By

Russ L. Kleinbach, Associate Professor, Philadelphia University

Fulbright Scholar at Osh State University, Osh, Kyrgyzstan 1998-1999

Privatization in Kyrgyzstan is increasing but is resulting in relatively few worker owned and managed companies. The following interviews provide a picture of the ownership and management structure of two worker owned companies, as well as some insight into the types of problems they face.

Kyzyl-Kiya Komur in Kyzyl-Kiya, Kyrgyzstan, May 12, 1999; Interview with Rustam Khafizov, Assistant Director

Kyzyl-Kiya Komur was a state owned coal company and is now a worker-owned, joint-stock company. The company specializes in coal extraction and gypsum production. They own 324.2 hectares of land and about 512,000 sq. ft. of industrial space which includes office space. Its 1997 annual sales was kyrgyzstani som 17 million (usd 914,000). The company hopes to increase its output of coal as soon as it can raised needed capital and find new markets.

The mine is 100% employee owned – 10,000 shares at 100 som/share. That is the imprinted face value of each share. In 1995 it was valued at 1 million som. When privatized in 1995, all workers bought stock. There is no additional stock to sell. The 1995 law said only workers could own stock, but in 1997 the law changed to allow non-workers to buy stock. The stock could be sold by workers to others at any price they can get. No stock has been bought or sold in the last three years and no outside investors have been found who wish to buy. New capital is needed to develop new products from the coal to compete in the international markets.

One person owns 13 % of the shares, others less. There are now 400 employees, whereas in 1990 there were 3,500. Some workers still own stock even though they no longer work for the company. There are some new workers who do not own stock.

The management structure is relatively cooperative compared to Soviet times or to most western capitalist companies. The General Assembly is made up of all the worker-owners and meets once a year, but by national law they must vote "one stock – one vote," not "one person – one vote." The General Assembly elects a Board of Directors, made up of 8-9 people including one engineer and the rest common workers. The Board of Directors meets between once a month and once every three months. There is also a Management Council which meets weekly and handles day to day management of the mine. The Management Council reports to the Board, and the Board reports to the General Assembly at the annual meeting.

The average salary is 550 som/month. The lowest salary is 300 som/month and the Assistant Director earns 1000 som/month. At the time of the interview 1000 som was worth approximately 25 US dollars.

Currently the mine works about 8 months per year. The other 4 months it has work for only 10-15% of the workers. The rest are on "unpaid vacation" for this time. The problem is that the price of coal is too low and they cannot sell the already mined coal. There have been no profits in recent years due to the high cost of electricity and low price of coal. Coal is not as popular for fuel now but the real problem came with the establishment of the independent nations of Uzbekistan, Kyrgyzstan and Kazakhstan. Before 1991 most of the sales were to Uzbekistan and Kazakhstan with whom trade is now difficult due to policies of the three countries to protect and develop their own economies. There is no longer any government investment for research and development of new products from the coal. There is also no ready local source for capital. With the boarder/trade problems preventing the sale of coal as fuel the prospects for the company economically do not look good even though the worker ownership and relatively democratic management structure of the company seems to be functioning effectively.

One year prior to this interview an article on the BBC explained the difficult context in which this company must work.

At the time of my interview the company had not received any state support since it was privatized and was continuing to look for outside, specifically foreign, investors.

Kyzyl Kia Nan -- May 12, 199; Interview with Tatyana Kuzmina, Accountant

This bakery has 100 workers, each owning not more than 3% of the stock, although one stock holder owns 11% of the stock. The workers own 87% of the stock. There are an additional 60 stockholders who own the remainder of the stock. The stock is registered for sale in Osh, Kyrgyzstan but it is uncommon for stock to be bought and sold. There are no paper stocks, just a register book listing the owners. The reason for not issuing paper stock was the cost of issuing special paper stock would have been 10 som / share. There are 118,252 shares of stock and it is valued at 5.88 som/share. (At the time of the interview, the exchange rate was approximately 40 som / US dollar. Last year 11 people left the coop and wanted to sell their shares to the coop but there weren't any funds to do so. They were given permission to sell their shares, however only two found buyers.

The coop occupies 4,186 sq. ft. of industrial space. They bake bread all year and in the summer and fall they operate a cannery for the produce from the 40 hectares of farmland which they also own and operate. During the growing and canning period there are 2-3 shifts working 50-60 employees. Workers sometimes work on the land growing the crops and sometimes in the factory doing the canning. During the winter there are many fewer people working. They make four kinds of bread and 3-4 different kinds of rolls. The canned goods include pickles, tomatoes, tomato paste, plums, and jams. They also raise sunflowers, and safflowers that are used to make oil for the bakery. They have some animals on the farm but do not yet produce milk for use in bakery. They also raise some wheat but it was not clear if this wheat is ground for use in the bakery.

Prior to 1998 the coop was profitable but in 1998 they lost money. In 1997 they had annual sales of som 6 million ($332,000). Part of the difficulty is the price regulations on the most common form of bread at the same time that the prices for electricity and other items have gone up. They expect the profits from this year should cover the loses for last year. There is a reserve fund from which they can draw to cover loses for a short time.

The president of the company is paid 1200 som/month and the minimum wage is 457 som/month. Thus in good coop tradition, the highest pay is not more than 3 times the lowest.

The management structure is based on one-stock, one-vote because Kyrgyz law requires this of stock ownership structures. But in practice most management meetings in this cooperative are run on one-person, one-vote. There is an Annual Assembly of Stock Holders which elects a Board of Directors (three-worker members who are not paid for this role), a Governing Council (usually 5 members, and an Audit Committee. Information on all aspects of the coop's business is open to all members. Financial information is available and all workers are expected to be informed as the financial issues. The Board of Directors also functions as a Judicial Committee for solving disputes. Worker-members who do not work well can be fired but this seldom happens because they just leave the company. However this does not happen often as there is high unemployment and people want to work.

On May 5, 1998 there was a an Inter-Net notice published by International Executive Reports Ltd. Middle East Business Intelligence, SECTION: PRIVATE TRADE OPPORTUNITIES; Vol. 17, No. 9; Pg. 8, which in part read,

It was clear from my interview with them a year later that they are also still looking for outside investors.

A major problem for worker-owned and other companies in Kyrgyzstan is that there is no developed system of credit unions or banks in which local people can deposit their savings, that can in turn be invested in local companies. Most important and necessary for companies like these to survive will be either state funding and/or locally owned credit structures to channel community savings into local investment capital. Foreign loans and investment are not really a sustainable answer because of the artificial inflation of foreign exchange rates. Local inflation in 1998 was 18% but the inflation on the exchange rate for som to the US dollar was over 100%. By way of example, in February, 1999 I loaned $100 US to a student who converted it to 3000 som. Three months later she needed 4000 som to purchase $100 US to repay me. In addition these enterprises need regional, perhaps university based, programs which will provide them with information and technical information.

The Soviet period left the people with cultural values and habits for cooperatively working together but it did not teach them the techniques of local self-management. They have the will and values to survive and develop an economic as well as political democracy. Whether they will gain the technology and the capital to do so remains to be seen.

Contact Information

Russ L Kleinbach , Ph.D.

Philadelphia University

Henry Ave. & School House Lane

Philadelphia, PA 19144

(215) 951-2606 - office

(215) 848-2308) - home