Goal 3. Improve corporate governance and sustainability

The human resources of KEGOC are the most important strategic factor for the Company’s development success. KEGOC manages its human resources based on the principles of the Corporate Governance Code, Code of Conduct (Business Ethics Code), the integrated management system, HR Policy and internal documents relating to KEGOC’s HR motivation.

The HR Policy is aimed at the formation of human potential as the most important intellectual and professional resource that ensures the implementation of the Development Strategy of KEGOC through the effective corporate culture focused on achieving high results and meritocracy.

To implement the Development Strategy of KEGOC, the HR Policy’s objectives are to:

• ensure the commitment to the principles of meritocracy, including recruitment, training and development, assessment of employee performance and remuneration management;
• develop target corporate culture;
• improve talent pool management and career planning system;
• regulate social and labour relations contributing to the Company’s successful operation;
• comply with the succession policy and knowledge transfer;
• train specialists on the application of digital technologies.

In the reporting year, the staff listing of the Company, including subsidiaries, was 4,797 people, which is 1.4% more than in 2017.

In 2018 the Company continued implementing KEGOC Business Transformation Programme, which is introducing the comprehensive assessment of employee performance. The results of the performance assessment are used to revise the salaries of the Company’s employees, and to enrol employees to the personnel reserve (talent pool).

The Company has started the ‘Development of the Corporate Culture of KEGOC’ project. The project revealed the values uniting all the Company’s employees, defined the target corporate culture model. KEGOC Corporate Culture Development Roadmap for 2018-2020 was developed and approved. It reflects initiatives and measures to achieve the set goals.

All the elements of HR policy are arranged in a way to enable quick and effective adaptation of new employees and accelerate their settling in a new job. On a regular basis an employee is introduced to the organization’s objectives, its activity characteristics, and the Company’s basic rules and expectations from employees. During the adaptation process, employees are instructed on safety as well.

KEGOC attaches great importance to the process of training and development of personnel and is guided by the following principles:

1. the effectiveness of training and focus on performance — training shall be aimed at addressing specific tasks that increase the efficiency of KEGOC;
2. the expediency — the choice of training activities must meet the training needs defined in the IWP (individual work plan) of the Employee in accordance with the official duties of the employee, the results of the performance assessment, as well as the objectives and tasks set for the employee;
3. the integrity of the development system, continuity and systematic training;
4. transfer of knowledge and competencies;
5. effective development of internal coaching;
6. active training on the 70/20/10;
7. the use of advanced digital technologies in training, the development of distance/modular training.

The staff training was conducted using the full range of modern teaching methods — business workshops, seminars, trainings, internships, advanced training, vocational training and retraining programs, forums and conferences. In the reporting year, 2,650 employees were trained, which is 55.24% of the headcount. KEGOC’s actual training costs in 2018 amounted to KZT 328,018 million or 92.2% of the plan, which is 27.5% higher than in 2017.

KEGOC systematically develops the talent pool: the personnel reserve includes 294 people. In 2018, the number of vacancies, for which the pool was formed, was 56 and 32 vacancies were filled by employees from the personnel reserve. In November 2018, the members of KEGOC Board of Directors and Management Board held an annual meeting with prospective employees regarding KEGOC’s values.

In December 2018 KEGOC held the Best Mentor of the Year competition, according to the results of which the winner was awarded a valuable gift and a diploma. Thus, KEGOC has been forming a mentoring institute.

In order to popularize and support the dynasties of the industry experts from the same family, and to publicly promote the succession of generations and social stability a solemn event was held on 29 June 2018 in the administrative building of KEGOC to award the winners of the Labour Dynasty contest, at which representatives of the Alpysbayevs, the Chernohayevs, the Lees, the Anessovs dynasties were awarded with valuable gifts and diplomas.

The remuneration system in the Company includes:

• the base part (wages, premiums and increments);
• the variable part (performance bonuses, one-time bonuses, remuneration of executive and administrative personnel);
• social support to employees;
• non-material remuneration.

In 2018, salaries/tariff rates of the Company’s employees were increased by an average of 6%.

To create favourable conditions for effective work and raise loyalty, KEGOC provides a social support to the Company’s employees: the recreation payment when granting the paid annual leave, on the anniversary date and the birth of child, due to the death of an employee or an employee’s family members and the pensioner registered with KEGOC, to pay for the medical treatment of an employee and children — disabled, disabled from childhood irrespective of the group of physical inability and age.

