Business on EBRD Loans in Kazakhstan
PROJECTS AT THE STATE’S EXPENSE
Investigation
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“The authors of this project absolutely do not care about how people would pay for the landfill. This issue would be tackled by another akim. The purpose of the current regional administration is to disburse the funds allocated by EBRD for construction, given all corruption ‘risks’ peculiar to the realities of Kazakhstan.”
I
Preamble
The largest creditor of Kazakhstan is not Russia that has common economic structures with it. It is neither China, which has paid more attention to Central Asia in recent years. Strange as it may sound, it is the financial structures of the European Union.
On the list of debtors to the European Bank for Reconstruction and Development (hereinafter, the EBRD), Kazakhstan (comparatively small state) ranks the 10th (!).
In per capita terms, Kazakhstan has borrowed almost twice as much (1.560 billion Euro per 18 million people) as Turkey (3.675 billion Euro per 82 million people) in the last 3 years. It means that every Kazakhstani owes to the EBRD twice as much as every citizen of comparatively wealthy Turkey.
On the list of debtors to the European Bank for Reconstruction and Development (hereinafter, the EBRD), Kazakhstan (comparatively small state) ranks the 10th (!).
In per capita terms, Kazakhstan has borrowed almost twice as much (1.560 billion Euro per 18 million people) as Turkey (3.675 billion Euro per 82 million people) in the last 3 years. It means that every Kazakhstani owes to the EBRD twice as much as every citizen of comparatively wealthy Turkey.
“During the period of EBRD operation in Kazakhstan, it has provided financial support to 280 projects for over 9.4 billion dollars (in the first quarter of 2021). 66 per cent of them is in private sector. Investments were channelled to the implementation of projects in priority sectors of economy such as infrastructure, energy, agriculture, IT, finance, housing and public utilities, as well as small and medium business…”
Askar Mamin
Prime Minister of Kazakhstan
Kazakhstan prefers to live on loans. One can even have an impression that European banks have turned Kazakhstan into a milking cow… However, this is a deceptive impression.
The Europeans always collect their debts.
Having analysed over sixty loans of the EBRD, we have arrived at the conclusion that Kazakhstan has developed a stable model of corrupt disbursement of EBRD loans in provinces. It consists of three elements, which show that the loan is going to be used for illicit enrichment.
The Europeans always collect their debts.
Having analysed over sixty loans of the EBRD, we have arrived at the conclusion that Kazakhstan has developed a stable model of corrupt disbursement of EBRD loans in provinces. It consists of three elements, which show that the loan is going to be used for illicit enrichment.
II
A riot of puppets at the household waste landfill
On March 30, 2021, a scandal unfolded in East Kazakhstan. Maksut Nigmetov, acting director of ‘Keleshek’, refused to sign a multibillion loan agreement with the EBRD meant for the modernisation of the household waste management system in the city of Semey.
It occurred in the presence of akim of the region, Danial Akhmetov, and the EBRD management led by the president of the bank mission in Kazakhstan, Agris Preimanis.
It occurred in the presence of akim of the region, Danial Akhmetov, and the EBRD management led by the president of the bank mission in Kazakhstan, Agris Preimanis.
MaksutNigmetov
Ex-director,
Multi-branch enterprise ‘Keleshek’, Department of housing and public utilities and home inspection of Semey
“... interrupt my speech rudely, started to demand loudly my immediate resignation from their employees, instructed the duty policemen in public to take me out of the akimat building. Afterwards, I had to leave the event as if I was a trespasser under police escort in front of the audience…”
One needs to know the specific character of Kazakhstan to understand what happened in fact. Maksut Nigmetov in trilateral agreement between the administration of East Kazakhstan region, the EBRD and ‘Keleshek’ was a straw party. Apuppet.
‘Keleshek’ is described as a ‘small enterprise’, with the staff size 21-30 persons. It has never worked in waste treatment area. Until 2020, the company had had no fiscal charges for six years; and in 2020, they sharply increased up to 3.5 million tenge.
