Procurement Practices

Ensuring effective procurement with commitment to meet the sustainable development principles is an integral part of KMG’s activities, which contributes to achievement of strategic and operational objectives. KMG Group’s procurement philosophy is compliance with legal and internal requirements, transparency of procurements, development of fair competition and provision of equal opportunities for contractors. At the same time, KMG has undertaken a number of procurement initiatives in support of domestic producers under the Programme to Support Upgrade of Existing and Creation of New Production Facilities.

Commitment to Sustainable Procurement

KMG’s sustainable development principles are reflected in its cooperation with contractors based on legality and transparency, compliance with contract conditions, incorruptibility and intolerance of any instances of corruption, and in selection of contractors based on a combination of the following factors: best price, quality and conditions, and contractor’s goodwill.

At that, KMG requires the contractors to makes reciprocal commitments to comply with applicable laws, treat employees fairly, not use child labour, ensure safe working conditions, protect the environment and adhere to other principles of ethical conduct.

These conditions are included in the conditions of contracts concluded by KMG with its contractors in order to respect labour rights and create favourable working conditions for citizens of the Republic of Kazakhstan, protect children’s rights and ensure environmental safety According to KMG, these actions will help reduce the number of cases of misconduct by companies cooperating with KMG.

Total Procurement Volume

The total volume of the annual procurement plan for 2023 amounted to KZT 1,231 billion excluding VAT (the amount is indicated excluding purchases using the Special Procedure).

One important aspect of KMG’s procurement activities is reducing single-source procurement and increasing the share of competitive procurement. Competitive procurement is conducted through open tender, request for quotations, e-store and commodity exchanges. At the end of 2023, the amount of competitive procurement of the annual procurement plan for KMG Group was KZT 622 billion.

Amount of competitive procurement under concluded contracts, in KZT billion, excluding VAT ¹²

Total amount of goods, works and services and local content share

At the same time, over the last year, the share of competitive purchases was 51 %, which demonstrates KMG’s commitment to fair competition and sustainable development goals. Non-competitive single-source procurement is made in exceptional cases when it is not possible to procure them by a competitive method.

The decrease in the share of domestic value by 8 % for goods in 2023 compared to 2022 is due to the purchase of imported diesel fuel worth KZT 64 billion to meet the needs of the domestic market. In terms of works and services, a 2 % decrease occurred due to the completion of work on the construction of the 2nd line of the Astrakhan-Mangyshlak water pipeline in the amount of KZT 99 billion with a low share of domestic value for pipe products. The low share of domestic value for pipe products is due to the lack of production capacity for the entire volume of the project from the sole manufacturer ArcelorMittal Tubular Products Aktau.

Pre-Qualification of Potential Suppliers

Improvement of procurement based on the requirements and standards of Kazakhstan and international practices is one of the priorities for KMG. An effective tool for solving this task is the implementation of the mechanism of pre-qualification of potential suppliers.

Pre-qualification (PQ)¹³  is the assessment of potential suppliers for compliance with qualification requirements defined in accordance with the Procurement Procedure, carried out through questionnaires and audits.

The main objectives of PQ are to identify qualified and duly selected suppliers, and to improve the efficiency of procurement of goods, works and services for the needs of the Fund’s portfolio companies.

For the period 2020–2023, the Fund’s Pre-qualification Commission approved 24 categories of goods, works and services to be procured by KMG SDEs by means of an open tender among potential suppliers who passed PQ procedure.

In addition, in 2023, KMG developed qualification criteria for 16 categories of goods and services for the Pre-qualification and submitted them the Qualification Body. At the moment, these categories are in the process of coordination and approval by the Fund’s Pre-qualification Commission.

PRE-QUALIFICATION PROCEDURE

Category Procurement

Category procurement management is the process of developing an integrated approach to reducing the costs associated with procurement and use of goods, works and services included in priority categories.

Categorisation is done by grouping the goods, works and services into procurement categories based on common characteristics of the procured item and/or a single market of potential suppliers. Categories may include one or more items of goods, works and services. Categories with high level of costs, criticality, savings potential and manageability are identified as priorities.

Category management increases the potential for savings through more detailed analysis by developing and approving a category procurement strategy. This strategy is a document that defines the optimal approach to goods, works and services procurement based on maximum benefit in the long or short term.

Category management can significantly reduce the cost of acquiring and using goods, works and services by applying strategic planning, detailed analysis of procured goods and services and calculations of total cost of ownership, as well as by means of cross-functional cooperation with various business units. This procurement method is effective in that it ensures both quality and transparent pricing by working with reliable producers and suppliers.

Volume and benefits of category procurement, in KZT million

Import Substitution

As a Company representing the state’s interests in the oil and gas industry, KMG is actively working to promote import substitution in procurement in accordance with the requirements of the Procurement of Certain Entities of the Quasi-State Sector Act of the Republic of Kazakhstan (Procedure for Execution and Performance of Off-take Agreements (Programme for Assistance to the Creation of New Production Facilities) (hereinafter, the Programme).

The key objective of the programme is supporting the private entrepreneurs initiating new production facilities and technological upgrading in order to manufacture the products demanded by Samruk-Kazyna JSC Group companies.

The off-take agreement mechanism provides for implementation of import-substitution projects with a condition of future purchase and supply of commodities to be produced in the Republic of Kazakhstan as a result of such implementation.

As of 31 December 2023, KMG SDEs entered into 64 off-take agreements for a total amount of KZT 1.68 billion in 2023.

Additionally, in 2023, in accordance with paragraph 6 of the National Action Plan for the implementation of the Address of the Head of State to the People of Kazakhstan dated September 1, 2023 “The Economic Course of a Fair Kazakhstan“, approved by Decree of the President of the Republic of Kazakhstan dated September 16, 2023 No. 353, new KPIs 2024 for KMG Group companies were developed and approved to achieve a 10 % share of off-take contracts in the procurement of goods.