JPMorgan - KASE

price we paid for the shares of HKM is allowed as a deduction) as well as ongoing revenues,
capital costs, royalties and operating costs and an allocation of overhead costs. An allocation of
the corporate income tax is deducted in arriving at cash flow and any “excess profits tax” paid in
respect of the previous year is deducted in the current year.
The tax base is the taxable income for corporate tax minus the corporate tax liabilities in the
current year and excess profits tax liabilities from the previous year.
The excess profits tax for Kumkol South is payable in a given year at a rate which varies with the
internal rate of return achieved in that year in accordance with the following table:
Internal Rate of Return
Excess Profits Tax Rate
Lessthan20%.................... —
Between20%and25% ........... 5%
Between25%and30% ........... 10%
Between30%and35% ........... 20%
inexcessof35%.................. 30%
The hydrocarbon contract with respect to Kumkol North provides the following excess profits tax
rates:
Internal Rate of Return
Excess Profits Tax Rate
Lessthan20%.................... —
Between20%and25% ........... 20%
Between25%and30% ........... 30%
inexcessof30%.................. 50%
The hydrocarbon contracts with respect to the South Kumkol field and the QAM fields provide
for the following excess profits tax rates:
Internal Rate of Return
Excess Profits Tax Rate
Lessthan20%.................... —
Between20%and22% ........... 4%
Between22%and24% ........... 8%
Between24%and26% ........... 12%
Between26%and28% ........... 18%
Between28%and30% ........... 24%
inexcessof30%.................. 30%
The foundation agreement for Kazgermunai effectively provides for a tax on the profits of
Kazgermunai with respect to its operations in the Akshabulak, Nurali and Aksai fields. The
foundation agreement provides for taxes of: (i) 25% on annual profits of Kazgermunai up to
$20.0 million, (ii) 30% on annual profits of Kazgermunai between $20.0 million and
$30.0 million, (iii) 35% on annual profits of Kazgermunai between $30.0 million and
$40.0 million and (iv) 40% on annual profits of Kazgermunai exceeding $40.0 million.
Downstream Operations
Overview
Crude oil produced from our fields in the South Turgai Basin by our Upstream operations that is
not exported is transferred to our Downstream operations to be refined at our Shymkent refinery
for sale primarily in the Kazakhstani domestic market. We seek to maximize the value of our
operations by balancing opportunities to export our crude oil with processing the crude oil in our
refinery for sale domestically, depending on market conditions and international crude oil prices.
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