As noted earlier, Kulibayev, son-in-law to the President and third richest man in Kazakhstan, has also been named as a possible new head of a state-sanctioned opposition party-to-be.

It’s also a bit of a wake-up call on how much China is involved in Kazakh oil, for those who worry about such things. Interesting to note that in the comments on the WSJ article, many Russians post what appear to be copy-and-paste warnings to Kazakhs that the Chinese will take them over. Quick history lesson: Which country has ever taken over Kazakhstan? Russia or China? I don’t want to get into the midst of this because I have seen people in Kazakhstan get quite violent discussing why China is a serious danger to their national sovereignty. I would be more worried about whether or not oil money is being redirected for the good of the people, whether that money comes from China, Russia, the US or Fiji!

But I did discover THE Astana Cycling Team Fan Club which has a lot more up-to-date news on it, granted pulled from other sites and sources. (English version here. Interesting article about how Contador had to buy his own wheels during the Tour de France because Astana wouldn’t pay for the best wheels.

This comes from an interview with La Gazzetta dello Sport in November which also reveals that one of Contador’s conditions for staying with Astana was a strict anti-doping program.

Despite mulling over offers from other teams, and having the possibility of breaking his contract without penalty, Contador feels optimistic about Team Astana, especially now that Armstrong and Bruyneel. And the deputy president of the Cycling Federation has promised to look into getting new champion cyclists, naming Bradley Wiggins as one possibility.

Samruk-Kazyna, the state holding company that owns most of the companies that sponsor the team, has agreed to fund the team for 2010 to the tune of $22 million plus $3.7 million that has already been sent to the agency that handles salaries. That’s good enough for the UCI, which is renewing the team’s license.

In other news, Kairat Kelimbetov has been named the new head of the Kazakhstan Cycling Federation. Kelimbetov is the chairman of Samruk-Kazyna and a former head of the Presidential Administration. While the AP News article reads this as “a further symbolic gesture of state support for Astana”, it looks to me like Samruk-Kazyna wants to protect their investment by getting a little more control over the team, which is fair enough.

There are also rumors that the team will change its name to Samruk-Kazyna, presumably a publicity move for the holding company. I have also felt it was strange that Team Astana was really the only team out there named after a city and strongly identified with a nation. Most professional teams are linked to their sponsors. Kazakhstan has a national cycling team that competes in international events such as the Olympics and World Championships. Professional cycling is different and doesn’t really fit in with the nationalism and patriotism, especially when most of the riders on Team Astana are not from Kazakhstan.

Update here

Team Astana is funded primarily by state-owned companies under the national holding company, Samruk-Kazyna. However recently in reaction to the financial crisis, the holding company has cut staff and salaries both in its own staff and for the companies under it. It seems unlikely that they will be able to fund the cycling team. Or that given that Samruk-Kazyna is spending money to bail-out banks and other financial companies, there are other organizations that need the money more than Team Astana.

Regular staff of the team have not been receiving salaries and the team was sent a letter by the International Cycling Union stating that if they do not meet financial obligations by the end of this month, they will be suspended from the UCI. In other words, the team will not be able to compete in races.

Lance Armstrong has reluctantly spoken to reporters about the issue although he seems to prefer to keep silent since he is not involved in the day-to-day business of the team. The AP article states:

Armstrong indicated last week that he was talking to U.S.-based sponsors about taking over the team himself. That might be his only solution if he wants to go for an eighth Tour de France title in July.
“I’ve already said all I know about Kazakhstan, Astana, Borat. I don’t know anything more,” Armstrong said when last asked about the issue. “It’s not my team, it’s not my sponsor. I’ve got nothing to say about it. I would love to give you an answer, but I don’t have one. I would be speculating.
“It’s difficult to go to any major corporation and say in the middle of the calendar year — the fiscal year — and say, ‘How about we start in 20 or 30 days?’ But we’ll see.”

However the world’s most famous cyclist did seem to have some frustrations, as he told ESPN:

“I don’t know [the Kazakhstani officials], I don’t have a personal relationship with them, but I get frustrated,” said the seven-time Tour de France champion who’s riding for free this season. “These Kazakhs, they don’t return phone calls, and there’s not a lot of clarity about what is going to happen.

Sponsoring a team requires US$14-20 million a year, according to Mr. Armstrong so it is unlikely that another sponsor will be able to jump in by June to save the team. There is speculation that Armstrong’s fund may be able to assist, but as a charitable non-profit it probably could not assume full management of the team. However the team will be able to finish the Giro d’Italia which it is currently racing in.

Kazakhstan news sources seem to be fairly quiet about this preferring to focus on the fact that Team Astana is currently in third place in Italy.

