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Kazakhstan Law News Digest for October – November 2022

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17 min read
Maxim Telemtayev |
Assel Konyskerey

I.    Legislative News

Environment

  • The Government has approved the Rules of organisation and functioning of the Unified State System for Environmental and Natural Resources Monitoring (the “Unified System”). The Rules define the participants of the unified system and their responsibilities, stages and procedures for collecting, accumulating and storing information on the state of environment. 
  • As the material base for the Unified System, a special data bank will be created – the information system “National Data Bank on the State of Environment and Natural Resources”. The data bank will be publicly available on a free-of-charge basis. Owners of facilities with a negative impact on the environment will now submit periodic reports on the results of industrial environmental control to the data bank. 

Subsoil Use

  • The Ministry of Energy has approved a new wording of the Rules for measuring and weighing of oil produced on a subsoil area. This shall be effective from 11 January 2023. 
  • The Ministry of Energy has made an amendment to the Rules for monitoring subsoil users’ performance of their obligations under a subsoil use contract which allows extending the terms for elimination of detected violations of the terms and conditions of a subsoil use contract. A subsoil user will be able to send a request to the Ministry of Energy for an extension of the term specified in the notice of violation. The Ministry of Energy will consider the application within ten working days and will either extend the terms or provide a reasonable refusal. All notifications, requests and applications will be made through the Unified State System for Subsoil Use Management www.egsu.energo.gov.kz. This innovation shall be effective from 1 January 2024.
  • The Ministry of Energy has approved the criteria for assessing the degree of risk and the forms of checklists to be used in carrying out unscheduled inspections and preventive controls on the compliance with the qualification requirements of companies which carry out licensed activities in the hydrocarbon sphere (i.e., well drilling, underground work, geophysical work, operation of main pipelines). 
  • The Ministry of Industry and Infrastructure Development (the “MIID”) has approved a new wording of the Rules for holding an auction among applicants of equal priority for issuing licences for exploration of solid minerals. It is worth reminding that all applications for licences for exploration of solid minerals within the territories first included in the State Subsurface Fund Management Program, which are received within a month from the start date of their receipt, are considered to have the equal priority. In such cases, if one and the same subsoil area (block) is included in several applications, the MIID will hold an auction among such applicants. The auction will be held to determine the priority for each coinciding subsoil area (block). 
  • Now the rules are more detailed and provide, primarily, a conceptual framework and a consistent auction procedure. The 100 MCI1 starting amount of the subscription bonus has been also determined. The subscription bonus must be paid by the winner within 20 business days after signing the protocol on the auction results. The new wording shall be effective from 12 January 2023. 
  • Deputies of the Majilis of the Parliament initiated a draft law introducing a number of amendments to the Code “On Subsoil and Subsoil Use” (the “draft law”). In general, there is an approach aimed at minimizing unreasonable costs of subsoil users. In our opinion, this draft law solves a number of key problems of law enforcement. Specifically as follows:
    • Part 1 of sub-paragraph 3 of paragraph 2 of Article 118. The current norm allows hydrocarbon production in the preparatory period in amounts not exceeding the production volumes during test production. However, this raises two questions: (1) what are the underlying project documents for production in the preparatory period, and (2) what is the permitted volume of production? As a solution, the draft law specifies that (1) production is allowed on the basis of an approved field development project, and (2) production is allowed within the limits of average daily volumes. 
    • Paragraph 14 of Article 121. The draft law proposes to introduce a separate approval procedure for the pledge of the subsoil use right for hydrocarbons, which will be approved by the Ministry of Energy at the level of a subordinate regulatory act with a shorter approval period and list of documents. Now at pledge of the subsoil use right the procedure established by Article 45 shall apply which is mainly applicable in cases of transition (alienation) of the subsoil use right. At pledge, the transition (alienation) of the subsoil use right does not occur, but the rules of Article 45 shall apply which is not quite reasonable. Article 45 stipulates for submission of a considerable amount of documents and terms (up to three months). This complicates the process of pledge of the subsoil use right, including in cases of attracting a loan. 
    • Paragraph 2 of Article 128. The draft law proposes to liquidate or mothball individual technological facilities (wells, buildings, equipment) on the basis of a liquidation plan instead of a liquidation project as it works now. Clearly, drafting the liquidation plan will be much easier than preparing the liquidation project, which usually takes up to six months. The liquidation plan will be prepared and approved by the subsoil user itself.
    • The draft law proposes to delete paragraph 3 of Article 138. The current wording requires to develop the remedial action plan after exploration simultaneously with the exploration project. At the same time, paragraph 4 of Article 138 requires the liquidation project to be prepared on the basis of the actual condition of the subsoil area and the relevant technological facilities to be liquidated. In practice, by the time of liquidation works, the first liquidation project becomes irrelevant, as the exploration works may be constantly updated and changed. Now subsoil users are forced to draw up a liquidation project twice (at the time of development of the exploration project and at the time of the beginning of the actual liquidation), which entails additional financial/temporary costs for them. If this provision is excluded, the liquidation project will be developed at the moment of liquidation works according to Article 126. 
    • Paragraph 1 of Article 142. The draft law proposes to exclude the requirement to conduct an annual field supervision on the execution by the subsoil user of the exploration project and the pilot operation project. The deputies believe that annual field supervision carries a financial burden, and if the subsoil user complies with the terms of the project documents, there is no need to conduct a field supervision at all. The draft law proposes to carry out field supervision only as needed and by the decision of the subsoil user. 

