Markets require different baseline listing requirements, with additional criteria being detailed for each of the sub-sectors.
Despite various efforts to expand capital markets, access to capital remains conditioned to an erratic financial system. Kazakh banks, like those of many Central Asian economies, are exposed to a range of vulnerabilities with ambiguous effects on Kazakhstan’s investment environment. Following liquidity issues in the advent of the COVID-19 pandemic, Kazakhstan underwent a range of regulatory relaxations for banks (Asian Development Bank, 2020[12]). Whilst in line with recommendations provided by prudential regulation standard setters recognising the severity of the economic downturn, this further resurfaced issues of longstanding, unrecognised credit losses and poor risk management. The set of capital and liquidity relief measures, while easing SMEs’ and individuals’ credit burden, increased the ratio of non-performing loans (NPLs) that already weakened capital buffers were forced to bear (OECD, 2022[4]).
Furthermore, a high reliance on foreign credit poses risks for Kazakhstan’s governmental spending capacities. Kazakhstan issued its first sovereign bond in 1996, which continuously profited off favourable borrowing costs until the end of 2021. However, with increasing investor concerns about Central Asia’s economic involvement with Russia (OECD, 2022[4]), annual bond yields for Kazakhstan jumped from 10.6% to 14.3% from February 2022 to February 2023 (Investing.com, 2022[13]). This increase in borrowing costs creates a hurdle to continue Kazakhstan’s expansionary public spending trajectory. With promises to revise the 2023 budget to increase public spending by 3% of GDP to meet social demands arising from the war on Ukraine, Kazakhstan thus excavates a historical economic dependence on exporting fossil fuels, which afforded high revenues due to fuel price freezes introduced in January 2022 (IMF, 2022[14]).
1.2. Overview of Kazakhstan’s state-owned sector
1.2.1. Number and type of state-owned enterprises
Kazakhstan lacks a clear classification of state-owned enterprises. In accordance with Article 201 of the Law on State Property6 No. 413-IV/2011, public entities are required to register with the public state registry. The requirement however applies only to “legal entities with the participation of the state” while organisations in which there is no state share do not fall under the object of accounting.7 OECD interviews revealed that the distinction is not always clear. Even when clear, entities that should register with the public state registry often fail to do so without repercussion, since enforcement is lacking.
According to the budget Code, the quasi-state or quasi-public sector8 comprises state enterprises, LLСs, JSCs, as well as national management holdings, national holdings or national companies – the founder, participant or shareholder of which is the state – as well as subsidiaries, dependent and other legal entities affiliated with them in accordance with the legislative acts of Kazakhstan. The government and holding companies manage the state property on behalf of Kazakhstan, and local executive bodies manage the communal property on behalf of their administrative-territorial units.
In Kazakhstan, entities that would be characterised by the OECD as SOEs can take various legal forms. The most common ones are:
Joint Stock Company (JSC) - a type of company that issues shares to raise funds to finance its activities.
Non-commercial JSC - non-profit organisations can adopt a joint-stock company structure, but with limitations: no preferred shares, dividends or convertible securities. Unlike regular companies, these non-profit organisations cannot transform into business partnerships or production co-operatives.
Limited Liability Company (LLC)9 – a company in the form of a partnership, such as a limited partnership or a general partnership established by one or more participants. The participants are not liable for obligations and bear the risk of losses associated with the activities of the partnership, to the extent of the value of their contributions.
State enterprise – a commercial organisation endowed with property by the state with the right to manage it. This type of enterprise is further subdivided into two groups:
Enterprises with a portion of their revenues stemming from non-state sources titled as “state enterprises with economic management”;
Enterprises fully reliant on state revenues titled “state enterprises with operating management”.
State institution is a legal form of a non-profit organisation created by the state that provides public services, socio-cultural or other functions of a non-commercial nature. They could be, if they generate most of their income by selling goods and services, considered as SOEs. These institutions are directly funded by the state and are not allowed to generate profits.
With an aim to effectively manage state enterprises, the government assigned 22 state-owned joint-stock companies with additional management functions and assigned them specific titles as:
National management holdings, national holdings and national companies. National management holdings (2 JSCs)10 which were established for the effective management of national development institutions, national companies and other legal entities. National holding11 (1 JSC) was established for the effective management of national companies and other JSCs and LLCs. National companies12 (19 JSCs) were established to operate in key national economy industries.
According to the Kazakh ministry of finance (MF) the quasi-state sector includes a high number of autonomous institutions:13 18 819 non-commercial bodies and 5 469 commercial enterprises (see Figure 2.2. in Chapter 2). This is subdivided into state (the funds of the state treasury, and property assigned to state legal entities, including enterprises of holdings or the so-called quasi-state sector) and communal (the funds of the local treasury and property assigned to communal legal entities) property.
It is important to note that, according to information obtained from the World Bank, not more than 5% of the 5 469 organisations are in fact commercial (thus officially titled SOEs), since more than 95% of them are non-commercial entities – with the majority of their revenue being the state budget, or their activities are related to the provision of public services. Thus, the majority of the 5 469 commercial enterprises – while they may or may not meet the OECD’s definition of an SOE – are generally not covered by the SOE Guidelines. The SOE guidelines note an JSC or LLC should be considered as an SOE if the state is the ultimate owner. However, if these SOEs are largely non-commercial then the SOE Guidelines generally do not apply to them. This report thus acknowledges that most of the quasi-public entities at the level of the central government probably do qualify as SOEs, even as the current report disregards them. This report also notes that there is no rational behind the choice of legal form for SOEs.
The data from the MF as of March 2023 finds that the state, directly and via state-owned holding companies, holds 700 enterprises at the central level of government (see Figure 1.1). All 700 enterprises are classified as SOEs by the Kazakh MF. A broad definition is applied: in 139 of these enterprises, the state and its holding companies own 50% or less shares. 58 entities are registered as “non-commercial” JSCs. Thus, chapter 1 of this report applies a “broader” definition of a state-owned enterprise, more in line with that of Kazakhstan.
The first part of this review focuses its an“lytical”work on the following group of enterprises:
State property: 320 enterprises that are comprised of 132 JSC, 29 limited liability companies, and 159 state enterprises. In 6 JSC and LLCs, the state owns 50% or less shares.
State-owned holding companies (SOHC): 89 JSCs, 291 LLCs that are assigned to Samruk-Kazyna (178), Baiterek (12), Kazakhstan Engineering (17), social entrepreneurial corporations (96) and others (77). In 133 joint-stock companies and limited liability companies, the holding companies own 50% or less of shares.
The 23 615 entities that are communal property and officially non-commercial enterprises fall outside the scope of the report. Most large SOEs are within the portfolio of Samruk-Kazyna and Baiterek, which display better disclosure practices than those under the government. Part II of the report relies on the analysis of 20 SOEs selected across different ownership entities, in order to assess them on an individual basis. More information on the selection can be found in Annex A.
Figure 1.1. Kazakhstan’s state-owned sector
Note: Figure based on the law on State Property, the law on the Sovereign Wealth Fund (SWF) and National Bank of Kazakhstan.
Source: The Ministry of Finance data as of March 2023, analysis of the OECD team.
Key actors in the process of exercising ownership rights are the Ministry of National Economy (MNE) that defines the state property management policies and the MF, that exercise certain controls and supports other state bodies and holding companies to exercise their ownership rights. The legal provisions for the execution of ownership of fully incorporated SOEs are outlined in the Civil Code and State Property Law, while the JSC and LLP laws offer further, detailed indications of divisions of ownership. The more weakly incorporated state enterprises are governed by the law on State Property. SOHCs such as Samruk-Kazyna, as well as the NBK, are also subject to special laws that among other things establish their direct reporting lines to the government and the President.
The government also has a practice of establishing SOEs in corporate forms/holding companies (JSC, LLC) to fulfil the functions of ministries. These organisations do not perform economic activities and are mainly funded by public funds; with more than 90% of government revenues stemming from the state directly or through public procurement channels. This trend is possibly linked to the efforts to pay more attractive salaries and offer budget flexibility/independence.
1.2.2. Sectoral distribution of SOEs
Figure 1.2 shows the number of state and holding properties as of March 2023, noting that SOHC own only JSC and LLCs, while state property also has economic and operating management enterprises. LLC is the legal form most selected by the state and holdings. The Kazakh government makes the distinction provided below, noting that all SOEs in Figure 1.2 are officially under state control.14 The only distinction which can be made lies in the direct oversight, where ‘state property’ is directly managed by ministries, while holding property is managed by the SOHCs. In many cases, property managed by holdings enjoy special privileges.
Figure 1.2. Kazakh SOEs by legal forms as of March 2023, number of enterprises
Source: The data from the MF as of March 2023.
Figure 1.2 indicates that state participation is largest within professional, scientific and technical services, education, mining and quarrying, art and recreations, and information and communications – cumulatively adding up to 55% of all SOEs.
1.2.3. SOEs share of the economy
In Kazakhstan, SOEs represent a large portion of the economy, as a legacy of its Soviet past. According to the selection of SOEs for this report 500 669 Kazakhs are employed in the state-owned sector, or 6.18% of the total dependent population – high in comparison to OECD countries, as noted in Figure 1.3. Moreover, the agency for the protection and development of competition in Kazakhstan finds that the participation of the state in entrepreneurial activity is expanding with new monopolies with state participation emerging.
Figure 1.3. Kazakhstan’s SOEs’ share of total dependent employment compared with other countries and OECD average
Source: Questionnaire responses from the Kazakh authorities; OECD Secretariat estimates based on data collected for (OECD, 2017[15]); ILOSTAT. Calculation of total dependent employment made based on assumption of 90% out of total employment.
The state is present in at least 20 out of 30 sectors of the economy, with education (51 518), health (20 635), professional, scientific and technical activities (40 142) dominating in terms of employee figures, compared to financial and insurance activities, education, and transport and warehousing in terms of total assets (see Table 1.2). Sectors including education, art, entertainment and recreations, information and communication, health and social services mostly function as state property enterprises, while SOHC enterprises are mostly concentrated on more commercially driven sectors, such as mining and quarrying, manufacturing, transport and warehousing, agriculture, and power and gas.
Table 1.2. Kazakhstan’s state-owned sector by sector/number of enterprises and employees/total assets – excluding and including SOHC owned entities
Note: Data provided by the MF of Kazakhstan is non-consolidated. In addition, inconsistency of data could be detected: total assets seem lower than equity, and the unit measure is underestimated. When fact-checking the figures on the company websites, inconsistencies could be detected.
Source: The data from the MF as of March 2023.
Table 1.2 indicates that SOHC-owned enterprise participation in the economy is significantly larger in terms of employment and asset value than state-owned ones. The largest number of employees in state owned entities are in the sector of education, while under SOHC ownership the largest one is in the transport and warehousing sector.
According to the MNE,15 in 2021, the volume of net income of SOEs amounted to Kazakh Tenge (KZT) 1 889.1 bn, and the volume of debt obligations at KZT 17 267.1 bn (USD 40 bn). The net income relies on a relatively small sample of profitable SOEs, whereas many other enterprises are consistent recipients of fiscal transfers. Dividends in 2022 were transferred to the budget in the amount of KZT 239.4 bn, which is 2 times more than the level of 2021. In total, the share of dividends paid and deductions from net income amounted to 12.7% of GDP.
