Comment to Article 5. Rational management of the State Subsoil Fund of the Code of the Republic of Kazakhstan “On Subsoil and Subsoil Use”
The rational management of the state subsoil fund is ensured by granting the right of subsurface use for the purposes of economic growth of the state and the welfare of society.
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(Odilov T.A.)
1. The principle of rational management of the state subsurface fund replaced the previously existing principle of legislation on rational, integrated and safe use of subsurface resources, provided for in Article 6 of the 2010 Law on Subsurface Resources. This principle determined the content of not only specific requirements in the field of rational and integrated use of subsurface resources and protection of subsurface resources provided for in art. 110 of the 2010 Law on Subsurface Resources, but also the entire system of public administration, regulation and control over subsurface use operations. It is safe to say that the principle of legislation on the rational and integrated use of mineral resources was rooted in ideological, normative and practical senses.
The requirements for the rational and integrated use of subsurface resources were listed in more detail in Article 110 of the 2010 Law on Subsurface Resources and disclosed in the Uniform Rules for the Rational and Integrated Use of Subsurface Resources in 2011. Through the prism of these requirements, all subsurface use operations, methods, types, methods and volumes of work, calendar dates were subject to expertise (design documents), approved and strictly controlled by authorized government agencies, so to speak, "in manual mode", effectively excluding any "mining freedom".
The inconsistency of this principle of legislation with the new economic realities of the state structure and business activities in the field of subsurface use is largely due to the fact that the content of the principle of rational and integrated use of subsurface resources was formed during the Soviet period of planned economy and state monopoly in the field of subsurface use and production.
In the territory of the Republic of Kazakhstan, this principle began to form institutionally back in the 20s of the last century and was finally consolidated as a principle of legislation in the Code on the Subsoil of the Kazakh SSR. A simple comparison of the rules of rational and integrated use of subsurface resources in the laws on subsurface and subsoil use previously in force in the Republic of Kazakhstan with the norms in force during the Soviet Union demonstrates that the content and meaning of
these rules, in fact, have not changed, despite the drastic change in the economic and political systems in the Republic of Kazakhstan and in the world as a whole.
It is important to emphasize that the existence of this principle in Soviet legislation is explained by the need for strict guidance and control of mining enterprises. In a market economy, the principle of rational and integrated use of subsurface resources obviously did not correspond to the general direction of development of legislation in the field of subsurface use, since it did not allow the subsurface user to independently determine the expediency and profitability of operations, selecting the necessary methods, types and scope of work (operations) for subsurface use at his own risk, taking into account market factors.
In modern market conditions, subsurface users independently solve the issues of sales, logistics and marketing of extracted and processed minerals in the global processes of product creation, while in the Soviet period the state monopoly on means of production and transport excluded supplies by mining enterprises to external consumers, directively integrating extracted minerals into the processes of product creation within the USSR. With the independence of the Republic of Kazakhstan, in the context of a new economic formation, private ownership and direct economic ties between subsurface users and consumers, the principle of rational and integrated use of subsurface resources obviously did not reflect objective reality, without relying on the laws of public life, including economic laws.
2. Some requirements of the previously existing principle of rational and integrated use of subsurface resources are provided for in the provisions of the Special Part of the Code on Subsurface Resources for operations for exploration and production of hydrocarbons (Articles 121 and 122), as well as operations for the extraction of uranium (Articles 174). As before, the implementation of these requirements is ensured by procedures for the examination of project documents, state control of their execution and liability for damage caused as a result of violations of the requirements for the rational and integrated use of mineral resources.
The preservation of the institute of requirements for the rational and integrated use of subsurface resources for hydrocarbon exploration and production and uranium mining operations, but no longer as a principle of legislation, was partially explained (by the developer of the Code on Subsurface Resources in terms of hydrocarbons and uranium, the Ministry of Energy of the Republic of Kazakhstan) by a geological feature
hydrocarbon and uranium deposits, as well as the practice of monitoring and control in oil and gas projects, which was significantly different from the situation with exploration and production of TPI, including OPI. However, in the opinion of the author of this commentary, the reason for maintaining these requirements in the field of hydrocarbon and uranium mining, according to discussions at the working groups on the development of the Subsoil Code, lies in the conservative views of the developer to maintain the paradigm of control over subsoil use operations in these areas that has been established for 25 years.
3. The commented article establishes the rational management of the state subsoil fund as one of the principles of the legislation on subsoil and subsoil use. The content of this principle determines the content of norms, legal institutions and the direction of legal regulation on granting subsoil use rights in the Republic of Kazakhstan.
The principle does not regulate specific public relations that develop when granting or exercising rights to use subsurface resources, but it is important in the formation and implementation of state policy on granting subsurface use rights.
