THE YELLOW PAGES RULES IMPLEMENTED IN KAZAKHSTAN

By his Decree of 3 July 2019 the President of the Republic of Kazakhstan put a moratorium on the establishment of new quasi-government entities ensuring successful implementation of the so-called Yellow Pages Rules aimed to limit public participation in entrepreneurial activities.

The Decree explicitly bans incorporation of quasi-government entities, save for 4 reasonable exceptions (please see below), and substantially reduces the number of reasons for public involvement in entrepreneurial activities set forth in the Kazakhstan Entrepreneurial Code.  From now on, only the following quasi-government entities may be incorporated:

1)    legal entities engaged in social-related and/or community life sustaining activities;

2)    legal entities emerging as a result of existing entities optimisation through reorganisation (i.e. merger or transformation);

3)    joint stock companies/limited liability partnerships in which a quasi-government entity holds fifty or less percent of voting shares/interests; and

4)    legal entities incorporated on directions from and/or in concurrence with the Kazakhstan Government.

Most importantly, the Decree has excluded the provision that antitrust authority shall withhold their consent to the incorporation of a quasi-government entity only if the incorporation of such entity entails foreclosure which was the main reason for ineffectiveness of the previous attempts to implement the Yellow Pages Rules.

Historically, there have been three attempts to implement the Yellow Pages Rules, in particular:

The first attempt was the adoption of the Competition Law on 25 December 2008 which contained Chapter 4 (Public Participation in Entrepreneurial Activities) providing for public control aimed to limit public participation in business.

In June 2009, I wrote an article for the Business & Power newspaper (No. 266) in which I explained the declarative nature of the Law provisions.  The problem was that the lawmakers committed a mistake in the Law, i.e. instead of providing that the only ground for refusal to incorporate a public company shall be the presence of private business in the relevant commodity market they wrote that “the refusal is possible only if the incorporation of such entity entails foreclosure”.  That is why the Yellow Pages Rules became inoperative.  As is commonly known, the emergence of another competitor (even if government-linked) in the market is deemed as a pro-competitive event, i.e. by no means such event can lead to foreclosure.

Practice has shown that, indeed, since that time the number of public companies has increased.

The second attempt was the adoption of the Law On Amendment of Certain Legislative Acts of the Republic of Kazakhstan Concerning the Limitation of Public Participation in Entrepreneurial Activities on 24 April 2015 which trumpeted the implementation of the long hoped-for Yellow Pages Rules.  Regrettably, that attempt again failed.  The reason was that with respect to the incorporation of public companies which can be classified as mid-size and large businesses the Law made the same old mistake, i.e. antitrust authority shall refuse to issue consent for incorporation of an entity if it can lead to foreclosure.  Therefore, public companies continued to multiply.

In 2015, in my interview to Zhannat Ertlessova I told that the Yellow Pages Rules would not operate: https://www.youtube.com/watch?v=XlebXczZUHU&t=194s.  

Please also see: https://forbes.kz/massmedia/yellow_pages_rule_v_kazahstane_ne_budet_rabotat_effektivno/.

In April 2015, I wrote another article on the declarative nature of the Law provisions for the Business & Power newspaper (No. 15(537)).

The third attempt was the publication of the Kazakhstan Presidential Decree on 3 July 2019.  I am not going to discourse on the lawfulness of the Decree which partially suspended Article 192 of the Kazakhstan Entrepreneurial Code.  The crucial thing is that the Decree should be carried out by government authorities.  Such mechanism is the most efficient at a time when government authorities are not prepared to fundamentally change the Code provisions.  At some point, we undertook a number of attempts to discuss this issue with the antitrust authority executives, including through Atameken National Chamber of Entrepreneurs, but to no avail.

Obviously, the Decree does not fully solve the problem.  It provides neither for measures to curb the already existing quasi-government companies nor for a mechanism to restrict incorporating public companies when they fall under the aforementioned exceptions.  Besides, the moratorium is just an interim measure making us to hope that in the not-too-distant future the Decree provisions will be implemented through the appropriate amendments to the Kazakhstan Entrepreneurial Code.

Aidyn Bikebayev

Attorney at Law

Managing Partner  

Sayat Zholshy & Partners