The basic principles of the procurement activities of KMG Group of Companies are the optimal and efficient spending of money used for procurement; openness and transparency of the procurement process with respect for the rights and (or) legitimate interests of suppliers to trade secrets (before summing up the tender results); fair competition among potential suppliers, prevention of collusion between procurement participants; responsibility of procurement participants; prevention of corrupt practices; providing support to domestic producers of goods, as well as domestic providers of works and services, to the extent that this does not contradict the international treaties ratified by the Republic of Kazakhstan; acquisition of innovative and high-technology goods, works, services; providing potential suppliers with equal opportunities to participate in the procurement procedure; respect for the intellectual property rights contained in the purchased goods. At the same time, KMG is pursuing a number of procurement initiatives to support domestic manufacturers.

Commitment to sustainable procurement

KMG follows the principles of sustainable development when communicating with counterparties, which are based on legality and transparency, compliance with contractual terms, absence of corruption and zero tolerance to any manifestations of dishonesty, as well as when selecting counterparties based on a combination of factors: the best price, quality and conditions, business reputation of the counterparty.

At the same time, KMG offers, in turn, reciprocal obligations to counterparties to comply with the requirements of applicable legislation, treat employees fairly, avoid the use of child labour, ensure safe working conditions, protect the environment and adhere to other principles of ethical conduct.

These conditions are included in the terms of contracts concluded by KMG with counterparties in order to respect for the labour rights and create favourable working conditions for citizens of the Republic of Kazakhstan, protect the rights of children and maintain environmental safety. In opinion of the Company, these measures will help to reduce the number of cases of illegal activities of the companies cooperating with KMG.

When purchasing goods, KMG also establishes requirements for potential suppliers to provide certificates of conformance to the quality management system.

Total volume of purchases

The total volume of purchases for 2022 amounted to 1,085,234 million tenge, excluding VAT.

One of the important aspects of KMG’s procurement activities is to reduce single-source purchasing and increase a percentage of competitive purchases. Competitive purchases are carried out through an open tender, a request for quotations, an electronic store and competitive negotiations. At the end of 2022, the amount of competitive purchases under the concluded contracts of the annual procurement plan for KMG Group of Companies amounted to 512 billion tenge. At the same time, over the past three years, the percentage of competitive purchases makes up 49 %, which indicates the commitment of KMG to ensure fair competition and sustainable development goals.

Despite the aspiration to develop a competitive market, the percentage of non-competitive purchases carried out within the framework of intercompany cooperation and (or) through a single source, significantly prevails.

Competitive purchases: billion tenge, excluding VAT²⁴

Total amount of goods, works and services and percentage of local content₂₅
(billion tenge)

Prequalification of potential suppliers/providers

Improving procurement activities, taking into account the requirements and standards of the Kazakhstan and international practice, is one of the priority tasks for KMG.

An effective tool for solving this task is the implementation of a mechanism for prequalification of potential suppliers/providers.

Prequalification is the process of assessing potential suppliers/providers for compliance with the qualification requirements prescribed in accordance with the Procurement Procedure to be carried out through questionnaires and audits.

The primary objectives of prequalification are to identify qualified, properly selected suppliers/providers, increase the efficiency of GWS procurement for the needs of the Portfolio Companies of the Fund.

The Fund’s Pre-qualification Commission approved 24 categories of goods, works and services for procurement by KMG’s subsidiary and dependent entities, through an open tender among potential suppliers/providers that have passed the prequalification procedure.

Category procurement

Procurement category management is the process of developing a comprehensive approach to reducing costs associated with procurement activities and the use of goods, works and services included in priority categories.

Categorization is carried out by combining goods, works and services in the procurement category based on the general characteristics of a subject of procurement and (or) a single market of potential suppliers/providers. Categories can include both one and several goods, works and services. Categories with a high level of costs, criticality, savings potential and controllability are determined as priorities.

Category management allows increasing the savings potential through a more detailed analysis by developing and approving a procurement category strategy. This strategy determines the optimal approach to the procurement of goods, works and services, based on maximizing benefits in the long or short term. The procurement category strategies should contain goals and objectives, an analysis of the internal and external environment, approaches to managing procurement categories, requirements for supplier/provider development, a benefit calculation and an implementation plan.

Category management allows significantly reducing the cost of purchasing and using goods, works and services through the use of strategic planning, a detailed analysis of purchased goods and services and calculation of the total cost of ownership, as well as through cross-functional interaction with various structural subdivisions of the business. This method of procurement is effective in that it allows ensuring both quality and transparent price by working with reliable manufacturers and suppliers/providers.

Procurement category management includes:

• categorizing purchased goods, works and services and determining priority procurement categories;
• developing (updating) and approving procurement category strategies for priority categories;
• implementing procurement category strategies;
• monitoring the implementation of procurement category strategies; and
• developing suppliers/providers.

In 2022, the targets were not set in connection with the ongoing activities to optimize the procurement category strategies of the Fund and Portfolio companies on the basis of the order of the Fund’s Competence Centre represented by Samruk-Kazyna Contract LLP, but, in accordance with paragraphs 65 and 66 of section 7 of the Regulations on interaction to manage the procurement categories between the Competence Centre of Samruk-Kazyna JSC for the management of procurement categories and organizations in which fifty or more percent of voting shares (interests) are directly or indirectly held by Samruk-Kazyna JSC on the right of ownership or trust management, it is planned to direct the annual report of KMG for 2022 to the Competence Centre of the Fund no later than 15 February 2023.

Amount and benefits of category procurement in 2020–2022