Kazakhstan Law News Digest for May 2022

I. Legislative News

Competition 

• The Competition Authority has approved the Methodology for the Analysis of the Competitive Situation on Commodity Markets. Such methodology is necessary, among other things, to (1) determine the level of competition in specific commodity markets, (2) identify dominants/monopolists in the commodity market and (3) establish the appropriateness of the state presence in the business sphere. 

Natural Monopoly 

• The Ministry of National Economy of the Republic of Kazakhstan has introduced a number of amendments and additions to the Rules of Activities of Natural Monopoly Entities. In particular, the amendments concern the procedure of consideration of appeals against decisions and actions of the Committee for Regulation of Natural Monopolies when rendering various public services such as providing consent for reorganization or liquidation of a subject of natural monopolies, inclusion/exclusion from the register of subjects of natural monopolies. The appeal process is now more detailed and a mandatory pre-trial procedure is envisaged.

Subsoil Use 

• The Ministry of Energy of the Republic of Kazakhstan has established the maximum prices for wholesale marketable gas in the domestic market of Kazakhstan for the period from July 1, 2022 to June 30, 2023. Such prices are fixed separately for each region for sales (1) on the domestic market and (2) to consumers purchasing marketable gas for further production of liquefied natural gas. 
• The Ministry of Energy of the Republic of Kazakhstan has approved the Rules and procedure for engagement of independent experts during the state expertise of the basic project documents of the subsoil user on hydrocarbons. In particular, these rules define (1) the qualification requirements for the independent expert, (2) the stages and procedure for the selection. 
• The Ministry of Industry and Infrastructure Development of the Republic of Kazakhstan has changed the Rules for purchase of goods, works and services (GWS) by subsoil users and their contractors for production of solid minerals. Now customers must enter into "offset agreements" with suppliers when purchasing imported products, if the annual amount allocated by the customer to purchase GWS exceeds 500,000 MCI. The peculiarity of such agreement is additional investment obligations of the supplier, namely investments of not less than 5% of value of the agreement in the economy of the Republic of Kazakhstan, among other things, through the establishment of production and investments in research and development works. 
• The Ministry of Industry and Infrastructural Development of the Republic of Kazakhstan has introduced amendments to the Rules for purchase of GWS by subsoil users and their contractors for hydrocarbons/uranium production. The amendments relate to the arrangement of tender documentation, tender application and open tender. In particular, the open tender will now consist of 9 stages (previously 8 stages): a procedure for the comparison of tender documents was added for the purpose of determining the authenticity. The list of cases in which the procurement of GWS from one source is allowed has also been significantly expanded. This will come into effect on July 31, 2022. 
• The Ministry of Energy of the Republic of Kazakhstan has approved the term for the analysis of subsoil users' reports when monitoring the fulfilment of their obligations under the subsoil use contract. This term will be 30 business days. Based on the results of the analysis, in case of fulfilment of financial obligations by less than 30% in the reporting year, by April 1 following the reporting period, the subsoil user will be notified of the violation and elimination of these violations. This will come into effect on August 2, 2022. 

Investment

• The Ministry of Foreign Affairs of the Republic of Kazakhstan has established the term of validity of the application for an investor visa for non-residents carrying out investment activities in the Republic of Kazakhstan. Now, depending on the type of investment activity of a non-resident application, a visa shall be issued for 5 years or 3 years. Such an application expressed in written request of Committee on Investments of the Ministry of Foreign Affairs to migration authorities is a legal ground for an investor to obtain an investor visa from migration authorities.

Public Procurement 

• The Government of the Republic of Kazakhstan has established an exemption from national treatment with regard to computing machines and their units for public procurement. Now state authorities may purchase such products only from domestic manufacturers. 

Public Services 

• The Ministry of Digital Development, Innovation and Aerospace Industry of the Republic of Kazakhstan has approved the register of public services in a new wording. 

International Documents

• The Parliament of the Republic of Kazakhstan has ratified the Agreement between the Government of the Republic of Kazakhstan and the Government of the Republic of Armenia on trade and economic cooperation for the supply of oil products to the Republic of Armenia, except for oil, electric power, natural gas and coal. 

Land Relations

• The Majilis of the Parliament of the Republic of Kazakhstan is considering a draft law aimed at amending the Code on Administrative Offences on protection and use of land matters. In particular, it has proposed to capture the responsibility of local executive authorities for the failure to hold, or untimely holding of, tenders for providing land plots for construction. Adoption of this amendment will promote compliance with the Land Code (paragraph 6-1 of Article 43) by local executive authorities, as local executive authorities often do not comply with the requirements to provide land plots for tender, or provide them with significant delays.

Electric Power/Hydrocarbon Classification 

• The Senate of the Parliament of the Republic of Kazakhstan is considering a draft law aimed at improving the legislation on electric power and subsoil use. Thus, this law would amend, among other things, the Subsoil and Subsoil Use Code and the Law on Electric Power.

