Deputy Prime Minister of Kazakhstan Kairat KELIMBETOV:
GOVERNMENT TO BUY OUT STAKES IN BACKBONE PENSION FUNDS
Kazakhstan's financial sector is on the verge of a major shift: a sale of state interests in the four major banks and merger of pension assets under one umbrella. Deputy Prime Minister Kairat KELIMBETOV, in charge of macroeconomics, financial sector, integration and development of space Serik Akhmetov told Interfax-Kazakhstan how tightly these plans are interwoven and what are the other pressing issues facing Kazakhstan's economy.
- Kairat Nematovich, the most pressing issue in the financial sector is the sale of state-owned stakes in major banks and establishment of a centralized pension fund.а The deadlines have already been set: by the end of the year and until July 1 respectively. Could you tell us more about these developments?
- In 2008 Samruk-Kazyna, a chief anti-crisis government operator, was established. BTA Bank and Alliance Bank found themselves in a very tight corner. The state had to take certain steps to save these lending institutions and protect the rights of depositors.
The Government, together with the National Bank decided to support the four banks - Kazkommertsbank, Halyk Bank, Alliance Bank and BTA. As a result, the state bought into these banks. But recently, we sold our share in Halyk Bank, as for Kazkommertsbank, it is still pending.
BTA was dealing with serious frauds and litigations to recover the funds and had two debt restructurings. The second restructuring was a yardstick to assess that the external debt was no more a macroeconomic problem. Since we put out the fire in the banking system, it was a political decision to return the banks into the commercial environment.
NOTE: Samruk-Kazyna is the major shareholder of Alliance Bank, Temirbank and BTA Bank that ran into a liquidity shortage during the previous crisis and had to restructure their debts.а Samruk-Kazyna holds 67% stake in Alliance Bank, 79.88% in Temirbank, 18.3% in Kazkom and 97.29% in BTA Bank.
Selling state shares in the four banks is subject to covenants andа consent of other shareholders.а BTA Bank, Alliance Bank and Temirbank have world's largest financial institutions among their shareholders. It implies that the selling process will take from six to twelve months.
But, there is another option. We have decided to create a centralized pension fund (CAPF). We currently hold licenses of 10 PAFs, with four of them accounting for 75% of the domestic pension market: the State Pension Fund controlled by the National Bank with a 20% market share, Ular Umit owned by BTA Bank, Halyk Bank's PAF and Grantum owned by Kazkommertsbank. The government is on the verge of making a decision to buy out the stakes in these funds. This will be done to make all pension funds belong to the government and consolidate all pension assets.
The state pension accumulation fund (SAPF) will form the foundation that will be propped up by these three Funds. International auditing companies will be engaged for assessment prior to the acquisition deals.
The state pension accumulation fund and Ular Umit are just a matter of internal regulation, sinceа the state is a major shareholder in SAPF and BTA Bank that owns Ular Umit.
The government may consider offering BTA Bank shares to pay for a stake in Halyk Bank's pension fund and returning Kazkommertsbank shares owned by Samruk-Kazyna for a stake in Kazkommertsbank's Grantum PAF.
As a result, the state will own four major pension funds on the premises of SAPF, which will be merged into a centralized pension fund. In addition, once the issue with the centralized fund is solved, we will sell the state shares in BTA Bank to market players, in particular, the Halyk Bank.
Meanwhile, we will offer a single strategic investor to buy Alliance Bank and Temirbank. These two banks have to be merged to create a major player in the retail market. Buying those two banks together is the idea behind the offering to a strategic investor.
- How the retirement market will be operating after the reform and how the investment tools are going to change? Experts are split on the issue: some calling it nationalization, while others believe in better safety of savings and higher investment returns. What would you say to skeptics?
- The market for pension funds is very easy to understand. If you look at the investment tools, 50% are government securities. The second major category is quasi-public sector securities offered by Samruk-Kazayna and national companies, which will also remain an investment option. As for the foreign assets, today only 10% of pension funds invest in them. The return on investments in foreign assets will rise since it will be operated by the National Bank and you could not find any better player than that. The National Bank manages $87 billion assets and will be perfect for the role.
We suggest that the remaining pension asset funds go into management of voluntary pension contributions or transform into pension asset management companies. In the latter capacity, they will participate in the auctions announced by the National Bank. Accordingly, safety and credibility will increase. What could be more reliable and safe, if not the state taking care of people's money?
Currently all the pension funds operate under the government guarantee for profit. In other words, in case of a negative rate of return, the losses are covered by the public funds. Some pension funds could have had a good time at public cost. Today we can't afford that. With the National Fund acting as a strict sensor and regulator, we will have a double guarantee. As a result, the total yield will increase to benefit all. Pensioners should not have to pay for careless and negligent pension fund managers.
