Cabar Asia
The Pharmaceutical Industry in Kazakhstan: What's Wrong With It?
By Khadisha Akayeva
During the pandemic, the pharmaceutical industry of Kazakhstan has shown itself in an unfavourable light: with a shortage of drugs and unjustified rise of their prices, lack of PPE (personal protective equipment) needed by healthcare staff, and accompanying corruption scandals. CABAR.asia reviews what the pharmaceutical industry of Kazakhstan looks like now and who controls it.
Key players
According to official data, the pharmaceutical market of Kazakhstan consists of 84 per cent of foreign companies and only 16 per cent of domestic companies. There are not many major players in the pharmaceutical industry of Kazakhstan. Manufacturers are divided into two groups: those who supply publicly funded organisations, and those who manufacture drugs for retail sale.
Nobel Almaty Pharmaceutical Factory is an affiliate company of the Turkish Ulkar Holding. One of its five manufacturing companies is located in Kazakhstan. According to the auditor's report prepared in December 2020, the ultimate controlling party is Turkish citizen Ulusoy Hasan Ugur. However, the company is referred to as a "domestic manufacturer" and is included in the innovative development programme.
Khimpharm-SANTO is a part of the international Polpharma Group based in Poland. The ultimate controlling party is Yerzy Starak. He is one of the richest people in Poland, and since 2012 he has been the honourable consul of Kazakhstan to Poland. In 2011, he purchased the largest pharmaceutical plant in Kazakhstan "Khimpharm." Until the collapse of the USSR, the plant belonged to the state.
Karaganda Pharmaceutical Complex belongs to the Russian citizen Viktor Kharitonin (one of the top 100 richest people in Russia), former members of the Russian government Andrey Reus and Andrey Derentiev, as well as the Kazakh businessman Kairat Boranbayev (one of the top 50 richest people in Kazakhstan), who is also a relative of ex-president of Kazakhstan Nursultan Nazarbayev.
Kelun-Kazpharm reportedly belongs to Hong Kong-based companies Kelun Intenrational Development and Hongkong Sunlight Int'l Trading, as well as entrepreneur Merei Slamuly, a Kazakh of Chinese origin.
Abdi Ibrahim Global Pharm belongs to the Turkish company Abdi Ibrahim and Korean-Kazakh AlmaPharm Invest. The founders of the latter are the South Korea-based company Celltrion Pharm Inc., and the citizen of Kazakhstan Alimbek Seidullayev. Alimbek Seidullayev had been mentioned earlier on the list as the owner of offshore companies, according to the International Consortium of Investigative Journalists (ICIJ).
The offshore companies identified by journalists were registered in Singapore from 2003 to 2007. Most of them belong to Lancaster Group Holding, which partially belongs to the previously mentioned AlmaPharm Invest. Lancaster Group was registered in Singapore.
Lancaster Group was established by Kazakhstanis Berik Kaniyev, Yuri Pak and Nurlan Kapparov in 2003. The first two are among the richest people of Kazakhstan, whereas Nurlan Kapparov was the vice minister of energy of Kazakhstan by the date of establishment of the organisation. By the time of his death in Beijing caused by a heart attack in 2015, he was the minister of environment and water resources. Now, Lancaster Group belongs to Berik Kaniyev, Yuri Pak, chair of the National Bank of Kazakhstan Yerbolat Dossayev, as well as the wife and son of deceased Nurlan Kapparov.
It is particularly remarkable that Abdi Ibrahim Global Pharm, which was previously named Global Pharm, changed its name after the agreement was signed in 2012 at the forum, whose participants were the then president of Kazakhstan Nursultan Nazarbayev and Recep Erdogan, who was the then prime minister of Turkey. The agreement was regarding the construction of a pharmaceutical plant. Two days after the signing, the company was sold to its current owners. It remains unknown who the owner of the company was before it was sold to the Korean company, Kazakhstan oligarchs and members of the government.
Khimpharm-SANTO is a part of the international Polpharma Group based in Poland. The ultimate controlling party is Yerzy Starak. He is one of the richest people in Poland, and since 2012 he has been the honourable consul of Kazakhstan to Poland. In 2011, he purchased the largest pharmaceutical plant in Kazakhstan "Khimpharm." Until the collapse of the USSR, the plant belonged to the state.
Karaganda Pharmaceutical Complex belongs to the Russian citizen Viktor Kharitonin (one of the top 100 richest people in Russia), former members of the Russian government Andrey Reus and Andrey Derentiev, as well as the Kazakh businessman Kairat Boranbayev (one of the top 50 richest people in Kazakhstan), who is also a relative of ex-president of Kazakhstan Nursultan Nazarbayev.
