Comment to Article 28. Provision of support to Kazakhstani personnel, producers of goods, suppliers of works and services during operations on exploration and (or) extraction of minerals to the Code of the Republic of Kazakhstan “On Subsoil and Subsoil Use”  

1. When conducting operations for exploration and (or) extraction of minerals, subsurface users are required to give preference to Kazakhstani personnel. The recruitment of foreign labor is carried out in accordance with the legislation of the Republic of Kazakhstan on employment and migration of the population.

At the same time, the number of managers, managers and specialists working in the territory of the Republic of Kazakhstan as part of an internal transfer in accordance with the legislation of the Republic of Kazakhstan on employment and migration of the population should not exceed fifty percent of the total number of managers, managers and specialists in each relevant category.

The calculation of the share of local content in the workforce is carried out in accordance with the methodology approved by the authorized body on employment issues.

2. The share of local content in works and services purchased for conducting subsurface use operations, established in the terms of subsurface use contracts and licenses for the extraction of solid minerals, must be at least fifty percent of the total volume of purchased works and services during a calendar year.

The calculation of the share of local content in goods, works and services is carried out by organizations in accordance with a single calculation methodology.

local content in the procurement of goods, works and services approved by the authorized body in the field of state support for industrial activities.

__________________________________________________________________________________________

(Yereshev D.E.)

1. The issues of supporting local content at the legislative level were first provided for in the Decree on Oil of 1995, which contained provisions on the priority of Kazakhstani enterprises and organizations in the procurement of services during oil operations, as well as on the preference of Kazakhstani personnel and goods produced in the territory of the Republic of Kazakhstan. Identical provisions were provided for in the Decree on the Subsoil of 1996. At the same time, the condition for priority in relation to services was their compliance with price and quality criteria. In addition to price and quality criteria, the goods had to meet environmental, technical, operational, and delivery requirements.

The existence of reservations regarding the conditions of support for local suppliers and manufacturers of TRU made these obligations conditional. In general, at the initial stage of the development of the subsurface use industry, the conditions for supporting local suppliers and local personnel were not key terms of subsurface use contracts, as more pressing tasks at that time were being solved to bring oil and gas and mining sector enterprises out of the crisis. The policy of actively attracting foreign capital to the field of subsoil use has led to a significant influx of foreign specialists into the industry, primarily in the oil and gas industry. As the economic situation in the country improved and global prices for raw materials rose, issues of support for Kazakhstani suppliers of raw materials and Kazakhstani personnel began to play a key role in government policy in the field of subsoil use. This led to the adoption of amendments in December 2004, which established new requirements for the support of Kazakhstani producers of TRU. At the legislative level, the concepts of "Kazakh content", "Kazakh producer", etc. were provided, requirements were introduced to include obligations for a minimum share in the Kazakh content in the terms of the tender for granting the right to subsurface use and the terms of contracts, and regulation of the procurement of raw materials during subsurface use operations was introduced, with mandatory discounts to Kazakhstani producers in the amount of 20% There were also requirements for a minimum proportion of Kazakhstani personnel.

In December 2009, another package of amendments was introduced into the Law on Mineral Resources of 1996, aimed at strengthening measures to support Kazakhstani producers of TRU. A register of TRUS used in conducting subsurface use operations was introduced, as well as regulation of subsurface user purchases. The requirement to purchase TRU from Kazakhstani producers was also extended to subsurface user contractors (subcontractors). In addition, the concept of "Kazakhstani personnel content" was introduced, which provided for the establishment of minimum values of Kazakhstani personnel by categories that were to be included in the terms of subsurface use contracts.

Adopted in 2010. The Law on Subsoil retained the provisions of the Law on Subsoil of 1996. In connection with the process of negotiations on Kazakhstan's accession to the WTO, the 2010 Law on Mineral Resources was amended in 2012, which replaced the term "Kazakh content" with the term "local content". In 2015, a new package of amendments was introduced to the 2010 Law on Subsoil, which revised the rules governing local content support in order to bring them into line with WTO obligations. In accordance with these changes, a threshold for obligations regarding local content in works and services was set at no more than 50%, and the requirements for establishing obligations for local content in goods in subsurface use contracts were eliminated. The obligations on local staff content were also clarified, taking into account the establishment of a threshold for intra-corporate transfer in the amount of no more than 50% of the corresponding category.

Local content requirements applied to all subsurface use contracts, regardless of the types of operations carried out, including exploration, construction and operation of underground facilities.

