copy the linklink copied!6. Public Procurement Procedures for State-owned Enterprises in Kazakhstan

SOEs represent the largest part of the public procurement market in Kazakhstan. Therefore, it is important to analyse their activities to understand the full picture of public procurement in country. Many rules are similar to the national procurement system. However, their distinct nature has given some the power to develop different approaches to procurement and spearhead in some areas. Globally, however, the general challenges of Kazakhstan’s procurement system persist also in the area of SOE procurement, such as a high share of direct awards or limited access from foreign suppliers.


Benchmarked against other countries, including OECD countries, Kazakhstan shows a relatively high degree of state involvement in its economy. In fact, a previous OECD report found that the Government dominates the economy through the state-owned holding companies. The Government has a strong representation in the management of the holding companies and the subsidiary SOEs, so that the Government’s interests are well-represented in the SOEs’ management. (OECD, 2017[1]) This means that public procurement is most likely affected by this strong governmental influence as well, affecting competition, access and integrity predominantly.

This chapter analyses the procurement conducted by the state-owned enterprises (SOEs) in Kazakhstan. According to international best practice, SOEs should follow rigorous rules for public procurement, just like all public institutions. In fact, in many countries, SOEs are tasked with delivering a large share of public services, using public funds. Kazakhstan is no exception, and indeed SOEs account for a large share of public procurement as this chapter demonstrates. The OECD Recommendation on Public Procurement is applicable to SOEs in its entirety, as stated in the preamble (see Box ‎6.1 below).

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Box ‎6.1. OECD Recommendation on Public Procurement – Preamble

XV. INVITES Adherents to disseminate this Recommendation at all levels of government, and to consider the implementation of this Recommendation in other relevant contexts, such as procurement by state-owned enterprises or procurement conducted under aid arrangements.

Source: (OECD, 2015[2]).

This chapter analyses the procurement conducted by a sector that is not covered entirely by the general public procurement law in Kazakhstan, but that nevertheless represents an important share of the overall procurement conducted with state assets in Kazakhstan. It focuses on three topics: First, it gives a brief overview of SOEs in Kazakhstan. Second, the chapter looks at the structure of public procurement by SOEs based on quantitative information (to the extent available.) A third section discusses procurement rules and how SOEs have implemented public procurement.

copy the linklink copied!6.1. Importance and relevance of SOEs and their procurement in Kazakhstan

6.1.1. Definition of SOEs in international best practice as well as in Kazakhstan – and the main groups of SOEs.

Definitions of what is considered an SOE and what is not differ from country to country. For the purposes of this review, we use the definition provided in the OECD Guidelines on Corporate Governance of State-Owned Enterprises (2015), see Box ‎6.2.

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Box ‎6.2. Definition of State-Owned Enterprises

“[A]ny corporate entity recognised by national law as an enterprise, and in which the state exercises ownership, should be considered as an SOE. This includes joint stock companies, limited liability companies and partnerships limited by shares. Moreover statutory corporations, with their legal personality established through specific legislation, should be considered as SOEs if their purpose and activities, or parts of their activities, are of a largely economic nature.”

Source: (OECD, 2015[3]).

According to previous OECD reports, SOEs that engage in business or other economic activity in Kazakhstan are either joint stock companies (JSCs) or limited liability partnerships (LLPs). A 2017 OECD report noted that Kazakhstan has 6 948 SOEs, including 679 JSCs and LLPs. The remainder of the companies were classified as state enterprises under the right of economic management (1 258 entities) or operational management (5 011 entities). Roughly 1 000 entities with more than 250 employees were categorised as large entities. SOEs cover all business and industry sectors, especially oil and gas, energy, mining, transport and information and communications. In 2014, SOEs accounted for a gross value added of 7.85% of GDP. (OECD, 2017[1])

Three holdings (joint stock companies, JSC) account for most SOEs in Kazakhstan and will be briefly introduced:

  1. 1. JSC Samruk-Kazyna

  2. 2. JSC Baiterek

  3. 3. KazAgro

JSC Samruk-Kazyna (Samruk-Kazyna)

Sovereign Wealth Fund Samruk-Kazyna is the most important national managing holding in Kazakhstan. Organised under the legal framework for joint stock companies, Samruk-Kazyna is established by a separate law: Law on Sovereign Wealth Fund 550/2012, which states its structure and purpose: “to increase the national wealth of the republic of Kazakhstan by increasing the long-term value of the organisations included into the group of Samruk-Kazyna and by effective management of assets belonging to the group of the Fund”. According to the annual report 2017, the Samruk-Kazyna Fund group is comprised of 358 companies, among them the largest SOEs in Kazakhstan, including:

  • KazMunaiGas (petroleum exploration company)

  • Kazatomprom (exporter of radioactive metals)

  • Kazakhstan Temir Zholy (railway)

  • Air Astana (airline)

Overall, 312 400 persons are employed by Samruk-Kazyna and its subsidiaries. Samruk-Kazyna’s consolidated revenue accounted for KZT 5.1 trillion (approx. EUR 12 billion) or roughly 8% of Kazakhstan’s GDP in 2017. This is down from an over 13% share in GDP in 2014. (Samruk-Kazyna JSC, 2018[4]) (OECD, 2017[1])

JSC Baiterek National Management Holding (Baiterek)

Baiterek aims at promoting sustainable economic development in line with Kazakhstan’s 2050 strategy. The Baiterek holding has 11 subsidiaries with varying structures, including financial institutions, development institutions and others. In 2017, Baiterek employed 2 885 persons. The holding reported a net profit of KZT 44 billion in 2017. The group owns assets valued at KZT 4.4 trillion in 2017. As with Samruk-Kazyna, the board of Baiterek consists of high-level politicians. It also includes international board members. (OECD, 2017[1]) (Baiterek National Managing Holding JSC, 2018[5])

JSC National Management Holding KazAgro (KazAgro)

KazAgro is implementing Kazakhstan’s policy “on stimulating industrial development of [the] agro-industrial complex” (KazAgro, n.d.[6]). KazAgro has numerous subsidiaries, including financing institutions Kazagrofinance and AAC Agrarian Credit Corporation. Another subsidiary, Kazagromarketing, provides marketing support to agricultural producers. The Ministry of Agriculture holds ownership rights of KazAgro shares, after they have been delegated. The chairman of the board is the Minister of Agriculture. In 2017, KazAgro provided approximately 22 000 loans worth roughly KZT 246 billion (EUR 579 million). (Kazagro, 2018[7]) (OECD, 2017[1])

