Risk of occupational injuries

Non-compliance by employees with the established rules in the field of labor protection, violation of production discipline are sources of threat to life and damage to the health of employees.

Impact:

Violations of health and safety regulations can lead to injury, as well as production disruption, financial loss and damage to the company’s business reputation.

During 2022, 35 accidents with disability were recorded, 36 people were injured, including one fatal accident.

In order to prevent accidents at work, the Company carries out organizational and technical measures to ensure:

• safe conduct of work, prevention of occupational injuries and diseases;
• timely training and knowledge testing;
• internal control in the field of occupational safety and health;
• introduction of new technologies and means of labor mechanization;
• improving the level of industrial safety of production facilities.

The realization of the Near Miss incident reporting program continues through the use of the Korgau card and maps on behavioral observations of work and driving.

Work continues on implementing the Behavioral Observation Program for Job Safety and the Behavioral Observation Program for Driving Safety in subsidiaries.

Risk of negative impact on the environment

The Company is exposed to the risk of adverse environmental impact on the environment and the risk of tightening obligations for non-compliance with environmental legislation.

Impact:

The realization of environmental risk may entail financial costs in the form of fines, excess payments, environmental remediation costs, as well as legal liability and increased socio-environmental tension.

In the field of environmental protection, the priority areas for the Company are:

• control of atmospheric emissions and reduction of raw gas flaring;
• water resources management;
• production waste management;
• land reclamation;
• improving energy efficiency.

To minimize the risk of adverse environmental impact on the environment, the Company carries out:

• quarterly calculations and analysis of the intensity of combustion of associated petroleum gas (APG) in the extractive sector in the framework of international reporting IOGP;
• interaction with stakeholders on environmental issues;
• realization of the memorandum of cooperation in the field of environmental protection;
• and other measures to minimize the risk of adverse environmental impacts.

The Company continues to take an active part in working groups with authorized bodies to develop bylaws to the Environmental Code.

The risk of accidents, man-made disasters at production facilities

The Company’s production activities are potentially dangerous. There is a risk of damage to property, third parties and the environment as a result of accidents and emergencies, man-made disasters at production facilities.

No major emergencies were registered in the reporting period.

In order to minimize production risks, the Company carries out:

• conducting briefings on the safe operation of equipment (technical devices);
• training and testing of knowledge of the requirements of technical regulations of safe operation with the issuance of qualification certificates (“permit”) to personnel;
• ensuring timely maintenance and repairs of equipment in accordance with the requirements of regulatory documents;
• and other measures to control the implementation of measures for the examination of industrial safety of equipment.

Voluntary property insurance contracts are concluded annually against damage (from the risk of accidental death, loss or damage) as a result of the occurrence of an insured event.

Climate risks and low-carbon development

In its activities, the Company faces risks associated with energy transition and climate change, which include the following risk factors:

1. Risks associated with energy transfer.
2. Physical impact (change) of climate on the company:

Impact:

These risks may have a negative impact on the Company’s operations as a major producer of fossil fuels and an emitter of greenhouse gases in the form of increased costs, reduced profitability and limited opportunities for further development.

In some counterparty countries, increase in the production of energy from renewable sources can be expected, which may lead to a decrease in the consumption of products supplied by the Company.

As part of minimizing the risk associated with climate change and its consequences, the Company’s group implements measures:

1. The Low-Carbon Development Program for 2022–2031 has been adopted and is being implemented;
2. Memorandums of cooperation were concluded with Chevron and EBRD on the implementation of CCUS (Carbon capture, utilization and storage), projects based on natural solutions, low-carbon hydrogen production, development of corporate carbon price, energy efficiency;
3. working groups have been formed with Chevron specialists to exchange experience;
4. the realization of the hybrid station project in cooperation with ENI in the Mangystau region continues;
5. The technical specifications of the forest-climatic offset project have been developed;
6. interaction on issues of carbon regulation, development of a low-carbon economy, as well as low-emission energy;
7. a memorandum of cooperation was signed between the Company and the EBRD;
8. Information has been prepared on the energy saving potential of the KMG Group based on the results of the energy audit and on the LCPD;
9. Work is underway to develop the concept of internal carbon pricing;
10. Methodology for monitoring and reporting on greenhouse gas (GHG) emissions in KMG has been approved;
11. An energy analysis was carried out as part of the development of the Fund’s Energy Efficiency Program for 2022–2027;
12. Working groups have been formed with Chevron specialists to exchange experience in the direction of low-carbon development and the formation of joint practical projects to reduce the carbon footprint;
13. Repayment of 8.5 million kWh of electricity consumed by the central office of KMG in 2022 through international renewable energy certificates I-REC (International Renewable Energy Certificate);
14. Internal regulatory documents were developed and adopted during the year;
15. Calculations of specific energy consumption targets have been carried out;
16. Work is underway on the CCUS pilot scientific project;
17. An NDA has been concluded with the Nature First Fund, China Energy on potential cooperation in the field of renewable energy;
18. Work is underway on the development of business cases for the development of own RES for EMG, AR, KLPI.

