Fuel Bases at Reduced Price: KTZ Calculated Damage from Privatization of Strategic Facilities by Kulibayev

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The Main Transport Prosecutor's Office (MTP) has not only tried to return the previously privatized fuel bases to Kazakhstan Temir Joly in court, but also initiated an investigation into the embezzlement of someone else's property in relation to the Trading House TEK-Kazakhstan LLP. Orda.kz looked into the matter.

Orda’s editorial board has already written about how former Prime Minister Karim Massimov and Ablay Myrzakhmetov, at that time the Minister of Transport and Communications and the head of JSC NC "Kazakhstan Temir Zholy", put 80 objects up for privatization. The list includes coal depots, material and economic fuel depots and facilities designed to provide fuel for locomotives. The list also included fuel bases located at railway stations. Incidentally, locomotives and other hauling equipment are still serviced with diesel and lubricants there.

22 Years Later

In early August, the main Transport Prosecutor's Office received an audit report. The document reported an underestimation of the book value of fuel warehouses. Specialists of the Audit Company "Solomon" LLP checked the documentation on fuel warehouses.

At the time of implementation in 2001, the estimated value of 80 warehouses was only 139 million tenge.

The director of the Audit company "Solomon" LLP, Alma Suleimenova, in conversation with an Orda correspondent noted that she could not disclose the details, as she signed an agreement on non-disclosure of confidential information.

We checked all fuel depots according to KTZ documentation. We wrote that the appraiser's report (2001) does not allow us to say that it is reliable, Alma Suleimenova said.

According to the report, when using fuel depots, KTZ paid an additional 149 billion tenge from July 2011 to December 2022. This amount included a fee for equipment and maintenance of warehouses. Having received the documents, the main Transport Prosecutor's Office began a pre-trial investigation under Article 189 of the Criminal Code of the Republic of Kazakhstan "Appropriation or embezzlement of entrusted property of others" in relation to LLP "Trading House "TEK-Kazakhstan".

Already on September 8, the investigation was halted due to the absence of corpus delicti. 149 billion tenge was recognized as lost profit. Note after an Orda correspondent’s request, the main transport prosecutor's office responded with one phrase:

The requested information is commercial, tax and banking secrets, in accordance with the requirements of part 1 of Article 201 of the Criminal Procedure Code, the data of the pre-trial investigation are not subject to disclosure.

JSC "NC "Kazakhstan Temir Joly" commented in more detail. The organization believes that the lost profit of KTZ – Cargo Transportation LLP is payment for EK-Kazakhstan’s services. If there were internal fuel depots, this "Expenses" column would simply not exist. The last time the cost of services was changed in June 2019 – it was reduced from 32,351 tenge to 22 thousand tenge per ton, including VAT.

KTZ – Cargo Transportation does not have its own fleet of freight transport and the appropriate infrastructure for receiving, storing and equipping diesel locomotives with diesel fuel. The service is provided by TD TEK-Kazakhstan LLP, which has the ability to equip locomotives at maintenance points and has the appropriate infrastructure. A long-term contract for the purchase of services for the acceptance, storage and release of liquid, bulk and tarred goods was concluded on July 1, 2015,
 KTZ reported.

The national company indicated that TD TEK-Kazakhstan LLP is the largest network of fuel bases in the country. The company provides services for the storage and transshipment of diesel fuel, gasoline, fuel oil, heating oil, bulk cargo, and also sells, stores oil and lubricants. It thereby has a monopoly on the provision of these services in the railway industry.

Son-in-law’s Company

27 years ago, the Government of Kazakhstan signed a decree on the phased transfer of social facilities to local executive bodies. In October 2001, then-Minister of Transport and Communications, Karim Massimov, approved a list of facilities in KTZ that were subject to privatization. On October 24, 2001, KTZ’s general director, Ablay Myrzakhmetov, signed the document "On the implementation of facilities of the Directorate of Logistics".

Fuel bases on November 5, 2001 were divided between the companies: "TEK-Almaty" (sold for 91 million tenge), "TEK-Astana" (sold for 96 million tenge) and "TEK-Batys" (sold for 43 million tenge).

On November 27, Massimov and Myrzakhmetov were to be promoted. The former took the position of Deputy Prime Minister, the latter - Minister of Transport and Communications.

