“Samruk-Energy” JSC | Integrated annual report
Corporate governance

Opportunities or risks?

Luca Sutera

Senior Independent Director, Chairman of the Audit Committee of the Board of Directors “Samruk-Energy” JSC

Corporate risk management system (hereinafter – CRMS) is an integral part of the Company’s operations and is aimed at timely identification, assessment and monitoring of all significant risks as well as taking actions to reduce and/or minimizing internal and external factors that may adversely affect the objectives of the Company.

The Company recognizes the importance of three components of sustainable development: economic, social and environmental. Rapid deterioration of the environment, human and natural resources, as well as economic and social development have negative impacts on stable development of the Company’s group.

In line with the Long-term Development Strategy of “Samruk-Energy” JSC for 2015–2025, the Company adheres to the concept of sustainable development, the principles of which are enshrined in the United Nations Global Compact, analyzes the internal and external situation in three components (economy, environment, social issues) and identifies risks in sustainable development in the social, economic and environmental realms.

The main factors that negatively affect the objectives of the Company’s operations within the framework of sustainable development are:

  1. decline in the stability of global economic system, including a slowdown in the RK economy growth and as a consequence the transition to a conservative forecast of growth in electricity and coal consumption;
  2. increase in volatility of global and regional currencies, in particular, weakening of the national currency which results in high cost of the Company’s investment program, as well as a decrease in the reliability of forecast activity;
  3. slowdown in the growth of demand for electricity as a result of energy market saturation;
  4. high competition in the electricity and coal markets;
  5. unbalanced capital structure, which is reflected in high tariffs, thus resulting in weakening of the Company’s positions in the market;
  6. the level of wear of the Company’s power facilities, which may lead to occurrence of environmental risk, the risk of failure to execute the plan for electricity generation and the risk of accidents and disasters at work;
  7. impossibility of maintaining a flexible pricing policy which reduces the potential for attracting consumers of various categories.

At the same time, the factor that negatively impact the Company’s operations, for instance, weakening of the national currency’s exchange rate has a direct effect on the investment program’s cost increase and accordingly impact on the debt burden of the Company, can become an opportunity for the Company in the export direction by creating conditions for increasing the competitiveness of the Company. Or, strengthening the environmental regulation of the RK economy creates an opportunity for active development of RES. That is why it is so important to conduct timely and regular analysis of various internal and external factors that may entail risks and opportunities across the Company.

The Company manages its risks at all levels of the Company’s group; CRMS is a single process, under which the Board of Directors, senior management and employees, each at its own level, are engaged in identifying potential events that may affect the Company’s performance, as well as in managing these events within a risk level acceptable for shareholders.

The Company identified 11 key risks in 2016, evaluated the likelihood of their occurrence, the scale of consequences, as well as the internal and external factors that affect them and developed the action plan for their management. In November 2016, the Board of Directors of the Company approved a risk register, a risk map and an action plan for managing key risks, key risk indicators and risk appetite for the next year.

In accordance with requirements of internal regulatory documents of the Company, all items submitted to the authorized bodies of the Company are subject to analysis by stakeholders, are also preliminarily considered by the Committees under the Board of Directors and the Management Board in order to facilitate the identification of economic, environmental and social impacts, risks and opportunities and their management by the Board of Directors and the Management Board, as well as materials attached to them contain information about significant risks that the Company may face in the event of a positive or negative decision by the relevant authorities on these items. The Company’s Board of Directors controls over the status of CRMS in the Company and approves the indicators of CRMS performance in the Company.

CRMS is constantly improved, best practices of risk management, new regulatory requirements, experience and standard of risk management are taken into account, constant awareness of executive bodies about existing risks and their management is also ensured. In this vein there is a positive dynamics of CRMS development in the Company in relation to 2014 – 76.86 %, to 2015 – 80.01 %, in 2016, the CRMS of the Company complies 96.67 % with the criteria of the Methodology for evaluation the effectiveness of the corporate risk management system.

“Samruk-Energy” JSC | Integrated annual report
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