Integrated annual report | Samruk-Energy JSC

Sustainable development

The Company as the largest energy holding in the country is aware of the importance of influencing the country’s economy, environment and society. The Company has introduced a system of continuous adherence to the principles of sustainable development, a balance of stakeholders’ interests is maintained risk-oriented management approach is applied and this allows achieving sustainable increase in value and enhancing competitiveness in the long term.

In order to organize risk-oriented management, timely response to changes in the external and internal environment and reduce possible losses in occurrence of risks, the Company has been working since 2010 to introduce and improve the corporate risk management system.

The introduction and improvement of the corporate risk management system is a necessary condition for achieving the strategic and operating goals of the Company and one of the most important tasks in the short term.

One of the first steps was the development of internal regulatory documents on risk management to increase the risk culture in the Company; training seminars in the area of risk management for key employees of the Company were held.

The Risks Register and Risk Maps have been updated since 2011 depending on external and internal factors of operations, which contain a full list of risks inherent in the Company’s operations and visually shows their materiality according to the criteria of probability and impact. Action Plans aimed at minimizing the impact of risky events. For these purposes, being aware of the importance of the risks’ influence on the Company’s operations, a separate business unit responsible for risk management was established in 2012 at the Company’s HO, the Risk Committee was established under the Executive Board, the works on introduction of the internal control system have been initiated, the effectiveness of the risk management system was assessed, recommendations for further improvement based on such assessment were received.

Separate business units responsible for risk management and internal control were established at subsidiaries and affiliates, internal regulatory documents on risk management were developed. Risk Registers, Risk Maps and Key Risk Management Action Plans were developed.

The company identified 14 key risks in 2017 (the risk of non-fulfillment of the Company’s long-term development strategy, the risks of the Company’s human resources, the risk of workplace accidents that caused damage to the health and life of employees in the performance of their duties, risks of ongoing/ future investment projects and investment programs of SA, the risk of failure to fulfill the electricity sales plan, the risks associated with implementation of Transformation Program, risks associated with acquisition, reorganization and sale of assets, the risk of liquidity shortage for operating, investment financial activities, currency and credit risks, the risk of tariff setting, the risk of violation of covenants of external creditors and listing requirements, the risk of impairment of assets the risk of occupational accidents and disasters), as well as the Company assessed the likelihood of their occurrence, the scale of consequence and internal and external factors that affect them, and developed an Action Plan for its management. In December 2017, the Board of Directors of the Company approved the Risk Register, the Risk Map and the Action Plan for managing key risks, key risk indicators and risk appetite for the next year.

The company adheres to the COSO standard using “Three lines of defense” model

CRMS is constantly improved, best practice of risk management new regulatory requirements, experience and standard of risk management are taken into account, and a constant awareness of executive bodies about existing risks and the ways of their management is also ensured.

The Company regularly analyzes key trends and risks in the context of three components of sustainable development: economic, environmental and social. The country’s experience in transition to a low-carbon economy is being studied, meetings with experts on energy, ecology and climate change are held regularly.

Key trends and risks in the field of sustainable development for the Company

Trends

Risks

Opportunities

Economic aspect

 

 

Slowdown in electricity consumption growth rate

The deterioration of macroeconomic situation. the slowdown in demand for electricity; High planned rates of commissioning new capacities exceeding the actual growth in demand

Effective use of the existing assets

portfolio

Increasing instability of economic

system due to resource-extracting

industries’ exposure to crises

resulted from global price volatility

Increase in the likelihood of crises occurrence that hinder access to financing of new projects

Improvement of production

Efficiency, modernization of

existing assets

Increasing energy conservation and

increasing the energy efficiency of the economy

Reduced demand for electricity from conventional generation

The use of coal in combination

with advanced clean coal

technologies

Environmental aspect

 

 

Trend for economy decarbonisation

Deterioration of competitive positions of coal

generation with regard to gas, HPP, NPP, RES

Obtaining loans on favorable

terms for development of

new projects (“clean coal”.

underground gasification of coal,

methane extraction, development

of renewable energy sources);