1.2.4. SOEs listed in stock markets
Presently, the two trading venues of Kazakhstan, AIX and KASE, offer different incentives for companies to go public. AIX positions itself as a provider of access to equity capital, especially for Kazakh SMEs. In its role as an international financial centre, it seeks to increase the visibility of Kazakh businesses to international investors. In general, there is no clear minimum free-float requirement that companies are asked to maintain while being listed with AIX. Instead, companies are eligible for being enrolled in a simplified regulatory regime if their free-float market capitalisation does not exceed USD 200 million.16
Despite this, AIX has hosted the initial public offering (IPO) of one of the largest SOEs controlled by Kazakhstan's sovereign wealth fund Samruk-Kazyna, which is the national uranium trading company Kazatomprom. At the time of the IPO in 2018, Samruk-Kazyna sold an aggregate of 14.92% of Kazatomprom's issued share capital on the AIX and the London Stock Exchange (LSE). From 2018 to 2020, the free-float of Kazatomprom has climbed to a total of 25%.
In contrast to AIX, KASE is regulated by Kazakhstan's Securities Market law. This law warrants several exceptions regarding national SOHC:
The law does not apply to national management holdings.
A member of the Kazakh government applying to the position of CEO is not required to have the same amount of working experience as indicated in the law.
As detailed in his annual address of 2023, the President of Kazakhstan has proposed plans to unite the two stock exchanges of Kazakhstan under one management. The merger of AIX and KASE is envisioned to remove any duplicated functions the two stock exchanges may have, while noting that in certain circumstances, the two stock markets appear to compete. There is no concrete and timely roll-out proposed which details how the merger should ideally occur, and there are several issues that may arise and prolong the overall process.
Currently, a number of SOEs are listed with KASE. Amongst them are the Kazakhstan Housing Company, KazTransOil, Kcell, KazMunayGas, Kazakhtelecom, and KEGOC. As one of the largest companies listed on KASE, the national oil company KazMunayGas has issued 3% of its total shares on the market. Similarly, KEGOC, Kazakhstan's Electricity Grid Operator, currently administers a 10% free float on KASE. Kazakhtelecom, KazTransoil and Kcell showcase a higher free float on KASE, ranging from 10% to 20%.
Table 1.3. SOEs Listed on AIX or KASE
Note: We cannot strictly know whether they are all free-float, since there could be a non-state strategic investor holding part of these shares.
1. Ownership structure does not take into account the acquisition of KazMunayGas shares by the National Fund.
Source: https://kase.kz/en/issuers, questionnaire responses from the Kazakh authorities.
Figure 1.4. Change of share prices/GDRs since companies participated in the privatisation programme, in percentage as of 2 October 2023
Note: the year of IPO is shown next to company titles.
Source: Company websites, KASE.
1.2.5. Operational performance of SOEs
In general, it remains difficult to assess the financial performance of SOEs given the size of the quasi-state sector. The government does not issue consolidated reports on the quasi-state sector that assess analytical information on the operational effectiveness of SOEs and benchmark them against the performance of private entities. However, due to their large stake in the Kazakh economy, the overall operational performance of the national (management) holdings Samruk-Kazyna and Baiterek are estimated to offer a good indication for the overall SOE sector performance.
Samruk-Kazyna is a major or sole shareholder of many of Kazakhstan’s biggest and most important companies. The sovereign wealth fund’s (SWF) revenues amounted to 14% of GDP in 2021, comparable to central government revenues (17.1%), and had accumulated a debt of 11.8% of GDP (IMF, 2022[14]). Its subsidiaries include KazMunayGas, Kazakhtelecom, the country’s largest telecommunications company, and KEGOC, Kazakhstan’s electricity grid operator. KazMunayGas is by far the most significant asset managed in Samruk-Kazyna’s portfolio, constituting roughly 42% of Samruk-Kazyna’s total assets,17 based on financial information provided by KASE and Samruk-Kazyna's website. In contrast to this, other large portfolio firms from the same sector, such as Samruk-Energy, the national atomic company Kazatomprom, and KazTransOil, are contributing a substantially smaller part, from around 3% to 6% of the total assets managed under Samruk-Kazyna as per recent data provided by Kazakh authorities (KMGZ, 2023[16]; IMF, 2022[14]).
The sovereign wealth fund’s overall operational performance is thus highly dependent on that of KazMunayGas. As detailed on the company’s website,18 87% of its shares are owned by Samruk-Kazyna, while 10% are attributed to the NBK. Three percent of the shares are in free-float on the KASE and AIX stock exchanges (KMGZ, 2023[16]). KazMunayGas is Kazakhstan’s national oil and gas company and transports more than half of Kazakhstan’s oil, accounting for 80% of the country’s refining capacity. According to Fitch ratings, the current credit rating as of June 2023 stands at BBB, thus denoting good credit quality with relative deviations in the probability of default towards the “speculative” rating tier.
The political and financial implications of a default of KazMunayGas are strong and impactful for Kazakhstan’s economy and beyond. KazMunayGas is among the largest Kazakh borrowers in the Eurobond market, thus acting as a proxy issuer of national debt with increasingly complex international financial positions. Tensions in Russia pose an additional threat to the company’s export capacities. Currently, the majority of Kazakh oil departs from the Russian port Novorossiysk, connected with Kazakhstan through the Caspian Pipeline Consortium. Said pipeline experienced temporary slowdowns for a month after Kazakhstan announced to balance the European energy market demand for oil and gas upon Russia halting its supply.
Figure 1.5 summarises financial information of portfolio companies of Samruk-Kazyna grouped into different segments as of 31 December of the respective financial year. It details the total profit or loss data derived from 2013-2022, net of tax, of their portfolio companies as grouped under segments of their operations, as reported in the consolidated financial statements of Samruk-Kazyna, largely represented by the “oil and gas” segment operational result. It illustrates the large relative share of equity derived from KazMunayGas in the SOE portfolio of Samruk-Kazyna, which follows a fluctuating trajectory across the examined timeframe.
Figure 1.5. Segment reporting of Samruk-Kazyna - Total net profit/(loss) for the year
In thousand KZT
Note: monetary values are not adjusted for inflation.
Source: Unconsolidated information about operating segments of the Group without elimination of intragroup transactions.
After not meeting growth targets in line with Kazakhstan’s 2050 Strategy New Political Course of the Established State, Samruk-Kazyna entered a transformation programme in 2014-2015. The purpose and aim of the programme are dispersed across two mandates, becoming a top-30 developed nation by 2050 and reforming portfolio companies to attract capital to modernise the domestic economy. On a macro level, the programme was designed to support Kazakhstan in becoming a top-30 developed nation by 2050. On a micro level, the programme sought to reform portfolio companies to attract capital to modernise the domestic economy (Dixon, 2020[17]). The programme is currently inactive, and it remains unclear whether the programme met performance targets and intended outcomes.
In 2021, Baiterek’s revenues amounted to 0.13% of GDP, and its total debt to 9.8% of GDP (IMF, 2022[14]). The consolidated financial statements provided on the Baiterek website reflect the consolidated financial position of the Holding as of December 2021, as well as its consolidated financial results and cash flows in accordance with international financial reporting standards. The operational performance of subsidiaries is presented in the financial statements of each subsidiary.
The holding does not provide a breakdown of the different assets that contribute the segment reporting below. The overall profits and losses derived from SOEs under Baiterek's portfolio, appears to be volatile, with a rather large share of overall profits attributed to the “affordable housing” segment. The remaining segments, which are constituted from the portfolio companies under Baiterek’s ownership, follow a slightly increasing, though increasingly volatile profit/loss trajectory from 2018 until 2022.
Figure 1.6. Segment reporting of Baiterek - Total net profit/(loss) for the year
In million KZT
Note: monetary values are not adjusted for inflation.
Source: Unconsolidated information about operating segments of the Group without elimination of intragroup transactions
1.2.6. The economic significance of state-owned enterprises: a historical perspective
Kazakhstan’s President holds significant powers, which influences decision-making for SOEs. Additionally, the country has diverse social structures, including clan-based or tribal affiliations that play a role in shaping societal dynamics. Kazakhstan’s contemporary SOE landscape evolved from a period of post-Soviet reform and state building. In the early to late 1990s, Kazakhstan embraced a set of pro-market reforms to distance itself from the Soviet central planning model that had priorly formed its economic systems (Dixon, 2020[17]). Initial efforts to distribute ownership through coupon privatisation were unsuccessful, with less than 70% of coupons being redeemed by the Kazakh people, and investment funds absorbing 10% of all property (Narziev, 2021[18]). On top of this, Kazakhstan faced an indebted oil and gas industry and faced difficulties to attract foreign investment. Overall, the top-down restructuring process was stunted by lacking state capacities, which left the real economy unstimulated.
The importance placed on attracting investment during later stages of the privatisation programme effectively changed Kazakhstan’s course of development to one of what has been termed ‘state financialisation’19 (Dixon, 2020[17]). While experiencing slow economic growth, financialisation gave way for the foundation of large holding companies of state shares in national companies. Collectives which started as industrial groupings in extractive sectors and banking, developed into state-led strategic investment funds (OECD, 2017[19]).
In parallel to efforts to liberalise markets, Kazakhstan was exposed to pronounced Presidential powers affecting economic policy and decision-making (Pomfret, 2012[20]). Combining the increased power of the state with the new ownership models in the extractive sectors gave way for innovative forms of managing development finance. Kazakhstan’s sovereign wealth fund, Samruk-Kazyna, was created by Presidential decree No. 669 in 2008. The majority of SOEs today are managed as part of a portfolio under large holding companies, with Samruk-Kazyna being the most significant one.
Holding companies centralise ownership, making it easier to delegate, co-ordinate and monitor interactions between the state ownership entity and portfolio companies (OECD, 2020[21]). Centralised ownership should establish a clear command chain, which should organise the modes of communication between the government entity down to individual SOEs in a transparent manner. However, centralisation within holding companies entails a risk of cross-subsidisation within the holding structure, between loss and profit making enterprises. Normally a loss-making SOE in Kazakhstan has to consult with the Ministry of Finance, but the mission team was not provided with sound evidence that this is done consistently in practice. It is thus theoretically possible, within a group like Samruk-Kazyna, to conduct a loss-coverage operation using the earnings of (dividends from) profitable group companies such as KazMunayGas.
Furthermore, centralised ownership requires strong public sector governance and SOE accountability. These factors call for a high level of state capacity as well as a clear separation of mandates between that of the state and the corporate SOE. As per the reforms announced in President Tokayev’s state of the nation address in 2022 and 2023, Kazakhstan is still amid the process of developing the necessary groundwork to successfully implement centralised ownership.
1.3. Legal and regulatory environment in Kazakhstan
1.3.1. Main laws and administrative regulations concerning the corporate sector
Kazakhstan has a comprehensive legal framework for the regulation of companies, their business activities and interaction with the government, including the entrepreneurial Code, the law on national security, the anti-corruption law, the law on the security market, the criminal Code of Kazakhstan, and the law on rehabilitation and bankruptcy. These company laws are applicable to the entirety of Kazakhstan’s private sector, nearly always including clauses for state-owned enterprises. Compliance with the laws and regulations is monitored by various state bodies, including the agency for civil service and anti-corruption, the General Prosecutor's Office, and the courts.
