August 7, 2013 5:51 pm

Kazakhstan fund chief aims to clean house

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Umirzak Shukeyev is trying to clean up some of the most opaque corporations in one of the world’s most inscrutable countries. It is not a job for the faint-hearted.

Mr Shukeyev is head of Samruk-Kazyna, the sovereign wealth fund of Kazakhstan – a sprawling empire of state-owned companies that symbolises the oil-fuelled power of the Kazakh state.

Funding future wealth

Funding future wealth
By the numbers: Samruk-Kazyna

Over lamb kebab in the Kazakh capital, Astana, the former regional governor admits he is a fairly recent convert to western capitalist values. “At the start I didn’t really understand corporate governance,” he admits. “I do now.”

Mr Shukeyev’s attempts to impose order on Samruk come at a tricky time for Kazakhstan Inc. The country’s image has been hit by the scandals surrounding ENRC, one of its biggest and best-known companies. The London-listed miner has been plagued by governance scandals, boardroom bust-ups and whistleblower allegations of fraud – and now the Kazakh government is teaming up with the company’s three oligarch founders to take it private.

Some fear other Kazakh groups could now be tarred by the ENRC brush. “There’s a lot of guilt by association,” says one western consultant in Almaty, the Kazakh commercial capital.

From oil and gas to railways, telecoms, banking, power generation and airlines, Samruk – named after a mythical Kazakh bird – dominates virtually every sector of the Kazakh economy. It has about $100bn in assets, representing just over half of Kazakhstan’s gross domestic product.

Critics say it is an unruly and disorganised behemoth, and that those assets would be much better off in private hands. “The government is never a good manager,” says Dosym Satpayev of Risk Assessment Group, a think-tank in Almaty.

Mr Shukeyev, 49, is out to prove the naysayers wrong. His vision is of a state enterprise that retains its crucial social function as a big employer and service-provider but also drives economic growth: a Kazakh version of Khazanah Nasional, the Malaysian sovereign wealth fund.

“The idea is to use the resources of Samruk’s companies to kick-start entirely new sectors [of the economy],” he says, “rather than just sitting there holding these stakes.”

To achieve this, Mr Shukeyev and his team are trying to inject western commercial values into Samruk’s sleepy subsidiaries. They have launched “people’s IPOs”, designed to raise funds for investment, establish the real market value of the fund’s assets and convert millions of Kazakhs to popular capitalism. The first unit to list was KazTransOil, the national oil pipeline operator, which raised $400m when it debuted on the Kazakh stock exchange last year.

The idea is to use the resources of Samruk’s companies to kick-start entirely new sectors [of the economy], rather than just sitting there holding these stakes

- Umirzak Shukeyev, head of Samruk-Kazyna

Others are to follow: Kegoc, which operates Kazakhstan’s electricity grid; Samruk-Energy, the national power company; and KazTransGas, owner of the country’s natural gas pipeline network.

But some are sceptical of Samruk’s privatisation plans. Critics wonder whether the IPOs will increase liquidity, considering the small size of the stakes being floated and the venue – Kazakhstan’s thinly traded stock exchange. Legal problems forced the postponement of plans to float Air Astana, the national airline, which is 49 per cent owned by BAE Systems. There are also doubts about how Samruk can attract investors into Kegoc when transmission tariffs are so heavily regulated by the state.

And then there’s the question of whether Samruk’s companies will ever fully meet western corporate governance standards, especially in the light of the ENRC affair. A notoriously murky place, Kazakhstan comes 133rd out of 174 countries in Transparency International’s corruption index, behind Togo and Côte d’Ivoire. After one particularly big fraud was uncovered at Samruk subsidiary Kazpost a few years ago, it was forced to declare a loss that wiped out three years’ profit.

Despite the misgivings, there is recognition that Mr Shukeyev, a keen saxophone player, has the power to clean things up. He is close to Nursultan Nazarbayev, the autocratic president who has ruled Kazakhstan for more than 20 years. He was appointed to run Samruk in December 2011, replacing the president’s powerful son-in-law, Timur Kulibayev, who was swept aside following bloody clashes between police and angry workers in the western oil town of Zhanaozen.

Mr Shukeyev has sought to make Samruk more efficient, spinning off non-core assets such as hotels, decreeing that all investment projects across the group should have a commercial return and shedding 2,000 office staff – a bold move, considering the trouble in Zhanaozen was triggered when striking oil workers were sacked. His moves are part of a plan proposed by PwC to take out $500m in cost savings over three years.

The fund has also sought to improve management through foreign hires. It recently recruited Nick Malone, a former executive at software group SAP, as its chief information officer, with a mission to centralise all the group’s IT and software, and help reduce corruption by creating an electronic procurement platform. One foreign oil executive in Astana says he was shocked Samruk lacked any enterprise-based software for the whole organisation.

Who are they supposed to compete with? They’re all monopolists. It’s questionable whether state structures can really contribute to the economy

- Dosym Satpayev, Risk Assessment Group

But the drive to hire outside talent has been complicated by a rule that no manager in a state company can earn more than the Kazakh prime minister. During the financial crisis, there was also a three-year moratorium on bonuses. These restrictions are being relaxed, however, and Mr Shukeyev says he wants to have one western vice-president in every Samruk subsidiary.

He also is looking to expand the fund, branching into petrochemicals and real estate development. One unit, Tau Ken-Samruk, is slated to become a major player in the Kazakh mining sector, and there are plans to increase Samruk Energy’s generating capacity. A new subsidiary called Samruk-Kazyna-Invest will provide seed funding for small high-tech start-ups such as solar panel manufacturers.

Meanwhile, Mr Shukeyev is spinning off Samruk’s banking assets, which were taken over during the 2008 financial crisis and restructured, into a new entity called Baiterek (“poplar tree” in Kazakh).

Critics say Samruk’s subsidiaries still feel more like Soviet-style ministries than real companies. The high turnover of senior management is a concern: Samruk has had four chief executives in the past four and a half years. Some westerners in Astana say Samruk’s bosses do not have any real power. “All the state assets and the state itself are just one person – Nazarbayev,” says one foreign executive.

Others are sceptical about the prospect of injecting a competitive, capitalist mindset into state-owned entities. “Who are they supposed to compete with? They’re all monopolists,” says Risk Assessment Group’s Mr Satpayev. “It’s questionable whether state structures can really contribute to the economy.”

Mr Shukeyev rejects that argument. He likes to cite Bad Samaritans, a book by the influential Cambridge university economist Ha-Joon Chang, who has criticised western neo-liberals for pushing privatisation and democracy in emerging nations. “He shows that for countries like Kazakhstan, state companies have a really important role in developing the economy,” he says.

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