According to the Law on State Property, the Ministry of Economy (Department of State Assets Management Policy) oversees SOEs, together with the relevant line ministry – in this case the Ministry of Finance (OECD, 2017[1]). According to the law, the Ministry of National Economy, the Committee of State Property as well as the line ministry, have to be represented in the boards of the national managing holdings. (OECD, 2017[1]) However, the Samruk-Kazyna law also stipulates that the Government is not allowed to interfere in the operations of Samruk-Kazyna. (OECD, 2017[1])

All three national managing holdings, Samruk-Kazyna, Baiterek and KazAgro are led by a board of directors. In all three cases, the directors of the board are high-level politicians that currently serve in high-level functions – such as ministers, prime minister or deputy prime minister – or have done so in the past. In addition, the boards of directors often includes experienced international managers or politicians (such as Germans Thomas Mirow, Klaus Mangold, and Singaporean Philip Yeo). (Baiterek, n.d.[8])

Albeit the Government’s push for privatisation (see also section ‎6.3.2 below), SOEs still account for a large proportion of Kazakhstan’s economy, 30% to 40% of GDP according to some estimates (OECD, 2017[9]). Many subsidiaries operate almost like commercial enterprises. Most of Kazakhstan’s most crucial public services, such as in the area of healthcare, are delivered by SOEs that are subsidiaries of the three large holdings described above. Therefore, a close analysis of the procurement by SOEs in Kazakhstan can provide valuable insight into improving public service delivery. Box ‎6.3 below provides an illustration of the weight of SOEs in Kazakhstan’s public service delivery, by detailing the procurement of medical items through the SOE SK Pharmacia LLP.

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Box ‎6.3. SK Pharmacia LLP

The importance and far reach of procurement through SOEs is illustrated by SK Pharmacia LLP (SK Pharmacia), which is an SOE in charge of procurement for health equipment and medicines (i.e., it is a “single buyer”). The purpose of SK Pharmacia is to maintain unified prices of medical equipment and drugs throughout Kazakhstan by centrally procuring them. 1 115 in-patient and 400 out-patient hospitals under the universal healthcare scheme are retrieving their drugs from SK Pharmacia (by obligation). SK Pharmacia finances its activities by charging a 5 to 7% margin.

Government Order Number 631 lists all 1 167 items to be procured by SK Pharmacia (List of medicines and medical equipment to be procured by the single buyer: 1 167 drugs and medical equipment items). For the procurement of health items, a specific set of rules applies (Special Rules of drug procurement, Особые правила закупки лекарственных средств) which are different from the Law on Government Procurement.

SK Pharmacia publishes procurement plans and purchases set amounts of drugs or equipment per year, for set prices. This has advantages and disadvantages: it prevents price increases, but also does not allow to capture falling prices. The fact that SK Pharmacia has to purchase a set amount per year means that reactions to developments in the public health field are difficult.

Source: stakeholder interviews.

copy the linklink copied!6.2. Weight and structure of public procurement by SOEs

SOEs are not only a major factor in Kazakhstan’s economy, they also account for a large share of public procurement. There is some controversy in determining whether the entirety of procurement by the above-mentioned SOEs Samruk-Kazyna, Baiterek and KazAgro count as public procurement. For example, the treaty for the Eurasian Economic Union would not consider the procurement of SOEs part of public procurement and the Enhanced Partnership and Cooperation Agreement (EPCA) does not apply to Samruk-Kazyna. In fact, some branches of the SOEs operate more like commercial enterprises rather than public institutions.

This section analyses the size and structure of procurement spending by Samruk-Kazyna, Baiterek and KazAgro to the extent available. In total, these companies procured goods, works and services roughly worth KZT 4.2 trillion in 2016 (latest year available for all three companies). For comparison, procurement under the general government procurement framework on national and local levels in Kazakhstan accounted for approximately KZT 1.3 trillion in 2016. Samruk-Kazyna accounts for 98% of the spending by these three SOEs; KazAgro for 1.6% and the remaining 0.4% are accounted for by Baiterek. In 2016, procurement by companies under the Samruk-Kazyna holding accounted for KZT 4.1 trillion (EUR 11.7 billion). Baiterek procured KZT 1.8 billion (EUR 4.7 million) and KazAgro KZT 66.9 billion (EUR 167 million) (see Table ‎6.1).

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Table ‎6.1. Total procurement spending by Samruk-Kazyna, Baiterek and KazAgro


Value in mln KZT


Value in mln KZT


Value in mln KZT


3 870 073

3 486 110

4 121 927


1 577

1 831

1 880


62 050

57 050

66 956

Note: Latest available years for Samruk-Kazyna.

Source: Information provided by Baiterek, KazAgro; as well as Samruk-Kazyna in (OECD, 2017[10]).

6.2.1. High share of direct awards (single source procurement)

All three SOEs, similar to the government procurement sector, have high levels of direct awards (also called single source procurement based on the legal term in Russian.) Samruk-Kazyna has the lowest share of direct awards with 86.5% of the entire procurement volume (2016). Baiterek follows closely with just under 88 % (2017). KazAgro procures over 98% through direct awards (2017). All these shares are higher than the general state sector (OECD, 2017[10]).

For all three companies, the trend indicates an increasing use of direct awards as the preferred procurement method, and a lower use of open tenders. Figure ‎6.1, Figure ‎6.2, and Figure ‎6.3 illustrate the increasing proportion of direct awards procurements in recent years for the three different holdings.

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Figure ‎6.1. Samruk-Kazyna: shares of procurement methods, 2014-2016
Figure ‎6.1. Samruk-Kazyna: shares of procurement methods, 2014-2016

Note: Latest available years.

Source: Data provided by Samruk-Kazyna in (OECD, 2017[10]).

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Figure ‎6.2. KazAgro: shares of procurement methods, 2013-2017
Figure ‎6.2. KazAgro: shares of procurement methods, 2013-2017

Note: Latest available years.

Source: Data provided by KazAgro.

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Figure ‎6.3. Baiterek: shares of procurement methods, 2013-2017
Figure ‎6.3. Baiterek: shares of procurement methods, 2013-2017

Note: Latest available years.