Energy

  • The Ministry of Energy has approved the procedure for concluding an investment agreement and the form of the investment agreement between the power generating organisation and the Ministry of Energy. Such an investment agreement shall be concluded with the power generating organisation which has modernised/reconstructed/expanded the generating units using gas as an alternative fuel and, primarily, guarantees the centralised purchase of electricity and individual tariffs. 
  • It is worth reminding that that this mechanism is used to cover the projected demand for electric capacity. Based on an investment agreement with the Ministry of Energy, a single purchaser (Financial Settlement Center LLP) enters into a contract for the purchase of electric capacity availability maintenance service with a power generating organisation. 
  • The Government has approved the Concept of development of the fuel and energy complex of the Republic of Kazakhstan for 2022-2026. The Concept contains an “Action Plan” for the implementation of the Concept, which provides for specific reforms/activities along with the status and terms of implementation.  

Natural Monopoly

  • The Ministry of National Economy has increased the term for the Committee for the Regulation of Natural Monopolies of the Ministry of National Economy to analyse the report of the subject of natural monopolies on the execution of tariff estimates. Now the term will be up to 90 calendar days, while previously it was up to 60 calendar days. 

Public Monopoly

  • The National Security Committee has approved the updated prices for services provided by subjects of public monopoly (state-owned enterprises) in information technology and information security. 

Public Procurement

  • The Ministry of Finance has approved a separate formula for calculating the financial stability indicator for suppliers of the following works and services in state procurements:
    • engineering services for technical supervision;
    • work on the development of design and estimate documentation; and 
    • work on complex independent expertise of construction projects.

Previously, the calculation of the financial stability indicator of the suppliers of the above works and services was calculated by a common formula depending on the cost of public procurement. 

Among the changes, there is a new amendment to the Standard Agreement on public procurement of works in construction. In particular, now the customer has the right to unilaterally withdraw from a public procurement contract if (1) the supplier engages subcontractors uncoordinated with the customer, (2) the supplier gives the subcontractors more than half of scope of work. 

