Commentary to Article 278. Transitional provisions to the Code of the Republic of Kazakhstan “On Subsoil and Subsoil Use”  

     1. To establish that permits, licenses and contracts for subsurface use issued and concluded prior to the entry into force of this Code, as well as all related acts of the executive bodies of the Republic of Kazakhstan remain valid, except for the cases provided for in this chapter.

     The functions of the licensing authority - the Government of the Republic of Kazakhstan in relation to previously issued licenses for subsurface use are assigned to the competent authority.

     The competent authority, as well as local executive bodies of regions, cities of republican significance, and the capital, monitor compliance with the terms of contracts concluded with them.

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     (Nogaibai Z.M.)

     1. Although this is not explicitly stated in the commented norm, nevertheless, the regulatory meaning of the commented norm in relation to contracts is similar to the meaning of paragraph 2 of Article 383 of the Civil Code of the Republic of Kazakhstan, according to which if, after the conclusion of the contract, the legislation establishes rules binding on the parties other than those in force at the conclusion of the contract, the terms of the concluded contract remain effective, except in cases where the legislation establishes that its effect extends to relations arising from previously concluded contracts.

     2. Therefore, the commented norm under "permits, licenses and contracts for subsurface use", as a general rule, means all (any) permits, licenses and contracts related to the granting of rights to subsurface use and issued (or concluded) prior to the entry into force of the Code, regardless of whether they correspond in form and content. the requirements of the Code, whether they are provided for by the provisions of the Code, as well as regardless of the type of minerals covered by the subsoil use rights under the relevant document.  

     3. The variability of the types of subsurface use documents listed in the commented norm (permits, licenses and contracts for subsurface use) is related to the use of these types of documents in previous legislation.  

     For example, such an unusual form of a document for subsurface use as a "permit" was used in legislation at the dawn of the country's independence (see, for example: permits from local councils of people's deputies, as grounds for the right to extract OPI; Government permits for experimental industrial development of deposits, under the 1992 Code on Subsoil and Processing of Mineral Raw Materials year).  

     Licensing of exploration and production of minerals was provided for by the Law "On Subsoil and Subsoil Use" of 1996, until the amendments in 1999.  

     4. The words "all related acts of executive bodies" should be interpreted literally as all (any) acts of executive bodies, in whatever form they are expressed (decisions, permits, letters, notices, etc., etc.) and regardless of whether such acts (decisions) are provided for in the current legislation on subsoil or related branches of legislation.  

     "Executive bodies" means not only authorized and competent bodies in the field of subsoil use, but also other state bodies at the national and local levels, including those that existed earlier, but were subsequently abolished or renamed.

     5. The commented norm does not imply the continued validity of permits, licenses, contracts and (or) related acts of executive bodies issued (concluded) in violation of the legislation in force at the time of issuance (conclusion). The commented norm cannot serve as a basis for the "legalization" of illegal documents for subsurface use and (or) related acts of executive bodies at the time of their issuance (conclusion). However, this does not mean that any documents for subsurface use and/or related acts of executive bodies may be arbitrarily classified as illegal at the time of their issuance (conclusion), since in order to recognize any documents and/or acts as illegal, appropriate legal actions and procedures must be followed in each case..  

     6. The commented norm does not regulate issues related to the legal force and effect of previously approved project documents (this block of issues is regulated in another norm – in paragraph 22 of Article 278 of the Code).  

     7. The assignment of the functions of the Government to the competent authority as a licensing authority for previously issued subsurface use licenses is related to the administrative reform and the redistribution of powers between the Government and central government agencies. According to the current model of organizing the representation of the interests of the state in relations on subsurface use, this task is assigned to the competent authorities.

     Despite the fact that today the institute of licenses for subsurface use is not used in the field of exploration and production of hydrocarbons and uranium mining, the competent authority in relation to the commented norm may be not only the competent authority in the field of exploration and production of mineral resources, but also the competent authority in the fields of exploration and production of hydrocarbons, as well as uranium mining.  

     8. The norm on control by competent authorities, as well as by local executive bodies of regions, cities of republican significance, and the capital over compliance with the terms of contracts concluded with them, corresponds to paragraphs 4) of art. 2) Article 65 of the Code.  