Source: Data provided by Baiterek.

In the case of Samruk-Kazyna, approximately 20% of direct awards are related to a failed open tender, according to stakeholders. If only one responsive bid has been received in an open tender procedure (i.e., an insufficient number of bidders complied with the technical specifications), contracting authorities can opt for direct awards and award the contract to the supplier that complied with the technical specifications. The remaining 80% of direct awards in Samruk-Kazyna are justified by referring to a list of exceptions. The rules for Samruk-Kazyna list 56 exceptions for cases in which SOEs under Samruk-Kazyna can procure directly. These exceptions seem to be in line with exceptions provided for the state sector. Baiterek and KazAgro follow a similar list.

The list of exceptions and its frequent use is problematic, as firstly, they seem to be used as the rule, rather than as an exception, and secondly, the exceptions are so wide that almost any scenario can be made to fit in the list of exceptional circumstances. This makes not only for restricted competition (see section ‎6.3.3 on competition challenges), but also provides opportunities for corruption and bid-rigging.

Samruk-Kazyna has used all five procurement methods (open tender, centralised energy trading, request for quotes, single source procurements using direct awards, and exchange of commodities) regularly in the last years, albeit to procure relatively small volumes. Baiterek has only used open tender and direct awards as methods; KazAgro has also used request for quotes. A detailed breakdown per categories for the three SOEs is provided in Table ‎6.2, Table ‎6.3, and Table ‎6.4.

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Table ‎6.2. Public procurement by Samruk-Kazyna


Value in mln KZT


Value in mln KZT


Value in mln KZT

Open tender

881 239

565 783

531 206

Centralised energy trading

1 262

2 775

2 432

Request for quotes

25 697

20 080

21 318

Direct award

2 958 187

2 895 287

3 566 823

Exchange of commodities

3 688

2 168


Note: Latest available years.

Source: Information provided by Samruk-Kazyna in (OECD, 2017[10]).

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Table ‎6.3. Public procurement by Baiterek



Value in mln KZT


Value in mln KZT


Value in mln KZT

Open tender




Direct award

1 113

1 401

1 110

Note: Last three available years.

Source: Information provided by Baiterek.

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Table ‎6.4. Public procurement by KazAgro



Value in mln KZT


Value in mln KZT


Value in mln KZT



1 000

1 225





Request for quotes




Direct award

55 697

65 297

112 872

Note: Last three available years.

Source: Information provided by KazAgro.

Both KazAgro and Baiterek procure almost exclusively services; over 90% for both companies. The distribution is different on the level of the subsidiaries, depending on the area of operation. No information on the distribution of categories was available for Samruk-Kazyna. As further levels of disaggregation of the overall procurement procedures were not provided, limited insight into the reasons for this high share or the consequences can be gained. The nature of the companies might require a high share of procurement of services, e.g. as services are leased from the subsidiary companies in the holding. Areas for improvement remain unclear, as they would depend heavily on the type of service that is procured. A review by the respective SOE’s leadership could shed some light on possible vulnerabilities for project delivery, corruption and competition issues, among others, and how to tackle these risks.

The share of services procured by Baiterek increased from approximately 74% in 2013 to almost 98% in 2017. While works have always accounted for very small share, the share of goods procured decreased from around 20% in 2013 to approximately 2% in 2017. Baiterek procured almost no works in the last three years (see Figure ‎6.4).

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Figure ‎6.4. Baiterek’s procurement, by type (2013-2017)
Figure ‎6.4. Baiterek’s procurement, by type (2013-2017)

Source: Information provided by Baiterek.

KazAgro also has an emphasis on services in the procurement volumes, with a share of more or less around 90%. Works take up a consistently low share of around 1%; goods are the remainder. See Figure ‎6.5 for an illustration.

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Figure ‎6.5. KazAgro’s procurement, by type (2013-2017)
Figure ‎6.5. KazAgro’s procurement, by type (2013-2017)

Source: Information provided by KazAgro.

The breakdown for some of KazAgro’s and Baiterek’s subsidiaries is similar, but also reveals differences in the procurement structure for some. As much as 97% of the procurement by subsidiaries was done using non-competitive methods, but some subsidiaries have limited non-competitive procedures to around 20%. Generally, the response rate to open tenders is relatively low (only two bids are received on average.) Often – and sometimes in all procedures conducted by a subsidiary per year – there is an insufficient number of responses, so that procedures have to be concluded by direct contracting. These diverse purchasing patterns reveal a diverging need for goods, services and works to be procured under the same rules, resulting in a diverse need for methods and tools that can fill the need with the best value for money. In addition, the diverging outcomes in terms of the share of successful bids indicates a diverse level of capacity of the procurement function in the different subsidiaries.

6.2.2. Reducing the use of direct awards for increased efficiency

The high reliance on direct awards as a method raises several concerns. This approach restricts competition, which results in less favourable performance in terms of value for money. Direct awards (or single source methods) frequently goes hand in hand with high levels of corruption: single sourcing is chosen as a method to ensure a certain bidder is successful; companies that are unknown to the contracting authority will not even have a chance to compete. The OECD Recommendation on Public Procurement contains related best practices in its “access” principle (Box ‎6.4 below).

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Box ‎6.4. OECD Recommendation on Public Procurement: Excerpts from the principle on Access

IV. RECOMMENDS that Adherents facilitate access to procurement opportunities for potential competitors of all sizes.

To this end, Adherents should:

i) Have in place coherent and stable institutional, legal and regulatory frameworks, which are essential to increase participation in doing business with the public sector and are key starting points to assure sustainable and efficient public procurement systems. […]

ii) Deliver clear and integrated tender documentation, standardised where possible and proportionate to the need, […]

iii) Use competitive tendering and limit the use of exceptions and single-source procurement. Competitive procedures should be the standard method for conducting procurement as a means of driving efficiencies, fighting corruption, obtaining fair and reasonable pricing and ensuring competitive outcomes. If exceptional circumstances justify limitations to competitive tendering and the use of single-source procurement, such exceptions should be limited, pre-defined and should require appropriate justification when employed, subject to adequate oversight taking into account the increased risk of corruption, including by foreign suppliers.

Source: (OECD, 2015[2]).