Employees of retirement age are compensated upon their retirement, and the one-time material assistance is provided annually on the professional holiday ‘Power Engineers’ Day’ to the pensioners registered with the Company.

In 2018, the Company assisted in resolving housing issues to 113 employees by partial reimbursement of housing costs totalling KZT 115.1 million at the expense of KEGOC. 43 employees became applicants for acquiring residential premises with subsequent purchase on the terms of Real Estate Fund Samruk-Kazyna (Real Estate Fund) in Shymkent, Almaty and Aktobe. To date, the house purchase contracts between employees of the Company and the Real Estate Fund are under execution.

In the reporting year the medical insurance in case of illness covered 2,502 employees of KEGOC, the amount of services costed KZT 86.4 million.

Based on the work results in 2018, 87 employees of KEGOC were rewarded with state and industry awards for special merits.

The Collective Labour Agreement concluded between KEGOC and its employees for 2016-2020, in addition to the main provisions of the labour laws of the Republic of Kazakhstan, refers to the issues related to the social support of the Company’s employees, veterans of the Great Patriotic War, equated persons and long-service power engineers, and the organization of medical care and entertainment events for the employees. The Collective Labour Agreement covers all employees of the Company.

The goal of the Environmental Policy of KEGOC is to minimize the adverse environmental impact during electricity transmission and distribution.

The main areas of KEGOC Environmental Policy are:

• responsibility for environmental security of the Kazakhstan National Power Grid development;
• energy-saving and the rational use of natural and energy resources;
• compliance with the legal framework of the Republic of Kazakhstan relating to the environment, and with the requirements of ISO 14001;
• openness and accessibility of the information, including the results of environmental monitoring.

Environmental Management System

The Company implemented the environmental management system (EMS), which is certified for compliance with the requirements of international standard ISO 14001. EMS operates within the integrated management system of KEGOC. The main objective of its implementation and operation is to apply new management methods that would enhance the influence on the environmental aspects of the Company’s production and economic activities. The environmental aspects management is a component of the corporate risk management system in KEGOC.

For efficient management, in 2018 the Company developed registers of environmental aspects and important environmental aspects of KEGOC for 2018. When identifying the aspects, all components of the environmental impact of the Company’s activities are analysed (energy saving, water, soil, emissions, waste). Activities to manage environmental aspects are specified in the Company’s Environmental Program for 2018. ‘Potential PCB-containing waste’, ‘transformer oil’ and ‘waste transformer oil’ were identified as critical environmental aspects in 2018. The ‘potential PCB-containing wastes’ aspect is critical due to the fact that polychlorinated biphenyl is dangerous substance according to the Environmental Code of the Republic of Kazakhstan (red hazard level). The ‘spent transformer oil’ and ‘transformer oil’ aspects are critical due to the existence of oil-filled equipment.

Water and Soil Impact

Water consumption in KEGOC is insignificant, because water is not used in the operational procedures. There are no discharges into water facilities and relief. At the facilities of seven branches of KEGOC: Aktyubinskiye MES, Akmolinskiye MES, Almatinskiye MES, Vostochnye MES, Sarbaiskiye MES, Tsentralnye MES and Yuzhnye MES water is supplied from artesian wells. The existing wells at the facilities of branches are operated in line with the obtained permits for special water use and under agreements with the local sanitary services. Potential sources contaminating water and soil include transformer oil used in oil-filled equipment, as well as waste waters resulting from domestic use of water. To prevent water contamination, the oil-filled equipment of the Company is equipped with oil receiving devices or oil soak pits that prevent oil from spilling on the soil.

Emissions

The Development Strategy of KEGOC determines the goal achievement indicator of environmental protection ‘Reduction of actual emissions from stationary sources compared to the standard volumes’. To achieve this indicator, MES branches in 2018 conducted the operational monitoring, namely, they kept records of hours of operation for each item of equipment and consumption of materials. The total emissions of pollutants from stationary sources in 2018 amounted to 11.41 tons, in 2017 — 15.81 tons. The Company achieved a 27% reduction in emissions compared with the previous year due to the modernization of equipment and technological processes. The standard of 2018 was not exceeded.

Operational Wastes

The waste products at KEGOC facilities are generated in the course of operation, repair and rehabilitation of the substation equipment. The MES branches have defined the areas for temporary safe and separate waste storage, prepared schematic maps of waste disposal on the territory of the facilities with the explication and ensure timely removal for the subsequent disposal. The Company pays considerable attention to minimizing the environmental impact by reducing the amount of waste generated.

