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Kazakhstani Content Requirements Relating to Purchasing Goods, Works and Services

On 6 July 2010 a new Law on Subsoil and Subsoil Use (hereinafter – the ‘Subsoil Law’) was adopted in Kazakhstan. The Subsoil Law provides for a number of important requirements on the local content relating to purchasing goods, works and services by subsoil users.

Subsoil users in their practice often face with the issues regarding to the methods of local content calculation, use of different standards related to local content and different kinds of purchases, as well as the issues of preparing annual, medium-term and long-term programs of purchase of goods, works and services. Foreign subsoil users are also often interested in the methods of structuring of personnel policy for the purpose to keep qualified foreign employers while complying with the balance of local content. 

Exploration and Production of Minerals in the Republic of Kazakhstan

As a general rule, all issues related to exploration and production of minerals require special attention considering a specific character of legal regulation in this sector.

Subsoil users that perform activities under the contract on exploration, production, combined exploration and production often have questions regarding documents to be prepared and provided to competent authority for coordination and approval of design documents, time limits required for submission of the work program for approval, document that certifies transition from exploration to  production stage, actions required for the extension of the exploration period, including the timeframe required for evaluation of commercial discovery, as well as many other questions. We would like to offer our clients services on legal support of exploration and production operations in connection with execution of obligations under the subsoil use contract, in cases when judicial protection of a subsoil user’s rights is needed, and in other cases.

Contract for Drilling Works and other Services Agreements

Service contracts in the area of subsoil use are complex commercial agreements and play a key role in course of subsoil use operations. Based on our practice, such contracts can be concluded both with the participation of local and foreign companies depending on the scope of work and area of their performance. There are many questions of responsibility, distribution of risks and other questions that require complex legal expertise, arising in the process of concluding contracts for drilling works and other services agreements.

Conclusion and Amendment of Subsoil Use Contract

According to the Law of the Republic of Kazakhstan on Subsoil and Subsoil use dated 24 June 2010 (hereinafter – the ‘Subsoil Law’), to perform subsoil use operation it is required to enter into the subsoil use contract (for exploration, production, combined exploration and production). The draft subsoil use contract shall be developed by the winner of a tender and shall be agreed with the competent authority. In connection with this, when supporting projects on acquiring a subsoil use right and conclusion of contracts our lawyers pay special attention to the terms and conditions of the concluded contract.

Given that  conditions specified in the tender bid for granting of a subsoil use right and to be included into the contract will affect the fact of whether this or that participant will be considered as the winner, the qualified legal assistance may often be required even at the stage of  preparation and submission of the tender bid.

Since the draft subsoil use contract shall be subject to the obligatory state examination (legal, economic, environmental), the development the conditions of the draft subsoil use contract should engage not only those lawyers, who specialise in mining, but also those, who practice in the areas of taxation, environment, etc. Our lawyers have extensive experience in drafting subsoil use contracts, and availability of the branch of our Firm in Astana allows us to be regularly informed on the status of subsoil use contracts submitted to the competent authority. Moreover, it allows us be aware of the contract status at the stage of examination by other state authorities and, therefore, provide a flexible response in case of the need to complete the draft contract in order to address comments of the respective state authorities.

Changes in the legislation, extension of the contract term, re-registration of a geological allotment are, as a rule, the grounds for modification of the contract. Amendments to the contract are acceptable upon agreements of the parties. Since an amendment to the contract is an integral part thereof and contains provisions replacing or supplementing any of its terms and conditions, drafting of an amendment shall be as thorough as drafting of the contract. Our team will assist you in amending the contract and settlement of all legal disagreements.

Within support of conclusion of the subsoil use contract, as well as within the procedure for contract modification, our experts offer:

• preparation of the tender bid;
• representation of the Client’s interests when submitting and registering the tender bid, in course of negotiations with the state authorities that are a part of the working group on consideration of the draft contract, in course of approval and examination of the draft contract, as well as when signing and registering the contract;
• drafting the contract and amending final version thereof if required;
• drafting additional agreements to the contract;
• negotiating with the working group and state authorities in course of obtaining necessary approvals and expert evaluations;
• development of final version of the draft additional agreement to the contract, signing and registration thereof.

Pledge of a Subsoil Use Right

On 24 June 2010, a new Law on Subsoil and Subsoil Use (the “Subsoil Law”) was adopted in Kazakhstan. According to the Subsoil Law, transfer of a subsoil use right (or a part thereof) or related objects into pledge shall be performed upon approval of the competent authority. Moreover, the Subsoil Law establishes regulations in the area of pledge of subsoil use right. For instance, borrowed funds obtained against the pledge of subsoil use right shall be only used for the purpose of subsoil use within the respective subsoil use contract.

