Authorities to examine if the direct sale of a KMG subsidiary was legitimate

Kazakhstan’s Financial Monitoring Agency (FMA) has initiated an audit for the 2017 deal between KazMunayGas Service (a subsidiary of the KazMunayGas oil company, KMG) and Compass Group International B.V. Back then, the Kazakhstani company sold its 40% stake in KazMunayGas Service Compass to its foreign partner, according to Zhanat Elimanov, chairman of the agency.

“The Economic Investigation Department of Astana has requested the National Welfare Fund Samruk-Kazyna and Astana Department of Internal State Audit to perform an audit and see if the deal’s price was reasonable. The agency is ready to immediately launch a pre-trial investigation if the audit by Samruk-Kazyna proves the presence of wrongdoing,” the official said.

The sale of a 40% share of KazMunayGas Service Compass by KazMunayGas Service was part of a comprehensive privatization plan for 2016-2020. As of 2017, there were two owners of KazMunayGasService Compass: KazMunayGas Service (40%) and Compass Group International B.V. (60%). KazMunayGas Service Compass is a provider of food and transportation services to oil companies, including Tengizchevroil, which is developing the largest oil field in Kazakhstan.

When KazMunayGas asked Deloitte TCF to estimate the value of a 40% share in KazMunayGas Service Compass, the consulting company reviewed KMG Service Compass contracts with Tengizchevroil and estimated the stake at $2.6 million. Compass Group International B.V. was the only co-owner of the company, so it decided to use its pre-emption right to buy a 40% share from its partner for $4.3 million. On the other hand, the KMG board of directors approved this direct targeted sale, while the State Commission on Economic Modernization had no objections to the deal.

However, MP Gani Khamzin has been wondering if the aforementioned price for a 40% stake in KazMunayGasService Compass was fair. He has officially requested FMA, Prime Minister Alikhan Smailov and General Prosecutor Berik Asylov to comment on the issue.

“Our party Aq Jol received complaints from several former employees of KazMunayGasService Compass. KazMunayGasService, a subsidiary of the national company KMG, owned a 40% share in the company, while a 60% share was controlled by Compass Group International B.V. In 2017, KMG Service sold its stake for $4.3 million. However, this price didn’t include three very profitable and long-term contracts with Tengizchevroil,” the deputy said.

He also noted that these people are accusing the company’s management of underestimating the value of that 40% share the national company once owned.

“The Accounts Committee often reported that different public assets have been sold at a reduced cost. We have some information indicating that the privatization of KMG Service Compass share is the case. In 2014, they illegally assigned a foreign citizen as the company’s director general. He signed a subcontract agreement with ESS Support Services for $1.5 million while never asking KMG for permission,” Khamzin stated.

Some former employees of KMG Service Compass believe that the goal was to withdraw profit from the joint venture.

“The founder of ESS Support Services was the direct beneficiary of the deal to buy a 40% share in KMG Service Compass. He bought this stake at a lower cost. These actions by foreign executive managers of KazMunayGas Service Compass caused damage to the country of $65 million to $86 million, according to the company’s former employees,” said the M.P., who also suggested checking this information.

On December 14, 2022, Khamzin called on Prime Minister Smailov and Chairwoman of the Supreme Audit Chamber Natalya Godunova to comprehensively audit all non-core assets of the quasi-state sector, including the activity of KazMunayGaz Service NS.

The MP noted that this company has been on sale for a long time. Even though the company’s initial price was about $35.5 million, it later cost $8.8 million due to the absence of interested buyers. In December, the company was set on sale again at a much higher price of $39 million.