S&P assigned JSC KazMunaiGas exploration production corporate governance score of "CGS-5+"

/Standard & Poor's, Moscow, October 1, 07/ - Standard & Poor's Governance Services said today it assigned its corporate governance score (CGS) of 'CGS-5+' to Kazakhstan-based JSC KazMunaiGas Exploration Production (KMG EP), the first CGS assigned in Kazakhstan. KMG EP is the second largest upstream oil company operating in Kazakhstan. The majority of its voting shares belong to 100% government- owned parent JSC NC KazMunayGas (KMG). The CGS reflects significant positive changes in governance procedures and practices related to the company's recent IPO. KMG EP uses IFRS accounting standards, has an efficient board with three independent directors, and benefits from an effective investor relations department. The company has also developed a clear and transparent remuneration system for members of the board of directors. "KMG EP has demonstrated its commitment to building a corporate governance system according to the best international standards, with a number of efficient governance mechanisms established last year," said Standard & Poor's governance analyst Svetlana Borodina. "The existing constraints on the score may be lifted if the company can establish a strong track record of compliance within the new framework." The overall CGS on KMG EP is the result of four component scores of 1 (low) to 10 (high): - Ownership structure and external influences 5 - Shareholder rights and stakeholder relations 6+ - Transparency, disclosure, and audit 5+ - Board structure and effectiveness 5+ The strengths of corporate governance practices at KMG EP include: - The company has good relations with its parent KMG, which provides important political support and growth opportunities. This relationship is governed by two agreements. - The share registrar is independent. - The IPO brought about some important changes in KMG EP's governance system. Three out of eight board members are independent directors who have a wide range of skills as well as experience at international companies. The effectiveness of the board is supported by three committees: audit, remuneration, and nomination. - All related-party transactions are subject to approval by the majority of independent directors. - The company charter gives additional authority to the general shareholders meetings (GSM) beyond that granted by law. All acquisitions declared in IPO memorandums are subject to approval by a majority of minority shareholders at a GSM. - There is a formalized dividend policy. Dividends are paid out to all shareholders in one day. - The company prepares audited annual and reviewed condensed quarterly IFRS financial statements. - The corporate secretary has successfully established productive relations between shareholders, the board, and management, which is very important considering the language and cultural differences among the board members. - The company has introduced a remuneration policy for the directors and senior management. Standard & Poor's analysis, however, identified several weaknesses in the company's governance system, including: - Representatives of the parent company dominate on the board of directors. - Internal control and risk management systems are at an early stage of development. - The level of information disclosure is moderate. - Notes to IFRS financial statements lack important details, such as disclosure of related parties involved in large transactions, the effect of these transactions on the company's operating expenses and capital expenditures, the breakdown of social and environmental provisions, and risk analysis. - Senior management remuneration has been capped by the board of directors at the initiative of the parent. GROUP E-MAIL ADDRESS Governance@standardandpoors.com Contact: Svetlana Borodina, Moscow (7) 495-783-40-40 Elena Anankina, London 44 20-7176-38-02 Anna Grishina, Moscow (7) 495-783-40-41 [2007-10-01]