Social situation in the regions of presence

The Company is at risk of unauthorized strikes.

Impact:

Negative impact on the Company’s reputation, leading to disruption of production activities and increased operating costs, as well as impact on capital expenditures and project schedule. An increase in commodity prices, a higher level of inflation within the country or the continued weakening of the tenge may have an impact on negotiations on changes in wages.

At the beginning of the reporting period, there was a wave of unauthorized strikes among employees of contracting organizations and some employees of subsidiaries. The situation worsened against the backdrop of the January events (the main requirements to increase the salary and recruitment). Negotiations were held with the leaders of trade union committees and meetings with labor collectives, as well as measures to reduce the gap between the Company’s employees and contractors. The situation has stabilized.

To reduce social risks, the following activities are carried out in the Company:

1. For the timely settlement of social and labor conflicts in the Mangystau region, KMG opened a Representative Office in Aktau on June 23, 2022.
2. KMG actively contributes to the reduction of unemployment in the Mangystau region. In 2022, 1,742 people were employed in KMG subsidiaries and their contracting organizations, including 1,273 people in Ozenmunaigas JSC, 439 people in Mangistaumunaigas JSC, and 30 people in Karazhanbasmunai JSC.
3. KMG participates in the work of the Interdepartmental Headquarters for solving problematic issues in Zhanaozen. All decisions taken by KMG are coordinated with the Headquarters.
4. Subsidiaries and affiliates have developed roadmaps for 5 years to improve working conditions and recreation of employees, it is planned to build social infrastructure facilities (canteens, administrative and industrial buildings, residential towns, etc.), to carry out current and major repairs of social infrastructure facilities.

In order to maintain feedback with employees, the management of KMG Group enterprises conducts mandatory reporting meetings with labor collectives.

Plans to maintain social stability have been developed and implemented at each enterprise.

Compliance risks

Intentional actions of a corrupt nature aimed at obtaining personal benefits and property interests, including for third parties. Any facts of corruption are completely unacceptable in the Company’s activities, regardless of the amount of financial damage.

Impact:

More detailed information is provided in the section “Ethics and integrity”

The Company carries out consistent work on the implementation and strengthening of internal control systems, the establishment of a unified policy to prevent illegal and unfair actions on the part of both third parties and employees of the Company, to establish the procedure for conducting internal investigations into the facts of illegal and unfair actions on the part of employees.

The Company operates policies and standards taking into account the world’s leading practices, as well as commitments to improve and strengthen internal and compliance control systems.

Pandemic risk (COVID)

The epidemiological situation in the Republic of Kazakhstan in terms of the incidence of CVI is relatively safe, there is a decrease in the incidence. However, due to the beginning of a new epidemiological season of influenza and acute respiratory viral infections, layering of CVI into quite severe forms of combined viral diseases cannot be ruled out.

Impact:

More detailed information is provided in the section “Industrial safety and labor protection”.

In February 2022, one fatal case from pneumonia was recorded in the Group of Companies.

The ongoing monitoring of the epidemiological situation in the KMG Group of companies continues, subsidiaries and affiliates provide reports on the the CVI situation in the SCC of KMG on a weekly basis.

As of December 31, 2022: more than 53.8 thousand employees of the KMG Group of companies (82 % of the total number) received the vaccine as the first component. Of these, more than 52.9 thousand workers (81 %) received a full course of vaccination (both components). Revaccinated 18.9 thousand employees (29 %) for the KMG Group.