However, Nikolai Proskurin, Vice-President of the Cycling Federation of Kazakhstan says that Air Astana has officially withdrawn its sponsorship and other sponsors have not met their obligations. He believes that with a lack of funding, “The team will drop its name and will compete under the flag of another country.”

In the midst of the financial crisis, it may be that Kazakhstan companies feel they have more urgent uses for their funds than a cycling team of course. And as the population finds itself struggling to get by, there has been some backlash against wealthy state-owned companies. The enormous holding company Samruk-Kazyna, which owns many of Team Astana’s sponsors, has already cut their staff in half and reduced salaries by 30% all around. And employees of many other national companies have received notice that they may be fired or have their salaries lowered.

It would be sad to see the team sacrificed to the crisis, but there is a bright side. Armstrong is donating all his winnings to cancer research and he is not accepting any salary. So maybe they can convince him to stick around even if the rest of the team leaves.

Interestingly, just Friday, BTA denied rumors that it would nationalize part of its assets, the Temir bank subsidiary. At the same time, they confirmed the original bailout deal, that the government would buy 25% of shares in BTA.

The chairman of the board of BTA and a former opposition leader, Mukhtar Abylazov, was ousted by the government today “because his ‘actions were found to be inconsistent with the interests of depositors and creditors and with current law,’ the government said on its Web site.” Abylazov has visited the government several times over the past month, but both he and the government have denied that the government was planning to buy a controlling share.

According to Renaissance Capital, the government may try to make a profit on the sale by selling the assets to Sberbank, a Russian bank with a presence in Kazakstan. German Gref, the head of Sberbank had meetings with Samruk-Kazyna and with Prime Minister Masimov a few weeks ago to discuss the financial crisis and possibly the sale of BTA banks assets.

Alliance Bank, which has been plagued by rumors that it would soon collapse, also vigorously denied recently that it would be bought out by the government, claiming that it would only sell 25% of its shares to the state and seek another investor. However it looks like the government may buy 76 percent of the Bank for 100 tenge ($0.83 ) total. Alliance is the nation’s fourth- largest bank and traded on the London Stock Exchange. The government will deposit $200 billion into the bank’s coffers.

According to the New York Times article on the subject, the acquisition of shares is only temporary:”‘This measure is not nationalization, it is temporary according to existing Kazakh legislation which stipulates that the government will eventually exit its shareholder base,’ the government statement said.”

In related news, Kazkommerts Bank will hold an extraordinary general meeting of shareholders next month to discuss the sale of 25% of its assets to the government. We will see if there are any surprises in there.

People are further worried that the buyouts will never end–as Representative Michelle Bachman said, “What’s next? Starbucks? Too big to fail?” Will the government end up having to bail out half the private sector if more and more companies fail? And of course there is worry that taxpayer money is being put at risk by investing in companies that have failed and may fail again.

Furthermore just yesterday Bernanke and Paulson appeared before Congress to announce their new plan for the government to buy private company assets, proposing a tender system. Questions of who will manage these purchases, who will manage the assets in the name of the government, what benefit the taxpayer may reap, how to price the assets, and how to avoid private companies benefiting unfairly from taxpayer dollars all came up in debate. It’s not a small matter because the Fed is proposing to put up $700 billion for buyouts and investments!

What is not being discussed in great detail here is that these bailouts are not just handouts or grants. When the US invested $85 billion in AIG, it became an 80% shareholder. That’s a controlling interest! And Congress has no idea what to do with the idea of government-owned companies or the government as a share-holder. What branch of the government should run these companies? Can the government make a profit on private businesses? What happens in January when a new President with a new Secretary of the Treasury steps in?

Kazakhstan and other former Soviet countries may hold the answer. Various Kazakhstani government leaders have said at various times that while Kazakhstan looks for advice from the West, the day will come when the West will come to Kazakhstan for help. That day has arrived. Perhaps the US should send some Congressmen to Kazakhstan to tour Samruk, Kazyna, and other state-owned financial entities here. Kazakhstan has had long experience with these models of state involvement in private companies. So why shouldn’t the US draw from that experience?

Furthermore, a lot of the complicated questions that the US is now facing while looking at Paulson and Bernanke’s plan are questions that have never been fully addressed in Kazakhstan. Because of its experience as a former Soviet country with a government controlled economy, issues like accountability or responsibility to the taxpayer have never come up. Old trends and mechanisms are rarely examined in detail. So this is a perfect opportunity for the US and Kazakhstan to work together to develop a model for government as shareholder in a globalized free-market system.

Some may think I’m being a bit glib here, and my tongue is not too far from my cheek. It is interesting to note the difference between Kazakhstan and the US. When the US buys out a company, taxpayers and financial advisers and politicians get nervous and even angry. Here in Kazakhstan, the government already controls 5 holding companies and many citizens don’t know these companies exist, or have a vague idea of what they do.