People are concerned that state officials will manage their pension contributions, but it is not the state officials, but the National Bank who will regulate those issues.а The National Bank has a clearer vision, where to invest and how much to invest, while pension assets management companies will be working in the stock market.
The state is accountable to pensioners, so it is tightening the control over the pension funds.а It's a pure logic!
- Kazakhstan has been actively discussing the idea of raising the retirement age. Is this a timely step?
- My personal opinion is that the there is an objective need to raise the retirement age. Today's reality shows that people need to save money for a longer period of time for the pension system to function properly. The retirement age of both men and women is expected to be leveled off and raised to 63. The detailed proposal on raising the retirement age is expected in the first quarter of this year.
The unification of retirement age is a very sensitive issue, and I know that the Parliament is expecting the Government to give as many options as possible. I believe that we can find a solution that will be publicly accepted.
- It has been announced that KEGOC will be a second state-owned company to hold "the People's IPO."а It was planned that 4 or 5 state-owned companies will float their shares within this program, however, SK says it is reducing the number of companies nominated for IPO in 2013. Which company will follow KEGOC and how soon should we expect it?
- The People's IPO proved a success last year, since over 30,000 individuals took part in the subscription to KazTransOil shares. We see a tremendous interest of Kazakhstan's residents in the securities of the quasi-public sector. KazTransOil was the right choice including the market value of its securities. KazTransOil does not depend on oil prices, but only on the cost of oil transportation.
Initially we planned to bring 4 companies to the stock market within the People's IPO: KEGOC, KTG, Kazmortransflot and Samruk-Energo. In order to avoid rushing things up and creating an unnecessary stir, we are thinking of giving only two companies a go.
KEGO will go first, but it will most likely happen in the second half of the year instead of the first quarter. KazTransGas undergoing a major internal restructuring will go second. According to its parent company KazMunaiGas, it feels ready. This is a transparent infrastructure company, which depends on the tariff policy. I think that these two companies will be floating shares at this year's People's IPO.
I think that is a very good plan: one company in the first year,а two in the second and then we will pick up pace offering shares of such giants as KazMunaiGas and Kazakhstan Temir Zholy.
- In late January, you, as a co-chair of the Kazakh-Russian Intergovernmental Commission for the Baikonur Launch Site met with your Russian counterpart Igor Shuvalov. Later the space issues were on the top of the agenda of the presidents of Russia and Kazakhstan... What fundamental agreements did the parties manage to reach?
- First. Kazakhstan said it did not question the Baikonur long-term lease until 2050. A mutually beneficial partnership remains the main principle of space cooperation at Baikonur, as emphasized by the Presidents of both countries.
Second, the Russian side informed us of giving up on Baiterek launch system project based on the Angara booster, but agreed to swap it for Zenith and take part in other joint space projects with Kazakhstan. In May and June this year, Roskosmos and Kazkosmos will draft proposals with Ukraine as the third party.
In turn, Kazakhstan sought opportunities to train its national personnel and expand their involvement in Baikonur launches. Our goal is to use Baikonur to its maximum to the benefit of economic and technological development of Kazakhstan's economy. Russia was very understating of that.
The last, but not least was the environmental safety of the Baikonur space rocket complex. We offered the Russian government to draft an agreement on environment to minimize risks of Baikonur operations.
In March, we will hold the first meeting of the intergovernmental commission on Baikonur issues and by the end of October, we will present a comprehensive agreement on the joint use of Baikonur to the head of states.
- Will this agreement supersede the 1994 Baikonur lease contract?
- It is difficult to say at the moment because the ministries of foreign affairs of our two countries have to answer this question.
In my opinion, a new contract aimed to unify the current legislative framework given the new trends in our cooperation on the Baikonur, would be an important step. The document would address all the issues in detail. Such instruction has been given by our presidents following their recent meeting in Moscow.
- What decisions on phasing out the number of Proton-M carrier rocket launches have been made, on which the Kazakh side has been insisting for many years?
- In the context of the environmental safety we surely discussed the phasing out of Baikonur launches of toxic fuel rockets. Russia committed to do that, as stipulated in the 1997 agreement on the Baikonur lease extension.а The phasing out of Proton-M rocket launches was expected to be offset by the environmentally-friendly Angara rocket lift offs from the Baiterek site. But as I have said, Russia plans to develop the Angara project on its territory and thatТs its sovereign right not disputed by Kazakhstan. Eventually, the heads of our states decided to replace Angara with the Zenit carrier rocket.
We reached an agreement with our Russian partners that Roscosmos and Kazcosmos would switch from planning rocket launches on an annual basis to at least 2-3 years in advance or a longer period. So, we could succeed in working out a mid-term conception of phasing out the Proton launches. Both Kazakhstan and Russia want to see a full picture and set up a relevant launch schedule.
