COMMENT TO ARTICLE 2. RELATIONS REGULATED BY THIS CODE TO THE CODE OF THE REPUBLIC OF KAZAKHSTAN "ON SUBSOIL AND SUBSOIL USE"

Home / RLA / COMMENT TO ARTICLE 2. RELATIONS REGULATED BY THIS CODE TO THE CODE OF THE REPUBLIC OF KAZAKHSTAN "ON SUBSOIL AND SUBSOIL USE"

1. This Code defines the regime for the use of subsurface resources, the procedure for state management and regulation in the field of subsurface use, the specifics of the emergence, exercise and termination of rights to subsurface areas, the legal status of subsurface users and their conduct of relevant operations, as well as issues of the use of subsurface and disposal of the right of subsurface use and other relations related to the use of subsurface resources.

2. The use of lands, water and other natural resources is regulated in accordance with the land, water and environmental legislation of the Republic of Kazakhstan, which defines the mode of use and protection of the relevant natural resources.

3. The parties to the relations regulated by this Code are the state, citizens and legal entities of the Republic of Kazakhstan.

4. Foreigners, stateless persons, as well as foreign legal entities in the Republic of Kazakhstan enjoy the rights and freedoms and bear obligations in the relations of subsurface use established for citizens and legal entities of the Republic of Kazakhstan, unless otherwise provided by this Code, laws and international treaties ratified by the Republic of Kazakhstan.

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(Yelyubaev J.S.)

1. The commented norm defines the scope of the Subsoil Code and provides a list of legal relations in the field of subsoil use regulated by this regulatory legal act. It should be borne in mind that the terms "subsurface use right regime" and "subsurface use" are not identical in meaning and content. "Subsurface use" refers to the activities of certain entities involved in geological exploration, mineral exploration, mining, the use of subsurface spaces and prospecting. For the first time this term was introduced by the Decree of the President of the Republic of Kazakhstan "On Subsoil and subsoil use" No. 2828 dated January 27, 1996. Previous legal acts of the USSR, the Kazakh SSR and the first Code of the Republic of Kazakhstan "On Subsoil and Processing of Mineral Raw Materials" dated May 30, 1992 contained the terms "subsoil use" and "subsoil user", which are identical in meaning to the terms "subsoil use" and "subsoil user".

2. The regime of the right of subsurface use includes:

1) Licensed subsurface use regime. A subsurface use license does not apply to permits regulated in accordance with the legislation on permits and notifications, it is a document issued by a government agency and granting its holder the right to use a subsurface area for the purpose of conducting subsurface use operations within the specified subsurface area. The legal institution of licensing the right of subsurface use was first introduced into the legislation on subsoil and subsurface use by the Code of the Republic of Kazakhstan "On Subsoil and Processing

mineral raw materials" dated May 30, 1992 (see article 20, paragraph 1 of Chapter 4). Subsequently, the regulation of the licensing regime was reflected in other regulatory legal acts – in Resolution No. 377 of the Cabinet of Ministers of the Republic of Kazakhstan dated April 13, 1994 "On the procedure for providing subsurface resources for geological exploration, mining and use for other purposes", "Regulations on the procedure for licensing the use of subsurface resources in the Republic of Kazakhstan", approved by the Resolution Cabinet of Ministers of the Republic of Kazakhstan No. 886 dated August 8, 1994. The licensing institute was subsequently reflected in the Laws of the Republic of Kazakhstan "On Oil" dated June 28, 1995 No. 2350, "On Subsoil and Subsoil Use" dated January 27, 1996 No. 2828. However, later, the institute of licensing was excluded by the Law of the Republic of Kazakhstan dated August 11, 1999 No. 467 "On Amendments and Additions to Certain Legislative Acts of the Republic of Kazakhstan on subsoil use and oil operations in the Republic of Kazakhstan." A license for subsurface use is the basis for the right of subsurface use and in accordance with the commented Code on Subsurface Resources (see article 20, paragraph 1 of Chapter 4).

