Information about the internal control system and risk management system of JSC “Samruk-Energy”

Samruk-Energy JSC is implementing a great number of major investment projects targeted at satisfaction of the growing demand for electric power and increase of power supply reliability.   When implementing those projects, the issues of environment were of high priority.

At the same time, in the electric power industry there are some objective threats and problems first of all related to depreciation of the fix assets, imperfectness of legislation and lack of investments. All those factors determine the increasing scope of requirements to the quality of corporate management of the electric power market member countries.

Samruk-Energy JSC administration realizes the necessity of improvement of the risk management mechanisms which are effective in the Company, that is reflection of priority of the selected strategic targeting and aiming of the Company management at enhancement of efficiency of the corporate management system on the whole, and risk management in particular.

Building of efficient complex system of risk management by Samruk-Energy JSC is based on the world experience of the risk management in the energy sector and it is targeted at achievement of the following outcomes:

– increase of the Company’s investment attractiveness;

– the Company management system’s conformity with the world best practices, standards and recommendations of shareholders in the risk management sphere;

– decrease of uncertainty when managing the Company, ensuring strategic and operating sustainability of the Company;

– obtaining by the Company of additional competitive advantages;

– achievement of maximum efficiency in using the Company’s assets and minimization of losses if any adverse events occur;

– feasibility evaluation and optimization of the Company’s expenses for risk management activities.

In accordance with Samruk-Kazyna National Wealth Fund JSC’s corporate risk management system development concept, the Company Board of Directors approved the Company’s Risk Management Policy and Risk Identification Regulations in February 2010.  Within the framework of the Policy, the Company highlights the following risks:

– strategic;

– financial;

– operating;

– legal.

Under conditions of implementation of long-term investment projects, the borrowings are attracted mainly in US dollars with a floating interest rate. In this connection, the Company notes exposure to risk related to change in foreign exchange rates and change in interest rates.

Within the framework of the currency risk management, the Company carries out daily monitoring of change in USD/KZT exchange rates and forward transaction rates, as well as other indicators influencing the change in the exchange rate: prices for oil, metals, rates of other world currencies.

Quarterly the Company carries out monitoring of the current currency position on Samruk-Energy JSC Group.  In accordance with the data of the consolidated financial reporting as of 30.06.2011, the currency position in USD made up - 29 550 153 thousand Kazakh tenges, increasing from the start of the year by  KZT 1,338,480 thousand. The main part is long-term loans attracted for construction of the Moynak HPP on the Charyn river.

The Company performs an analysis of sensitivity to the foreign currency market on the quarterly basis.

Exposure to the interest risk is always conditioned by borrowings under implementation of investments projects.   The interest gap on the data of the consolidated financial reporting as of  30.06.2011 made up KZT 30,292,924 thousand.

On the quarterly basis, the Company carries out monitoring of the interest gap on the Samruk-Energy JSC Group, and performs an analysis of sensitivity to possible changes in the interest rates.

By now, the Company has planned some activities on development of hedging methodology for the purpose of minimization (reduction) of risks related to adverse change of KZT exchange rate with regard to foreign currencies and adverse changes in the KZT exchange rate to foreign currencies and adverse changes in the interest rates on loans with the floating interest rate.

Taking into consideration high depreciation of the basic technological equipment, the Company pays great attention to technological risks.  Within the framework of technological risks minimization, the Company carries out continuous monitoring of the reliability level of the equipment; the  work is performed in accordance with the plan on improvement of engineering and technical  strengthening of strategic facilities of the Company and its BRO, with the  plan on  decrease of above-level losses.

For the purpose of efficient risk management, the Company has performed a significant work on risk identification.   In the process of identification, interviews with the Company and its branch and related organizations’ key specialists were conducted, upon the results of which, a list of risks the Company is exposed to was defined, risk assessment with a view to probability of arising the impact extent. In accordance with the outcomes of the work performed, the Risk Register and the Risk Map approved by the Company Board of Directors were developed (Minutes No.  50 dated 8 September, 2011).

Besides, the Company developed a Methodology of calculation and calculation of impact criteria of possible negative consequences from risks realization, which was approved by the Board of Directors (Minutes No. 50 dated 8 September 2011).

At present, the Company is performing work on improvement of the internal control system, processes of accounting records maintenance and preparation of financial reporting. The project is being implemented throughout the entire Group of Samruk-Energy JSC for the purpose of ensuring uniform approaches and methodology. In accordance with the project results, it is expected to develop matrix risks and controls on material business process, finalizing internal documents regulating the processes of accounting and preparation of financial reporting in the part of control procedures. At the same time, some instruments for the Internal Auditing Service will be developed, namely: the program of testing operating efficiency of control procedures, a methodology of efficiency evaluation of the internal control system of accounting records maintenance and financial reporting preparation.

The Company plans to develop an internal control system in 2012 in the sphere of operating activities and in compliance with the legislation.

The Company is going to continue developing and improving the risk management system and the internal control system.

The vision, objectives and tasks of the corporate risk management system at JSC “Samruk-Energy” are defined in the Risk management policy of JSC “Samruk-Energy” approved by the Company’s Board of directors on February 17, 2010 (protocol #30).

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