     The inclusion of a control provision in the commented norm confirms the legitimacy of the powers of the listed authorities (competent and local executive) to control the terms of previously concluded contracts.  

     8. To establish that national companies in the field of subsurface use have the right to obtain a license for exploration or extraction of solid minerals by submitting an application for subsurface areas located within the territory not specified in subparagraph 2) of paragraph 3 of Article 70 of this Code, with the exception of territories where conducting subsurface use operations is prohibited in accordance with Article 25 of this Code. The Code. This right may be exercised by national companies in the field of subsurface use, taking into account the delineation of activities of national companies in the field of subsurface use, approved by the Government of the Republic of Kazakhstan, within two years from the date of entry into force of this Code.

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     1. The regulatory purpose of the commented norm is related to the need to establish a transition period of two years from the date of entry into force of the Code, during which national companies in the field of subsurface use in the field of exploration or extraction of mineral resources could exercise the right indicated in the first sentence of the commented paragraph by submitting an application and conducting direct negotiations.  

     2. Despite the fact that the specified period of the transition period has already expired, the commented norm remains important (including for the sphere of hydrocarbons) since it is the only norm in the Code that stipulates the competence of the Government to approve the delimitation of the activities of national companies in the field of subsoil use. It seems, however, that the words "within two years from the date of entry into force of this Code" refer to the right that could be exercised by the relevant national companies, but does not limit (and cannot in any way limit) the validity period of the very differentiation of the activities of national companies (as a document approved by the Government).  

     3. Earlier, a similar delineation was approved by the Decree of the Government of the Republic of Kazakhstan dated 04/03/2015 No. 189 "On approval of the delineation of the activities of national companies in the field of subsoil use", based on paragraphs 13-1) of art. 16 of the Law on Subsoil and Subsoil Use of 2010, currently set for loss. At the time of writing this Commentary, the said Government decree remained legally binding (it was not threatened with loss).

     12. Subsurface use contracts concluded prior to the entry into force of this Code may be amended by agreement of the parties, as well as in cases provided for by the laws of the Republic of Kazakhstan or contracts.

     An agreement to amend the subsurface use contract specified in part one of this paragraph shall be concluded in accordance with the procedure established by this paragraph, taking into account the specifics provided for in paragraphs 13, 14, 16 of this article.

     A subsurface user who intends to conclude an agreement on amendments and additions to a subsurface use contract shall send an application to the competent authority (the state body that is a party to the contract), which shall set out the proposed amendments to the contract, their justification and other information necessary for making a decision on the application. A draft addendum to the subsurface use contract is attached to the application.

     The competent authority, no later than five working days, submits the received application for consideration by the expert commission on subsoil use issues established in accordance with Article 45 of this Code. Under a contract to which another government agency is a party, an expert commission is established by a decision of such a government agency. The Expert Commission is an advisory body attached to the competent authority (the state body that is a party to the contract) in order to develop recommendations when considering applications from subsurface users on amendments and additions to the contract. The expert commission reviews the application within no more than twenty working days from the date of its receipt and sends its recommendations to the competent authority (the state body that is a party to the contract).

Based on the recommendations of the expert commission, the competent authority (the state body that is a party to the contract), within five working days from the date of receipt of the recommendations of the expert commission, makes a decision to refuse to amend and supplement the subsurface use contract or to begin negotiations on amendments and additions to the subsurface use contract, taking into account the recommendations of the expert commission.

     Negotiations on amendments and additions to the subsurface use contract are conducted by a working group of the competent authority (the state body that is a party to the contract). The regulations on the working group and its composition are approved by the competent authority (the government agency that is a party to the contract).

     Negotiations are conducted within two months from the date of submission by the subsurface user to the competent authority (the state body that is a party to the contract) of the draft supplement and other necessary documents for consideration by the working group. This period may be extended by agreement of the parties.

     The results of the negotiations are formalized by the protocol. The draft amendments and additions to the subsurface use contract approved by the working group are signed by the competent authority (the state body that is a party to the contract). If the draft addendum to the subsurface use contract affects the key financial and economic indicators of the subsurface use contract, by decision of the working group of the competent authority (the state body that is a party to the contract), the specified draft is sent for economic expertise before it is signed. The procedure for conducting economic expertise is determined by the authorized body in the field of state planning.

