Kazakhstan's privatisation programme faces "strategic" challenge

By Naubet Bisenov in Astana May 30, 2016

The Kazakh government’s aim of privatising strategic assets via initial public offerings by 2020 is threatening to come into conflict with its desire to maintain significant control over the companies.

Its attempts to interfere have already stoked disagreements between directors it appoints to boards of companies and independent directors, notably in the conflict between state-owned KazMunayGas and its London-listed upstream arm KazMunaiGas Exploration Production (KMG EP).

Any overt attempt to interfere in privatised companies risks being very damaging for the reputation of Kazakhstan, which is seeking to attract foreign investment and sell stakes of up to 25% in seven flagship companies. These comprise KazMunayGas, Kazatomprom uranium producer, Kazakhstan Temir Zholy railway operator, Kazpost, Air Astana, Samruk-Energy electricity producer and Tau-Ken Samruk mining holding company,

Rumbling disagreements between the KazMunayGas and KMG EP directors have led to rumours of the national oil and gas company buying back minority shares in its operating company in a bid to reduce the influence of independent directors.

Reports resurfaced in late April over disagreements between KazMunayGas and KMG EP over the huge cash pile the latter accumulated when the price of oil was high; the national oil and gas company first announced plans to seek a loan to buy back minority shares in KMG EP but later denied the plans. Kazakhstan watchers suggest the move is driven by the national company’s need to service and pay its vast debts, standing at $10.7bn at the beginning of 2016.

This and other proxy fights in Kazakh London-listed companies are now threatening to undermine the government’s large-scale privatisation plans, especially those involving IPOs as there is no certainty as to how much control the government will exert over its strategic assets.