The term “Local content” refers to a level of goods, works and services of Kazakhstan origin, purchased from residents of the Republic of Kazakhstan. Kazakhstan content also includes the percentage of Kazakhstan employees that should be involved in a project.
Local content is governed by several laws: the Law on Subsoil and Subsoil Use, Law on State Procurement, and the Law on the National Wealth Fund. The Government has also approved many by-laws to provide detailed regulation.
The Local Content Rules can be divided into three categories:
a) Local content requirements for subsoil users;
b) Local content requirements for state procurements; and
c) Localcontent requirements for procurements by Samruk-Kazynagroup.
The law provides different procurement rules for each of these three categories.
Kazakhstan content requirements for subsoil use operations
The Subsoil Law provides the following terms:
Goods of Kazakhstan origin– the goods produced in Kazakhstan by domestic producer;
Kazakhstan provider of works, services – the citizens or legal entities of Kazakhstan which employs at least 95% local workers;
Kazakhstan manufacturer of goods– the citizens or legal entities of Kazakhstan manufacturing Goods of Kazakhstan origin;
There are other terms connected to the local content such as: Local content in goods; Local content in works, services; Local content in staff.
Aforementioned terms are provided by the Law in order to develop local producers and local people, namely to encourage the subsoil users to acquire local goods, works, services and to hire local people.
In accordance with the Law, subsoil users are obliged to use equipment, materials and products made in Kazakhstan, provided they comply with technical regulations of the Republic of Kazakhstan. In addition, subsoil users are obliged to hire Kazakhstan residents for performing works and services during subsoil use if such services correspond to the standards, prices, and quality characteristics for such services provided by non-residents.
If a subsoil user is going to acquire certain equipment, or engage a subcontractor for activities related to subsoil use, (s)he is obliged to follow the Procurement Rules. Therefore, the subsoil user has to choose a subcontractor who offers the lowest price but who may not be the subcontractor (s)he initially intended to engage with.
The Law grants significant advantages to Kazakhstan residents when bidding against foreign companies. The bid organizer must reduce the price offered by Kazakhstan bidders by 20 percent, provided their goods, works and services corresponding to the tender requirements and technical regulations law of the Republic of Kazakshtan.
The requirements to local content are stated in subsoil contracts. For instance, a subsoil user may be obliged to achieve a percentage of not less than 30 percent of Kazakhstan content in goods, 60 percent of Kazakhstan content in works, etc.
Local content in state procurement
State authorities, state institutions, legal entities in which the state owns 50% of shares or more , as well as their affiliates, are required to purchase goods, works, and services in accordance with the Law on State Procurements. The Law on State Procurements defines a “domestic supplier of goods and services” as an individual or a legal entity that is a Kazakhstan resident, employing at least 95% of local workers to supply the goods and services. “Domestic manufacturers” are Kazakhstan residents producing goods entirely made in Kazakhstan, or goods sufficiently processed in Kazakhstan in accordance with the sufficient processing requirements.
Also, the Law provides the term “national regime” according to which foreign suppliers and foreign goods, works and services are allowed to participate in the state procurement on the same conditions as local suppliers and local goods, works, services only if application of such regime is provided by international treaties ratified by Kazakhstan.
Local content in procurements by Samruk-Kazyna companies
In accordance with the Law on the National Wealth Fund, the national management holdings, national companies and organizations in which the fund holds 50% of shares or more, are directly or indirectly belonged to Samruk-Kazyna ( national welfare fund), subject to a special procedure for procuring goods, works, and services. Purchases made by such companies shall be based on the Procurement Rules of Samruk-Kazyna.
According to the Law on the National Wealth Fund, if the prices are equal, the tender winner is the domestic goods manufacturer, or domestic supplier of goods and services.
The Procurement Rules contain provisions in favor of Kazakhstan residents. If the potential supplier is a domestic manufacturer of goods, the price reduces by 5%. The price is reduced by 0,15% for each 1% of local content in the potential supplier of goods. There are other cases when the price may be reduced. Thus, the Procurement Rules allow being flexible while determining the winner of the tender.
Local content is calculated in accordance with the Uniform Method of Kazakhstan Content Calculation adopted by the Kazakhstan Government.