     For common minerals, the procedure for conducting economic expertise is determined by the local executive body of the region.

     The terms of the amendments to the contract cannot be less beneficial for the Republic of Kazakhstan than the terms under which the subsoil use right was granted.

     Amendments to the subsurface use contract for hydrocarbons in accordance with this paragraph, providing for the extension of its validity period, are not allowed.

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     1. The actions of the competent authority, due to the ambivalence of its legal status (authority and management, the body representing one of the parties to the contracts) require a legislative framework, especially if it is such an important issue as changing contracts.

     With regard to the modification of previously concluded contracts, such a legislative basis is formed by the commented norm.  

     As a rule, the contracts themselves also provided for the possibility of their modification and addition, however, in order to avoid legal uncertainty and risks of violation of the rights of subsurface users, the legislator in the commented norm establishes for both parties to previously concluded contracts a clear sequence of actions, decisions and procedures to be executed to amend previously concluded contracts.  

     This is the regulatory purpose of the commented norm.  

     2. The "modification" of the contract in the commented norm should be understood as a modification and (or) addition to a previously concluded contract, with the exception of:

     1) amendments involving the extension of the validity of the hydrocarbon contract, which are regulated by other provisions of Article 278 of the Code and are explicitly excluded from the scope in the last part of the commented paragraph 12 of Article 278 of the Code (see below);

     2) changes, the terms of which are less favorable for the Republic of Kazakhstan than the terms under which the right of subsurface use was granted (see below);

     3) changes that may be unacceptable for some other reason (for example, if the proposed contract changes conflict with the provisions of the 2010 Law that have retained their legal force, see paragraph 14 of Article 277 of the Subsoil Code, or for some other reason, which requires verification on a case-by-case basis).  

     3. The first part of the commented norm lists cases when, in principle, it is possible to change a previously concluded contract: "by agreement of the parties, as well as in cases provided for by the laws of the Republic of Kazakhstan or contracts."  

     The juxtaposition "and also" should not be understood in the sense that changes to the contract can be made without the agreement of both parties "in cases stipulated by the laws of the Republic of Kazakhstan or contracts."  

     The meaning of this rule is only to emphasize that even if the laws of the Republic of Kazakhstan or the contract itself do not provide for any specific cases of amendments to the contract, the parties may nevertheless make any necessary and legally consistent changes to the contract.  

     Guided by this rule, the parties, in our opinion, by agreement between them, can, for example, adjust the terms of the contract, bringing them in line with the changed provisions in the Code (compared with the legislation in force at the time of the conclusion of the contract). Such a possibility, however, will be controversial if a provision of the Code or its final and transitional provisions explicitly state that a particular provision of the Code is not applicable to previously concluded contracts (see, for example, paragraph 1, paragraph 2, Article 115 of the Code).

     At the same time, even in cases stipulated by the laws of the Republic of Kazakhstan or the contract, changes to the contract cannot be made unilaterally, and a priori (since it is a contract) require the consent of both parties.  

     4. The second part of the commented norm peremptory indicates the need to take into account the requirements of paragraphs 13, 14, 16 of Article 278 of the Code.  

     The norms in paragraph 14 of Article 278 of the Code are not applicable to subsurface use contracts for hydrocarbons.

     5. The costs of the legal technique of the commented norm, which, however, are not of practical importance, include the use of various designations for an agreement to amend a previously concluded contract. This agreement is referred to in various parts of the commented norm as: "agreement on the amendment of the contract", "agreement on amendments and additions to the contract", "addendum to the contract". We are talking about the same document.

     6. Despite the fact that the scope of the norm includes all (any) possible cases of changes to previously concluded contracts, including those introduced not only on the initiative of the subsurface user, but also on the initiative of the state, the commented norm regulates the procedure only for situations when the initiative to change the contract comes from the side of the subsurface user..  

     7. The commented norm does not establish a detailed list.:

     - information to be indicated in the application of the subsurface user to the competent authority on the amendment of the contract;

     - documents attached to the application, limited to an indication of the justification and other information necessary for making a decision on the application.

     Considering that by "decision" is meant the decision of the competent authority, the above-mentioned lack of regulation entails risks for subsurface users.  