At the end of 2018, the amount of generated waste was 2,097 tons, which is more than 400 tons less than in the previous year.

Transformer oil and scrap metal were disposed by specialised organisations. One of the important environmental aspects in 2018 identified ‘possibly PCD-containing wastes’. Based on the results of the laboratory analyses planned for 2018, PCBs were not detected in the oil-filled equipment.

The improvement of the occupational safety system is the most important task for achieving the goals of KEGOC Long-Term Development Strategy. The Board of Directors of KEGOC pays much attention to occupational health and safety, for which purpose established a special Committee of the Board of Directors intended to develop policies and procedures, improve the system and monitor the provision of industrial safety and occupational health. In 2018 this Committee approved addenda to the Action Plan for the improvement of the OSH management system for 2018-2019. Moreover, in order to effectively implement and strengthen control, the Committee included the Plan performance KPIs into the KPI motivational maps of the executive and administrative personnel of the Company.

The Company continues to work on ensuring safe working conditions, reducing injuries during technological operations, improving production and sanitary conditions for workers, and reducing exposure to harmful and unfavourable factors.

In 2018, the Company carried out assessment of harmful and hazardous production factors at all workplaces and developed the register of hazards and risks of KEGOC for 2018 specifying the significant hazards and risks of KEGOC.

Based on the identified hazards and risks, the Company established KEGOC’s Occupational Safety and Health Management System Program for 2018 providing for risks management activities.

In 2018, there were two work-related accidents of the Company’s employees. Relevant measures were taken with regard to the accidents.

In addition, all KEGOC branches conducted:

• workshops on safe organization and performance of works during a repair campaign,
• qualification tests of repair crew and check of availability of the individual protection devices, instruments, harness, and special cloths;
• Occupational Safety Days resulting in the development of corrective measures.

Also, in 2018, employees of the Executive Administration of KEGOC was trained to: ‘Occupational health and safety at enterprises’.

The Company held a meeting in order to improve the grid operation reliability and the occupational health of KEGOC’s personnel and to exchange experience in addressing the problematic issues, attended by heads of occupational health and safety departments of all KEGOC branches Intersystem Electric Networks.

In 2018, the Company’s employees underwent health checks and pre-shift medical inspection, took the required training and advanced training in occupational safety and health, received the necessary personal protective equipment including electrical protection devices, milk and medicines. The employees exposed to harmful factors during their work received prescribed compensations based on the results of working places assessment with regard to exposure to harmful conditions.

In accordance with the laws of the Republic of Kazakhstan, all employees are provided with occupational injury insurance and civil liability insurance for the Company as owner of facilities, which are operationally hazardous to third parties.

To assess the level of safe working conditions, the LTIFR, Lost Time Injury Frequency Rate including fatal accidents as a result of accidents related to the work of the Company’s employees, is applied.

KEGOC adheres to the set goal of further enhancing the corporate governance and continues systematic work on improving the corporate governance to achieve the level of the world’s leading companies. In this regard, the Company aims to ensure:

• efficient exercise of shareholders’ rights;
• fair treatment to shareholders;
• efficient balanced dividend policy;
• efficient performance of the Board of Directors and Management Board of KEGOC;
• sustainability and efficient stakeholders engagement system;
• proper disclosure of information about the Company to stakeholders;
• improved risk management and internal control systems.

On 18 December 2014 as part of the Programme for public offering of shares of affiliates and subsidiaries of Samruk-Kazyna on the stock market, KEGOC placed 25,999,999 authorized ordinary shares on the Kazakhstan Stock Exchange through subscription.

As on 31 December 2018, the number of authorised and placed ordinary shares of the Company with the nominal value of KZT 500 amounted to 260,000,000, of which 234,000,001 shares (90% plus one share) belong to Samruk-Kazyna, the major shareholder, and 25,998,609 shares belong to minority shareholders, the remaining 1,390 shares were repurchased by KEGOC. 25,998,214 placed ordinary shares of the Company are in free circulation.

No material transactions with shares or changes to the composition of shareholders that own five or more per cent of the number of the placed shares of the Company occurred in 2018.

