The Draft Code of the Republic of Kazakhstan 'On Subsoil and Subsoil Use' ('the Draft Code'), presented in August 2017, introduces significant changes to the current subsoil use legislation in Kazakhstan. The aim is to increase the investment attractiveness of the region and to simplify the permit procedures for undertaking subsoil use operations.
In addition to legal amendments covered by our publication on the draft Code as of December 20161, the present update highlights the following key developments of the Draft Code:
- Individual regulatory regime for each type of mineral, including uranium, hydrocarbons and solid minerals;
- Open access to geological data;
- Introduction of CRIRSCO mineral reserves international reporting standards system;
- Transformation of subsoil use blocks under the contract through expansion, reduction, spin-off and accession depending on the type of minerals;
- New grounds for early unilateral termination of subsoil use contract by the competent body.
The Draft Code sets an individual regulatory regime for each type of mineral: hydrocarbons, solid minerals and uranium. The subsoil use right for exploration and production of hydrocarbons is granted on the basis of auction as well as direct negotiations. For uranium this is based on direct negotiations, and for solid minerals – separate exploration and production licenses.
Another significant change in the subsoil use area is the granting of open access to geological data, except for temporarily confidential data or data related to state secrets. Leading powers' experience demonstrates that the investor faces less geological risks and, hence, finds the subsoil more attractive to invest in if the state provides more qualitative geological data to the investors. The Draft Code provides access to information on subsoil use licenses and contracts by means of accessing the basic information on subsoil users and operations that is publicly available on special Internet resources.
The Draft Code envisages the implementation of the CRIRSCO international system of mineral reserves reporting standards. On 14 June 2016, Kazakhstan became a member of the Committee for Mineral Reserves International Reporting Standards via the KAZRC Association (Kazakhstan Association for Public Reporting of Exploration Results, Mineral Resources and Mineral Reserves). The CRIRSCO reporting codes are designed to maintain uniform reporting terminology when mining companies disclose any mineral reserves information to the stock market, at initial public offering and further report under the supervision of regulatory financial institutes. Accordingly, the Draft Code introduces obligation of subsoil users to submit reports during exploration and production of hydrocarbons and solid minerals.
We would also like the audience to note that the previous draft Code as of December 2016 entitled the subsoil user to apply for arbitration provided the minimum investment threshold in 8,000 monthly calculation indices is met. The latest Draft Code does not contain any threshold requirements, leaving room for disputes' settlements in accordance with the international treaties ratified by Kazakhstan.
Further, the Draft Code provides for the transformation of subsoil use blocks under contract by means of expansion, reduction, spin-off and accession, depending on the type of mineral. While the currently effective Subsoil and Subsoil Use Law provides only for the spin-off of a subsoil use block from the contracting territory as the transformation of subsoil use block. The general requirement for transforming subsoil use blocks under the Draft Code is that the transformed blocks will eventually be used by the same person (or persons), and the types of transformation of blocks differ depending on the type of mineral.
With respect to exploration and production of hydrocarbons, the following types of transformation of subsoil use blocks are provided:
With respect to uranium production:
With respect to exploration and production of solid minerals:
On top of the existing grounds for early unilateral termination of the subsoil use contract by the competent body, the Draft Code introduces the following new grounds:
- Failure to submit the reports or submission of unreliable reporting by subsoil user (due to the implementation of the CRIRSCO international system of mineral reserves reporting standards);
- Hydrocarbon-related operations associated with disruption of the earth's surface integrity with absence of security in accordance with the set schedule or in violation of the security amount formation schedule;
- Less than 80% fulfillment of the subsoil user's financial obligations under the subsoil use contract for the reporting year.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.