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2009 Annual Report JSC NC Kazakhstan Temir Zholy
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CONTENTS
PRESIDENT’S STATEMENT 3 GENERAL INFORMATION 4 General Information 4 Board of Directors 5 Management Board 6 Structure of Governance of the Company 10 Annual Summary 11 MANAGING REPORT OF GROUP OF COMPANIES 16 Business and general condition 14 Changes within Company 14 General performance of Company’s activities 20 Freight traffic 21 Passenger traffic 22 Infrastructure 23 Financial and economic activities 26 Analysis of state control of market 28 International cooperation 29 FINANCIAL STATUS 32 Raitings 32 Financial management 32 Capital expenses within the group of companies 44 2020 Kazakhstan Railways Development Strategy 38 SUSTAINABILITY 40 Corporate risk management 40 Human Resources and Social Policy 41 Protection of environment 47 Labour Safety 47 Traffic Safety 48 PERSPECTIVES OF COMPANY’S DEVELOPMENT NEXT YEAR 50 CONSOLIDATED FINANCIAL STATEMENTS 52 MAIN FINANCIAL AND PRODUCTION INDICATORS 60
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General Information
On 31 January 1997 the Government of the Republic of Kazakhstan passed resolution No. 129 to reorganise rail enterprises of the Kazakhstan Republic by way of a merger of state enterprises, namely Almaty, Tselinnaya and West Kazakhstan Directorates of railways to create the Republican State Enterprise Kazakhstan Temir Zholy. The merger was aimed at improving the governance of transportation process and closing down excessive units, and improving financial and economic performance of the rail industry.
March 15, 2002 saw resolution of the Kazakhstan Government No. 310 adopted to create the Closed Joint-Stock National Company Kazakhstan Temir Zholy through a merger of the Republican State Enterprise Kazakhstan Temir Zholy and its affiliated state entities.
In compliance with the Kazakhstan Law On Joint-Stock Companies dated 13 May 2003, Kazakhstan Temir Zholy was re-registered and transformed from closed into joint-stock company on 2 April 2004.
KTZ is currently a holding company, of which structure enables functional integrity and better governance of transportation process. Sole proprietor of KTZ is the National Welfare Fund Samruk-Kazyna, which strives for improved system of corporate governance, increased budget transparency, and regulates KTZ activities through the Directors Board, without interfering with daily operations.
In addition, KTZ’s activities are controlled by the Kazakhstan’s Ministry of Transport and Communications, authorized to carry out government policy in the field of rail transport and to coordinate, regulate and control transportation complex of the Republic of Kazakhstan in line with the Law On Rail Transport of 8 December 2001 No. 266-II.
KTZ performs functions of a mainline operator, provides passenger and freight rail transportation services. These activities are regulated by Kazakhstan’s Laws On Railway Transportation and On Natural Monopolies and Regulated Markets accordingly.
Rail transport is presently an important part of production infrastructure of Kazakhstan. Due to specific geographic location of Kazakhstan, with no access to sea and lack of navigable rivers, huge territory, predominance of extracting industries, underdeveloped motor infrastructure, railway transportation have become particularly significant for the country’s economy.
Being yet a developing field of the Kazakhstan’s economy, rail transport, however, 4 succeeded recently in steady increase of production and technical potential, with the number of employed equal to 140.000.
Board of Directors
The Board of Directors sets strategic objectives and main courses of development, issues long-term guidelines for the Company to follow and provides with needed financial and human resources to achieve goals pursued. The Board controls activities of the executive body of KTZ.
2009 Report of the KTZ’s Directors Board. Generally, in 2009 the KTZ’s Board of Directors had 9 meetings, including 3 in person and 6 in absentia. There had been considered 66 issues, including: - 16 issues relating to KTZ’s share in activities of affiliated entities; - 3 issues concerning mandatory procedures according to the Law On Joint-Stock Company; - 2 issues on purchase of goods, works and services for KTZ’s needs; - 4 issues on approval and adjustment of KTZ’s budget; - 15 issues on approval of local acts regulating internal activities of KTZ; - 10 issues on KTZ’s production performance; - 2 issues on human resources; - 14 issues concerning internal activities of the Board. On the basis of the above 148 orders had been made.
The sole proprietor have made a decision to elect members of the Board of Directors as follows:
Kulibaev T.A. - Deputy CEO, Samruk-Kazyna, Chairman of the Directors Board; Mamin A.U. - President of KTZ;
Baidauletov N.T. - Managing director, Samruk-Kazyna;
Issingarin N.K. - Independent director;
Bekturov A.G. - Vice-Minister of Transport and Communications of Kazakhstan Republic; Walton K. - Independent director;
Shomody K. - Independent director;
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Members of the Auditing Committee under the KTZ’s Board of Directors:
Shomody K. - Independent director, Chairman of Committee; Baidauletov N.T. - Managing director, NWF Samruk-Kazyna, member of Directors Board, Committee member; Walton K. - Independent director, Committee member; Mynsharipova S.N. - Director, Auditing and Control Department, NWF Samruk- Kazyna, Committee expert.
Committee members appointed by the Board of Directors:
Baidauletov N.T. - Managing director, Samruk-Kazyna, member of Directors Board, Committee’s Chairman; Issingarin N.K. - Independent director, Committee member; Shomody К. - Independent director, Committee member; Ordabaeva А.Т. - Senior manager, Human Resources Management Department, Samruk-Kazyna, Committee expert.
Members of Remuneration Committee under the Board of Directors:
Issingarin N.K. - Independent director, Committee’s Chairman; Shomody K. - Independent director, Committee member; Bekturov A.G. - Vice-minister of Transport тand Communications of Kazakhstan, member of Directors Board, Committee’s member; Akhmetzhanova - Senior manager, Budgeting and Analysis Department, G.T. Samruk-Kazyna, Committee expert; Ordabaeva A.T. - Senior manager, Human Resources Management Department, Samruk-Kazyna, Committee expert; Lepesbaev A.M. - Managing director of economy, KTZ, Committee expert.
Management Board
Management Board is a collective executive body of the Company, in charge of making decisions on all matters relating to operations of the Company, which are outside of competence of other bodies and executives of the Company according to the Law, other legislative acts of Kazakhstan and the Statute. The Board of Directors defined the quantity of members of the Company’s Management Board, equal to 10, and elected its members. Members of the Management Board govern activities of the Company by way of taking part in meetings of the Board. Functions of the Management Board are as follows: 1) to execute decisions of Sole proprietor and the Company’s Board of 6
Directors; 2) to develop and submit to Directors Board 5-year term Strategic courses of development, Company’s Development Plans (medium-term business-plans), Company’s budget (annual business-plan); 3) to prepare and carry out Development Plans (medium-term business-plans), Company’s budget (annual business-plan), and also is in charge of their execution; 4) to develop and apply internal control and risk management procedures within the Company; 5) to timely notify the Board of Directors of material shortcomings in risk management system of the Company; 6) to approve structure and staff list of the Company, with consideration of Board of Directors’ affirmed list (total number) of employees of the central administrative department and representative offices of the Company; 7) to approve acts, not in competence of the Board of Directors, relating to organizational matters of the Company; 8) to perform functions of the Sole proprietor in relation to affiliated entities; 9) to set work regime of the Company; 10) to approve governance structure of the Company’s headquarters; 11) to submit to Sole proprietor anticipated rates of dividends on the Company’s shares before March 20 of the year preceding anticipated one; 12) to control execution of resolutions of the Board of Directors, the Sole proprietor of the Company, recommendations of auditor of annual financial statements, and also recommendations of the Internal Auditing Service; 13) to identify causes of illegal acts committed in relation to the Company’s property; 14) to adopt decision relating to other matters of the Company’s operation, which are not in exclusive competence of the Sole proprietor and the Board of Directors.
In 2009 there were 46 meetings of the Management Board, including 16 in person and 30 – in absentia on matters in competence of the Board. The most significant documents of the Management Board in 2009 were 2020 Kazakhstan Railways Development Programme and 2020 Development Strategy of Kazakhstan Railways.
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Members of Management Board in 2009:
Mamin Askar Uzakpaevich – Management Board Chairman, President of Kazakhstan Railways. Born 23 October 1965, Tselinograd. Background: Tselinograd Civil Engineering Institution, Plekhanov Russian Academy of Economics. Experience: 1987 house builder with Zhilstroytrust. 1988 to 1991 military service in law enforcement bodies. 1991 to 1996 Deputy Director-General with the Kazakhstan Innovative Enterprises Union, Director-General JV Inter-Ishim Company Ltd. Later worked in municipal administration of Astana, in the Ministry of Transport and Communications, the Ministry of Industry and Trade, Mayor of Astana. Since April 2008 President of Kazakhstan Railways. Kisatov Ermek Anuarbekovich – Vice-President, Kazakhstan Railways. Born 6 August 1961 in Akmola region. Background: Almaty Rail Transport Engineers Institution. Doctor of Engineering Science. Experience: foreman Novoishimskaya track maintenance department, Tselinnaya Directorate of railways. Executive positions in Tselinnaya Directorate of railways, RSE Kazakhstan Railways, Kazakhstan Railways JSC. Sultanov Erik Khamzinovich – Vice-President of supply Kazakhstan Railways. Born 24 March 1956 in North Kazakhstan region. Background: Karaganda Technological University. Experience: executive positions in production and state enterprises of Pavlodar and North Kazakhstan regions, Ministry of Transport and Communications, Municipal Administration of Astana. In April 2008 appointed Vice-President of Kazakhstan Railways. Alpysbaev Kanat Kalievich – Vice-President of economy and finance. Born 31 March 1972 in Atbassar, Akmola region. Background: Almaty Rail Transport Engineers Institution, University of Kentucky, USA, Moscow High School of Business. Master degree. Experience: 1994 to 2005 enterprises of Tselinnaya Directorate of Railways, Kazakhstan Railways RSE, joint-stock companies of various profile. November 2005 to June 2008 manager, Director of Business Development with subsidiary of General Electric. Akchurin Askhat Kharissovich – Vice-President of Human Resources and Social Matters Kazakhstan Railways. Born 2 June 1961 West Kazakhstan region. Background: Kazakh State Agricultural Institution. Experience: 1983 to 1996 engineering designer, chief engineer, head and chief designer with State Design Bureau PET. 1996 to 2008 municipal administration of Akmola Almaty and Sary- Arka districts, Astana, Kazakhstan Presidential Administration, deputy mayor West Kazakhstan region. Abdiev Tulbai Knatovich – Chief Engineer Kazakhstan Railways. Born 18 January 1956 Zhambyl region. Background: Tashkent Institute of Rail Transport Engineers. Experience: Worked solely in rail enterprises of Kazakhstan. Electrician, senior electrician, head of division, chief engineer of Tselinnaya Directorate of Railways, deputy chief engineer Kazakhstan Railways RSE, various executive positions of Kazakhstan Railways JSC. 8
Sambetov Kaltai Sambetovich – Managing director of traffic safety Kazakhstan Railways JSC. Born 10 May 1939 in Djambyl region. Background: Tashkent Institute of Rail Transport Engineers. Made career in rail industry from erector of signaling and communications to the senior deputy of Kazakhstan Railway RSE. Executive director of technical policy, Managing director of traffic safety Kazakhstan Railways JSC. Tadzhiyakov Erzhan Bissengalievich – Managing director of finance Kazakhstan Railways JSC. Born 4 March 1975 in Almaty region. Background: Kazakh State Academy of Management. Experience: accountant auditor Kazkommertsbank. 1995 to 2006 banking system of Kazakhstan. In May 2007 appointed Managing director – head of treasury ENRG Ltd. Since February 2008 Managing director of finance Kazakhstan Railways. Saurbaev Kairat Abenovich – Director subsidiary Kazakhstan Railways Mainline Directorate. Born 27 August 1965 in Tselinograd. Graduated from Almaty Institute of Rail Transport Engineers. Experience: safety inspector freight yard Tselinograd station. Later held executive positions managing transportation process of Tselinnaya Directorate of Railways, Kazakhstan Railways RSE, Kazakhstan Railways JSC. Since May 2008 appointed Director subsidiary of Kazakhstan Railways Directorate of Mainlines.
Organizational structure of Company’s HQ
Headquarters’ structure (Appendix 1) is a vertically integrated system of managing main production units of Kazakhstan Railways. Subsidiaries are accountable to relative departments and divisions. Financing and consolidation of accounting reports from subsidiaries is made by production units. This model of management ensures required operative and production independence, enables to identify opportunities to lower cost of transportation and to increase efficiency of transportation process.