     Taking into account, however, that we are talking about a significant array of contracts concluded at different times and on different terms, it is hardly possible to define in the commented norm any uniform list of documents and information attached to the application.  

     8. The commented norm does not establish requirements for the language of the application and the information (documents) attached to it. In this case, it is necessary to follow the general requirements of the legislation of the Republic of Kazakhstan on languages.  

     9. The procedure for reviewing an application for changing a contract, provided for by the commented norm, includes the stage of consideration by an expert commission. Since, as a general rule, this institution is not provided for in the Code when considering amendments to contracts, the commented norm provides for a reference to the expert commission established in accordance with Article 45 of the Code (where the institution of the expert commission has been preserved).  

     10. Considering that the commented norm regulates issues related to the modification of previously concluded contracts, there may be situations when a state body that does not have the legal status of a "competent authority" under current legislation acts as a party to the contract (representing the Republic). These situations are taken into account in the commented norm.  

     In any case, however, "a government agency that is a party to a contract" refers only to existing (current) government agencies.

     11. The expert commission provided for by the commented norm does not have the status of a state body and does not make decisions that can be challenged in court. The commented norm explicitly stipulates the above-mentioned status of the expert commission and the advisory nature of its decisions addressed to the competent authority (or another government agency that is a party to the contract). Therefore, in our opinion, an appeal against violations of the requirements of the Code (for example, delaying the adoption of the recommendation of the expert commission) should be made against the competent authority (or another government agency that is a party to the contract), by whose decision the expert commission was formed.  

     It is also worth noting a slight legal inaccuracy in the text of the commented norm, in terms of the words "the state body that is a party to the contract", since the ROK is a party to the contract, and state bodies act on its behalf in contracts.

     12. The commented norm provides for an economic examination of the draft supplement to the subsoil use contract if it affects the key financial and economic indicators of the contract.  

This provision is not a right, but an obligation of the working group of the competent authority, and of the competent authority itself (or another government agency that is a party to the contract).

     The Code, as well as the subordinate rules for conducting an economic expert examination (Order of the Minister of Finance of the Republic of Kazakhstan dated 05/17/2018 No. 530 "On Approval of the Rules for conducting an economic expert examination of a draft supplement to a Subsurface use Contract"), do not disclose which specific indicators should be considered "key financial and economic indicators" of the contract, which entails risks for the subsurface user.  

     13. The commented norm contains a general criterion for verifying the changes being made: "the terms of changes to the contract cannot be less beneficial for the Republic of Kazakhstan than the terms under which the subsoil use right was granted."

     The Code does not disclose what is meant by "less favorable" conditions in this case, which theoretically entails risks for the subsurface user.

     It is worth noting that, obviously, the legislator thereby indicates the need to check the draft supplement not only for formal compliance with the requirements of current legislation, but also to assess the financial, economic and other aspects (consequences) of the changes being made, analytically compare and contrast the conditions at the conclusion of the contract and the current conditions.

     See also paragraph 2 of this commentary above.  

     14. The last part of the commented norm contains a direct ban on its extension to situations where changes are made to previously concluded hydrocarbon contracts providing for the extension of the validity of such contracts.

     This approach is explained by the fact that this issue is more strictly regulated in relation to previously concluded subsurface use contracts for hydrocarbons – the Code allows for an extension only in accordance with the procedure and on the grounds provided for:

     1) in paragraph 33 of Article 278 of the Code, regarding the extension of the exploration period under previously concluded contracts;

     2) in Article 120, subject to paragraph 3 of Article 277 of the Code, in terms of extending the production period under previously concluded contracts.  

     13. If it is necessary to make changes and additions to the work program of the subsurface use contract concluded before the entry into force of this Code, the application submitted in accordance with paragraph 12 of this article shall be accompanied by:

     1) a draft work program drawn up in the form approved by the competent authority, and an explanatory note to it;

     2) a written justification of the need for the proposed changes and additions.

     If the competent authority (the state body that is a party to the contract) decides to negotiate amendments and additions to the contract, the subsurface user, in addition to the documents specified in part one of this paragraph, must submit to the competent authority (the state body that is a party to the contract) for consideration by the working group the project documents and the plan (draft) liquidation, developed, agreed upon, approved and received positive expert opinions in accordance with this Code.