Subsoil and Subsoil Use Code 

• Article 12. It is proposed to include "shale oil" and "shale gas" in the classification of hydrocarbons. Thus, crude oil contained in shale rocks is recognized as shale oil. Shale oil and shale gas will be referred to unconventional types of hydrocarbons.

Law on Electric Power 

• Article 15-9. As part of modernization, reconstruction or expansion, existing power generating organizations will be able to build generating plants using gas as an alternative type of fuel. In order to implement such project, it is possible to conclude an investment agreement with the Ministry of Energy of the Republic of Kazakhstan. 

Civil legislation 

• The Senate of the Parliament of the Republic of Kazakhstan is considering a draft law aimed at improving the legislation on (1) capital market, (2) joint stock companies, (3) insurance market and (4) banking. This draft law contains a significant number of innovations and, among other things, proposes the following: 

Civil Code of the Republic of Kazakhstan. General Part

• Article 136. Bonds. It is proposed to change the definition of bonds: Thus, a bond is a security certifying, in accordance with the terms of issue, the right to receive remuneration on it and the par value of the bond in money or other equivalent property from the issuer of the bond (i.e., now bonds will have no predetermined maturity). 
• Article 292. Security Deposit. It is proposed to introduce a new type of security for the performance of an obligation—a security deposit (an amount to be transferred in advance). This type of payment secures not every obligation, but precisely a monetary obligation, and will be set off against the performance, in case of breach of obligation. If there is no breach, the amount is returned to the debtor. 

Civil Code of the Republic of Kazakhstan. Special Part

• New Article 500-1. Repo Transactions. It is proposed to introduce a new subtype of a sale and purchase agreement—repurchase agreements (Repo). The agreement provides for 2 stages: 
  • Opening Repo – a Repo Seller undertakes, within the term set forth in the agreement, to transfer securities and (or) other financial instruments to a Repo Buyer, and a Repo Buyer undertakes to accept them and pay a certain amount of money;
  • Closing Repo – a Repo Buyer undertakes, within the period prescribed by the agreement, to transfer back similar securities of the same issue and (or) other financial instruments to the ownership of a Repo Seller, and a Repo Seller undertakes to accept them and pay a certain amount of money.

Law on Securities Market 

• Article 1. It is proposed to capture the definition of the following types of bonds:
  • social bonds are bonds where the proceeds will be applied to finance projects aimed at solving social issues and/or achieving positive social outcomes;
  • green bonds are bonds where the proceeds will be applied to finance green projects;
  • sustainability bonds are bonds where the proceeds will be applied to finance a combination of green and social projects.
• New Article 12-2. Peculiarities of issuance of non-government perpetual bonds. It is proposed to capture the possibility of issuing bonds without a specific maturity. Such bonds have conditions and restrictions on issuance. For example, (1) they may be placed only among qualified investors, (2) they are not subject to conversion into shares, (3) there are limitations on the issue volume, (4) it is impossible to redeem such bonds. 

Law on Joint Stock Companies

• New Article 30-2. Split of shares in a company. Split of shares is an increase in the number of outstanding shares through a proportional split of each share by resolution of the general meeting of shareholders. Split of shares does not result in the change of the size of the charter capital or require an additional issue. The splitting of shares requires the introduction of corresponding amendments to the report on the results of the placement of shares. 
• Clause 4 of Article 25-1. It is proposed to change the procedure of determining the price of a share when sold by a minority shareholder at the request of a majority shareholder, in case the shares are traded on a stock exchange. Now this price is determined on the basis of the market value of shares, which is determined on the basis of stock exchange trading results as of the date of demand for buyout. Now it is proposed to determine this market value as weighted average price of shares on the organized stock market over the last six months prior to the date of transaction.

II. Clarifications from the State Authorities

1. Response of the Minister of Ecology, Geology and Natural Resources of the Republic of Kazakhstan dated May 6, 2022 – "On the definition of a category of the object having negative impact on the environment".
2. Response of the Minister of Energy of the Republic of Kazakhstan dated June 1, 2022 to the question of May 17, 2022 – "On the conditions specified in the tender documents when carrying out operations on exploration or production of hydrocarbons and production of uranium".
3. Response of the Chairman of the State Revenue Committee of the Ministry of Finance of the Republic of Kazakhstan dated June 3, 2022 to the question dated May 26, 2022 – "On exemption from taxation under CIT when paying dividends of the Company to the non-resident founder".

III. Scientific Publications

Zakon.kz/Analytics

• Suleymenov M.K., Yesembaev A.Zh., Kaymakov A.A., Stalik E.A. – Invalidation of Registration of Legal Entity Liquidation as a Violation of Rights of Good Faith Taxpayers.
• Suleimenov M.K. – Smart contract as software and as civil law contract.
• Suleimenov M.K. – Definitions of "investment", "investor", "investment disputes" in the legislation of the Republic of Kazakhstan: de lege lata and de lege ferenda.

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