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Board of Directors Kazakhstan Railways
Internal Audit Service Corporate Secretary
President
Managing director on legal issues Special Department Internal safety department Department of judicial and Legal support department claims work
Vice-president of human Vice-president of Vice-president Vice-president of economy and finance resources management and social matters procurement
Managing Managing Managing Managing director Managing director on Managing director – Managing director Managing director on director – Head of on rolling stock operating work Chief Engineer on corporate director on director on finance economy administrative procurement development department
Department of Subsidiary rolling stock Directorate of Department of Department of Department of Department of Department of Department of Organisational and mainline network strategic planning and marketing and technical policy finance economy human resources controlling analysis of organisational management inspection Subsidiary development purchases Managing director Directorate of on traffic safety transportation process Subsidiary Department of Department of Chancellery Directorate of Managing director on Department of assets investment policy tariff policy resources provision Managing director on information technologies Department of internal marketing management record-keeping and public relations Revisions Subsidiary department Directorate of Department of traffic safety Risk Department of projecting and capital Department of Department of statistics transportation marketing Subsidiary Directorate on management construction informatization and construction and department communications Department of temporary operation of social affaires Department of development Khromtau-Altynsarino Subsidiary Economic international department cooperation and Subsidiary Chief accountant interrelation Subsidiary Chief Филиал «Центр Processing оценки и развития Computations Centre Department of Centre персонала на ж.д. Subsidiary Directorate planning and транспорте» of administrative standardizing buildings operation transportation process Department of Managing director on accounting new projects Subsidiary Seifullin Health Resort Managing director of passenger traffic Subsidiary Centre for developing new and import- replacing Department on production facilities monitoring passenger traffic 10 Annual survey
2009 Key Events
January 5 – signing of 2009-2011 Collective bargaining between Company and Central council of rail industry trade unions of Kazakhstan 22 – Enterprise and Industry Department, Uralsk, West Kazakhstan region, held Round table on Issues of development of vehicle engineering in Kazakhstan. 26 to 30 – production conference of authorized representatives of CIS and Baltic railways administrations in Astana to approve Code of passenger cars and direct coaches for the 2009 to 2010 time schedule of passenger trains.
February 5 – meeting on human resources policy, social work, development of state language and image of Company. 23 – in the framework of all-nation forum of Kazakhstan producers of goods, works and services Kazakhstan Railways and ZIKSTO LLP signed Memorandum on mutual cooperation to build new wagons and jointly with Kirov Factory LLP. 25 – meeting between Mr. Mamin President Kazakhstan Railways and Mr. Loscher Chairman Siemens AG to discuss issues of modernization, purchase and development of production of electric multiple units in Kazakhstan. 27 – in Ust-Kamenogorsk heads of national holdings signed a number of memorandums with enterprises of the region. Kazakhstan Railways signed 10 memorandums and the largest one with Vostokmashzavod.
March 3 – joint meeting of Kazakhstan Railways management with representatives of People’s Democtratic Party Nur Otan, transport prosecutor’s office, sanitary and epidemiological inspectorate, transport law enforcement bodies on matters concerning execution of legislative protecting rights and interests of rail passengers. 18 – at Almaty-1 station solemn ceremony of presenting Evolution diesel engines produced by General Electric. 19 – in Astana ceremony of presenting keys of new flats in BI Group built Crown Plaza block of flats to Company’s employees. 30 – extended meeting of Company’s senior party members with MP Karagussova.
April 14 – meeting of Mr. Mamin Head of Kazakhstan Railways with Mr. Simonelli Head of General Electric Transportation to discuss implementation of joint project construction of locomotives construction plant in Astana. 22-23 – delegates of Kazakhstan Railways headed by Mr. Mamin President take part in 24th conference of directors-generals of OSJD. 27 – Kazakhstan Railways hold public hearings of consumers and other interested persons in respect of services in natural monopolies for 2008. 28 – in the framework of TransRussia 2009 transport exhibition Kazakhstan 11 delegation headed by E.Kizatov Vice-President Kazakhstan Railways made presentation Transit potential of Kazakhstan railways: opportunities and perspectives. 29 – Kazakhstan Railways hold Round table on 2014 restructuring rail transport of Kazakhstan.
May 13 – signing of Memorandum on mutual understanding between Kazakhstan Railways and Korean Railways Corporation during visit of Lee Myung-bak President Of South Korea to Kazakhstan 21 – signing of Memorandum on joint cooperation between Kazakhstan Railways and Russian Railways to formulate tariffs for freight rail traffic and of agreement on terminal processing of goods during official visit of Head of Government Vladimir Putin to Kazakhstan 29 – President Mamin Kazakhstan Railways takes part in international industrial business-forum 1520 Strategic partnership in Sochi. 30 – Kazakhstan Railways and Russian Railways agree to harmonise and unify regulative and technical documentation
June 1 – government hour called Implementation of 2015 Kazakhstan’s Transport strategy and counter-crisis measures held by Parliament’s Majilis. 4 – 37th Session of minister of OSJD in Astana 9 –authorized experts on wagon stock of CIS and Baltic states railway administrations meet at the meeting of the Council for Rail Transport in Almaty 12 – signing of Memorandum on Understanding between Kazakhstan Railways and EBRD during the meeting of Council of foreign investors headed by the President of Kazakhstan in Kostanai. The document is signed by Thomas Mirov Bank President and Askar Mamin President of Kazakhstan Railways 23 – Ministry of transport and communications hold meeting on implementation of concession project called Construction and operation of new rail line Zhetighen - Korgas. 30 – in Burabai village bilateral negotiations begin between delegation from Uzbekistan Railways with delegation from Kazakhstan Railways on cooperation and outcomes of 1 half of 2009.
July 3 – ceremony, attended by Head of the State, of putting into operation the Locomotives Construction Plant in Astana by Kazakhstan Railways and General Electric. 3 – presentation of new headquarters of Kazakhstan Railways 22-24 – delegates of Kazakhstan Railways take part in science and practical conference on improving system of development and fulfillment of train traffic schedule held in Irkutsk, Russian Federation 30 – solemn meeting dedicated to the Day of transport and communications employees
12 August 3 – start of construction of new rail line Zhetighen-Korgas to link Kazakhstan with China 20 – Ministry of Transport and Communications of Kazakhstan holds meeting 2020 Perspectives of rail transport development, chaired by Minister Abelgazy Kussainov
September 18 – Round table Developing export potential of Kazakhstan within the framework of international exhibition 2009 Transit TransKazakhstan 22 – Kazakhstan Railways holds round table Future of state language is in hands of youth, dedicated to 20 anniversary of the Law on languages 30 – President Nazarbaev gave start to construction of new rail line Uzen- Turkmenistan state border
October 6 – within the framework of a visit of French President Nicolas Sarcozy to Astana President Mamin and Chairman of Board of Directors Alstom Transport SA Patrick Krone sin agreement on execution of pilot project on testing electric switch mechanisms 7 – Kazakhstan Railways holds Round table Main provisions of project 2020 Programme of rail transport development 28 – 51st meeting of the Council for Rail Transport of CIS states in Tashkent
November 3 – presentation of project 2020 Programme of rail transport development in session of Kazakhstan Government 6 – within the framework of official visit of President Nazarbaev to Italy a bilateral meeting is held between head of Kazakhstan Railways Mr. Mamin and Managing director of Ansaldo STS Mr. Sergio de Luca and constituent document are signed to create joint venture KTZ-Ansaldo STS Italy LLP 24 – the Board of Directors Kazakhstan Railways reviews draft of 2020 Programme of rail transport development 25 – Passajirskie Perevozkie JSC holds press-conference on Internet-based ticket selling.
December 1 – presentation of draft of 2020 Programme of restricting rail industry at the meeting of Kazakhstan Government 2 – Board of Directors Kazakhstan Railways approves 2010 Development Plan. 7 – launch of the Evolution series first Kazakhstan diesel-engine 15 – solemn meeting and presentation of state awards to rail industry employees on the eve of the Kazakhstan Independence Day. 23 – Kazakhstan Government holds meeting on issues of mechanical engineering, in particularly rail transport engineering.
13 Changes within Company
Business and general condition
Legal changes In 2009 Kazakhstan Railways adopted local acts as follows:
1. Regulations of central administrative office of Kazakhstan Raiwlays adopted in line with Order as of 31 March 2009 No. 140-C; 2. List of ranks of Kazakhstan Railways is adopted by Order dated 3 July 2009 No. 382-C; 3. Rule of distribution of duties among President, vice-presidents, managing directors and sharing powers is established by Order as of 21 August 2009 No.525-C; 4. Rule of interaction among President, vice-presidents and managing directors during their vacation, business-trip or sick leave is formulated by Order as of 21 August 2009 No. 525-C. 5. Instruction on paperwork is issued in line with Order of 27 March 2009 No. 130-C.
Portfolio of assets of Kazakhstan Railways
Current structure of Kazakhstan Railways’ asset portfolio (Appendix 2) is that of vertically-integrated company, organized according to functional principle, with 26 affiliated, dependent and jointly controlled entities carrying out profile and non- profile kinds of acrivities and doing business in all parts of Kazakhstan. АKazakhstan Railways owns as follows: 1. 100% of ordinary shares of the following joint-stock companies: 1) Locomotiv JSC. Total number of issued shares of Locomotiv is 50,588,989, including 50,588,989 allocated, Kazakhstan Railways owns 48,897,878 shares, 1,691,112 shares are on re-emission account and are considered as purchased by Locomotiv. Main operations of Locomotiv are services of traction stock, technical arrangement of work of traction stock, keeping in technically proper condition locomotive’s spare parts and reserves. 2) Kaztransservice JSC. Total number of issued shares of Kaztransservice is 2,245,191, including 1,175,759 allocated. Main operations of Kaztransservice are services of container transportation (from accepting customers’ orders to delivery of cargo to places of destination, stock- taking and operation of wagons and containers), provision of relative services to legal entities and individuals (on all routes). 3) Transtelecom JSC. Total number of issued shares of Transtelecom is 971,089, including 971,089 allocated. Main operations of Transtelecom are provision of local, intercity and 14 international communication services, audio conference connection and/or video conference connection, access to the Internet, lease of communication channels, connection of cables and arrangement of communication traffic, mobile radio connection, creation and operation, on mainline operator’s consent, both within public right of way and in other sites permitted for optic-fibre and copper cables of communication lines, satellite and radio-relay systems of telecommunication to legal entities and individuals. 4) Passajirskie Perevozkie JSC. Total number of issued shares of Passajirskie Perevozkie is 68,301,475, including 68,301,475 allocated. Main operations of Passajirskie Perevozkie are arrangement and provision of international, interregional, interdistrict, intrastate and local passenger rail transportation service, delivery of baggage, freight baggage and mail, ensuring quality of servicing, safety of traffic, life and health of passengers and safety of baggage, freight baggage and mail. 5) Centre of Transport Service JSC. Total number of issued shares of Centre of Transport Service is 1,139,646, including 522,254 allocated. Main operations of Transport Service Centre are provision of access, namely giving access way to rolling-stock, for shunting operations, loading-unloading works, other technological operations of transportation process, current maintenance and repairing of rail access ways, production of devices of small-scale mechanisation. 6) Voenizirovannaya Zheleznodorohnaya Okhrana JSC. Total number of issued shares of VZDO is 106,444, including 106,444 allocated. Main operations of VZDO are protection of property of legal entities and individuals, including during transportation, consulting and giving recommendations on how to protect and legitimate ways of protection against violations, protection of life and health of individuals. 7) Kaztemirtrans JSC. Total number of issued shares of Kaztemirtrans is 63,000,000, including 60.893.056 allocated. Main operations of Kaztemirtrans are freight transportation, including off- gauge, special, military and dangerous by rail transport, provision of services on arrangement and cleaning of wagons, delivery of transport and freight-forwarding services, managing wagons fleet, record maintenance of wagons owned by Kaztemirtrans inside Kazakhstan and abroad, lease and repair of wagons. 8) Temirzholzhylu JSC. Total number of issued shares of Temirzholzhilu is 2,705,388, including 2.705.388 allocated. Main operations of Temirzholzhilu are to timely and properly provide rail entities, other legal entities and population with heat and electric power, purchase and sale of solid and liquid fuel, consulting services. 9) Temirzholsu JSC. Total number of issued shares of Temirzholsu is 3,566,349, including 3,566,349 allocated. 15 Main operations of Temirsholsu are to timely and properly provide rail transport entities and population with drinking and industrial water, receipt, cleansing and disposal of waste water, technical servicing of water supply systems and sanitary and technical devices. 