Republic of Kazakhstan
28840
REPUBLIC OF KAZAKHSTAN
COUNTRY PROCUREMENT
ASSESSMENT REPORT
JUNE 2000
EUROPE AND CENTRAL ASIA REGION
THE WORLD BANK
REPUBLIC OF KAZAKHSTAN
COUNTRY PROCUREMENT
ASSESSMENT REPORT
VOLUME I
JUNE 2000
EUROPE AND CENTRAL ASIA REGION
THE WORLD BANK
CURRENCY
Currency Unit = Kazakhstan Tenge (KZT)
US$1 = KZT 135.5150
(as of September 15, 1999)
ACRONYMS
CPARCountry Procurement Assessment Report
CPPRCountry Portfolio Performance Review
FEDPFinancial Enterprise Development Project
FSUFormer Soviet Union
GATTGeneral Agreement on Tariffs and Trade
ICBInternational Competitive Bidding
IFIInternational Financial Institutions
ISInternational Shopping
NBKNational Bank of Kazakhstan
NCBNational Competitive Bidding
NSNational Shopping
NSCNational Statistics Committee
PIUProject Implementation Unit
SAPState Agency on Procurement
SOEState-Owned Enterprise
TATechnical Assistance
TORTerms of Reference
UNCITRALUnited Nations Commission for International Trade Law
UNDPUnited Nations Development Program
USAIDUnited States Agency for International Development
VATValue Added Tax
WTOWorld Trade Organization
THE REPUBLIC OF KAZAKHSTAN
COUNTRY PROCUREMENT ASSESSMENT REPORT (CPAR)
(VOLUME I)
PREAMBLE
This Country Procurement Assessment Report (CPAR) is the first such report carried out for the Republic of Kazakhstan. It is based on an extensive review, qualitative analysis and discussion on the procurement environment in the Republic of Kazakhstan. The report includes: (i) the compatibility or otherwise of the national public procurement regime with the Bank’s Procurement Guidelines; (ii) past performance in administration of procurement process under the Bank supported operations; (iii) a general assessment of legal, institutional and other risks associated with the public procurement in the country; (iv) impact of various other regulatory regimes (e.g. foreign exchange, taxation and banking system etc.), on public procurement; (v) an assessment of current commercial procurement practices; and (vi) effectiveness of existing accountability and anti corruption framework.
The report is organized in two volumes and a set of annexes. Volume I presents the summary of findings and recommendations, and the agreed action plan. Volume II contains factual material, analysis and discussions of procurement environment in the country.
ACKNOWLEDGEMENT
The Bank team comprised of Mohammad Ashraf, Lingzhi Xu, Robert Hunja and Zaure Zikibayeva, under the overall guidance of Sanjay Pradhan, Sector Leader (ECSPE), prepared the report. Sunil Bhattacharya, Harbaksh Sethi and Shaun Moss (ECSCS), Pamela Bigart (OCSPR) and Francoise Bentchikou (LEGOP) provided valuable inputs in reviewing and commenting the draft and final version of the report. The preparation of the report was undertaken in association with the Government of Kazakhstan. The State Agency on Procurement (SAP) was the lead agency and other concerned ministries and agencies of the Government participated in the preparation of the report (Ref. Annexes XIII and XV). The Bank wishes to thank all individual officials and entities of the government of Kazakhstan for their cooperation and contribution in the report. The Bank would, in particular, wish to acknowledge the support and guidance provided by Mr. Oraz Jandosov, the then Deputy Prime Minister and his successor Mr. Erzhan Utembayev and their Cabinet colleagues in preparation of the report. The Bank would also wish to acknowledge the contribution made in discussions by the representatives of bilateral and multilateral organizations resident in Kazakhstan and various state and private enterprises, both domestic and foreign.
