Draft Law

1
Draft Law On subsoil and subsoil use

• Review and comparative analysis with current law
  On subsoil and subsoil use

2
Definitions

• Separate definitions were carried out
• Separately named authorized state bodies
• The pre-emptive right of the state
• Servitude
• Experimental exploitation, industrial development
  of a deposit
• Kazakhstani content of the staff and Kazakhstani
  content of the goods, works and services
• Sites of the subsoil (deposits) having strategic
  value and strategic mineral raw material
• Other definitions which for today are applied,
  but are not present their precise definition.

3
Common positionsLegislations goals

• The current Law On subsoil and subsoil use

• Draft Law On subsoil and subsoil use

• regulation of carrying out of subsoil use
  operations with a view of maintenance
• protection of interests of Republic Kazakhstan
  and its natural resources,
• rational use and protection of subsoil of
  Republic Kazakhstan,
• protection of interests of subsoil users,
• creations conditions for equal development of all
  forms of managing,
• strengthening of legality in the field of
  attitudes on subsoil use.

• maintenance
• economic growth of Republic Kazakhstan and
  well-being of people of Kazakhstan,
• strengthening of legality in the field of
  attitudes on subsoil use,
• maintenance of a combination of republican and
  regional interests,
• maintenance of reproduction of a mineral raw
  material base,
• creation of favorable conditions for attraction
  of investments into carrying out of operations on
  subsoil use.

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The Legislations principles

• The current Law On subsoil and subsoil use

• Draft Law On subsoil and subsoil use

• maintenance of rational, complex and safe use of
  subsoil
• maintenance of protection of subsoil and an
  environment
• maintenance of a combination of republican and
  regional interests
• maintenance of reproduction of a mineral raw
  material base
• publicity of carrying out of subsoil use
  operations
• payment of interest of subsoil use
• creations of favorable conditions for attraction
  of investments into carrying out of subsoil use
  operations
• maintenance in sphere of subsoil use safety of
  production, processes of its life cycle for a
  life and health of the man and an environment
  according to the legislation of Republic
  Kazakhstan on technical regulation.

• maintenance of rational, complex and safe use of
  subsoil
• maintenance of protection of subsoil and an
  environment
• publicity of carrying out of subsoil use
  operations
• payment of interest of subsoil use.

5
The pre-emptive right of Republic of Kazakhstan

• The pre-emptive right on acquisition of minerals
• The pre-emptive right of the state

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The pre-emptive right on acquisition of minerals

• The current Law On subsoil and subsoil use

• Draft Law On subsoil and subsoil use

• Republic of Kazakhstan has the pre-emptive right
  on acquisition of minerals from subsoil users
  under the prices which are not exceeding the
  prices of the world market.

• Republic of Kazakhstan has the pre-emptive right
  before other persons on acquisition of minerals
  from subsoil user under the prices which are not
  exceeding the prices, applied by subsoil user at
  fulfillment of transactions with the
  corresponding minerals, developed on date of
  fulfillment of the transaction, excluding
  transport charges and expenses for realization.
• In case of absence of the information on the
  prices of the minerals applied by subsoil user at
  fulfillment of transactions, the prices which are
  not exceeding a prices that have developed in the
  world markets for date of fulfillment of the
  transaction are applied.

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Mechanism of realization of the pre-emptive
right of the state

• Submission of the application for alienation in
  competent body.
• Transfer of the application and materials by
  competent body within 5 working days in
  Interdepartmental Commission.
• Consideration Interdepartmental Commission of the
  application, development of the offer within 30
  working days. A direction of the report with the
  maintenance of the offer and the instruction of
  the national company or the state body in
  competent body.
• Acceptance by competent body of the decision
  within 5 working days. A direction of the
  decision in the national company or the state
  body authorized on acquisition.
• Initiation of negotiations by the national
  company or the authorized state body.

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Subsoil use right

• Operations for which conducting the subsoil use
  right is given
• state geological studying of subsoil
• investigation
• extraction
• construction and (or) operation of the
  underground constructions which have been not
  connected with investigation or extraction.
• The operator and its status among subjects of the
  subsoil use right
• Operator - created or defined according to the
  legislation of Republic of Kazakhstan by
  contractors under the writing notice of competent
  body the legal entity who is carrying out
  operative management by activity and
  registration-accounting operations, connected
  with execution of the contract for which actions
  the contractor bears the property responsibility.

