03.05.2010

Necessary State Licencing required from Enterprises in the Industrial Sphere of Activity

The legislation of the Republic of Kazakhstan (RoK) as with any other country that cares about its welfare provides various ways of protection, safety and development of its resources.

State licencing is just one such additional way of providing protection. It is established for cases when other rules and requirements stipulated by laws are insufficient to achieve the objectives of public administration.Necessary State Licencing required from Enterprises in the Industrial Sphere of Activity

The legislation of the Republic of Kazakhstan (RoK) as with any other country that cares about its welfare provides various ways of protection, safety and development of its resources.

State licencing is just one such additional way of providing protection. It is established for cases when other rules and requirements stipulated by laws are insufficient to achieve the objectives of public administration.

Out of several spheres of activities, Licensing is a main instrument of state regulation for safety, security and control of current norms and rules.

Regarding the licensing in the sphere of industrial types of activities, it holds a special place in the licencing law. The Law on licencing is structured in such a way that activities are already strongly and clearly defined and the enterprises which are going to conduct any business in Kazakhstan must previously have checked the company’s activities on all licencing subjects. If any of activities of enterprise are subject to licencing such an enterprise has to prove its compliance to the licencing law requirements and obtain the state licence.

There are eight main types of activities in the sphere of industry as described below that are required to obtain a licence. Almost every activity type contains a number of subtypes of activities, so enterprises have a chance to choose dependant on their requirements.

1) Production, transmission and distribution of electric and thermal power, operation of power stations, power grids and sub-stations;

2) Projecting and operation of mining, petrochemical, chemical, petroleum and gas processing productions, operation of items for storage of gas, petroleum and petroleum products, main gas pipelines, petroleum pipelines and petroleum product pipelines;

3) Processing of mineral raw products (except for processing of common useful minerals);

4) Operation of gas supply systems to residential and communal consumer services items;

5) Projecting, manufacture, assembly, repair of chemical, drilling, petroleum and pas producing, geological prospecting, mining, metallurgical, power equipment, explosion-protected electric technical equipment, lifting facilities, as well as boilers with the working pressure over 0,7 kg/cm2 and the heat carrier temperature over 115°C, vessels and pipelines operating under the pressure over 0,7 kg/cm2 (except for projecting, manufacture, assemblage, repair of equipment used in the common technological process);

6) Purchase of electric power for the purposes of re-selling;

7) Manufacture and repair of means of measurement;

8) Gathering (purchase), storage, processing and selling by legal entities of scrap and wastes of non-ferrous and ferrous metals.

Despite the fact that the list of subtypes of activities is long and detailed, quite often enterprises which are doing business in oil, gas and energy sector meet the problem of choosing which of the types or subtypes of activity are an exact match to it’s activities. Since the activities that the enterprise is performing may be described by other wording or definition herewith the list is exhaustive and cannot be supplemented. 

However the legislators have developed a clear structure of the state system of licensing, which is divided into three main groups, each of which has certain components. One of them is group of licensors that is subordinated to the Government of the Republic of Kazakhstan and whose primary functions are to develop the qualifying requirements to enterprises, which are looking to obtain the licence, they also directly issue the licences and conduct licencing control. Every sphere of activities is controlled by certain licensors. For the industrial sphere, the licensor is the Ministry of Energy and Mineral Resources. Therefore, in a case where there is confusion in the definition of the licence, the enterprise has a chance to coordinate it through the aid of the Ministry. 

Generally, the application for state licence obtainment can be made by any Kazakhstan legal entity as well as any foreign legal entity that meets the qualifying requirements established for the activity which the enterprise intends to carry out.

Since the state licence issuing is carried out on equal level and equal conditions, the foreign enterprises shall also have an equal legal status as that of the local Kazakhstan companies, within the territory of the Republic of Kazakhstan.

Thus, foreign legal entities need to have a permanent establishment in Kazakhstan. Such a permanent establishment may be accomplished in a different ways. For example, a foreign legal entity may set up a limited liability partnership, which will have a legal status of a legal Kazakhstan entity with foreign participation. In this way, the state licence will be given not to the foreign company but to the Kazakhstan limited liability partnership, which has been registered by this foreign company.

Alternatively, this could also be just a branch or representative office of foreign enterprise. Such a way will save the rights of the owner to that foreign enterprise and the state licence will be given to the foreign enterprise through its branch or representative office.     

The most important factor is that in any case whether it is a Kazakhstan local company or foreign one the qualifying requirements that the Government has established should be clearly and properly met.

The so-called qualifying requirements is a set of qualitative and quantitative standards and indicators of the applicant's ability to engage in a separate licensed type and (or) subtype of activity.

In general, these standards and indicators contain information and documentation on the applicant and reflect these capabilities and facilities, which confirm the availability of following means:

  • The presence of an Industrial technical area as a base and mechanical-repair department proven by ownership rights or a long-term lease. More often meeting this requirement is difficult considering, that the base shall meet norms and standards established by the laws and state inspection which is obliged to verify in fact (in nature) that base conforms to the laws.
  • Different services that provide for example: (a) exploitation and maintenance of equipment; (b) the process observance (maintenance, repair of main pipelines, the main and auxiliary equipment, industrial quality control); (c) labour protection and safety; (d) environmental protection; (e) metrological control; (f) fire safety and others. The kind and quantity of these services depends on types and subtypes of activities chosen.
  • The application of skilled managers and technical specialists who have a high educational level, and practical experience in the subject field that the licence is required for. Due to the fact that to carry out activities in a sphere such as the oil, gas and energy industry  the presence in these  highly qualified engineers is required.
  • Availability of certain technical equipment such as tools, machinery, factory, shops, diagnostic and test equipment.

The mentioned above list is not exhaustive and also may be changed and supplemented depending on types and subtypes of activities chosen.

Any legal entity having such capabilities has rights to obtain the state licence previously passed through the state inspections, which need to check that these capabilities conform to the requirements established by law.

So why the precise definition of the types of activities under licencing is so important? Accordingly why is the licence obtaining necessary?

One of the basic principles of licensing is the introduction of licensing order for certain types of activity, which is set for national security, law enforcement, environmental protection, property, life and health of citizens.

Since the types and subtypes of activities identified by the Kazakhstan Government occupy an important place in business and require a highly skilled and professional approach, the enterprise planning to engage in serious business, must clearly define for themselves whether it is necessary to obtain a license or not.

For this purpose, the enterprise shall study all the types and subtypes of licencing activities closely as performing any of the activities that are subject to licencing without the licence could entail either administrative or criminal liability, together with the seizure of profits by the State. Therefore, compliance with the provisions of the licencing legislation is vital and requires a professional approach.

For today, the Government of the Republic of Kazakhstan has developed new procedure of licencing called, “E-Licencing” a State Database which started within state program.

“E-Licencing” State Database will allow entrepreneurs, especially those from faraway areas, to submit documents required for licensing in an electronic format on the Internet. The pilot project of this system has been started up in the three public bodies within the research.

Following the results of this research the “E-Licencing” State Database will have a legal force countrywide. 

Best Regards, 

Zaira Kaysar
Lawyer

GRATA Law Firm

Zaira Kaysar

Partner, Branch Director in Atyrau and Aktobe