VZCZCXRO5788
RR RUEHDBU RUEHLN RUEHVK RUEHYG
DE RUEHTA #3278/01 2610941
ZNR UUUUU ZZH
R 180941Z SEP 06
FM AMEMBASSY ALMATY
TO RUEHC/SECSTATE WASHDC 6972
INFO RUEHAST/USOFFICE ASTANA
RUCNCIS/CIS COLLECTIVE

UNCLAS SECTION 01 OF 02 ALMATY 003278 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR SCA/CEN - O'MARA 
 
E.O. 12958: N/A 
TAGS: PGOV ENRG EPET KZ
SUBJECT: KAZAKHSTAN: CEO UPDATES AMBASSADOR ON STATE 
HOLDING COMPANY PLANS 
 
Ref: ALMATY 3178 
 
ALMATY 00003278  001.2 OF 002 
 
 
¶1. (SBU) Summary:  Sauat Mynbayev, Acting CEO of Samruk, 
Kazakhstan's Holding Company for State Assets, told 
Ambassador on September 12 that Samruk had completed its 
"organizational phase" and was now concentrating on 
improving corporate management.  Mynbayev confirmed the 
anticipated privatization of a KazMunaiGas subsidiary 
(reftel), and suggested that KazakhTelecom might offer a 
limited (4.5%) placement in the future.  According to 
Mynbayev, Samruk-held companies will be managed 
independently of one another, with no cross-subsidization 
of unprofitable companies by profitable ones.  While 
Samruk makes much of its plan to appoint "independent" 
directors, the example of KMG's board suggests little 
intention to relinquish substantial control to outsiders. 
End Summary. 
 
Samruk Progress Report 
---------------------- 
 
¶2. (SBU) Mynbayev informed Ambassador Ordway that Samruk 
had recently concluded its "organizational stage," during 
which Parliament passed enabling legislation; shares of 
the first five state companies -- KazMunaiGas (KMG), 
Kazakhstan Temir Zholy (KTZ), KazPost, Kazakhstan 
Electrical Grid Operating Company (KEGOC), and 
KazakhTelecom -- were transferred to Samruk, and changes 
were made to the companies' charters, boards of directors, 
and audit procedures; and Samruk's internal staffing and 
budget were defined.  With those tasks accomplished, 
Mynbayev said, Samruk would now focus on implementing 
uniform corporate management practices and developing mid- 
term strategic and budgetary plans for each company. 
 
Independent Board Directors 
--------------------------- 
 
¶3. (SBU) Mynbayev explained that, in an effort to ensure 
professional corporate management, two "independent" 
directors would be appointed to Samruk's Board, and to the 
(six member) boards of each constituent company.  (Note: 
To date, only Alexander Pavlov - Deputy Chairman of the 
Asar political party - has been named an "independent" 
Samruk Board member.  One position is still vacant. End 
note.)  Additional expatriates, Mynbayev added, would be 
recruited as needed.  Samruk, he said, had already hired a 
German CFO, Ulf Wokurka (see par. 4), and a Russian Human 
Resources Director. 
 
¶4. (SBU) Note:  Theoretically, Samruk will influence the 
operations of its constituent companies only via the 
latters' boards of directors.  In addition to two 
"independent" directors, each company board (composed of 
six total members) also includes two Samruk 
representatives.  Thus, for example, KMG's board is 
chaired by Timur Kulibayev (Mynbayev's Deputy at Samruk) 
and also counts Galiausat Keshubayev (Director of the 
Samruk office which oversees KMG, and an old KMG hand) as 
a member. The only "independent" KMG director named to 
date is Guglielmo Moscato, a former AGIP Chairman and Eni 
President with extensive Kazakhstan experience.  The two 
remaining KMG directors are KMG President Uzakbay 
Karabalin and Bolat Akchulakov, Vice-Minister of Energy & 
Mineral Resources. End note. 
 
Privatization Plans 
------------------- 
 
¶5. (SBU) Asked about the forthcoming partial privatization 
of KMG's exploration and production subsidiary, Mynbayev 
responded that the offering would likely occur in 
December.  Mynbayev identified KazakhTelecom as the only 
other Samruk company likely to be offered on the 
international market, telling the Ambassador that "there 
is a chance" that 4.6% of the company would be privatized. 
(Note: In an August 18 meeting with the DCM, Samruk CFO 
Ulf Wokurka described the divestiture of five percent of 
KazakhTelecom as a "first step," with later reduction of 
the State share to "25% plus one share" likely.  Mynbayev 
alluded to the fact that the GOK had not yet formed a 
consensus on KazakhTelecom's fate.  End note.) 
 
¶6. (SBU) Turning to KTZ, the national rail company, 
Mynbayev suggested that segments of the company, such as 
its rolling stock, might eventually be privatized, but 
added that internal reforms would have to be undertaken 
first.  No plans existed for privatizing either KEGOC or 
 
ALMATY 00003278  002.2 OF 002 
 
 
KazPost, he added.  (Wokurka told DCM of other plans afoot 
at KazPost, explaining that company might undertake a 
"social role" by offering banking and insurance services 
to its clients in the most remote regions of the country.) 
 
¶7. (SBU) Asked by the Ambassador which other state-owned 
companies might be transferred to Samruk, Mynbayev replied 
that there were "many" under consideration, including Air 
Astana, KazAtomProm, and "the airports." 
 
How the Money Flows 
------------------- 
 
¶8. (SBU) Mynbayev told the Ambassador that, of the five 
Samruk companies, all but Kazakhstan Temir Zholy were 
"profitable."  As the State shareholder, Samruk received 
dividend payments from each company, which it passed on to 
the national budget after paying its own administrative 
costs.  Samruk's payments to the budget would not be 
particularly significant to the State, Mynbayev noted - 
KMG, for example, would pay far more to the State in taxes 
and other direct payments than would be transferred as 
dividends via Samruk.  Mynbayev underscored that the 
financial affairs of each Samruk company would be managed 
separately - there would be no reallocation of money from 
one (more profitable) company to another. 
 
¶9. (SBU) Comment:  "Professionalizing" the management of 
Kazakhstan's state-owned companies does not necessarily 
mean changing the cast of influential characters, if the 
KMG example is any guide.  Still, Samruk puts some welcome 
distance between the government and the operation of the 
state-owned companies.  Prior to Samruk's creation, the 
ministries were responsible for both the regulation and 
the operational oversight of state-owned enterprises. 
Samruk, as a non-ministerial entity seeking its best 
practices from the business world, should improve the 
corporate governance of its constituent companies. End 
comment. 
 
ORDWAY