2) The contractual regime of subsurface use (paragraph 2 of Chapter 4 of the Subsoil Code). A subsurface use contract is one of the types of civil law contracts in which elements of public law conditions are present (for example, the establishment of a tax regime for a subsurface user in accordance with tax legislation, etc.). The conclusion, execution and termination of a subsurface use contract is regulated by the provisions of the Subsoil Code. In the part not regulated by the Subsoil Code, such contracts are governed by the norms of civil legislation. The institution of granting the right of subsurface use on the basis of a contract was first introduced by the Code of the Republic of Kazakhstan "On Subsurface Resources and Processing of Mineral Raw Materials" (see Article 20, paragraph 2 of Chapter 4), Decrees of the President of the Republic of Kazakhstan having the force of law, "On Oil" dated June 28, 1995 No. 2350, "On Subsurface use" dated January 27, 1996 year No. 2828.

3. Carrying out subsurface use operations without a license or contract is an illegal activity that entails liability provided for by law, in particular criminal liability.

4. The subsurface use regime presupposes the existence of special rules governing: relations of ownership of subsurface; relations related to the granting, modification and termination of the right of subsurface use; relations related to the licensed and contractual regime of subsurface use; relations related to geological exploration

relations related to the exploration and extraction of minerals; relations related to the use of subsurface spaces for other types of economic activities; relations related to prospecting; relations related to the protection of subsurface; relations related to the state management of subsurface resources, as well as the control and monitoring of the activities of subsurface users, etc.

5. Public administration always manifests itself as a social relationship that develops between the relevant government agencies, legal entities and individuals regarding a particular benefit, in this case, the subsoil. At the same time, the "procedure for the implementation of public administration" in the field of subsurface use is understood to mean the existence of a system of state bodies whose competence includes issues related to the management of subsurface resources as objects of state ownership and the exercise of control over the activities of subsurface users. The system of such state bodies consists of:

1) the competent authority, determined by the Government of the Republic of Kazakhstan, whose functions include representing the interests of the Republic of Kazakhstan and the implementation of state policy in the field of subsoil use;

2) authorized bodies in the field of solid minerals, in the field of hydrocarbons, in the field of uranium mining, in the field of subsoil exploration;

3) local executive authorities.

6. The "procedure for state regulation" in the field of subsurface use is understood to mean a system of state organizational, scientific, technical, technological, economic, legal and other measures aimed at complying with the procedure for subsurface use established by law, ensuring the completeness of geological exploration of the subsurface, effective and integrated use of mineral reserves, as well as preventing contamination of the subsurface during work related to the use of mineral resources.

7. The Subsoil Code defines the specifics of the emergence, exercise and termination of rights to subsurface areas, depending on the type of subsurface use. Specific provisions of the Subsoil Code provide for the procedure and conditions for granting the right to subsurface use, its modification and termination (for example, by granting a license for geological exploration of the subsoil, granting the right to extract hydrocarbons based on an auction and contract, granting the right to extract hydrocarbons and uranium to a national company based on direct negotiations, granting the right to

for the extraction of solid minerals, granting the right to prospecting).

8. The fact of granting the right of subsurface use determines the legal status of the subsurface user and the types of relevant operations for the use of subsurface (geological exploration of subsurface, exploration and extraction of minerals, use of subsurface space, prospecting).

9. The subsurface use regime also determines other requirements for the subsurface user, in particular, compliance with the requirements for: efficient, rational and safe conduct of subsurface use operations; development and approval of mandatory technical design documents; conservation of subsurface areas for hydrocarbons; conservation or liquidation of technological facilities; and other mandatory actions.

10. Relations related to the use of subsurface resources are multifaceted and are regulated in a subsidiary manner not only by the norms of legislation on subsurface and subsurface use, but also by the norms of related branches of Kazakh legislation – land, environmental, water, as well as legislation regulating relations related to the processing of mineral raw materials, the production of certain types of products related to subsurface use.