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Functions of national companies

• participation in realization of a uniform state
  policy in subsoil use sphere
• representation of the state interests in the
  contracts providing in them individual share of
  the national company
• individual share in contracts
• carrying out of operations on subsoil use on
  sites of the subsoil given on the basis of direct
  negotiations
• participation in the international and internal
  projects on realization of operations on subsoil
  use
• participation in the international and internal
  projects on transportation of hydrocarbonic raw
  material
• participation in preparation of annual reports on
  a course of performance of contracts
• corporate management and monitoring concerning
  investigation, development, extractions,
  processing, realizations, transportations of
  hydrocarbons, designing, construction, operation
  of oil and gas pipelines and oil and gas field
  infrastructures
• carrying out of negotiations and the conclusion
  of agreements on purchase of the alienated
  subsoil use right (its parts) and (or) a share of
  participation (share holdings) with alienator
  (alienators).

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Accrual of subsoil use right

• The subsoil use right arises by
• grantings
• transfers
• transition by way of assignment.
• Granting of the subsoil use right is carried out
  
• on the basis of carrying out of competition, or
• in the cases stipulated by the Draft Law, on the
  basis of direct negotiations.
• The body authorized on carrying out of
  competition on granting of the subsoil use right
  - Competent body.
• The Draft Law establishes requirements to the
  maintenance of the notice on carrying out of
  competition, the maintenance of the application
  form for participation in competition, and also
  terms for application, for carrying out of
  competition, summarizing of competition and the
  maximal term of prolongation of term of
  summarizing of competition are certain.

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Cancellation in the right to participation in
competition

• As the new basis for cancellation in granting
  the right to participation in competition it is
  provided
• if granting to the applicant of the subsoil use
  right will cause non-observance of requirements
  on maintenance of national safety of the country,
  including in case of concentration of the rights
  within the limits of the contract and (or)
  concentration of the rights to carrying out of
  operations in the field of subsoil use.
• Criteria of definition of the winner of
  competition
• size of a subscription bonus
• size of deductions in the local budget on social
  and economic development of region and
  development of its infrastructure.

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Features of granting of the subsoil use right at
transition from a stage of investigation on a
stage of extraction

• The person who has made detection and an
  estimation of a deposit on the basis of the
  contract on investigation, has the right in term,
  not later than three months from the date of the
  termination of the contract on investigation to
  address in competent body the application about
  carrying out of direct negotiations on the
  conclusion of the contract on extraction.
• The competent body, not later than 2 months,
  unilaterally defines following conditions of the
  contract on extraction
• size of a subscription bonus
• size of the Kazakhstani content concerning the
  goods, works and services, and also the
  Kazakhstani staff
• size of deductions in the local budget on social
  and economic development of region and
  development of its infrastructure.

13
Transfer of the subsoil use right and the object
connected with it

• Besides stipulated by the Law On subsoil and
  subsoil use the Draft Law provides new ways of
  transfer of the subsoil use right and (or) the
  objects connected with it
• references of collecting on the subsoil use right
  , a share participations (share holding) in the
  legal entity possessing the subsoil use right,
  including at the mortgage
• occurrence of the right to a share in the legal
  entity possessing the subsoil use right as a
  result of increase in the authorized capital by
  acceptance of the new participant in structure of
  participants of the legal person.

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Exceptions of the above mentioned cases

• fulfillment of transactions on alienation of
  shares or securities of the legal entity
  possessing the subsoil use right, publicly traded
  on securities market
• transfers of all or parts of the subsoil use
  right, shares of participation (share holding) in
  the legal entity who is subsoil user, in favour
  of the absolute affiliated organization
• transfers of all or parts of the subsoil use
  right, shares of participation (share holding) in
  the legal entity who is subsoil use between the
  legal entities, being absolute affiliated
  persons.

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Other operations for which fulfillment the
sanction of competent body is required

• primary release in the reference on the organized
  securities market of shares of the legal entity
  who is subsoil user, and the legal entity
  possessing shares of participation (share
  holdings) in legal entities subsoil users,
  including primary accommodation on the organized
  securities market of shares of such legal
  entities who have been let out within the limits
  of additional issue
• transfer to the mortgage of the subsoil use right
  (its parts), shares of participation (share
  holding) in the legal entity possessing the
  subsoil use right.

