COMMENTARY TO ARTICLE 15. OWNERSHIP OF EXTRACTED MINERALS TO THE CODE OF THE REPUBLIC OF KAZAKHSTAN "ON SUBSOIL AND SUBSOIL USE"

The extracted minerals belong to the subsurface user by right of ownership (to the state legal entity – by right of economic management or the right of operational management), unless otherwise established by this Code.

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(M.B.Telemtaev, M.A. Ibragimov)

1. The article being commented on is devoted to the consolidation of the most important right possessed by a subsurface user engaged in mining in his assigned subsurface area. Such a right is the ownership right of a subsurface user to the minerals he has extracted. It is equally fundamental and defining for the corresponding

The nature of the subject is the same as the right to use the subsoil, which the state grants it. The absence of such a right from a private person engaged in mining practically makes all his subsurface use activities meaningless.

It is worth recalling that the assignment of ownership rights to minerals extracted by a subsurface user is relatively new in the legislation on the subsoil of Kazakhstan.

For example, the 1992 Code on Subsoil and Processing of Mineral Raw Materials, which was in force relatively recently, which, on the one hand, explicitly provided for the possibility of providing subsoil for use by certified enterprises, organizations and institutions of all forms of ownership, citizens and even enterprises with foreign participation, foreign legal entities and individuals, but at the same time was silent and circumvented There is a question about who owns the ownership of the extracted minerals. Only once did this legislative act, in connection with the pilot operation of deposits, mention the possibility of selling extracted mineral raw materials and processed products, at which a fee was to be charged for the use of the subsoil. Such a mention gave some reason to assume that the right of such sale was vested in the subsurface user who carried out the specified pilot operation of the deposit, and to whom the extracted mineral raw materials belonged as the owner. As for the subsurface users conducting standard mining operations, the issue of their right to minerals extracted during such operations remained a gap, since this legislative act did not regulate it in any way.

2. There was no need for such an interpretation, and the gap was filled in connection with the adoption of the 1996 Law on Subsoil, which explicitly established that mineral raw materials belong to the subsoil user by right of ownership, and the latter has the right to dispose of them and make any civil transactions with respect to them that are not prohibited by law. At the same time, the Mineral Resources Act of 1996 understood mineral resources as "a part of the subsoil extracted to the surface (rock, ore raw materials, etc.) containing minerals." These formulations were later accepted and reproduced verbatim in the text of the 2010 Law on Mineral Resources.

From the above prescriptions, it was quite definitely seen that not only the subsurface user owned the mineral raw materials he extracted.

ownership. No less important was the fact that these norms made it possible to accurately determine the moment when this right arose. This was the moment when the extraction of mineral raw materials to the surface was carried out during mining. It was with such extraction that the legislator associated the emergence of the right of ownership of the extracted rocks, ore raw materials and other objects obtained by him during mining.

3. In contrast to the above-mentioned formulations, the commented article speaks about the ownership of extracted minerals rather than mineral raw materials to the subsurface user. The latter, the extraction of which is regulated by the Subsoil Code, primarily includes hydrocarbon minerals (hydrocarbons) and solid minerals.

The legal mechanism for the emergence of ownership of these extracted minerals is provided for by applicable civil law and consists in the fact that ownership of certain receipts, including fruits, products, and income received as a result of the use of property, belongs to the person who uses this property legally.

With regard to the cases of subsurface use under consideration, this means that a subsurface user who uses state property in the form of a subsurface area on a legal basis, i.e. in accordance with a license issued or a contract concluded, has all legal grounds for the fact that the minerals he extracts from this subsurface area come into his ownership.

It is also equally important to understand exactly when and at what point this ownership right to these minerals arises. In this case, referring to their definitions and characteristics, as was possible under previous legislative acts that referred to mineral raw materials as "part of the subsoil extracted to the surface", does not answer this question. Therefore, here it is necessary to resort to mentioning and briefly analyzing those norms of the Subsoil Code that define the concept of mining as a subsurface use operation carried out in relation to certain minerals, and also consolidate the powers of the subsurface user as the owner of various types of minerals obtained as a result of certain subsurface use operations.

4. With regard to hydrocarbons, the Subsoil Code establishes that their extraction is recognized as a complex of works related to the extraction of hydrocarbons from the subsoil to the surface, and the components extracted during the extraction of hydrocarbons

they are the property of the subsurface user, unless otherwise provided by the Code on Subsurface Resources or the contract. A similar rule on the ownership of a subsurface user in relation to extracted uranium is contained in paragraph 4 of Article 176 of the Subsoil Code, according to which uranium and other associated minerals extracted during mining are the property of the subsurface user, unless otherwise provided by the Code or contract. It is particularly noteworthy that, in accordance with paragraph 2 of Article 175 of the Subsoil Code, for the purposes of accounting for the amount of extracted uranium, the uranium raised to the surface with productive solutions is determined, minus the uranium returned with leaching solutions to the subsoil.

From the content of the above norms, it is obvious that in the cases of subsurface use under consideration, the Subsurface Code reproduces the approach that was previously applied in previous legislation on subsurface resources to determine the moment when a subsurface user's ownership right to extracted minerals in the form of hydrocarbons and uranium arose. In other words, in the process of mining, the subsurface user becomes the owner of these minerals at the time of their extraction to the surface, i.e. the passage of extracted hydrocarbons, uranium and other associated minerals through the mouth of the corresponding well at the boundary of the soil surface.

