Recent changes to the subsoil use laws

June 17, 2015

The law of the Republic of Kazakhstan “On Subsoil and Subsoil Use» (hereinafter – the Law) has been significantly amended by virtue of the laws of the Republic of Kazakhstan № 269-V from 29.12.2014, № 271-V from 29.12.2014.

The content of amendments is set forth below.

1) As per the amended Law, the priority right of the state in relation of acquisition of subsoil use right (or part thereof) and (or) objects related to subsoil use rights was retained and applicable only for the subsoil areas, deposits of strategic importance, the list and the criteria for their classification as such, it is approved Government of the Republic of Kazakhstan.

2) New  Article 57-1 will regulate the process of direct negotiations on granting subsoil use rights for exploration under the simplified procedure.

The simplified procedure is applicable only to the frontier areas: each area should not be more than ten blocks and one block is equal to one minute in the Geographical Reference System.

3) Timescale for consideration of an application was changed due to the abolition of the priority right of the state. The timescale before began from the date, when the Minutes of the Interdepartmental Commission was received. Now the timescale began from the date of receipt of an application and the documents by a competent state agency.  The content of an application was extended with new point – data regarding  the amount of liquidation fund to be transferred by the subsoil user liquidation fund. A new clause was added to the  content of an application for subsoil use rights for exploration, production or combined exploration and production.

4) Sub-clauses on exceptions were added to the provision prohibiting the transfer of the subsoil use right within two years from the date of entry into the subsoil use contract in force. Now, this prohibition rule applies only to the subsoil use right for production of hydrocarbons.

5) A compulsory environmental expertise of a subsoil use contract is no longer required. Now a subsoil use contract, is subject to legal expertise only, except for the draft contract for state geological survey and a template exploration contract with a simplified order, whilst a contract for production/extraction works  –  to legal and economic expertise.

6) Pursuant to the amended Law, extension of a subsoil use contract creates additional obligations by default, such as setting up processing facilities, modernization or reconstruction of existing mining and processing industries, providing extract minerals for processing to the processing plants (production) in the territory of the Republic of Kazakhstan on contractual terms or implementation of a project or any other investment project for socio-economic development of the region (the provision is in force from  01.04.2015).

7) Provisions on termination of a subsoil use contract by an authorised state agency were amended. Currently a subsoil use contract may be terminated subject to no violation of  contractual obligations (before the contract could be terminated for the non-remedy of breakage of the contract and design documents within a remedial period ).

The same amendments were made to the provisions on the subsoil use contracts for widespread mineral deposits.

8) The grounds for  an early unilateral termination of a model subsoil use contract for exploration are as follows:

– Late deductions for the socio-economic development of the region and its infrastructure by the subsoil user;

– Incompliance with the annual limits for expenditures and types of work to be performed in one section during the validity period of a model contract;

– Misuse of any section of a subsoil field beyond the purposes set in the contract.

9) A model subsoil use contract could be terminated earlier the expiry date subject mutual agreement of the parties.

10) Now, the subsoil users are set the following remedial time-periods for violations of a contract:

physical volume of obligations – six months, financial liabilities – three months, other liabilities and commitments under a contract – one month from the date of receipt of written notice of the competent authority.

A remedial time period can be extended by the competent authority under a written request of a subsoil user. The competent authority may also set another remedial time period the violation, in case, when a violation cannot be obviously remedied in a set time period.

11) A validity period of a subsoil use contract for production cannot be longer 25 years, whereas a period for big and specific field reserves cannot be longer 45 years.

12) Now the Law contains new concept “trust management of a contract territory”, which means the transfer of a contract territory to the national company for management after termination of a contract with the relevant subsoil user . Trust management is established by the competent authority for continuation of a technological process and industrial safety in a contract territory.

13) New article “Information system-oil” is added to the Law.  The system of oil record keeping is meant for automatic acquisition, processing, storage and use of information on volume of production, performance, preparation, refining, transportation, storage, sale, shipment, losses, import and export of oil from the territory of the Republic.

14) The Law contains a new chapter 9-1 “Processing or Other Use of Man-made Mineral Formations”. Recycling of man-made mineral formations, which belong to a of the subsoil user or another person does not fall under the concept “subsoil operations” (Art. 101-1 of the Law).

15) A financial clause is no longer required to be included into the  survey plan . The timescale for  the development and approval of a survey plan was extended to eight months and may be extended to six months, when development and approval were not completed for reasons beyond the control of a winner of a tender, or a person who was awarded with a contract by virtue of direct negotiations. The extension of timescale for development and approval cannot be restricted by default, i.e., before the timescale could be extended only in public procurement and procurement of national management holdings, now no such restriction exists.

The time of consideration of survey works by the central committee is reduced to 15 working days, whilst the time-period for consideration of survey works for the common increased to one month.

16) A list of material terms and conditions of a subsoil use contract was reduced, whilst a new requirement on conformance with the form and content of a model contract was established.

17) Pursuant to the amended law, a competition is to be organised in form of a tender or auction. The essential difference lies in determination of a winner. A winner of an auction is a participant, who offered the least number of signature bonus, whilst a winner of a tender is the one to be determined  through consideration of tender bids.

Saida Shukurova