Kelun-Kazpharm reportedly belongs to Hong Kong-based companies Kelun Intenrational Development and Hongkong Sunlight Int'l Trading, as well as entrepreneur Merei Slamuly, a Kazakh of Chinese origin.
Abdi Ibrahim Global Pharm belongs to the Turkish company Abdi Ibrahim and Korean-Kazakh AlmaPharm Invest. The founders of the latter are the South Korea-based company Celltrion Pharm Inc., and the citizen of Kazakhstan Alimbek Seidullayev. Alimbek Seidullayev had been mentioned earlier on the list as the owner of offshore companies, according to the International Consortium of Investigative Journalists (ICIJ).
The offshore companies identified by journalists were registered in Singapore from 2003 to 2007. Most of them belong to Lancaster Group Holding, which partially belongs to the previously mentioned AlmaPharm Invest. Lancaster Group was registered in Singapore.
Lancaster Group was established by Kazakhstanis Berik Kaniyev, Yuri Pak and Nurlan Kapparov in 2003. The first two are among the richest people of Kazakhstan, whereas Nurlan Kapparov was the vice minister of energy of Kazakhstan by the date of establishment of the organisation. By the time of his death in Beijing caused by a heart attack in 2015, he was the minister of environment and water resources. Now, Lancaster Group belongs to Berik Kaniyev, Yuri Pak, chair of the National Bank of Kazakhstan Yerbolat Dossayev, as well as the wife and son of deceased Nurlan Kapparov.
It is particularly remarkable that Abdi Ibrahim Global Pharm, which was previously named Global Pharm, changed its name after the agreement was signed in 2012 at the forum, whose participants were the then president of Kazakhstan Nursultan Nazarbayev and Recep Erdogan, who was the then prime minister of Turkey. The agreement was regarding the construction of a pharmaceutical plant. Two days after the signing, the company was sold to its current owners. It remains unknown who the owner of the company was before it was sold to the Korean company, Kazakhstan oligarchs and members of the government.
A rally against the appointment of Yerbolat Dosaev as Almaty akim. Source: KazTAG
"This is the mafia"
Who determines which pharmaceutical company may earn in Kazakhstan?
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"This is the mafia. They don't even let us build pharmaceutical plants. Businessmen who want to build pharmaceutical plants come to the country, but they are not allowed in this sphere. There is some unknown person behind the contracts with all foreign countries. He has his interest from these contracts; he doesn't want to develop the domestic pharmaceutical industry. We can make the difference. Kick out all those who hold offices there and hire new people, start the investigation. Where's the money, why they are doing it? There are some people who may not be dismissed."
This is what ex-president of Kazakhstan Nursultan Nazarbayev said to Yelzhan Birtanov, the then minister of health. He spoke about the health ministry's company, SK Pharmacia, established in 2009 as the single distributor that buys necessary drugs from certain suppliers (one of the top 5 companies from the table and occupies 89 per cent of the market). It was assumed that the distributor would decrease the corruption level and make the system more convenient.
However, something went wrong.
The first conflict occurred six months after SK-Pharmacia began operations. The company decided to save some money and buy generic, cheaper and non-proprietary drugs for children with HIV instead of the original drugs. Angry parents took the company's manager hostage to make the company meet their demands, and CEO Vadim Zverkov then left his office.
The second public conflict took place in 2017. Back then, Nazarbayev said the above words. The reason was that the results of the investigation showed that the distributor stole 1.8 billion tenge (nearly 4.1 million dollars) from 2015 to 2017. The person who headed SK-Pharmacia, Nurzhan Alibaev, just left his office, and then the public space.
The second public conflict took place in 2017. Back then, Nazarbayev said the above words. The reason was that the results of the investigation showed that the distributor stole 1.8 billion tenge (nearly 4.1 million dollars) from 2015 to 2017. The person who headed SK-Pharmacia, Nurzhan Alibaev, just left his office, and then the public space.
However, the law enforcement bodies focused on another person, Maksim Kasatkin, who became the CEO in 2017. Despite the fact that he was deputy of Alibaev in 2015-2017, it was him who was charged with embezzlement and lobbying of some company (collusion in order to win the bid). According to open source data, his ex-chief was not affected. Now, no data is available about Kasatkin and Alibaev. The last known information about Kasatkin is dated back to 2018, when he was a suspect and was transferred from the pre-trial detention facility to home detention.
Then, the pandemic began. Hospitals did not have enough drugs (SK-Pharmacia was supposed to procure them), pharmacies had a shortage of drugs and very high prices, and society was panic-stricken. Moreover, SK-Pharmacia was charged with selling humanitarian aid supplies.