RMB: Myrzakhmetov later received a five-year conditional sentence for embezzlement in KTZ (3.3 billion tenge).

Now these fuel bases are on the balance sheet of LLP "Trading House "TEK "TD "TEK-Kazakhstan". The stakeholders (founders) of the company are Kamkor Management LLP and Anuar Ushbayev.

The organization belongs to:

  • Joint Technologies (founders Raushan Sagdieva and through Kipros LLP Timur Kulibayev)
  • Alibek Kulibayev – nephew of Nursultan Nazarbayev's son-in-law
  • Dias Suleimenov – co-owner and CEO of the diversified group "Kamkor Management". He is also the co-founder of Brent Invest LLP, which owns a stake in the Sinooil refueling station network
  • Andrey Kim – the first owner of the company "Trading house “TEK-Kazakhstan"

This means that for a long time it was Timur Kulibayev and his nephew's company that was responsible for servicing KTZ cars with diesel and lubricants.

Map of fuel depots "TEK – KAZAKHSTAN"

Another Attempt

After the January Events, some government resolutions adopted earlier began to be revised. On November 21, 2022, the Transport Prosecutor's office filed a report on the need to verify the legality of the transfer to the competitive environment of fuel depots previously owned by JSC NC Kazakhstan Temir Joly.

On February 6, Astana’s specialized inter-district Administrative Court received a lawsuit from the Main Transport Prosecutor's Office. The supervisory authority's representatives asked to declare illegal the order from March 9, 2000 "On approval of the list of fixed assets of KTZ" in terms of supplementing the list with fuel depots. They were included in the document in accordance with two orders of the Minister of Transport and Communications dated October 17, 2001.

The assets of KTZ were transferred to TEK-Almaty, TEK-Astana and TEK-Batys LLP, but in 2008 they were merged into a single company – TEK-Kazakhstan.

 Photo of KTZ

The Ministry of Industry and Infrastructure Development was recognized as the defendant. Interested parties were representatives of KTZ, Samruk-Kazyna, the MIIR Transport Committee and TEK-Kazakhstan Trading House LLP.

According to the representative of the main transport Prosecutor's office, the department learned about the orders during the analytical report on February 1, 2023. And that is why it cannot be said that the office missed the deadline for filing a claim (According to Article 136 of the Administrative Procedural and Procedural Code, claims for challenging are filed within a month from the date of delivery of the decision on the complaint).

Employees of state–owned companies - Samruk-Kazyna, KTZ and the transport committee did not oppose the stated requirements specified in the lawsuit. However, representatives of Timur Kulibayev's company, which came into possession of the same fuel bases, petitioned for the withdrawal of the claim due to missing the deadline for its submission.

Photo: KTZ

Judge Zhanar Duissenova decided that the Transport Prosecutor's office had known about MIIR’s orders since 2002. In June of that year, The South-Eastern Regional Transport Prosecutor's Office disputed the purchase and sale agreement between KTZ and TEK-Almaty LLP. Then the supervisory authority was denied the claim’s satisfaction both in Almaty's specialized inter-district Economic court and in the appeal.

On March 27, 2023, Astana's specialized inter-district administrative court considered that too much time had passed. The claim was returned to the Transport Prosecutor's Office.

On May 18, 2023, the Board of Administrative Affairs of the Astana Court left the appeal of the Main Transport Prosecutor's Office unchanged.

Return to KTZ

RMB: Fuel bases were privatized on November 5, 2001 by various transactions of TEK-Almaty LLP, TEK-Astana LLP and TEK-Batys LLP. As a result, they were returned to KTZ by several court decisions.

On July 13, the judicial board for civil Cases of the Supreme Court granted the protest of the Prosecutor General's Office in relation to TEK-Almaty LLP. The reason for this was two circumstances. The first one - according to the decrees "On State Enterprise" and "On privatization", state property is indivisible. It can be privatized only in case of liquidation. The second - the judge referred to the law "On Railway Transport".

The main railway network (including engineering structures on them) is the exclusive state property, the alienation of which into private ownership is prohibited, the Supreme Court decided.

