Corporate
Governance
Report

Principles
of Corporate
Governance

KEGOC’s corporate governance principles are

• effective system of corporate governance, based on a clear division of responsibilities between bodies;
• protecting and enforcing shareholders’ rights;
• a level playing field for shareholders;
• sustainable development and the role of stakeholders in corporate governance;
• disclosure and transparency;
• the effectiveness of the Board of Directors of KEGOC and Management Board.

The Company systematically and continuously enhances corporate governance by increasing the efficiency of the Board of Directors, its Committees and the Executive Body; enhancing risk management, internal control and sustainable development systems; and increasing transparency and observance of shareholders’ rights. As a result of this work, KEGOC’s corporate governance rating was upgraded from “BB” to “BBB” based on the results of diagnostics conducted by Samruk-Kazyna jointly with an independent consultant in 2021.

Company
Management
Structure

Share
capital

As at 31 December 2021 the number of authorised and outstanding ordinary shares of the Company is 260,000,000 of which 234,000,001 shares (90% plus one share) are owned by Samruk-Kazyna, 25,998,609 shares (9.9995%) are owned by minority shareholders and the remaining 1,390 shares (0.0006%) are held by KEGOC.

There were no material transactions or changes in the shares and shareholders holding five per cent or more of the Company’s outstanding shares in 2021.

Data source – Kazakhstan Stock Exchange (https://kase.kz).

General Meeting
of Shareholders

The General Shareholders’ Meeting as the supreme body of KEGOC, shall operate and exercise its rights in accordance with the Law of Kazakhstan “On Joint-Stock Companies”, the Charter and the Regulations on the General Shareholders’ Meeting of KEGOC.

In 2021, the Board of Directors initiated a General Meeting of Shareholders six (6) times:

1. An Extraordinary General Meeting of Shareholders was held on 23 February 2021 to decide on “Determination of the term of office of the Chairman of the Management Board of KEGOC”.
2. The Annual General Meeting of Shareholders was held on 27 April 2021, at which resolutions were passed on the following agenda items:
   
   • “Approval of the annual financial statements, net income distribution procedure, decision making on payment of dividends on ordinary shares and approval of the amount of dividends per one ordinary share of KEGOC for 2020”;
   • “Determination of the composition, term of powers of the Board of Directors of KEGOC, election of its members and Chairman, as well as determination of the amount and terms of remuneration and compensation of expenses to the Board of Directors of KEGOC members for execution of their duties”;
   • “Shareholders’ claims with regard to actions of KEGOC and its officials and the results of consideration of such claims”.
3. An Extraordinary General Meeting of Shareholders was held on 31 May 2021 to decide on the issue “Selection of the auditing company for KEGOC and the amount of payment for its services”.
4. An Extraordinary General Meeting of Shareholders was held on 30 July 2021, at which resolutions were passed on “Certain issues of the Board of Directors of KEGOC”.
5. An Extraordinary General Shareholders’ Meeting was held on 29 October 2021 to decide on “Approval of KEGOC semi-annual financial statements as at and for the six months ended 30 June 2021, distribution of net income, decision-making on payment of dividends on ordinary shares and approval of amount of dividend per one ordinary share for the first half-year of 2021”.
6. An Extraordinary General Meeting of Shareholders was held on 24 November 2021, at which resolutions were passed on “Certain Issues of KEGOC”.

The information on General Shareholders Meetings held is available on official website: https://www.kegoc.kz/en/for-investors-and-shareholders/raskrytie-informatsii/obshchie-sobraniya/

Dividend
Policy

The dividend policy of KEGOC is designed to observe the interests of shareholders in respect to the amount of dividend payments, enhance the Company’s investment appeal and capitalization, respect and strictly observe the rights of shareholders stipulated by the laws of Kazakhstan. The dividends shall be paid on the following conditions: the availability of net profit of the Company for a reporting period, or retained profits; the absence of restrictions on payment of dividends envisaged by the laws of the Republic of Kazakhstan, and given the decision of the General Meeting of Shareholders.

Dividend history

Board of Directors
Performance
Report

Composition of the Board of Directors

Members of the Board of Directors as on the 1 January 2021

• Almassadam Satkaliyev, the Chairman of the Board of Directors, representative of Samruk-Kazyna JSC.
• Suinshlik Tiyessov, member of the Board of Directors, representative of Samruk-Kazyna;
• Zhanna Yegimbayeva, member of the Board of Directors, representative of Samruk-Kazyna;
• Dominique Fache, member of the Board of Directors, independent director.
• Zhanbota Bekenov, member of the Board of Directors, independent director.
• Nurlan Akhanzaripov, member of the Board of Directors, independent director.
• Bakytzhan Kazhiyev, member of the Board of Directors, Chairman of the Management Board of KEGOC.

On 27 April 2021, a new constitution of the Board of Directors was elected:

• Kanysh Moldabayev, the Chairman of the Board of Directors, representative of Samruk-Kazyna JSC.
• Suinshlik Tiyessov, representative of Samruk-Kazyna;
• Zhanna Yegimbayeva, representative of Samruk-Kazyna;
• Nurlan Akhanzaripov, independent director;
• Zhanbota Bekenov, independent director;
• Bakytzhan Kazhiyev, Chairman of Management Board, KEGOC.

