Corporate governance score of JSC NC “KazMunayGas” grew from 71.7% in 2013 to 75.0 % in 2014.
In 2014 a diagnostic of the corporate governance of JSC NC “KazMunayGas” was conducted by the Internal Audit Service of JSC NC “KazMunayGas” in accordance with the methodology for the corporate governance diagnostic in the companies of the JSC “Samruk-Kazyna” group.
According to the results of diagnostics, the level of corporate governance in JSC NC “KazMunayGas” amounted to 75.0%. This rating was received due to interaction of three components: “Structure”, “Processes” and “Transparency”. Their quantitative values are as follows: structure – 68.3%, processes – 73.2%, transparency – 81.7%.
Diagnostics of the corporate governance of JSC NC “KazMunayGas” have observed the following key positive aspects:
- Chairman and majority of the Board of Directors are independent directors;
- Active work of the Board of Directors, nominal decision making is absent;
- An effective Internal Audit Service with centralized operations for the whole KMG group;
- Intensified efforts in corporate social responsibility;
- Availability of regulatory documents which ensure operation of the corporate governance system.
Recommendations given by the Internal Audit Service during diagnosing the corporate governance system are reflected in the Action Plan for Improving the Corporate Governance System in JSC NC “KazMunayGas” for the years 2015-2016.
Corporate governance score of JSC NC “KazMunayGas” grew from 59.9% in 2011 to 71.7% in 2013
According to the results of independent diagnostics of the corporate governance carried out in five subsidiaries of JSC “Samruk-Kazyna”, in 2013 the level of corporate governance in JSC NC “KazMunayGas” amounted to 71.7%. This score was received through the interaction of three components – “Structure”, “Processes”, “Transparency” given their quantitative values: structure – 69.2%, processes – 64.9%, transparency – 80.5%.
Diagnostics of the corporate governance of JSC NC “KazMunayGas” was conducted by PricewaterhouseCoopers LLP in accordance with the methodology for diagnosing the corporate governance in the companies of JSC “Samruk-Kazyna” during the period from June to September this year. The PricewaterhouseCoopers LLP experts investigated the events that occurred in 2012 and in the first six months of 2013, conducted 20 interviews with the members of the Board of Directors, Management Board, and with the heads of relevant departments of JSC NC “KazMunayGas” and examined 950 documents.
Diagnostics of the corporate governance of JSC NC “KazMunayGas”revealed the following key positive aspects:
- enhancing the effectiveness of the BoD activity. Meetings of the Board of Directors are held regularly and mostly by personal attendance with active participation of all the members. Strengthening of the BoD role upon making key decisions and active involvement of independent directors in discussion of key issues;
- Active work of the Committees attached to the Board of Directors, timely and detailed discussion of all issues at Committees. Independent directors often raise complex questions before executive managers;
- Highly efficient centralized Internal Audit Service (IAS). The IAS reports directly to the Chairman of the Audit Committee, Independent Director and is actively working on a number of key issues for the Board of Directors;
- The structure of senior employees’ remuneration is transparent, formalized in internal documents and partly depends on the company’s performance;
- The company discloses relevant information about its activities provided by best practices, including key performance indicators;
- A number of measures were implemented to simplify the corporate structure and re-registration of a number of subsidiaries from JSC to LLP.
The recommendations given by PricewaterhouseCoopers LLP during diagnosing the corporate governance system will be reflected in the action plan for improving the corporate governance system in JSC NC “KazMunayGas” for 2014-2015.
Standard & Poor’s has assigned a GAMMA score of GAMMA-5 to National Company KazMunayGas (NC KMG).
Representatives of the parent company, Samruk-Kazyna, and independent directors provide close management oversight. There is a solid board process and independent directors are actively involved in the work of board-level committees. Transparency is moderate overall, yet NC KMG provides audited annual IFRS accounts and makes important disclosures on the web-site. The audit process demonstrates a number of strengths, and a holistic approach to risk management has been adopted.
Weaknesses. In the eyes of Kazakhstan government, NC KMG has a social mission in addition to its commercial goals, and the scope of its social commitments is not clearly defined. In addition to sponsorships, NC KMG has been required on numerous occasions to invest in projects of social importance and holds a number of none-core assets on its balance sheet. The independent directors may not always be able to block such initiatives. There are significant weaknesses in executive compensation policies.
There are several gaps in the disclosure and timing of financial reports is moderate.
Standard & Poor’s Governance Services assigned its governance, accountability, management, metrics, and analysis (GAMMA) score of ‘GAMMA-5’ to JSC National Company KazMunayGas, an integrated oil and gas company wholly owned by the National Wealth Fund Samruk-Kazyna.
Headquartered in Astana, NC KMG is a holding company that owns equity stakes in a number of operating companies, and through subsidiaries, is involved in the exploration and production of Kazakhstani oil and gas fields, both on- and off-shore. NC KMG holds stakes in the largest domestic product-sharing consortia TengizChevrOil (20%) and Kashagan (16.8%), and also operates domestic oil and gas pipelines, refineries and a network of petrol stations in Kazakhstan and several countries of the European Union and Turkey (through Romanian subsidiary Rompetrol). NC KMG also operates several supporting (‘service’) companies, including a specialised airline, and has recently launched a number of petrochemical projects. The NC KMG group produced 18 million tons of crude oil and 3.8 billion cubic meters of gas in 2008 (consolidated) and has proven consolidated reserves of 701 million tons of oil and 69 billion cubic meters of gas. 2008 consolidated revenues totalled USD21.1 billion, with net income of USD3.2 billion (USD4.9 billion and USD708.3 million for the first six months of 2009 respectively).
Representatives of the shareholder and independent directors are highly competent and knowledgeable of the industry. They provide close management oversight and decision-making is consensus based. There is a sophisticated committee structure and independent directors play a leading role on most committees.
Annual IFRS statements are audited by a reputable international auditor, Ernst & Young. The audit committee has an independent majority and is active. The internal audit and risk management procedures are gaining momentum.
NC KMG is the most valuable asset of Samruk-Kazyna, the primary asset management fund for the government of Kazakhstan. The government has been consistent in strengthening various aspects of governance in companies under its control. This includes the appointment of worlds-class independent directors, encouraging transparency and risk management procedures.
The government provides NC KMG with a pre-emptive right on all domestic oil & gas assets and new subsoil licenses.
The government of Kazakhstan could influence NC KMG to invest in projects of national importance that may lie outside the company’s core area of expertise, such as petrochemicals or overseas projects. Independent directors are in the minority on the board and may not be in position to block these initiatives.
NC KMG often serves as a government policy tool for insuring domestic supplies of affordable oil products, and its domestic downstream operations have a strong social focus.
NC KMG does not have total autonomy in executive compensation policies and strategic process.
NC KMG is effectively a holding company whose operating assets are held by large number of legal entities. A conventional divisional structure is only starting to emerge. NC KMG holds a significant number of non-core assets, which could impede the effectiveness of controls and limit the influence of the board of directors. There are several gaps in disclosure and the timing of financial reports is behind international peers.
Standards and Poors Report 2009