In order to return the remaining fuel bases, it was necessary to cancel the purchase and sale transactions of TEK-Astana and TEK-Batys and also invalidate the pledge of real estate between Halyk Bank and TEK-Kazakhstan LLP. The Main Transport Prosecutor's Office filed a lawsuit with the specialized interdistrict Economic Court of Astana.

The defendants in the case were JSC "National Company "Kazakhstan Temir Joly", LLP "TEK-Kazakhstan", LLP "TD "TEK-Kazakhstan" and Halyk Bank.

The defendant’s Representatives did not agree with the claim. According to the employees of TEK-Kazakhstan LLP, the TEK-Kazakhstan Trading House performed all the necessary procedures for the sale of fuel depots, there was no need to coordinate transactions with the privatization authority. The buildings and the structure of the company were bought without rights to land plots. Their management of TEK-Kazakhstan LLP acquired them separately.

The facilities have been modernized, reconstruction has been carried out, the infrastructure of fuel depots has been expanded, additional land plots have been purchased, new buildings and structures built by TEK-Kazakhstan LLP at its own expense have been erected. This real estate is an inseparable object of the infrastructure of fuel warehouses and cannot be separated, which makes the return of fuel warehouses impossible, representatives of TEK-Kazakhstan LLP and TEK-Kazakhstan Trading House LLP wrote in a written counter reply.
Halyk Bank’s lawyers reminded that the pledge includes not only the property purchased under the disputed transactions, but also the plots acquired later and the facilities built on them.

On September 4, the judge of Astana’s specialized inter-district Economic Court satisfied the claim of the main Transport Prosecutor's Office, considering that the disputed transactions contradict the requirements of the legislation and are invalid.

The defendant's arguments that the land plots were acquired independently after the conclusion of the disputed transactions, the reconstruction and modernization of fuel depots by it, do not prevent the satisfaction of the claim. The defendant is not deprived of the right to declare subsequently the expenses incurred related to the improvement of the property. Arguments about the construction of new structures and buildings by the defendant cannot be accepted on the same grounds. The land plots were provided by local executive bodies with the intended purpose – for servicing fuel storage facilities. Accordingly, the basis for the creation of ownership of land plots was the disputed property, the court decided. 
Screenshot of the court decision

Agreements on the pledge of real estate concluded between Halyk Bank and Fuel Energy Complex – Kazakhstan LLP were declared invalid. The list of real estate that should be claimed in favor of KTZ is almost seven pages. On the balance sheet of TEK-Astana LLP and TEK-Batys LLP there were boiler houses, tanks and fuel storage tanks, coal unloading dead ends, cars, tractors, houses, cranes, computers and printers. The property was redistributed to 50 stations.

Replying to an Orda correspondent’s request, KTZ stated that work is underway to transfer fuel depots to the national company’s balance. When asked whether the JSC will claim damages, the company reported that "work is underway to determine possible damage."

Domestic Market Unaffected

The son-in-law of the ex-president through JSC "Caspian Oil" owns a license for exploration, production, primary processing, transportation and sale of crude oil at the Ayrankol field in the Jalyoy district of Atyrau region. Kulibayev also owns refueling station networks across the country (Qazaq Oil and GasEnergy). He also acts as a co-founder in Shymkent Chemical Company LLP (SHKK LLP), which receives raw materials from the Shymkent refinery.

According to Vice-Minister of Energy, Yerlan Akkenzhenov, the government is focusing the domestic fuel market to ensure energy security. At the same time, the official does not see the companies of the ex-president's son-in-law or people associated with him influencing the distribution of fuel.

First of all, oil is distributed to the domestic market, it is exported on a residual basis. We are well aware that the economy of supplies to the domestic market is not so high. And oil-producing organizations, in addition to KazMunayGas and PETROSUN, which operate in Kazakhstan, supply oil to the domestic market for further processing and saturation of the market. Of course, they seek to export raw materials, but the Ministry of Energy is taking all measures to supply the domestic market. This is our priority task. I do not see and do not observe the decisions of people or companies associated with Timur Kulibayev influencing decision-making, Akkenzhenov replied.

The editorial board will continue to talk about the assets previously privatized by Kulibayev and Co.

Original Author: Maria Gorbokonenko

DISCLAIMER: This is a translated piece. The text has been modified, the content is the same. Please refer to the original piece in Russian for accuracy. The original article was published on 02/10/2023.

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