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Governing Law

• Under transactions and other actions directed on
  alienation of the subsoil use right, shares of
  participation (share holding) in the legal entity
  possessing the subsoil use right in Republic
  Kazakhstan, the right of Republic Kazakhstan is
  applied.

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The order of delivery of sanctions to alienation
of the subsoil use right

• Submission in competent body of the application
  for delivery of the permission.
• Transfer by competent body of the application of
  the Commission of experts concerning subsoil use
  during 15 working days.
• Consideration within 20 working days of the
  Commission of experts of materials, development
  of the offer and a direction of the report in
  competent body.
• Making decision by competent body within 30
  working days.

18
The moratorium on alienation of the subsoil use
right

• Subsoil use right cannot be transferred within
  two years from the moment when the contract comes
  into force, except for the cases of the reference
  of collecting to the subsoil use right or
  reorganization of the legal entity who is subsoil
  user.
• The moratorium does not extend on cases of
  transfer or acquisition subsoil use right by
  national company or its subsidiary organization.

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Contract on subsoil use

• The Draft Law stipulates following kinds of
  contracts on subsoil use
• for carrying out of investigation - contract on
  investigation
• for carrying out of extraction - contract on
  extraction and primary processing
• for carrying out of construction and/or operation
  of the underground constructions which have been
  not connected with investigation or extraction -
  contract on construction and/or operation of the
  underground constructions which have been not
  connected with investigation or extraction
• for carrying out of the state geological studying
  of subsoil - contract on the state geological
  studying of subsoil.
• Terms of the conclusion of the contract
• for carrying out of investigation - no more than
  18 months from the date of making decision on the
  conclusion of the contract and signing of the
  report of direct negotiations, or from the date
  of the announcement of results of competition
• for carrying out of extraction - no more than 24
  months from the date of making decision on the
  conclusion of the contract and signing of the
  report of direct negotiations, or from the date
  of the announcement of results of competition.

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Terms of the contract

• The contract on investigation - 6 years.
• An opportunity of prolongation
• at carrying out of oil operations on the sea -
  for 2 years
• in case of commercial detection - for the period
  necessary for an estimation.
• The contract on extraction - the term certain by
  the project on work on extraction.
• An opportunity of prolongation
• in case of the reference of subsoil user with
  the corresponding application 6 months prior to
  the termination of works and at a substantiation
  of the reasons of prolongation.

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Renewal of the contract on investigation or
extraction

• Cases of renewal of contracts, cancelled under
  the initiative of competent body
• an establishment of the fact of making decision
  on cancellation of the contract on the basis of
  doubtful data who have considerably affected
  making decision on cancellation of the contract,
  including if for date of making decision on
  cancellation of the contract subsoil user for
  the valid reasons has not the documents
  confirming performance of contract obligations
• an establishment and acknowledgement not
  dependent on will of subsoil user the reasons
  owing to which there was a default or inadequate
  execution of contractual obligations, including
  action of force majeure, that is extreme and
  unpreventable circumstances under the given
  conditions (the natural disasters, military
  actions, etc.), rendered direct influence on
  default or inadequate execution of contractual
  obligations.

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Guarantees

• The current Law On subsoil and subsoil use

• Draft Law On subsoil and subsoil use

• Subsoil user is guaranteed protection of its
  rights according to the legislation. Changes and
  the additions of the legislation worsening
  position of subsoil user, are not applied to the
  contracts concluded before entering of given
  changes and additions.
• The guarantees established by present article,
  do not extend on changes of the legislation of
  Republic of Kazakhstan in the field of
  maintenance of defensibility, national safety, in
  sphere of ecological safety and public health
  services.

• Subsoil user is guaranteed protection of its
  rights according to the legislation. Changes and
  the additions of the legislation directly
  worsening results of commercial activity of
  subsoil user under contracts, are not applied to
  the contracts concluded before entering of given
  changes and additions.
• The guarantees established by present article,
  do not extend on changes of the legislation of
  Republic of Kazakhstan in the field of
  maintenance of national safety, defensibility, in
  sphere of ecological safety, public health
  services, the taxation and customs regulation.

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Thank you! Victoriya Katanayeva Partner
GRATA Law Firm Mob. [phone] Email
Vkatanayeva_at_gratanet.com