In fact, competition in public procurement is closely linked to a range of procurement principles, as highlight in the OECD Recommendation under the principles efficiency, transparency, integrity, accountability and risk management. Kazakhstan could achieve several objectives of a good public procurement system by increasingly using open tenders:

  • Better value for money through increased competition on prices and quality

  • Increased access for companies to procurement opportunities (which again increases competition)

  • Increased transparency and accountability

  • Reduced opportunity for corruption

With regards to the measures to be employed to increase the number of competitive procedures and limit the use of single sourcing using direct awards, the SOEs might wish to conduct additional investigations into the reasons for the high use of direct awards to determine the most promising counter measures. As mentioned above, in 80% of the single source procurements, the list of exceptions provides a justification. However, beyond this insight, limited information can shed light on the specific reasons. No data has been available or shared with the analysts to shed light into the more disaggregated breakdown of purchased items. The example of public procurement reforms in Colombia illustrates how a data-driven analysis of direct awards informed policy makers about the most promising course of action to increase the use of competitive procedures (see Box ‎6.5 below).

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Box ‎6.5. Investigating reasons for direct awarding in Colombia

Colombia undertook a major public procurement reform in the early 2010s. Part of this effort was the creation of a dedicated public procurement authority that lead the reforms in the following years. Part of the challenges was a very high number of direct awards (comparable to Kazakhstan’s single source procurements), while the law identified open tenders as the standard method.

Colombia’s measures to address this challenge were built on a rigorous analysis of the direct awards to identify the reasons behind the high number of direct awards. Quantitative analysis revealed that the direct awards were mostly to purchase defence-related items and to hire personnel (see Figure ‎6.6).

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Figure ‎6.6. Frequency of the use of exceptions to carry out direct awards in Colombia at the national level, 2013
Figure ‎6.6. Frequency of the use of exceptions to carry out direct awards in Colombia at the national level, 2013

Source: (OECD, 2016[11]).

Further investigations revealed systemic reasons for hiring personnel through the public procurement system: restrictive human resource policies made it impossible to hire additional civil servants, notwithstanding a great need.

While this insight certainly does not correspond to the norm across all countries, it highlights the importance of evidence-based policy making. Any effort to tackle the issue that disregarded HR policies would fail in really reducing the number of direct awards.

Source: (OECD, 2016[11]).

Good practices from OECD countries highlight a plethora of measures that can increase competition (see also chapter 2). Ideally, an encompassing approach would combine revisions in the legal framework with measures to increase the capacity of both procurers and suppliers (see also the following section on the legal framework and challenges with regards to competition).

In the area of rules, SOEs could aim at reducing the number of exceptions in the dedicated list, make the use of open tender the default option above certain thresholds and introduce strategic, competitive procurement methods such as framework agreements (see also chapter 1.) Which of these proves most useful depends on further analysis.

Beyond changes to the rules of procurement, additional efforts should be made to ensure that the rules are applied in the most effective way. Of importance is to build on existing efforts to professionalise the procurement workforce and increase their capacity. This is important as competitive and especially strategic procurement methods can be more complex than direct awards. Additional training and guidance, as well as having enough staff in terms of numbers is crucial. Focus areas should be on all stages of the public procurement cycle, but most notably on planning and market research, as well as the preparation of technical specifications that invite competition. Finally, efforts could be made to work with suppliers to increase their capacity and understanding of the public procurement processes.

copy the linklink copied!6.3. Procurement rules and practices for SOEs in Kazakhstan

Overall, the procurement by SOEs seems to be aligned with the rules for general government procurement, even where separate legal or regulatory frameworks exist. Kazakhstan’s most recent reform adopted in December 2018 strengthened the oversight of the Ministry of Finance of the quasi-state sector which comprises most SOEs; Samruk-Kazyna, however, continues to follow an entirely separate framework. Limited information was provided in the questionnaire responses. The following sections reflect the responses as well as information previously reported in OECD reviews and from other sources. In many instances, information might need updating, especially data.

6.3.1. Legal and institutional structures

The different SOE types have dedicated frameworks that regulate their respective procurement, see Table ‎6.5.

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Table ‎6.5. Legal framework and governance environment of SOEs in Kazakhstan

General legal framework

Framework for procurement

Oversight ministry


“National welfare fund”

Law on the national welfare fund “Samruk-Kazyna”

Procurement rules of Samruk-Kazyna

Ministry of Finance


“Quasi-state sector”

Law on State Property 413/2011

Unified procurement rules developed by the Ministry of Finance (forthcoming)

Previously: standard rules for procurement approved by Governmental Decree 787 out of 28 Mai 2009 (Order of the Ministry of Finance)



Law on State Property

Law on government procurement

Source: Authors compilation.

Until 2019, the general principle for organising public procurement of SOEs was that a) the public procurement rules are aligned with the Law on Government Procurement, even if this law does not directly apply, and b) that the boards of the SOEs adopt their own procurement rules, at times as developed by the Ministry of Finance. The Ministry of Finance is the overseeing ministry for all SOEs. The procurement reform adopted in late 2018 initially attempted to bring all SOEs under the coverage of the general public procurement law. Within the version that ultimately entered into force, all SOEs, except Samruk-Kazyna, are now required to follow unified rules developed by the Ministry of Finance. These rules are expected to be closely aligned with the general public procurement law.

Samruk-Kazyna’s operations are governed by the Law on the National Welfare Fund, adopted in 2012 and revised in 2015 and 2018 (original title in Russian: О Фонде национального благосостояния. Закон Республики Казахстан от 1 февраля 2012 года № 550-IV). The organisation’s board adopts procurement rules for Samruk-Kazyna (i.e., the “Procurement Rules for Goods, Works and Services by Joint Stock Company ‘Sovereign Wealth Fund Samruk-Kazyna’ and Organisation, Fifty or More of Shares (Interest) of Which are directly or indirectly owned by Joint Stock Company ‘Sovereign Wealth Fund Samruk-Kazyna’”). The Ministry of Finance is tasked with supervising the operations of Samruk-Kazyna, but there is limited de-facto influence since several additional high-ranking officials from other parts of government are part of the board. (OECD, 2017[1])

Baiterek and KazAgro both fall under the Law on State Property. The Ministry of Finance issued standard rules for procurement (Governmental Decree 787, 28 Mai 2009). Since 2019, Baiterek and KazAgro are required to follow unified procurement rules developed by the Ministry of Finance. Previously, the organisations adopted own, detailed rules based on the overarching legal framework and standard rules.