Improvement of quality of used

fuel

Introduction of more stringent

environmental regulations

Toughening of the maximum permissible

concentration of harmful substances; Increase in the rates of payment for emissions; Stricter requirements for water consumption – transition to recycling water supply, tightening of temperature regimes; Waste disposal expenditures

Expansion of “green” technologies

use

Increase in environmental

requirements of local communities

Environmental activity of mass media, incl. at the absence of sufficiently professional analysis. the creation of a negative image of the company

PR as a “green” leader and the

company that manages natural

resources in a responsible manner.

enhance the loyalty of community

Social aspect

 

 

Slowdown in population growth rate

Slowdown in demand for electricity

If feasible. development of export

potential

Increase in demand for highly

qualified specialists

Lack of qualified specialists. “outstripping” the increase in the cost of labor and the increase in the share of payroll in costs

Performance improvement;

Improving the quality of production;

Improving the quality of education and training of specialists

Reduction of attractiveness of job in the industrial sector

Increasing difficulty of filling the company’s vacancy

Development of personnel

reserve, continuity of positions

within the company

Interaction With Stakeholders

An effective stakeholder management system contributes to provision of necessary conditions for creation of long-term value, achievement of strategic goals and formation of a positive reputation. Interaction with stakeholders allows increasing social capital, preventing and mitigating risks, as well as identifying new opportunities for development. In this regard, being aware of the importance of building efficient relations with both external and internal stakeholders, the Company has adapted the basic principles for building effective interaction with stakeholders based on the AA1000 series standard.

The principle of “inclusiveness”, which implies taking into account interests and needs of all stakeholders (including those who cannot express their opinion, such as the environment and future generations) in the full process of managing the organization is at the forefront. Three principles of interaction with stakeholders are highlighted within the “inclusiveness” principles: materiality, completeness and response. Only adherence to each of them can ensure comprehensive, mutually beneficial and effective interaction with stakeholders.

To date, the Company has developed a Stakeholder Map. It is based on the principles of respect and consideration of interests, opinions and preferences of stakeholders, regular provision of information to stakeholders and timely fulfillment of commitments.

In developing the Stakeholder Map, the Company adhered to the Methodology, which includes four stages:

To date, the Company’s stakeholders are the population, employees, shareholders, suppliers, SAs, trade unions, partners, consumers, government agencies, competitors, financial institutions, public associations, media, affiliates, rating and auditing companies.

The Company, as part of its activities, is a member in the following national and international organizations, associations / organizations:

The CIS Electric Power Council (hereinafter – CIS EPC). Participation as an observer since 2012.

The Executive Committee is a permanent interstate coordinating body of the CIS Electric Power Council. Membership in the CIS EPC allows participating in the processes of integration of the CIS member states’ energy systems, including ensuring collective energy security; Provision of parallel operation of power systems; Creation of a common electric power market, involvement in preparation of international agreements in power sector; Technical regulations, unification and harmonization of laws and regulations in power industry, etc. The company can participate in public meetings. meetings of working groups, seminars conducted by the CIS EPC.

Kazakhstan Electricity Association (hereinafter – KEA).

Membership since 2011. Membership in KEA allows exchanging information and participation in development of a regulatory legal framework in power sector, as well as conferences, seminars, forums and other events held under the auspices of the KEA.

KAZENERGY

Association (since 2008). Membership in KAZENERGY Association allows participating in government initiatives and activities aimed at improving the investment climate in the Republic of Kazakhstan, in developing and implementing measures to increase production and scientific and technical potential; as well as the Company may receive assistance in legal, economic, organizational and management matters. The Company provides substantial financing for a variety of events hosted by KAZENERGY Association, including forums, the publication of national reports on the prospects for the development of the fuel and energy sector of the Republic of Kazakhstan.

The National Chamber of Entrepreneurs of the Republic of Kazakhstan (hereinafter referred to as the RK NCE).

Membership from 2013. Membership in the RK NCE helps to strengthen ties with business environment, effective development of electricity business, including as part of improvement of RK regulatory framework.

Coordination Electric Power Council of Central Asia (hereinafter – CEPC CA). Participation as an observer since 2014. Membership in CEPC CA contributes to strengthening business ties between the countries of Central Asia, provides an opportunity to participate in activities in power industry held by CEPC CA.