10) Locomotivny Servisny Centre JSC. Total number of issued shares of Locomotivny Servisny Centre is 3,000,000, including 1.406.437 allocated. Main activities of Locomotivny Servisny Centre are provision of services to ensure good condition and stable operation of locomotives in service, traction service, arrangement of recreation for locomotive crews, supply of fuel and lubricants, oil, water, sand, and necessary repair and maintenance of rolling stock, inspection of wheel pairs of rolling stock, necessary repair and maintenance of wheelsets. 11) Almaty Vagonoremontny Zavod JSC. Total number of authorized shares of AVRZ is 4,968,669, of which 4,968,669 allocated. Main activities of AVRZ are to meet needs of rail companies and entities of other industries in repair of rolling stock, units and mechanisms to develop and introduce new technologies, equipment, mechanization and automation of manufacturing processes, manufacturing spare parts and non-standard equipment. 12) Locomotive Kurastyru Zauty JSC. Total number of authorized shares of Locomotive Kurastyru Zauty amounts to 11,317,948, of which 944,253 allocated. Main activities of Locomotive Kurastyru Zauty are production of locomotives, manufacturing spare parts for locomotives, traction service, ensure proper technical condition of traction fleet and stable operation of locomotives in operation, development and implementation of measures to introduce new types of traction engines and devices designed to perform maintenance and repair, developed on the basis of science and technology, leasing operations. 13) Remlocomotiv JSC. In accordance with the 2004-2006 Programme of Kazakhstan rail transport restructuring, approved by Kazakhstan Government on February 6, 2004 No. 145, on the basis of property, recorded on balance sheets of subsidiaries Remlokomotiv JSC – locomotives repairing depots, private limited companies had been established, of which shares in authorized capital have been sold according to procedure established, except for shares of Ak Beren and Ighilik-RD partnerships. In this connection, currently, Remlokomotiv does not perform production activities. 14) Zheldorvodoteplosnabzhenie OJSC. In accordance with the 2004-2006 Programme of Kazakhstan rail transport restructuring, approved by Kazakhstan Government on February 6, 2004 No. 145, Zheldorvodoteplosnabzhenie had been restricted by allotting joint-stock companies Temirzholsu and Temirzholzhylu, to which all water and heat supply facilities have been transferred under separation balance. In this connection, currently, Zheldorvodoteplosnabzhenie is not engaged in industrial activities. 15) Remvagon JSC. 16 In accordance with the 2004-2006 Programme of Kazakhstan rail transport restructuring, approved by Kazakhstan Government on February 6, 2004 No. 145, on the basis of property on the balance sheets of Remvagon subsidiaries – wagon repairing depots, limited liability companies had been established, of which shares in authorized capitals sold at auction in line with procedure set. In this connection, currently Remvagon is not engaged in production activities and in accordance with the Order of Kazakhstan Railways President as of December 14, 2006 No. 837-C the entity is under liquidation. 16) Zheldorremmash JSC. In accordance with the 2004-2006 Programme of Kazakhstan rail transport restructuring, approved by Kazakhstan Government on February 6, 2004 No. 145, on the basis of property on balance sheets of subsidiaries of Zheldorremmash joint-stock and limited liability companies had been formed, of which shares in authorized capital have been sold at auction in the prescribed manner. In this regard, presently Zheldorremmash does not perform productive activities and in accordance with the resolution of Kazakhstan Railways Board of Directors from June 5, 2009 (Minutes No. 4) is under liquidation. 2. Shares of the following joint-stock companies: 1) 37.03% stake of ordinary shares of Doszhan Railways JSC. Main activities of Doszhan Railways are ensuring the development of design estimates, design and survey work, attracting contractors to construction, repair and commissioning activities, organization of examination of project documentation and work performed under contract, acceptance of new infrastructural facilities, attraction of investments needed for construction works and operation of rail line Shar station – Ust-Kamenogorsk by issuing and allocating securities of the Company, operation of the rail line Shar station – Ust-Kamenogorsk and other facilities of rail infrastructure. 2) 33% of ordinary shares of Kedentransservice JSC. Main activities of Kedentransservice are loading and unloading operations, customs clearance, traction service, provision of wagons (containers), activities carried out under certain customs regimes according to customs legislation of the Republic of Kazakhstan, as well as customs services 3) 23,43% of ordinary shares of Temirzhol Zhondeu JSC. Main activities of Temirzhol Zhondeu are organization and execution of reconstruction works, major and secondary road repair and other types of works on tracks, construction of new rail lines, operation, maintenance and repair of heavy track vehicles fleet, of machinery and equipment, laying rails and slippers lattice, assembly and mounting of turnouts, cargo transportation, delivery of materials of track superstructure and of bulk cargoes by own rolling stock, production of capital, intermediate and routine maintenance of track machines, repair of automotive vehicles, diesel engines and small machines, production of crushed stone for rail tracks, motor roads and construction purpose. 4) 13,403% of ordinary shares of Kaskor Transservice JSC. Main activities of Kaskor Transservice are transport and forwarding service, provision of sidings throughout the Mangyshlak – Aktau port section. 5) 0.454% of ordinary shares of Halyk Savings Fund JSC of Halyk Bank (NPF NBK). 17 Main activities of NPF NSK are to accept pension contributions and earn investment income for investors. 6) 0,36% of ordinary shares of Kazakhstan Temir Zholy Finance B.V. LLP. The Kazakhstan Temir Zholy Finance BV activities are to finance the Group of companies by borrowing money, issuing bonds, bank financing or any other way. 3. 100% of shares of the following limited liability partnerships: 1) Lessozashita LLP. Main activities of Lessozashita are: maintenance of man-grown and natural forests, developing forest plantations to protect main line network from snow, wind, sand, protection of forests from illegal cutting, damage, fire and other violations, organization of works on planting trees at railway stations, railway towns, and other facilities, identification and destruction of forest pests and diseases, fighting weeds and implementation of other works to maintain forest in good condition, provision of seeds of trees and shrubs, growing seedlings in nurseries, greenhouses and further sale, maintenance in good condition of strips of protective forests. 2) Ertys Service, Kazykurt-Yug LLPs Main activities of Ertys Service and Kazykurt-Yug partnerships are steaming, cleaning and preparing cars for loading with oil products, conducting current uncoupled repair of rolling stock, testing and preparing wagons for loading operations, repairing rolling stock, including special containers used to transport dangerous goods. 3) Akzhayik-Zapad 2006 LLP Akzhayik-Zapad 2006 is currently not engaged in industrial activities and in accordance with the decision of the Board of Directors of Kazakhstan Railways dated November 24, 2009 (Minutes No. 7) is under liquidation. 18
Samruk-Kazyna SWF Kazakhstan Railways JSC Sector of profile services Logistic and infrastructure services Sector of profile-auxiliary services Sector of non-profile services Transportation and infrastructure services Voenizirovannaya zheleznodorozhnaya ohrana Kaztemirtrans JSC 100% Savings Fund of Halyk Bank of JSC 100% Kazakhstan JSC 0,45% Subsidiary Directorate of transportation process Kedentransservice JSC 33% Transtelecom JSC 100% Kazakhstan Temir Zholy Finance B.V. LLP 0,36% Subsidiary Directorate of mainlines Locmotivny servisny centre JSC 100% Temirzholzhylu JSC 100% Locomotiv JSC 100% Centre transportnogo servisa JSC 100% Temirzholsu JSC 100% Kaztransservice JSC 100% Kazykurt-Yug LLP 100% Zheldorvodoteplosnabzheniye JSC 100% Passajirskie Perevozkie JSC 100% Ertys-Service LLP 100% Lessozashita JSC 100% Akzhayik Zapad 2006 LLP 100% Almaty vagonoremontny zavod JSC 100% Doszhan Railways JSC 37,03% Kaskor-Transservice JSC 13,4% Remlocomotiv JSC 100% Locomotiv Kurastyru Zauty JSC 100% Temirzhol Zhondeu JSC 23,43% Remvagon JSC 100% Zheldorremmash OJSC 100%
19 General performance of Company’s activities
2008 2009 2009/2008 Item Unit (actual) (actual) % absolute thousand Freight traffic 268 890 247 677 92.1% -21 212 tonnes including by types of hauls: thousand intrastate 139 960 131 456 93.9% -8 504 tones thousand export 93 356 85 640 91.7% -7 715 tones thousand import 20 115 15 822 78.7% -4 293 tones thousand transit 15 459 14 759 95.5% -700 tones mln.t- Freight turnover index 214 907 197 302 91.8% -17 604 km including by types of haul: intrastate mln.t-km 81 924 75 540 92.2% -6 384 export mln.t-km 83 955 79 720 95.0% -4 236 import mln.t-km 22 508 17 587 78.1% -4 921 transit mln.t-km 26 520 24 455 92.2% -2 064 Average distance of traffic of 1 tonne km 799 797 99.7% -3 of freight Including by types of haul: intrastate km 585 575 98.2% -11 export km 899 931 103.5% 32 import km 1 119 1 112 99.3% -7 transit km 1 715 1 657 96.6% -58 mln.p- Passenger turnover* 10 608 12 912 121.7% 2 304 km * the 2009 indicator represents operators, which are part of consolidated Passajirskie Perevozkie JSC
20 Freight Traffic
Total volume of freight delivered by Kazakhstan Railways in 2009 amounted to 247,677 thousand tonnes, of which 35% were exported, 53% - delivered within the state, 6% - imported and 6% -transited. Amount of freight carried by rail transport in all types of haul in the period under review decreased by 21,212 tonnes or 7,9% compared to the same period of 2008. Reduced traffic volumes were observed on all types of haul.
2002 to 2009 freight turnover dynamics, mln. t-km
Compared to 2008 freight turnover during the reporting period decreased by 17,604 mln. t-km or by 8,2% and amounted to 197,302 mln. t-km. Average distance of haul decreased by 3 km and accounted to 797 km. 2009 volume of freight traffic by routes 2009 volume of freight turnover by routes Transit transit Import import Export export Intrastate Intrastate
21
2009 income from freight traffic by routes Transit intrastate Import export
Passenger traffic
Key performance indicators Outcomes of 2009 showed the following main production indicators of passenger transportation: Passenger traffic totaled 12 bln. 912 mln. p-km; The number of passengers reached 14 billion 116 million 7 thousand passengers.
2003 to 2009 passenger traffic dynamics, mln.p-km
16000 +7,5% +7,7% +6,1% +1,1% +12,7% 14000 +3,1% 12000 12912 10000 13830 11818 12130 13613 10 608 8000 10686 6000 4000 2000 0 2003 2004 2005 2006 2007 2008 2009
Modernisation of passenger rolling stock and development of routes
In order to change existing approaches to passenger traffic, and also to achieve the objective of improving quality of services provided to passengers, work is currently under way to improve arrival and departure schedule, reduce travel time and increase speed of passenger trains. With the view of improving speed of trains and also preventing ticketless 22 travelling, express trains at stations having no ticket offices do not stop from 31 May 2009. However, to provide transport means to passengers at above-mentioned stations as well as stations and sidings with little traffic additional coaches have been added to passenger trains travelling on the most needed routes. Due to the launch of a new rail line Shar - Novo-Ust-Kamenogorsk since July 21, 2009 passenger trains on the route Almaty-2 – Zashita has been running over this line, and time of journey reduced by 10 hours. In addition, on the new route no border and customs control is required now at stations Lokot, Tretyakov, Shemonaikha. In order to fully satisfy needs of people in traffic, the following has been made: - technical condition of coaches produced by People’s Republic of China (19 units), (commissioned in October 2009, the train runs along the Aktobe – Almaty route of passenger train No. 33/34) has been brought into compliance with existing normative and technical documentation; - during holidays and summer vacations additional cars are added to passenger trains on the most popular routes (including additional cars added to passenger trains No. 35/36 of Almaty-Astana-2 route (11 cars), No. 20/19 of Astana Almaty-2 route (9 cars); In order to improve quality of services rendered to passengers, as well as to create favourable conditions for passengers to travel, restaurant cars were added to 16 passenger trains of the Company, including 4 international, 12 inter-regional in 2009. In order to maintain fleet of passenger cars in technically good condition measures have been taken to improve condition of passenger cars by way of providing maintenance and planned repairing. Thus, along with day-to-day maintenance in the amount of TO-1 works and execution of a single technical audit, 1613 cars were prepared to work during summer time in 2009, and to bring passenger rolling stock to appropriate aesthetic appearance, outer coating of 110 passenger cars was made. For winter transportation of passengers 1595 cars were prepared. In 2009, overhaul and refurbishment of 66 cars was performed, while 1318 cars went through depot and capital repair of the first and second category. In 2009, the programme of repair works was fulfilled 99%. Only 24 cars were not repaired by Passajirskaya Leasingovaya Compania, including 5 cars, which were subject to major repairs with extension of service life (KRPS) within the framework of investment budget.
Rail infrastructure
Key performance indicators Average score of condition of tracks, technical devices and catenary.
+/- to № Item Units 2008 2009 2008 Track facilities 1. Track condition by points score 53 (good) 46 (good) - 7 23 2. Amount of tracks with poor score km 377 327 -50
3. Number of 4th grade faults units 16 120 11 151 -4969 4. Number of 5th grade faults units 397 136 70 5. Average speed of freight trains: - average km/h 68,1 68,27 +0,17 - technical km/h 48,13 48,04 -0,09 Signalling and communications facilities 1. Appraisal of status of technical devices score 6,2 (good) 4,9 (good) -1,3 Power supply facilities 1. Condition of catenary by points score 16,1 (fine) 15,9 (fine) -0,2
In comparison with the same period of last year, average numerical score of track and equipment facilities on tracks improved by 7 points, of signalling and communications by 1,3 points, of power supply by 0,1 points. Amount of tracks deemed as unsatisfactory was reduced to 50 km (from 377 to 327 km). By 31% was reduced the number of 4th grade faults, from 16,120 to 11,151. By 66% was reduced the number of 5th grade faults, from 397 to 136.