From now on we agreed to make important statements regarding the activity of the Baikonur intergovernmental panel together. We have reached this agreement with Igor Ivanovich Shuvalov.
- What is your stance on the idea of Kyrgyzstan, Tajikistan and UkraineТs accession to the Customs Union?а In your opinion, is there any chance that Ukraine may become a full-fledged member?
- Let me express my personal opinion. It seems to me that Russia, Kazakhstan and Belarus would agree on the Eurasian Economic Union sooner than any other country joined the Customs Union.а Both Kyrgyzstan and Tajikistan are at the early stage of the negotiations. We have got an official application from Kyrgyzstan for the Customs Union's accession. Tajikistan has yet to submit its official request.
As far as UkraineТs accession is concerned... Initially our three countries had wanted it to join the Customs Union, Ukraine had even participated in the negotiations at the earliest point of our integration processes. ItТs difficult to say what is happening today. There is a certain level of "the Customs Union Ц Ukraine" relationship, however, there are no clear statements confirming UkraineТs wish to join the Customs Union on a full scale. The process is slowing down due to politicization of this topic in Ukraine. In my view, UkraineТs possible accession to the Customs Union will not happen any time soon.
By and large, Kazakhstan's attitude to third countries' accession to the Customs Union is positive.а We proceed from the unambiguous stance of the Presidents of Kazakhstan, Russia and Belarus, voiced at the meetings of the CIS heads: accession to the Customs Union on special terms is not impossible.
- According to the preliminary government estimates, the EXPO-2017 in Astana will cost Kazakhstan $1.5 billion. Is it likely that this large amount may increase even further? Which part will be covered by the budget and how much funding do you plan to raise from investors?
- Let me be straightforward, we are not talking about some crazy investments. I even heard an absurd idea that a centralized pension fund is being set up in order to finance the EXPO-2017 arrangementsЕ I would like to assure taxpayers and pensioners: there are no such ideas!
To understand the issue better, let me explain the scale of the event.а EXPO means a 3-month long exhibition to be held in the summer of 2017.а The EXPO campus with the area of 120 hectares will be located opposite to the Nazarbayev University including 25 hectares to accommodate national exhibition pavilions from the other countries.а EXPO is expected to be visited by 5 million people.
One thing should be understood: the construction of the EXPO campus is not a very expensive enterprise. Moreover, budget allocations to the project will be cut as much as possible at the expense of public-private partnership or sponsorship.
The other point is inviting 2 million visitors including the guests from abroad without properly arranging the reception is not wise.а Astana must present a decent image of a world's capital to be recognizable and memorable. In order to achieve that, Astana requires a rebranding as a world capital.а We are talking about the modernization of the Astana airport, construction of a light rail system, a new railway station and so on. Although expenses on these projects are indirectly related to the EXPO-2017, it is still the issues of our domestic development.
So, I can assure you that the taxpayersТ money within the framework of EXPO arrangements will be spent in a very disciplined and transparent way, we will raise a significant portion of funding from the investors and sponsors.
As far as specific figures are concerned, for the time being the estimated amount of expenditure still remains at $1.5 billion. This figure will not change until at least October when the Bureau of International Exhibitions should approve KazakhstanТs registration dossier.
I can also say that we are planning to announce an international contest among architects and designers to select the EXPO-2017 symbol and EXPO-city master plan. We expect to involve 30 worldТs renowned architects, who will be gathering in Astana at the end of March for brainstorming. There are plenty of ideas about the future appearance of the EXPO-city, it is necessary to select the best of them and implement it.а We will finalize the contest by mid-summer.
- What image dividends does this exhibition offer to Kazakhstan?
- Astana's wining the contest to host the EXPO-1017 is the recognition of the fact that Kazakhstan is capable of holding international events of this kind. Otherwise we would not have been allowed to do so. This also shows an appreciation for the scale of reforms in our country.
EXPO will make Kazakhstan recognized globally and promote its positive image worldwide. Why do we need to be recognized?а In order to get direct foreign investments in the economy ad ensure KazakhstanТs GDP of 8%-10%. $150 billion has been invested in Kazakhstan, but we count on more direct foreign investments.
In this contest the exhibition has not been randomly entitled "the Energy of the Future".а Kazakhstan as the major supplier of energy resources in the region demonstrates its own responsible policy in environment and energy saving. Kazakhstan is an advocate of the green economy principles implemented through building renewable generation capacities.
Kazakhstan came up with an initiative to hold the international forum of green technologies, which would serve to solvingа this problem globally and putting KazakhstanТs on the pathа to the green economy.а It implies cutting edge technologies, energy saving and environment improvement as a whole. This means that Kazakhstan is moving in the right direction.
- Thank you for the interview!
February, 2013
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