Issues concerning the acquisition of a right to land plots required for subsoil use operations

Issues concerning the acquisition of a right to land plots required for subsoil use operations

There is no way to conduct an exploration and/or production of minerals without using the land located above the contracted territory. Subsoil users however often face obstacles, caused by both imperfections of the land legislation, and infringements from the state structures authorised to grant the right to land use.

The problems related to the imperfection of the land legislation are as follows.

Problem No. 1

According to Article 68.5 of The Law of the Republic of Kazakhstan ‘On Subsoil and Subsoil Use’, signing a contract is the basis for land registration by an Akimat of an Oblast, Almaty or Astana cities, within thirty working days from the date the reference is made by the subsoil user, except for cases involving the compulsory purchase of land (rights to use the land) for the state’s needs according to the land legislation of the Republic of Kazakhstan. A similar provision can also be found in Article 44.5 of the repealed Law ‘On Subsoil and Subsoil Use’ dated 27 January 1996.

In addition, according to Article 43.3 of the Land Code, an application requesting rights to the land is considered within two months. This does not include the period of development and approval of the land arranging project. Further, the Land Code is higher in the hierarchy of laws than the Law ‘On Subsoil and Subsoil Use’ and therefore, when defining the terms for granting rights to the land plots, the Land Code should prevail.

Moreover, a two-month term for granting a right to land use is not always observed by Akimats either. In practice, this often led to infringements of the terms of the subsoil users’ annual working programmes.

Problem No. 2

According to section 7.3.2 of the Model contract, approved by the Decree of Government of the Republic of Kazakhstan dated 31 July 2001 No. 1015, the competent body is obliged to provide the contractor of a land plot with a right to use the land in accordance with the contract. As a result of being included in the contract , this condition therefore becomes a duty of the competent body.

The competent body does not however have powers allowing it to give the required land plot to subsoil users: granting rights to the land is a function of Akimats, and the competent body cannot give instructions to them, nor appeal against their wrongful actions or omissions. The duty of the competent body to render assistance to subsoil users in the performance of their contractual obligations becomes impractical.

Problem No. 3

In the majority of cases, when signing a subsoil use contract, land plots are already owned or used by other parties.

Such plots of land could be used by subsoil users on the basis of servitude, stipulated by Article 71 of the Land Code of the Republic of Kazakhstan. Companies that require these plots of land for the construction of wells and other facilities required for exploration could however face the following problem.

According to Article 68.2 of The Law of the Republic of Kazakhstan ‘On Architectural, Urban Development and Construction Activities’, to construct facilities a company is required to acquire an ownership right or right to use the land (but not servitude). If the land is already in someone’s ownership or use however, the land could be acquired by a subsoil user on the basis of a contract with the owner or user of the land, who is not required to sign the contract.

In this case, the termination of an ownership right or right to use the land in a compulsory withdrawal of the land could be done by a buy-out of the land for the state’s needs. A buy-out such as this is however allowed only in a case where a mineral deposit is detected under the land and the development of the land has not been reached at the time of the exploration.

Furthermore, in some cases, subsoil users ought to acquire a right to use the land for agricultural purposes to construct facilities dedicated for exploration. It therefore often appears that the land is not owned, but is in temporary land use by an individual or legal entity. According to Article 33.2.7 of the Land Code of the Republic of Kazakhstan, a transfer of a right of temporary land use for agricultural purposes is not permitted. The land transfer in sub-rent is not permitted either. To acquire a right to transfer the land to the subsoil user, an agricultural land user should therefore acquire this plot. After becoming the proprietor of the plot, the named person includes these expenses in the purchase price, which he offers to the subsoil user. This price is usually very high because, apart from the expenses for the initial payment of a land plot, it would include at least all other costs related to the transfer of this plot to a subsoil user. 

The owner of the land plot is not required to make a deal either. This is why, in the case of his refusal, the subsoil user may find it impossible to perform works planned under his contract on time. It shall be noted that in resolving disputes relating to a failure to perform its obligations under a contract arising from a late acquisition of rights to the land plots, a certain practice has been established. We can illustrate this practice using the following examples.

