JULES EVANS, LONDON
THE ANGLO-KAZAKH CONNECTION
The ill-informed Brit might think that the only thing that Kazakhstan and Britain have in common is Borat, the comedy Kazakh invented by British comedian Sacha Baron-Cohen. But actually, the connection is strong and getting stronger. Never mind the jokes – British businesspeople are making serious money in the oil-rich central Asian republic.
This was brought home to me last month, at the Kazakh Economic Forum in London, which was attended by a host of Kazakh ministers, advisors and senior businesspeople, in contrast to the Russian Economic Forum in London in April, which was poorly attended after president Putin put a fatwa on it.
One of the key-note speakers at the Kazakh conference was Sir Richard Evans, who used to be the CEO of BAE, the British aerospace company, and who for the last year has been working in Astana, by the special appointment of president Nazarbayev, as a director of the board of Samruk, a huge state-owned holding company.
Samruk, created at the start of 2006, includes most of the biggest companies in Kazakhstan – oil and gas monopoly KazMunaiGaz, electricity monopoly KEGOC, KTZ Railways, KazTelecom and Air Astana, to name just the main companies.
Evans, who helped set up Air Astana seven years ago while at BAE, says the main aim of Samruk was “to create an organization that gives foreign investors some assurance with regard to transparency and corporate governance”.
He’s been working over the last year to introduce a common corporate governance code and consolidated international accounting for all the 20 companies in Samruk. Part of that involves appointing at least two non-executive directors for each subsidiary. He’s also, he says, trying to shift the whole management direction of Samruk’s subsidiaries, so that “they are facing outwards”, responsive to the demands of global investors.
This is a massive task. The new code provoked a lot of discussion in Kazakhstan, as you can imagine, but Samruk’s board has finally agreed on a combination of the LSE’s principles with the OECD’s principles. Evans says: “It was a hard task to get the government’s approval for the code, but they have now approved it.”
The Samruk board then tried to introduce fully independent audits for each subsidiary, and fully consolidated international accounts for the entire holding company. This was also a daunting task – some of the subsidiaries have never had consolidated accounts, never mind the whole holding company. Evans says the accounts have now been finished and are about to be signed off.
Perhaps the biggest challenge, Evans says, has been the more general attempt to introduce a new culture, a new way of doing business, to the Kazakh state sector. He says: “The biggest single challenge is changing the business culture, changing individual behaviour of managers. You don’t have to dig deep to find Soviet bureaucracy and attitudes at work.”
He says he’s been helped by KazMunaiGaz, which worked with Ernst & Young to improve its corporate governance prior to the successful IPO of its subsidiary, KMG E&P last year, which raised $3 billion. The success of KMG’s implementation of western corporate governance set a clear benchmark for the rest of Samruk.
There’s also some politics at work – KMG’s deputy chairman is Timur Kulibayev, son-in-law of the president, possible successor, and also the man thought to be behind the establishment of Samruk, where he is also deputy chairman. Evans recognizes that Kulibayev is an important ally in his work: “Timur is the best business guy I have in the entire operation. KMG is the only enterprise in Samruk that is externally-facing, the only one with experience of how western companies operate.”
If managers fail to adapt and reform, Samruk apparently has the muscle to get rid of them. For example, the president of KTZ was resisting change at the railway monopoly. The government promptly sacked him. Evans says: “Of course, Samruk had some influence on that decision. We have a responsibility to the state to do our job, and there was a view we needed to make changes.”
Evans is now hard at work introducing the new corporate governance code, which he says is likely to be adopted as a national law for all companies, which would be a major step forward for the Kazakh market. He’s also in London looking for about 50 independent directors for the subsidiaries’ boards, and is marshalling his army of external consultants, from McKenzie’s, Deloitte, Ernst & Young and PWC, to help Samruk continue its reforms and prepare its companies for further London IPOs in the next two years.
You can criticize the venture from different directions, depending on your loyalties. If you’re a Kazakh, you might say who is this foreigner with so much influence over our state assets, giving these expensive contracts to all these British advisors and directors, and then selling the state companies to British investors? You might point out that Evans’ former company, BAE, is itself under investigation for bribery and corruption, and ask if this is the right person to clean up Kazakh business.
You might also wonder if Samruk is entirely economic in its aims, if it isn’t a political power play, or even an asset grab, by the ambitious Timur Kulibayev, which British business and the British government (for who can doubt the British government is taking a great interest in Evans’ activities) is aiding and abetting for its own ends. We might ask who is the buyer of these privatisations, and how much of them end up on the balance sheet of people connected to Kulibayev? (I did ask the bankers who arranged the KazMunaiGaz IPO, in fact, and was told it was private.)
If you are a snooty British businessman, or an indignant Guardian reporter, you might ask if the City of London isn’t getting its hands dirty with this great flow of opaque Kazakh companies to the London markets, if we aren’t helping to finance a dictator who has just extended his presidential term again.
For my part, I think the relationship between British and Kazakh companies is beneficial for both sides. The Kazakh government is not perfect, but it’s to its credit that it is so open to foreign expertise. It is not selling control of these companies to foreign investors or consultants. In fact, most of the investors in the KMG deal were Kazakh. It is getting the best advice from market professionals, so it can maximize the value of these firms for the state, which benefits all Kazakhs.
The introduction of the corporate governance code, and of international accounting for Samruk companies, is a big step forward for Kazakh business. And the establishment of a good reputation for Kazakh companies on the London capital markets is very important, as Kazakh companies go global and look to raise large amounts of capital, particularly on the London stock markets.
It’s a sign of a healthy empire to be open to foreign talent. Athens was always open to foreign experts. Rome opened its citizenship to the people it conquered. The Ottoman Empire was partly administered by its ranks of Christian eunuchs. America has been driven forward by its openness to talented new arrivals – Russians, eastern European Jews, Indians. Kazakhstan is wisely following the same principle in its embrace of western business practices and western consultants. Evans is like the Christian eunuch in the court of Sultan Nazarbayev.
And the Anglo-Kazakh connection is good for British business too. Foreign consultants win important contracts. Foreign investors get access to one of the biggest economic success stories in the former Soviet Union. The LSE gets a host of booming companies listed on its market, one of which – Kazakhmys - is already a top 50 company. And, above all, the EU may get better access to Kazakhstan’s enormous oil and gas reserves, which will hopefully gradually be freed from the grip of Gazprom and directed to the EU via alternative routes, such as the Baku-Ceyhan pipeline.
Jules Evans, a British freelance journalist based in Moscow.
July 6, 2007
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