SUMMARY OF MAJOR FINDINGS
1. VOLUME OF PROCUREMENT: The volume of public procurement in the Republic of Kazakhstan in 1998 was 4,641 contracts for a total value of about 477 billion Kazakhstan Tenge or US$ 5.4 billion (equivalent). The breakdown by value of contracts was about 55 % for goods, 40 % for works and 5 % for services. The volume of private sector procurement was estimated at US$ 1.5 billion (equivalent) which indicates the rapid emergence of the private sector and this did not include the imports amounting to about US$2.0 billion by the informal private sector.
2. PUBLIC PROCUREMENT SYSTEM: The public procurement system of the Republic is well defined and governed by the law on state procurement and enabling regulations. The country has a decentralized system, whereby the State Procurement Agency (SAP) is responsible to regulate and exercise oversight on public procurement, and ministries and other agencies are responsible for administration of procurement function. The system is transparent, but since it is relatively new, the public officials and private sector are not very well familiar with it. Although the system has been introduced, its implementation at all levels of the government is critical. Most of the contract awards funded from the national exchequer or external resources have generally been concluded on the basis of the lowest price and technically acceptable tenders or offers. The risk associated with public procurement is rated as medium, but the general perception of wide spread corruption dictates that the overall risk assessment should be rated as medium - high.
3. PERFORMANCE UNDER BANK SUPPORTED OPERATIONS: The procurement performance under the Bank supported operations has proceeded generally satisfactorily. The procurement issues encountered were resolved and there has not been any misprocurement. However, procurement delays have been experienced under some of the projects, in particular for IT procurement, which has effected the project implementation. Currently ICB is generally accepted in the country and its merits are well recognized.
4. NATIONAL COMPETITIVE BIDDING (NCB): The current legal regime governing public procurement excludes the foreign suppliers and contractors to participate in NCB bidding, thus not acceptable for NCB procurement under the Bank supported operations. However, after enactment of the recommended amendment to the law and corresponding revisions in regulations allowing foreign suppliers and contractors to participate in NCB on the same terms and conditions as domestic suppliers and contractors, the system will become acceptable under the Bank supported operations.
5. PUBLIC SECTOR PERFORMANCE: The overall performance of the public sector in administration of the procurement function has been mixed. Some of the ministries and agencies have performed well and others did not, which is mainly attributable to weak institutions, under staffing and inexperience of procurement staff in most of the agencies. One of the major impediments cited has been the budgetary constraints to conclude yearly or half yearly supply contract for hospitals and other public services, which has seriously impacted the procurement plans. Two other serious impediments have been the customs clearance process and application of tax code and regulations. The customs clearance is highly complex and difficult, and arbitrary decisions by the unqualified and inexperienced customs officials is one of the major concerns of the business community, because it is a very serious stumbling block in flow of trade and commerce in and out of the country. The inequitable application of tax code and regulations is also due to the unqualified and inexperienced staff of the tax administration. Other impediments effecting the procurement are mainly attributable to institutional weakness in the country and the absence of country specific procurement documents; inexperience of the agencies in conducting the prequalification process; evaluation of tenders, and poor record keeping.
6. ANTI-CORRUPTION: The enactment of the law and creation of an anti-corruption committee in the office of the President are the steps in the right direction to abate corruption. Despite the law and regulations on statue, the results are not very encouraging, which is mainly attributable to weak enforcement capacity. The perception given by the foreign and local business community is that there is wide spread corruption in some of the government agencies, and in particular, corruption in tax and customs administrations and local governments was specifically cited. The business community has also given the impression that corruption in the public sector does not appear to be an exception, rather it has become a norm as in some of the other developing countries.
RECOMMENDATIONS AND ACTION PLAN
7. LEGAL FRAMEWORK: The basic legal structure to govern public procurement in the country consists of three instruments: law on state procurement; enabling regulations and a decree on tender commissions. The legal framework is comprehensive and introduces competition and transparency, however, the analysis has revealed that there are some deficiencies, which need to be addressed. The major deficiencies and proposed actions to alleviate them are summarized hereunder.
