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 KAZAKHSTAN International Business Magazine №3, 2007
 Striving for Harmony through Responsibility
Striving for Harmony through Responsibility
Arman Abdykalykov, PetroKazakhstan Vice President Public Affairs and Government Relations
These words best reflect PetroKazakhstan’s corporate credo. The company’s major objective is to achieve harmony with nature, legislation, its employees, the local community, and also with ethical principles. The maximisation of profit in detriment to the environment is not acceptable for PetroKazakhstan.
As one of the largest integrated oil and gas companies in the South Kazakhstan and Kyzylorda Oblasts, PetroKazakhstan plays the role of regional economic leader, and this, you will agree, would not be possible if PetroKazakhstan did not observe corporate social responsibility (CSR) standards. Several dozen definitions of the term “corporate social responsibility” currently exist that have been adopted in the West and are used in post-Soviet countries. CSR is a complex and diverse term representing business standards focusing on the long-term nature of business itself and increasing value for shareholders. In this article I don’t want to continue the discussion of what social responsibility is but would rather share PetroKazakhstan’s experience of how CSR principles work in practice.
For us, corporate social responsibility is not just an abstract concept but a business standard that we follow in our everyday activities. The observance of CSR principles is a prerogative for all company employees and not only for top management. This particular style of working gratifies and benefits all parties – the government, employees and their family members, consumers, local communities and shareholders.
The corner stone of PetroKazakhstan’s social responsibility is safety at work, protecting health of its employees through medical insurance, the development of personnel through training programmes, and environmental protection by implementing a comprehensive management system. PetroKazakhstan fully recognises its social responsibility to the population of the Kyzylorda and South Kazakhstan Oblasts – the regions where the company operates and where its employees live and work.
Recently, in October 2005, our company changed owners. The company has two shareholders – the China National Petroleum Corporation (67%) and NC KazMunayGas (33%). New management has placed great significance on corporate social responsibility issues – the reason why CSR principles play such an important role in our values.
I need to mention that CSR is a relatively new concept not only in Kazakhstan businesses, but also in global corporations. At the same time, each of them, depending on the focus of its activities, the vision of shareholders, top management and employees, is looking for a way to form and execute the principles of social responsibility, and also to implement internal and external CSR reporting. For example, CNPC, which is the major shareholder of PetroKazakhstan, published its first CSR report only this year.
What impelled the company to take this step? CNPC is the largest China national oil and gas company, and has operations in 48 different countries and regions. Its activities have a direct or indirect impact on the lives of local communities. This means that the company impacts the welfare, socio-economic and professional development of millions of people throughout the world.
CNPC has learnt a difficult lesson from recognising the errors it has made due to its careless relationship with environmental protection, having paid a very high price. For example, on 13 November 2005, an ecological disaster occurred as a result of an explosion at the CNPC chemical plant, which had serious economic and political consequences. Pollutants containing benzol and introbenzol were emitted into the Sungari river, causing huge losses and damaging the company’s reputation in the eyes of global and local communities.
Nevertheless, CNPC was open in its reaction, prepared and published its first CNPC corporate social responsibility report, which is an important step on the path to harmonising the company’s relations with the community and government. The report talks openly and in great detail about obligations taken to sustain social development, protect the health of the people and environment in China, as well as other regions where the company performs its activities. It also analyses cases that have led to a loss of work time due to injury, health and safety risks, and breaches of environmental safety.
As for our second shareholder, KazMunayGas, it is also taking important steps with respect to transparency and its obligation to society, its employees and the government.
In turn, I would like to take this chance to explain the path currently being taken by PetroKazakhstan. I would like to touch on CSR examples that best cover the evolutionary processes that we have been experiencing in PetroKazakhstan during the course of its active corporate creation.
Protecting Environment
It is known that oil production and refining are prone to ecological risks that could have serious consequences if underestimated. For this reason we have developed a system to integrate environmental issues with business planning, which would allow us to study them without interrupting commercial activities.
Protection of people and the environment through reliable management systems is based on the four R’s:
·  Reduce
·  Reuse
·  Recycle
·  Recover
Oil companies pollute the environment during their operating activities. PetroKazakhstan Kumkol Resources is no exception. Pollution occurs due to valve decompression, the failure of level gauges and the overflow of reservoirs, traffic accidents involving oil tankers, burst flow lines, unsanctioned inserts into major oil pipelines and so on, resulting in a significant volume of polluted ground every year.
In order to resolve the pollution problem, PKKR has planned and commissioned a composting site which currently uses a series of three techniques to clean polluted soil. The first technique is thermal cracking, which involves the thermal breakdown of oil and petrochemicals by recycling polluted ground. Inert substrata, which is used successfully in construction (for example, to fill a road surface) and also to reclaim quarries and roadside areas, is collected upon exit from the installation. The annual volume of soil cleaned in this manner exceeds 8,000m3.
The second technique involves cleaning polluted soil with hot water. After treatment ground is capable of restoring its fertility through the use of mineral and organic fertilisers. JSC PKKR cleans more than 7,000m3 of polluted ground per year in this way.