11. The activity of a subsurface user on land use follows from the specific provisions of the land legislation, and it should be directly related to the conduct of operations on subsurface use and the implementation of other economic activities by the subsurface user. At the same time:

1) If a land plot is intended for carrying out activities or performing actions requiring a permit, a license for subsurface use or the conclusion of a contract for subsurface use, then the right of land use for this plot is granted after obtaining the appropriate permit, license for subsurface use or the conclusion of a contract for subsurface use. At the same time, the boundaries of the land plot and the subsurface area may not be identical, as a rule, the area of the land allocated to the subsurface user may be larger than the area of the subsurface area, since, for example, the subsurface user needs infrastructure facilities to carry out subsurface use operations. In case of early termination by the competent authority of the subsoil use contract related to hydrocarbon raw materials, the title documents for the land plot are reissued to

a trustee on the basis of a trust management agreement for a subsurface area concluded by the competent authority with a national company in accordance with the Subsurface Code.

2) The availability of a license for the extraction of solid minerals, for the use of subsurface space or prospecting, the conclusion of a contract for the extraction of hydrocarbons or an addendum to the contract for the exploration and production of hydrocarbons, providing for the consolidation of the mining site and the production period or the preparatory period, or a contract for the trust management of a subsurface area, are grounds for the immediate provision of land in accordance with the procedure established by the Legislation of the Russian Federation. stipulated by the Land Code of the Republic of Kazakhstan.

3) Previously, the special Law of the Republic of Kazakhstan "On Subsoil and Subsurface Use" established that the conclusion of a contract for subsurface use was the basis for the immediate registration of a land plot by local executive authorities within thirty days from the date of the request of the subsurface user. At the same time, the provision of land plots owned or used by third parties was carried out according to the rules of land legislation. The spatial boundaries of the land plot being designed were limited to the territory actually used by the subsurface user. In addition, the aforementioned law determined that the transfer of the right of subsurface use was an unconditional basis for the re-registration of a land plot, registration of rights to a land plot and transactions with it in accordance with land legislation. These regulations were imperative in nature and were an unconditional basis for the subsoil user to obtain the right to land use. There are no such provisions in the current Subsoil Code. However, the Land Code of the Republic of Kazakhstan contains rules governing the provision of land to a subsurface user, the meaning and content of which are almost identical to the above rules.

4) The special regime of land use is regulated by another norm of the Land Code of the Republic of Kazakhstan. Thus, mineral exploration or geological exploration operations can be carried out by subsurface users on lands that are state-owned and not provided for land use, on the basis of a public easement without obtaining such lands for ownership or land use. Subsurface users who carry out operations for mineral exploration or geological exploration on land plots that are privately owned

property or land use, may carry out the necessary work on such sites on the basis of a private or public easement without the seizure of land from private owners or land users.

5) For the purposes of comparative analysis, it should be noted that in the early 90s of the last century, the legal acts of the Republic of Kazakhstan regulating relations in the field of subsoil development and land use did not fully reflect all aspects of the activities of subsurface users, especially in cases where the subsurface users were foreign legal entities. The legal acts of that time were more of a "permissive nature" and the provision of land to legal entities depended on the will and desire of the authorized body or government official. The existence of an economic entity's right to subsurface use was not an unconditional basis for obtaining the right to land use, moreover, some norms provided for the obligation of a legal entity applying for the right to subsurface use, first of all, to have a permit to occupy land in the proposed territory of subsurface use. For example, article 15 of the Code of the Republic of Kazakhstan "On Subsoil and Processing of Mineral Raw Materials" dated May 30, 1992 stipulated that the provision of subsoil for mining was carried out after the provision, in particular, of a land plot in accordance with the norms of the Land Code of the Republic of Kazakhstan dated November 16, 1990. The provisions of Articles 12 and 16 of the Code of the Republic of Kazakhstan "On Subsoil and Processing of Mineral Raw Materials" prescribed that land relations related to the geological exploration of the subsoil and pilot industrial development of the subsoil are carried out in accordance with the country's land legislation. In addition, according to the land legislation of that period, joint ventures and foreign legal entities, in particular under concession agreements, could only be granted land on lease terms. The same was provided for in the Regulation "On the procedure for granting land for use to Joint Ventures, International Associations and organizations, foreign Legal entities and Citizens for carrying out activities in the territory of the Republic of Kazakhstan", approved by Resolution No. 1516-XII dated July 3, 1992.