The subsidiaries in all SOEs (i.e., their holding structures) have considerable independence within the procurement rules. The process is more or less similar along the following steps:

  1. 1. Budget proposals are prepared by the subsidiaries and approved by the board. Budget approvals are required to launch a procurement process.

  2. 2. To launch a procurement request, the substantive unit in the subsidiary submits a request for procurement to the procurement unit, which includes technical specifications.

  3. 3. The procurement unit organises the procurement process. This includes a review by the budget and legal departments.

  4. 4. Signature of the contract and contract management are managed by the substantive unit.

In all SOEs and their subsidiaries, and similar to the rules for government procurement, open tender is not considered a default option. Rather, different methods are provided for and contracting authorities can choose which ones to pick. All SOEs have a list of items or situations (similar to the list for government procurement) in which case the contracting authority can opt for direct award methods (also called single-source procurement.) In practice, as detailed in section ‎6.2 above, the direct award method is indeed the most-used method among SOEs, by far. This is related to the vast number of exceptions that allow for direct awards.

Another factor that drives the efficiency and effectiveness of procurement procedures relates to thresholds. The subsidiaries of KazAgro and Baiterek are set by the procurement rules applicable for these entities. The 2018 procurement reform introduced unified procurement rules (to be developed) applicable to KazAgro and Baiterek among other entities. These rules are expected to change the thresholds. At the time of drafting, the thresholds follow a generally similar approach to the general public procurement system, based on two thresholds: Below a threshold of EUR 22 856 (4 000 monthly calculation indices of KZT 2 405 each, i.e. KZT 9 620 000) procuring entities can use the method of request for quotation. Direct awards are possible for procurements below a threshold of EUR 11 430 (2 000 indices, i.e. KZT 4 810 000). In both cases, the threshold applies to whatever is planned to be purchased of the same item in one year.

While these thresholds are much higher than the thresholds in the state procurement system (see chapter 2), they are still considerably low. As a consequence, the value of individual procedures conducted by contracting authorities in KazAgro and Baiterek, even for open tenders, is very low. For example, for one subsidiary, 9 procedures were initially announced as open tenders for one year. These procedures in total accounted only for a value of roughly EUR 265 000 for all categories, i.e. on average these procedures did not exceed the threshold by much (EUR 29 383 for each procedure on average, where the threshold is EUR 22 856.) For comparison, the lowest threshold in the European Union above which some procurements have to be organised as open tenders on EU level is EUR 144 000. This threshold can be much higher for certain other goods, works or services (see chapter 2 for a more detailed breakdown.)

There is limited aggregation between the different subsidiaries of the same holding. In the case of Samruk-Kazyna, the central function at the level of the holding review procurements and provides guidance. The Samruk-Kazyna holding has a specific subsidiary, Samruk-Kazyna Contract LLP (SK Contract) that provides certain centralised services, with a focus on e-procurement solutions.

Below, Figure ‎6.7 illustrates the different institutions that are typically involved in public procurement in the SOEs.

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Figure ‎6.7. Types of institutions conducting procurement in SOEs
Figure ‎6.7. Types of institutions conducting procurement in SOEs

Source: Author’s compilation.

6.3.2. Ongoing reform of public procurement and the SOE sector in Kazakhstan

The structure and legal framework for the SOE sector has been in flux in recent years including public procurement. One aspect pertains to an increased push for reform of the SOE sector as a whole, mostly to decrease its footprint in Kazakhstan’s economy. A second one relates to the reform of the public procurement system.

Since 1990, Kazakhstan’s government made efforts to privatise SOEs, with limited success as new SOEs were formed within the existing structure. The current target foresees to reduce the share of economic activity by SOEs to 15% of GDP, from the present estimate of 30 to 40%. This shows that SOEs still have an important impact in the Kazakhstani economy, and are still crucial for public service delivery in Kazakhstan. (OECD, 2017[1])

As part of this general push for privatisation, some of the SOEs and their subsidiaries have made efforts to become more competitive and better candidates for privatisation. Procurement has been identified as one of the areas for reform. For example, Samruk-Kazyna has followed a reform-oriented mind-set in some areas, resulting in dedicated change management strategies to ensure effective implementation (see Box ‎6.6).

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Box ‎6.6. Change management in Samruk-Kazyna in support of procurement reforms

In 2014, Samruk-Kazyna started a major overhaul. Currently, the modernisation effort is in its third wave and is expected to end in 2022. Samruk-Kazyna being a large, diverse and dispersed organisation, change management has proven crucial to ensure the effective implementation of the reforms. Stakeholder analysis and engagement were at the heart of the change management process.

During the transition, it became apparent that key-stakeholder were reluctant and blocked the transformation programme. In the design stage of the transformation programme, analysts realised that especially in the area of public procurement, highly qualified leaders with expertise on public procurement were necessary to conduct the transformation process. Therefore, Samruk-Kazyna recruited and replaced managers of public procurers in some of its subsidiaries to ensure effective implementation of the programme.

The leaders in the subsidiaries were supported by the central structure with tools related to internal communications advocating for central management of procurement. This stakeholder engagement aimed at highlighting the benefits of more centralised and more professional public procurement from a business perspective.

Overall, the change management during the transition focused on three steps that frequently appear in change management approaches:

  1. 1. Develop a sponsor for the proposed change

  2. 2. Engage the main stakeholders

  3. 3. Develop the competencies of all stakeholders and professionals

Deliverables of the change management process included a change management plan, stakeholder maps and a change agenda with the main goals (what needs to change, why and with whom.)

Source: Interviews with Samruk-Kazyna.

As outlined in chapter 1, Kazakhstan’s government has recently concluded a reform of the national public procurement system, and SOEs are affected by the proposed changes as well. Initially, the reform aimed at bringing all SOEs under the same legal framework. Samruk-Kazyna, however, has been removed from the proposal, and will continue to follow its own procurement rules in the future. At the same time, Samruk-Kazyna’s governing law has been updated as part of the same reform bundle.

