Benefits of Environmental Due Diligence

Benefits of Environmental Due Diligence

Currently it is quite challenging to imagine the property acquisition of a subsoil user company without a due diligence procedure, the main part of which is the Environmental Due Diligence. The main purpose of the Environmental Due Diligence is to detect all Environment infringements of a company that can cause various economical losses (for example, fines, loss replacement and tax forfeit). The scale of these losses might be very large. At the same time, the reasons for the economic loss are not always clear and companies can not always be aware of their responsibilities – unless these infringements are revealed by the authorized bodies. The Environmental Due Diligence enables a company to avoid being in such situations, because it enables the company to find out if they  meet all Environmental requirements  – which are provided not only in the Environment protection legislation, but also in the sanitation, construction activity and technical security legislation.

During the Environmental Due Diligence, various defects in subsoil users’ activity become evident, some of which  are common. The most common breach by companies is the lack of an Environment emissions Permit. Furthermore, the lack of such Permits is not always the main result of the neglect of companies of the Environmental requirements. Sometimes some types of emissions remain “imperceptible” during the Environment Expert review as a result of the ignorance  of the fact that certain effects on the Environment can be reported as emissions according to the Environmental Permit, and if the payments were made into the budget. In that case, the lack of the Environmental emissions Permit is usually revealed  during the Inspection of Environment control, which can force the subsoil user to make tenfold size emissions payments.

The emissions should be taken seriously, because the legislation has two clauses:

1.    Firstly, to determine the size of such payments for emissions expended without a Permit and excessive emissions. The rules of the economical assessment of the Environment pollution damages can be used. These rules cover the period from the last inspection, but this can be for no more than 3 months. If the lack of the Emissions Permit or excessive emissions is revealed during the Inspection, then the damage scale will be figured in accordance with these Rules.
2.    At the same time the emissions payments are supposed to be compulsory payments into the budget; that is to say the authorized Tax bodies can control the procedure of such payments. But the authorized Tax bodies normally refer to the RK Tax Code, which says the payments should be made for the whole of the period when emissions were expended without the Emissions Permit or excessive emissions were made. Moreover, the RK Tax Code provides a fine  for the tax obligations expiration.

Consequently, the scale of payments mainly depends on which type of inspection defected the excessive emissions or the lack of Emissions Permit – during the Environmental or Tax inspection.

There is another common failure in a nature user’s activity which is usually found during the Environmental Due Diligence – uncertain contractual relations. For instance, a company composed the natural gas recovery program and proposed selling the gas to third parties. But then most of the third parties did not fulfill their duties and the program almost failed. Due consideration should be given to the fact that the failure period for the program implementing is supposed to be a reason for recalling the gas burning Permit, and gas burning without a permit involves a fine as a penalty for irrational use of natural resources (natural gas). Furthermore, in such cases the nature user takes responsibility for unauthorized emissions expended into the environment. Incidentally, the emissions caused by the gas burning involve very high payments and, as a  result, the nature users have to pay tens, or even hundreds of million tenge for the emissions.

Thus, all responsibilities that can influence the financial situation of nature user companies should be examined and protected.

Sometimes it can have negative results to purchase a property from somebody that is stated to be an emissions source.

The person who purchases the property becomes the property owner after the state registration. There was one situation when a legal entity purchased such property and did not register its proprietary rights. As a result, it used the property and expended the emissions without the correct Permit. As the person who sold the property still had the proprietary rights for it, this person finally took the responsibility for the emissions expanded without the Permit. Therefore, the person who sells a property, the use of which may cause environmental emissions, should address the real property registration state bodies to register the sale with the person who purchases the property, or simply employ a law firm to transfer the proprietary rights for the emissions source.

Other problems can be revealed during the Environment Due Diligence that have been solved by Grata law firm over the last 15 years. Grata law firm offers its services to protect and prevent YOUR business from environmental risks.

Best regards,

"Environmental Law" Department

Tel.: +7 (727) 2 445-777
Fax: +7 (727) 2 445-776
ecology@gratanet.com