Kazakhstan legislation guide
By Marla Valdez
SNR Denton
Tel: +7 727 258 1950 Fax: +7 727 258 1905 Website: www.snrdenton.com
Subsurface use
Last year, Kazakhstan adopted comprehensive new legislation governing its vast mineral resources. While not a fundamental shift from the prior regulatory regime, the June 2010 Subsurface Law accomplished the important government goals of greater control, sustainability and social responsibility. It consolidated a number of previously complementary, but sometimes inconsistent, laws and regulations. It incorporated broad change of control provisions requiring consent to any transfer involving subsurface use rights, with a corresponding state priority right to purchase. It incorporated comprehensive requirements on protection of the environment, employment and training of local personnel, and hiring of local businesses, as well as obligatory funding requirements for the development of local projects. It also provides strong backstop safeguards allowing amendments to subsurface use contracts to protect the State’s economic and national security interests.
One major change starting from 2010 was the reorganisation of the ministries to support and elevate the mining industry. This reorganisation entailed entrustment of the oil and gas, and mining industries, under the supervisory control of the Ministry of Oil and Gas and the Ministry of Industry and New Technologies, respectively. Previously, both industries were under the supervisory control of a single ministry. This was a tall task for a country with slightly over 3% of the world’s recoverable oil reserves, as well as world class reserves of non-hydrocarbon minerals.
Customs export duties and the customs union
Customs duties on oil exports were first introduced in 2008 following record oil prices; the stated purpose was to ensure domestic supplies and to help curb inflation. For the next three years, the export duties followed the extreme fluctuations in oil prices. The highest duty was set at US$204 per metric tonne (mt) during a one month period at the end of 2008, and the lowest at ‘zero’ for 20 months from April 2009. In December 2010, duties on crude exports were reintroduced at US$20/mt, and then doubled to US$40/mt in May 2011. State officials have publicly assured investors that this will be the maximum rate, at least through 2014.
Kazakhstan, Russia and Belarus formed a customs union effective July 2010. According to the customs code of the customs union, export duties will be determined by each country’s customs legislation unless agreed otherwise.
State inspections
In January 2011, Kazakhstan adopted the Law on State Control and Supervision, a welcome clarification to and simplification of state agencies’ inspection authority over businesses. The law sets forth the procedures and time periods for state inspections, as well as how businesses may refuse those inspections and/or appeal their results.
There are notable exceptions. The law does not apply to inspections by the Prosecutor’s Office or customs authorities. It also does not apply to inspections ensuring compliance with subsurface use contracts or contracts with investment preferences.
State property
A new State Property Law clarified the state’s power to take private property. Private property may now only be requisitioned in case of a state emergency or when required for the state’’s defence. Nationalisation may only be carried out to ensure national security and only after all other possible legal means of alienation of property provided for by the Civil Code are exhausted. The market value of any requisitioned, nationalised, or purchased (by priority right) property must be established by a licensed independent appraiser.
‘Strategic objects’ experienced a legislative makeover under the new State Property Law. Strategic objects include, inter alia, trunk oil and gas pipelines, the national electricity grid, and designated oil and gas fields. Similar to transfers involving subsurface use rights, any transfer or encumbrance of a strategic object requires the state’s consent, and a waiver of the state’s priority right to acquire the strategic object.
Banking and finance
In February 2011, Kazakhstan amended multiple banking and finance laws. The revisions impose some across-the-board restrictions on the rights and authorities of banks concerning loan operations and the issuance of guarantees. These include significant bank limitations on unilateral suspension of tranche draw downs, and prohibition on unilateral changes to loan agreement terms that do not benefit the borrower.
Amendments to the Joint Stock Company Law imposes greater liability on a company’s officers for damages when such officers are not acting in the best interests of the company. Officers of a company may be found liable for a company’s losses resulting from their recommendations on, or approval of, major transactions or interested party transactions, if the officers acted for their own financial gain or for that of their affiliates. There is a safe harbour: company officers are exempt from liability provided they either (i) voted against the transaction that resulted in the company’s losses; or (ii) abstained from voting upon reasonable grounds.
Special Economic Zones
New legislation, adopted as recently as August 2011, overhauls Kazakhstan’s ‘Special Economic Zones’. The legislation provides new tax incentives for companies, and transfers supervision of the zones from local to state authorities. Of particular note, companies in some zones may be able to directly hire foreign employees without first determining the availability of qualified local candidates.