Privatization Instead of Transformation of the Quasi-Public Sector

We are approaching the middle of 2017, and the public sector's share of the economy is not shrinking, just as it was not before.

Instead of privatizing, we are "transforming," and transformation has produced no results and never will. I have always been struck by how our actions diverge from our words. We say one thing and in practice do another. I recently watched a speech by the Prosecutor General, in which he described quite clearly how good initiatives get buried and end up on the shelf. We do not look for ways to accomplish the tasks we are given. We busy ourselves coming up with reasons why a given instruction cannot be carried out.

There are many reasons for this, but the main one is that everyone is afraid of taking responsibility. Everyone fears that if something goes wrong, he will be fired, put in prison and barred from earning a living.

Everyone is angling for someone else's job. A private entrepreneur is different: he faces no consequences for his mistakes. He is his own boss, and if something goes wrong, he accepts it as a given, moves on, develops and progresses. This is a basic truth: the greater the diversity, the faster everything moves forward overall.

Alas, the state economy works differently.

So what do we do? As long as there are the National Fund, the UAPF (Unified Accumulative Pension Fund), the national budget and the National Bank's printing press, we can keep papering over the country's problems. But why does no one think that this is a time bomb?

How much money have we already spent on transformation? Billions of tenge. In reality, it would have been better to simply get rid of all these enterprises and introduce a proper corporate governance procedure. After that, the market and competition would force everyone to set up their processes efficiently.

Why isn't this being done? It seems to me that our officials are simply afraid of privatization. A great many unpleasant facts would come to light, costing some of them their jobs, and some might even end up behind bars.

As in the famous film, "everything has been stolen before us." It is the same here. Everyone understands that if the assets for sale were properly valued, Samruk-Kazyna would have to recognize very large losses on the sale of those assets.

But that is only half the trouble. The other problem is that we have no infrastructure at all for selling state property. The stock exchange does not work, there is no credit, there is no proper market, and there are no proper appraisal companies either.

Recently we looked at one asset that we wanted to buy in installments. I told the representative of the state company: your asset is not worth that much, and the installment rate you are offering will not allow the project to pay for itself. Why sell on such terms? He immediately replied that he could not go any cheaper, because questions would be asked of him afterward. Then he told me that he already had a client for those terms. What he does not understand is that anyone who offers to buy on such terms has no intention of developing the enterprise. He wants to run state property for his own benefit. We need to look to the future, not just at the here and now. And there are plenty of such examples.

All of KazAgro's assets, our oil refineries, most of the mining projects: all of them are significantly overvalued. And we are talking about billions of tenge.

To break the deadlock, we need to relieve managers of personal liability and sell everything at the price the market offers, not at the price our quasi-state managers spent.

Take the Atyrau Refinery (ANPZ) as an example. Samruk-Kazyna has posted a teaser for the company on its website.

Note this: equity is negative at KZT 60 billion, and accumulated losses are KZT 150 billion! That is the kind of asset being put up for sale. Who would buy it? Whoever buys it will do so only to milk it for narrow local gain; otherwise he would not take it even for free. To sell such an asset, part of the liabilities would have to be written off, the losses absorbed and the asset handed over for zero tenge. The enterprise is bankrupt, yet it supplies the country with 20% of its fuel, with the highest processing cost and the lowest yields. Naturally, to obtain the maximum value for such companies, bankruptcy should be made easier, with the losses shared among all the creditors. But most likely it is not that simple, and the company's obligations are guaranteed by its parent company.

Or take Tulpar-Talgo. The situation looks similar: negative equity, annual losses of more than KZT 3 billion, and a main customer, Kazakhstan Temir Zholy (KTZ), that is close to bankruptcy. Which investor would buy such a plant?

The Shymkent refinery (ShNOS), Kaustik and Maikainzoloto are in the same condition, and I could point to another ten or so such assets.