One of the companies after signing a subsoil use contract filed an application with the Akimat on the provision of a land plot needed for the execution of its contractual obligations. After one and a half months, the decree of the Akimat on the provision of the land plot was issued, but the applicant did not receive it. The applicant received an oral confirmation of the existence of the decree. About 3 months later, a representative of the Akimat stated that the decree was prepared incorrectly and asked the company to file a new application. The company did so but the Akimat’s second decree never reached the applicant. Later in court, a representative of the Authority on land relations argued that the second decree cancelled the first one, whereas the the second application was considered on time. The decree was not given to the company because the Authority received information orally that the subsoil use contract signed by the company would be terminated.

The absence of a right to the land plot led to a breach of the terms of commencement of exploration, which was used as a ground for the unilateral termination of the contract by the competent body. The company appealed the decision to terminate the contract to the court.

In this particular case, the company’s right to acquire a land plot was breached from the very beginning. The inconsistency of the initial decree with the legislation or mistakes made in the decree was a breach on the part of the Authority on land relations. The court in its judgment indicated that ‘the applicant was not duly notified’ of the necessity of re-issuance of the decree however, we believe the burden to re-issue the decree was of the state’s authority only. Further, the second application (if it did not request the cancellation of the first one) did not relieve the Authorities from considering the first application on time and granting legal documents in the due manner. We shall also mention the fact that the state bodies are not entitled to postpone granting legal documents to land plots. The authorities are entitled to refuse a right to the land plots but the copy of the refusal should be sent to the applicant within 7 days from the date of such decision.

The court delivered a judgment for the applicant taking into account the fact that the company did everything it could to perform its obligations under the contract, but the failure to perform the aforementioned obligations was due to circumstances not dependant on the company.

In another case, a contract was signed with the company for the exploration and extraction of mineral resources. It was subsequently discovered that within the contracted territory, there was a land plot owned by other subject. In order to perform its obligations, the company sent a request to the legal owner of the land plot so as to gain access to the land.

At first, the land user agreed, but after some time asked the company to vacate the land plot, which led to a material failure to perform the works under the work programme for the first year of exploration.

In this case the court, as in the previous case, thought that the subsoil users should have taken all available steps to perform their obligations on time. The court decided however that the subsoil user’s actions were not sufficient because it could have appealed the decision of the land user by asking the court order to grant servitude.

In general, it should be noted that the court hearing this category of case will ascertain whether or not the subsoil user did everything it could to perform the contract. It turns out that in fact, the courts used the principle of responsibility for a culpable breach of obligation. In doing so however, they did not cite any law confirming the principle (Article 359.1 of the CC RK).

The means adopted by subsoil users to acquire land plots are assessed by the courts in different ways. In one of the cases, the court justified a company’s argument that the company did everything it could in the circumstances, because a matter on the provision of the land plot took a long time to agree with the Akimat whose actions were not appealed. In another case, a failure to take steps to appeal the actions of a land user was considered by the court to support the insufficiency of actions taken by a subsoil user to perform its obligations.

It shall be noted that both of the disputes were decided in accordance with the repealed Law ‘On Subsoil and Subsoil Use’ dated 27 January 1996. With the enactment of the Law ‘On Subsoil and Subsoil Use’ dated 24 June 2010, the grounds for termination of contracts have substantially changed.

According to Article 72.3 of the new Law, the competent body may unilaterally terminate the contract if the subsoil user does not remedy, within the term mentioned in the notification of the competent body, more than two breaches of obligations stipulated by the subsoil use contract or project documents (for instance, a project of estimated works, technology schemes of field development, project of industrial development, etc). The Law stipulates a possibility to resume the actions of the previously terminated contract. One of the grounds for resuming the contract is ascertaining facts not dependant on the will of the subsoil user, including force majeure, as a result of which the subsoil user failed to perform or unduly performed its obligations under the contract.

We think that since such reasons amount to grounds for resuming the actions of the contract, the subsoil user may make a reference to them in appealing the decision of the competent body on termination of the contract. In this connection, we would like to point out that the subsoil user should demand the prompt provision of the land plot necessary for subsoil use operations using legal  mechanisms, such as appeals . Correspondence with the Akimat and other state bodies, as well as materials of the case related to an appeal of their decisions, may be used to confirm that the subsoil user took all of the possible actions to acquire the land plot and perform the contract and project documents in the due manner.

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The examples provided in this article confirm the inconsistencies within the legal policy of our country in relation to subsoil users. We think that the law should contain effective mechanisms, creating the possibility of a prompt acquisition of rights to land plots required for subsoil use operations. We also think that this may not only remove excessive obstacles for performing the contract, but also create a stable and certain level playing field for both of the parties.

Best Regards,

Environmental Law Department

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