The dividend policy of KEGOC observes the interests of shareholders in respect to the amount of dividend payments, contributes to the Company’s investment attractiveness and its capitalization, respects and strictly observes the rights of shareholders stipulated by the Laws of the Republic of Kazakhstan. The dividends shall be paid on the following conditions: the availability of net profit of the Company for a reporting period, or retained profits; the absence of restrictions on payment of dividends envisaged by the laws of the Republic of Kazakhstan, and given the decision of the General Meeting of Shareholders.

The source of dividends is the net income for the appropriate financial year or half-year, or retained profits accrued on the basis of the consolidated financial statements of KEGOC prepared in accordance with the IFRS. A proposal on allocation of the net income for the fiscal year or half-year is prepared by the Company’s Board of Directors. The amount allocated for payment of dividends shall be at least 40% of the net income. The decision to pay dividends on KEGOC’s ordinary shares based on the results of the year is made by the annual General Meeting of Shareholders after the Company’s annual financial statements have been approved. The decision to pay dividends on ordinary shares based on the results of the half-year shall be made by the extraordinary general meeting within three (3) months after the Company’s annual financial statements have been audited for the corresponding period.

The General Meeting of Shareholders, after review of proposals of the Board of Directors shall, at its discretion, make a decision on payment of dividends on KEGOC’s ordinary shares, approve the amount of dividends per KEGOC’s ordinary share, and define a date of dividend payment.

Dividend History

* Dividends for 2016 were approved separately for H1 2016 (KZT 24.93 per share, Minutes of the General Meeting No. 5 dated 28 October 2016) and for H2 2016 (KZT 28.13 per share, Minutes of the General Meeting No. 6 dated 12 May 2017).
* Dividends for 2017 were approved separately for H1 2017 (KZT 48.4 per share, Minutes of the General Meeting No. 7 dated 26 October 2017) and for H2 2017 (KZT 40.13 per share, Minutes of the General Meeting No. 8 dated 27 April 2018).

Members of the Board of Directors as of 31 December 2018

Competence of the members of the Board of Directors

Information on attendance at the meetings in praesentia of the Board of Directors and Committees of the Board of Directors

In 2018, the Board of Directors held eleven (11) meetings in presentia and one (1) meeting in absentia, where 144 issues were considered with relevant decisions made.

The major issues were as follows

During the reporting period, the Company concluded 185 non-arm’s length transactions to the total amount of KZT 44,425,241,302.91 including seven transactions on which the decision-making falls within the competence of the Board of Directors.

On 29 June 2018, the Board of Directors members participated in ceremonial event rewarding the winners of KEGOC labour dynasty contest.

Independent Directors Dominique Fache, Janusz Bialek and Yermek Kudabayev participated in the meeting with KEGOC’s prospective employees on 30 November 2018.

Independent Director Janusz Bialek participated in the following conferences:

• on 11-16 June 2018 in Dublin (Ireland) on power system calculations;
• on 11-12 September 2018 in Moscow, Skoltech — MIT conference;
• on 20-21 September 2018 in Hamburg (Germany) Moscow (Russia) IEEE Sustainable Energy Supply and Energy Storage Systems (NEIS).

Member of the Board of Directors Zhanna Yegimbayeva participated in training by Ernst&Young audit firm.

Member of the Board of Directors Suinshlik Tiyessov participated in workshop on Results of Renewables Five-Year Operation in Kazakhstan, Further Development Prospects arranged by FSC RES jointly with UN Development Programme in Kazakhstan.

Independent Director Yermek Kudabayev participated in workshop on Features of International Tax Planning during the Age of Transparency arranged by PriceWaterhouse LLP in November 2018 in Almaty.

KEGOC established the following committees to review the most important issues and prepare recommendations to the Board of Directors:

• Strategic Planning and Corporate Governance Committee;
• Nomination and Remuneration Committee;
• Occupational Health, Safety and Environmental Protection Committee;
• Audit Committee.

Strategic Planning and Corporate Governance Committee

The committee’s operations are governed by the Regulations on the Strategic Planning and Corporate Governance Committee.

Composition of the Committee:

1. Janusz Bialek, Chairman of the Committee, Independent Director;
2. Dominique Fache, member of the Committee, Independent Director;
3. Suinshlik Tiyessov, member of the Committee;
4. Daulet Karimov, Expert without the right to vote.

Functions of the Committee:

Work out and submit to the Board of Directors the recommendations relating to:

• priority areas of activity and strategic planning;
• implementation of investment programs and major investment projects;
• improvement of corporate governance and sustainability;
• implementation of Business Transformation Programme.

