S&P Raises KEGOC GAMMA Score to GAMMA-5+ from GAMMA-5
MOSCOW (Standard & Poor's) March 17, 2011--Standard & Poor's Governance Services announced today that it has raised its Governance, Accountability, Management Metrics and Analysis (GAMMA) score assigned to Kazakhstani Electricity Grid Operating Company JSC (KEGOC), the national transmission grid operator of Kazakhstan, to GAMMA-5+ from GAMMA-5.
“We appreciate that KEGOC has adopted a long-term strategy that sets clear targets for the investment programme through 2025. In addition, the company has materially improved its disclosure practices and strengthened its internal audit practices,” says Standard & Poor's governance analyst Ekaterina Marushkevich. “However, we are still concerned that certain decisions taken by KEGOC’s sole shareholder, state-owned wealth fund Samruk-Kazyna, are politically rather than commercially inspired. As an example, we believe a cap on fees for top executives imposed by Samruk-Kazyna during the crisis could hamper KEGOC’s ability to attract and motivate senior managers. In addition, a number of Samruk-Kazyna’s corporate decisions have been delayed in recent years, which negatively affected KEGOC’s operational efficiency.”
The overall GAMMA score of KEGOC is the result of four component scores ranging from a low of 1 to a high of 10.
- Shareholder influence 4+ (unchanged)
- Shareholder rights 5 (unchanged)
- Transparency, audit and ERM 6 (raised from 5+)
- Board effectiveness, strategic process and incentives 5+ (raised from 5)
The strengths of corporate governance practices at KEGOC include:
- The Kazakhstani government and Samruk-Kazyna, KEGOC’s sole shareholder, recognise the importance of KEGOC’s business to the development of the national economy, and provide financial and political support. Samruk-Kazyna has also backed the development of strong corporate governance practices at KEGOC.
- KEGOC’s long-term strategy runs through 2025 and includes detailed guidelines for asset replacement and high targets in environmental, HR and corporate governance areas.
- Transparency at KEGOC was bolstered in 2010, with the company releasing quarterly IFRS financials and significantly improving the timing of the publication of annual results, in the case of the latter before the end of April in 2010. The company also published its first sustainability report, which claimed C-level GRI compliance.
- KEGOC’s audit committee became fully independent in 2010 and provided effective oversight of the internal audit process. Internal audit staff have solid backgrounds in audit and finance, and continue to extend their professional qualifications.
Standard & Poor's Governance analysis, however, has identified several weaknesses in the company's governance system, including:
- The ability of independent directors on KEGOC’s board to oppose decisions promoted by the sole shareholder has not been tested in practice. Independent directors are in the minority on the board and do not have any articulated veto rights.
- The sole shareholder of KEGOC may be exposed to conflicts of interest; on the one hand it aims to raise shareholder value, but on the other it may be required to pursue state goals on ensuring social stability, which may at times run counter to pure commercial targets.
- A number of corporate decisions taken by Samruk-Kazyna have been delayed in recent years, negatively affecting KEGOC.
- Executive compensation decisions at KEGOC are politicised, potentially jeopardising the company’s ability to attract, retain and motivate senior managers.
The related report “KEGOC: GAMMA Score” is available on Standard & Poor's web site at www.governance.standardandpoors.comand on the Russian-language web site www.standardandpoors.ru. Information on GAMMA scores and Corporate Governance Scores is available at www.governance.standardandpoors.com. Alternatively, call one of the following Standard & Poor's numbers: Moscow (7) 495-783-4000/40.
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