7. State-Owned Enterprises
There are approximately 94 SOEs in the Kyrgyz Republic that play a significant role in the local economy. According to 2021 data, 65 of the 94 SOEs were not profitable. Still, SOE income managed to double only for the first nine months of 2021 to $76.4 million dollars. The State Property Management Fund of the Kyrgyz Republic (www.fgi.gov/kg) is the public executive authority representing the interests of the state. The purpose of the Fund is to ensure the efficiency of the use, management, and privatization of state property. Information on allocations to and earnings from SOEs is included in budget execution reports and is published (in Russian) by the Ministry of Finance and Economy (www.minfin.kg).
Information on SOE assets, earnings, profitability, working capital, and other financial indicators is available on the State Property Management Fund’s website (http://finance.page.kg/index.php?act=svod_profit), though the website is not actively maintained. The State Property Management Fund also reviews the budgets for the largest SOEs, while the Accounting Chamber reviews the accounts of all SOEs and publishes audit reports on their website (www.esep.kg).
The Kyrgyz Republic does not fully adhere to the OECD Guidelines on Corporate Governance of SOEs. Cronyism and corruption within SOEs are a major obstacle to the Kyrgyz Republic’s economic development. The Heritage Foundation’s 2017 Index of Economic Freedom report noted, elected officials appoint company board members based on political loyalty rather than professional skills and corporate governance knowledge. Positions on boards of directors are frequently used as rewards for political support, and the dynamic has reinforced the patronage system and resulted in poor economic performance and public service delivery. As of February 2021, the presidential decree on “State Personnel Hiring Policy” authorizes the State Personnel Service to direct all state agencies and SOEs to verify the qualifications of all candidates, including education and professional experience, as the basis for personnel appointments.
The government has attempted to improve transparency on contracts and bidding processes. Due to widespread corruption, there are common complaints that only individual government officials have access to government contracts and bidding processes. SOEs purchase goods and services from the private firms and usually place the calls for bids either on their websites or in public newspapers, as required. Private enterprises have the same access to financing as SOEs and are subject to the same tax burden. In some cases, SOEs have preferential access to land and raw materials.
The Kyrgyz government periodically auctions rights to subsoil usage and broadcasts tender announcements, including disseminating information to diplomatic missions, in order to attract foreign investors. There are no restrictions on foreign investors participating in privatization programs. The privatization process is not well defined and is subject to change. There is ongoing deliberation on the privatization of other state-owned assets, such as the postal service and the capital’s international airport, but lack of interest by private partners has stalled any potential moves.
The Kyrgyz government is no longer actively pursuing sale of its 100 percent stake in Megacom, the country’s largest telecommunications company. In December 2021 the Ministry of Finance announced plans to fully or partially sell 25 SOEs in 2022, including the Eurasian Savings Bank and Bakai Bank, among others.
Foreign investors – both companies and individuals – are generally able to participate in public auctions of state-owned properties unless specifically prohibited in the terms and conditions. There are, however, some land legislation restrictions concerning the property rights of foreigners. Information about terms and conditions of SOE sales are posted on the State Property Management Fund’s website (www.fgi.gov.kg).