World Energy Council (hereinafter – WEC).

Membership since 2008. Membership in WEC represents a program for a limited number of the world’s leading energy companies interested in working with WEC on projects and issues of a global and regional nature. The WEC program allows Samruk-Energy to participate in exclusive events and round tables that promote the development of cooperation with international organizations.

UN Global Compact.

Membership since 2011. In the context of joining the UN Global Compact, the Company declares its commitment to following the ten principles of the Global Compact in its strategy and day-to-day operations. The company interacts with all stakeholder on an ongoing basis in order to obtain feedback and take into account their opinions when formulating topics that are especially important for them. Stakeholder communication plan was developed in December 2017, which includes activities on the timing and methods of informing stakeholders.

“Samruk-Energy” JSC stakeholder communication plan

No.

Stakeholders

Contribution of stakeholders

Stakeholders’ interests

Awareness raising activities, deadline

1

Shareholders

Allocation of funds, replenishment of the authorized capital

Profit growth, timely payment of dividends. increase in the value of the Fund

1)  Reporting (financial, non-financial) – on an ongoing basis;

2)  Conducting a Survey on disclosure of significant topics – annually;

3)  Holding meetings, business correspondence – on an ongoing basis;

4)  Placing of relevant public information about the Company, as it becomes available, on the corporate website of the company / social networks – on an ongoing basis;

5)  Discussion of matters related to progress in meeting shareholder expectations, Business Transformation Program and the implementation of investment projects at BOD meetings – annually;

6)  Publications in the media – on an ongoing basis;

7)  Informing through the participation of the Company’s management as a speaker at conferences, forums, etc. – on an ongoing basis.

2

Subsidiaries and affiliates

Compliance with shareholders interests

Assistance in dealing with government agencies. commercial interests

1)         Communicating shareholder expectations of SA’s BOD /SB to SA – annually;

2)         Communicating requirements for the development of various target indicators, internal regulations and other information to SA via e-mail, telephone, office – on an ongoing basis;

3)  Discussion of relevant issues at the meetings of BOD /SB of SA – monthly;

4)  Review and feedback on the provided reporting – on an ongoing basis;

5)  Placement of up-to-date information on the company’s in-house portal;

6)  Placing of relevant public information about the Company, as it becomes available, on the corporate website of the company / social networks – on an ongoing basis;

7)  Publications in the media – on an ongoing basis;

8)  Conducting a Survey on disclosure of significant topics – annually;

9)  Informing through the participation of the Company’s management as a speaker at conferences, forums, etc. – on an ongoing basis.

3

Employees

• Human resources • loyalty

High wages, decent working conditions, professional development, career growth

1)  Holding a meeting with staff. SA, trade union (“Year results”) – annually, not later than March 31;

2)  Organization of cultural corporate events for employees – annually;

3)  Informing employees about job openings, in-house competitions by email – on an ongoing basis;

4)  Placing of relevant public information about the Company, as it becomes available, on the corporate website of the company / social networks – on an ongoing basis;

5)  Placement of up-to-date information on the company’s in-house portal;

6)  Publications in the media – on an ongoing basis;

7)  Conducting a Survey on disclosure of significant topics – annually;

8)  Informing through the participation of the Company’s management as a speaker at conferences, forums, etc. – on an ongoing basis.

4

Trade union

• Promoting social stability. regulating labor relations and settlement of a dispute

Observance and protection of employees’ rights

1)  Holding a meeting with staff, SA, trade union (“Year results”) – annually, no later than March 31;

2)  Placing of relevant public information about the Company, as it becomes available, on the corporate website of the company / social networks – on an ongoing basis;

3)  Conducting a Survey on disclosure of significant topics – annually;

4)  Publications in the media – on an ongoing basis.

5

Partners

• Joint implementation of projects

• Transfer of technologies. competences and innovations

Commercial interests

1)  Placing of relevant public information about the Company, as it becomes available, on the corporate website of the company / social networks – on an ongoing basis;

2)  Publications in the media – on an ongoing basis;

3)  Conducting a Survey on disclosure of significant topics – annually;

4)  Holding meetings, business correspondence – on a permanent basis;

5)  Informing through the participation of the Company’s management as a speaker at conferences, forums, etc. – on an ongoing basis.

