OREANDA-NEWS. January 14, 2010. Standard & Poor's Governance Services said it has assigned its governance, accountability, management, metrics, and analysis (GAMMA) score of ‘GAMMA-5’ to JSC National Company KazMunayGas, an integrated oil and gas company wholly owned by Samruk-Kazyna, the national welfare fund of Kazakhstan.

"NC KMG made significant governance improvements over the past two years, owing to the shareholder’s encouragement and the active role played by the independent directors. The company’s progress in the areas of disclosure, the audit process and board effectiveness was particularly important," said Standard & Poor's governance analyst Oleg Shvyrkov. "There is considerable room for improvement in several areas of governance, however. Executive compensation practices are of significant concern since they do not provide performance incentives. Although there are signs of improvement, the company continues to serve as an industry policy tool of the Kazakhstani government and has multiple social liabilities in addition to its commercial objectives. This quasi-fiscal burden could hamper the successful development of the company, in our view, as it distracts from core operations and distorts the performance metrics."

The overall GAMMA score of NC KMG is the result of four component scores of 1 (low) to 10 (high).

-- influence 4+

-- Shareholder rights 4+

-- Transparency, audit and ERM 5+

-- Board effectiveness, strategic process and incentives 5

The strengths of corporate governance practices at NC KMG, according to Standard & Poor's Governance Services, include:

Solid board process. Representatives of the shareholder and independent directors are highly competent and knowledgeable of the industry, in S&P’s view. They provide close management oversight and decision-making is consensus-based. There is a sophisticated committee structure and independent directors play a leading role on most committees.

Annual IFRS statements are audited by a reputable international auditor, Ernst & Young. The audit committee has an independent majority and is active. The internal audit and risk management procedures are gaining momentum.

NC KMG is the most valuable asset of Samruk-Kazyna, the primary asset management fund for the government of Kazakhstan. The government has been consistent in strengthening various aspects of governance in companies under its control. This includes the appointment of independent directors, encouraging transparency and risk management procedures.

The government provides NC KMG with a pre-emptive right on all domestic oil & gas assets and new subsoil licenses.

Standard & Poor's analysis, however, identified several weaknesses in the company's governance system, including:

The government of Kazakhstan could influence NC KMG to invest in projects of national importance that may lie outside the company’s core area of expertise, such as petrochemicals or overseas projects. Independent directors are in the minority on the board and may not be in position to block these initiatives.

NC KMG often serves as a government policy tool for insuring domestic supplies of affordable oil products, and its domestic downstream operations have a strong social focus.

NC KMG does not have total autonomy in executive compensation policies and strategic process.

NC KMG is effectively a holding company whose operating assets are held by large number of legal entities. A conventional divisional structure is only starting to emerge. NC KMG holds a significant number of non-core assets, which could impede the effectiveness of controls and limit the influence of the board of directors.

There are several gaps in disclosure and the timing of financial reports is behind international peers.

The opinions expressed are the independent opinions of S&P’s Governance Services, a department of Standard & Poor’s Equity Research Services, and do not reflect the opinions of other areas of Standard & Poor’s.

Standard & Poor's Corporate Governance Scores, GAMMA scores and other analytic services are performed as entirely separate activities in order to preserve the independence and objectivity of each analytic process.

Information on corporate governance scores and GAMMA scores, including the related report "NC KMG: GAMMA Score ", published on January 12, 2010, is available at www.governance.standardandpoors.com. Alternatively, call one of the following Standard & Poor's numbers: Moscow (7) 495-783-4000/40.

A GAMMA is based on current information provided to Standard & Poor’s by the company, its officers and any other sources Standard & Poor’s considers reliable. A GAMMA is neither an audit nor a forensic investigation of governance practices. Standard & Poor’s may rely on audited information and other information provided by the company for the purpose of the governance analysis. A GAMMA is neither a credit rating nor a recommendation to purchase, sell or hold any interest in a company, as it does not comment on market price or suitability for a particular investor. Scores may also be changed, suspended or withdrawn as a result of change in, or unavailability of such information.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue.