All issues connected with the above mentioned procedure shall be settled by the Rules of goods, works and services procurement during the oil operations adopted by the Order as of June 7, 2002 of the Goveernment of the Republic of Kazakhstan.

In accordance with these Rules, the procurement of goods, works and services by enterprises of oil and gas branch, shall be carried out on the basis of tender.

The above Rules shall determine the methods and terms of goods, works and services procurement during the performance of oil operations.

General provisions of these Rules:

1) The Ministry of Industry and Commerce of the Republic of Kazakhstan was determined as the authorized state body responsible for regulation of goods, works and services procurement during the oil operations performance.

The authorized state body shall control the goods, works and services procurement during the oil operations performance and also it approves the results of the tender for the goods, works and services procurement during the oil operations performance.

2) The new methods for carrying out of the procurements were determined. Therefore the tender (of open and closed type) is provided and the procurement without tender is permitted.

3) The requirements were established for the procurement procedures.

The essential moments of the procurement procedures are consisted in the following:

1) The authorized body of the subsoil user established the requirements for decision making about the procurements carrying out.

2) The procedure for obtaining of the tender terms obligatory approval by the Subsoil user in the Ministry of Industry and Commerce of the Republic of Kazakhstan was established the above terms include:

• the information about the tender shall be addressed to the potential tender participators;
• the tender documentation;
• the provision of the tender commission.

3) The Protocol made according to the tender results, shall also subject to the approval in the Ministry of Industry and Commerce of the Republic of Kazakhstan.

4) The Ministry of Industry and Commerce of the Republic of Kazakhstan representative shall be obligatory included to the tender commission.

5) «Tender Organiser» institution shall be provided. I. e., the Subsoil user may charge any third person with the co-ordination, organization and carrying out of the procurements in accordance with the above Rules.

In case of the procurements carrying out without tender, it is also necessary to obtain the permission of the Ministry of Industry and Commerce of the Republic of Kazakhstan.

Order of the tender holding

1. Preliminary measures on conducting tender. First of all the Company — the subsoil user- makes a decision on necessity of conducting purchase which should contain the data determined by The Rules. It is required to prepare a necessary package of documentation in Russian or state languages, to determine the staff of the competitive commission with obligatory participation of one state body employee and to receive conformation of the authorized body on tender conducting conditions. It is necessary to pay attention that the Authorized tender conditions are valid within six months if the state body does not establish a shorter term. Prolongation is admitted, but for no more than six months.

2. Conducting tender. At conducting tender the use of any kinds of competition — closed or open competition as well as the use two-stage procedures of conducting tender are admitted. After receiving the authorized conditions of tender, organizers are obliged to inform potential participants of the tender not less than 30 days prior to the deadline of accepting competitive applications; with this the organizer also commits to provide all potential suppliers with the necessary competitive documentation and also to give explanations on the questions arising in the process of tender. Conducting tender exclusively among the foreign organizations is not permitted at presence of Kazakhstani enterprises producing goods, carrying out works and rendering services on the territory of the Republic of Kazakhstan that meet the conditions of the organized tender as well as other requirements brought forward to conducting oil operations.

3. Announcement of the results of tender. This stage includes decision-making by the competitive commission on the basis of consideration results of the documents submitted by the competitors, approval of the report on results of the tender and its representation for approval to the state body. When defining the winning competitive application the competitive commission takes into account the priority of Kazakhstani enterprises of producers of goods, works and services along with other equal conditions. The priority of Kazakhstani goods producers enterprises is taken into account on providing the certificate of goods origin (or guarantees on its provision), confirming its production in the Republic of Kazakhstan, and the priority of Kazakhstani enterprises — producers of works and services- is taken into account on the degree of Kazakhstani labor force involvement, Kazakhstani experts and Kazakhstani enterprises acting as sub- sellers of works and services. With other foreign organizations competitive applications equal conditions preference at defining the best application should be given by the competitive commission to those participants, who:

1. Do their works, goods and services on the territory of the Republic of Kazakhstan.
2. Introduce highly technological production into the country.
3. Use goods, works or services of Kazakhstani enterprises.
4. Suggest using foreign goods, works or services on conditions of establishment of joint venture with no less than 50 % of Kazakhstani enterprise participation in its authorized capital.

The decision on tender results is registered as the report of the competitive commission session which is subject to the approval in the authorized body in a ten-day term starting from the date of the tender summarizing results. Up to the report approval of the tender results, its Organizer has no right to sign the contract with the winner of the tender by the results of the conducted tender.

According to p. 4) item 6 of The Rules (Chapter 2. «The competence of the authorized state body»), «the authorized state body approves conditions of conducting tender on goods, works and services purchase at conducting oil operations».

In accordance with the item 2 of the Decision of the RK Government dated 07.06.02, № 612 «On approval of Rules on goods, works and services purchase at conducting oil operations», the Ministry of Industry and Trade of the Republic of Kazakhstan is defined as the authorized state body on regulation of goods, works and services purchase at conducting oil operations; however in practice this function is carried out by the CJSC «Kazakhstan contract agency». It is necessary to note, that according to item 3 of the Decision of the RK Government dated 14.11.02, № 1204 «On measures of strengthening state support of domestic producers»the basic subject of the CJSC «Kazakhstan contract agency» activity is attraction of domestic producers and provision of their interests in the legislation established order in competitions on goods, works and services purchase at conducting subsoil operations and oil operations on the territory of the Republic of Kazakhstan, assistance in establishing new productions with attraction of high technologies to the Kazakhstani enterprises and organizations, and also realization of corresponding monitoring and rendering of consulting services to central and local executive state bodies.

Besides, CJSC «Kazakhstan contract agency» is not the state body.

Judging by the above mentioned, the CJSC «Kazakhstan contract agency» does not possess powers on approval of the competitive documentation.

In conclusion we can give the following comments:

• According to the current legislation the unequivocal definition of the «Kazakhstani producer» concept does not exist, and The Rules have not brought in full clearness. According to The Rules «Kazakhstani enterprise» are legal persons founded in RК as well as individual entrepreneurs and physical persons of RК. According to the Law «On investments»a legal person of the Republic of Kazakhstan is understood as a legal person, including a legal person with foreign participation, established according to the legislation of the Republic of Kazakhstan. Therefore, an enterprise with foreign participation, that is fully or partially belonging to a foreign investor can be a «Kazakhstani»person. A citizen of a foreign state can also be an individual entrepreneur.
• The established procedure of conducting competitions takes a long period of time and can serve as the reason for a delay of the planned works realization by the companies and as the consequence of disputes. In practice the procedure of conducting a tender takes two months and more; with it such facts as the following are not taken into account: the working program authorized by the parties of the contract, the necessity of conducting urgent purchase, the right of subsoil users for independent signing of contracts on goods and services delivery.
• As practice shows, nowadays none of the state bodies possess either physical or technical opportunities to process coming competitive documentation in the terms established by The Rules. Moreover, in our opinion, the permission procedure is a good ground for development of corruption and lobbying of separate companies interests. The Kazakhstani legislation establishes rigid requirements on attraction of local goods, works, services and personnel, however it is already obvious now, that the accepted measures do not promote the operative decision of subsoil users' questions arising in the process of goods and services purchase.