Banking Activities

  • The National Bank has approved a new wording of forms for submission of reports on loan agreements and pledge agreements by the second-tier banks, branches of foreign banks and JSC “Development Bank of Kazakhstan” to territorial subdivisions of the National Bank.
  • The Agency for Regulation and Development of Financial Market (the “ARDFM”) has approved the Rules of granting consent to the appointment of a senior bank officer, bank holding company and branch of a foreign bank. The Rules set forth the procedure for the provision of public service, forms and a list of necessary documents. The application shall only be submitted through the e-government web portal and the public service shall be provided in 30 business days. Please note that a “senior officer” includes the following persons: 

    of a foreign bank. The Rules set forth the procedure for the provision of public service, forms and a list of necessary documents. The application shall only be submitted through the e-government web portal and the public service shall be provided in 30 business days. Please note that a “senior officer” includes the following persons: 

    • the head and members of the governing body;
    • head, deputy head and members of the executive body;
    • chief accountant, deputy chief accountant; and
    • other heads of the bank, coordinating and/or controlling the activities of the structural units of the bank and having the right to sign the documents, on the basis of which the bank operations are conducted. 

Securities Market

  • The Government has defined the criteria for transactions in securities on the Kazakhstan Stock Exchange in compliance with which the dividends on such securities are not subject to taxation. Such criteria include:
    • the volume of transactions in securities shall be not less than KZT 25,000,000 per month;
    • the number of transactions in securities shall be not less than 50 transactions per month.

Furthermore, the text of the decree does not specify whether these criteria must occur together or whether compliance with at least one of these criteria is sufficient. Kazakhstan Stock Exchange JSC and Astana International Exchange will publish information about such securities on their website quarterly. This shall be effective from 1 January 2023. 

  • The ARDFM has determined the criteria for recognition of individuals as “qualified investors”. Thus, an individual shall be recognised as a qualified investor if he/she meets at least one of the following conditions:
    • a higher financial, economic, mathematical education or a higher education in information technology
    • availability of at least one of the following international certificates: Chartered Financial Analyst, Certified International Investment Analyst, Financial Risk Manager and other certificates confirming the qualification in the financial market;
    • at least three years of work experience in areas directly related to transactions with financial instruments, preparation of investment recommendations, making investment decisions and/or risk management related to transactions with financial instruments;
    • availability of financial assets in the amount exceeding 8,500 MCI; and
    • at least 50 transactions with securities and/or other financial instruments, made on organised securities markets and other stock exchanges during 12 consecutive months preceding the date of application for recognition as a qualified investor. 
  • The ARDFM has approved categories of organisations (external experts) authorised to assess and analyse the use and distribution of funds by the issuer received from placement of green bonds, social bonds and sustainability bonds. Please note that after the issuance and placement of the above types of bonds, issuers are required to make an independent assessment and verification regarding the use of proceeds from the bonds in accordance with the intended purpose and achievement of the initially-stated sustainable development goals by engaging an external expert. The result of assessment and verification shall be disclosed on the issuer’s website. 
  • Thus, among other things, the list includes both local accredited compliance assurance organisations and foreign financial and consulting organisations that assess according to the Green Bonds Principles and Social Bonds Principles under the International Capital Markets Association (ICMA).
  • The ARDFM has significantly expanded the list of actions of securities market subjects (performed at the stock exchange), which are subject to monitoring and analysis for detection of manipulation on the securities market. Such manipulations are aimed at setting/maintaining prices of securities higher or lower than those set as a result of an objective ratio of demand. At the same time, exceptions from the list are defined: for instance, if the decrease of the share price is caused by share split, the actions shall not be subject to monitoring and analysis. The ARDFM has also changed the quantitative composition of the expert committee under the ARDFM, which is authorised to consider issues related to recognition of actions of market subjects as manipulative. The committee of experts now consists of ten rather than eight members: an additional stock exchange representative and a representative of the central depository. 
  • The ARDFM has changed the minimum size of authorised capital for some types of activities on the securities market. 
    • Broker and/or dealer activities with the right to maintain the clients’ accounts as a nominal holder - 50,000 MCI (formerly 400,000 MCI);
    • Broker and/or dealer activities without the right to maintain the clients’ accounts:
      • i.    JSC – 50,000 MCI (formerly 400,000 MCI);
      • ii.    LLP - 100 MCI;
    • Investment portfolio management activities without the right to raise voluntary pension contributions – 50,000 MCI (formerly 300,000 MCI); and
    • Combined broker and/or dealer activities with investment portfolio management activities without the right to raise voluntary pension contributions – 50,000 MCI (formerly 400,000 MCI).