In 2018, the Committee held 9 meetings in praesentia and reviewed 34 issues.

Information on attendance at the meetings of the Strategic Planning and Corporate Governance Committee of KEGOC’s Board of Directors in 2018

Nomination and Remuneration Committee

The committee’s operations are governed by the Regulations on the Nomination and Remuneration Committee of KEGOC Board of Directors.

Composition of the Committee:

1. Janusz Bialek, Chairman of the Committee, Independent Director;
2. Yermek Kudabayev, member of the Committee, Independent Director;
3. Zhanna Yegimbayeva, member of the Committee;
4. Daulet Karimov, Expert without the right to vote.

Functions of the Committee:

Work out and submit to the Board of Directors the recommendations relating to:

• the membership, terms of powers of the Management Board, election of the Chairman of the Management Board and its members and early termination of powers based on the evaluation of their performance results and skills;
• planning of succession of the Board of Directors and the Management Board;
• ensuring continuing and objective assessment of the performance of the Board of Directors and the Corporate Secretary;
• ensuring effective HR policy, labour payment and remuneration system, as well as social support of employees.

In 2018, the Committee held 10 meetings in praesentia and reviewed 40 issues.

Information on attendance at the meetings of the Nomination and Remuneration Committee of KEGOC’s Board of Directors in 2018

Occupational Health, Safety and Environmental Protection Committee

The committee’s operations are governed by the Regulations on the Occupational Health, Safety and Environmental Protection Committee.

Composition of the Committee:

1. Dominique Fache, Chairman of the Committee, Independent Director;
2. Suinshlik Tiyessov, member of the Committee;
3. Zhanna Yegimbayeva, member of the Committee;
4. Daulet Karimov, Expert without the right to vote.

Functions of the Committee:

Work out and submit to the Board of Directors the recommendations relating to:

• the policy and procedures for ensuring occupational health, safety and environmental protection;
• monitoring of strategic KPIs of KEGOC relating to the occupational health, safety and environmental protection, and achievement of goals in this area;
• sustainability in terms of occupational health, safety and environmental protection.

In 2018 the Committee held 8 meetings in praesentia and reviewed 16 issues.

Information on attendance at the meetings of the Occupational Health, Safety and Environmental Protection Committee of KEGOC’s Board of Directors in 2018

Audit Committee

The Committee’s operations are governed by the Regulations on the Audit Committee.

Composition of the Committee:

1. Yermek Kudabayev, Chairman of the Committee, Independent Director;
2. Dominique Fache, member of the Committee, Independent Director;
3. Janusz Bialek, member of the Committee, Independent Director;
4. Saltanat Satzhan, member of the Committee, (Expert without the right to vote).

Functions of the Committee:

Work out and submit to the Board of Directors the recommendations relating to:

• establishment of effective control system for financial and economic activities of the Company (including the completeness and accuracy of financial statements);
• control over reliability and effectiveness of the internal control and risk management systems and over execution of corporate governance documents;
• control over internal and external audit independence, and over the process ensuring enforcement of the laws of the Republic of Kazakhstan.

In 2018, the Audit Committee held 9 meetings in praesentia and reviewed 58 issues.

Information on attendance at the meetings of the Audit Committee of KEGOC’s Board of Directors in 2018

The day-to-day activities of KEGOC is operated by the Management Board, an executive collegial body, which makes the decisions on the Company business related issues that are beyond the competence of other bodies.

The Management Board acts in accordance with the Law of the Republic of Kazakhstan On Joint Stock Companies, KEGOC’s Charter, Corporate Governance Code and Regulations on the Management Board.

Состав Правления АО «KEGOC»

Management Board Performance Report

The main principles of the Management Board activity are to serve interests of shareholders to the maximum extent, ensure fairness, good faith, expertise, prudence, objectivity, soundness and regularity.

In 2018, 29 meetings considered and made relevant decisions on 243 issues as follows:

• approved and amended the internal documents elaborated to organize the Company’s activities;
• some issues of implementation of the Business Transformation Programme;
• decisions on conclusion of transactions;
• Risk Committee performance;
• human resources management;
• others.

In order to preliminarily review, take collegial decisions and prepare recommendations on the supervised issues to KEGOC’s Management Board, the Company operates the following advisory bodies:

1. Investment Committee;
2. Risk Committee;
3. Budget Committee;
4. Human Resources Development Committee;
5. Debtors and Creditors Committee;
6. Inventory Committee.

