S&P Downgrades ratings GAMMA JSC National company KazMunaiGas to GAMMA-4 +

/IRBIS, December 24, 2010/ - Governance Services Standard & Poor's lowered its rating GAMMA (governance, accountability, management, metrics, and analysis - "Analysis and evaluation of the effectiveness of corporate governance, accountability, and management") JSC National Company KazMunayGas (KMG) with GAMMA-GAMMA-5 to 4 +, which is due to the activity of the independent directors on the Board of Directors, as well as deficiencies in internal audit, reported Standard & Poor's on December 23. Today, KMG - an integrated oil and gas company, is 100% owned by the National Welfare Fund SK. "Unlike in 2009, the independent directors attended very few meetings in person in 2010, which we believe constrained their ability to influence decision-making at NC KMG. This led us to re-assess the strength of checks and balances at the company. Although the executives, the board and the shareholder recognise the need for improvement, there was in fact very little progress in several aspects of governance and management practices in 2010 and in some cases, a step back," said Standard & Poor's governance analyst Mr. Oleg Shvyrkov. "Areas with little or no progress include enterprise risk management, strategic planning and organisational re-design, internal audit and controls, financial reporting, investor relations, and executive compensation practices." The overall GAMMA score of NC KMG is the result of four component scores of 1 (low) to 10 (high). - Shareholder influence - 4+ - Shareholder rights - 5 - Transparency, audit and ERM - 5 - Board effectiveness, strategic process and incentives - 4+ Standard & Poor's noted that the representatives of shareholders and independent directors of the company have high qualification and considerable experience in the industry. They provide thorough oversight of management, with decisions taken by consensus. Independent directors own a majority of seats in all committees of the Board of Directors. Also stated that the audit of annual accounts under IFRS KMG conducts a reputable international audit firm Ernst & Young. The company has in place processes of internal audit and risk management, but it should be noted their incomplete functionality. Standard & Poor's noted that NC KMG is the most valuable asset of the holding "SK". The Government of the Republic of Kazakhstan is making consistent efforts to improve corporate governance of controlled companies, including through the appointment of independent directors of the world level, promotion of transparency and risk management procedures. The government provides KMG privileged access to all Kazakh oil and gas assets and licenses for development of new deposits. However, Standard & Poor's indicates that the Kazakh government may have an impact on the KMG, so that the company's resources used to finance projects of national importance, but are not specialized and relevant investment criteria of NC KMG. As a consequence of this effect in the past, KMG has to balance a large number of non-core assets, which may hinder the effectiveness of control and limit the effectiveness of the Board of Directors. In addition, as indicated, KMG often serves as an instrument of state policy, such as ensuring the supply of petroleum products to the domestic market at affordable prices, and the activities of companies in Kazakhstan's oil sector has a significant social dimension. KMG does not have full autonomy in determining the remuneration policy and strategic management process. Also among the disadvantages of Standard & Poor's highlights the fact that the independent directors belong to a minority of votes in the Board of Directors, and they do not have formal veto power. In 2010 they participated in most meetings of the Board of Directors and its committees in absentia (by telephone), in our opinion, this negatively affects their impact on decisions. Also notes that the Internal Audit Department is not fully staffed and has limited powers. In addition, there are several shortcomings in the disclosure of information, publication dates of financial statements for longer than comparable international companies. [2010-12-24]