     If the production volumes of common minerals or solid minerals other than uranium provided for in the work program of the subsoil use contract actually change by less than twenty percent in physical terms, no changes to the work program are required. Such changes in production volume are considered to comply with the terms of the contract. The content of the work program of the subsoil use contract and its form are determined by the competent authority.

     The provisions of this paragraph shall not apply to contracts for the exploration of solid minerals concluded in accordance with the standard form prior to the entry into force of this Code.

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     1. The commented norm contains additional requirements to the general procedure for changing a previously concluded contract provided for in paragraph 12 of Article 278 of the Code, including if the changes relate to the work program of the contract.  

     The need for a more detailed settlement of this issue is related to the fact that the Code no longer provides for the institution of work programs for contracts (which previously existed in the legislation).  

     2. Since the adoption and introduction of the Code into force, the commented norm has already undergone a number of changes, mainly related to the field of TPI.  

     3. An important condition within the framework of the commented norm is the requirement for the subsurface user to submit for consideration by the working group project documents and a plan (project) for liquidation, developed, agreed, approved and received positive expert opinions in accordance with this Code. Meeting this requirement in practice involves unavoidable time costs (since we are talking about new forms of these documents and new requirements, approvals and examinations provided for by the Code) and entails serious risks for subsurface users. In order to minimize these risks, preparatory work on making changes to the work program of the contract should begin in advance, taking into account the long time required for approvals and examinations of project documents and the liquidation plan (project).

     16. Under subsurface use contracts concluded prior to the entry into force of this Code, the boundaries of the subsurface area are changed by making appropriate changes to the contract.

     In this case, the spatial boundaries of the subsurface area are determined by the territory, indicated by angular points in the geographical coordinate system and conventional planes extending from the boundaries of such a territory to a certain depth.

     Under contracts for the extraction of solid (widespread) minerals, with the exception of uranium, concluded before the entry into force of this Code, the expansion of the territory of a subsurface area is allowed in an amount not exceeding half of the subsurface area determined on the date of entry into force of this Code.

     The boundaries of a subsurface area under subsurface use contracts for solid (widespread) minerals, with the exception of uranium, concluded before the entry into force of this Code, are changed by re-registering a geological and (or) mining allotment. The procedure for issuing and re-registering geological and mining allotments is determined by the authorized body for the study of subsurface resources.

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     1. In the commented norm, parts three and four relate only to the field of TPI, while parts one and two are of a general nature, and thus also affect subsurface use contracts for ATC.  

     2. Part One of the commented norm stipulates that, under previously concluded contracts, the boundaries of the subsurface area are changed by making changes to the contract. Thus, the legislator determines the legal form of making such changes, corresponding to the general approach of the Code (where the concepts of geological and mining allotments are not provided for, and subsurface areas for subsurface use are defined in appendices to contracts for exploration and production of hydrocarbons).  

     The application in this case to contracts for exploration and production of UVS by analogy with the rule provided for in part four of the commented norm (on the possibility of re–registration of a geological and (or) mining allotment) is controversial, given:

     1) on the one hand, the literal content of the first and second parts of the commented norm, which correspond, respectively, with the norms provided for in the first paragraph of paragraph 2 of Article 110 and the second paragraph of paragraph 1 of Article 19 of the Code, and can be interpreted as the need to formalize the annex to the contract in accordance with the new requirements of the Code,  

     2) and on the other hand, the content of the by-law on this issue, which, unlike paragraph 16 of Article 278 of the Code, does not make any restrictions on the types of minerals for previously concluded contracts for the registration of geological or mining allotments (see the order of the Acting Minister of Ecology, Geology and Natural Resources of the Republic of Kazakhstan dated 08/3/2021, No. 285 "On Approval of the Rules for Issuing and Re-registering geological and (or) mining Allotments").

     3. "Changing the boundaries of a subsurface area" can be understood as reducing, increasing, or allocating a subsurface area.

     Therefore, from a substantive point of view, the issues of changing the boundaries of subsurface areas contracted under previously concluded contracts for the use of UVS will be regulated.:

     - the provisions of Articles 113, 114 of the Code, together with paragraph 3 of Article 278 of the Code, regarding the reduction or increase of a subsurface area, as well as  

     - paragraph 20 of Article 278 of the Code - regarding the allocation of a subsurface area.  