On 30 July 2021 Ulf Wokurka was elected as an independent director, member of the Board of Directors of KEGOC by the General Meeting of KEGOC Shareholders (Minutes No. 23).

24 November 2021 the General Meeting of Shareholders of KEGOC elected the following constitution of the Board of Directors (Minutes No. 25):

• Suinshlik Tiyessov, Chairman of the Board of Directors, representative of Samruk-Kazyna;
• Zhanna Yegimbayeva, representative of Samruk-Kazyna;
• Yernat Berdigulov, representative of Samruk-Kazyna;
• Nurlan Akhanzaripov, independent director;
• Zhanbota Bekenov, independent director;
• Ulf Wokurka, independent director;
• Kanysh Moldabayev, the Chairman of the Management Board of KEGOC.

Information on
members of the Board
of Directors

(Board composition as at 31 December 2021)

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Committees of
the Board of Directors

Audit Committee

The AC consists of four (4) members including three (3) independent directors and an expert without the right to vote.

During the reporting period, the Committee held 13 meetings praesentia and considered 62 agenda items.

Nomination and Remuneration Committee

The Committee consists of four (4) members including two (2) independent directors, one (1) representative of Samruk-Kazyna, and one (1) non-voting expert.

During the reporting period, the Committee held 13 meetings in praesentia and considered 49 agenda items.

Strategic Planning and Corporate Governance Committee

The Committee consists of four (4) members including two (2) independent directors, one (1) representative of Samruk-Kazyna, and one (1) non-voting expert.

Occupational Health, Safety and Environmental Protection Committee

The Committee consists of four (4) members including one (1) independent director, two (2) representatives of Samruk-Kazyna, and one (1) non-voting expert.

Corporate
Governance Code
Compliance

The Corporate Governance Code principles and provisions compliance report 2021 is available at https://www.kegoc.kz/en/for-investors-and-shareholders/raskrytie-informatsii/annual-reports/

Executive
Body

Members of the Management Board

(As of 31 December 2021)

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Management
Board Performance
Report

Management
Board Committees

In order to preliminarily review, take collegial decisions and prepare recommendations on the supervised issues to KEGOC’s Management Board, the following advisory bodies function at the Company:

• Investment Committee
• Risk Committee
• Budget Committee
• Human Resources Development Committee
• Debtors and Creditors Committee
• Inventory Committee.

In addition, to organize and perform works on sustainable development management, develop, implement and function KEGOC’s IMS and constantly improve the management system performance the Company established the advisory body, the Coordinating Council for Sustainable Development and the IMS headed by KEGOC’s Chairman of Management Board.

Non-Arm’s Length Transaction

In 2021 the Board of Directors and Management Board of KEGOC made decisions to conclude forty (40) non-arm’s length transactions, including 10 transactions based on the decision of KEGOC’s Board of Directors and 30 transactions based on the decision of KEGOC’s Management Board. There were no major transactions.

In the reporting year, the Board of Directors of KEGOC made decisions to conclude non-arm’s length transactions through signing ten (10) contracts for the operation and maintenance of equipment between the branches of KEGOC and Batys Transit, Tengizchevroil LLP, Caspian Pipe-line Consortium-K LLP, PetroKazakhstan Kumkol Resources JSC, JV Kazgermunai LLP, Kazakhstan-China Pipeline LLP, Kazakh-French Joint Venture Katko LLP for a total amount of KZT 303,250,157.19 inclusive of VAT.

In accordance with the Corporate Governance Code only independent directors took part in the discussion and voting on these issues.

In 2021, Management Board of KEGOC made decisions to conclude twenty-nine (29) non-arm’s length transaction including the lease of temporarily available premises to organizations of the Samruk-Kazyna group of companies, and the management of the operational and maintenance of equipment to the total amount of KZT 57,991,228.7 (inclusive of VAT).

Management
Assessment and
Remuneration

In 2021, Samruk-Kazyna with involvement of independent consultants PricewaterhouseCoopers LLP carried out an independent diagnostic of corporate governance.

Based on the results of independent diagnostics in 2021, a number of recommendations were received to improve efficiency of the Board of Directors and its committees, including in the processes of management and supervision of implementation of the Development Strategy, sustainable development and human resources policy. These recommendations are taken into account in the 2022-2024 corporate governance improvement plan.

In accordance with the Rules for remuneration and reimbursement of expenses to the members of KEGOC Board of Directors approved by the General Meeting of Shareholders, the Directors’ remuneration consists of two parts: annual fixed remuneration and additional remuneration for chairmanship or participation in the meetings in praesentia of the committees of the Board of Directors based on the decision of the General Meeting of Shareholders. In accordance with the decision of the General Meeting of Shareholders dated 26 June 2020, payments of additional remuneration to directors for participation in meetings in praesentia of the committees of the Board of Directors are excluded.