12. The next important type of useful activity associated with subsurface use is water use. The right to water use, as well as to any type of special nature management, is granted to subsurface users by local executive authorities based on

in coordination with the authorized body on the use and protection of the water fund.

13. Subsurface users use water resources not only for drinking and municipal needs, but also to a large extent for other special purposes, in particular, for the discharge of industrial, municipal, drainage and other wastewater using certain structures and technical devices.:

1) facilities for wastewater discharge to evaporation, filtration fields and terrain;

2) drainage structures (wells, wells, mines) intended for the discharge of wastewater and other waters into the subsurface;

3) drainage structures of exploited mine workings intended for extraction from mines, quarries, tunnels, sections;

4) absorbing wells for the discharge of industrial, municipal, drainage and other wastewater, technological aqueous solutions into underground aquifers and voids of subsurface areas;

5) injection wells to maintain reservoir pressure during the development of hydrocarbon raw materials and underground leaching during the extraction of solid minerals.

At the same time, special water use is carried out on the basis of a permit exclusively for the purposes defined in it and should not violate the rights and legitimate interests of others and cause harm to the environment.

14. One of the types of special environmental management characteristic of the sphere of subsurface use is emissions into the environment, which are understood as emissions, discharges of pollutants, the disposal of production and consumption waste in the environment, and the disposal and storage of sulfur. Practically none of the subsurface users can carry out subsurface use operations without obtaining the right to these types of special environmental management. According to environmental legislation, emissions into the environment are allowed only after receiving an appropriate environmental permit from the authorized body. Meanwhile, there are also problems in this area of the subsurface user's activity, for example, related to the combustion of crude gas, which are under the control of two state bodies – the authorized body in the field of hydrocarbons and the authorized

environmental protection authority, which contradicts the concept of separation of functions of state bodies.

15. Compliance with environmental requirements at all stages of subsurface use is also an important element in the development of subsurface resources. The list of general environmental requirements for the use of subsurface resources is provided for both by the Code on Subsurface Resources (Article 52) and the Environmental Code of the Republic of Kazakhstan (Article 219). Despite the general similarity of these requirements, they differ in their content and meaning, which can be attributed to the costs of legislative activity. And since it is the EC of the Republic of Kazakhstan that is a special regulatory legal act regulating relations in the field of the use of natural objects and their protection, it should be dominant in determining environmental requirements in the field of subsurface use.

16. All types of special nature management, in particular, land use, water use, and emissions into the environment are carried out on a fee basis – this is an economic factor. The amounts and rates of fees for special environmental management are established in accordance with tax legislation on the basis of developed standards.

17. According to paragraph 3 of the commented article, the parties to legal relations in the field of subsoil use are the state, citizens and legal entities.

18. The main participant in legal relations in the field of subsurface use is the state, since, according to paragraph 3 of Article 6 of the Constitution of the Republic of Kazakhstan, Article 11 of the Subsoil Code and Article 193 of the Civil Code of the Republic of Kazakhstan, the subsoil is state-owned. Therefore, in an objective sense, the right of state ownership of mineral resources is a set of legal norms governing the ownership of material goods to the state and ensuring its ability to own, use and dispose of mineral resources at its discretion. Thus, state ownership of mineral resources is one of the components of the foundations of the state sovereignty of the Republic of Kazakhstan.

19. The Legal Institute of Public Administration in the field of the use and protection of the subsoil is the central institute of the law on the subsoil. Its content consists of the functions of state regulation in the field of subsoil use. These include: the implementation by the state of ownership of the subsoil; state control in the field of protection of the subsoil and monitoring of the subsoil; state control over the study, use of the subsoil and conduct of operations on subsoil use; state

examination of the subsoil; the state balance of mineral reserves; the state cadastre of deposits and manifestations of minerals; the state cadastre of burials of harmful substances, radioactive waste and wastewater discharge into the subsoil; the state cadastre of man-made mineral formations.