Local content requirements were not applied only to standard exploration contracts, which were introduced into the 2010 Law on Subsoil by the Law of the Republic of Kazakhstan "On Amendments and Additions to Certain Legislative Acts of the Republic of Kazakhstan on Subsoil use" dated December 29, 2014 in order to stimulate exploration of poorly explored subsurface areas. Under such contracts, exemption from obligations for local maintenance during the exploration period was a measure to encourage investment.

2. The commented article establishes legislative requirements for subsurface users in terms of supporting local personnel in subsurface use operations, as part of the state regulatory policy in the field of subsurface use.

At the same time, the requirements in the field of local content are not declarative, since the Subsoil Code provides for appropriate regulatory standards aimed at ensuring that subsurface users comply with these requirements. At the same time, these standards were developed taking into account the country's international obligations. In connection with Kazakhstan's accession to the WTO, the issues of regulating local content were brought into line with the obligations assumed by the country as a result of negotiations with the WTO.

3. Paragraph 1 of the commented article establishes general requirements for local staffing for subsurface users. It should be noted that these requirements apply only to subsurface users engaged in exploration and (or) production. Such requirements are not provided for other types of operations (geological exploration of the subsurface, use of subsurface space, prospecting).

The item under consideration requires that subsurface users give preference to Kazakhstani personnel when conducting exploration and (or) production operations. Neither the commented article nor the Subsoil Code discloses how the priority requirement for Kazakhstani personnel is to be implemented. The provisions of this norm are implemented at the level of contractual obligations of subsurface users. For example, according to Article 36 of the Subsoil Code, obligations for a minimum share of local content in personnel are included in the mandatory terms of the contract.

Since the issues of attracting foreign labor are regulated by the legislation on population migration, in particular the Law of the Republic of Kazakhstan "On Population Migration", which establishes a permissive procedure for attracting foreign workers based on quotas determined by the Government, paragraph 1 contains a reference norm to this legislation.

Due to the existence of specific obligations of the Republic of Kazakhstan upon joining the WTO in terms of supporting Kazakhstani personnel in the field of subsoil use, it was necessary to reflect the relevant regulatory features at the legislative level. With the accession of the Republic of Kazakhstan to the WTO, the procedure for attracting foreign workers in intra-corporate transfer has changed. For this reason, taking into account the WTO obligations, it was necessary to provide protective measures for Kazakhstani personnel in relation to foreign workers, who are attracted by subsurface users bypassing quotas for attracting foreign labor. In this regard, the paragraph establishes a minimum percentage of Kazakhstani personnel in the case of intra-corporate transfer of foreign workers, in the amount of fifty percent in accordance with the obligations of the Republic of Kazakhstan under the WTO.

4. The provisions of paragraph 1 shall apply to all subsurface users if they employ foreign workers. This clause, in accordance with Article 277 of the Subsoil Code, applies to relations on subsurface use that arose before the entry into force of the Subsoil Code.

5. The first part of clause 2 of Article 28 establishes requirements for the share of local content in works and services under contracts and licenses for subsurface use concluded (issued) after the entry into force of the Subsoil Code. At the same time, this norm regulates the obligations of subsurface users in terms of the share of local content for works and services under contracts for combined exploration and production, production in the field of hydrocarbons, contracts for uranium extraction, as well as licenses for the extraction of TPI. All other types of licenses, including exploration licenses, mining licenses, and mining licenses, are not subject to the requirements of clause 2 on the minimum share of local content in works and services. The limitation of the scope of obligations on local content in works and services is related to the desire of the legislator to simplify the conditions of activity of subsurface users in the field of exploration of mineral resources, extraction of opium, etc. in order to create conditions for attracting investments and minimizing costs in industries where the share of local content is high due to historical and economic reasons.

The mechanism for supporting Kazakhstani suppliers includes setting minimum thresholds for the share of local content in the total volume of purchased works and services in accordance with a special methodology for calculating the share of local content. This methodology is defined at the subordinate level.

The minimum share of local content in works and services purchased for conducting subsurface use operations is set at at least 50 percent. The requirements of Part 1 of clause 2 are implemented by establishing in the terms of contracts for subsurface use in the form of corresponding obligations of subsurface users, as well as in licenses for the extraction of mineral resources.

 Constitution Law Code Standard Decree Order Decision Resolution Lawyer Almaty Lawyer Legal service Legal advice Civil Criminal Administrative cases Disputes Defense Arbitration Law Company Kazakhstan Law Firm Court Cases 

  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