     19. Upon termination of a contract concluded prior to the entry into force of this Code, obligations to eliminate the consequences of subsurface use shall be fulfilled in accordance with the procedure established by this Code, taking into account the following:

     In the absence of a liquidation plan, two years before the expiration of a contract for the extraction of solid minerals, with the exception of uranium, or a contract for the extraction of common minerals, or at the time of their early termination, the relevant technical features of the liquidation provided for in the instructions for drawing up a liquidation plan are taken into account when developing a liquidation project.;

     upon termination of the permit for exploration or extraction of common minerals for use for the construction (reconstruction) and repair of public roads, railways owned by the state, hydraulic structures and hydraulic structures, the fulfillment of obligations to eliminate the consequences of subsurface use is carried out by reclamation of disturbed lands in accordance with the land legislation of the Republic of Kazakhstan.

Persons who started to eliminate the consequences of mining operations before the entry into force of this Code are obliged to ensure its completion in the manner and within the time limits established by this Code.

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     1. Despite the content of paragraphs two and three of part one of the commented norm (which deal with the areas of TPI and OPI), the commented norm (taking into account the literal content of paragraph one of Part one) concerns any contracts and provides an important rule on the application of the procedure for fulfilling obligations to eliminate the consequences of subsurface use provided for by the Code to previously concluded contracts upon termination of their validity.  

     2. Within the meaning of the norm, this refers to a situation where the validity period of a previously concluded contract has already expired after the Code was put into effect.  

     3. The procedure for fulfilling obligations to eliminate the consequences of subsurface use, defined in the Code, should currently be understood (in relation to the field of internal control) as a set of norms provided for in Articles 54, 55 and 126 of the Code, except for norms that do not relate to the time period when the contract has already expired (these are, in particular, the norms regarding the requirements for ensuring the fulfillment of liquidation obligations, see also paragraph 3 of Article 277 of the Code).

     It should be noted that along with the commented norm, the effect of Articles 54, 55 and 126 of the Code in relation to relations under previously concluded contracts in the field of hydrocarbons is also provided for in paragraph 3 of Article 277 of the Code.  

     4. Part two of the commented norm regulates situations when a person has begun to eliminate the consequences of mining and has not completed such liquidation before the Code comes into force.  

     The use of the term "person" indicates that the subsurface use contract has already been terminated, and accordingly, the person does not have the status of a subsurface user.

     With regard to subsurface use contracts for hydrocarbons, the Code does not set specific deadlines for the completion of the liquidation of the consequences of subsurface use (see paragraphs 2), paragraph 3, Article 126 of the Code).

     20. Subsurface users who, under a single contract for subsurface use in the field of hydrocarbons concluded before January 1, 2004, produce at several hydrocarbon deposits, some of which are included in the list of high-viscosity, flooded, low-flow or depleted deposits approved by the Government of the Republic of Kazakhstan, in accordance with the tax legislation of the Republic of Kazakhstan, have the right to apply to the competent authority for the conclusion of a separate production contract for such deposits. Such a contract may be concluded for the remaining period until the end of the term of the original contract.

     Subsurface users who, within the framework of a single contract for subsurface use in the field of hydrocarbons, concluded from January 1, 2004 and before the entry into force of this Code, produce at several hydrocarbon deposits, some of which are included in the list of highly viscous, watered, low-margin, low-yield or depleted deposits in accordance with the legislation of the Republic of Kazakhstan, have the right to apply to the competent an authority with an application for the conclusion of a separate production contract in respect of such (such) deposit(s). Such a contract may be concluded for the remaining period until the completion of the original contract.

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     1. The commented norm establishes rules concerning the allocation of subsurface areas under previously concluded production contracts in the field of hydrocarbons.

     2. The commented norm is identical in content to a similar norm provided for in previous legislation (see: paragraphs 8, 9 of Articles 70-1, paragraph 6 of Article 129 of the Law on Subsoil and Subsoil Use of 2010).  

     3. For such contracts, the Code provides for a stricter approach to regulating the allocation of subsurface areas (since the provisions of Article 115 of the Code are not applicable to them) than for contracts concluded after the Code entered into force (to which the provisions of Article 115 of the Code apply), see paragraphs 1) paragraph 2 of Article 115 and paragraph 3 of Article 278. The Code.