20. Under the licensed regime of subsurface use, the role of the state, represented by its competent and authorized bodies, is special and is expressed in the exercise of the powers of the owner. The issuance of a license to carry out a specific type of subsurface use operation does not provide for equality of participants in these legal relations, it implies an administrative and licensing system of subsurface use, where the state acts as the main participant in relations in the field of subsurface use, as the owner of the subsoil.

21. Meanwhile, despite the existence of clear legislative regulations on the right of state ownership of mineral resources, there are many disputes in theory and practice regarding the implementation of the right of state ownership of mineral resources. There is an opinion that since the state is the leading subject of socio-economic and managerial relations and as such it has full public authority, it supposedly follows that in a civil law transaction involving the state to transfer the right to use subsurface areas to other persons, the relationship is characterized by a state of legal "inequality of the parties." The stated position on the state of "inequality of the parties" is not indisputable, both from the point of view of the general theory of law and the theory of civil law, since neither Article 6 of the Constitution of the Republic of Kazakhstan, nor its other norms, contain special procedures and rules for the disposal of state property. On the contrary, there are regulations that state and private property are recognized and equally protected in the Republic of Kazakhstan; that property obliges, and its use must simultaneously serve the public good.; that the subjects and objects of property, the scope and limits of the exercise by owners of their rights, guarantees and their protection are determined by law (parts 1 and 2 of Article 6 of the Constitution of the Republic of Kazakhstan). Within the meaning of these constitutional provisions, when examining the role and place of the state, for example, in contracts for subsurface use, it is necessary to be guided by legislative acts regulating relations arising in connection with the ownership, use and disposal of property, in particular the norms of civil legislation.

22. In this regard, we will cite the fundamental definition that defines the right of ownership as the right of a subject, recognized and protected by legislative acts, to own, use and dispose of his property at his discretion. At the same time, the right of disposal is a legally secured opportunity to determine the legal fate of property, however, the exercise by the owner of his powers should not violate the rights and legitimate interests of other persons and the state (Article 118 of the Civil Code of the Republic of Kazakhstan). Thus, the constitutional provisions and norms of civil legislation and legislation on mineral resources do not establish special rules for the State to own, use and dispose of property. The implementation of ownership rights must comply with the general rules set out in the Civil Code of the Republic of Kazakhstan and the Code on Subsoil. This conclusion gives grounds to express the opinion that approaches regarding the special role of the state in contractual (contractual) relations in the field of subsurface use are not indisputable, as they infringe on the principle of equality of the parties in civil law relations.

23. At the same time, some support for this position can be found in the writings of other participants in the scientific discussion, who believe that the state (the Republic as a whole, and its administrative-territorial units) really should first of all be considered as a subject of public relations, in which it acts as the bearer of authority, obliging other participants in legal relations to comply with the requirements, declared by state bodies that directly express the state will within the limits of their competence. But the state can also enter into civil law obligations on its own behalf, an essential and indispensable feature of which is "the mutual independence of the participants, their full legal equality and their mutual responsibility for violating their assumed civil law obligations."

24. According to paragraph 1 of Article 111 of the Civil Code of the Republic of Kazakhstan, the Republic of Kazakhstan acts in relations regulated by civil law on an equal basis with other participants in these relations. In contractual relations in the field of subsurface use, the state should act as an equal participant in legal relations, ensuring a fair balance of interests of the state, society and the subsurface user through the application of legislative regulatory instruments.

