Message from the Chairman of the Board of the Directors

The main results of KMG in 2017

2017 for the Group of companies JSC NC “KazMunayGas” was successful in all areas of activity. Our net profit for the year amounted to 519 billion, which is 44 % higher than in the previous year. Payment of dividends for the previous year to our shareholders amounted to 41 billion tenge in favor of Samruk-Kazyna JSC and 4 billion tenge in favor of the National Bank of the Republic of Kazakhstan.

We note significant growth in all our key performance indicators compared to last year. Thus, oil and condensate production increased by 3 %, gas production by 10 %, oil transportation by main pipelines grew by 3 %, with the accompanying overall increase in oil turnover by 12 %, gas transportation by main pipelines grew by 15 %, with total growth of gas transport by 6 %. The total volume of oil refining by the Group of companies, taking into account the large-scale repairs carried out during the year at all three refineries, grew by 2 %, which also reflects the growing effectiveness of the company’s measures and decisions.

We note the achievement of targets for the main criteria for financial stability: the Debt to EBITDA ratio of 3.57, and the EBITDA to interest expense ratio of 6.25 met our shareholders’ expectations. In 2017, the rating agency Moody’s changed the forecast of KMG Baa3 rating from “negative” to “stable”. Another rating agency Standard & Poor’s lowered the rating of NC KMG from “BB” to “BB-”, the outlook is stable.

Personal example

Each of us daily in his/her actions, behavior and decision-making contributes to implementation of sustainable development principles.

Officials and employees in managerial positions should, by their personal example, motivate implementation of sustainable development principles. 

The most significant events in 2017

In 2017, the modernization and reconstruction of the Atyrau oil refinery and the Pavlodar petrochemical plant was completed within the framework of the State Program of Forced Industrial and Innovative Development of Kazakhstan for 2015–2019. At the Atyrau oil refinery, work began on the Deep Oil Refining Complex, and a new complex for the production of light petroleum products was put into operation at the Pavlodar Refinery.

At the Shymkent oil refinery, the first stage of the modernization and reconstruction project was completed and the first certified party of K6 and K5 ecological grades of gasoline was already received. The second phase of the Shymkent Refinery modernization project aimed at increasing the depth of processing and capacity is planned to be completed in 2018.

The Caspian Pipeline Consortium completed all works under the CPC Capacity Expansion Project to 53.7 million tons per year in Kazakhstan.

The productivity of the Kazakhstan – China and Beineu – Shymkent gas pipelines was increased to 52 and 10 billion m3 per year, respectively. In Kyzylorda oblast, a high-tech gas compressor station Karaozek was put into operation.

We continued our work in the framework of a comprehensive privatization plan for 2016–2020, and in the reporting period 100 % of the shares of JSC Airline Eurasia-Air were successfully implemented by a private investor – Sky Logistics Service LLP.

In 2017, KMG and “KMG – processing and marketing” merged after the reorganization within the transformation program, implying a new organizational structure focused on operational asset management, instead of the previously used concept of portfolio investor management.

Work is under way to increase the capacity of oil transportation to China through the pipeline infrastructure of KTG from 7 million tons to 10 million tons per year, and the tariff system of services for transit and export transportation is gradually being improved. At the same time, a large-scale investment program is continuing, aimed at maintaining and developing the system of oil and gas main pipelines.

This is only a small part of the tremendous work done by our employees, but at the same time they are historic milestones in the development of KMG as a national oil and gas operator and we are proud to share this with our stakeholders.

The course of sustainable development

We are aware that the basis for sustainable development of KMG and our stakeholders is protection of the environment, human life and health; respect for human rights and social responsibility, prevention of corruption and global partnership to justly meet the needs of present and future generations.

By the decision of Samruk-Kazyna JSC in 2017, the Reference Model for Sustainable Development was approved, which in the future will be adopted as the basis of our main project in this direction – the development of a unified integrated management system for sustainable development, which will balance the economic, social and ecological components.

Since 2016, we have entered into the UN Global Compact and are taking consistent steps to ensure compliance with the universal Principles for the protection of human rights, labor relations, environmental protection and anti-corruption. We are also making efforts to implement 17 Global Sustainable Development Goals, which include such global priorities as poverty reduction, gender equality, combating climate change and partnership for sustainable development. Now is the time when the world needs a strong and united voice to protect our most important priorities and values ​​for future generations, and KMG supports positive changes towards the world we want to see. This Sustainability Report is also our Report on the progress made for 2017 within the framework of KMG membership in the UN Global Compact.

KMG is the largest oil and gas enterprise and an exporter of raw materials, and has a significant impact on the economic well-being of Kazakhstan. We work in constantly changing market conditions both in the regional perspective and at the world level. The main factors affecting the Company’s performance in 2017 are fluctuations in prices for crude oil and refined products and preliminary sales of crude oil by the Company, the impact of changes in the exchange rate, changes in tariffs for oil and gas transportation services, and changes in taxation.

All these factors help organizations to increase their financial sustainability by consistently and continuously transforming their business model, operations, revaluation of values ​​and increasing their ability to adapt to the constantly changing market conditions. We continue our well-considered and thought-out steps for transformation, and we are already getting visible positive results of the decisions taken. So, everywhere in the holding structure work on optimization of business processes, simplification of a control system and improvement of quality of carried out works proceed. We strive to bring non-core activities into the market environment and reduce duplicative functions, while the separation of basic and auxiliary functions takes place with maximum preservation of jobs, social guarantees and support for the adaptation of personnel being outsourced to the external environment. All our efforts are focused on the constant course of sustainable development and increasing the long-term value of the company.

Faithfully, Christopher Walton