     3.1) allocation of subsurface areas according to the commented norm is possible only for previously concluded contracts for subsurface use in the field of hydrocarbons that are at the production stage;

     3.2) the difference between the first and second parts in the commented norm is the date of conclusion (previously concluded contracts):

     - in the first part, we are talking about contracts concluded before 01.01.2004, and only four criteria are used – high-viscosity, flooded, low-flow or depleted deposits;

     - in the second part, we are talking about contracts concluded since 01.01.2004, and, along with the four above, the fifth criterion is also used – low-margin deposits;

     3.3) the commented norm, unlike subclause 4) of clause 1 of Article 115 of the Code, does not establish requirements for the further alienation of the right of subsurface use in the allocated area to a person who is not affiliated with the subsurface user;

     3.4) the commented norm does not contain any indication of the form in which a separate mining contract for the allocated subsurface area will have to be concluded.  

     21. The final reports on the exploration work carried out, submitted by subsurface users to government agencies in order to obtain an opinion on the profitability of the explored mineral reserves, are subject to review in accordance with the provisions of Article 121 of the Law of the Republic of Kazakhstan "On Subsoil and Subsoil Use", taking into account the provisions of paragraph 11 of Article 277 of this Code.

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     1. Despite the absence of a direct indication, the norm applies only to previously concluded contracts (issued licenses)..  

     2. Paragraph 11 of Article 277 of the Code, to which reference is made in the text of the commented norm, applies only to the areas of TPI and OPI, i.e. it is not applicable to relations on subsurface use in the field of ATC. However, this does not exclude the application of the rest of the commented norm to the relevant relations under previously concluded contracts for subsurface use under the UVS.  

     3. The "Law of the Republic of Kazakhstan "On Subsoil and Subsurface Use" in the commented norm should be understood as the Law on Subsoil and Subsurface Use of 2010, which has become invalid, with the exception of some of its provisions that have retained their legal force.  

     4. The reference in the commented norm to Article 121 of the Law on Subsoil and Subsoil Use of 2010 corresponds to the norm provided for in paragraphs 16) paragraph 14 of Article 277 of the Code.  

     At the same time, it is necessary to pay attention to some inconsistency of the norms, since the commented norm refers to the possibility of applying the provisions of art. 121 of the Law on Subsoil and Subsoil Use of 2010 without any time restrictions, while the norm in paragraphs 16) paragraph 14 of art. 277 of the Code limits the effect of art. 121 of the Law on Subsoil and Subsoil Use of 2010 for a period of up to 01.01.2024.  

     Based on a systematic interpretation of both of the above-mentioned norms of the Code, it can be concluded with respect to previously concluded contracts for subsurface use of ATC that:

     - until 01.01.2024, issues of state expertise of reserves will be regulated both by the provisions of paragraph 21 of Article 278, together with Article 121 of the Law on Subsoil and Subsoil Use of 2010, and by the provisions of Article 141 of the Code, which has "retroactive effect" in relation to previously concluded contracts in accordance with paragraph 3 of Article 277 of the Code.;

     - From 01.01.2024, these issues will be regulated only by the provisions of Article 141 of the Code, which is "retroactive" to previously concluded contracts in accordance with paragraph 3 of Article 277 of the Code.

     22. Holders of the right of subsurface use under contracts concluded before the entry into force of this Code are entitled to carry out activities in the subsurface area in accordance with project documents approved in accordance with the procedure established by the legislation of the Republic of Kazakhstan in force before the entry into force of this Code.

     Changes to the specified project documents, taking into account the provisions of part three of this paragraph, shall be made in accordance with the provisions on amendments to project documents provided for in this Code. At the same time, the indicators of the project documents must correspond to the same indicators provided for in the work program of the contract.

     If the production volumes of common minerals or solid minerals, with the exception of uranium, under subsurface use contracts concluded prior to the entry into force of this Code, determined by approved design documents, change by less than twenty percent in physical terms from the approved design indicators, such changes are not grounds for mandatory amendments to the specified design documents. (development of a project document in accordance with this Code).

     _________________________________________________________________________

     1. Part three of the commented norm does not apply to relations under previously concluded subsurface use contracts for ATC.  

     2. