Message from the Chairman of the Management Board

Dear readers!

We are pleased to bring to your attention the consolidated 2017 Sustainable Development Report of JSC NC “KazMunayGas” Group of companies.

Following the strategic goals of our shareholder, the Samruk-Kazyna Fund, for achieving sustainable development, we strive to ensure that our activities are in compliance with the sustainable development principles, and to ensure the coherence of our economic, environmental and social goals.

KMG considers sustainable development as one of the strategic goals along with the growth of longterm value.

Implementation and integration of the sustainable development principles into the key business processes, operating activities and decision-making processes are among the Company’s top priorities.

In 2017, we were focused on improving our financial sustainability through consistent and continuous transformation of our business model and operating activities. We continue the active implementation of the Transformation Program, and we are already getting visible positive results of the decisions made.

Throughout the holding structure, the work on optimizing business processes, simplifying the management system and improving the quality of work performed is in progress. The total economic benefit from the implemented Transformation Program since the start of the program is KZT 61.8 billion.

The most important achievement of this period is the development and implementation of a new target operating management model, which involves reducing the number of management levels from five to two. This will allow the Company to concentrate on direct operations management of production assets.

According to the new management model, in 2017, one of the largest subhol-dings was merged – KMG – Refining & Marketing. In 2018, further merger of other subholdings of the Company is planned. Production asset management will be carried out directly from KMG.

We strive to bring the non-core activities into the market environment and reduce duplication of functions, while separation of basic and auxiliary functions occurs with maximum preservation of jobs, social guarantees and support of adaptation of personnel are brought into external environment.

Working in the conditions of changes, the Company managed not to reduce its performance indicators for the reporting period in comparison with the last period. The volume of hydrocarbon production in 2017 was 23.4 MMt.

An important event for us was completion of modernization of the Pavlodar Petrochemical Refinery and the end of all mechanical works for installation of new equipment at the Atyrau Refinery. In the second half of 2018 the modernization of Shymkent Refinery is planned to be completed. Completion of the modernization of the Kazakhstani refineries will allow assuring the RoK domestic market with oil products by the end of 2018. This will also create conditions for switching to automotive fuel output in compliance with the K4, K5 standards.

The highest priority for the Company has always been and still are the people. Being one of the largest employers of the country, we are striving for social stability and settlement of labor disputes and conflicts. In 2017, by agreement of the parties, a collective agreement of Oil Services Company LLP was signed for a period of 3 years.

Within the Job matching program, all interested applicants, both inside the company and outside it, were given an equal opportunity to apply for management positions in the central office of KMG in an open competition. This program will be continued.

We also seek to promote a culture of safety and health, involving all employees. The course for safe conduct of work performance both for Company employees and contractors has remained unchanged; we impose high requirements to safety measures and aim at minimal impact on the environment in the regions of operation.

Being aware of the importance of our environmental impact, we aim at comprehensive disclosure of information about our results and achievements. So, taking part in the first environmental responsibility rating project for the oil and gas companies of Kazakhstan, we received recognition of our Company as a leader and environmentally responsible company from independent international organizations.

The last year became for us a year of EXPO-2017 international exhibition. The KMG Group of companies acted as one of the sponsors of the exhibition, and presented its own exposition within Astana EXPO-2017, providing information on its activities and development of new technologies in the Company.

Faithfully, Sauat Mynbayev