JPMorgan - KASE

the environment with concentrations of pollutants within the requirements of applicable laws.
Other facilities utilized in the refinery include tank farms, cooling towers, rail discharge and load
facilities and flare stacks which generally comply with modern environmental requirements.
The treated water discharged from the Shymkent refinery is sufficiently clean to discharge, but it
is not potable, nor is it recommended for agricultural use. The Shymkent refinery has a permit to
pump the treated water by pipeline into a settlement pond located 96 km northwest of the
refinery at a site called Akdala. The refinery complies with the discharge requirements for this
settlement pond.
We believe that there are no significant environmental liabilities arising from the operations of
the Shymkent refinery prior to the HOP privatization. Although we can provide no assurances
that a hidden environmental problem may not be found in the future, Kazakhstan’s privatisation
law allocates financial responsibility for environmental damage which occurred prior to the HOP
privatization to the Kazakhstani government. However, no baseline with respect to
environmental damages that occurred prior to the privatisation of HOP has been established. A
significant portion of our 2002 investment budget for the Shymkent refinery was dedicated to
environmental and safety operations.
We believe that, to date, there have been no significant amounts of contaminants released from
the operation of any of HOP’s assets since its privatization, including the Shymkent refinery.
However, in the event that discharges into the environment or environmental damage caused by
non-compliance with environmental laws or regulations occurred after the completion of the
HOP privatization or after the completion of the HOP acquisition, we could incur significant
liability for damages, clean-up costs and/or penalties as a result. Any environmental liability could
have a material adverse effect on us. To date, we have not established any provision for potential
environmental liabilities for our Downstream operations.
Employees
As of September 30, 2002, we had a total of 3,423 employees, of which 1,456 employees were
employed in our Upstream operations and 1,851 were employed in our Downstream operations.
We consider our relations with our employees to be satisfactory. Our Canadian and expatriate
work force is not unionized. The employees of HKM and HOP are unionized. Our agreements
with these unions serve to define the parties’ respective social obligations and do not have
minimum wage or compulsory arbitration terms. The government of Kazakhstan has minimum
wage laws that apply to our operations. We have never experienced a strike.
Both our Upstream and Downstream operations were previously owned and operated by the
government of Kazakhstan. Since our acquisition of these operations, we have worked to
introduce and encourage western work practices. In our Upstream operations, we have outplaced
a large number of our employees since the fourth quarter of 1999 and successfully assisted
many of them to set up businesses of their own, including in the transportation, construction,
repair, catering, medical and security fields, which now provide services to HKM on an
outsourced, independent contractor basis. We are in the process of implementing this policy in
our Downstream operations. In addition, we have invested in training programs for our
Kazakhstani employees, and have encouraged and intend to continue to encourage many of
these employees to assume management positions in our operations. We believe these policies
will foster continued good relations with our native Kazakhstani employees and with the
government authorities in Kazakhstan.
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