Comment to Article 56. Guarantee as a guarantee of liquidation to the Code of the Republic of Kazakhstan “On Subsoil and Subsoil Use”
1. By virtue of the guarantee, the guarantor undertakes to be liable to the Republic of Kazakhstan, within the limits of the monetary amount determined in accordance with this Code, for fulfilling the obligation of the subsurface user to eliminate the consequences of subsurface use in whole or in part in accordance with this Code.
2. A second-tier bank, a foreign bank, or an organization whose shares are traded on an organized securities market may act as a guarantor. If the guarantor is a foreign bank or an organization whose shares are traded on an organized securities market, such guarantors must meet the conditions for a minimum individual credit rating in foreign currency determined by the competent authority.
3. The bank's obligation under the guarantee issued by it in accordance with this Article shall terminate no earlier than the completion of liquidation.
4. The guarantee is provided in Kazakh and Russian languages in accordance with the standard form approved by the competent authority.
The guarantee issued by a foreign person may be written in a foreign language with a mandatory translation into Kazakh and Russian, the accuracy of which must be certified by a notary.
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(Mukhamedov R.N.)
1. The Institute of guarantees was one of the innovations of the Subsoil Code aimed at expanding the range of tools available to subsurface users to ensure the elimination of the consequences of subsurface use operations, in some cases allowing them not to block significant amounts of financial resources and use them for subsurface use purposes.
At the same time, this instrument, according to the legislator, is less "reliable" in comparison with the pledge of a bank deposit in second–tier banks, which limited its use to the field of exploration and production of mineral resources, mining, and hydrocarbons - under contracts concluded before the launch.
The Code on the Subsoil, within the limits of the excess of the market value of work to eliminate the consequences of operations on exploration and (or) production of hydrocarbons over the amount of funds actually formed by the liquidation fund.
In accordance with the provisions of art. 329 of the Civil Code of the Republic of Kazakhstan and paragraph 1 of the commented article, in the event of a guarantee being issued, the guarantor is jointly and severally liable with the subsurface user for fulfilling the obligations of the subsurface user to eliminate the consequences of subsurface use. In this case, the question arises whether the guarantor, in solidarity with the subsurface user, must fulfill the obligation in kind (to carry out work to eliminate the consequences of subsurface use) or whether his responsibility is limited to paying the state the appropriate amount of money.
The content of paragraph 1 of the commented article does not provide an unambiguous answer to this question, however, it follows from the provisions of the standard form of guarantee for the fulfillment of the obligation of the subsurface user to eliminate the consequences of subsurface use, which provides that the guarantor assumes an irrevocable and unconditional obligation to pay in favor of the Republic of Kazakhstan any amount not exceeding the amount specified in the guarantee.
In addition, based on the solidarity of the guarantor's responsibility and guided by the provision of paragraph 3 of Article 287 of the Civil Code of the Republic of Kazakhstan, the state has the right to demand fulfillment of the obligation to eliminate the consequences of subsurface use exclusively from the guarantor, without first making such demands to the subsurface user. This issue, in turn, remains open and may be the subject of further legislative activity.
2. Paragraph 2 of the commented article allows second-tier banks, foreign banks or organizations whose shares are traded on the organized securities market as guarantors. From this wording, it is impossible to draw an unambiguous conclusion whether the word "foreign" also applies to organizations, which would limit the ability of Kazakhstani legal entities to act as guarantors. The clarification regarding the circulation of their shares on the organized securities market does not answer this question, as does the definition of this term in the Law of the Republic of Kazakhstan "On the Securities Market" No. 461-II dated July 2, 2003.
At the same time, paragraph 3 of Article 277 of the Subsoil Code establishes that in certain cases the guarantors may be a national managing holding, a national company in the field of hydrocarbons or its subsidiary. In this regard, it seems that any legal entity, regardless of its residence, subject to other conditions, has the right to act as a guarantor for the fulfillment of the obligation of the subsurface user to eliminate the consequences of subsurface use.
At the same time, the provisions of the specified paragraph of Article 277 of the Subsoil Code establish requirements for relations on permits and licenses for subsurface use for hydrocarbons issued, as well as for subsurface use contracts for hydrocarbons concluded before the Code came into force, that differ from the commented article. First, P. Paragraph 2 of the commented article does not make any exceptions (for licenses issued [contracts concluded] after the Code came into effect) regarding the need to meet the conditions for a minimum individual credit rating in foreign currency, while paragraph 3 of Article 277 of the Subsoil Code makes such an exception for a national management holding and a national company. in the field of hydrocarbons.
Secondly, in order to implement this paragraph of the commented article, the Order of the Minister of Investment and Development of the Republic of Kazakhstan dated May 2, 2018 No. 293 established the following conditions for a minimum individual credit rating in foreign currency for foreign banks and organizations whose shares are traded on the organized securities market:
– not lower than the "BBB" level of the Standard & Poors rating agency or ratings of a similar level assigned by the rating agencies Fitch, Capital Intelligence, Dominion Bond Rating Service, JCR or Rating & Investment Information;
– not lower than the "Baa2" level assigned by the rating agency Moody's Investors Service.
In turn, clause 3 of Article 277 of the Subsoil Code establishes lower (and with fewer agencies) requirements for an annually confirmed minimum long-term credit rating in foreign currency not lower than "BB-" on the Standard and Poor's scale or a similar level on the scales of rating agencies Moody's, FitchRatings.
3. Article 336 of the Civil Code of the Republic of Kazakhstan provides four grounds for termination of the guarantee:
– with the termination of the secured obligation;
– with the transfer to another person of a debt under an obligation secured by a guarantee or surety, if the guarantor or surety has not given the creditor consent to be responsible for the new debtor;
– if, upon the expiration of the term of performance of the obligation secured by it, the creditor refused to accept proper performance;
– after the expiration of the period for which it is given, specified in the guarantee agreement. If such a period is not fixed, it is terminated if the creditor in
will not file a claim against the guarantor within one year from the date of the deadline for the fulfillment of the obligation secured by the guarantee.
At the same time, the standard form of a guarantee for the fulfillment of a subsurface user's obligation to eliminate the consequences of subsurface use provides only three of them (without refusing to accept proper performance) and does not specify the duration of the guarantee (due to the inability to determine in advance the exact date of completion of liquidation).
Clause 8, clause 6 of the Rules for Issuing Bank Guarantees and Sureties by Second-tier Banks also allows the issuance of guarantees both for a certain period of time and until the occurrence of a circumstance (event) in which the obligation of the bank that issued the bank guarantee or surety is terminated.
In this regard, it seems that the requirements of paragraph 3 of the commented article should also be extended to organizations that issue guarantees.
4. The guarantee for the fulfillment of the obligation of the subsurface user to eliminate the consequences of subsurface use must comply with the standard form approved by the Order of the Minister of Investment and Development of the Republic of Kazakhstan dated May 24, 2018 No. 387. At the same time, this requirement also applies to guarantees issued by foreign entities, which may cause certain inconveniences for foreign investors. An additional problematic point may be that the standard form provides for the only acceptable guarantee currency – the Kazakhstani tenge.
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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
