JPMorgan - KASE

The fair value of current assets and current liabilities approximates their carrying amounts due to
the short-term maturity of these instruments.
The fair value of long-term debt is based on publicly quoted market values and current market
conditions for instruments of a similar nature.
Carrying
Value
Fair
Value
Long-term debt .............................................................. 277,767 270,643
16 Commitments and Contingencies
Kazakhstani environment
Kazakhstan, as an emerging market, has a business infrastructure that is not as advanced as those
usually existing in more developed free market economies. As a result, operations carried out in
Kazakhstan can involve risks that are not typically associated with those in developed markets.
Government taxes and legislation
The tax environment in the Republic of Kazakhstan is subject to change and inconsistent
application, interpretation and enforcement. Non-compliance with Kazakhstan laws and
regulations can lead to the imposition of penalties and interest.
During the year ended December 31, 2000, the Corporation was subject to a number of detailed
investigations by the tax authorities, which resulted in assessments of further taxes and penalties
totaling $19.5 million. The Corporation has provided for $2.5 million in the financial statements
as at December 31, 2000. The Corporation disputes the remaining assessments and believes it is
fully in compliance with current tax laws and regulations. Accordingly, no further provision has
been made in the financial statements.
Production licenses
The Corporation has a 50% interest in the Kumkol North field through a joint venture. The joint
venture, Turgai, is the operator of the Kumkol North field. Turgai, under the exploration and
production license dated December 20, 1995 (the “Kumkol North License”) for the Kumkol North
producing oil field, has committed to invest 5.3 billion Tenge, 5.4 billion Tenge, 2.6 billion Tenge
and 2.5 billion Tenge in 1996, 1997, 1998 and 1999, respectively, which, at the exchange rate in
effect at December 31, 1995, would be approximately $82.0 million, $84.8 million, $41.1 million
and $38.8 million, respectively.
Turgai did not satisfy this commitment in 1996, 1997, 1998 or 1999. There can be no assurance
that the government of Kazakhstan will waive the breach of the capital investment commitments
under such license. The failure to satisfy the capital investment commitments with respect to the
Kumkol North producing oil field may result in the cancellation of the Kumkol North License.
However, the Central Commission on developing oil and gas fields under the Ministry of Energy,
Industry & Economy approved a new project for the development of the Kumkol oilfield dated
June 24, 1999 providing for reduced capital expenditures which Turgai anticipated to meet or
exceed and to date, the Corporation has received no notice from the government of Kazakhstan
of its intent to terminate the Kumkol North License. The Kumkol North producing oil field
represents approximately 29% of the Corporation’s net proved reserves. Under the Share Sale-
Purchase Agreement, HKM has the right to have the license for the Kumkol North producing oil
field reissued to HKM in the event of the cancellation of the existing Kumkol North License.
Capital expenditures commitment
Pursuant to the Share Sale-Purchase Agreement with the Republic of Kazakhstan, a commitment
was made to invest, in Kazakhstan, an aggregate of $280 million in capital expenditures,
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