Assessment of performance of the Board of Directors and the Management Board

The performance of the Board of Directors and its members for 2018 was assessed by Samruk-Kazyna together with PricewaterhouseCoopers LLP under the independent corporate governance diagnostics of KEGOC in accordance with the Rules for performance assessment of the Board of Directors and its committees, the Chairman, the members of the Board of Directors of KEGOC.

In 2018, the members of the Board of Directors -Independent Directors were paid in accordance with the Rules of remuneration and reimbursement of expenses of the members of the Board of Directors of KEGOC as follows:

• annual fixed fee;
• additional remuneration for participation in the meetings in praesentia of the committees of the Board of Directors.

In addition, in 2016 the General Meeting of Shareholders decided to determine a fixed annual remuneration and compensation of expenses for members of the Board of Directors elected as representative of major shareholder (Samruk-Kazyna).

The remuneration system for the Chairman and the members of the Management Board includes a salary and a year-end bonus. A year-end bonus in KEGOC is paid within the limits of cash assets provided in the budget of KEGOC upon approval of the results of the financial and economic performance based on the audited financial statements.

The payment of remuneration is mainly conditioned by the consolidated total income for the reporting period. The performance of the Chairman and members of the Management Board is assessed using the motivational key performance indicators to be developed through KEGOC strategic goals cascading by specific indicators on business processes/areas of KEGOC operations in the form of KPI maps. The right to remuneration for the year-end results are owned by the members of the Management Board who actually worked during the reporting period not less than five (5) months, based on the KPI achievements for the reporting period. The maximum remuneration for the planned period is approved by the Board of Directors.

Thus, the total amount paid in 2018 to the members of the Board of Directors and the Management Board of KEGOC amounted to approximately KZT 346 million (KZT 372 million in 2017).

Since 2006 the Company has had efficient Internal Audit Service (IAS or the Service) consisting of eight qualified auditors whose mission is to provide necessary support to the Board of Directors and the Management Board of KEGOC in performance of their duties to achieve the strategic objectives of the Company. The main objective of the Service is to provide the Board of Directors with independent and objective information to secure efficient management of the Company by applying a system approach to improving the risk management, internal control and corporate governance systems.

All audit engagements in 2018 were planned with respect to the mission and the main objective of the Service. The risk-based approach was used to plan the internal audit, i.e. the priority was given to the business processes that are most vulnerable to negative events.

The annual audit plan of the Service for 2018 envisages the fulfilment of 18 engagements. The audit engagements covered the comprehensive inspections of the Company’s branches, audit of business processes relating to functioning of bank payment systems, reflecting bank operations in the accounting system, crediting, payment and accounting of wages as well as assessment of efficiency of annual inventory of accounts payable/receivable, procurement of the Company, risk management, information technology, projects, etc. All engagements have been performed.

Under implementation of the instruction of Samruk-Kazyna’s Audit Committee, as well as the initiative of the Fund’s Internal Audit Service relating to synergistic audits at the Fund’s group of companies, the Service in 2018 took part in the audit engagement ‘Audit of Automatic Control System for Technological Processes and IT at KazMunayGas Branch, Atyrau Oil Refinery’.

In addition, the Service participated in the Audit of Business Transformation Programme implementation at Samruk-Kazyna group of companies, conducted by the Fund’s Internal Audit Service.

In 2018 the Service also conducted an investigation of four appeals submitted to the Audit Committee. Based on the investigation results, the Audit Committee gave relevant recommendations to KEGOC’s Management Board.

Since 2007 KEGOC has successfully implemented and been operating the risk management system formed on the basis of generally accepted conceptual models of risk management developed by the Committee of Sponsoring Organizations of the Treadway Commission — COSO ERM ‘Risk Management. Integrated model (COSO)’ and requirements of Samruk-Kazyna.

The corporate risk management system (CRMS) is a key component of the corporate governance system aimed at timely identification of risks, their evaluation and development of risk management measures that could adversely affect the achievement of strategic and operational objectives of KEGOC.

The objective of the current corporate risk management system (CRMS) is to ensure continuity and stability of operations through hedging the influence of internal and external adverse effects on KEGOC’s activity.

The main principles of the risk management system are:

• engagement of KEGOC’s executives in risk management;
• continuous improvement of the risk management system;
• continuous learning and knowledge sharing by the Company employees in risk management sphere;
• transparency and integrity in submitting reports and risk escalation.