Progress of major overhaul plan To perform major repairing of main line network facilities 12,669,114 mln. tenghes were allocated from the budget of main activities for 2009, of which 12,634,903 mln. tenghes were used or 99,7%. The following activities were performed: • 192,44 km of welded rail were laid, while the plan was 30,029 km (640,8%); • average, extensive average repair of 358,08 km of tracks, while the plan was 305,05 km (117.4%); • 1,136 km of old rails were changed to new ones, with the plan being 0 km; • 134,17 km (8,030.8%) of used rails were laid in contrast to 7,86 km planned; • 711 sets of switch layouts were changed against 670 planned (104,6%); • 732 sets of switch sleepers were changed out of 823 sets expected (88.9%); • 1165 interlocked switches undergone major overhaul compared to 944 planned (123,4%); • 1,211 km of automatic block signals were repaired compared to the planned 882 (137.3%); • major overhaul of 10 units of humps out of 11 expected (90,9%); • major repair of 776 km of overhead and cable lines compared to 887 km planned (87,4%); • 309 km of 10kV, 35kV high-voltage lines against the planned 278 km (111.1%), 53 km of 0,4kV lines of outdoor lighting compared to 47 km (112,7%) were repaired; • major overhaul of 932 km of catenary compared to 893 km planned (104.3%). 24
Progress of Mainline Development Programme Development of Dostyk station and of Aktogai –Dostyk section In accordance with the 2008-20111 Action Plan for the development of Dostyk station and Aktogai - Dostyk rail section for 2009 342,7 mln. tenghes were allocated in the Company's budget to carry out the plan, with the amount disbursed equal to 338,7 mln. tenghes (99%). The Company developed design estimates for the modernization of power plant at Dostyk, rearranged power supply in the village, constructed 110 kV high- voltage line from site 162 to PS 80, with 110/10 transformer of 1000 kV capacity installed at Koktuma station, built 10 houses at the Aktogai station. Moreover, adjustment of design estimates for the construction of roofed facility of wagons rearrangement at Dostyk station and installation of wind-proof fences throughout the Koktuma – Dostyk section were made. We also continued work on the construction of roofed facilities for wagons rearrangement; works were expected to be finalised in 2010.
Development of rail infrastructure in western regions According to the 2007to 2010 Action Plan for the increase of capacity of mainline network and processing capacity of stations in western region, 3,5 bln. tenghes were allocated in 2009, with the amount disbursed 3,2 bln. tenghes, i.e. 93%. These funds allowed to fully implement capital repair of rail tracks (5,8 km) and construct two engineering structures. In excess of the plan works were performed, such as extensive and medium repair of tracks (103 km), change of switch layouts (161 sets) and of switch sleepers (243 sets). Also, major overhaul of constructions was made (88%). We constructed a microprocessor-based control center at the Aktobe–Jem section, modernized and repaired power interlocking, performed major overhaul of signaling, interlocking and blocking cable, of overhead communication lines, pool loud-speaking communication, devices detecting overheating of axle-boxes, devices of information-based remote control and of production facilities. Construction of administrative office of emergency train at the Beineu station and firefighting train at Akzhaiyk station.
Input of new rail lines
In line with Instruction of Kazakhstan President construction of a new rail line Uzen - State Border of Turkmenistan, 145,7 km long, was started in 2009. In 2009 the Company developed project estimates, signed contracts with contractors to prepare construction site, lay foundation, construct structures, carry out assembly and installation of external power supply.
1 Approved by Management Board of Kazakhstan Railways on 4 October 2006 (Minutes No. 02/20) 25 Action Plan for the execution of the 2015 Transport Strategy of Kazakhstan Republic envisages construction of a new rail Zhetygen - Korgas section, which is 293,4 km long. Construction of the line started in 2009.
Financial and economic activities
Financial performance of the Group
As of 31 December 2009 the number of authorized shares of Kazakhstan Railways amounted to 502,040,458 ordinary shares, of which 486,220,457 were allocated and yielded 486,220,457,000 tenghes.
Key financial and economic indicators of activity
Item Unit 2008 actual 2009 actual % of 2008 EVA mln.KZT -32 804 -90 052 down 22 fold Total profit mln.KZT 63 548 17 889 28% Profitability of product % 14,4% 4,1% 29%
Decrease of EVA ratio, as compared to 2008, Consolidated net profit was 17,9 bln.tenghes, was mainly due to the alteration of ratio down by 71% (43,7 bln.tenghes) to the level calculation in 2009. of 2008. It should be noted that change of corporate income tax rate in 2008 led to saving of deferred income tax of 35 bln.tenghs, which increased net income of 2008 by 28,9 bln.tenghes. In 2009 profitability of operations accounted to 4,1%, which is lower than that of 2008 by 71%.
In order to borrow funds to finance investment projects of the Company, the KTZ Group is guided by the Borrowings Policy of Samruk Holding (presently the SWF Samruk-Kazyna) in relation to affiliated entities during 2007 to 2009, approved by the Board of Directors of SWF Samruk-Kazyna (Minutes of October 5, 2006 No.8), and also by terms of existing loan agreements, which stipulate threshold values of financial covenants, of which violation could result in an event of default. According to 2009 outcomes values of financial covenants are as follows:
Financial performance of Kazakhstan Railways in 2009
Item Unit 2009 actual
Ratios set by Samruk-Kazyna SWF
Current ratio at least 1 1,196 26
Operating liquidity ratio at least 1 2,536
Coverage ratio at least 2 4,181
Net debt / Net capitalization less than 0,4 0,154
Debt / EBITDA less than 2,9 1,959
Maximum borrowing capacity thous.tenghes 255 472 977
Free borrowing capacity thous.tenghes 82 889 019
Ratios set by ABN AMRO Bank N.V. within the US $ 141 mln. Credit
Agreement
Total debt / Own capital less than 0,4 0,261
Debt / EBITDA less than 2,5 1,959
Marginal borrowing capacity thous.tenghes 220 235 325
Free borrowing capacity thous.tenghes 47 651 367
As seen from the table, borrowings and financial sustainability performance of the KTZ Group during 2009 did not exceed the limits established by Samruk-Kazyna and ABN AMRO Bank N.V. under the Loan Agreement of 4 August, 2008 of US $141 mln., acting as guarantor of Kazakhstan Railways.
Main indicators of borrowings and financial sustainability of KTZ Group
Analysis of 2007-2009 financial performance of Kazakhstan Railways
2008 Item Unit 2007 actual 2009 actual actual
Ratios set by Samruk-Kazyna SWF
Current liquidity ratio at least 1 1,79 1,273 1,196
Operating liquidity ratio at least 1 6,96 12,515 2,536
Coverage ratio at least 2 6,02 6,325 4,181
Net debt / Net capitalization less than 0,4 0,14 0,114 0,154
Debt / EBITDA less than 2,9 1,15 1,267 1,959
Maximum borrowing capacity thous. tenghes 302 620 556 302 620 556 255 472 977
Free borrowing capacity thous. tenghes 182 765 771 170 452 791 82 889 019
Ratios set by ABN AMRO Bank N.V. within the US $ 141 mln. Credit Agreement
Total debt / Own capital less than 0,4 * 0,205 0,261 27
Debt / EBITDA less than 2,5 1,267 1,959
Maximum borrowing capacity thous.tenghes 257 541 298 220 235 325
Free borrowing capacity thous. tenghes 125 373 533 47 651 367
* - in 2007 these ratios were not calculated, as the loan agreement of US $141 mln up to 2011, between ABN AMRO Bank N.V. and Lokomotiv-Leasing, of which guarantor is Kazakhstan Railways, was signed on 4 August 2008.
Analysis of state control of market
Interaction between clients and railway enterprises covers many of technological and commercial aspects and is implemented in accordance with legislation, while public authorities carry out regulatory functions. As provider of mainline services, Kazakhstan Railways and some of its affiliated companies are included in the Register of entities, which are natural monopolies as they are engaged in certain kinds of profile and profile-supporting activities regulated by the Agency of Kazakhstan Republic on Regulation of Natural Monopolies. In view of aspects of activities, in the State Register of players dominating on commodity markets or monopolists of services, have been included Kazakhstan Railways (freight traffic), Kaztemirtrans (lease of freight wagons), Lokomotiv (traction service) and a number of entities of the Passajirskie Perevozkie group of companies. Main state regulatory agencies are as follows: The Agency of Kazakhstan Republic on regulation of natural monopolies (hence – AREM); The Agency of the Republic of Kazakhstan on Protection of Competition; The Ministry of Transport and Communications of Kazakhstan (hence – MTC); Sovereign Welfare Fund Samruk-Kazyna JSC; The Council for Rail Transport of CIS States (hence – CRT CIS); The Organization of Railways Cooperation (hereinafter referred to as OSJD).
Other types of regulation of rail transport include licensing, approval of regulatory acts governing interaction between providers of transportation service and customers, security matters, technical and economic norms and standards, tenders and contracts on provision of and subsidising passenger traffic sector. Tariff regulation is applied, when carriers pay for the mainline services, other constituents of rail tariffs relate to competitive sector, but are currently regulated by AREM as prices for services of entities, which have predominant position in accordance with the antimonopoly law.
International Cooperation
28 Close cooperation between Kazakhstan Railways and Russian Railways is ensured by the Work Group on strategic cooperation between RZD and KTZ in the following key areas: 1) Passenger traffic services on international routes (work subgroup No. 1); 2) Freight transportation on international routes, organization of commercial operation, improvement of interstate junction points (work subgroup No. 2); 3) Production and repair of rolling stock and technical equipment, cooperation in the field of railway engineering (work subgroup No. 3); 4) Introduction of advanced information technologies (work subgroup No. 4); 5) Development of joint business projects (work subgroup No. 5); 6) Science and technological development (work subgroup No. 6); 7) Development of container transportation (work subgroup No. 7); 8) Restructuring and related improvement and harmonization of legal framework (work subgroup No. 8); 9) Marketing of freight transport and improvement of tariff policy (work subgroup No. 9); 10) Interaction on issues related to the Customs Union of Russia, Belarus and Kazakhstan (work subgroup No. 10); To date, 3 meetings of the Work Group on strategic cooperation between RZD and KTZ have been held. Cooperation with RZD was fruitful as in 2009 the following documents were signed: 21 May 2009 – with a view of cooperating on the development of container transportation from China, RZD and KTZ agreed to jointly cooperate in the field of terminal handling of cargo; the parties shall assist the implementation of business project on acquisition by Transcontainer OJSC on a parity basis with KTZ (and/or its subsidiary Kaztransservice) of 100 percent of shares of Kedentransservice. 28 May 2009 – the parties signed Agreement on Cooperation in the field of harmonization and unification of normative and technical documentation, which establishes requirements for the operation of means of rail transport. 20 November 2009 – Governments of Kazakhstan and Russian Federation signed Agreement on creation of favorable tariff conditions for transportation of goods from Kazakhstan throughout the Russian Federation and of goods from Russia through Kazakhstan aimed at increasing volume of cargo transportation in two states. RZD agreed to set reducing rates during 2010 for transit cargo transportation by railways of the Russian Federation. Currently, this issue is reviewed by the Ministry of Transportation of Russia, which is the competent body to consider proposals on providing exclusive tariffs for international transit rail traffic throughout the Russian Federation. In addition, KTZ worked with other railway administrations of Ukraine, Latvia, Lithuania, Estonia, Belarus, Uzbekistan and signed minutes, which stipulated that these railway administrations would also establish special tariff conditions for goods exported from Kazakhstan. Since 1 March 2010 Estonian Railways and Lithuanian Railways are to set reducing ratios for a number of Kazakhstan goods. It is expected that other railway administrations will finally settle the issue as soon as possible. Furthermore, together with the above railway administrations joint appeals 29 were made to the Minister of Transport and Communications of Russia to set reducing coefficients agreed with RZD.
Ministry of Railways of PRC Kazakhstan Railways makes constant efforts to increase capacity of the Dostyk station, which results in increase of volume of cargo from year to year. To enlarge cargo handling capacity of Dostyk it is planned to build a container terminal. KTZ is projecting to encourage cooperation with the Zhuzhou Electric Locomotive Company for the supply of passenger locomotives. In addition, together with partners from China (Syfan and Pudzhen factories) construction of a plant to assembly and in future produce modern passenger cars is planned.
UIC Kazakhstan Railways is a member of the Executive Council, as well as of the Asian Regional Assembly, which represented China, Russia, South Korea, Japan and India. Events held in 2009 in the Asian Regional Assembly of the UIC: December 14-16 in Brest, Belarus meeting was held of the working group of UIC Safety Platform “Ensuring cargo security”. 27-28 October 2009 in Sochi, the Russian Federation, a seminar was held called Use of wagons on international routes. At the end of the workshop participants adopted an appeal for further cooperation on the harmonization of the regulatory framework governing the use of wagons on international routes (CIM/SMGS); development, manufacture and operation of new generation wagons, adoption of unified economic approaches to use of rolling stock, making common approaches for coding of rolling stock, etc. 25-26 July 2009 in Moscow a meeting of the working group was convened called Commercial inspection of freight cars. During the meeting a number of systems designed to ensure reliability, efficiency and safety of rail traffic were presented. Of particular interest was a video surveillance system of rolling stock Observation tower. Proposal was made to demonstrate the system at one of railway stations and to subsequently make presentation at KTZ. Agreement was reached to hold bilateral meeting at Prissady MZD station. March 31 – April 2, 2009 in Malaga (Spain) a conference on the European Train Control System was held.
OSJD Among significant issues addressed by OSJD are facilitation of border crossing, audit of the Agreement on International Rail Transportation of Goods (SMGS) and of the Agreement on international passenger traffic (SMPS), creation of functional and legal specifications for electronic consignation note CIM/SMGS, revision of the Rules of use of freight wagons and passenger cars, improvement of fundamentals of OSJD and etc. 30 Active efforts are made to reform and improve governance structures and improve their technical equipment. In accordance with activities and recommendations developed by OSJD together with ministries and railways, work is done to rehabilitate rail lines and upgrade infrastructure on transport corridors of OSJD to increase freight transportation on railways.