The most important change in the reform with regards to the focus of this chapter is that the quasi-state sector, i.e. KazAgro and Baiterek, are now covered by the general public procurement rules. The new law now includes unified rules for the quasi-state sector. This change promises to simplify the legal and regulatory framework from the perspective of a supplier: where bidders had to previously adapt to the individual procurement rules of the subsidiaries of KazAgro and Baiterek, there would now be one set of rules applicable to general government procurement, as well as all of the subsidiaries of the entire quasi-state sector as defined by the Law on State Property 413/2011 (most recently updated in 2018, in parallel to the procurement reform.) Samruk-Kazyna and its subsidiaries will not be covered under these unified rules. However, there is an expectation that Samruk-Kazyna’s procurement rules will be aligned to the new law, and agreed with the Ministry of Finance.

The new legal and regulatory framework for the quasi-state sector foresees in detail changes related to e-procurement as well as the establishment of a central unit overseeing procurement, as well as administrative liability for civil servants. SOEs are now required to use e-procurement. The law also introduces a requirement for SOEs to establish a control body (i.e., central control unit) that is separate from the general management of the enterprise and reports to the board of directors. In addition, there will be a single point of contact that would consolidate procurement opportunities. This change is responding to capacity constraints on the Ministry of Finance, aiming at better supervision for procurement conducted by all SOEs. In addition, a single point of contact addresses concerns that there is a fragmented landscape with regards to public procurement, in that there are many different institutions that have individual platforms and rules. Another noteworthy addition to the rules is that procurement officials of the quasi-state sector now face administrative liability. With the changes, public procurers can be held liable for wrongdoing in connection with public procurement processes.

For Samruk-Kazyna, the legal reform introduces a requirement to streamline the own e-procurement system with the central platform for other SOEs. The reform also strengthens central control and audit function within Samruk-Kazyna, entrusted to the Methodology and Control Department. Finally, Samruk-Kazyna’s procurers now also fall under the administrative liability mentioned above.

The reform introduced parts of Samruk-Kazyna’s model for the other holdings, such as a dedicated body for procurement in each holding or the principle of pre-qualification. Aspects of this proposal have to be brought in line with the wider legal framework for SOEs and their structure.

In fact, Samruk-Kazyna seems to be ahead of the remaining Kazakhstani procurement system on several fronts. This is in part due to a leadership effort to make Samruk-Kazyna more competitive, which in turn incentivised efforts to improve procurement. Samruk-Kazyna’s leadership recognised that introducing innovations can spark backlash in a large organisation, and therefore created a unit to focus on change management (see Box ‎6.6).

Discussions about the proposed changes have been ongoing while this report was being drafted, for example during parliamentary discussions, as well as in hearings with suppliers and civil society. KazAgro and Baiterek were consulted regarding the draft law and its provisions concerning the quasi-state sector, albeit in a relatively formal sense, via letters directed to the Ministry of Finance that detailed the position of the respective SOE. According to stakeholders, some of the suggestions have been taken into account by the Ministry of Finance. In addition, a working group was established comprising relevant government agencies, members of parliament, and representatives from the SOE sector.

It is commendable that the current reform takes steps to streamline the legal and regulatory framework. A simplified, streamlined legal and regulatory framework has been proven to facilitate participation by suppliers and increase competition. However, whatever eventual model that this reform will introduce, frequently changing laws and regulations can be a deterrent for companies to participate in public procurement opportunities. Policy makers should aim at stabilising the legal and regulatory framework so that potential suppliers can anticipate the conditions under which they would enter into public contracts.

6.3.3. Increasing competition is the pressing challenge for SOEs

Aspects of the legal and regulatory framework for SOEs in Kazakhstan limit competition. The issues are similar to those in the procurement system for general government procurement, but will be briefly summarised here from the perspective of SOEs.

E-procurement in Samruk-Kazyna has been developed from a fragmented system, with the individual subsidiaries using dedicated portals. The individual platforms have now been integrated using an IT integration tool, which consolidated the systems, but further unification is planned towards one portal only as different tasks (like prequalification, plans or submission of bids) are published on individual portals. To date, the e-procurement system covers the procurement cycle until the e-signature (i.e., contract management and payment is conducted outside of the system.) To avoid any fraud, falsification or meddling with the provided information, Samruk-Kazyna uses block chain technology and made manual inputs technically impossible.

Baiterek and KazAgro have also developed an e-procurement platform. KazAgro owns the platform, Baiterek is leasing it. The individual SOEs in the holdings have individual platforms. Commercial aggregators capitalise on this dispersed publication of opportunities. As part of the reforms, a consolidation and concentration of electronic purchasing for these entities was introduced. Quasi-state companies now have to use a single portal, and Samruk-Kazyna has to ensure integration with this platform. To allow flexibility for a different nature of procurement, Kazakhstan has refrained from included the procurement of SOEs into the electronic system for state procurement.

In all systems, and similar to the e-procurement system for government procurement, information is relatively open. For the last few years, the e-procurement systems were able to collect disaggregated procurement data that can provide insight into analytics (see section ‎6.2 above.) A large proportion is also publically available, which increases transparency but has raised concerns with suppliers for reasons of competition.

The fact that the individual subsidiaries and SOEs all use individual e-procurement systems, and different portals for different tasks that do not seem to be integrated, substantially diminishes access to procurement opportunities for potential suppliers. Small- and medium-sized enterprises are disproportionally disadvantaged, as these types of companies have fewer resources to monitor and handle a large number of portals, and to pay fees that are potentially charged by the aggregators. In this context, the introduction of a shared platform could proof a useful measure.

Restrictive access of foreign suppliers to the e-procurement system reduces competition. One major shortcoming that the SOEs’ e-procurement systems share with the systems for general government procurement relates to the accessibility for foreign suppliers. A cascade of restrictive rules in the e-procurement system prevents foreign suppliers from accessing public tenders: in order to bid for public tenders, companies have to be registered in the e-procurement system with an electronic signature. In order to register for electronic signature, companies have to have a presence in Kazakhstan, i.e. a registered entity. Acknowledging the restrictive effect that this approach has for foreign suppliers, Samruk-Kazyna established an alternative approach for those companies that do not have an established, physical presence in Kazakhstan: Gamma Technologies, a service provider, creates an electronic signature that enables foreign companies to participate in open tenders by Samruk-Kazyna. The signature is valid for one year and costs EUR 130. This has resulted in a very low number of foreign suppliers registering in the e-procurement system. Among 15 000 registered suppliers for Samruk-Kazyna, for example, 15 have been identified as foreign companies, according to the Fund.