It should be noted that, according to information obtained by the OECD team, safeguards to avoid legal and regulatory overlaps, duplications and inconsistencies are generally not strongly developed. Consequently, there is a multitude of regulatory documents, laws, decrees from a number of entities and rules dedicated to both the public and private sectors that in many cases renders compliance and monitoring difficult. Numerous laws thus apply to SOEs depending on their form, be it the Entrepreneurial Code, State Property Law or, depending on the legal form, the JSC and LLP law.
The Entrepreneurial Code No. 375-V LRK/2015, which was amended close to 100 times since then, defines (Ministry of Justice, 2015[22]):
the legal, economic and social conditions to ensure the freedom of entrepreneurship in Kazakhstan, and thereby defines the rights and obligations of entrepreneurs and companies, sets out the requirements for their registration and operation; and
regulates government support for entrepreneurship, including investment, tax preferences and investment subsidies.
Article 192 of the Code also refers to the state-owned sector, by providing the rationale for state participation in the economy. It outlines that the competition protection and development agency has to consent with the establishment of a legal entity with more than 50% of shares/stakes. Important to note is that the competition agency’s consent is not required if the entity will operate outside the country. The Code also mentions the list of activities carried out by state enterprises with 50% and more shares/stakes, which is approved by a government decree. The consent of the competition agency is also essential when expanding or altering the scope of activities of an pre-existing entity with more than 50% of shares or stakes owned by the state.
The law on National Security No. 527-IV/2012 (1) defines the list of strategic objects transferred to the authorised capital and (or) owned by national holdings and companies, as well as legal entities/individuals not affiliated with the state; (2) defines which actions are a threat to national security (Ministry of Justice, 2012[23]).
The Anticorruption law No. 410-IV LRK/2015 provides the framework to combat corruption and implement the anti-corruption policy in Kazakhstan and establishes the principle of transparency in the management of state assets. The law provides for an external and internal evaluation of corruption risks, and requests state bodies and SOEs to develop anticorruption standards in line with the standard procedure defined by the anticorruption agency. SOEs are obliged to establish an anticorruption compliance service in the form of a structural unit or responsible person (free from conflict of interest), that operates independently from the executive body and is accountable to the BOD/other independent management body (Ministry of Justice, 2015[24]).
The law on Security Market No. 461/2003 was adopted in 2003 and amended 92 times since. The law regulates the process of issuing, placing, circulating and redeeming emissive securities and other financial instruments. It further determines the procedure for regulating, controlling, and supervising the securities market to ensure a safe, open and effective functioning of the securities market, in order to protect the rights of investors and holders of securities (Ministry of Justice, 2012[23]).
The law on Rehabilitation and Bankruptcy No. 167 V/2014 regulates relations when a debtor fails to fully satisfy the claims of creditors, and explains the process for debt restructuring, rehabilitation, and liquidation procedures. The law also refers to state enterprises, by noting that in case entities classified as strategic objects face bankruptcy, the state has the right to establish special conditions and procedures to sell the property, or acquire it through one of the national companies (Ministry of Justice, 2014[25]).
1.3.2. Legal and regulatory framework as applied to state-owned enterprises
In most cases SOEs operate in a similar legal framework as private companies. However, every legislative regulation and law contains special provisions that grant specific conditions or exceptions related to the type of state enterprise. The legal and regulatory framework applicable to SOEs is further split between: 1) laws; 2) government decrees; and 3) responsible ministry decrees, administrative regulations and guidelines and internal regulatory documents approved by the governing bodies of the entity. Each layer represents different level of details and descriptions of provisions/processes, the ministry decree and internal regulatory documents being the most detailed.
The key legal framework for SOEs is provided by the law on State Property that covers important aspects of state property ownership and management, from creation of the entity until its liquidation. In parallel, Samruk-Kazyna, the NBK and the Development Bank of Kazakhstan (DBK) have separate laws that covers similar aspects and regulate their operations.
The law on State Property
The law on State Property was adopted in 2011 and has been amended 126 times since. The law is the main SOE ownership policy of Kazakhstan, noting the state’s rights and obligations regarding the management of state property and the transfer of ownership. It provides the legal framework and basis for state property management, including property assigned/owned by the state, the legal grounds for acquiring and terminating rights to state property. It aims to ensure the effective exercise of the ownership function. The provisions of the law are also applicable to Samruk-Kazyna and its group of assets, unless otherwise stated in the law dedicated to Samruk-Kazyna.
The law defines state property as property that belongs to the state or is under state jurisdiction, including natural resources, land, buildings, equipment, and other assets. The law sets out the rules for the transfer of state property to private ownership, the use of state property by individuals and legal entities, and the protection of state property from illegal use or disposal. It also establishes procedures for the valuation, registration, and inventory of state property, and notes the rights and responsibilities of state authorities and officials involved in state property management. It provides for the creation of state property registers, which contain information on the location, status, and use of state property. Notably, Kazakhstan's ‘state enterprises’ derive their legal personality exclusively from this law.
The law on Joint Stock Companies
The law on Joint Stock Companies No. 415/2003 is the primary legislation to regulate the legal status, creation, operation, reorganisation and liquidation of JSCs, including companies listed on stock markets. The law was amended 76 times and covers the rights and obligations of shareholders; the management of the company; and the procedure for election and responsibility of its officials. The provisions of the law are also applicable to Samruk-Kazyna (Ministry of Justice, 2003[26]). The JSC law is complemented by two further regulatory documents, including the memorandum of association and the charter, which covers key norms, rights and obligations of founders, the list of possible activities, authorised capital requirements, and the process of creating corporate bodies of JSCs.
According to the law, JSCs are managed by 1) the supreme body: the general meeting of shareholders (in a company, all voting shares of which belong to one shareholder – the sole shareholder); 2) the management body: the BOD; and (3) the executive body: a collegial body or a person solely performing the functions of an executive body (determined by the charter). It further allows for state officials to participate in governing bodies of any JSC for which state ownership is at least 10%. The law also notes that state bodies cannot act as founders or shareholders of the company, with the exception of the government represented by the state property committee of the MF, local executive bodies, as well as the NBK. The company is obliged to disclose financial statements online (Ministry of Justice, 2003[26]).
The law on Limited Liability Companies
The law on Partnerships with Limited and Additional Liability No. 220-1/1998 notes the management of LLCs,20 and the rights of participants, liabilities and obligations (Ministry of Justice, 1998[27]).
LLCs are managed by 1) the supreme body of the partnership: the general meeting of its participants (general meeting); and 2) the executive body of the partnership: collegiate and (or) sole. The exclusive competence of the general meeting of participants is to approve/amend the company charter, appoint the executive body, elect members of the supervisory board, approve the financial statements and profit distribution, and reorganise/liquidate the LLC and others. Any participant in an LLC has the right to make proposals on the agenda of the general meeting.
Members of the executive body are elected by the general meeting for a fixed term, but not more than five years and they may not be a participant of the LLC. The responsibilities of the executive body encompass all issues of the partnership that are not within the competence of the general meeting or supervisory bodies. To exercise control over the activities of the executive body, LLCs may establish a supervisory board, with members elected for not more than five years.
Budget Code
The Budget Code No. 95-IV/2008 regulates budgetary relations and establishes the basis for the National Fund of Kazakhstan. The description of the exact annual budget approval process is presented in Chapter 1.4 of this report. The Budget Code describes the role of participants, the process of budget development and its approval. The state budget is approved by the law (Ministry of Justice, 2008[28]). The Budget Code provides further guidelines on the budgetary procedures, fiscal policies and financial management practices in Kazakhstan. Regarding the state-owned sector in particular, the budget Code typically contains provisions related to the financial management of SOEs, including aspects such as:
Budgeting and Reporting: The Budget Code specifies how SOEs should prepare their budgets and financial reports, and outlines the procedures for SOEs to submit their budgets to the government for approval and how they should report their financial performance;
State Subsidies and Transfers: It includes provisions related to government subsidies, transfers, or financial support provided to SOEs, covering the criteria for receiving subsidies, the process for allocating funds and the reporting requirements associated with these transfers;
Profit Distribution: The Code addresses how SOEs should manage their profits and surpluses, including guidelines on reinvesting profits, distributing dividends to the government and using funds for specific purposes;
Debt Management: The Budget Code outlines rules for SOEs regarding borrowing and debt management, by specifying limits on debt levels, conditions for taking on debt and reporting requirements related to debt; and
Financial Oversight: Provisions related to financial oversight and accountability may also be included, which involves auditing and reporting mechanisms to ensure transparency and accountability in SOE financial operations.
Dedicated laws for state-owned banks
The law on the National Bank of Kazakhstan No. 2155/1995 regulates the activities of the National Bank of Kazakhstan, its legal status, goals, functions, areas of responsibilities, authority structure, composition and appointment process of members of the BOD and executive body, and the co-ordination with other state bodies and enterprises. NBK develops a strategic plan for a 5-year period, that is approved by the Chairman of NBK in agreement with the President. Staff headcount, the annual report, appointment of the Chairman and deputy Chairman is approved by the President, while the Chairman appointment also requires consent from the senate of the parliament. NBK is independent in its activities, as the state representative and executive bodies are not entitled to interfere in the activities of NBK. At the same time, NBK co-ordinates its activities with the government and holds regular consultations (Ministry of Justice, 2017[29]).
The law on the Development Bank of Kazakhstan No. 178/2001 adopted in 2001 regulates the objectives, goals, functions, activities, and accountability of the DBK and its relationship with other state bodies and enterprises. DBK is a national development institution authorised to implement the state investment policy and industrial development policies. DBK finances investment projects for five years. The DBK is the operator of government programmes, including the development of the manufacturing industry. Within the framework of such state programmes and national projects, DBK provides concessional financing for large (capital-intensive) manufacturing projects by mixing state funds with other funds raised in the capital market.
Other SOE related laws and regulations
The law on State Procurement No. 434-V/2015 regulates the procurement of goods, works, and services necessary to ensure the functioning of SOEs, except national management holdings/companies and legal entities affiliated with them, and the NBK. It sets out procedures for conducting procurement, defines the roles and responsibilities of procurement participants, and establishes anticorruption measures, such as the prohibition of the conflict of interest and the requirement for transparency (Ministry of Justice, 2015[30]). Procurement in the SOE sector is also governed by the Law on Procurement of Individual Entities of the SOE sector No. 47-VII/ 2021.
The law on Public Service No. 88-V/2013 regulates the public service and the management and administration of SOEs (Ministry of Justice, 2013[31]). It establishes the principles of transparency, accountability, and integrity in the public service, and sets out measures to prevent corruption. The state corporation "Government for Citizens" is a legal entity in the form of a non-profit JSC in order to provide public services via a one-stop-shop, and if possible, electronically. The sole shareholder of the state corporation is the government. The register of public services is approved by the decree of the minister of digital development, innovation and aerospace industry of Kazakhstan and consists of 1 323 public services conducted by different state entities (Ministry of Justice, 2020[32]).
The law on State Monitoring of Property in Sectors of the Economy of Strategic Importance No. 490/2003 regulates state monitoring (observation, collection and analysis of information) of property in sectors of the economy of strategic importance. The sectors of the economy of strategic importance are mining and processing of fuel and energy minerals (coal, oil, gas, uranium and metal ores), mechanical engineering, space activities, agro-industrial complex, water management, chemical industry, transport and communications, electricity generation and transmission, military-industrial products’ production. The list of property subject to state monitoring is approved by the government decree and consists of 133 entities. The results of the state monitoring contain proposals and recommendations, including on the legality and expediency of exercising the rights of ownership/use/disposal of strategic objects and measures on improvement of efficiency of economy sectors (Ministry of Justice, 2003[33]).