CRT CIS CRT CIS constantly updates and revises previously approved and agreed provisions, agreements, contracts, methodical provisions, acts, rules, instructions, etc.
In 2009 the following documents were developed and agreed upon: 1. Provisional regulations on procedure of operation and stocktaking of freight wagons on the basis of their registration numbers; 2. Methodical provision on registration of wagons in the Automatic system of number-based accounting of wagons leased and running on international routes (ASUARVAG) to exclude them from settlement; 3. Instruction on procedure of joint actions of railway administrations of the CIS States, Latvia, Lithuania, Estonia during official investigation of violations of traffic safety in train and shunting; 4. Rules of transportation of liquid cargo in bulk in tank wagons and bunker type wagons for transportation of bitumen; 5. Instructions concerning maintenance of wagons in operation; 6. The CRT CIS work group’s Regulations on methodology of operative and statistical accounting in rail industry; 7. Instructions for conducting full-scale census of containers; 8. Procedure of determining liability for damage to containers of railway administrations of the CIS member states, Latvia, Lithuania, Estonia and reimbursement of repair; 9. Regulations on the Commission on reform and restructuring;
FINANCIAL STATUS
Raitings
In 2009 Kazakhstan Railways was assigned ratings by three major international rating agencies: 1. Standart & Poor’s – BB +/Stable, rating of bonds issue – BB +; 31 2. Fitch Ratings – BBB-/Stable, rating of 5 year term bonds issue – BBB- /negative and 10 year bonds – BBB-/negative; 3. Moody’s Investors Service – Ваа3, on 9 February 2010 change of forecast was announced with possible decrease of Baa3 rating. It should be noted that rating of Kazakhstan Railways, assigned by Fitch Ratings, coincided with the sovereign rating of Kazakhstan. The Company's ratings assigned by international rating agencies Moody's investors Service and Standart & Poor's, are one step below the sovereign rating of Kazakhstan.
Financial management
Financial management can be represented as a tool for reasonable and efficient use of funds or as a coherent mechanism for managing flows of funds. Main functions of financial management of the Company are: 1) organization of financing of the Company; 2) organization of cash flow management company; 3) organization of working capital management of the Company; 4) administering temporarily free funds of the Company; 5) administering debt of the Company and organization of work to raise loans for the Company.
Organisation of funding To arrange financing Registry of payments and receipts of money, approved by the Management Board, reflecting income and expenses of Company’s funds is made on a day-to-day basis. On the basis of the document a base of the Company’s funds movement is made. In order to make expenses compliance of contracts and documents with requirements of local acts of the Company, Samruk-Kazyna, and also with legislation of Kazakhstan is verified. The Company performs monitoring of contracts progress. Comparative analysis of compliance with financial discipline by structural units is made at months end. If necessary, the issue of improving financial discipline is reviewed at meetings chaired by the President of the Company. In order to monitor financial discipline structural divisions of the Company submit to the Finance Department of Kazakhstan Railways reports on targeted use of funds, received on applications for funding, as well as advance payments, finances received from part-time-support activities. Work is in progress with structural divisions and subsidiaries of the Company on timely implementation of centralized payments, payroll and taxes. In addition, monitoring of balances on accounts of structural divisions of the Company in commercial banks, to timely pay out funds received. Following funding monitoring of expenses by structural divisions of the Company is made on a weekly basis.
Cash flow management 32 Cash flows are one of central elements of operation of any company. Cash flow management is an integral part of managing of all financial resources of the company. Among the tasks of the Company is the organization of cash flow management of Company, provision of the most efficient use of financial resources in key areas of the Company. The Company maintains continuous procedure of making and budgeting of cash flows, which is to be effected according to Rules of development, coordination, approval, adjustment, implementation and monitoring of Development Plans by subsidiaries of SWF Samruk-Kazyna (Minutes of the Management Board of Samruk-Kazyna dated November 3, 2009 No. 99/09). To effectively manage the Company's cash resources methodical guidelines have been developed for preparation of cash budgets, which are basis for building a system of budgeting money. The entire procedure of budgeting is organized in such a way that at last stage management receives three major budget forms: - revenues and expenditures; - cash flows; - projected balance. Revenues and expenditures help to define economic efficiency of enterprises, cash flows assist in planning movement of funds, while projected balance reflects economic potential and financial status of the Company. To effectively plan cash flows Finance Department works with departments of economy and investment policy. In order to monitor budget execution by structural divisions and subsidiaries of the Company analysis of the implementation of cash flows is performed on a monthly and quarterly basis. Control of budget performance is made to identify deviations from planned performance and is required to take timely measures to ensure the implementation of budgets, as well as take into account results of analysis when making subsequent adjustments to cash flows. Results of quarterly monitoring are submitted to the Budget Committee of the Company. In order to assess the Company's ability to reproduce funds and similar assets, stably operate, the Department of Finance carries out not only analysis of performance targets, but also a comparative analysis of real data. Thus, main source of funds is operating activities, where cash flows have increased in comparison with the same period of 2008 by 3,5 bln. tenghes (3,9%). In 2009 net cash flows from investing activities amounted to 102,1 bln. tenghes and compared with the same period increased by 49,6%. Volume of financing of investment projects in 2009 compared to the volume of 2008 decreased by 21,0% due to reduced pre-tax profit by 14,2 bln. tenghes. In 2008 capital investments were worth 130,4 bln. tenghes, while in 2009 amount of capital investments totaled 102,9 bln. tenghes. In order to finance investment projects in 2008 and 2009 external financing of 10,3 bln. tenghes and 14,7 bln. tenghes, respectively was raised. In 2009 cash flows from interest earned by cash on current accounts and short-term deposits of banks, considered as cash funds and equivalents, amounted to 2.2 bln. tenghes, while in 2008 - 2,3 bln. tenghes. Taking consideration of large volume of information processed, to more rapidly perform budgeting process a program of automatic budgeting is being developed.
33 Working Capital Management In order to improve efficiency of working capital management of Kazakhstan Railways according to the order of the President of Kazakhstan Railways Mamin A.U. No 463-C of 30 June 2008 the Commission on work with working capital of Kazakhstan Railways was established. The purpose of the Commission is to ensure financial stability and optimization of liquidity of the Group by increasing efficiency of corporate management of working capital. The Commission consists of work groups focusing on as follows: - receivables and payables; - inventory holdings. In 2009 seven meetings of the work group on accounts receivable and payable, and six meetings of the work group on inventory holdings were held, which addressed issues of working capital of structural divisions and subsidiaries of Kazakhstan Railways, such as: settlements with international railway administrations and private carriers; liabilities without primary documents, increase of accounts receivable for taxes, illiquid and excess inventory in the structure of inventory holdings. The above questions were submitted to the Commission. During 2009 the Commission held six meetings, during which were considered the most problematic issues of structural divisions and subsidiaries of Kazakhstan Railways. As a result of work receivables decreased: of trade, other and employees. For 2009 were written off bad debts for liquidated companies and debt on VAT, not taken to offset by international administrations in the amount of 4,2 bln. tenghes. Outcomes of Commission’s work in 2009: - Rules of sale of property of Kazakhstan Railways were developed and adopted; - plans for optimization of level of working capital of structural departments and affiliated organizations were developed and approved. In general, in subsidiary organizations the plan was exceeded by 2.2 bln. tenghes; - budget for procurement by the Group of companies in 2010 was formed with consideration of available balance of stock in warehouses; - level of stocks, including of illiquid stocks was lowered as a result of measures on revaluation and sale. As of December 2009 total value of inventories of the Group amounted to 22,1 bln. tenghes, reserve for out-of-date and illiquid inventory - 2,1 bln. tenghes. Thus, balance value of inventories amounted to 20 bln. tenghes and compared to 31 December 2008 decreased by 2,7 bln. tenghes. As at 31 December 2009 value of illiquid stocks of the Group amounted to 1,7 bln. tenghes and compared with the previous period decreased by 0,9 bln. tenghes. In order to monitor level of working capital, structural divisions and subsidiaries provide on a monthly basis to the Department of Finance analysis of status of working capital, develop annual plans for optimization of level, and monitor progress of these plans.
Management of temporarily redundant cash 34 Kazakhstan Railways manages temporarily redundant cash (hereinafter referred to as TRC) in accordance with The Uniform Policy on cash management of entities, of which shares belong to Samruk-Kazyna SWF (Minutes of April 21, 2009 No. 17 of Board of Directors of Samruk-Kazyna SWF) and Main parameters of treasury portfolio of Kazakhstan Railways (Minutes of November 24, 2009 No. 7 of Board of Directors of Kazakhstan Railways). The policy defines strategic goals, objectives and constraints related to management of TRC of Kazakhstan Railways when placed in financial instruments on local and foreign financial markets, ensure safety of TRC for a given level of profitability and risk in order to maintain needed level of liquidity of Kazakhstan Railways. Main parameters of treasury portfolio of Kazakhstan Railways define structure of the portfolio and a list of financial instruments and their allowable share when TRC are allocated. In addition, under the Rules of establishing limits of liabilities on balance, monitoring off-balance sheet obligations in counterparty banks and TRC management of Kazakhstan Railways, approved by the Board of Directors of Kazakhstan Railways on November 24, 2009 (Minutes No. 7), the Management Board shall set maximum permissible limits for bank-contractors on direct obligations of the Kazakhstan Railways (on a consolidated basis) at least once a year. These limits are set based on real needs and reflect maximum amount of credit risk from direct obligations to bank-counterparties, taking into account influence of risk factors. Within acceptable limits for counterparty banks, as well as with consideration of the best rates and policy of diversification of financial risks Kazakhstan Railways selects counterparty bank to allocate TRC.
Management of Company’s debt Kazakhstan Railways carries out debt management of the Company, guided by borrowing policy of Samruk Holding JSC in relation to affiliated entities for the period of 2007-2009, approved by the Board of Directors of Samruk-Kazyna SWF (Minutes of October 5, 2006 No. 8) and Rules of borrowings of Kazakhstan Railways and its subsidiaries for the period 2007-2009, approved by Order of the President of Kazakhstan Railways on March 21, 2008 No. 121-C. In order to meet financial obligations under credit agreement the Company calculates and monitors compliance with the covenants under terms of agreements, as well as those set by the sole shareholder. Borrowings Policy of Samruk-Kazyna and Rules of borrowings of Kazakhstan Railways in respect of subsidiary organizations for the period 2007-2009 define standards of coefficients that characterize financial sustainability of the Group: - current ratio – at least 1; - operating financial liquidity – at least 1, - cover ratio - at least 2. In order to make decision on taking new loans values of maximum and free borrowing capacity of the Group are calculated. The estimation of maximum capacity of borrowing is carried out based on the smallest of the two coefficients; - net debt/net capitalization – less than 0,4; 35 - debt/ EBITDA - less than 2,9. In addition, in case loan covenants stipulate to preserve values of financial indicators showing borrowing capacity to rating agencies, financial and other institutions, for the calculation of maximum borrowing capacity of the Group values of indicators for which maximum borrowing capacity is the smallest are applied. Thus, presently calculation of maximum borrowing capacity of the Group is carried out under covenants set by the Loan Agreement between ABN AMRO Bank N.V. and Lokomotiv-Leasing LLP on August 4, 2008, the Guarantor of which is Kazakhstan Railways: - debt / equity - less than 0,4; - debt / EBITDA - less than 2,5. Also, under existing credit agreements non-financial liabilities to creditors exist, of which performance is constantly monitored. High credit ratings and image of a reliable borrower, timely fulfilling obligations under loan agreements and having no default situation during the entire credit history allows Kazakhstan Railways to make borrowings on favourable terms from foreign and local financial markets. Taking into account more favourable terms of borrowing, the bulk of borrowings, including Eurobonds for financing investment programs, were contracted by the Group mainly on foreign markets for long-term. Today Kazakhstan Railways cooperates with international financial institutions and foreign banks, such as the Foundation for Economic Co-operation with foreign countries (OECF, Japan) to finance project Development of capacity of rail transport of Kazakhstan, Instituto de Credito Oficial Kingdom of Spain under project Reducing journey time of passenger trains on the line from Almaty to Astana to 12-14 hours, the Export-Import Bank of the United States, ABN AMRO Bank N.V. for financing the project of modernization of locomotives with diesel generator sets of General Electric, the European Bank for Reconstruction and Development (EBRD) to finance the project of Construction of the primary line of transport network of communication.
Investment activities
In its investment activities Kazakhstan Railways aim to implement a range of measures to ensure sustainability of rail transport, improve quality and safety of transport services. In 2009, investment activities have been planned in the amount of 118,526 mln. tenghes. The amount actually disbursed was 104,079 mln. tenghes. The reporting year included, investments were used to carry out the following major investment projects: - major overhaul of 328 km of tracks to the amount of 14,392 mln. tenghes; - modernization of locomotives fleet (111 units) for US $15,832 mln. tenges; - renovation of freight wagons fleet (1,912 units) for 9,358 mln. tenghes; - renewal of passenger cars (90 units) to the amount of 2,951 mln. tenghes; - renovation of containers fleet and container platforms for 170 mln. tenghes; - development of Dostyk border station to the amount of 2,033 mln. tenghes; 36 - Informatization, Automation and Development of telecommunications to the amount of 8,376 mln. tenghes; - update of track equipment (53 units) to the amount of 4,122 mln. tenghes; - construction of a plant to assemble locomotives in Astana to the amount of 8,290 mln. tenghes; - construction of rail line Korgas - Zhetyghen to the amount of 5,374 mln. tenghes; - construction of rail line Uzen - State border of Turkmenistan to the amount of 1,560 mln. tenghes; - construction of administrative offices in Astana to the amount of 25,887 mln. tenghes.