SOEs run some of Kazakhstan’s critical infrastructure and public services (such as air traffic control, health care services, etc.) Some of the equipment to perform these tasks has to be procured from specialised providers abroad. As reported by stakeholders, the current rules make it difficult to impossible to procure this equipment: At times, the sole suppliers of a certain spare part have been unwilling to supply based on the current system; the main reason being that the supplier would have to register an entity in Kazakhstan. Where spare parts or other equipment is not available, major infrastructure might not be able to operate anymore or with large constraints that might impact the security of Kazakhstan’s population. This illustrates that this mode of operation can pose a serious risk to Kazakhstan and its citizens.

The mechanism of “intra-holding cooperation” poses additional hurdles to competition. Subsidiaries in most SOE holdings enjoy a preferential treatment when it comes to procurement by the SOEs. For example, Samruk-Kazyna and KazAgro have rules that determined what items should or could be procured from other subsidiaries in the same holding, according to the Law on the Fund. In these cases of intra-holding cooperation, contracting authorities can procure directly (i.e., without open tender). Prerequisites for intra-holding cooperation are a) that the supplier is owned by at least 25% by the same holding, and b) that the procured item corresponds to core activity of the contracting authority. For this reason, intra-holding cooperation is less relevant for Baiterek, as it has a very diverse range of subsidiaries.

Given these quite vague rules, intra-holding cooperation prevents competition and access for suppliers from companies outside of the holding. A wide range of situations can be used as a justification for restricted procurement methods under intra-holding cooperation. This, in turn, will result in less value for money in the purchasing. Suppliers do have the possibility to lodge complaints, but it remained unclear to what extent complaints against intra-holding cooperation have ever been successful.

SOEs are subject to the general audit function of the Republic of Kazakhstan. Kazakhstan’s supreme audit institution, the Accounts Committee for Control over the Execution of the Republican Budget (Accounts Committee) is in charge of external audit of SOEs and their subsidiaries, according to the Law on State Audit and Financial Control, Article 12. The Accounts Committee’s predominant aim is to ensure the execution of the budget; the committee reports annually to the parliament but is subordinate to the president (OECD, 2017[1]). The President effectively also controls the SOEs via the cabinet members that are directors of the national managing holdings and SOEs. This structure probably has effects on the auditing of public procurements as well and is likely to be somewhat restrained due to a potential lack of independence of the auditors.

Complaints are reviewed by the Committee for Internal State Audit in the Ministry of Finance. These complaints are submitted via a web-portal (“register of complaints”). While the committee deliberates the case, the procedure is suspended. Decisions are accessible via the web-portal as well, according to the response to the questionnaire.

In Samruk-Kazyna, auditing as well as complaints are handled by a Special Committee on the level of the board of directors. The Accounts Committee is a member of this Special Committee. Companies who want to lodge a complaint in relation to procurement by Samruk-Kazyna are first expected to address the contracting authority (i.e., the subsidiary that is procuring), then the Procurement Methodology and Control Department, and finally the Special Committee. The following Table ‎6.6 summarises complaints related to procurement in Samruk-Kazyna.

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Table ‎6.6. Complaints related to procurement by Samruk-Kazyna





Complaints reviewed

1 032

1 856

1 620

Complaints upheld




Complaints referred to relevant organisations




Complaints deferred




Number of staff subject to disciplinary actions




Source: (OECD, 2017[10]).

Audit and control of public procurement in Baiterek begins with the central management. In this unit of the holding, procurement managers have oversight over all procurement processes, and analyse the results of procurement procedures. In case that the central office identifies any signs of potential misconduct, the central office notifies the subsidiary company conducting the procurement and collaborates to mitigate the situation.

In KazAgro, each subsidiary has individual rules regarding control and audit. The central management at the holding level can provide recommendations on how to manage issues, but these are not compulsory instructions.

Overall, just like general government procurement, there are a number of measures that could improve the effectiveness and efficiency of public procurement by SOEs through increased competition. The above-mentioned aspects hinge on restrictions to competition and could be addressed by introducing legal changes as well as other measures to increase the openness of the SOE’s procurement system like the ones below:

  • Eliminate restrictions for foreign suppliers. Allow for a use of e-signature regardless of the place of incorporation. This will allow SOEs to access the goods, works and services they require to deliver crucial public services.

  • Reduce the circumstances that allow for exceptional direct awards and intra-holding cooperation to increase the market for certain goods, works or services. This will allow contracting authorities to choose from a larger supplier base. This will result not only in lower prices, but more importantly in better response to the needs.

  • Revise the audit and control framework such that the oversight is truly independent by introducing checks and balances. Currently, oversight through control and audit is equivalent to the institutional oversight over SOEs. This link could be separated.

6.3.4. SOEs have innovated with regards to some procurement practices

Some SOEs have used their institutional independence and dedicated legal realm to develop alternative procurement practices. This is especially true for Samruk-Kazyna, which enjoys the highest degree of independence, in combination with a push towards competitiveness and privatisation. This section highlights a few noteworthy practices that can be an example for Kazakhstan’s entire procurement system or that would require increased effort.

Profile of the procurement function in SOEs

Samruk-Kazyna has more than 1 400 staff throughout its subsidiaries working on public procurement. More than 300 have a management role. As part of the reform, Samruk-Kazyna has begun a structured professionalisation effort and is planning to introduce a certification mechanism based on the model of the Chartered Institute of Procurement and Supply (CIPS). The plan is to first conduct tests of about 1 000 procurement professionals, including around 300 managers. Depending on their level of procurement knowledge, the procurers are required to participate in different kinds of training activities. The lower their grade, the more intensive the training process will be. More advanced procurers are allowed to conduct self-study and e-learning, whereas lower performers will be required to conduct in-class training. Later, unit is envisioned to introduce a certification-based system that includes classes, case studies and tests. In addition, Samruk-Kazyna has already begun experimenting with 360 degree reviews and also maintains “SK University”, a corporate body offering training on a variety of topics.

In Baiterek, a total of approximately 60 officers work on procurement. Baiterek has eleven affiliated organisations with five to six procurement officers in each one of them. An additional two individuals procure for the holding.

KazAgro does not have a dedicated procurement department; instead, the legal department also overs procurement issues. In the entire KazAgro group employs approximately 12 procurement officers. Some of them also work on other tasks beyond procurement, such as accounting or legal questions.