The risk management involves the Board of Directors, the Management Board, the Internal Audit Services, structural units — the risk owners and the structural unit responsible for risk management.

Also, the Risks Committee, which is responsible for preparation of risk management recommendations to KEGOC’s Management Board, performs its functions. In 2018, the Committee held 13 meetings.

KEGOC in its operations takes into account a wide range of business-related risks in categories: strategic risks, financial risks, operational risks, legal and compliance risks. Following the risks identification and assessment, 51 risks were included into the Company’s Risk Register for 2019. Risk management measures were developed, and risk owners were identified for each risk. The dynamics of key risks and implementation of measures for their mitigation are monitored on a regular basis by quarterly reporting of risks to the Management Board and the Board of Directors of the Company.

The material risks which KEGOC incurred in 2018

The Company’s Internal Audit Service on an annual basis conducts an assessment of the CRMS performance.

The Internal Control System (ICS) of KEGOC allows the Company to build the management system capable to promptly response to risks, control the main and supporting business processes and daily operations, as well as immediately inform the executives of the appropriate level of any material deficiencies and areas to improve.

In accordance with the Regulations on arrangement and performance of works on the Internal Control System of KEGOC, the competences of units included in ICS is differentiated depending on their role in the processes of development, approval, implementation and assessment of ICS performance. ICS participants are the Board of Directors, the Management Board, Audit Committee, Internal Audit Service, the business units — owners of business processes, control procedures performers, and a structural unit responsible for risk management.

In 2018, in order to improve ICS, the Board of Directors of KEGOC approved amendments to the Regulations on arrangement and performance of works on the Internal Control System of KEGOC.

Under the independent corporate governance diagnostics of KEGOC conducted in 2017-2018, Samruk-Kazyna together with PwC evaluated the efficiency of RMS and ICS. Based on the diagnostics results the component ‘Risk Management and Internal Control’ was rated at BB, i.е. as corresponding in all material respects to the majority of established criteria.

In 2018, KEGOC continued to implement the information policy following the principles of equitable, complete, fair and prompt disclosure of information to shareholders, investors and other stakeholders.

KEGOC actively interacts with the investment community, so in 2018, in addition to timely disclosure of information on KEGOC activities affecting the interests of shareholders and investors, the Company held activities (‘Issuer Day’) at the Kazakhstan Stock Exchange (KASE) to discuss the results of operation and business activities for 2017 and H1 2018 with the participation of representatives of key investment companies of the Republic of Kazakhstan, experts of the securities market and the media.

To ensure an ‘investment image’, KEGOC pursues a constructive dialogue between KEGOC and market experts, the negotiation process and interaction with investors, provision of information and analytical data for investors, and development of trusting relations between shareholders and investors, and the management.

To execute the rights of shareholders and provide high efficiency and availability of essentially important information for users, KEGOC ensured the publication of materials in the mass media, on the corporate website and the Company’s pages in the social media Facebook and Twitter about the Company’s operating and financial activities, the meeting of the CIS Electric Power Council held at KEGOC’s headquarters and launch of the largest infrastructure project in the power sector — North-East-South 500 kV Electricity Transmission Construction Project during the national teleconference with the head of the state.

Also, in order to deliver the information about investment activity and implementation of state programs, KEGOC arranged interviews and public speaking of the Company management through briefings, industry specialized exhibitions, forums and other rating increase promotions, in particular, the Central Communications Service held a briefing of KEGOC’s Management Board Chairman Bakytzhan Kazhiyev titled ‘Power Industry: New Technologies — New Opportunities’.

To ensure the comprehensive rating assessment of main target groups awareness of operations and overall transparency of KEGOC before shareholders and other concerned parties of KEGOC among stakeholders, as well as to evaluate the information transparency and reveal the information disclosure efficiency, in 2018 an independent party conducted a reputation audit. The report delivered among population, personnel of KEGOC and experts (representatives of central and local government bodies, employees of financial organizations, representatives of the industry and business) contains information on transparency, perception of KEGOC’s operations and efficiency of processes regulating information disclosure and significantly influencing KEGOC’s image. The reputation audit results show the overall favourable perception of KEGOC. The report contains recommendations on improvement/correction of KEGOC’s business reputation. Thus, in the reporting year the Company’s reputation score made 80.4%, showing the growth of all main reputation parameters.

When disclosing information, KEGOC remains guided by protection of the information constituting commercial, official and other secret protected by the laws, as well as information of limited distribution.