Tajikistan: Urgent Privatization of State-Owned Enterprises Needed June 22nd, 2021
Via Central Asian Bureau for Analytical Reporting, a report on Tajikistan’s urgent need to privatize its state-owned enterprises?
State-owned enterprises are unprofitable, do not pay taxes, constantly demand incentives, suppress competition and poorly serve consumers, said Marat Mamadshoev, editor-in-chief of the Institute for War and Peace Reporting (IWPR) in Tajikistan. In his opinion, Tajikistan should accelerate privatization in order to get rid of these inefficient enterprises.
The role of state-owned enterprises in the economy of the Tajikistan
State-owned enterprises (SOEs) actually dominate the industries in Tajikistan. According to the World Bank (WB) as of May 2019[1], state-owned enterprises and companies constituted the major portion of Tajikistan’s industrial sector, producing more than 70 percent of total industrial-scale production. As of 2016, there were about 908 state institutions and enterprises with a majority share of the state.
At the same time, according to WB experts, SOEs are active in sectors of Tajikistan’s economy where private participation is possible and economically viable”.
Out of 28 sectors in Tajikistan, 21 are characterized by the presence of SOEs, well above the Organisation for Economic Co-operation and Development average of 13.7.
State-owned companies theoretically belong to all citizens of the country, who should indirectly be the beneficiaries of their activities. For example, in the form of an increase in replenishment to the budget, which in turn should lead to an increase in pensions, social benefits, quality of governmental services, acceleration of the construction of modern roads, etc.
Society has every right to demand transparency and efficiency from managers of state-owned enterprises. On this basis, it is especially important to analyze how effectively these enterprises are managed, and who in reality is the main beneficiary.
Transforming an Outlook on Privatization
In the early 2000s, President Emomali Rahmon periodically declared the importance of privatization. For example, in a 2005 parliamentary message, the president stated that “one of the main conditions for the transition to a market economy is the privatization of state property”[2]. However, in the future, references to privatization disappear from the messages to parliament.
In the 2020 president’s message the privatization was mentioned just in one sentence. In the 2010 – 2019 messages there is no such word mentioned at all.
And in February 2009 the parliament adopted the law “On privatization”, which prohibited the privatization of the Nurek and Rogun hydroelectric power stations, as well as “TALCO”, recognizing them as objects of state and strategic importance[3].
Formally, the near future plans of privatization of the largest monopolists – OJSC “Barki Tojik”, State Unitary Enterprise “Railroad”, SUAI “Tajik Air”, OJSC “Tajiktelecom”, OJSC “Teleradiocom”, OJSC “Tajikkhimprom” were announced[4].
However, there is no progress in this direction.
The privatization of recent years has been reduced to the sale of several small properties.
Now, let us try to concretely define the disadvantages of state-owned enterprises.
Benefits – for state-owned enterprises, law – for others
Article 12 of the Constitution of the Republic of Tajikistan guarantees “equality of rights, and the protection of all forms of ownership including private ownership”.
However, in spite of this, state-owned enterprises in Tajikistan, in comparison with private companies, receive a variety of benefits.
For example, they receive electricity from Barki Tojik at lower prices. The Tajik Aluminum Company (TALCO), one of the largest state-owned enterprises, consumes 25 to 50 percent of all electricity generated in Tajikistan. It receives electricity at 7.2 diram (about $ 0.006) per kWh from May to September and 11.8 diram from October to April (about $ 0.010), compared to 40.99 diram per kWh (about $ 0.04 dollars) for other industrial customers (who usually connect to low-voltage system).
State-owned enterprises in Tajikistan also have preferential access to land and raw materials[5], and some of them receive funding with flexible repayment rules that are not available to private companies. But despite these advantages, state-owned enterprises “manage” not to pay on loans. The total liabilities of the eight largest state-owned enterprises were TJS 5 billion in 2016, equivalent to about 9.2 percent of GDP in 2016. Debt from Barki Tojik alone accounts for about 97 percent of the total debt outstandings.
Privileges for state-owned enterprises distort market institutions in the country, including the pricing mechanism.
Competition is impossible without equality of all forms of ownership. The private investments in the discriminative economy also seem to be unrealistic.
State monopolists work according to the principle “that will do”
Some of the largest state-owned enterprises in Tajikistan are simultaneously monopolists. Tajik Railways dominates the rail transport sector, while Barki Tojik has a monopoly on the generation, transmission and distribution of electricity.
State-owned monopoly companies set unreasonably high prices for a number of goods and services that are important to consumers. Tajik Telecom has a monopoly on national landline telephones and fixed backbone infrastructure. Since 2018, only this company has been allowed to buy Internet in neighboring countries and then sell it to other Tajik Internet and mobile providers. As a result, Internet prices in Tajikistan are among the highest in the world, and mobile Internet is one of the slowest in the world[6].