Obtaining permit to transfer subsoil use right into pledge is a long-time process that includes collection of information and documents. According to the current subsoil use legislation, the period for consideration of the application is seventy business days. According to our practice, however, this process can take up to six months.

Transfer of Subsoil Use Right and Related Objects

On 24 June 2010, a new Law on Subsoil and Subsoil Use (the “Subsoil Law”) was adopted in Kazakhstan. The Subsoil Law describes in detail the procedure for issuance of approvals to transfer the subsoil use right and related objects. According to this Law, objects related to the subsoil use right shall mean participatory interests (shares) in a legal entity holding the subsoil use right, as well as a legal entity, which may directly and/or indirectly define and/or affect decisions of a subsoil user, if the principal activity of such a subsoil user is related to the subsoil use in the Republic of Kazakhstan.

State Pre-Emptive Right on Acquisition of a Subsoil Use Right

According to the Law of the Republic of Kazakhstan on Subsoil and Subsoil Use dated 24 June 2010 (hereinafter – the ‘Subsoil Law’), in case of the transfer of the subsoil use right or objects associated with a subsoil use right, the state shall have a pre-emptive right against the other party of the contract (and equally against participants in a legal entity having the subsoil use right and other third parties) to acquire the transferred right or related objects. Thus, related objects are understood as participatory interests (shares) in an entity holding the subsoil use right as well as in the entity, which may directly or indirectly define or influence the subsoil users’ decisions, if the main activity of that entity is connected with subsoil in the Republic of Kazakhstan.

Based on our practice, issues relating to  a state pre-emptive right often arise in cases of transfer of participatory interests or shares in a subsoil user or in its founders to third parties. Officially, such a transfer requires a waiver of a pre-emptive right. A transfer committed without obtaining of such a waiver will be considered void.

Lawyers of our Firm have gained extensive experience in advising on transactions on the transfer of a subsoil use right (its part) and (or) related objects. Such experience allows us to consider and advice on specific features of any procedure of coordination depending on the scope of the transferred right.

In case an entity that holds a subsoil use right is intending to transfer it, the subsoil user should submit to the competent authority the transfer statement with certain requirements. Our lawyers will provide you with the professional legal assistance, starting from drafting the statement to providing legal support of the transfer transaction. Our branch office in Astana allows us to communicate with state authorities on a regular basis.

Termination of Subsoil Use Contract

According to the Law of the Republic of Kazakhstan on Subsoil and Subsoil Use dated 24 June 2010 (hereinafter – the ‘Subsoil Law’), no one can be deprived of the subsoil use right on the grounds other that those established by the Subsoil Law and other laws of the Republic of Kazakhstan. The subsoil use contract may be only terminated in cases specified by the Subsoil Law and the subsoil use contract. Besides, it should be noted that pursuant to the Subsoil Law, the competent authority has the right to early unilateral termination of the contract.

Our lawyers have extensive experience related to termination of subsoil use contracts, starting from negotiations with the competent authority to drafting termination agreements. Our branch office in Astana allows us to communicate with state authorities on a regular basis.

Taking into consideration grounds of termination of the contract, as well as the fact that the termination does not release a subsoil user from its obligations to return the contract area to the state and to liquidate consequences of subsoil use operations, lawyers also participate in settlement of complex issues arising when terminating the contract.

Whereas a subsoil user has the right to require early termination of the contract through the court, the practical experience of our lawyers allows defending the interests of a client in the court with the maximal benefit therefor.

In case of the termination of subsoil use contracts, our experts propose:

• advising a subsoil user on the procedure and ways of termination of a subsoil use contract, as well as on the legality of the termination grounds;
• negotiating of termination with the competent authority;
• drafting a termination agreement;
• representation of subsoil users’ interests in courts in connection with termination of the subsoil use contract.

Transactions with Strategic Objects

According to the Civil Code of the Republic of Kazakhstan, strategic objects are objects (property) having social and economic importance for the sustainable development of the Kazakh society, possession and (or) use and (or) disposal of which will have an impact on the national security of the Republic of Kazakhstan. The list of strategic objects is approved by the Government of the Republic of Kazakhstan. The encumbrance on the strategic objects and disposal thereof is performed upon the permit of the competent authority – the Government of the Republic of Kazakhstan. Obtaining permit to encumber and dispose of such objects is a long-time process that includes collection of information and documents.

According to the current legislation, the period for considering the application shall not exceed fifty business days after the receipt of the documents by the competent authority. According to our practice, this process, however, may take from three to six months.