7.1. OTHER PROCUREMENT METHODS: The provisions relating to other methods of procurement in the law are repeated in the enabling regulations, but with certain difference. These specific provisions need to be harmonized in both documents through an amendment to the law and revision of regulations.
7.2. RESTRICTED PARTICIPATION: Article 10 of the law restricts participation only by the local suppliers and contractors, which tantamount to restricting access to the market by foreign suppliers and contractors. It would be a serious impediment for the development of national manufacturing, construction and service sectors in the country and is not acceptable for procurement through NCB under the Bank supported operations. Therefore the law should be amended to allow participation of foreign suppliers and contractors on the same terms and conditions as the national suppliers and contractors.
7.3. REVIEW AND APPEAL PROCESS: The law relies on decree No. 2340 (titled as decree on the procedures of considering applications of citizens). The application of the provisions contained in this decree is of a more general nature. The law on state procurement should be amended to specifically provide mechanism for the right of bidders or potential bidders, in the first instance, to lodge a complaint with procuring entity and if the complainant is not satisfied with the decision, they could file an appeal to SAP against the decision of the procuring entity. The law should also provide a time limit to file and for disposal of the original complaints and appeals.
7.4. ARBITRATION LAW: There was a law on statue (titled law of the Republic of Kazakhstan on the procedures for settlement of commercial disputes by the arbitration courts) and it was not a typical commercial arbitration law. The law prevailed over any contrary provisions contained in the agreement between the parties to the contract. The law was administered through arbitration courts. The government has since abrogated this law and abolished the arbitration courts. Currently the civil law is applicable for resolution of commercial and contractual disputes by the civil courts of the country. The government should enact legislation providing for independent party regulated commercial arbitration based on the UNCITRAL Model Law on Commercial Arbitration or the arbitration rules of the International Chamber of Commerce. Such legislation will strengthen legal infrastructure for international commercial and trade activities in the country.
7.5. SUSPENSION AND DEBARMENT: Currently, the Republic of Kazakhstan does not have regulations on suspension and debarment of the suppliers and contractors from the tendering process on account of poor performance or other irregularities. The government should draft and promulgate regulations, under which proceedings could be initiated to debar or suspend or black list the suppliers and contractors.
7.6. BID SECURITY: The law provides for bid security for all tenders irrespective of the value. Since the local supplier and contractors face difficulties in obtaining the bank guaranty as bid security, it is recommended that government may consider waiving the requirement of bid security for low value contracts e.g. for contracts not exceeding in value about $25,000.00 (equivalent).
8. INSTITUTIONAL: The review and analysis have revealed that institutions at all levels throughout the government have inherent deficiencies and need to be strengthened, as summarized hereunder.
8.1. REGULATORY REGIME: The institutional strengthening of SAP is critical to the success of the system and effective performance of regulatory and oversight functions. SAP should be strengthened through recruitment of qualified staff and in the short term its capacity should be supplemented by hiring qualified and experienced legal and procurement consultants for a period of about 2 years. SAP should also establish a training facility and recruit or train qualified faculty to impart training in the country.
8.2. PROCUREMENT ADMINISTRATION: The staffing of the procurement function in various ministries and agencies of the state has been on ad-hoc basis. The government needs to ensure adequate staffing of the procurement function by qualified staff in all organs of the state. The government should consider undertaking a capacity assessment, including need analysis for technical assistance to overcome the capacity constraints with medium and long-term needs of the ministries and agencies.
8.3. TRAINING: Training is one of the most effective vehicles to develop or strengthen capacity in the country. Therefore, SAP should establish a modest training facility to overcome immediate constraints and the government should develop and implement a training strategy for the training of officials responsible to regulate and administer procurement function in ministries and agencies of the state.