Accidents are constantly occurring in the systems of the Barki Tojik electric company. There are also frequent complaints from consumers about the service and prices of another state-owned enterprise, Tajik Air. And the international airports of Dushanbe, Khujand and Kulyab are among the 4 most expensive airports in the region.
The existence of SOEs, which almost always take advantage of government support, suppresses competition and hinders the development of market relations.
State-owned enterprises can’t even pay taxes
Despite all the benefits and administrative support, almost all state-owned enterprises are unprofitable and ineffective.
For example, the Tajik Aluminium Company, in the past one of the most robust enterprises, has been steadily reducing production over the past decades.
If in 2007 the enterprise produced 421.5 thousand tons of aluminum[7], then in 2019, according to the data of TALCO itself, this volume amounted to 100.8 thousand tons, that is four times lower than the figures for 2007.
Many of the state-owned enterprises are not even able to pay taxes. Almost all large tax debtors in Tajikistan are state-owned companies[8]. Among them are «Tajiktelecom», «Rogun HPP», «Tajik Aluminum Company», «Sangtuda-1», «Dushanbe International Airport», «Talco resource», and «Aluminsohtmon».
Thus, six out of seven debtors (except for Sangtuda-1, where the government owns only 25% of the shares) are state-owned companies.
The total debts of the above enterprises are 291 million somoni (over 25.5 million US dollars), which is 33% of the total national tax debt (75 million US dollars). The volume of tax debt increased during 2020 by 303 million somoni (about $26.5 million).
At the same time, the authorities constantly sponge out debts of these companies or give them a reprieve.
For example, in September 2015, the Tajikistan government deferred the payment of tax debts for the state provider of telephone and mobile communications OJSC «Tajiktelecom» in the amount of $12.1 million.
On February 17 this year, the government of Tajikistan wrote off the debts of Barki Tojik in the amount of about $500 million. Currently, the amount of all debts of the energy holding to the Ministry of Finance is 22 billion somoni (about 2 billion dollars). The World Bank believes that the debt of SOEs poses a serious threat to financial stability and, therefore, it is necessary to establish control at the highest level.
Lack of transparency and corruption
Tajik state-owned enterprises are completely opaque. As an example, we can cite the history of self-imposed compulsory purchase of shares of JSC Rogun HPP. Then the authorities assured that at some point the shareholders would receive dividends.
However, 10 years have passed, but no one has received any dividends and people do not know anything about the fate of the invested funds[9].
The best illustration of this opacity is the section of the website “Financial Relations” of the open joint-stock company “Rogun HPP”, where it is written in three languages: “The page is under construction”[10].
Screenshot from http://rogunges.tj/
Lack of transparency creates conditions for corruption, the real extent of which we can only guess.
There’s a lot to be said for improving property management. For example, by creating a single governing body, recruiting a board of directors on a competitive basis for each enterprise, increasing the transparency level and accountability to society, etc.
However, it is not clear how and wherewith it will be possible to fix the situation.
All managers are about the same, the level of their education and motivation is about the same. How to achieve positive results?
Note that in neighboring Kyrgyzstan, such measures did not produce the desired results.
Republic issued a decree “on the effectiveness of state property management” where the failure of the policy in this direction was admitted[11].
“The experience of Kyrgyzstan in the field of state property management totals a quarter of a century, but it is difficult to characterize this area as effective and successful. As practice shows, the key problems of effective management in this sector remain unresolved”, the resolution says.
Another quote from the document: “a large number of state-owned enterprises, along with the opaque conditions of their functioning and the results of their activities unknown to society, testify to the weak efficiency of their use of public funds and insufficient control over them”.
In May, the Kyrgyz authorities announced a large-scale privatization.[12]
Deputy Prime Minister of the Kyrgyz Republic, Minister of Economy and Finance Ulukbek Karmyshakov in an interview with «Birinchi Radio» on May 10 again admitted that “the experience of Kyrgyzstan during the period of independence revealed that government departments cannot demonstrate their effectiveness.” “Therefore, private entities were able to get much more profit”, – said Karmyshakov.
What is the reason for avoiding privatization?
Everything that we said earlier is quite obvious. This begs the question: why do the authorities refuse to privatize ineffective state property?
First of all, because property is a power that no one will voluntarily give up. The institution of ownership itself has three powers – possession, useage, and disposal.
Actual owner of state property is the top of the officialdom, which has the authority to use and dispose of possessions.
For example, formally all citizens are the owners of a car belonging to one or another state body. However, an official of this body drives it, if the best happens, for business trips. Often, this car is used by his family or just good friends. For the rest of the citizens, the ownership of this car is just a fiction. At some point, the minister, together with other authorized persons, may write off this car and sell it to his friends.
In the case of state property, officials are free of risks. In contrast, private enterprise is always at risk. At the risk that you can lose a fortune and everything you have.