37
2020 Kazakhstan Railways Development Strategy
Within the framework of the Programme of Kazakhstan Rail Transport Development the 2020 Kazakhstan Railways Development Strategy has been developed. The document reflects target vision of Kazakhstan Railways as a highly efficient national transport corporation, corresponding to the best global business practices. Main objective of Kazakhstan Railways is maximization of total equity as an indicator that meets the requirements of the Shareholder and assessing effectiveness/ineffectiveness of management of Kazakhstan Railways. All actions of Kazakhstan Railways in the strategic and medium term will be focused on maximizing total share capital at the expense of growth of profitability (net profit). In order to effectively achieve main goal of Kazakhstan Railways intends to systematically act in the following four strategic areas: 1. Improving efficiency of production and economic activity of Kazakhstan Railways. To ensure growth of aggregate chare capital the Company will move from cost- oriented corporate culture to one that is aimed at maximizing effective use of resources and processes. Also, to ensure ongoing operational sustainability and competitiveness of services provided Kazakhstan Railways will take measures to reduce production and administrative costs. 2. Maintenance of leading position in freight transportation market To ensure planned growth of profitability in freight transportation market Kazakhstan Railways have to control at least 80% of market share after the opening of access to railway infrastructure within the 2020 Programme of Kazakhstan Rail Transport Development. To this end, the Company have to follow customer-oriented approaches in the provision of transport services. 3. Establishing effective structure of portfolio and production assets The intention of the State to liberalize rail industry and related institutional changes will affect the structure of Kazakhstan Railways, which represents the industry. In this regard, Kazakhstan Railways have planned a large-scale restructuring of portfolio assets, which would create the optimal structure with consideration of corporate and industrial interests (concentration of resources in core activities and promotion of development of industry engineering and repair facilities). Thus, based on the functioning entity and property of the subsidiary Directorate of Mainlines an affiliated company will be created KTZ-Infrastructure JSC, of which 100% of shares will be owned by Kazakhstan Railways. The company will get hold of relevant industrial and non-productive assets, be in charge of production and financial results and provide access to rail infrastructure for carriers. 38
Freight transportation services will be transferred to a newly created affiliated company of Kazakhstan Railways – Freight Transportation, of which 100% of authorized capital will be owned by Kazakhstan Railways. To ensure that freight transportation services are effective and provided in full Freight Transportation will get hold of mainline freight locomotives, freight wagons fleet, containers fleet and all needed technological and organizational set of processes and assets. Within the Programme of restructuring Passajirskie Perevozkie will be renamed as Kazakhstan Railways – Passajirskie Perevozkie, which will retain the status of the national carrier of passengers with 100% of authorized capital owned by Kazakhstan Railways. Passajirskie Perevozkie will own and manage the entire package of strategic assets (mainline passenger locomotives, passenger cars). Along with the transformation of structure of financial assets changes will affect production assets. There will be a complete overhaul and modernization of fixed assets of Kazakhstan Railways, which will be part of industry-wide investment program. Up to 2020 the company intends to invest about 3.06 trln. tenghes. 4. Improved management of operations Measures aimed at increasing the level of control of Kazakhstan Railways will affect managerial aspects of work. To ensure greater transparency in governance, level of responsibility, qualifications, accountability and efficiency Kazakhstan Railways will carry out work to introduce process approach to management. After successful implementation of the Strategy Kazakhstan Railways will become highly effective commercial organization that provides transportation services of high quality at a low cost. In particular, within the expected restricting process the changes will be made as follows: Organizational structure will be changed. Instead of the structure aimed at making production with complex interaction schemes, redundancies and inefficient organizational structure, there will be flexible and simple structure, market-oriented, which will help Kazakhstan Railways to improve competitiveness. There will be restructuring of the portfolio of assets. Instead of a large number of auxiliary affiliated companies there will remain a small number of profile assets that have critical strategic importance for Kazakhstan Railways. Instead of poor financial transparency there will be clear separation of financial reporting, which will provide an unambiguous accountability and a high degree of transparency. There will be changes in infrastructure. Instead of a centre for budgeting costs with cross-subsidies at the expense of freight transportation, there will be effective and independent service provider of rail infrastructure with transparent pricing. Leading market position maintained and strategic activities executed, Kazakhstan Railways will be able to achieve net profit of 212 bln. tenghes in 2020 in 2015, and about 360 bln. tenghes in 2020.
39
Sustainability
Corporate Risk Management Kazakhstan Railways understand the importance of risk management as a key component of corporate governance of the Company and its affiliated organizations to ensure timely identification and taking measures to reduce risks that could adversely affect its value and reputation. Introduction and improvement of corporate risk management system is a prerequisite for achieving strategic and operational goals and is one of the biggest challenges in the near future. Introduction of Corporate Risk Management in Kazakhstan Railways is made within the framework of recommendations of Samruk-Kazyna SWF, which stipulate that introduction of corporate risk management should be conducted in accordance with the model COSO Corporate Risk Management - Integrated Model (2004). In 2009 the Company introduced modern methodological basis for risk management in accordance with international best practices (model COSO, 2004) and approved the following local acts in the field of corporate risk management: On October 19, 2009 the Board of Directors of the Company approved (Minutes No. 6): - The concept of corporate risk management of Kazakhstan Railways and its affiliated organizations, - Risk Management Policy of Kazakhstan Railways; - Rules for risk identification and assessment of Kazakhstan Railways; On November 24, 2009 the Board of Directors of the Company approved (Minutes No.7): - Rules for managing foreign exchange risk of Kazakhstan Railways; - Rules for interest rate risk management of Kazakhstan Railways; - Rules for managing liquidity risk of Kazakhstan Railways; - Rules for setting limits on liabilities, monitoring off-balance sheet liabilities of banks-contractors and managing temporarily free funds; - Rules for establishing country limits of Kazakhstan Railways; On March 2, 2009 the Management Board of the Company approved (Minutes No. 02/8): - Recommendations on the organization of risk management in affiliated companies of Kazakhstan Railways; - Rules for estimating fair value of financial guarantees issued to borrowing subsidiaries; On July 7, 2009 the Management Board of the Company approved (Minutes No. 02/27): - Rules for keeping historical database of past risks and losses of Kazakhstan Railways; - Requirements to information security of information systems of Kazakhstan Railways. 40
In 2009 the Company formed a centralized organizational system of risk management. Structurally, it comprises Risk Management Committee under the Management Board of the Company, a division in charge of risk management. Functions of the Company's bodies responsible for risk management (Board of Directors, Management Board, Committee on Risks, a division for risk management) are stated in local acts of the Company. In 2009 8 meetings of the Committee on risks were held. The Committee made decisions on: 1) introduction of the methodology of risk management, 2) introduction of the process approach, and 3) internal control (matrix of corporate governance, risk matrix and control in accounting areas), 4) risk management (approval of projects risk register, risk maps, including production), 5) financial risks (approval of debt management policy, limits on liabilities to banks contractors, etc.). Also the Committee reviewes reports on ongoing work of introducing risk management systems in subsidiary companies. In 8 major subsidiary organizations (Locomotive, Kaztemirtrans, Passajirskie Perevozkie, Kaztransservice, Transtelecom, Locomotivny Servisny Centre, VZDO, Centre Transportnogo Servisa) similar centralized organizational structure of risk management were formed, and Committee on risks function. Within the framework of corporate risk management introduction activities were made to identify risks, assess risks, develop an action plan for risk management. The Company has developed a risk register, risk maps and action plan for risk management (approved by Committee on Risks on 24 December 2009 Minutes No.CUR-05-02/10). In order to increase efficiency of traffic safety management system on mainline network, the Company introduced principles of risk management aimed primarily at forecasting and managing risks of safety, health and environment. In order to improve the system of risk limits in 2009 the Company's Management Board approved: 1) maximum allowable limits for (direct) obligations to banks-contractors in managing temporarily free funds of Kazakhstan Railways and its subsidiaries (Minutes of September 15, 2010 No. 02/35), 2) maximum permissible country limits (Minutes of 28 December 2009 No. 02/45). In 2009 within the framework of actions on introducing and improving internal control, within the Company and in 8 major affiliated organizations matrices of risks and control of key business processes were developed and approved, as well as of process of preparation and consolidation of financial statements.
Human Resources and Social Policy
Within the framework of main directions of the Human Resources Policy of the Company the regulatory basis has been established governing the management of personnel and office work in the Company: more than 30 local acts were developed and approved in 2008 - 2009. 41
The Company made work on streamlining and improving statistical reporting of human resources units, identified key indicators of human resources units and procedure of calculation. Also methodological tools and innovative technologies in the field of personnel management were developed and implemented. A normative basis regulating the process of personnel management in the Company was created. In order to provide the needs of production with highly professional staff, and to plan staffing needs with consideration of reorganization and modernization of technological processes Method of determining the needs of Kazakhstan Railways in personnel was developed and approved. 2 The method establishes procedure of planning needs of Kazakhstan Railways in staff currently for 1 year and in medium term for 1 to 5 years. In order to improve and modernize the system of personnel records, and to create uniform registry of personnel and accounting in 2009 systematic work was carried out to prepare for the transition to an automated system Favorit. Amendments to the List of positions (professions) of rail employees and qualification requirements were prepared, it is planned to publish a new edition in 2010. In order to analyze the quality of staff distribution and compliance of personnel with qualification requirements for posts of headquarters of subsidiaries of Kazakhstan Railways 15 personnel audits were conducted in affiliated organizations and monitoring of progress of action plan aimed at addressing comments made during audit of staff in 2008 in subsidiaries Kazakhstan Railways – divisions of railways and mainline network.
Employee turnover analysis. As of January 1, 2010 full list of employes in the group of companies Kazakhstan Railways was 150,073, including managers – 9,722, experts – 25,989, employees – 10,293, workers – 104,069, the number of workers aged under 30 – 37,131. Turnover in 2009 in the Group of companies Kazakhstan Railways was - 10,2%, including Kazakhstan Railways - 6,6%, affiliated associated companies - 14,9%, during the same period turnover in 2008 accounted to 14,1%, including Kazakhstan Railways - 11,1%, affiliated associated companies -18%. 2008 – 20,8, 2009 – As a result of activities in 2009 in the group of companies Kazakhstan Railways percentage of turnover decreased by 3,9% compared to 2008. Turnover among young people in 2009 was – 12,1%, compared to 2008 percentage of turnover among young people has decreased by 8,7%.
2 Order of 22 December 2009 No.804-C. 42
Improvement of corporate culture. A sociological study to assess the public image of Kazakhstan Railways made by a consulting company showed that 1,561 respondents in 13 regions of Kazakhstan are employees of Kazakhstan Railways and affiliated organizations, and in the whole consumers of Kazakhstan Railways services evaluated the public image of Kazakhstan Railways as equal to 88%. In 2009 a sociological study conducted to determine staff satisfaction with working conditions in Kazakhstan Railways. The questionnaire covered 7895 employees or 5,4% of the total number of employees of the group of companies Kazakhstan Railways. Percentage under the index of employee satisfaction in a group of companies Kazakhstan Railways increased compared with 2008 by 15,9%.
Education, development and evaluation of personnel. In order to achieve the objectives of the Human Resources Policy of Kazakhstan Railways to bring the qualitative aspects of personnel with qualification requirements of production, a set of measures for personnel evaluation in structural subdivisions of Kazakhstan Railways was made. In 2009 510 workers of Kazakhstan Railways were certified, including 115 heads of divisions of railways, mainline network, 27 human resources managers, 44 employees of legal services, 82 auditors of regional divisions of subsidiaries of Kazakhstan Railways. In line with the Action Plan on introduction of Management reporting system of Kazakhstan Railways3 from 4 to 30 December 2009 certification of 219 employees from 7 structural divisions of financial and economic block of central administrative office of the Company was made, which was the basis for developing Individual Development Plans for 2010. Generally, high level of competency of these workers was noted. In 2009, the number of engineers and technical workers and professionals who have had advanced training in relevant fields of the industry, financial, economic, legal, information technology and other areas amounted to 2,981 for the total amount of 120,505 thousand tenghes. Study course in entities of the Russian Railways had 34 employees of the subsidiaries of Kazakhstan Railways – Directorate of mainline network, Directorate of transportation process (employees of Kazakhstan Railways visited rail-welding enterprises, Insk, Novosibirsk directorates of tracks, switches production plant, etc.). In addition, due to collaboration with educational institutions of the Russian Federation in 2009 195 workers of Kazakhstan Railways attended training courses of St. Petersburg and Ural State Universities of Railways to study new systems of blocking, traffic safety, tracks overhaul, modern methods of diagnostics, maintenance
3 approved by Board of Directors of Kazakhstan Railways on 28 April 2007 No. 3 43 of tracks and roadbed, operation and maintenance of equipment UZOT and other disciplines. Selection was made and 3 grants were given for training to workers of Kazakhstan Railways under the Postgraduate programme in Kazakhstan educational organizations on the priority for the rail industry specialties. Kazakhstan Railways worked to implement the State program of functioning and development of languages for 2001 – 2010; in 2009 for 5,473 employees of the Company were organized training courses in the Kazakh language. Number of working staff, trained and qualification raised, in the branches of Kazakhstan Railways – training centers for rail employees amounted to 4,528 people. Created by Methodical Board of Kazakhstan Railways to ensure uniform quality requirements for training of skilled workers in training centers, 125 new curricula were developed and approved. In addition, under the existing in Kazakhstan Railways programmes of provision of material benefit to workers, pensioners and their children training of 196 students totaling 24,390 thousand tenghes was paid.