25. Summarizing the above, it can be stated that the state should participate in all these legal relations for the management of mineral resources on an equal basis with other participants in legal relations, since any contracts must be concluded and executed in compliance with the fundamental principles of civil legislation. This conclusion is also based on the fact that relations for the development of mineral resources are essentially economic commodity-money relations. In addition, civil legislation considers the right of subsurface use as one of the types of property rights, and it is classified as objects of property lease (paragraph 2 of Article 541 of the Civil Code of the Republic of Kazakhstan). It is also stipulated that legislative acts may establish the specifics of leasing "subsurface areas and other isolated natural objects", including on the basis of concession agreements (paragraph 4 of Article 541 of the Civil Code of the Republic of Kazakhstan). It should be noted that the above-mentioned scientific controversy contributed to a better understanding of the legal relations developing in the field of subsurface use, the formation of a unified approach in determining the role of the state in these legal relations as the sovereign and owner of the subsoil, as well as the formation of uniform law enforcement practice and the preservation of the legal regime for granting subsurface use rights on the basis of a contract.

26. Other participants in relations in the field of subsoil use are citizens of Kazakhstan and legal entities registered in the Republic of Kazakhstan. They can obtain the right to subsurface use in accordance with the provisions of the Subsoil Code in the licensing regime and by concluding a contract in accordance with the procedure and conditions prescribed in the specific provisions of the Subsoil Code and other legislation on subsurface use.

27. Foreign citizens, stateless persons and foreign legal entities may obtain the right to subsurface use according to the rules established for citizens and legal entities of the Republic of Kazakhstan, unless otherwise established by national legislation, international treaties ratified by the Republic of Kazakhstan. When granting the right to subsurface use to this category of participants in legal relations in the field of subsurface use, investment agreements may additionally be concluded in accordance with the rules of civil, investment and business legislation, providing for the provision of certain benefits and preferences. For example, in some contracts for subsurface use concluded in the early and mid-90s of the last century, there are special "tax regimes", in particular, provisions regulating issues

import/export, conducting currency transactions, etc. However, according to the current legislation of the Republic of Kazakhstan, it is impossible to provide such preferences, which to some extent negatively affects the investment climate in the country.

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Kazakh Association of Organizations of the Oil and Gas and Energy Complex KAZENERGY

Nur Sultan 2022

The Kazenergy Association expresses its sincere gratitude for the support in preparing the commentary to the following companies: North Caspian Operating Company NV, NC KazMunayGas JSC, Mangistaumunaygas JSC, Karachaganak Petroleum Operating BV, White & Case Kazakhstan LLP, Haller Lomax LLP)", "Erlicon CG" LLP, "Signum Law Firm" LLP. © Kazenergy Association, 2022 © team of authors, 2022 © authors, 2022

Dear readers!

We offer you a scientific and practical commentary prepared by a group of Russian specialists with extensive practical experience in legislation on subsoil and subsoil use and who participated in the preparation of the Code on Subsoil and Subsoil Use.

Subsurface use is a very complex and specific area of public relations, the regulation of which has its own historical background and takes into account the technological specifics of the process of subsurface development, as well as environmental, commercial, legal and other features of exploration and development of deposits.

Kazakhstan's legislation on subsoil and subsurface use has passed through several stages in its development, and has always been based on a balance of interests between the state and subsurface users, transparency, striving for the maximum possible degree of protection of the rights and legitimate interests of investors, ensuring sustainable social, economic and environmental development of the country.

The Code "On Subsoil and Subsoil Use", adopted at the end of 2017, was developed taking into account many years of accumulated experience and law enforcement practice, as well as the results of extensive discussions with experts working in the industry.

It reflects specific, important measures on the part of the state to increase the investment attractiveness of exploration and further reduce administrative barriers.

Nevertheless, practice and legislation do not stand still, constantly evolving, taking into account new challenges facing both the subsurface use industry and the economy as a whole.

In this regard, this commentary is intended to serve as an aid for a wide range of interested persons – specialists working in the industry, in

understanding the meaning of the norms, their historical context, the interrelationship and mutual influence of the various provisions of the Code.

We also hope that studying the commentary will serve as an incentive for new generations of young domestic specialists to work scientifically and practically in this important industry, for the benefit of the development of our country, current and future generations of Kazakhstanis.

Sincerely, U. Karabalin, Deputy Chairman of the Kazenergy Association, Hero of Labor of Kazakhstan

President

Republic of Kazakhstan

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