Prequalification based on categories in Samruk-Kazyna

Following an insight that the performance of suppliers was frequently sub-standard, Samruk-Kazyna as part of its procurement rules introduced a prequalification mechanism. This was a first in Kazakhstan and in fact inspired the current revision of the general government procurement system in Kazakhstan.

Prequalification in Samruk-Kazyna is done for 16 000 items, including goods, works and services and in fact went hand in hand with the introduction of category-based management. Prequalification is mandatory. Of the 16 000 items, 9 000 have already gone through a first pre-qualification process as follows:

  1. 1. The supplier registers online and fills in an applications form.

  2. 2. The supplier fills in a questionnaire, to determine at what level the supplier will provide items: less critical level 1 items like stationary, water, etc. to critical level 3 items like safety-relevant items, aviation, complex works, etc.

  3. 3. Risk-based audit: suppliers for level 1 items will be less scrutinised than suppliers for level 3. Verifications include certificates, investigations by audit firms and on-site visits.

  4. 4. Prequalification for a certain level and certain items are granted.

Suppliers with pre-qualification can save on fees and bid securities. Prequalification is an ongoing process and suppliers can join upon an expression of interest.

Ethics and Integrity

In the area of integrity and ethics management, different SOEs and quasi-state entities vary greatly from one to another. Some have more structured systems than others. In general, responsibility for follow up to allegations of corruption lies with the general institutions that would follow up in all corruption cases (see chapter 4 on the management of integrity risks in public procurement). (OECD, 2017[10])

In most SOEs, the internal control department appears to handle issues related to corruption, violation and conflict of interest. Internal rules are based on the national anti-corruption rules. Features include codes of conducts, whistle blower hotlines and asset declarations. None of the entities appears to follow a more risk-based approach. For example, the SOEs could identify procedures and sectors that are most vulnerable to corruption and wrongdoing, and implement closer follow up in those areas.

Some SOEs have implemented additional measures beyond the requirements of the national legal framework. For example, Samruk-Kazyna’s control department runs integrity-related trainings as part of the general training for new hires. These trainings have three to four modules and cover the most common violations, how to avoid them, disciplinary measures and similar topics. Baiterek has a dedicated Ombudsman.

Overall, it remains questionable whether all of them have an awareness and a focus on corruption issues. Some entities do not seem to pay serious attention to corruption risks. Stakeholders report that the perceived corruption is higher in SOE procurement and the procurement by Samruk-Kazyna than in government procurement. It was not possible to support this statement with data or more structured information from broader surveys. In any circumstance, the leadership of the SOEs analysed in this chapter might wish to consider strengthening their integrity framework, especially with practical measures beyond stricter rules.

In doing so, SOEs can exploit their independent status like they did with respect to other policy areas and spearhead efforts towards a public procurement system in Kazakhstan that works with greater integrity. SOEs can consider:

  • Increasing training efforts on integrity,

  • Increasing competition and transparency, and

  • Introducing measures to foster a culture of integrity.

For additional insights on how to practically implement measures in these areas, please refer to chapter 4.

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Proposals for action

Many of the issues that are present in the general public procurement system are valid also for the procurement by SOEs. As a consequence, the proposals for actions by the SOE sector to improve its procurement are similar to proposals already presented in this report. The following list summarises them:

  • Measures could be taken to increase competition in public procurements in all SOEs. A high share of direct awards is evidence of a system that is most likely not achieving the best value for money possible for Kazakhstan’s citizens. Different measures can help procurers in conducting more open tenders, including legal provisions that a) identify open tendering as default method, b) reduce the number of exceptions, and c) allow for the use of strategic procurement methods like framework agreements. Non-legal measures are equally important and should aim at increasing the professionalization of the procurement workforce in SOEs by offering additional guidance and training on market research, planning and drafting of technical specifications. Additional measures should target the private sector, and aim at building companies’ capacity to increase their successful participation in procurement.

  • Allow for as much legal stability as possible with regards to the legal and regulatory framework. The recent legal reforms improved the legal and regulatory framework for public procurement in Kazakhstan. However, it is a fact that frequent changes to the rules of public procurement introduces insecurities on the side of procurers and suppliers. Frequent adaptation to new rules binds capacities that could otherwise be used to conduct public procurement more strategically.

  • SOEs should aim at analysing data in a more stringent way, aiming at identifying areas for improvement. To that end, more dis-aggregated data collection is necessary. Such an approach could identify opportunities for using more strategic procurement methods and for aggregation, any risks with regards to policy goals or the most basic procurement goals of value for money and timeliness, for synergies between subsidiaries, and could also support planning.

  • Aim at further streamlining the structure of the SOE sector, both regards to general oversight and with regards to public procurement. There are a plethora of SOEs in Kazakhstan in different managing holdings, with individual procurement rules. The most recent public procurement reform aims already at simplifying and consolidating the rules and establishing oversight in a dedicated institution. Additional measures should aim at consolidating the procurement itself, for example in central purchasing units.


[8] Baiterek (n.d.), Board of Directors, (accessed on 18 July 2018).

[5] Baiterek National Managing Holding JSC (2018), Annual Report 2017,

[6] KazAgro (n.d.), Mission, goals, development strategy - КазАгро, (accessed on 19 July 2018).

[7] Kazagro (2018), Annual Report 2017.

[10] OECD (2017), Anti-corruption reforms in Kazakhstan. 4th round of monitoring of the Istanbul Anti-Corruption Action Plan, OECD Anti-Corruption Network in Eastern Europe and Central Asia,

[1] OECD (2017), Multi-dimensional Review of Kazakhstan : Volume 2. In-depth Analysis and Recommendations, OECD Development Pathways, OECD Publishing, Paris,

[9] OECD (2017), OECD Investment Policy Reviews: Kazakhstan 2017, OECD Investment Policy Reviews, OECD Publishing, Paris,

[11] OECD (2016), Towards Efficient Public Procurement in Colombia: Making the Difference, OECD Public Governance Reviews, OECD Publishing, Paris,

[3] OECD (2015), OECD Guidelines on Corporate Governance of State-Owned Enterprises, 2015 Edition, OECD Publishing, Paris,

[2] OECD (2015), OECD Recommendation of the Council on Public Procurement,

[4] Samruk-Kazyna JSC (2018), Annual Report 2017 Part I.

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