Finally, the third technique, which is the most ecologically friendly and involves composting techniques, i.e. the natural restoration of soil fertility by creating favourable conditions to develop micro-organisms that break down petroleum hydrocarbons. All cleaned soil is subject to laboratory monitoring, and may be used for construction purposes. In 2007 more than 8,000m3 of soil were cleaned in this way.
As well as cleaning polluted soil at the composting site, PKKR also reclaims land by using the BIOShOL biological preparation, which contains active micro-organisms. In 2007 an area of 5.85 hectares was reclaimed that had become polluted as a result of a spill at well No. 17 of the Kzylkiya field. The same method was used to clean 12,000m3 of polluted soil at well No. 2079 at the Kumkol field, which, as a result of a large spill 10 years ago, had become extremely polluted.
Personnel training and development
PetroKazakhstan is the largest employer in the regions where it performs its activities. At the beginning of 2007, of the 3,118 company employees 2,943 (or 94%) were Kazakhstan citizens. In 2006 the company allocated more than $3m in professional development programmes for its employees. As a result more than 3,000 employees underwent training in various specialities in Kazakhstan and abroad. In 2007 the Company is investing about $4m in training and developing its personnel.
PetroKazakhstan also carries out training programmes for PetroKazakhstan employees and their children, a programme to train talented youth from the Kyzylorda Oblast in the best educational institutions of China and Kazakhstan. Our company is paying special attention to the latter. In 2006, after selection procedures had been completed, 15 grants were provided meaning that 10 students are now studying in the China Petroleum Institute, while five others are studying in KBTU and KIMEP. The same selection process was performed this year. The company pays all tuition fees for the students selected under this programme, and also pays monthly grants, purchases notebooks and stationery, pays the cost of travelling to studies and medical insurance for those studying abroad.
PetroKazakhstan is proud of its contribution to the professional development of its employees and the community of the Kyzylorda Oblast. Company management is sure that this investment will help to create a favourable organisational climate, increase employee motivation and company loyalty, continuity in management.
Contribution to the development of Kazakhstan
PetroKazakhstan makes yet another contribution to the country’s economy through its programmes to increase the Kazakhstan content of the equipment, goods and services it purchases. After the change of ownership in October 2005, the volume of the Kazakhstan content in both PetroKazakhstan’s production and refining divisions increased significantly. In 2006 alone the share of PKKR’s local suppliers increased 2.3 times or by $381m. As far as the first half of 2007 is concerned, the share of local suppliers for PetroKazakhstan Kumkol Resources amounted to 82% or $548m, while for PetroKazakhstan Oil Products the number was 93.6% (or $49.2m) of all goods and services purchased.
Employee social welfare
One of PetroKazakhstan’s greatest assets is its employees, and we consider investment in personnel a win-win decision. For this reason we are constantly trying to improve our efforts in hiring and retaining the best professionals in PetroKazakhstan. On January 1, 2006, PetroKazakhstan introduced a new programme to provide medical services for its national personnel. This step reflects new management’s wish to create the best conditions to increase its employees’ standard of living by providing them with essential medical services. The programme has ensured that PetroKazakhstan employees receive high quality medical services and has also helped us improve the company’s individual and corporate parameters. $3.4m has already been spent on the programme since it started.
Charity and sponsorship
PetroKazakhstan is one of the largest sponsors of social and charity projects in the country, and from the earliest days has invested significant funds in their implementation. Statistics show that the company has invested more than $40m in the social sphere and sponsorship.
The company pays great attention to social infrastructure development, such as gas and telephone installation projects, provides water and electricity to many villages in the Kyzylorda and South Kazakhstan Oblasts.
Memorandums of cooperation have been signed with the administrations of the South Kazakhstan and Kyzylorda Oblasts in order to provide constant social support to the regions. PetroKazakhstan has played a key role in the creation of the Demeu social fund which was set up together with the akimats of the Kyzylorda Oblast. Demeu is a non-commercial organisation that has been created to finance socially significant projects by combining funds allocated by various oil and gas companies working in the region.
On 19 May 2007 the President of PetroKazakhstan Kumkol Resources, Mr. Bo Qiliang and the akim of the Kyzylorda Oblast, Mukhtar Kul-Mukhamed signed a memorandum according to which the company transferred $4m to the Demeu fund to finance regional socially significant projects.
A similar memorandum was signed with the akim of the South Kazakhstan Oblast, Umirzak Shukyeev, according to which PetroKazakhstan Oil Products allocated $1.8m in 2007 to finance social projects in the South Kazakhstan Oblast, which includes supporting the Ordabasy football club, building a blood donor centre and others.
The above list of PetroKazakhstan charity and sponsorship projects is only a small part of what the company is doing as part of its social responsibility programme. The most important thing is to find harmony between business and society, which is why we intend to extend the range and scale of our social programmes to reach more people in the regions where it performs its activities.

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