The Director is compensated for the expenses associated with his/her travel to meetings of the Board of Directors, committees of the Board of Directors and the meetings held beyond the place of permanent residence of the independent director: transport including transfer, accommodation, daily allowance, telephone services (except mobile) in Kazakhstan, documents scan, copy, fax, print, type services, access to the internet in Kazakhstan, courier and mail services.

In accordance with the KEGOC Corporate Governance Code, none of the members of the Board of Directors in 2021 took part in making decisions related to his/her own remuneration.

The remuneration system for the Chairman and the members of the Management Board includes a salary and a year-end bonus. A year-end bonus in KEGOC is paid within the limits of cash assets provided in the budget of KEGOC upon approval of the results of the financial and economic performance based on the audited financial statements. The payment of remuneration is mainly conditioned by the consolidated total income available for the reporting period.

The performance of the Chairman and members of the Management Board is assessed using the motivational key performance indicators for the short-term and long-term periods, which are developed through KEGOC strategic goals cascading by specific indicators on business processes/areas of KEGOC operations in the form of KPI maps for each member of KEGOC Management Board. Motivational KPIs for the short-term period are divided into corporate and functional KPIs.

Corporate KPIs and KPIs of executive employees are approved by KEGOC’s Board of Directors. Thus, on 15 December 2020 KEGOC’s Board of Directors approved corporate KPIs of the Management Board members and their target values for 2021.

Main motivational KPIs

At the end of 2021, the target values of the corporate KPIs were achieved.

Corporate
Ethics

Corporate ethics is a key element in uniting our employees.

The purpose of the corporate ethics is to regulate the relations of employees within a common team and is formed on the basis of generally accepted human values:

• competence and professionalism (the Company’s employees having quality education, work experience, decision-making skills, striving to improve their professional level);
• honesty and integrity (an important aspect in the organization’s activities, in preserving its business reputation and eliminating conflicts between personal interests and professional activities);
• responsibility as a guarantee of the quality of the Company’s activities;
• respect for the individual (every employee of the Company has the right to fair and just treatment regardless of race, language, political and religious beliefs, gender, ethnic and cultural background);
• safety, which is characterized by the desire to maintain commercial secret and ensure non-harmful and non-hazardous working conditions.

The Code of Conduct (Business Ethics Code), which is a set of practical rules to be followed by each employee in daily activities, is mandatory for all employees of the Company, including senior executives.

The Ombudsman of the Company continues to work, which is accountable to the Board of Directors, one of the tasks of the Ombudsman is to ensure compliance with the Code of Conduct by officers and employees of KEGOC and, if necessary, explain the Code provisions. The basic principles of the Ombudsman work are independence, neutrality and impartiality, confidentiality and informality.

Anti-corruption

KEGOC adheres to the policy of zero tolerance for corruption in all its manifestations in cooperation with all stakeholders and for concealment of corruption offences. The Company excludes all forms of bribery, including offers or benefits in the form of money, valuables, gifts and other property or services of a material, physical or moral nature. The Company does not offer or accept hospitality or gifts that may further entail any obligation of the parties. Officers and employees involved in corruption shall be dismissed and held accountable in accordance with the procedure stipulated by Kazakhstan laws.

KEGOC, in its daily operations, complies with the anti-corruption laws and takes maximum organizational and practical steps aimed at uncompromising anti-corruption in all its forms and manifestations.

Internal
Audit Service

The Internal Audit Service (hereinafter referred to as the IAS) was established by the decision of the KEGOC Board of Directors in 2006. As of 31 December 2021, the approved staff of the IAS was eight persons, and there was a vacancy for an Auditor of the Operational and Financial Audit Department.

The mission of the Service is to provide necessary support to the Board of Directors and executive body in performance of their duties to achieve the strategic objectives of the Company. The main objective of the Service is to provide the Board of Directors with independent and objective information needed to secure efficient management of the Company by introducing the system approach to improvement of the risk management, internal control and corporate governance systems.

According to the results of assignments completed in 2021, the Service provided 104 recommendations to the Company, of which 6 recommendations were implemented by the audited entities and 98 recommendations are in the process of implementation. The audited entities together with the Service prepared the Corrective Action Plans. Every quarter the Service monitors the execution of the issued recommendations.

External
Auditor

The auditor to audit the financial statements of KEGOC group of companies was selected according to the Rules for selection of an auditor for Samruk-Kazyna JSC and organizations, more than fifty percent of voting shares (participatory shares) of which are directly or indirectly owned by Samruk-Kazyna JSC under the right of ownership or trust management, and based on the decision of the annual General Meeting of Shareholders of KEGOC (Minutes No. 22 dated 31 May 2021). A long-term contract was concluded with RSM Qazaqstan LLP, an independent audit organization, a member of the professional organization of the Chamber of Auditors of the Republic of Kazakhstan. The amount of remuneration for audit services of the financial statements for the years 2021–2023 is KZT 116.22 million, including VAT, this includes KZT 35.98 million for 2021, KZT 38.55 million for 2022 and KZT 41.69 million for 2023.

For the purpose of preserving the independence and according to the External Audit Policy of KEGOC, if one audit organization carries out an audit during five successive years, the audit partner shall be changed. RSM Qazaqstan LLP did not provide non-audit services to KEGOC in 2021.