The Rules for the Assessment of Corporate Governance in State-Controlled JSCs No. 247/2011 note that the assessment of corporate governance should be based on the OECD SOE Guidelines. The results should define the level of shareholder intervention within company governance systems and provide recommendations for improvements. These rules do not apply to Samruk-Kazyna, since the Fund has its own Code with alternate corporate governance rules.
The state planning system of Kazakhstan No. 790/2017 regulates the system of state planning, defines principles, processes and participants of state planning and refers to activities of SOEs. The documents of the state planning system include: 1) development strategy of Kazakhstan until 2050; 2) National priorities (with 1-2 measurable indicators); 3) national development plan (with strategic indicators) and national security strategy of Kazakhstan; 4) plan for territorial development of the country; 5) the concept of industry development; and 6) development plans of state bodies, regions, cities of republican significance, the capital, national management holdings, national holdings/companies (Ministry of Justice, 2017[29]).
The procedure of appointing officials by the government and the Prime Minister of Kazakhstan No. 784/2002 defines 1) the list of positions of political civil servants and other officials; 2) the rules of appointment; and 3) the list of 41 national management holdings, national holdings/companies, non-profit JSCs, development institutions, state organisations of higher/postgraduate education and other organisations, the CEO of which is appointed by the government and the Prime Minister of Kazakhstan.
Kazakhstan’s Codes
Based on Article 182 of the law on State Property, the Model Corporate Governance Code is developed by the MNE and approved by a Minister’s Decree. JSCs with 50% state ownership are subject to the Code. Every SOE is obliged to develop their own Code, and have no permission to change/delete anything, but have the liberty to add provisions. There are no sanctions noted neither within the State Property law, nor the model Corporate Governance Code. Compliance with the Codes does not seem to be controlled, although the MNE can randomly send a request to an SOE and assess their Code.
The MNE is currently amending the Code, which was firstly proposed in 2015. In 2018 it became compulsory for all JSC to have a Code in line with the model Corporate Governance Code. This Code does not apply to Samruk-Kazyna, as Samruk-Kazyna has its own Code, which it updated in July 2023 and applied in all subsidiaries and companies within its group where Samruk-Kazyna owns more than 50% of shares. The key elements of the Code are:
1. the segregation of functions of a shareholder and a regulator (state function) to prevent conflict of interest
2. state-shareholder ensures full operational independence and eliminates interference in operations and investment decisions
3. co-operation between the state body and SOEs is carried out through the BOD (shareholders note KPIs, SOEs create development plans thereon)
4. provisions to protect the rights of all shareholders, including minorities
5. annual self-assessment and an independent assessment of the BOD and its committees every 3 years.
1.4. Ownership arrangements and responsibilities
1.4.1. Ownership arrangements and co-ordination
Ownership policy and framework
In practice, the ownership arrangements for SOEs in Kazakhstan are largely dispersed, with individual ministries simultaneously exercising state ownership and regulatory functions over respective SOEs. To this date, the government of Kazakhstan has not developed a comprehensive and high-level state ownership policy. However, there are elements of what typically constitutes an ownership policy within Kazakhstan’s legal framework on state property management, which consists of four main legislative instruments (OECD, 2015[34]).
The overall objectives and motivations behind state ownership are set out in the concept of State Property Management and Privatisation in Kazakhstan (hereafter the ‘Concept’), created on 21 July 2000 by decree No. 1095, as well as the law on State Property, which explains the rights and obligations of the state on administering state property and the transferral of ownership. Art. 192 of the civil Code recognises state property as communal property, which may be held at the local government and self-governance levels. Further, article 192 of the entrepreneurial Code provides several rationales for state participation in entrepreneurial activities of the economy:
1. national security, the defense capability of the state or society interests protection;
2. use and maintenance of strategic facilities under state ownership;
3. state monopoly;
4. the absence or low level of competition in the relevant product market;
5. the state can participate in entrepreneurial activities through SOEs that have already been established (OECD, 2015[34]).
A property of the state, such as a JSC and stakes of LLC, may be owned by legal state entities on various forms of regional and district levels, or may retain ownership based on self-governance. Ownership of state property may shift between various state entities, or between state entities and non-state entities. Ownership may be changed by decision of the local executive bodies and moved across the various level of local government. While the State Property law details the legal conditions of changes of ownership, the execution of it remains to be managed across the various state entities involved. Kazakhstan’s key legal SOE ownership instrument is thus laying out terms of assigning ownership dispersed across various levels and authorities, rather than providing clear rationales or principles for the management and oversight of ownership.
State authorities defining and exercising state ownership
Several Kazakh state authorities are currently tasked with the management of state property under the delegated authority of the government. They are tasked with enforcing policy on effective state property management, the publishing of regulatory legal acts, as well as the exercising the right to state property. Next to these main responsibilities, the government is also charged with taking decisions regarding the organisation, creation, encumbrance, and privatisation of state property and thus also SOEs. In addition to the government, the NBK, Samruk-Kazyna, Baiterek, other national management holding companies and national holdings as well as local authorities hold stakes in managing ownership.
The main governmental bodies exercising state ownership rights, in particular over SOEs that take the legal form of JSC, are the MNE and the MF. They possess special rights in the ownership function that distinguishes them from other governmental actors. As the main penholder of the drafting of legislative documents and policies surrounding SOEs, the MNE holds responsibilities that impact the ways in which other line ministries practice their ownership. The MF mainly monitors and implements changes in the legal text which influence SOEs and the management of such. In addition to the MNE and MF, line ministries oversee SOEs with sectoral relevance.
Table 1.4 details responsible line ministries, their SOEs’ main activities, as well as the co-ordinating ministries that practice legal ownership over them. The table shows that the MF has legal ownership over the bulk of SOEs (297). However, they tend to delegate their ownership to other entities through specific decrees and rules.
While companies with state ownership are typically held under the MF and defined in their ownership rights in the law on JSC, specific decrees regulate reporting lines with both the government and the President for Samruk-Kazyna and the NBK. In combination with the delegation of ownership tasks from the MF to line ministries, ownership challenges may occur, particularly if SOEs gain in relevance through their activities. In practice, as far as the mission team has been able to establish, the ownership arrangements work as follows: Provided that a given SOE operates within the framework of the relevant laws, regulations and government policies, and is not unduly loss making, the ownership powers reside largely with the line ministry in charge of the section in which the SOE operates. The influence of the two economic ministries is noticeably greater in the case of SOEs in operational or financial difficulties.
Table 1.4. The number of SOEs by line and ownership ministries and main activities
Source: The data from the MF as of March 2023
The government of Kazakhstan and its ministerial bodies
Per the legal text laid out in the legal framework on ownership policy, Kazakhstan’s government takes on the highest authority in managing ownership over its SOEs. There are two main branches of the government through which ownership is defined and exercised. First, the MNE’s Department of State Assets Management Policy wields influence over SOE’s public policy objectives. Second, the MF (in particular, its State Property and Privatisation Committee) is charged with the task of privatising centrally held state property, as well as monitoring KPIs of SOE privatisation (OECD, 2021[35]). However, in practice, Samruk-Kazyna, for which the Kazakh government is the sole shareholder, is the de-facto owner of a large portfolio of partially and wholly-owned SOEs. Similarly, wholly-owned holding company Baiterek oversees companies grouped under the financial sector and is thus practicing a de-facto ownership layer in the state's ownership sphere.
According to the law on State Property the competence of state bodies regarding the management of state property is allocated as follows:
The government 1) executes a policy and defines regulations for effective state property management; 2) as a sole shareholder makes decisions on the creation/privatisation/reorganisation/liquidation of legal entities, national management holdings, national holdings/companies, and JSCs/LLPs; 3) makes decisions on granting/refusing permission to sell/transfer strategic objects/monopolies; 4) executes the shareholder right to manage SOHCs, JSCs/LLPs; 5) defines limits for general and administrative expenses of SOHCs and Samruk-Kazyna; and 6) makes decisions/grants the right on equity participation and exercises the shareholder rights in legal entities registered at the AIFC.
The line ministry of the relevant industry 1) carries out the state policy/regulatory frameworks on state property management in the relevant industry; 2) defines the priority area of activities and scope to be financed by the budget for state and communal property state enterprises, determines purpose/goals of activities and approves charters for state institutions; 3) monitors/analyses development plans of national management holdings, national holdings/companies, state enterprises/JSCs/LLPs; 4) manages the state property enterprises, approves their development plans/annual financial statements, establishes prices for their services, approves plans for state budget financing, makes decisions on reorganisation/liquidation in agreement with the MF, and appoints representatives and ensures the inclusion of MF representatives on the BODs of JSCs/LLPs; and 5) prepares the decision for the government to exercise priority rights to acquire a strategic object and approves the decision on the transfer of state property enterprise and strategic objects.
Ministry of National Economy
The MNE’s main function lies in synergising strategic planning, tax, and budget related policies. It makes suggestions on legislative frameworks irrespective of ownership (despite ownership being held by Akimats or at the national level, the MNE will be responsible for both). It fulfils a central function in the conjunction between the state-owned and private sectors. As the provider of state guaranteed debt, it has direct influence over corporate lending to the SOE sector. Furthermore, as the main contractor for public-private partnerships, it oversees the delineation of tasks on public and private objectives.
According to the law on State Property, the MNE 1) defines the state policy/regulatory framework on state property management, carries out the assessment of state property management; and 2) and in co‑ordination with other state bodies develops regulatory frameworks for SOEs and approves the model Corporate Governance Codes for JSCs (except for Samruk-Kazyna). Besides a broad description of the respective ministerial functions, none of the main governmental conduits of ownership publicise clear ownership tasks with respect to the national SOEs they supervise. Efforts to separate mandates of management and ownership thus remain unseen.
Ministry of Finance (Committee of State Property and Privatisation)
Next to managing the republican state budget, the MF and in particular its Committee of State Property and Privatisation is responsible for exercising control functions over state property. According to the law on State Property, the Committee 1) develops and approves regulatory frameworks, as well as controls, monitors and organises state property management; 2) privatises state property; 3) exercises ownership rights, makes decisions on transfer/rent on state property, and shareholder rights in managing JSCs, and appoints representatives to the BOD of JSCs/LLPs; 4) defines the purpose/goals of activities, type of state enterprise, permits on reorganisation/liquidation/sale of state enterprise; 5) ensures timeliness and completeness of dividend payments from state enterprises under state ownership; 6) carries out monitoring of property in sectors of the economy of strategic importance; 7) develops rules and maintains a register of state property; and 8) based on the government decision acts as a founder of JSCs/LLPs as well as state enterprises.
The National Bank of Kazakhstan
The NBK is a state body and the central bank of Kazakhstan. Within Kazakhstan’s dual banking system, the NBK represents the top level. It is governed by the Constitution and the law On National Bank of the Republic of Kazakhstan, No. 2155/1995, which establish it with the task to carry out monetary policy of the state while being accountable to the President. NBK acts on behalf of the interests of Kazakhstan in upkeeping relations with central banks and banks of other countries, as well as other financial and credit organisations.
The NBK exercises SOE ownership on behalf of the state through holding voting shares in various companies. As part of the competences of the NBK laid out in Art. 12 of the law on State Property, it issues and co-ordinates legal acts on the state property that has been allocated to it. The Bank is further tasked with:
1. issuing regulatory documents, managing the property, deciding on creation/privatisation/reorganisation/liquidation of entities under its ownership
2. defining rules, monitoring the execution of development plans of subsidiaries
3. and regulating and approving prices for services and distributes the net income of state entities of the group.
There is no centralised store of information which details the companies that the NBK oversees or possesses shares in. However, most notably, it holds 9.58% of shares of the national oil and gas giant KazMunayGas, 68.84% of the central securities depository, which acts as the depository of the NBK, and is the sole shareholder of national JSC investment corporation of the NBK. The latter is a financial entity that functions similar to a commercial investment fund. It diversifies Kazakhstan’s international reserves in alternative asset class investments, such as private equity, real estate, and hedge funds.
1.4.2. Description of Kazakh holding companies
The following section outlines the two largest holding companies in Kazakhstan, while noting that there are other national management holding companies and national holdings with sectorial focuses.
Samruk-Kazyna
Samruk-Kazyna, whilst officially referred to as a sovereign wealth fund, is effectively Kazakhstan’s largest state-owned holding company, operates under the mission, in addition to achieving adequate financial returns, to fund social welfare and to modernise the Kazakh economy. It was created through the merger of Samruk, a holding company owned by the state, and Kazyna, a national development fund. The companies managed in Samruk-Kazyna’s portfolio are predominantly part of the utilities sector, though also provide a range of essential goods and services relating to transport, logistics, and telecommunications. Currently, it manages USD 69 billion in assets and oversees close to 282 companies across six layers, making it a vital – but likewise highly complex – component of the Kazakh economy.
Samruk-Kazyna has its own law, namely the Sovereign Wealth Fund (SWF) law No. 550-IV/2012 which regulates the legal status, activities, goals, functions, and describes the procedure for interaction between Samruk-Kazyna (legal entities of the group) and the state bodies. The law notes the Fund’s corporate governance mechanisms, and outlines the role of Samruk-Kazyna in implementing socially significant and industrial-innovative projects. Samruk-Kazyna’s shares are the exclusive property of the state and are not subject to alienation. The provisions of the State Property and JSCs laws shall apply to SK and its group unless otherwise provided in the law. According to the World Bank, the SWF law and its policies, standards, rules and regulations apply to all SK companies (at least the controlled ones), with most of these policies and practices being in line with good international practice.
The interaction between the government and Samruk-Kazyna is based on the agreement approved by a government decree from 2012 (Ministry of Justice, 2012[36]). The agreement is based on 1) exercising the sole shareholder rights through the BOD; 2) non-interference of the government and state bodies within the operational activities of Samruk-Kazyna and providing full operational independence to Samruk-Kazyna; and 3) accountability and transparency of Samruk-Kazyna through regular reports to the BOD and reviewing monitoring reports (the government can review company results only at BOD meetings). All decisions on implementation and financing by Samruk-Kazyna of socially significant, industrial-innovative investment projects are taken by the BOD.
By decision of the sole shareholder, SK annually allocates at least 7% of its net income to a non-profit organisation represented by the public fund "Kazakhstan Khalkyna". It is prohibited for the state body representatives to sit at SK companies’ BOD. Some of the competencies of the general shareholder meeting of the SK companies can be assigned to their BOD, correspondently some of the competence of the BOD can be assigned to the management boards. The list of assets to be included within the privatisation list is defined by the government, while the privatisation process is approved by the BOD. The smaller assets are then sold to MF on an electronic platform, while large assets are privatised and conducted an IPO by Samruk-Kazyna.
Figure 1.7. Samruk-Kazyna’s ownership structure
Source: data provided by Samruk-Kazyna as of 01.09.2023.
According to the SWF law, the objectives of Samruk-Kazyna are to 1) increase competitiveness and market value of group assets; 2) ensure best corporate governance practice; 3) stimulate innovative processes and technologies; 4) attract investments; and 5) implement strategic investment projects of national, intersectoral and regional scale.
The corporate governance structure consists of four layers: 1) the supreme body: the sole shareholder, the government of Kazakhstan (the shares owned by the MF); 2) supervisory council previously chaired by the First President of Kazakhstan; 3) corporate board, supported by board committees; and 4) and the executive management. According to the MNE, the government is planning on removing the management council, which was previously chaired by Nursultan Nazarbayev, the former first President of Kazakhstan. This report notes that the supervisory council is removed by the law No 40-VIII/2023 that takes effect from the 1 January 2024.
The exclusive competences of the sole shareholder are to 1) approve documents, such as the charter, annual financial statements, development plans, the Corporate Governance Code; 2) reorganise/liquidate shares of Samruk-Kazyna companies; 3) define the terms/election/termination for the BOD and its Chair/members, including remuneration for INEDs; 4) approve of dividend policy and payments; and 5) decide on financing projects on behalf of the President.
All interaction of state bodies with the SWF and its companies is regulated by legislation, and any additional reporting to state bodies that goes beyond legal requirements is limited by the list, format and process of information supply to state bodies approved by a government decree. This is different to other SOHC and can render communication complicated.
National holding company Baiterek
Baiterek is Kazakhstan's second holding company with the special legal status of being wholly owned by the state. It has a close relationship with the state by being tasked with the funding of economic and institutional development in Kazakhstan, with total assets of USD 28. Upon its establishment based on a Presidential decree No. 571/2013, Baiterek’s portfolio encompassed development finance institution such as (temporarily at least) Bereke Bank, the national housing construction savings bank, as well as the “Damu” entrepreneurship development fund. Baiterek positions itself as the operator of all repayable financial support measures through its subsidiaries, particularly in sectors such as business development, agriculture and construction. The aim hereby is helping the country reduce its dependence on traditional sectors like oil and gas and develop a more diverse and sustainable economy. Baiterek works closely with the government to implement economic and industrial policies effectively and thereby often acts as an intermediary between the government and private sector entities.
In the most recent Presidential state of the nation address, the President announced the need for Baiterek to further transform and digitalise. The aim is further to develop AI and big data opportunities and to integrate with the databases of other state agencies.
In March 2021, “KazAgro” JSC was reorganised through a merger with “Baiterek” Holding. As a result, “Agrarian Credit Corporation” JSC and “KazAgroFinance” JSC became subsidiaries of “Baiterek” JSC. In July 2022, “KazAgroFinance” JSC became a subsidiary of “Agricultural Credit Corporation” JSC, which makes Baiterek its indirect shareholder. “Agricultural Credit Corporation” JSC provides credit financing for the agricultural sector, and “KazAgroFinance” JSC provides leasing of agricultural equipment. The companies are tasked to support the agricultural sector of Kazakhstan.
Through managing companies that provide lending instruments, Baiterek, and thus the state, has carved out its position in providing financing solutions to a variety of creditors. Baiterek practices its ownership by means of approving the key performance indicators (KPIs) of its portfolio companies. While monitoring such KPIs lies in the BOD of the various portfolio companies, representatives of Baiterek sit on the boards of all of its 8 subsidiaries (on the first level).
Figure 1.8. Baiterek’s ownership structure
Source: data provided by Baiterek as of 1 July 2023.
Over the course of the past three years, Baiterek has significantly reduced its portfolio from 14 subsidiaries in 2019, to eight subsidiaries in 2022. Overall, however Baiterek reduced its level one subsidiaries, but in total on 5 levels Baiterek still oversees 58 entities.
1.4.3. Boards of directors of SOEs
Structure and composition of SOE boards
Boards in LLCs and state enterprises
In LLCs the composition of a supervisory board is not obligatory, but a number of them still decide to put one in place, as indicated by the selection of LLCs monitored for this report. At the same time, it is impossible to assess how many LLCs have boards, and no government entity monitors this. State enterprises on the other hand are not covered by the model Corporate Governance Code – thus not obliging the composition of a board. However, there are some exceptions for cases when state enterprises are operated in the healthcare and education sectors. Creation of a state enterprise with the supervisory board is approved by the government decree.21 Usually, state enterprises merely have a head appointed by the ownership entity.
Boards in Joint Stock Companies
In the governance of JSCs, a two-tier board system is employed except where provided otherwise in the corporate bylaws, including a BOD and an executive body (often in practice referred to ‘management board’). The Chief Executive Officer (CEO) (often referred to as the Chairman) presides over the executive body and (s)he is the only executive director permitted to serve on the BOD. This is unusual by the standards of OECD countries where executive representation is normally seen only in one-tier corporate boards, and to some extent it runs counter to the “supervisory” role normally associated with a supervisory board. The BOD is responsible for the overall management and supervision of the company, while the executive board is responsible for the day-to-day operations and strategy implementation.
The general guidelines for the composition of SOE boards in JSC are outlined in the law on State Property, the Corporate Governance Code and a number of complementary rules. Article 181 in the law on State Property mandates that SOE boards include representatives of the MNE, MF, the line ministry of the relevant industry and other state bodies.
Table 1.5. Boards across SOE types
Note: According to the State Property law and the criteria for state-owned enterprises on the right of economic management, state enterprises may establish a BOD, if they operate in the healthcare sector and education sector and fulfil specific criteria, such as number of employees/turnover, etc. More details can be found here https://adilet.zan.kz/rus/docs/V1500010507.
1. Irrespective of whether the company is listed or not, as stated in the JSC law (article 54 item 5), it is required to have a board of directors with a minimum of three members.
Source: JSC law, LLC law, the State Property law, the model Corporate Governance Code, the law on sovereign wealth fund, the Corporate Governance Code of Samruk-Kazyna.
The general meeting of shareholders decides on the size and composition of the BOD. The number of members of BOD must be at least three people, with at least 1/3 being independent directors (INEDs). The model Corporate Governance Code recommends for the number of women to be at least 30% of the total number of members of the BOD, although this figure is at 17% currently. On average, SOE boards consist of six-seven members.
Samruk-Kazyna, Baiterek and their subsidiary companies
This report notes that in line with the SOE Guidelines, Samruk-Kazyna and Baiterek are agencies executing state ownership rights. Their boards are generally not subject to the recommendations, which may explain a larger politicisation of the boards of these (and other) holding companies in Kazakhstan. Baiterek’s BOD for instance consists of a number of government officials headed by the Chairman, the Prime Minister of Kazakhstan. Other ministerial members of the BOD are the first deputy Prime Minister, the minister of industry and infrastructure development, the minister of finance, and the minister of national economy. The three independent board members are German, French, and US citizens respectively and possess a range of private sector and public sector experiences. Samruk- Kazyna has the same Chairman, alongside the First Deputy Head of the Presidential Administration, the minister of national economy, and a number of independent directors.
The boards of the subsidiaries of holding companies have different compositions however: If the company is a subsidiary of a holding company, the holding is also represented. For instance, the board of KEGOC (under the SK umbrella) consists of seven members, three of which are independent, three stemming from Samruk-Kazyna, and one CEO. KazAgroFinance's (under Baiterek’s umbrella) board is made up of two representatives of Baiterek, three independent directors, the Deputy Chairman of Agrarian Credit Corporation (ACC), plus one CEO.