6

Consumers

• Company loyalty

• Financial resources generated by way of purchasing goods and services

Commercial interests

1)  Placing of relevant public information about the Company, as it becomes available, on the corporate website of the company / social networks – on an ongoing basis;

2)  Publications in the media – on an ongoing basis;

3)  Conducting a Survey on disclosure of significant topics – annually;

4)  Informing through the participation of the Company’s management as a speaker at conferences, forums, etc. – on an ongoing basis;

5)  Business correspondence, holding meetings with existing and potential customers – on an ongoing basis

7

Government agencies

State regulation

Tax revenues, economic growth, solving social problems

1)  Reporting (financial, non-financial) – on an ongoing basis;

2)  Holding meetings, business correspondence – on an ongoing basis;

3)  Placing of relevant public information about the Company, as it becomes available, on the corporate website of the company / social networks – on an ongoing basis;

4)  Publications in the media – on an ongoing basis;

5)  Conducting a Survey on disclosure of significant topics – annually;

6)  Informing through participation of the Company’s management as a speaker at conferences, forums, etc. – on an ongoing basis.

8

Competitors

Opportunities for future development

Increasing the share of market presence

1)  Placing of relevant public information about the Company, as it becomes available, on the corporate website of the company / social networks – on an ongoing basis;

2)  Publications in the media – on an ongoing basis;

3)  Informing through participation of the Company’s management as a speaker at conferences, forums, etc. – on an ongoing basis.

9

Financial institutions

• International Grants

•Concessional financing of projects

• Credit lines

• Placement of funds

Timely payment of principal and interest, return on investment.

 

Placement of free cash in deposit accounts, special accounts maintenance, participation in the implementation of the Company’s programs

To the National Bank:

1)  Reporting on a quarterly / semi-annual / annual basis.

Portal of Kazakhstan Stock Exchange JSC:

1)  Placement of reports / information, protocols, etc. in accordance with the Resolution of the National Bank No. 26 d/d January 28. 2016 “On approval of the Rules for placement of financial statements on internet resources of depository, as well as information on corporate events, financial statements and audit reports, lists of affiliated persons of joint-stock companies, information on the total amount of remuneration of an executive body members according to results of a year on internet resources of stock exchange” and requirements of the Listing Rules of “Kazakhstan Stock Exchange” JSC.

Lenders:

1)  Provision of reports / information about the Company, in accordance with the requirements of existing loan agreements.

All Financial Institutions:

1)  Placement of current public information about the Company, as it becomes available, on the corporate website of the company / social networks – on an ongoing basis;

2)  Publications in the media – on an ongoing basis;

3)  Conducting a Survey on disclosure of significant topics – annually;

4)  Informing through the participation of the Company’s management as a speaker at conferences, forums and so on – on an ongoing basis.

10

Suppliers

Efficiency of supply chain and value chain

Commercial interests

1)  Placing of relevant public information about the Company, as it becomes available, on the corporate website of the company / social networks – on an ongoing basis;

2)  Publications in the media – on an ongoing basis;

3)  Holding meetings, business correspondence – on a permanent basis;

4)  Informing through the participation of the Company’s management as a speaker at conferences, forums and so on – on an ongoing basis.

11

Population

Support in the place of business

Employment opportunities, solving social problems, transparency of the Company’s operations, environmental protection

1)  Placing of relevant public information about the Company, as it becomes available, on the corporate website of the company / social networks – on an ongoing basis;

2)  Publications in the media – on an ongoing basis;

3)  Conducting a Survey on disclosure of significant topics – annually;

4)  Participation in public hearings as part of implementation of investment projects in accordance with current environmental legislation of the Republic of Kazakhstan – as required.