‘Keleshek’ is described as a ‘small enterprise’, with the staff size 21-30 persons. It has never worked in waste treatment area. Until 2020, the company had had no fiscal charges for six years; and in 2020, they sharply increased up to 3.5 million tenge.
Until 2020, the director was another person for seven years, and the organisation was based in Shulbinsk, a small town in East Kazakhstan region.
According to a local parliamentarian, ‘Keleshek’ consisted of one full-time employee: director Maksut Nigmetov, who had to put his signature silently under the agreement, which was being prepared by the head of East Kazakhstan region for four years.
According to a local parliamentarian, ‘Keleshek’ consisted of one full-time employee: director Maksut Nigmetov, who had to put his signature silently under the agreement, which was being prepared by the head of East Kazakhstan region for four years.
The first obvious element of the corruption scheme for loan disbursement in Kazakhstan is a front-owning company, whose head does not decide anything and is needed only to take the fall after the project fails. Such companies usually appear short BEFORE the distribution of money and disappear right AFTER money disbursement.
“… the purpose of the current administration of the region is to disburse the money allocated by the EBRD for the construction given all corruption ‘risks’ pertaining to the realities of Kazakhstan.”
MaksutNigmetov
Ex-director,
Multi-branch enterprise ‘Keleshek’, Department of housing and public utilities and home inspection of Semey
Maksut Nigmetov has laid a few accusations against the officials who drafted the project.
According to him, the budget for the construction of the landfill was intentionally overestimated almost twice.
He estimated the rate for waste treatment specified in the budget as extortionate and impractical for Semey.
According to him, the budget for the construction of the landfill was intentionally overestimated almost twice.
He estimated the rate for waste treatment specified in the budget as extortionate and impractical for Semey.
Here comes the second sign of the corruption scheme of the EBRD loan disbursement: unreliable/false information is provided to the EBRD representatives at the stage of decision-making.
On the EBRD website, the waste landfill construction project in Semey is indicated as “Signed”. Maksut Nigmetov is still indicated as a contact person.
The EBRD makes no comment on the conflict.
On the EBRD website, the waste landfill construction project in Semey is indicated as “Signed”. Maksut Nigmetov is still indicated as a contact person.
The EBRD makes no comment on the conflict.
III
Behind false data
To get a loan from the EBRD, one needs to provide a realistic plan of how the project becomes sustainable, and the money will be returned to the borrower.
At this stage, officials can manipulate information so that to influence the decision-making process.
At this stage, officials can manipulate information so that to influence the decision-making process.
Example: the household waste landfill project in Semey and Ust Kamenogorsk provides for raising of garbage removal tariff for residents 2.4 times.
However, the level of income of people in both cities does not let them pay even for the existing tariff. (In Semey, only 30 per cent of people pay for garbage removal, and nearly 50 per cent in Ust Kamenogorsk). In 2020, hugedebtaccrued. High-rise buildings refuse to enter into garbage removal contracts. Hundreds of thousands people in the city throw out garbage in violation of the current system of garbage removal in the suburbs.
However, the level of income of people in both cities does not let them pay even for the existing tariff. (In Semey, only 30 per cent of people pay for garbage removal, and nearly 50 per cent in Ust Kamenogorsk). In 2020, hugedebtaccrued. High-rise buildings refuse to enter into garbage removal contracts. Hundreds of thousands people in the city throw out garbage in violation of the current system of garbage removal in the suburbs.
Более 40% жителей Усть-Каменогорска не платят за вывоз мусора
https://factum.kz/2019/86239/
Из-за долгов населения не вывозят мусор в Усть-Каменогорске
https://rus.azattyq-ruhy.kz/society/6382-iz-za-dolgov-naseleniia-ne-vyvoziat-musor-v-ust-kamenogorske
В Семее за вывоз мусора потребители не платят целыми домами в течение нескольких лет ...
https://kursiv.kz/news/obschestvo/2019-01/v-semee-za-vyvoz-musora-potrebiteli-ne-platyat-celymi-domami-v-techenie
Жители Семея утопают в мусоре
Тариф за вывоз мусора в Семее – 190 тенге на человека. Тем не менее у жителей образовался долг перед предприятием в 140 миллионов тенге. https://24.kz/ru/news/social/item/382475-zhiteli-semeya-utopayut-v-musore
The problem of non-payment and refusal to enter into garbage removal contracts lasted for a long time. It did not emerge in 2019-2020. We can see publications about mass non-payments and huge debts in 2012, 2015, 2016, 2019, 2020.
