“SAMRUK-ENERGY” JSC | Integrated ANNUAL REPORT

МESSAGE OF THE CHAIRMAN OF THE MANAGEMENT BOARD OF “SAMRUK-ENERGY” JSC

Dear reader!

Under conditions of growing competition in the domestic market and external challenges, the Company achieved important success in accomplishing production performance and financial results improvement in 2018. The dynamics of electricity and coal output of power holding companies has shown a stable performance improvement.

Today, the Company faces the challenge of creating a balanced development model that includes the optimal ratio of energy supply to domestic consumers and exports, while combining high economic efficiency, innovative development and advanced standards of social responsibility.

At present, coal-fired condensing power units are the cornerstone of the Company’s generating facilities. In this regard, the main emphasis in the development of generation is placed on the operating performance of existing facilities, including: reduction of input costs, efficient operation and repair of equipment, innovative development and successful implementation of investment programs.

As part of the implementation of the Development Strategy for 2018–2028, it is worth mentioning the implementation of energy re-equipment program of Almaty city and Almaty region is among the significant events of the reporting period. 110/10/6kV substation No.170А “Zhas Kanat” with a transformer capacity of 80MVA was commissioned. The “Turksib” substation will increase the transformer capacity by 30 MVA and supply electricity to the central part of Turksib district of the country’s megalopolis and its new micro district “Zhas Kanat”. The project on transferring of load from “Gorny Gigant” substation to the upgraded “Yermensay” substation via 110kV grids was completed. Repair of hydraulic unit No. 3 was successfully completed at the Kapshagay hydropower plant, which will improve the reliability of the equipment and reduce the possible occurrence of workplace disasters and accidents risk. Other regions of the country have not gone unnoticed. Thus, the first of four hydroelectric units was installed and commissioned at “Shardarinsk HPP” JSC as part of the plant’s modernization. A large-scale retrofit will allow increasing the capacity of the HPP by 26 percent – from the current 100 to 126 MW. 57 mln. kWh/year will be produced additionally every year. In order to implement power industry upgrading and development program, 5 MW wind power plant in the vicinity of Nurly village, Enbekshikazakh district of Almaty region was completed. The plant includes two innovative power installations with a direct drivel generator, 2.5 MW each, which will produce 17 mln. kWh of alternative electricity annually.

The operation of capacity market along with introduction of the Single Buyer model has become a landmark in Kazakhstani power market. The first electric capacity bidding for the Northern and Southern zones took place at the end of 2018 on the "KEPMO" JSC trading platform, where the Company's power plants sold 2148.7 MW at a price of 590 thousand tenge / MW * month. Trading activities of “Samruk-Energy” JSC six subsidiaries are planned to be completely centralized for the purpose of development of sales and commercial dispatching function, which will allow releasing the full capacity of generating companies, prompt making of best management decisions enabling to maximize earnings of each subsidiary, as well as increase their involvement in the power market.

Along with the modernization and commissioning of electricity facilities, the Company continues to give priority attention to environmental issues and the efficient use of resources. Expenditures and investments in environmental protection across “Samruk-Energy” JSC group of companies in 2018 increased by 33 %, amounting to 6.63 bln. tenge. 2018 was the year of environment in the Pavlodar region, – the region where the largest subsidiaries of the group: “Ekibastuz SDPP-1” LLP, “Ekibastuz SDPP-2 Plant” JSC and “Bogatyr Komir” LLP are concentrated, which participated actively in the local environmental department’s activities aimed at improving the quality of environmental components. As part of the work on energy conservation and energy efficiency, actions on reduction of fuel and energy resources consumption were taken, they allowed saving 35 thousand tons of standard fuel.

To achieve strategic goals in the future and provide a competitive advantage in the market, the Company identified development priorities for staff management system, having approved Personnel Policy of “Samruk-Energy” JSC group of companies for 2018–2028.

The Company’s activities also aim to improve the corporate governance system in line with the best practices. According to the results of the independent corporate governance diagnostics, which was conducted in 2018, “Samruk-Energy” JSC was assigned a corporate governance rating of “BB” that evidences the compliance with the majority of established criteria of the best corporate governance practices in all essential aspects.

In 2018, the project SKE-03 “Introduction of the new corporate finance model” was successfully implemented, aimed at centralizing cash, management, which corresponds to the best international practices. As part of the transformation of the treasury functions of the power holding company, payment operations department was set up, business processes were established, and the first financial and qualitative benefits were obtained. For the purpose of execution of the Decree of the Republic of Kazakhstan President “Third Modernization of Kazakhstan: Global Competitiveness” and “Digital Kazakhstan” state program, transformation projects on Digitization and Information Security are implemented. In general, the results of the Transformation Program will be both specific financial benefits and qualitative achievements, allowing to increase the value of the Company's assets.

Aware of the responsibility, the Company intends to continue the implementation of initiatives, and directions of development to ensure the sustainability and stable operation of “Samruk-Energy” JSC group of companies, as well as reliable energy supply to the regions of operation.

Bakitzhan Zhulamanov