JPMorgan - KASE

On January 8, 2003, the President of Kazakhstan signed a new Investment Law, which entered
into effect on January 11, 2003. It is unclear how this new legislation will be interpreted or, in
particular, how it will impact existing protections that cover our operations. We expect that the
application of the new legislation will be decided on a case-by-case basis. However, we also
expect that the stability provisions in our privatization agreements and hydrocarbons contracts
will be honored and therefore that the new legislation will not have a material adverse impact
on our operations. See “Risk Factors — Risk Factors Related to Our Operations in Kazakhstan —
Changes in Kazakhstani laws and regulations and the interpretation of those laws and
regulations may adversely affect our business”.
Insurance
We maintain insurance coverage with respect to the Shymkent refinery against various losses
consistent with western industry standards. See “Risk Factors — Risk Factors Relating to Our
Business — Losses, damages and liability relating to our properties are not fully covered by
insurance”.
Legal Proceedings
From time to time, we are involved in legal proceedings relating to claims arising out of our
operations in the ordinary course of business. Other than as set out below, we do not believe
there are any material proceedings pending or threatened against us or any of our properties.
We have been engaged in two court cases in Kazakhstan pertaining to disputed tax assessments
for the tax years 1998 and 1999. The first involved HOP and was for approximately $8.8 million.
HOP has successfully argued its case at the first level of the court system in Kazakhstan and at the
Supreme Court level. There is a possibility that the Ministry of State Revenue may appeal to the
Supervisory Panel of the Supreme Court. No provision has been made in our financial statements
for this assessment.
The second case involved HKM and was for a total of approximately $10.5 million including taxes,
fines, interest and penalties. HKM was successful at the first level of the court system and was
unsuccessful on the majority of the issues at the Supreme Court level. HKM will appeal to the
Supervisory Panel of the Supreme Court. We have provided for $2.9 million of the $10.5 million
in our September 30, 2002 financial statements. We continue to dispute this assessment, as we
believe the tax stability provisions of our hydrocarbon contract established that HKM is not
subject to the assessed taxes.
We have made further provision in our financial statements for an additional $5.5 million
relating to tax assessments for 1998 and 1999, for the years 2000 and 2001 and for the first nine
months of 2002.
Through our operating subsidiaries in Kazakhstan, we have received tax assessments for 2000 and
2001 amounting to $56 million, which have been reduced through negotiations to $44 million.
We have not provided for these tax assessments in our financial statements and have filed or will
shortly file court cases disputing these assessments.
We have been named as defendant in a claim filed by a company alleging breach of a consulting
contract and seeking, in aggregate, damages of $4.7 million. We believe this claim is without
merit and, accordingly, no amount has been recorded in our consolidated financial statements.
Environmental Matters
Extensive national, regional and local environmental laws and regulations in the jurisdictions in
which we operate affect nearly all of our operations. These laws and regulations set various
standards regulating certain aspects of health and environmental quality, provide for user fees,
penalties and other liabilities for the violation of these standards and establish, in some
circumstances, obligations to remediate current and former facilities and off-site locations. At the
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