In other words, the decision of the EBRD to make two city-based household waste landfills sustainable is based on the assumption that the residents of Semey and Ust Kamenogorsk, who massively (up to 50 per cent of city residents) do not pay the existing tariff would immediately start to pay it after the tariff increases 2.4 times?
In other words, the decision of the EBRD to make two city-based household waste landfills sustainable is based on the assumption that the residents of Semey and Ust Kamenogorsk, who massively (up to 50 per cent of city residents) do not pay the existing tariff would immediately start to pay it after the tariff increases 2.4 times?
The situation with granting loans based on wrong estimates is not sporadic. In 2015, the initiative was launched to create the Kazakhstan sustainable energy fund (KAZSEFF). 75 million dollars were allocated to two Kazakhstan banks under the initiative. The idea failed at that time. Businessmen did not want to carry out the unprofitable modernisation.
IV
Trams in Pavlodar
Pavlodar, the centre of the homonymic region. Thecitywith 340,000 people.
In 2016, the European Bank for Reconstruction and Development granted a loan to the Tram Office of Pavlodar for almost 2 billion tenge or approximately 4.7 million dollars (almost 2 billion more were allocated by the state; in other words, 4 billion tenge, or nearly 9.4 million dollars, were at stake).
In 2016, the European Bank for Reconstruction and Development granted a loan to the Tram Office of Pavlodar for almost 2 billion tenge or approximately 4.7 million dollars (almost 2 billion more were allocated by the state; in other words, 4 billion tenge, or nearly 9.4 million dollars, were at stake).
The project demonstrates the main sign of the corruption scheme at the project preparation stage. First, the owner of the tram office ‘Pavlodar’ accuses the regional administration of attempted control over the EBRD loan allocation. Both parties of the conflict want to provide to EBRD their choiceof requirements to a potential supplier (because all undesirable companies are filtered out if they do not meet the requirements that are appropriate only for one supplier).
Kazakhstan Tram Consortium Ltd. was created along with the tender to disburse the loan. The company emerged out of nowhere. It is listed neither in the register of e-government nor in the base of the Public Revenue Committee of Kazakhstan.
It includes BELKOMMUNMASH, a Belarus-based tram manufacturer, and two unknown Kazakhstan firms – Softline Services and A3 Commerce.
Kazakhstan Tram Consortium Ltd. was created along with the tender to disburse the loan. The company emerged out of nowhere. It is listed neither in the register of e-government nor in the base of the Public Revenue Committee of Kazakhstan.
It includes BELKOMMUNMASH, a Belarus-based tram manufacturer, and two unknown Kazakhstan firms – Softline Services and A3 Commerce.
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“There are two organisations there – Softline Services and A3 Commerce. They are the members of the consortium along with the Belarus-based plant BELKOMMUNMASH. We do not know much about them. We learned about them for the first time when they came to our tender on behalf of the consortium. As far as we know, they are not old companies with a short history…”
Due to the requirements adjusted for the consortium, Kazakhstan Tram Consortium Ltd. won the tender leaving two Chinese companies and the Russians behind. Two little-known participants of the consortium received 5 per cent of the total amount each, reap the benefits, and opt out of further participation in tram supplies, shifting the responsibility to the Belarusians.
As a result, the supplies were delayed and disrupted.
...
Almost at the same time (in 2017), AZ Commerce implemented the scheme to renovate the street lighting system of Pavlodar.
During the work, the founder of AZ Commerce, Farat Amrayev, and his brother Rabin Abrayev were accused of the attempt at fraud in a group of persons by previous concert in especially big amount. Instead of 12,000 light controllers and 70 control cabinets, they installed 2,000 lamps and 20 control cabinets. However, they received the money in full.