8.4. IMPLEMENTATION ARRANGEMENT: In view of the limited capacity to handle procurement in most of the ministries and agencies of the state, the Government and the Bank should ensure that the procurement function as part of the project management arrangement, be adequately staffed by the national officials. The services of national or international consultants should be used, as warranted, to supplement the capacity.
8.5. TAXATION REGIME: The application of existing taxation regime presents serious negative impact on public procurement, which is mainly attributable to unqualified and/or inexperienced staff. The government should review the rules and practices for recruitment of tax inspectors and other staff. Based on the findings of the review, the government should develop and implement a recruitment policy to attract the qualified staff. The tax inspector and staff of the tax administration should be required to under go the minimum mandatory training prior to assuming functional responsibility.
8.6 CUSTOMS REGIME: The existing customs regime is highly complex and its inconsistent application by the custom officials creates serious difficulties in customs clearance. It presents a relatively high risk for the implementation of the Bank supported operations and has serious negative effect on the overall movement of trade to and from the country. The government, therefore, should consider streamlining the customs clearance procedures. Another factor attributable to the inefficient customs clearance is the arbitrary application of customs rules, mainly due to unqualified and inexperienced customs staff. The government should review the recruitment rules and practices of the customs administration, develop and implement a recruitment policy for customs staff, including mandatory training prior to assuming the functional responsibility.
9. PROCUREMENT AND CONTRACT ADMINISTRATION: Some discrepancies have emerged in the review of current practices and actions should be initiated to improve them as summarized hereunder.
9.1. PLANNING: The procurement planning cannot be effective unless adequate resources are allocated in the budget and are released on time. The government should therefore, ensure, as far as possible, under the current fiscal constraints that budgetary allocations for public procurement are released on time to conclude the procurement contracts.
9.2 COUNTRY SPECIFIC DOCUMENTS: In order to maintain consistency across sectors and agencies, the government should complete and adopt a set of country specific procurement documents.
9.3. SELECTION OF CONSULTANTS: The Bank staff should undertake the need analysis for the technical assistance required under the Bank supported operations and mode of delivery for such TA programs. The Terms of Reference of consultant assignments must be clearly defined and agreed with the concerned agencies. Invariably, all TA programs should include training or skill transfer to national counterpart staff to enable the government to develop or strengthen the capacity and capability. The Bank should also ensure that the scope of the TA programs are understood and there is sufficient commitment to implement it by all implementing agencies and other concerned agencies of the government.
9.4. TENDER OPENING RECORD: There have been instances that minutes of tender opening are not recorded, although required by the law. All procuring entities must record the minutes of tender opening and SAP should ensure compliance through periodic inspections.
9.5. EVALUATION OF TENDERS: In general, the process for evaluation of tenders has proceeded without problems. However, in some cases, delays in evaluation of tenders have been caused due to inexperience or lack of sufficient knowledge of the members of the tender commissions and in some other cases, the evaluation criteria has not been clearly defined in the tender documents. To overcome such difficulties, SAP should issue a guideline on the composition and functions of the tender commissions and implementing agencies should brief the members of the commissions on the procurement process of that specific tender. Procurement entities should also ensure that evaluation criteria is clearly defined in tender documents or invitation packages.
9.6. CONTRACT AWARD AND EFFECTIVENESS: In order to avoid procurement delays and for economy stand point, the procuring entities must ensure that contract is awarded to the lowest evaluated tender determined during evaluation, in accordance with the evaluation criteria pre-disclosed in the tender documents. All internal approvals are obtained prior to the contract award to avoid delays in effectiveness of the contract.
9.7. CONTRACT ADMINISTRATION: The capacity to manage contracts is weak in most of the organs of the state and needs to be developed and strengthened at all levels of the government. The government should consider training of contract engineers and administrators to overcome the capacity constraints.
9.8 RECORD KEEPING: The maintenance of record relating to public procurement is essential for institutional memory, database and audit purposes. The government, therefore, should issue a policy directive on record keeping, including timeframe for its maintenance and destruction.