Eligibility criteria
Article 77 in the State Property law notes that in the selection of candidates the following shall be taken into account: 1) work experience in managerial positions; 2) work experience as a member of the BOD; 3) work experience; 4) education, specialty, including the availability of international certificates; 5) availability of competencies in areas and industries (industries may vary depending on the portfolio of assets); 6) business reputation; 7) the existence of a direct or potential conflict of interest.
However, the lack of transparency and accountability in the selection and appointment of board members has possibly affected board compositions. The process is often opaque, and board members may be appointed based on political connections rather than merit or qualifications. Board members may have business or personal ties to the SOE, which could influence their decision-making and lead to decisions that are not in the best interests of the company or the state.
Board nomination/appointment procedures
Kazakhstan’s selection process for board members of JSCs is governed by various laws and regulations, including the law on State Property, the model Corporate Governance Code and, in the case of Samruk-Kazyna its own Corporate Governance Code. The selection process is supposed to involve a nomination committee, which is responsible for identifying and evaluating candidates based on the criteria outlined within the law. Every ministry has its own corporate governance department which shall compile a list of candidates, based on the competence criteria needed for board candidates. The state property committee, as per Article 117 of the law on State Property, receives these lists.
In theory, the State Property law notes that line ministries propose candidates, which are agreed upon by the MF. However, there is no comprehensive document that describes the process how the line ministries shortlist candidates or select them, and based on which criteria the MF agrees with candidates. In articles 68 and 75 of the Corporate Governance Code of Samruk-Kazyna, it is noted the subsidiary board members are nominated by the Fund together with the Chairs of the BOD and the remuneration committee. Baiterek does not specify in its Code how BOD members of its subsidiaries are nominated.
According to the MNE, the human resources and remuneration committee determines the criteria for selecting candidates for members of the BOD, candidates for top managers, develops the Company's policy in the field of remuneration of these persons, and regularly evaluates the activities of members of the board and top managers. The functions of the committee include issues of appointment (election), setting motivational KPIs, performance evaluation, remuneration and succession planning for the head and members of the board.
According to the State Property law, the line ministry of the relevant industry proposes and appoints representatives to the BOD and ensures the inclusion of a MF representative to the BOD of JSCs/LLPs. Representatives of the state property and privatisation committee of the MF are elected based on the committee's management recommendation.
In subsidiaries of holding companies, board members are nominated and/or approved by the holding company. According to the law on State Property, each member of the BOD is elected for a term of up to three years, and the terms of office of the head and members of the board coincide with the term of office of the board. The term of office of the BOD is established by the general meeting of shareholders, and members elected to the board may be re-elected an unlimited number of times, unless otherwise provided by the company charter.
The Chairman of the BOD is elected from among its members by a majority vote of the total number of members of the BOD by secret ballot, unless otherwise provided by the charter of the company. This is unique in the sense that in other countries usually the Chair is usually appointed by the annual general meeting.
The model Corporate Governance Code recommends that the same person not be elected to the BOD of all SOEs for more than nine consecutive years. In exceptional cases, reappointment beyond nine years is allowed, in which case the election takes place annually or at another time determined by the general meeting of shareholders (sole shareholder) of the company, with a detailed explanation of the need to elect this member of the BOD and the influence of this factor to independent decision-making.
The law on JCS specifies that members of the BOD are elected through cumulative voting ballots. The cumulative voting ballot must contain the list of candidates for members of the BOD, the number of votes held by a shareholder, and the number of votes cast by a shareholder for a candidate to the BOD. Shareholders may not enter the voting options "against" and "abstained" into the ballot for cumulative voting. In keeping with normal corporate practices concerning cumulative voting shareholders have the right to cast votes on the shares they own in full for one candidate or distribute them among several candidates for members of the BOD. Candidates with the largest number of votes are considered elected. The minimum threshold to nominate candidates as board members is 5% or more.
1.4.4. Financial oversight in the SOE sector
Budget approval process
The Budget Code No. 95-IV/2008 is the main legal document governing the budget process across all levels of government, including functions such as, public procurement, state audit and financial control, which are subject to separate laws (Ministry of Justice, 2008[28]).
The President determines priorities for Kazakhstan’s development in an annual address, and these priorities are taken into account when the republican budget is being prepared. MNE is the central body in the government for state planning, that co-ordinates strategic and economic planning, elaborates budgetary policy, and implements state policy on regional development. MNE also has the responsibility to produce the forecast of social and economic development (FSED). MF is the central body for budget planning, budget execution, accounting, budget reporting and, within its competence, local budgets, and the national fund. MF prepares the draft budget and submits it to the republican budget commission (RBC).
The RBC is chaired by the Prime Minister, who appoints its members, including the first deputy Prime Minister and deputy Prime Minister, ministers, the Chairman of NBK, etc. After consideration in the RBC, the annual law on the Republican Budget No. 163-VII ZRK/2022 is submitted to parliament no later than 1 September, which in turn can approve or amend it. The republican budget goes through separate sequential discussions in the Majilis and the Senate and is to be approved by 1 December. At the same time the annual budget, financial statements and audit reports are scrutinised by the committee on finance and budget and by sectoral committees of the parliament. Corporatised SOEs (JSC and LLC) get their annual budgets and 5-year action plans approved by their boards in December each year.
The authorised body for internal state audit is an agency of the MF that exercises its realising and controlling functions in the sphere of internal state audit and financial control, state purchases, state property, audit activities, accounting and financial reporting. It also reviews the reasons for violations of legislation on the performance of the republican and local budgets and performs control over the execution of decisions that follow from control activities.
Reporting and disclosure requirements
According to the law on Accounting and Financial Reporting No. 234/2007 and the IFRS adoption roadmap for Kazakhstan, all listed companies, including listed SOEs are required to prepare and disclose their financial statements in accordance with International Financial Reporting Standards (IFRS) starting from 1 January 2022. The financial statements must be audited by an independent auditor and then approved by the BOD before they are presented to the general meeting of shareholders. This requirement applies to all SOEs that are listed on the KASE or any other foreign stock exchanges. Samruk-Kazyna companies mostly fulfil these obligations as well.
Law No. 234/2007 further requires that:
all SOEs follow financial reporting standards approved by the International Financial Reporting Standards Board
large business entities and public interest organisations prepare financial statements in accordance with international standards
organisations of public interest22 prepare financial statements in accordance with international standards.
The government has developed a dedicated digital management reporting system that obliges SOEs (as stated in law 234/2007) to upload regular financial and other reports, apart from the accounting in the register of state property intended for registration and information purposes. The financial reporting depository an electronic database contains annual financial statements and audit reports submitted annually by organisations, lists of affiliated persons of joint-stock companies, as well as information on corporate events of joint-stock companies, with open access to users.
According to the requirements of depository of financial statements, companies have to submit non-financial information as well, which some do. Compliance with the requirements for submission of non-financial information can however be low at times.
Internal and external audit
The law on State Audit and Financial Control No. 392-IV ZRK/2015 regulates and defines the powers and activities of state audit and financial control bodies. The purpose of the state audit is to improve the management and use of budgetary funds, state assets and quasi-state sector. The document describes three types of state audit 1) audit of financial statements; 2) performance audit; and 3) compliance audit. The non-execution of the state audit instructions can lead to administrative offences. On an annual basis, the supreme audit chamber submits a report to parliament on the execution of republican budget and submits reports on activities of the supreme audit chamber to the President and parliament (Ministry of Justice, 2015[37]).
In Kazakhstan, the auditing of SOEs involves several entities. The supreme audit chamber is responsible for conducting external audits of SOEs, compared to the internal audit units of SOEs which report their findings to the management and the audit committees of the SOEs. The supreme audit chamber is the supreme authority of state audit and financial control, executing external audit and financial control over the execution of the republican budget, assessing and verifying the effective and lawful management of national resources. It is directly subordinate and accountable to the President. Finally, the government, through its relevant ministries and agencies, has oversight and regulatory functions over SOEs, including their financial management and reporting.
External Audit
The external audit is generally conducted by an independent auditor, who is appointed by the general meeting of shareholders. The external auditor is responsible for expressing an opinion on the accuracy and completeness of the enterprise's financial statements, and for reporting on any material weaknesses in the enterprise's internal control system. It is also expected that external auditors maintain their independence; however, it is unclear who is responsible for evaluating this independence. Additionally, there are no mandatory requirements for auditors to rotate, and according to the law on Auditing, it is forbidden to provide non-auditing services otherwise the license will be withdrawn. Disclosure of these matters is inadequate. The law regulates related party transactions and conflicts of interest, but its implementation and enforcement are not well-defined. Presently, there seems to be no comprehensive whistleblowing legislation in place. Although there is a lack of comprehensive legislation – holdings and major subsidiaries have in practice established whistleblowing policies.
There are audits conducted for specific purposes pertaining to SOEs or publicly funded enterprises that have received funding from the state budget. These entities are required to submit a report detailing their expenditure, which necessitates entering into a contractual agreement with a financial company and undergoing a specialised type of audit conducted by one of the four major auditing firms.
1.4.5. Competition law and authority
The entrepreneurial Code covers anti-monopoly provisions, and requests a preliminary review by the antimonopoly authority of the market entities’ agreement, the right of the antimonopoly authority to send a “notice” rather than conduct an investigation, and the possibility for a company that is subject to an antitrust investigation to launch a review by a conciliatory commission on antitrust compliance.
The 2022 fifth antimonopoly package, notes the:
1. equal access of all business entities to state support measures and procurement;
2. reduction of administrative and economic barriers to enter commodity markets; and
3. price regulation tools.
It also ensures the implementation of the Presidential Decree No. 484/2020 which notes “the active promotion of competition” as a national task.
The agency for protection and development of competition in Kazakhstan - established in 2020 - reports directly to the President, and receives its budget from the MF. Its primary mission is to promote and protect competition within Kazakhstan's economy. It further:
monitors the behaviour of SOEs and investigates any complaints of anti-competitive behaviour
ensures that the share of the state is not increasing, by annually proposing which companies to liquidate/privatise
has a responsibility to ensure that SOEs do not abuse their dominant positions in the market or engage in anti-competitive behaviour that may harm consumers or other market participants
works with SOEs to resolve any anti-competitive issues that are identified
has the authority to impose penalties and take other enforcement action if necessary
provides guidance and assistance to SOEs on competition laws and policies.
The agency also puts in place regular moratoria for establishing new state entities. We observe that as soon as the moratoria have run out, new entities are established. In 2022, the agency issued 508 notifications on the violation of competition of SOEs, up from 430 in 2021.
The agency is further responsible for carrying out an assessment of the country’s competitive environment in markets where SOEs operate and update the list of activities carried out by SOEs. The agency is authorised to make recommendations related to shrinking the state participation in the economy, however they may face limitations. For instance, in 2022 the agency recommended to include in the privatisation list 105 assets, out of which only 60 were included for discussion at commission level and 21 assets finally included within the privatisation list.
1. Sectoral regulators
Some of the key sectoral regulators in Kazakhstan include:
The National Bank of Kazakhstan is responsible for regulating the financial sector, including banks, insurance companies, and financial markets.
The Ministry of Energy oversees the energy sector, including electricity generation, transmission, and distribution.
The Ministry of Digital Development, Innovation, and Aerospace Industry oversees the telecommunications sector and is responsible for regulating telecommunications operators, internet service providers, and other technology-related businesses.