Amid the July 2020 events, President Kasym-Zhomart Tokayev delivered a speech and demanded to release the top management of SK-Pharmacia from office because of the shortage of drugs and medical equipment. The chair of the board, Berik Sharip, left his office after three months of work. Afterwards, he was detained. He was charged with abuse of power when procuring medical goods during the emergency, lobbying of one of the companies and exposure of health workers, who did not get their protective suits because of the delayed supply. First, he was declared not guilty, and one month later the appellate court reversed the decision and found Sharip guilty. In September 2021, he was sentenced to 3.6 years in prison.
Healthcare Minister Yelzhan Birtanov spoke in defence of Berik Sharip on June 21, 2021. On November 3, Yelzhan Birtanov was detained and charged with the embezzlement of a very large amount of budgetary money. Now, the ex-minister is in home detention.
After all the scandals for all these years, the management of SK-Pharmacia was sentenced for the first time.
However, it did not cool SK-Pharmacia down, and in 2021 they angered the public by sharing information regarding bonuses of 179 million tenge (nearly 1.2 million per employee) paid to their employees.
Then, the pandemic began. Hospitals did not have enough drugs (SK-Pharmacia was supposed to procure them), pharmacies had a shortage of drugs and very high prices, and society was panic-stricken. Moreover, SK-Pharmacia was charged with selling humanitarian aid supplies.
Amid the July 2020 events, President Kasym-Zhomart Tokayev delivered a speech and demanded to release the top management of SK-Pharmacia from office because of the shortage of drugs and medical equipment. The chair of the board, Berik Sharip, left his office after three months of work. Afterwards, he was detained. He was charged with abuse of power when procuring medical goods during the emergency, lobbying of one of the companies and exposure of health workers, who did not get their protective suits because of the delayed supply. First, he was declared not guilty, and one month later the appellate court reversed the decision and found Sharip guilty. In September 2021, he was sentenced to 3.6 years in prison.
Healthcare Minister Yelzhan Birtanov spoke in defence of Berik Sharip on June 21, 2021. On November 3, Yelzhan Birtanov was detained and charged with the embezzlement of a very large amount of budgetary money. Now, the ex-minister is in home detention.
After all the scandals for all these years, the management of SK-Pharmacia was sentenced for the first time.
However, it did not cool SK-Pharmacia down, and in 2021 they angered the public by sharing information regarding bonuses of 179 million tenge (nearly 1.2 million per employee) paid to their employees.
The accusation of Berik Sharip in collusion with the company is not the first case of it's kind for SK-Pharmacia and all market participants in general.
In June 2021, MEDIX and KazBelMedPharm companies were accused of price collusion.
In June 2021, MEDIX and KazBelMedPharm companies were accused of price collusion.
"In some procurements, one participant makes a bid equal to the price set by the customer, and another participant makes a bid with a slightly lower price, which makes it win the tender with a minimum difference. Such actions let the companies win tenders and enter into contracts with the most profitable price conditions, which does not meet the principle of bona fide competition and effective/optimal use of budget money", according to the department of the agency of competition protection and development in Almaty.
The agency also reported that the same employees were listed as staff of the companies.
The department also investigates cases regarding three more companies. These are Akniet, KFK Medservis Plus and Stopharm. Compared to the top companies, they are not very large.
One of these companies – the largest network of pharmacies – was found guilty of involvement in a cartel in 2017.
Moreover, some people involved in this sector, yet not related to the largest chains of pharmacies, do not think that all largest pharmacies of Kazakhstan are in collusion with each other and representatives of the authorities.
Such was the opinion of pharmacy owner Talgat Aliev in 2020. After his statement, according to the media, his pharmacy was blocked by the police for one and a half hours.
The department also investigates cases regarding three more companies. These are Akniet, KFK Medservis Plus and Stopharm. Compared to the top companies, they are not very large.
One of these companies – the largest network of pharmacies – was found guilty of involvement in a cartel in 2017.
Moreover, some people involved in this sector, yet not related to the largest chains of pharmacies, do not think that all largest pharmacies of Kazakhstan are in collusion with each other and representatives of the authorities.
Such was the opinion of pharmacy owner Talgat Aliev in 2020. After his statement, according to the media, his pharmacy was blocked by the police for one and a half hours.
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"Why do they deprive us? Why do they lobby chain pharmacies? Maybe it's because chain pharmacies have their own wholesale companies and work together. Although they deny affiliation among themselves, we do know that they have one owner (I won't say his name, but everyone knows him here). It turns out that one person wants to get a hold of the whole pharmaceutical market of Kazakhstan."
The pharmacy owner did not say who that "one person" was, but this industry in Kazakhstan looks monopolised, which was voiced by the authorities many times.
Author: Khadisha Akayeva
Editor: Timur Toktonaliev
CABAR.asia, February 2022