Support to youth. During 2009 structural divisions and subsidiaries of the Company hired 872 young professionals, and to have them stay at stations of 3, 4, 5 class measures of social support were made, such as one-time financial aid, payment of rent and bonuses to the basic salary. Work was enhanced to adapt young specialists, approved by the Rules for the implementation of a mentoring, Regulations on the adaptation of personnel at Kazakhstan Railways. A series of meetings was held of the Company’s management with representatives of the Ministry of Education and Science of Kazakhstan, heads, professors and teachers, and students of higher educational institutions of the Republic of Kazakhstan performing training in rail profile. During the meetings issues of revision were discussed of the list of specialties of higher educational institutions given strategic development of the rail industry, attracting leading specialists of the Company to teaching, management of diploma works, curriculum development. As a result of these meetings the General Cooperation Agreement was signed between the Company and KazATC named after M.Tynyshpaev. In order to attract to Kazakhstan Railways fellows of the international program Bolashak in May 2009 a memorandum of cooperation was signed with the Center for International Programs Bolashak. At present, subsidiaries of Kazakhstan Railways employ four fellows of the program. In 2009 work was continued on the formation and development of personnel reserve of Kazakhstan Railways. Current human resources reserve of Kazakhstan 44
Railways is 95 people, in human resources reserve of subsidiaries of Kazakhstan Railways there are 854 persons. Also a talented youth reserve of Kazakhstan Railways comprising 95 persons was formed. In 2009 practical training in the form of internship had passed 25 persons, including 7 employees in the RZD.
Social policy
In January 2009 there were signed programme-wide documents, which govern the issues of social support for workers and pensioners of the Company; it is the Industry agreement with trade unions and collective bargaining between the Company and its labor group for 2009-2011. Despite the reinforcement of budgetary savings of the Company in condition of the world financial and economic crisis these documents had for employees virtually all benefits and guarantees. The budget for social support in 2008 amounted to 3,183.0 mln. tenghes. In 2009, including anti-crisis measures – 3,393.0 mln.tenghes. To purchase and construct housing in the investment budget of the Company were allocated 1,5 bln. tenghes. distributed 80 flats in Astana, 30 in Aktau, construction of 8 houses with 216 apartments is under way at Dostyk station. For the first time there was developed and approved a program to provide housing for workers living at stations of 3, 4, 5 classes for 2010-2014. As a result of implementing the program of 2,177 workers who live at 654 stations and in need of housing 1,984 employees at 406 stations will be provided with housing. Estimated amount of cost will be over 12 bln. tenghes. In order to ensure transparency and fairness in the allocation of housing among employees for the first time an electronic program was installed to create a list and analysis of a database of company employees in need of shelter or housing. Sanatorium rehabilitation was organized for more than 6,6 thousand employees and retirees in 13 health centers to the amount of KZT 426,.5 mln. against 361,5 mln. tenghes in 2008. During 2009 activities were conducted to commemorate and pay benefits to veterans of labor. The amount of costs for the year to support the retirees of the Company amounted to 555 mln. tenghes against 490 mln. tenghes in 2008. At the initiative of activists of the youth wing of Jas Otan in February 2009 the Round Table Veterans - the basis of social stability was held, in which veterans of the railroad had the opportunity to share their experiences. More than 6,5 thousand children spent their summer vacation in 14 regional children's recreation centers. For these purposes there were allocated 230 mln. tenghes (164,5 mln. tenghes in 2008). 45
In order to improve corporate spirit, to attract employees and family members to the cultural life of the company, promote family values and interest in the profession of the railwayman among children of employees and also in honor of the Children's day for the first time the following activities were performed: 1. Competition for children and youth drawing Balausa bolashak. In the competition about 200 drawings of children of railway workers were announced to be present. All participants were awarded prizes and diplomas, 30 winners were given opportunity to go to the Republican academic health center Baldauren (Schuchinsk). The best works were published in the form of magazine-album and used in calendars produced by the Company for 2010. 2. Competition I am future railroader! Participants of the contest are children and grandchildren of employees of companies at the age of 10. Employees of companies provide photographs of their children and grandchildren to be published in the newspaper Kazakhstan temirzholshysy. Summing up is planned for 2010. As for medical support in 2009 coverage of workers by pre-shift medical examination was 100% of stations, against 43% in 2008. In 2009, the Company's employees participated in urban, national and international competitions, industry sports and athletics in various sports. During 9th International Issyk-Kul Sports Games held under the auspices of the Shanghai Cooperation Organization (SCO) in September 2009, employees won the Grand Prix Batir, Issyk-Kul and won 59 medals, including 18 gold, 21 silver and 20 bronze. As requested by the President of the Company since 2009 there was conducted active negotiations with the International Union of Railwaymen Athletes (hereinafter - IURA) about the entry of the Company in this organization. Development and support of young professionals is a priority of social policy. To date, the Company employs more than 39,000 young workers under 30. In order to attract, secure professional formation of young people and create conditions for sustainable and effective development of young employees, the Company approved the Programme of Youth Policy of Kazakhstan Railways for 2009-2011.
Objectives of social policy for 2010:
• comprehensive tackling of issues of social support to employees and retired workers of the Company; • organization of specialized medical train; provision of charity and sponsorship to the implementation of the following projects: Saving Lives, Sponsorship to regional schools previously accountable to rail industry, Holiday gift for children!, etc. through the Corporate Fund - Foundation for Social Projects. 46
Protection of environment In carrying out its activities Kazakhstan Railways shall be responsible for environmental safety and welfare of the environment. Company's environmental activities carried out in accordance with the Environmental Code of the Republic of Kazakhstan, the Law of the Republic of Kazakhstan On rail transport, other legal acts and international treaties and agreements ratified by the Republic of Kazakhstan. Pursuant to the Action Plan on implementation of the Code of Corporate Governance4 the Company developed and approved Regulations on Environmental Protection of Kazakhstan Railways, which is basic local act regulating environmental activities of structural divisions, affiliated companies and divisions. In order to reduce negative impact of rail transport on environment, the Company developed and implemented an annual Environmental Action Plan, which provides for reduction of emissions into the air through the installation of dust collectors, transfer to alternative fuels, installing and upgrading boilers, replacing diesel engines with ecologically clean traction stock, electrification of rail lines, elimination of sources of emissions. In 2009 for the implementation of environmental activities the Company allocated 321,4 mln. tenghes, which is 30% more than that of 2008 (247 mln. tenghes). Disbursements in 2009 amounted to 307,9 mln. tenghes, or 96%. Of 192 activities envisaged in plans of structural divisions and affiliated companies in 2009 there were carried out 183, which is 95%. Implementation of environmental activities in 2009 led to reduction of emissions by 10% compared with 2008, and of effluents by 4%. This trend allowed to decrease environmental payments by 28%.
Labour safety
Labour safety management and safety technique system of Kazakhstan Railways is regulated by Order of March 21, 2008 No. 125-C On the system of safety management and labour protection in Kazakhstan Railways and its affiliated joint- stock companies. This order provides for standards of participation of managers of all ranks in health and safety work, with particular focus on increasing personal responsibility of managers of the Company for the creation of healthy and safe working conditions. In structural divisions of Kazakhstan Railways certain progress was made to reduce the number of violations of labour safety, to create normal conditions, introduce new techniques and advanced technology, mechanize production processes, reconstruct buildings and structures, develop production bases and reduce manual
4 Approved by Board of Directors of Kazakhstan Railways 47 labor, thereby coherent program of measures aimed at reducing proportion of manual labor and replacing workers in traumatic fields of work. The Company improved working conditions of 20,715 employees, which resulted in decrease of costs of the Company by 450 mln. tenghes. As a result of the work performed in 2009 by 9% declined industrial injuries (33 cases in 2009 against 37 cases in 2008). Down were injuries indices, such as: - frequency rate of work-related injuries per 1000 workers was in 2009 – 0,26 against 0,31 in 2008; - rate of degree of injuries per 1000 workers also decreased in 2009 – to 16,7 against 19,6 in 2008.
Traffic safety In 2009 measures adopted resulted in the reduce of accidents on tracks for the whole of the Company by 26% (safety ratio is total number of traffic safety breaches per the volume of transportation). Within the Company amount of safety violations reduced by 30% (754 to 525), of defects by 39% (162 to 99), of special cases of faults by 8% (25 to 23). Frequency of faults (number of cases per unit of work volume) reduced by 39% (from 0,44 to 0,27). The Company achieved significant reduction of violations in some types of traffic safety items, such as: - derailment of trains by 44% (from 9 to 5); - passage of closed signals and uncoupling of cars of passenger trains by 66% (from 3 to 1); - uncoupling of wagons of freight trains – 4 times down (from 20 to 5); - delays of trains for more than 1 hour due to technical failure of devices or rolling stock – decreased almost two times (from 86 to 45). There had been reduction of: - violations of traffic safety in the following divisions: locomotive by 47%, wagon by 41%, passenger cars by 37%, freight operations by 32%, power supply by 29%, traffic by 21%, track by 13%. Only in signaling and communications divisions breaches increased almost 2 fold from 10 to 19. - defects in divisions of passenger cars by 70%, wagons by 52%, power supply by 50%, locomotive by 44%, transportation by 22%. In freight transportation division no defects were made, while in track facilities division number of faults increased by 7%, in signaling and communications – from 0 to 3. Share of divisions in the total number of defects (99) is as follows: locomotive - 52%, track - 15%, wagon - 14%, traffic - 11%, signaling and communication and passenger cars - 3%, power supply - 2%. 48
Such results had been achieved through the implementation of system-wide measures in accordance with Order On the system of control and measures of traffic safety of January 5, 2009 No. 01-C for the period of 2009-2011. First of all, due to the fact that - each case of violation of traffic safety (defects in work, difficulties, other cases) were investigated, causes and circumstances of cases analyzed and measures implemented to prevent in future. On the basis of results guilty officials were subjected to strict disciplinary punishment. - there was installed and operated (daily, monthly, quarterly) the system analysis of traffic safety, which was reviewed, with reports of heads of divisions submitted on work carried out and measures for improvement; - results of work on traffic safety were regularly reviewed by management of the Company at meetings; - there were organized and conducted checks together with Managing directors of the Company, field inspections of tracks quality, spring and fall inspections of divisions by commissions; In addition: - the Company stimulated employees in charge of traffic safety. More than 14 thousand employees were awarded with all categories of awards. 117 employees of the Company were awarded Safety Honour for trouble-free work; - jointly with the Department on risks work was done to forecast possible risk of dangerous conditions of infrastructure and rolling stock. On the basis of annual outcomes the Department of Traffic Safety reviewed safety of traffic, identified issues, factors of production risks that could result in violation of traffic safety, and which were to be worked over in the future. Based on analysis of cases of faults in work, risks were defined as follows: - risk of personnel actions that could create risk - 68%; - technological risk of hardware failures and of rolling stock - 24%; - risk of deterioration of infrastructure and rolling stock - 8%. Based on the analysis the downward trend of the rate of accidents from year to year, amendments to the order 1C there were developed system measures aimed at improving efficiency of ongoing work on traffic safety, especially on reducing influence of human factors for the period of 2010-2014. Measures development aimed at addressing the following three groups of most problematic factors related to: - actions of staff that can create risk, technological discipline, staff qualifications; - various technical deficiencies or existing today specifications of stations, devices, indirectly or directly affect risk level; - technical equipment of work places of enterprises, as well as available on rolling stock devices which ensure traffic safety. Activities envisage introduction of technical means aimed at improving safety of train movements in average annually to the amount of 7 bln. tenghes. 49
Traffic safety condition is supposed to be ensured at a level of reduction of accidents (traffic safety factor) annually in average of 5 to 8%.