But I think there is a valid proposal here. How does Kazakhstan solve problems of using federal funds, taxpayer money for private enterprise? What regulations are on the books? How can Kazakhstan and the US work together to solve problems of conflict of interest, corruption and lack of regulation? Perhaps this is a perfect chance for Kazakhstan to be treated as an equal by the US and to be taken seriously as a source of knowledge in the West.

These coporations were first brought up in the President’s Annual Message to the People in February of 2006:

2.7. Creation of regional “engines” of economic development through formation of regional corporations for social development and enterprise

Social-business corporations (SBC), sustainable business structures, could be formed in various regions and take over management of communal property, land, non-remunerative, but working businesses, that can be used for new business creation.

Each SBC will become a kind of a regional development institute and act as a holding company, managing state assets in a particular region.

Further on with management experience accumulation and increase of SBC capitalization level we could talk of extension of their “responsibility areas”, including exit to regional and international markets.

These corporations will pursue attraction of new projects, business development and cooperation extension.

As a result SBCs will become big employers and “engines” of the country’s development.
from KazPravda

And two weeks ago, the President criticized the government for not realizing his vision yet (among other things).

The idea is that these coporations will solve social problems in the regions. All well and good. Traditionally, social entreapeneurships do things like build cheap computers to sell to students in developing countries (re: MIT) or come up with simplified drug regimes for AIDS patients, or other solutions to social problems. They run at a profit, unlike NGOs or development organizations, and this is believed to be good because they are sustainable. An NGO that provides free services will some day go out of business; a business that provides services at an affordable rate can go on forever.

However, these SBC’s will be different. One odd thing that struck me was that no one seemed to be too worried about the social end of things. I didn’t see announcements of the mechanisms by which these coporations would achieve social or charitable ends, regulations on what the companies could do with their money, a list of pressing projects and issues, plans to confer with the UNDP or Oxfam.

The reason for this is that these SBC’s will not work in the social area at all. They will work more like funds or holding companies, which the President (and others) has been criticizing left and right. SBCs will receive state property which they will then capitalize on—by leasing it or taking profits from it. With this money, they will invest in projects (not social projects mind, but high-tech projects in line with the Industrial-Innovation Program). With the profits from that, they will fulfill responsibilities typically carried out by the province governments: paying pensions and student grants, funding public services, etc.

There are a number of odd things here: What’s with the middleman? Why not give the provinical governments the power to capitalize on state resources and get the income themselves? All I see these SBC’s adding to the equation are mechanisms for making very rich coporations and I wonder if that will attract socially-minded development professionals or powerful businessmen who will look to enter international business (as the President promises), make millions on venture funds, and appoint themselves salaries of 365 million dollars a month!

Also odd: As the President says, and the PM confirmed, these corporations will be given public resources to use to raise capital—things like land, roads, railraods, natural resource deposits! First of all, this is unprecendented in the new ‘market economy’ Kazakhstan. Everything has been privatized except resources deemed to be of strategic significance—large oil deposits, the road between Almaty and Astana, etc. Will the government give up these strategic resources too? Or will they buy back already privately owned resources? Only to give them to a coporation that they expect to once again lease that resource? Once again, a mechanism to make these SBCs lots of money and remove one layer of control.

It’s not a bad idea to try to use otherwise unused resources and try to make some money off of them, and then use that money to pay for underfunded social services. It’s just depressing to see so much effort put into innovative ways to make money, not innovative ways to solve social problems. This also appears to be a step backwards toward a Soviet system, where the state controls public resources. Instead of privatizing these resources, they are being handed over to state entities. Now, the goal is social development, and private coporations are not generally interested in paying pensions—nor can they legitimately be asked to be (though there has been some success in requiring foreign companies to build roads, schools, and clinics for towns in which they work as a condition of their right to work in Kazakhstan). So some measure of state control is required. On the other hand, to create these new entitites seems a bit odd instead of restructuring the legal and economic regulations to allow local governments to manage these resources directly. Especially when other institutions that resemble these SBC’s have not been recieiving glowing praise. The Innovation Fund and the Development Bank (both of which are designed to fund scientific and social, respectively, projects) have yet to hit their stride. Neither has failed, but the model has not been well tested in Kazakhstan yet and maybe it should be before 6 more similar entitites are created—of course, this is the plague of governments, to try to create magic bullets. Kazyna and Samruk, as I already mentioned, have been criticized by the President for being inefficient and enriching primarily their own staff. Local NGOs have indicated that Kazyna has no sense of direction and thus is not a desirable partner yet. Maybe we should wait until they do find a sense of direction and then send some of their management to create these new SBCs.

In the end, sadly, one has to wonder who figured out how to make a profit off of this and one hopes the KNB or the Agency for Financial Crimes is already developing methods to investigate and evaluate these SBCs.