A similar conclusion can also be drawn with respect to solid minerals and other rocks obtained during exploration operations, since the legislator directly links the moment of ownership of the subsoil user conducting the exploration of such minerals with their extraction to the surface of the earth. In accordance with the Subsoil Code, minerals, as well as other rocks extracted by a subsurface user as a result of exploration for solid minerals, are the property of the subsurface user.

5. The issue under consideration is resolved somewhat differently by the Code on Subsoil in relation to solid and widespread minerals resulting from mining. A special feature here is how the Subsoil Code defines the concept of mining and extraction of such minerals and other rocks in relation to various subsurface use operations.

First of all, it is important to keep in mind that, unlike the hydrocarbon extraction described above, the mining of solid minerals in the Subsoil Code refers not only to the extraction of such minerals to the Earth's surface, but also to the "separation of solid minerals from their places of occurrence." That is,

such separation of a mineral from the contents of the subsurface (from the ore body) is in itself mining, at the moment when the subsurface user becomes the owner of the minerals separated from the subsurface. In other words, such an occurrence of ownership of minerals by a subsurface user occurs even though, having been extracted (separated from the subsurface), such minerals may not be extracted to the surface and continue to remain within the limits of underground mining (for example, in a mine). This approach of the legislator provides the subsurface user with the right not only to treat and account for rocks separated from the ore body as extracted volumes, but also, for example, gives him the opportunity to carry out certain technological operations with the extracted ore raw materials as with his own property, without extracting it to the surface, but having the appropriate equipment and organizing the necessary technological processes in the depleted mine space inside the subsurface, i.e. directly at the place of separation of ore volumes from the composition of the subsurface.

6. Such a systematic interpretation of the norms of Articles 15 and 202 of the Subsoil Code allows for a critical look at the provision of article 214 of the Subsoil Code, according to which "solid minerals (useful components) extracted during mining are the property of the subsoil user."

Firstly, in its seemingly traditionally used and outwardly understandable wording in the Subsurface Code, this provision, unlike the prescription of art.194 of the Subsurface Code, contains a well-known gap, since it does not mention anything about other rocks extracted in the mining process along with solid minerals (useful components), and thus does not answer the question of the legal fate and ownership of overburden during open-pit mining, waste rock during mine construction, etc., i.e. about soils that are neither a soil layer nor a mineral (useful component).

In the absence of a direct reference to this in Article 214 of the Subsoil Code, the ownership of these incidentally mined objects (rocks) to the subsoil user can be argued only taking into account the above-mentioned general norms of Articles 123 and 235 of the Civil Code of the Republic of Kazakhstan, regulating the emergence of ownership rights to certain receipts, including fruits, products, income, received as a result of the use of property from a person who uses this property legally.

Secondly, this version of Article 214 of the Subsoil Code comes into a certain contradiction with the commented Article 15, systematically interpreted together with Article 202 of the Subsoil Code, since it speaks about the ownership right of the subsurface user to "recoverable", and not to the solid minerals extracted during the relevant operations, i.e. obtained as a result of extraction.. The use of such a term can give rise to ambiguous interpretations, since, for example, mineral reserves that are an integral part of the subsurface and are only subject to extraction in the future can be considered "recoverable", and therefore continue to remain state property until such extraction, etc. The same term may also be misinterpreted in the sense that Article 214 of the Subsoil Code refers to minerals that have already been extracted from the subsoil, i.e. raised to the surface, and only therefore became the property of the subsoil user. But such an interpretation would also contradict the commented article, which means that not only those minerals that have been raised to the surface (extracted from the subsurface), but also those that have only been separated from the subsurface, but have not yet been brought to the surface, have been extracted and thus become the property of the subsurface user.

7. The norm of Article 232 of the Code on Subsoil, which defines the concept of extraction of widespread minerals, does not contain sufficient clarity. According to it, the extraction of such minerals is understood as "a complex of works aimed at and directly related to the separation and extraction of common minerals from their places of occurrence." Based on this understanding of mining, it can definitely be assumed that common minerals that have already been extracted to the surface become the property of the subsurface user. However, specifying, along with "extraction", the "separation" of fossils from their locations does not allow us to unequivocally answer, for example, the question of whether granite or marble extracted by mining, already separated from their location, but not yet raised to the surface, or sand, gravel or gypsum, is the property of a subsurface user. rock found in the bucket or in the body of an excavator or dump truck located in a quarry, and thus not extracted from the quarry to the surface.

8. The article under review mentions that minerals extracted by a subsurface user, a state-owned legal entity, belong to him on the right of economic management or the right of operational management. The content and features of these rights, as well as the procedure for their implementation

The implementation by the relevant entities is determined by civil legislation, as well as the laws of the Republic of Kazakhstan "On State Property" and "On Local Public Administration and Self-Government in the Republic of Kazakhstan".

9. Another important feature of the commented article is the reservation contained in it that the general rule on the ownership right of a subsurface user to the minerals extracted by him may have exceptions provided for by the Code on Subsurface Resources.

An illustrative example of such an exception is the provision of Article 147 of the Subsoil Code stating that associated gas produced during oil operations in the form of a multicomponent mixture of hydrocarbons and non-hydrocarbon gases contained in the oil in a dissolved state in reservoir conditions and released from it when pressure decreases is the property of the state. The ownership of such associated gas not to the state, but to the subsurface user may be established by a subsurface use contract. But if the parties to the contract did not provide for this, then the associated gas obtained as a result of extraction becomes the property of the Republic of Kazakhstan by virtue of the instruction of the Subsoil Code.

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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