The content of the principle is directly related to the purpose of the legislation on subsurface use provided for in paragraph 1 of Article 3 of the Subsoil Code: "ensuring the sustainable development of the mineral resource base of the Republic of Kazakhstan for the economic growth of the state and the welfare of society."
4. The concept of the state subsurface fund is disclosed in a separate article (Article 69 of the Code on Subsurface) and implies "used subsurface areas, as well as unused subsurface within the territory of the Republic of Kazakhstan", based on which, it can be concluded that the legislator means by the state subsurface fund the totality of the entire territory of the Republic of Kazakhstan with underlying minerals and other resources. the subsoil.
The provisions of the Subsoil Code do not disclose the concept of "rational". However, the literal meaning of Article 5 implies that the management of the state subsoil fund is rational (expedient, justified) when the system of norms for granting subsoil use rights provided for in the Subsoil Code is implemented to the extent and scale that ensures a sufficient number of investments that make a significant contribution to the economic growth of the Republic of Kazakhstan and the welfare of society, for example, by increasing tax base and job creation.
It follows from this that, according to the plan laid down by the legislator, the rationality of the management of the state fund is achieved by the full implementation of the norms, legal institutions and mechanisms for granting subsoil use rights of the Subsoil Code.
5. One of the key legal institutions implemented in the implementation of the principle of rational management of the state subsoil fund is the PUGFN. Thus, in accordance with paragraph 3 of Article 70 of the Subsoil Code, the PUGFN contains information about the territories within which subsurface areas can be provided for use by central government agencies for conducting operations on subsurface use – exploration and production of mineral resources, exploration and production of hydrocarbons.
In addition to the specified information, the IGFN should also contain information on the geographical coordinates of specially protected natural territories, territories of lands for health, recreational, historical and cultural purposes, lands for defense and state security, territories of settlements, territories of lands of the water fund, thereby informing potential subsurface users about territorial restrictions on the conduct and granting of subsurface use rights by virtue of the provisions of Article 25 of the Subsoil Code.
Being the initial legal institution in the management of the state subsoil fund, the PUGFN is designed to ensure the granting of subsoil use rights by the competent authority throughout the territory of the Republic of Kazakhstan, excluding territories within which the provision of subsoil plots for use in accordance with paragraph 2 of Article 25 of the Subsoil Code and legislation on specially protected natural areas is prohibited. Thus, in the context of the commented principle, the management of the state subsoil fund with the help of the Federal Reserve Fund is assumed to be rational only to the extent that the potential (capabilities) of the territory of the Republic of Kazakhstan are used as widely as possible to conduct subsurface use operations or grant subsurface use rights, without harming or creating risks to the public, national security, or facilities of concern. of special ecological, scientific, historical, cultural and recreational value.
6. In the Special Part of the Subsoil Code, the principle of rational management of the state subsoil fund is implemented in the material standards, defining the procedure for granting subsoil use rights. For subsurface use licenses, this procedure provides for the declarative principle as the most competitive, transparent and traditional in world practice.
mining, and for subsurface use contracts – the auction principle (general procedure), which is also traditional for the global oil and gas industry. Thus, by establishing the described procedure for granting subsurface use rights, the rationality of the management of the state subsoil fund in the context of the commented principle is assumed by the legislator.
7. The commented principle of legislation determines not only the architecture and content of institutions for granting subsurface use rights, but also reflects the content of other norms of the General Part of the Code on Subsurface Resources, affecting the territorial aspects of granting and exercising subsurface use rights for the rational management of the state subsurface fund.
Thus, Article 24 regulates the procedure for conducting different subsurface use operations on the same (combined) territory by two or more subsurface users. The priority system fixed in this article allows the use of the earth's surface as a territorial spatial basis for the use of subsurface areas with the greatest economic effect, that is, rationally within the framework of the semantic meaning of the commented principle.
The implementation of the principle of rational management of the state subsoil fund is also linked to the content of Article 25 of the Subsoil Code, which establishes a direct ban on certain operations for subsurface use in the territories listed in the article and a ban on the provision of subsoil plots, the boundaries of which are completely located within such territories. The restrictions provided for are aimed at ensuring the protection of the rights and legitimate interests of society as a whole and specific subjects. Geographically, these restrictions mostly relate to facilities of special ecological, scientific, historical, cultural and recreational value, social infrastructure and life support facilities, and national security, where conducting subsurface use operations causes harm, which, in the opinion of the legislator, is incommensurable with the economic effect obtained from subsurface use operations, which means By definition, it cannot contribute to the economic growth of the state and the welfare of society.
On Subsoil and Subsoil Use Administrative Procedural and Procedural Code On the Health of the People and the Healthcare System Environmental Code Social Code Commentary Article Civil Procedure Code Civil Code Code of Criminal Procedure Criminal Code Regulatory Decision of the Supreme Court
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
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