The Ministry of Industry and Infrastructure Development has various agencies responsible for regulating transportation sectors, including aviation, railways, and road transport.
The Ministry of Ecology, Geology, and Natural Resources oversees environmental protection and natural resource management, including regulation of businesses that may have environmental impacts.
The Committee on Atomic and Energy Supervision and Control is responsible for nuclear safety and regulatory oversight in Kazakhstan's nuclear industry.
1.5. Privatisation
1.5.1. Legal and regulatory framework for privatisation
The privatisation process is regulated by the law on State Property and the rules for the sale of privatisation assets No. 920/2011 that establishes procedures for sale and liquidation, the sequence of actions and use of proceeds. The list of Samruk-Kazyna assets available for sale and the process of sale is defined by the government and its BOD (Ministry of Justice, 2012[38]), and should be in compliance with the laws on JSCs, LLCs, Securities Market and other applicable laws. The MF provides an electronic database23 with the objects and assets of sale included within the state property register. However, the current data set has certain limitations and incompleteness, as the OECD team is lacking information and facing data discrepancies in the analysis of the privatisation status of Samruk-Kazyna company groups24 and communal property.
To ensure national security, the government established restrictions on the transfer of ownership of strategic resources (objects) (Ministry of Justice, 2012[23]). A governmental decree No. 651/2008 released the list of strategic objects under SOEs, SOHC ownership and other legal entities with state participation consisting of 79 legal entities and 78 objects. According to the law on State Property the privatisation of strategic objects and legal entities requires special approval from the government.
The privatisation of state, communal and SOHC property is conducted by selecting mostly one of the following type of sales:
Trade sale through competitive procedure. An auction – proposals declared publicly, held in two ways by increasing and lowering the price, or tenders - proposals submitted in a closed envelope. Both cases of bidding are conducted on the web portal of the MF. If 100% of the shares/stakes of assets put up for auction are not sold after three rounds, these legal entities become subject to reorganisation by affiliation or merger or are subject to liquidation by the BOD decision.
Trade sale to a preferred bidder. Direct targeted sale to a strategic investor25 subject to government approval.
Public offerings via book-building. Tenders through the two-stage procedures - involvement of an independent consultant, conducting a comprehensive analysis of the privatisation object, forming a list of potential buyers and negotiating the best offer, while the government determines the priority of the price and other conditions of privatisation.
Other initial or secondary public offerings. Trading on the stock exchange - securities to be sold are put up for exchange trading by brokerage companies and carried out in the trading systems in accordance with the rules of exchange trading of the relevant stock exchange.
The valuation of large privatisation assets (book value exceeds 2 500 000 times the monthly calculation index established by the law on the republican budget) is carried out by independent consultants in accordance with international valuation standards, while the valuation of remaining assets is carried out in accordance with Kazakh appraisal activities legislation.
Privatisation arrangements and responsibilities
There are multiple public sector agencies and other actors involved in the privatisation process, including:
1. The government of Kazakhstan is responsible for the approval of criteria and the list of assets for privatisation put forward by SOHCs/SOEs/akimats, by defining all responsible bodies and timelines based on the State Commissions’ recommendations. The decision is issued in the form of a government decree.
2. The state commission for the modernisation of the economy is created and its membership defined by a Presidential decree (Presidential Administration, 2007[39]). It consists of the Prime Minister as a Chair, the first deputy Prime Minister, deputy head of Presidential administration, MIID, MNE, MF, CEO and BOD member of Samruk-Kazyna. The main functions of this commission are to make decisions and recommendations on the privatisation list and selling conditions, including of large state entities of SK.
3. As a working body of the State Commission, the MNE is responsible for developing the criteria and list of assets for privatisation, evaluation and consolidate the proposals, the overall programme management and co-ordination, monitoring and reporting of the comprehensive privatisation plan and implementation status. There is no information on whether the MNE evaluates the economic, financial impact or legal aspects (due diligence and valuations etc.) of the proposed privatisation. The privatisation process faces challenges due to ambiguous criteria when selecting assets. The plans are often residual or rely on independent assessment without considering competition. Thus, unprofitable enterprises, including those providing vital services like education, health, sport activities, become privatisation targets. If they remain unsold after three auctions, legislation mandates their liquidation. This process can force government or local authorities to recreate SOEs for essential services due to lack of alternative providers.
4. Based on the law on State Property and the rules for the sale of privatisation assets requirements, the MF now conducts electronic tenders on its web portal and consolidates the results of the programme on the state registry online platform. It seems however as though the data displayed is not holistic and deviates from official reports on the progress of the privatisation plans delivered by the Ministry of Finance. We observe missing information from holding companies and local municipalities.
5. Service providers and third parties, including external consultants (the “big four”, law firms, financial advisors, accountants, consultants, or other investment banks) are hired for valuation and advisory services. Privatisation is then conducted through a two-stage procedure, direct targeted sale, trading on the stock exchange and privatisation of large assets.
Figure 1.9. Actors involved in privatisation in Kazakhstan
Source: Analysis of OECD project team.
The reduction of the state’s share in the national economy to 14% by 2025;26 takes a central position among Kazakhstan’s privatisation objectives. Privatisation efforts of SOEs, however, have created complex ownership structures. According to the current Comprehensive Privatisation Plan for 2021-2025, each quasi-state enterprise that is up for privatisation has received a roadmap of privatisation and has been entered into an open database. Said database, which is the register of state property, is designed to act as a platform to facilitate public tenders, as well as to make them more transparent. Furthermore, as part of the privatisation plan, the analysis of activities and economic operability of each SOE is carried out under the supervision of the Supreme Audit Chamber.
Overall, the co-ordination tasks as the owner are yet to be fully defined with the reformed mandate of institutional actors that are undertaking them. To date, the register of state property’s “privatisation objects” page remains without any records or entries. Additionally, the Supreme Audit Chamber, which is tasked with auditing the large pool of SOEs in Kazakhstan, is currently undergoing a transformation programme.27 The implementation of the abovementioned projects creates ambitious work plans for the government and current administration that require reflection on past and current processes. Despite ongoing efforts, the success of innovative approaches to implement the privatisation plan fall back on the current state owner as both the executer and subject of the reform programme.
Rationales for state-owned enterprise privatisation
Article 192 of the Entrepreneurial Code provides several rationales for state participation in entrepreneurial activities of the economy. In line with this rationale, in 2015, the government approved a list entailing 364 activities which justify state ownership. This principle is also called “Yellow Pages Rules”. This list is then enforced by the agency for the protection and development of competition or the relevant line ministry to decide on adding an SOE into the privatisation pipeline. Along these lines and since 2014, the government has developed three comprehensive privatisation plans: 1) for 2014-2016; 2) for 2016-2020; and 3) for 2021-2025. Key criteria for being included in the privatisation plan continue to evolve and expand over time in order to keep the list flexible and reflect different aspects and challenges faced during the actual privatisation process (Annex C).
Apart from key criteria for privatisation, the government has defined six key performance indicators (KPIs) to assess the effectiveness of privatisation results. However, the annual reports on the implementation status of the privatisation plans for 2014-2016 and 2016-2020 did not contain information on their implementation. According to publicly available information, the state participation in the economy was 19.1% in 2015, 18.3% in 2016, and 17.3% in 2017, 14.9% in 2019, in 14.6% 2021 (Prime Minister’s Office, 2022[40]). Based on a recent announcement of the government, the implementation of the comprehensive privatisation plan for 2021-2025 will ensure the reduction of state participation in the economy to 14% by 2025 (Akorda, 2022[41]; Prime Minister’s Office, 2021[42]). The funds received from the privatisation of state property shall be directed to Kazakhstan’s national fund.
According to the MNE, initial public listings of SOEs will take place as “People’s IPO” programmes which allows a wider range of retail Kazakh investors to participate in the allocation process of listings at a lower price, with the subsequent opportunity to list on international stock markets and attract a wider range of international investors/capital. It is intended to attract resources from the public but also to distribute national wealth among Kazakh citizens, partially via price appreciation. IPOs conducted by SOEs positively influence the development of retail investors and local stock markets, the number of which increased from 111 224 in 2017 up to 491 447 in November 2022 and close to 523 000 in January 2023.
IPOs themselves do not directly impact the decrease of state participation in the Kazakhstan economy unless the placement exceeds the controlling stake of SOEs. Nevertheless, the listing of SOEs’ shares in organised stock markets increases the transparency of businesses decisions, and can positively impact operational effectiveness, and ensure compliance of corporate governance with higher (sometimes foreign) stock market requirements.
A brief history of privatisation
The privatisation process laid down in the 1990s, after the collapse of Soviet Union, continues until the present moment. In 1991, the government embarked on a programme of deep economic reforms in which privatisation was to become both the driving force and one of the most important elements in the transformation of the Kazakh economy. Until 2014, the government implemented four stages of privatisation: 1) in 1991-1992; 2) in 1993-1995; 3) in 1996-1998; and 4) in 1998-2000. “The second wave” of privatisation began in 2014 and its implementation is still ongoing.
1. The first privatisation programme of 22 June 1991 (stage I) covered 1991-1992 and focused mainly on the sale of trade, public catering, consumer services and utilities, small industrial enterprises, construction, motor transport, agriculture and other sectors of the national economy, and privatisation of the state housing stock. The primary right to choose the form of denationalisation and privatisation of the enterprise was given to the labor collective, which has priority over other applicants. A coupon mechanism was used to purchase housing by citizens (Ministry of Justice, 2009[43]).
2. The national programme of privatisation for 1993-1995 (stage II) dated 5 March 1993 also covered mass privatisation, privatisation of individual projects and the agro-industrial complex. In 1992, the government introduced the mechanism of corporatisation, namely the transformation of state assets into joint-stock companies with full state ownership of all shares managed through corporate governance structures. During this period, the largest buying of state property was observed, as the state issued coupons to citizens that could be used to participate in the privatisation process. Nearly 11 000 objects were sold, as well as shares of over 1 600 enterprises (Ministry of Justice, 1993[44]).
3. The third stage of privatisation (1996-1998) encompassed sectors such as electricity, oil and gas, ferrous and non-ferrous metallurgy, mining and processing plants, and telecommunications. Starting from 1996, privatisation of any state property was no longer carried out with coupons. As part of these programmes, by the end of 1998, 3 276 JSC and business partnerships were privatised, which is 65% of the total number of established JSC and business partnerships (Ministry of Justice, 2005[45]).
4. The key point of the fourth stage of privatisation (1999-2000) was to ensure the more efficient management of state property through developing the legal framework for privatisation and state property management, improving the accounting of the state property by creating the consolidated register of assets of Kazakhstan and dividing state property into republican and communal property. Management of communal property by local executive bodies aimed to increase efficiency of exercising state ownership and asset management rights. During this period and up until 2013, the activity of the privatisation process began to decline (Ministry of Justice, 1999[46]).
The second wave of reform of assets under state ownership began in Kazakhstan in 2014. Since then, the government has developed three comprehensive privatisation plans: 1) for 2014-2016; 2) for 2016-2020; and 3) for 2021-2025.
According to the MNE, 93% of the 2016-2020 privatisation plan were achieved, bringing forth KZT 629 bn or USD 1.4 bn proceeds (out of 864 assets, 503 were sold, 302 liquidated, 59 transferred to the next plan), the 2021-2025 privatisation plan is still in progress and as of August 2023, notes KZT 307 bln or USD 653 mn in proceeds (out of planned 658 assets, 372 sold,28 62 liquidated).29 The most recent assets’ breakdown of the 2021-2025 privatisation plan consists of 5 state properties, 262 of SOHC/SOE property, 152 of social-entrepreneurial corporations and 239 of communal property. Since privatisation begun, we have been observing a fluctuation of the number of assets for sale, the exclusion of assets in the middle of selling procedures, the lack of fixed dates of exit from the asset or the absence of declaring the sale of asset overall – which may be delaying the government’s ambitious privatisation plans.30
The data on the progress of the privatisation plans on the state register’s website does not align with the official government reports. There is a lack of data related to Samruk-Kazyna’s group of assets and communal property. The lack of transparent and publicly available reports on the government’s progress on privatisation with concrete KPI measures/metrics, as well as the discrepancies in the data raises questions on monitoring methodologies, information disclosure strategies and transparency. This renders it difficult to assess whether the goals of privatisation have been achieved and how the government is evaluating the impact of privatisation to the Kazakh economy.
Selected IPOs
Despite the announcement of potential IPOs of key industrial assets within Samruk-Kazyna since 2014, only 3 out of 8 planned companies have been sold through IPO.
Table 1.6. Selected data of IPOs of Samruk-Kazyna (2014-2025)
KEGOC lists shares under the "People's IPO" programme, while KazMunayGas - the largest local IPO listed on Kazakhstani stock exchanges - satisfied the 48.5% applications from the citizens of Kazakhstan, 47.2% from Kazakh legal entities and 4.3% from foreign individuals and legal entities. SK was only able to place 3% during the IPO of KMG shares instead of the initially planned 5%.
1.6. Recent and ongoing reform
1.6.1. General reforms
The public administration department responsible for reforming the so-called quasi-state sector initiated reforms in particular in 2019, under direct supervision of the President. In May 2022, a package of reforms was approved (Government Decree 654/ 2022), to be followed by an Action Plan with the idea to optimise SOEs fit for privatisation and to shrink the overall state share in the economy. The action plan remains to be implemented, with the provided timeline having expired at the time of writing (January 2024).
In 2019, the President issued a decree on the moratorium on the creation of entities with 50% of shares/stakes in the quasi-state sector until 31 December 2021 (Government of Kazakhstan, 2021[47]). A new similar moratorium will take force soon until 31 December 2025 according to the recent initiatives on reforms of the quasi-state sector of Kazakhstan in the framework of the Presidential Decree No. 654/ 2022.
The Kazakh President announced in his most recent address to the nation a need to reduce the share of the state in the economy and to reform the quasi-state sector, in line with the 2025 National Development Plan and the 2030 Concept for the Development of Public Administration. The President particularly noted the acceleration of the privatisation processes and public IPOs in order to enhance both transparency and efficiency in asset management. He directed the government to initiate the privatisation of all non-core assets and to start conducting public IPOs for companies under Samruk-Kazyna, beginning in 2024. For 2025, he requested the public IPO for Air Astana, to prepare QazaqGaz for market entry, and to divest state assets in major companies.
Against the background of the President’s continuous call for reform and decree 654, the MNE developed an analytical report and action plan, which includes seven points due to be implemented by 2028. Since the action plan has not yet been implemented, it currently remains unclear what the exact scope and coverage of SOE reform in Kazakhstan will be.
1.6.2. Amendments to the law on state property
In early 2023, the MNE requested inputs from the OECD team to the law on State Property which describes and specifies some aspects of Kazakhstan’s ownership arrangements over SOEs. Although the amendments are still in process, this note will briefly refer to the main changes therein:
Firstly, it has been proposed to pilot 4 000 entities with a revision of their classification, and to divide them into two main groups: economic (including infrastructural, production, and financial organisations) and non-economic (such as schools, national development institutions, and fundamental research organisations). This categorisation is based on criteria like funding sources, whether budget or off-budget, and the organisations’ goals and objectives. The organisational and legal forms are being aligned with the nature of the organisation, with the “state institution” form being introduced for non-economic entities. Additionally, certain organisational and legal forms, such as state enterprises, are being liquidated. Standardised criteria are being set for the creation and operation of state-affiliated commercial organisations as JSCs or LLCs.
Currently there are no strict rules on selecting a legal form when the state creates a new SOE. To counter this revisions envision that SOEs in Kazakhstan will have the option to either adopt the legal form of a JSC or LLC, depending on their plans for placing securities on the stock exchange. JSC is required when securities will be listed on the stock exchange, while all other organisations with state participation are categorised as LLCs. If implemented the state enterprises will therefore cease to exist.
In addition, and most importantly, the MNE, alongside the MF is planning on putting in place a so-called national report of the quasi-state sector, or a type of aggregate reporting. The plan is to have an annual report, with the MNE developing the type of reporting and the MF administering/ collecting the information. It will be published online with the aim to support with monitoring activities. Holding companies are also obliged to provide the requested information. In order to gather the information, amendments have been included within the Budget Code. The reporting is supposed to feed into the privatisation plans of the country, by providing clear indications on which companies are to be liquidated/ reformed.
Another focus of the reforms is reducing the share of state participation in the economy. This is being achieved by adhering to the principle of competitive neutrality, which ensures equal conditions for both SOEs and private companies. Clearer criteria are being established to determine the participation of SOEs in economic activities, specifically entrepreneurial activities.
Moreover, efforts are underway to improve the corporate governance in SOEs, by defining principles for managing JSCs and LLCs with state participation. BOD and supervisory boards are being empowered to effectively perform their functions. Additionally, a centralised and transparent process for nominating and appointing board members is being introduced as well as unified registry of candidates to be appointed as independent directors of BODs.
It is noted that it is planned to exclude political civil servants from being elected to the BOD of JSCs and LLCs belonging to the quasi-state sector. Clarifying or defining the role of a political civil servant would allow to understand what this change entails.
The Ministry of Economy has noted that the State Property law is planned to be submitted to the government (office of the Prime Minister) by the end of December, and by the first quarter of 2024 to Parliament. The timeline may change though, and even if the reforms will be included within the updated legislations, it remains unclear how they will be executed.
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Notes
← 1. United Nations, the World Trade Organisation, the Commonwealth of Independent States (CIS), the Shanghai Cooperation Organisation, the Eurasian Economic Union, the Collective Security Treaty Organisation, the Organisation for Security and Cooperation in Europe, the Organisation of Islamic Cooperation, the Organisation of Turkic States, and the International Organisation of Turkic Culture.
← 2. The first tier refers to regions and cities of republican significance. The second level includes districts in regions and cities of republican significance, as well as cities of regional significance. Akimats of villages, rural and settlement districts, cities of district and regional significance belong to units of administrative-territorial division of the third level.
← 3. Poverty headcount ratio at national poverty lines (% of population).
← 6. Or State Property law
← 7. According to paragraph 31, article 3 of the Budget Code, paragraph 7 article 1 of the JSC law and article 166 of the Entrepreneurial Code SOEs are divided into fully state-owned enterprises (100% state participation), legal entities in which more than fifty percent of shares belong to the state, and legal entities in which more than fifty percent of shares directly or indirectly belong to legal entities, more than fifty percent of the shares of which belong to the state.
← 8. The term "quasi-public/state sector" typically refers to organisations or entities that have some characteristics of both public and private sectors. These entities are not fully government-owned or government-controlled, but they often operate in sectors that are traditionally associated with public services or have a significant impact on the public interest.
← 9. Kazakhstan’s laws refer to LLCs and Limited Liability Partnerships (LLPs). However, for ease of comparison, this report refers to Limited Liability Partnerships as Limited Liability Companies.
← 10. Samruk-Kazyna and Baiterek
← 11. QazBioPharm
← 12. KazMunayGas, KEGOC, KazPost, Food Contract Corporation, Kazatomprom, National Information Technologies, Kazakhstan Temir Zholy, Kazakhtelecom, Kazakhstan Engineering, Kazakhstan Garysh Sapary, Tau-Ken Samruk, Aktau Trade Sea Port, QazExpoCongress, QazAutoZhol, Kazakh Invest, KazakhExport, Kazakh Tourism, QazaqGas, National Geological Service.
← 13. OECD team observed that the State Registry has discrepancies with the data provided by the holding companies. Samruk-Kazyna has 282 companies on 6 levels, Baiterek has 58 enterprises on 5 levels, Kazakhstan Engineering has 22 on 2 levels, while the State Registry counts only 178, 12 and 17 enterprises of these holdings correspondingly.
← 14. The remaining enterprises are under communal property.
← 15. Excluding Akimats
← 16. Article 22 of the Securities Market law carves out the conditions and procedure for issuing securities in the territory of a foreign state, which do encompass expectations on the value of the issued securities. According to the law, an organisation that is resident to Kazakhstan which intends to issue securities or derivative securities must offer them for purchase either through KASE and (or) stock exchange AIX on the same conditions of placement as in the territory of a foreign state, in the amount of at least 20% of the total volume planned for placement.
← 17. This figure stems from the KASE and Samruk-Kazyna website, and collides with Kazakh government data received in Table 1.2.
← 19. State financialisation describes a process in which the state pursues development policies through creating state-led financial investment institutions. (Dixon, 2020[17]) bases the definition of state financialisation on the research of (Dixon, 2014[48]) (Mertens, 2018[49]), (Lazzarini, 2014[50]), (Wang, 2015[51]), which identify an active role of the state in emulating market-based financial actors.
← 20. This report refers to LLPs as LLCs throughout.
← 21. State property law establishes that such supervisory boards should consist of at least 5 members, that have no relationship with the SE, 30% of which should be independent directors. MNE develops rules on selection process and criteria for board members.
← 22. “financial organisations, joint-stock companies (with the exception of non-profit ones), state enterprises based on the right of economic management, subjects of state monopoly, special law, as well as organisations in the authorised capital of which there is a state share, and subsidiaries, dependent and other legal entities that are affiliated with them in accordance with the laws of the Republic of Kazakhstan.”
← 24. According to the MF as of 10 March 2023, out of 669 assets of the Comprehensive Privatization Plan for 2021-2025, 367 objects were sold for the amount of KZT 307.5 billion, while the electronic database indicates the sale of 306 assets for KZT 74.7 billion.
← 25. The “strategic investor” could be an incumbent manager, hence this category encompasses management buy-outs.
← 26. https://primeminister.kz/en/news/2025-zhylga-karay-memlekettin-ekonomikaga-katysu-ulesi-14-ga-deyin-kyskarady-a-smaylov-23828
← 27. https://primeminister.kz/en/news/esep-komiteti-zhogary-auditorlyk-palata-bolyp-kayta-kurylady-e-zhamaubaev-1825840
← 28. 372 assets sold also includes 96 assets of KazMunayGas those 3% of shares were floated in local stock markets, however MNE and MF classify these 96 assets as sold. Other 58 assets of Kazakhstan Temir Zholy, Samruk-Energy, QazaqGas, Air Astana also included in the perimeter of IPO and accounts in total number of assets for privatisation, but in fact will not be sold.
← 29. There is no data available on actual implementation data of the privatisation plan for 2014-2016.
← 30. More than 280 assets were excluded from the plan starting from the end of 2021.