In the case of state property, officials are free of risks. They manage it, often make a profit out of it, while personally risking nothing and not bearing responsibility.
It does not matter for officials that the losses from the operation of these enterprises are covered by the society. It is important that they personally can use it and periodically tear off pieces from it and put them in their pocket. For example, placing orders with the right people, deciding to sell objects, etc. For these reasons, officials are trying to freeze the situation and postpone decision-making.
The motives of the officials are clear. What about the motives of the citizens?
The reluctance of officials to hand over property, in my opinion, is not the biggest problem. Worse than this is the stereotype widespread among many citizens that it is necessary in every possible way to protect the institution of state property to the means of production, and to prevent privatization.
There are no sociological surveys on this topic. However, such reasoning can often be seen in expert commentaries, where news about the privatization or corporatization of state-owned enterprises is perceived with caution and the necessity to retain the state’s “control packet of shares” mentioned.[13]
A simple question: what investor would agree to invest in an enterprise in order to work with officials having a “controlling stake” and who, because of this, can impose their will on the investor?
Of course, examples of effective state-owned companies can be found elsewhere in the world. In the same Scandinavian countries, for example. However, this requires a completely different level of transparency and management. In the existing realities of the country, society is unable to ensure control of the activities of state-owned enterprises.
We will not be able to ensure that the administrative authorities treat all economic entities of all types of property equally.
For this, society must have highly developed civic institutions and a highly developed political culture[14].
For the same reasons, it will be difficult to ensure a transparent and efficient process of privatization. Of course, you need to fight by all legal means for the transparency of the assessing state property and tendering procedures.
However, by putting forward obviously unrealistic requirements for privatization, we thereby actually postpone and keep it on ice.
Especially as more or less profitable enterprises have already been privatized by “the right people”. There are still enterprises that require capital investments, large organizational, even intellectual efforts in the presence of serious risks that these enterprises will not be able to finally “take off”. And it can be assumed that therefore the plans for the privatization of these monsters are always put on the back burner.
Hence the main recommendation follows: it is necessary to work with public opinion, to debunk old and new myths associated with state ownership of the means of production.
People need to understand that at present the huge property owned by the state is being used ineffectively or even lying idle. These are workshops and equipment that are out of work, planes that do not fly, premises that are idle, etc. Instead of generating income for the society, this property incurs losses to it every day. Without public scrutiny, this sector will grow steadily, nipping in the bud the competition in the economy.
These enterprises themselves lose personnel over the years, their infrastructure is dilapidated, and the volume of production of goods and services decreasing. In a few years they won’t be worth anything at all.
For the same reasons, it will be difficult to ensure a transparent and efficient process of privatization. Of course, you need to fight by all legal means for the transparency of the assessing state property and tendering procedures.
However, by putting forward obviously unrealistic requirements for privatization, we thereby actually postpone and keep it on ice.
Especially as more or less profitable enterprises have already been privatized by “the right people”. There are still enterprises that require capital investments, large organizational, even intellectual efforts in the presence of serious risks that these enterprises will not be able to finally “take off”. And it can be assumed that therefore the plans for the privatization of these monsters are always put on the back burner.
Hence the main recommendation follows: it is necessary to work with public opinion, to debunk old and new myths associated with state ownership of the means of production.
People need to understand that at present the huge property owned by the state is being used ineffectively or even lying idle. These are workshops and equipment that are out of work, planes that do not fly, premises that are idle, etc. Instead of generating income for the society, this property incurs losses to it every day. Without public scrutiny, this sector will grow steadily, nipping in the bud the competition in the economy.
These enterprises themselves lose personnel over the years, their infrastructure is dilapidated, and the volume of production of goods and services decreasing. In a few years they won’t be worth anything at all.
Let’s not forget that the Unified Electronic Communications Switching Center[15] was born as a result of a symbiosis of an administrative resource and a state-owned enterprise.
You need to get rid of this white elephant. It’s too toxic. If experts and civil society will reach a consensus on this issue, then it is possible that it will be possible to influence the policy in this area. Yes, state property is needed somewhere. For example, in infrastructure facilities – you cannot transfer a single road of national importance to a private company. But every time the need for state property has to be proved.
And the forms of private and collective property that do not have access to state administration and ability to monopolize markets should prevail in the economy.
Privatization in today’s Tajikistan is not needed to improve the country’s financial situation. It is needed in order to minimize damage to the existence of these monster-monopolists.
This article was prepared as part of the Giving Voice, Driving Change – from the Borderland to the Steppes Project implemented with the financial support of the Foreign Ministry of Norway. The opinions expressed in the article do not reflect the position of the editorial or donor.
[2] “????? ?????????? ???????? ?????????? ?.?.???????? ?? ??????? ???? ???????? ??????????”, Press service of the President of the Tajikistan, 16.04.2005, http://president.tj/node/199
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