Public Private Partnership (PPP)

  • The Ministry of National Economy has amended the procedure for determining the cost of services for advisory support for PPP and concession projects. If earlier the cost of services was determined by KPPF JSC and Turar Healthcare NJSC (as they had exclusive rights to provide advisory support for PPP and concession projects), now the cost of services will be determined by central and local executive authorities in accordance with approved methodology. 
  • It is worth reminding that advisory support of PPP and concession projects is services including development of tender documentation, draft PPP agreements and concession agreements, advisory services in the negotiation process between the subjects of public private partnership and concession. 

International Relations

  • Kazakhstan has ratified the Agreement on information exchange in countering legalisation (money laundering) of criminal income and the funding of terrorism during the movement of cash and/or monetary instruments across the customs border of the Eurasian Economic Union, signed on 20 July 2021 in Moscow. Monetary instruments means traveller’s cheques, bills of exchange, bank cheques and also securities in documentary form certifying the obligation of the issuer to pay money, which do not specify the person to whom such payment is made. 
  • Kazakhstan has ratified the Agreement on principles and approaches of state control over compliance with requirements of technical regulations of the Eurasian Economic Union signed on 16 February 2021 in Moscow. 

Samruk-Kazyna

  • The government has approved the list of companies, more than 50 percent of the voting shares/participation interests of which are owned by JSC SWF “Samruk-Kazyna” on the right of ownership or trust management, shares/participation interests in which are alienated or transferred for trust management, as well as the decision on liquidation/reorganisation of which are made exclusively by the decision of the Government of the Republic of Kazakhstan.

Public Law

  • The Constitutional Law “On the Constitutional Court of the Republic of Kazakhstan” has come into force. The Constitutional Court will be the legal successor of the former Constitutional Council of the Republic of Kazakhstan.

  • The President has issued a Decree approving the regulations for the Supreme Audit Chamber of the Republic of Kazakhstan. The Supreme Audit Chamber is accountable to the President and is responsible, among other things, for analysing, assessing and verifying the effective and lawful management and use of budgetary funds.

II.    Clarifications from the State Authorities

  • Response of the Minister of Labour and Social Protection of Population dated 6 October 2022 – “Labour legislation covers only employees and employers who carry out labour activity in the Republic of Kazakhstan”.
  • Response of the Minister of Labour and Social Protection of Population dated 11 November 2022 – “Regarding the signing orders on personnel, labour contracts with EDS and their storage in electronic form”.
  • Response of the Chairman of the State Revenue Committee of the Ministry of Finance dated 15 November 2022 – “Regarding the recognition of the additional paid capital in JSC as the income for taxation purposes”.
  • Response the Chairman of the State Revenue Committee of the Ministry of Finance dated 17 November 2022 – “Regarding the submission of certified documents of title by non-residents when providing transportation services”. 
  • Response of the Minister of Justice dated 17 November 2022 – “Regarding the responsibility for late notification of the registering authority on amendments and additions to the charter of the JSC”.
  • Response of the Minister of Finance dated 23 November 2022 – “The legislation on public procurement does not provide for conclusion of trilateral agreements”.
  • Response of the Chairman of the State Revenue Committee of the Ministry of Finance dated 24 November 2022 – “Regarding the application of the simplified procedure for liquidation of LLP with no VAT registration”. 
     

III.    Case Law News 

  • On 17 October 2022, the Supreme Court published Bulletin No. 9/2022 containing, inter alia, extracts from certain rulings of the Judicial Board for Administrative and Civil Cases of the Supreme Court of the Republic of Kazakhstan.
  • On 22 November 2022, the Supreme Court published Bulletin No. 10/2022 containing, inter alia, extracts from certain rulings of the Judicial Board for Administrative and Civil Cases of the Supreme Court of the Republic of Kazakhstan. 

IV.    Legal Publications

zakon.kz / Analytics

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Kazakhstan Law News Digest for October - November 2022 (Russian)

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This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.

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Maxim Telemtayev
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