In the last 10 years KMG spent over $250 mln for remuneration to its key management personnel
Bloomberg reports that Kazakhstan National Company KazMunayGas (KMG) tries to sell a part of its shares to Shell oil giant.
In the last article we spoke about the losses that KMG sufferswas making from its operational activities. Given the losses, it seems clear that Kazakhstan would benefit most if such national company wasn't created at all.
We remind our readers that KMG operational activities include participation in the state oil and gas development policy, representation of the state interests in contracts for subsurface use, corporate management, and monitoring of subsidiaries' activities. Tens of thousands of ordinary workers employed by KMG companies produce over 22 mln tons of oil yearly, but in the last years such operations somehow generate no profit.
By 2015 KMG reportedly had accumulated debts of over $18 bln, and all its profits serve redemption of credit interests.
The epic story of KMG International purchasing Romanian oil refineries is now over ten years old. More than $3 bln have been spent on this. At the same time, oil refining and oil product processing on Romanian oil refineries upgraded for hundreds of millions of dollars are non-profitable. The company, which is so costly for Kazakhstan budget, makes profits simply by resale of oil.
Meanwhile, KMG had to sell a majority share of KMG International to China Energy Company Limited for $680 mln, and we have not seen any money yet.
If KMG managers had not invested so actively to abroad companies, had not spent millions of dollars on failed fields, had not built hotels and resorts overseas or had not established the so-called non-core assets, Kazakhstan might have obtained, by our estimates, over KZT 1.5 trillion in taxes and other royalties from the oil produced by the national company. Instead, we only suffer losses.
No matter what managers employed by the national company do, their deeds result in years-long losses. What's more, they are burning even the share of profits which they collect from private Kazakhstan oil producing companies by proxy on behalf of the government.
These losses do not affect individual wealth of KMG managers one way or another.
The national company has "Rules of paying remuneration to the members of the executive board". Under the rules benefits are paid based on the results of activities over a fiscal year depending on meeting strategic goals by managerial personnel.
Despite the fact that in 2016 the national company suffered operational losses, managers were paid record high remuneration of KZT 2.85 bln ($8.55 mln).
At the same time financial statements of KazMunayGas NC report that only $1.2 mln of remuneration was paid to the members of the board of directors and the remaining $7.35 mln were paid to the executive board of KazMunayGas.
It averages to $1 mln of remuneration to every member of the executive board.
We would like to emphasize that remuneration to KMG key management personnel increases independently of KZT/USD exchange rate and KZT devaluations.
Since 2011 total remuneration amount has grown over four fold (expressed in USD): from $2 mln to $8.55 mln.
It is widely known what a disaster happened in Zhanaozen in December, 2011. Ordinary oil personnel had been on a multi-month strike to increase salaries.
It is whimsical coincidence that in 2012 KMG tops' benefits started to grow and had climbed above a billion of KZT by 2013.
The following chart shows us remuneration dynamics:
The members of the board of directors, especially independent directors, were not bereaved as well.
Full name of member of the board of directors
Remuneration 2016 , USD
FRANK K.V. KUYLAARS
CHRISTOPHER JOHN WALTON
KAUR GRYUAL BALJIT
For example, independent directors Peter LANE, Frank KUYLAARS, and Christopher WALTON on average receive not less than $250 thousand per year each.
Once new "Rules of paying remuneration to the members of the executive board" were adopted, total sum of benefits has exceeded KZT 1 bln in 2013 and KZT 2.85 bln in 2016. Up to 2013 independent directors annualy received merely $100,000.
Totally, over the last 10 years remuneration of the key management personnel in NC KazMunayGas JSC exceeded $250 mln.
Tops' benefits look particularly mockingly when one takes a look at the losses diagram. As you can see there, when KMG went into the red, remuneration of the key management personnel got just slightly affected.
As of December 31, 2016, the executive board of NC KazMunayGas JSC included the following members:
Chairman of the board of National Company KazMunayGas JSC
Advisor to the Chairman of the Board
Executive Vice President - Chief Financial Officer
Executive Vice President for Gas Transportation and Marketing
Vice President for Transformation
Vice President for Human Resource Management
Vice President for Legal Support
Note: Key management personnel include both members of the company's executive board and the board of directors.
The remuneration of the key management personnel includes expenses on payroll specified in their contracts and bonuses based on operating results of the company.
Given the amounts of remuneration being accrued even though the company incurs multi-billion losses, it is clear why Mr. Umirzak SHUKEEV, former President of Samruk Kazyna Foundation, loathes answering bonuses-related questions.
In story: KASE:RDGZ