The situation with no street lighting is pending for nearly two years.
After the external audit was scheduled, the Amraev brothers announced that the missing equipment broke down and it had to be removed in haste.
The court did not take these arguments into account, and the founders of AZ Commerce were conditionally sentenced to 3 years and 9 months in prison.
Belkommunmash, in turn, filed a charge against the Kazakhstan-based companies.
As a result, the supplies were delayed and disrupted.
...
Almost at the same time (in 2017), AZ Commerce implemented the scheme to renovate the street lighting system of Pavlodar.
During the work, the founder of AZ Commerce, Farat Amrayev, and his brother Rabin Abrayev were accused of the attempt at fraud in a group of persons by previous concert in especially big amount. Instead of 12,000 light controllers and 70 control cabinets, they installed 2,000 lamps and 20 control cabinets. However, they received the money in full.
The situation with no street lighting is pending for nearly two years.
After the external audit was scheduled, the Amraev brothers announced that the missing equipment broke down and it had to be removed in haste.
The court did not take these arguments into account, and the founders of AZ Commerce were conditionally sentenced to 3 years and 9 months in prison.
Belkommunmash, in turn, filed a charge against the Kazakhstan-based companies.
From the court records
V
Theroleofintermediaries
(East Kazakhstan, the EBRD loan for the renovation of the street lighting system)
In 2020, the lighting systems of Semey and Ust Kamenogorsk were transferred to the Public Private Partnership Centre of East Kazakhstan Region JSC. It was entitled (by procurement from one source) to lease out lighting systems to both cities. This transfer was justified by the EBRD’s loan, which was prepared for more than 4 years. The key moment here was that two additional structures, namely intermediaries, were introduced to the chain for comfortable work.
Let’sseethescheme.
According to Inbusiness, the budget provided for 3.5 billion tenge in aggregate for lease payments for 2020-2022. It makes 1.16 billion tenge per year for both cities and 1.6 times as small as was spent for the same services in previous years.
According to Inbusiness, the budget provided for 3.5 billion tenge in aggregate for lease payments for 2020-2022. It makes 1.16 billion tenge per year for both cities and 1.6 times as small as was spent for the same services in previous years.
“The street light stanchions used to belong to the community property, the housing and public utilities department. As we are implementing the street lighting system modernisation project, we transferred the stanchions to public private partnership (Centre of East Kazakhstan Region JSC). We pay rental payments to them.”
AsanDyusembayev
Chief of the municipal improvement sector, housing and public utilities department of Semey
Why does the housing and public utilities department need to pay so much for the lease of the street lighting system that belonged to it earlier, or rather to the city?
Unfortunately, our attempt to study the lease agreement does not clarify the matter as it does not contain a word about the lease.
Unfortunately, our attempt to study the lease agreement does not clarify the matter as it does not contain a word about the lease.
The only thing we understand is that the housing and public utilities department for some reason disguised the payment of money for the street lighting system maintenance as the lease agreement (by accounting such payments under the article Services related to the lease of equipment and electrical installations, electrical mains and substations).
How did the payment scheme look like earlier?
In previous years, ‘Gorsvet’ was responsible for the street lighting system of Ust Kamenogorsk. It received nearly 500 million tenge for their services and maintained about 23,000 light sources.
...
2018. ‘Gorsvet’ receives 600 million tenge for the maintenance of 20,000 spots.
https://goszakup.gov.kz/ru/egzcontract/cpublic/show/6886542
It makes 30,000 tenge for the maintenance of 1 light spot.
2019. ‘Gorsvet’ receives 520 million tenge for the maintenance of 23,000 spots.
https://goszakup.gov.kz/ru/egzcontract/cpublic/show/9155451
It makes 22,608 tenge for the maintenance of 1 light spot.
In 2020, Centre of East Kazakhstan Region receives 2.191 billion tenge for the maintenance of 16,603 spots.
https://goszakup.gov.kz/ru/egzcontract/cpublic/units/11731303
This amount is divided by 3 years.
Thus, every year Centre of East Kazakhstan Region receives 730 million tenge for 16,000 spots.
It amounts to 43,967 tenge per 1 spot.
In previous years, ‘Gorsvet’ was responsible for the street lighting system of Ust Kamenogorsk. It received nearly 500 million tenge for their services and maintained about 23,000 light sources.
...
2018. ‘Gorsvet’ receives 600 million tenge for the maintenance of 20,000 spots.
https://goszakup.gov.kz/ru/egzcontract/cpublic/show/6886542
It makes 30,000 tenge for the maintenance of 1 light spot.
2019. ‘Gorsvet’ receives 520 million tenge for the maintenance of 23,000 spots.
https://goszakup.gov.kz/ru/egzcontract/cpublic/show/9155451
It makes 22,608 tenge for the maintenance of 1 light spot.
In 2020, Centre of East Kazakhstan Region receives 2.191 billion tenge for the maintenance of 16,603 spots.
https://goszakup.gov.kz/ru/egzcontract/cpublic/units/11731303
This amount is divided by 3 years.
Thus, every year Centre of East Kazakhstan Region receives 730 million tenge for 16,000 spots.
It amounts to 43,967 tenge per 1 spot.
However, today ‘Gorsvet’ continues to receive money for the maintenance of 12,000 spots of street lighting in Ust Kamenogorsk. Technical requirements placed on ‘Gorsvet’ and the Centre are the same. Light spots of both organisations are located on the same streets, next to each other.
The only difference is the price.
The only difference is the price.
According to the media, ‘Gorsvet’ is also an ultimate subcontractor for the Centre of East Kazakhstan Region.
In other words, the costs of equipment, maintenance of vehicles, utility spaces and garages, control rooms are not borne by the Centre because it utilises the already existing system.
In other words, the costs of equipment, maintenance of vehicles, utility spaces and garages, control rooms are not borne by the Centre because it utilises the already existing system.
So, according to the logic of officials, the Centre of East Kazakhstan Region receives hundreds of millions per year for the fact that it allows the two cities to use the street lighting system, which earlier belonged to these cities without any intermediaries?
Everlight Electronics Co. Ltd, renovates these street lights for extra payment (EBRD loan).
‘Gorsvet’ maintainsthem.
Electricity supplied to them is paid separately by housing and public utilities departments.
What is the contribution of the Centre of East Kazakhstan Region then? Is it a hub on the way of money moving from the customer to the contractor?
Everlight Electronics Co. Ltd, renovates these street lights for extra payment (EBRD loan).
‘Gorsvet’ maintainsthem.
Electricity supplied to them is paid separately by housing and public utilities departments.
What is the contribution of the Centre of East Kazakhstan Region then? Is it a hub on the way of money moving from the customer to the contractor?
VI
To sum up
EBRD loans do not let Kazakhstan develop.
They rather aggravate the existing economic crisis. And it is the political elite of Kazakhstan who is to blame.
The amount of real GDP of Kazakhstan since 2014 (moment of devaluation and the first sharp collapse of the national economy) declined by 33 per cent. For comparison, the GDP of Turkey (the leader among EBRD debtors) in the same period increased by 26.8 per cent and has never shown the negative growth trend. So, the more Kazakhstan borrows, the worse its national economy gets.
In fact, we say that the country has developed the oil kleptocracy using foreign loans as means for personal illicit enrichment.
They rather aggravate the existing economic crisis. And it is the political elite of Kazakhstan who is to blame.
The amount of real GDP of Kazakhstan since 2014 (moment of devaluation and the first sharp collapse of the national economy) declined by 33 per cent. For comparison, the GDP of Turkey (the leader among EBRD debtors) in the same period increased by 26.8 per cent and has never shown the negative growth trend. So, the more Kazakhstan borrows, the worse its national economy gets.
In fact, we say that the country has developed the oil kleptocracy using foreign loans as means for personal illicit enrichment.