12

Public associations

• Encouraging the application of high standards in operations

• Loyalty and cooperation

Achievement of goals and tasks of public associations

1)  Holding a meeting with staff. SA, trade union (“Year results”) – annually, not later than March 31;

2)  Holding meetings, business correspondence – on an ongoing basis;

3)  Placing of relevant public information about the Company, as it becomes available, on the corporate website of the company / social networks – on an ongoing basis;

4)  Publications in the media – on an ongoing basis;

5)  Conducting a Survey on disclosure of significant topics – annually;

6)  Participation in public hearings as part of implementation of investment projects in accordance with current environmental legislation of the Republic of Kazakhstan – on an ongoing basis.

13

Mass media

• Effective cooperation

• Favorable public opinion

Publications and information on the Company’s activities, commercial interests

1)  Placing of relevant public information about the Company, as it becomes available, on the corporate website of the company / social networks – on an ongoing basis;

2)  Conducting press conferences, providing press releases;

3)  Conducting a Survey on disclosure of significant topics – annually;

4)  Informing through the participation of the Company’s management as a speaker at conferences, forums, etc. – on an ongoing basis;

5)  Placement of reports / information, protocols, etc. in accordance with the Resolution of the National Bank No. 26 d/d January 28, 2016 “On approval of the Rules for placement of financial statements on internet resources of depository, as well as information on corporate events, financial statements and audit reports, lists of affiliated persons of joint-stock companies, information on the total amount of remuneration of an executive body members according to results of a year on internet resources of stock exchange”.

14

Affiliates

Mututal cooperation

Commercial interests

1)  Placing of relevant public information about the Company, as it becomes available, on the corporate website of the company / social networks – on an ongoing basis;

2)  Publications in the media – on an ongoing basis.

15

Rating agencies, independent audit organizations

Mutual cooperation

Commercial interests

To Rating agencies:

1)  Provision of information according to requests of agencies – annually.

To Audit companies:

1)  Provision of requested information – on a semi-annual basis.

To all stakeholders:

1)  Placing of relevant public information about the Company, as it becomes available, on the corporate website of the company / social networks – on an ongoing basis;

2)  Publications in the media – on an ongoing basis.

Identified Significant Aspects and Boundaries

Significant issues and topics for both the Company and stakeholders are ranked as part of stakeholders’ analysis; this enable to create efficient interaction with stakeholders based on a clear understanding of their priorities.

The stages of determining the essential topics and questions are described below.

Consolidated list of significant topics both for the Company and stakeholders, forms a Matrix of Materiality.

The results obtained by the Company from interaction with stakeholders are the foundation of an effective and adjusted policy in the area of sustainable development, as part of which the Company seeks to widely apply the aspects of sustainable development through the introduction of best practices in production, environmental initiatives, safety and social area for economic growth in the regions where the Company operates, while maintaining an optimal balance between the interests of stakeholders and strategic tasks of the Company.

A Materiality Matrix resulted in the work of the Company’s management and stakeholders’ representatives, has been formed taking into account the recommendations of the Global Reporting Initiative (GRI), as well as using the developed questionnaire (Appendix 2 of the Guidelines).

All material aspects for stakeholders and the Company (a zone of high importance) were disclosed in this Report.

Materiality matrix for 2016–2017

  1. Environmental protection
  2. Energy Security and sustainable development of electric power generation
  3. Diversity and equal opportunities
  4. Energy efficiency
  5. Innovation and operational  efficiency
  6. Decent pay and compensation
  7. Health and Safety of employees and suppliers
  8. Community engagement, methods of assessments and mitigation
  9. Corporate governance enhancement
  10. Emergency readiness, engagement mechanism with local communities 
  11. Integrity of assets and safety of operating processes
  12. Reputation improvement and positive attitude toward Company in presence region
  13. Human Rights education
  14. Evaluation of suppliers’ impact on society
  15. Waste management
  16. The proportion of spending on local suppliers at significant regions of presence/ responsible procurement
  17. Increased percentage of staff from local population
  18. The impact of infrastructure investments on the  regions of presence, including the local community support
  19. Complaints mechanism regarding the  impact of projects on local communities
  20. Health and Safety of population in regions of presence
  21. Environmental Grievance Mechanisms
  22. Absence of involvement in human rights violations
  23. Employer attractiveness
  24. Professional and personal growth of employeesа
  25. Anti-corruption