Perspectives of Company’s development next year In order to ensure the development of Kazakhstan Railways in accordance with strategic priorities the Board of Directors of Kazakhstan Railways developed and approved the 2010 Development Plan. In accordance with the 2010 Development Plan of Kazakhstan Railways the following production performance is scheduled: • tariff-based freight turnover will be 204,740 mln. t-km, a 4,0% increase against 2009; • passenger turnover will be 12,349 mln.p-km, a reduction of 4,0% against 2009; • transportation of goods will amount to 248,167 tonnes, an increase of 1% on 2009; • average speed trains at sections for 2010 is set at 41,8 km/h; • share of transit traffic will be 11.9%; • traffic density in 2010 will be 24,810,776 t-km/km and will increase on the level of 2009 by 3%. Total revenues from transportation within group of companies Kazakhstan Railways in 2010 are planned to be 565 bln. tenghes, an increase of 13% on the level of 2009. Government subsidies are projected for 2010 in the amount of 16 bln. tenghes, which is higher than that of 2009 by 65% due to increase in subsidies from the Republican budget. Cost value of main activities planned in 2010 in the amount of 426 bln. tenghes, an increase on the level of 2009 by 14%. Financial expenditure (expenses for financing) are planned in the amount of 14 bln. tenghes, which is 22% higher than that of 2009, due to borrowing to implement infrastructure projects. Net income is planned in the amount of 37 bln. tenghes, which 139% higher than that of 2009. Capital investments plan within the group of companies Kazakhstan Railways in 2010 will be 218 bln. tenghes, including on the following special programs: • Acquisition of Evolution locomotives; • Construction of new rail line Korgas-Zhetyghen; • Construction of section Uzen-state border of Turkmenistan; • Construction of primary mainline transport network; • Major overhaul of track superstructure; • Upgrading and modernization of infrastructure; 50
• Renovation of freight wagons fleet; • Modernisation of locomotives fleet; • Upgrading of passenger cars; • Renovation of containers park; • Research and Development; • Computerization, automation and development of telecommunications; • Measures aimed at expanding and modernizing fixed assets in order to restore health condition of employees, compliance with the Rules of occupational safety, fire safety, hygiene rules; • Measures aimed at expanding and modernizing fixed assets, in order to provide living conditions to workers in areas of industrial activity; At the expense of contribution of the European Bank for Reconstruction and Development in the share capital of subsidiaries of Kazakhstan Railways (Kaztemirtrans) purchase of freight wagons is envisaged.
51
Financial statement of the Company Consolidated report on financial status as of December 31, 2009 thous. tenges
December 31 December 31 January 1 2009 2008 2008 ASSETS Long-term assets
Fixed assets 833,599,921 779,165,048 694,369,000 Intangible assets 4,488,144 3,066,079 2,573,764 Investments in associated entities 2,467,654 2,436,557 1,573,677 Financial instruments available for sale 297,982 297,982 297,982 Other long-term assets 9,643,987 6,404,891 11,221,649
Total of long-term assets 850,497,688 791,370,557 710,036,072
Current assets Inventory holdings 20,942,968 22,670,443 20,049,882 Trade accounts receivable 6,062,863 6,266,474 4,316,160 Other financial assets 17,706,980 15,521,590 70,902,625 Prepayment on income tax 8,436,108 9,323,192 3,032,007 Other current assets 38,469,577 32,606,285 21,507,536 Cash assets and equivalents 52,676,155 49,211,185 26,416,514
144,294,651 135,599,169 146,224,724 Long-term assets subject to sale 21,135 31,791 79,270
Total of current assets 144,315,786 135,630,960 146,303,994
Total of assets 994,813,474 927,001,517 856,340,066
CAPITAL AND LIABILITIES Capital
Authorised capital 486,220,457 484,642,457 484,642,457 Additional paid-in capital 20,254,432 21,589,270 21,486,783 Foreign currency translation reserve (83,546) (389,810) (132,339)
Retained income 154,611,850 138,011,329 76,685,100
Total of capital 661,003,193 643,853,246 582,682,001
52
Consolidated report on financial status as of December 31, 2009 (continued) thous. tenges December 31 December 31 January 1 2009 г. 2008 г. 2008 г.
Long-term liabilities Loans 31,841,262 27,122,082 20,076,188 Issued debt securities 117,706,342 95,625,642 95,075,588 Commitments on financial lease 5,268,051 4,647,097 3,947,108 Liabilities for employee benefits 12,595,946 12,638,917 12,527,242 Liabilities for deferred income tax 45,760,039 35,595,809 58,091,733 Other long-term liabilities - 1,010,287 2,358,220
Total of long-term liabilities 213,171,640 176,639,834 192,076,079
Current liabilities Short-term loans 4,860,026 - 481,381 Current portion of loans 11,339,472 3,669,819 3,353,573 Current portion of issued debt securities 1,092,377 886,801 868,055 Current portion of liabilities for financial lease 476,428 216,324 616,512 Current portion of liabilities for employee benefits 979,120 896,645 673,447 Trade accounts payable 43,642,693 50,699,814 30,508,552 Arrangements on income tax 80,898 90,605 107,908 Taxes and other compulsory payments to state 8,204,631 6,676,597 3,511,302 Other current liabilities 49,962,996 43,371,832 41,461,256
Total current liabilities 120,638,641 106,508,437 81,581,986
Total liabilities 333,810,281 283,148,271 273,658,065
Total capital and liabilities 994,813,474 927,001,517 856,340,066
53
Consolidated report on aggregate income for the year ended on December 31, 2009 thous. tenges 2009 г. 2008 г. Income Freight transportation 407,411,457 416,517,032 Passenger traffic 46,647,095 42,523,391 State subsidies 10,058,412 7,300,236 Other income 16,876,206 17,422,701 Total income 480,993,170 483,763,360
Cost of sale (368,960,223) (370,182,960) Gross income 112,032,947 106,580,40
General and administrative expenses (49,822,762) (59,989,733) Financial expenses (9,673,490) (8,885,933) Exchange gain/(loss) (21,881,928) (1,555,529) Share in profits/(loss) of associated companies (90,039) 862,880 (Depreciation)/reversal of depreciation of fixed assets (1,409,623) 644,755 Other income and loss 555,331 1,481,305
Income before tax 32,371,942 47,319,723
(Expenses)/benefits on corporate income tax (12,883,155) 16,562,026
Profit for a year 19,488,78 63,881,749 Other aggregate income/(loss): Income/(loss) arising from conversion of reports of foreign entities 306,264 (257,471) Other aggregate income/(loss) for a year 306,264 (257,471)
Aggregate income for a year 19,795,051 63,624,278
54
Consolidated cash flow statement for the year ended on December 31, 2009 thous. tenges
2009 г. 2008 г. Operating cash flow:
Income before tax 32,371,942 47,319,723
Adjustments for: Depreciation and amortization 47,850,299 48,146,260 Financial expenses 9,673,490 8,885,933 Provision for diminution in value-added tax refund 1,465,167 980,196 Accrued penalties 52,922 1,808,000 Losses/(recovery of losses) on depreciation of fixed assets 1,409,623 (644,755) Expenses/(gains) on retirement of fixed assets and other fixed assets 5,806 (436,547) Financial income (2,661,506) (7,181,578) Actuarial liabilities on fixed payments plan 954,856 1,188,822 Share in losses/(gains) of associated companies 90,039 (862,880) (Recovery)/accrual of provision for illiquid and outdated inventory holdings (316,531) 144,065 Accrual of provision for doubtful debt 2,067,730 3,735,467 Accrual of provision for carry-over vacation 439,871 1,288,160 Unrealised negative/(positive) currency difference 25,317,850 1,555,59 Other (1,062,929) 460,215
Operating income before changes in working capital 117,658,629 106,386,610
Decrease/(increase) of trade accounts receivable 540,437 (2,864,376) (Increase)/decrease of inventory holdings (1,777,654) (784,024) (Increase)/decrease of other current assets (including increase of long-term VAT refund) (6,794,217) (19,391,327) (Decrease)/increase of trade accounts payable (6,596,196) 19,456,575 Increase of other taxes payable 1,641,758 1,571,801 Increase of other current liabilities 5,919,895 621,104 Decrease of liabilities for employee benefits (915,352) (853,949) (Decrease)/increase of other long-term arrangements (1,010,287) (1,347,933)
Cash received on operating activities 108,667,013 102,794,481 Interest paid (10,206,556) (7,446,991) 55
Income tax paid (1,625,271) (5,303,721)
Net cash flow from operating activities 96,835,186 90,043,769
56
Consolidated cash flow statement for the year ended on December 31, 2009 (continued) thous. tenges
2009 г. 2008 г. Cash flow from investment activities: Purchase of fixed assets (101,283,773) (129,845,103) Gains on retirement of fixed assets and other fixed assets - 736,611 Purchase of intangible assets (14,866) (540,260) Construction of housing stock (1,150,031) - Purchase of investments (1,699,136) - Interest gained 2,719,810 8,007,179 Purchase of short-term investments (20,902,951) (68,308,200) Gains from sale of short-term investments 20,200,103 121,698,900
Net cash flow from investment activities (102,130,844) (68,250,873)
Cash flow from financial activities: Contributions to authorized capital 1,578,000 - Loans obtained 14,715,303 10,317,995 Loans repaid (4,583,542) (5,169,288) Dividends paid (2,888,266) (2,555,520) Repayment of obligation for financial lease (124,792) (1,641,078)
Net cash flow from /(used in) financial operations 8,696,703 952,109 Net increase in cash and cash equivalents 3,401,045 22,744,920 Cash and cash equivalents at year beginning 49,164,450 26,369,694 Effect of currency rate change on balance of cash and cash equivalents denominated in foreign currencies (123,054) 49,751
Cash and cash equivalents at year end 52,442,441 49,164,450
57
Consolidated report on changes in own capital for the year ended on December 31, 2009 thous. tenges
Reserve on Authorised Additional paid-in foreign currency capital capital conversion Retained profit Total capital
As of January 1, 2008 484,642,457 21,486,783 (132,339) 76,685,100 582,682,001
Profit for year - - - 63,881,100 63,881,749 Other aggregate (losses)/profit for year - - (257,471) - (257,471)
Aggregate (losses)/profit for year - - (257,471) 63,881,749 63,624,278 Contributions to authorized capital - 102,487 - - 102,487 Dividends paid - - - (2,555,520)(2,555,520)
As of December 31, 2008 484,642,457 21,589,270 (389,810) 138,011,329 643,853,246
Profit for year - - - 19,488,787 19,488,787 Other aggregate profit for year - - 306,264 306,264
Aggregate profit for year - - 306,264 19,488,787 19,795,051 Contributions to authorized capital 1,578,000 6,462 - - 1,584,462 Dividends paid - - - (2,888,266)(2,888,266) Distribution - (1,341,300) - - (1,341,300)
As of December 31, 2009 486,220,457 20,254,432 (83,546) 154,611,850 661,003,193
58
Main production and financial indicators of KTZ Group
Item Unit 2007 2008 2009 Freights loaded thous. t 227 575.6 234 990.1 219 382.0 Tariff freight turnover mln.t-km 200 751.6 214 906.6 197 302.3 including by types of haul: intrastate mln.t-km 79 351.0 81 923.5 75 539.8 export mln.t-km 74 638.3 83 955.4 79 719.7 import mln.t-km 24 180.1 22 507.7 17 587.1 transit mln.t-km 22 582.2 26 520.1 24 455.7 Freight transportation thous. t 260 545.6 268 889.8 247 677.4 including by types of haul: intrastate thous. t 140 291.5 139 959.6 131 456.1 export thous. t 84 760.3 93 355.7 85 640.4 import thous. t 22 294.5 20 115.0 15 821.7 transit thous. t 13 199.3 15 459.5 14 759.4 Average distance of 1 tonne of km 770.5 799.2 796.6 freight transported including by types of haul: intrastate km 565.6 585.3 574.6 export km 880.6 899.3 930.9 import km 1 084.6 1 119.0 1 111.6 transit km 1 710.9 1 715.5 1 657.0 Passenger turnover (PP JSC less mln. p-km 13 531.0 10 607.7 12 912.0 private carriers) Passengers dispatched (PP JSC less thous. p. 13 734.7 11 267.6 14 116.7 private carriers) Average density (PP JSC less pass./cars 32.3 31.1 32.6 private carriers) Total passenger turnover (private mln. p-km 14 314.0 14 450.0 14 860.0 carriers included) Total passengers dispatched thous. p. 14 115.0 13 633.0 16 208.0 (private carriers included) Total average density (private pass./cars 29.6 39.2 29.9 carriers included) thous. 423 638 483 763 480 993 Income from sale of products tenghes 639 360 170 thous. 325 700 375 542 367 194 Net cost of products sold tenghes 261 403 607 thous. 97 938 108 220 113 798 Gross income tenghes 378 957 563 thous. Income from financing tenghes 6 716 172 7 181 578 2 661 506 59
thous. Other income tenghes 7 235 365 1 842 243 14 585 614 General and administrative thous. 55 689 expenses * tenghes 464 62 319 529 54 597 491 thous. Financial expenses (% under loans) tenghes 9 093 460 8 885 933 9 673 490 thous. Other expenses tenghes 683 496 1 916 467 35 912 211 Share in profits/losses of companies thous. taken into account by method of tenghes share in capital 333 672 862 880 -90 039 Profits (losses) on ongoing thous. 46 757 activities* tenghes 167 44 985 729 30 772 452 Profits (losses) on discontinued thous. activities tenghes 213 998 0 0 thous. 46 971 Profits (losses) before tax* tenghes 165 47 319 723 30 772 452 thous. 20 131 -16 562 Expenses on corporate income tax tenghes 413 026 12 883 155 thous. 26 839 Net profits (losses) * tenghes 752 61 547 755 17 889 297 *- Financial indicators comply with 2009 audited consolidated financial statements of Kazakhstan Railways.