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The National Interest: How the Government Manages State-Owned Companies

Written by on Saturday, 29 January 2011
Business and Economics, Kyrgyzstan
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123Translation of Mirbek’s post (ENG)

The management of state-owned property has become especially topical now that the country’s budget is going through a difficult period. As we look for potential sources of income for the state, we often overlook the colossal potential of the government’s assets, particularly revenue from companies that are predominantly state-owned. Given the low quality of corporate management in these companies, the level of theft and corruption, which was recently highlighted by opposition MPs, is unsurprising.

In recent weeks, Kyrgyzstan’s opposition MPs have exposed a number of secrets of national importance. Particularly heartening was the MPs’ call to sort out the state-owned company management system. According to deputy A. Zhaparov, “It is time to put an end to [the system], in which directors of companies like the Manas International Airport, Kyrgyz Temir Zholu National Company (railways) and Kyrgyzaltyn (gold mining) are becoming oligarchs at the same time that they claim to be running a deficit.” We know it perfectly well! Has anyone heard how much Kyrgyzaltyn or Manas Airport contributed to the state budget and when? On behalf of the country, Kyrgyzaltyn is the world’s 22nd largest producer of gold by volume (!). That’s a good 18 tons per year passing through the company’s hands. Given the current world price of gold ($1300 per troy ounce or $43 million per ton), Kyrgyzaltyn’s revenue should have totaled $775.5 million per year.

Yet the company’s administration claims the state received 211.7 million soms ($4.8 million) in 2010. Can you imagine that this monopolist, Kyrgyzstan’s largest corporation, received a mere $4.8 million profit, given a revenue of $775.5 million? Put another way, their profits amounted to a meager 0.62%, while the average profit margin for similar companies around the world is about 10%. This means Kyrgyzaltyn should be making profits in the region of $77.5 million. It also means that this state-owned enterprise has earned corrupt officials and criminal elements (everyone knows criminal groups are involved in the gold business) about $72 million.

With help from the government, the MPs have to form an independent taskforce to investigate the work of Kyrgyzaltyn and all its structural subdivisions. The taskforce should thoroughly analyze the production process, the quality of management, security and financial management. The taskforce could determine what exactly the problem with these enterprises is, poor organization or outright corruption. It will be easy to see by the funds spent on expensive and unnecessary services or alleged technical losses.

Ideally, there should be a plan for the reform and development of Kyrgyzaltyn so that parts of the government’s share could be floated on the international markets. This could reap enormous benefits for the country. Just look at neighboring Kazakhstan, whose stock in similar large corporations is traded on the London stock exchange and brings the government billions every year. Such a scheme would also encourage sounder management.

It is not the only problem of its kind in our country. Everything mentioned above applies to all large enterprises owned predominantly by the government. This is why the parliament and the government must put in extra efforts to improve the function of the Ministry of State Property. Let’s hope this time our leaders will act decisively.

Bakai Zhunushov

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