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ENVIRONMENTAL RISKS

The main risks associated with the external environment of the Company include political, economic and regional risks.

Political risks:

  • ability to change the external or domestic policy by the leadership of the country, which may significantly affect the investment attractiveness of the country in general and the Company in particular;
  • the likelihood of negative changes to legislation, including tax legislation, aimed at maximizing budget revenues from raw materials industries;
  • in the process of reforming the public authorities the abolition and the creation of new ministries and agencies regulating the operation of the Company may take place, which may lead to a lack of or delay of approval of regulations affecting the Company.

Economic risks:

  • The economy of the Republic of Kazakhstan is poorly diversified and depends significantly on world commodity prices. A significant and sustained fall in global commodity prices could lead to a drop in profits of mineral companies, and eventually economic decline;
  • Aging infrastructure of the economy could have a material adverse effect on the efficiency of the Company’s business.
  • Current legislation in the area of procurement of goods and services does not allow for increases in the efficiency of logistics.
  • Lack of a competitive environment among suppliers and contractors reduces the quality of work and services provided by the company.
  • Level of development of financial system of Kazakhstan may worsen the conditions of allocation of free funds (for details see below – in Financial Risks section).

Regional risks

Regions of the Company’s activity are Magistau region, Atyrau, Aktyubisnk, Kyzylorda regions.

The main production branches of the Company carry out its production activity in regions characterized by severe climatic conditions, and some regions are characterized by shortage of highly skilled professionals in the field of oil production and gas processing. At the same time these regions are the regions with high social and economic risks which have a substantial impact on the operations of the Company.

For the assets of Mangistau region the risk of social conflicts and strikes is relatively high, as is often demonstrated, and has had a significant impact on the Company’s operations and performance of its obligations under subsoil use contracts.

An appropriate set of measures, including the following steps is being developed to reduce the negative impact of changes in the situation in the country and the main regions:

  • Actions aimed at increasing the geographic diversification of the Company’s  operation, in order to minimize the risk of a given region;
  • Actions aimed at minimizing the social tensions in the regions of the core business;
  • Actions to improve business efficiency, to minimize the risks with a significant adverse effect on the ability of the Company to develop business.

The Company consistently works for the promotion and maintenance of social stability in the regions where it has a presence. The Company actively cooperates with representatives of local administrations and communities in order to jointly find solutions for pressing social problems in the regions.

The Company strives to ensure that its social programs are the most carefully targeted and meet the urgent needs of society. However, the increase in non-commercial costs associated with the minimization of the risk of strikes and social strain could have a negative impact on the financial performance of the Company.

Climatic conditions in these regions are quite varied. In addition, their geographical distance calls attention to the transport component and supply of electricity for continuous operation of the Company.

In order to minimize the possible consequences of the risks associated with climatic features of the regions where it has a presence, including the threat posed by natural disasters, the Company pays special attention to business continuity and safety.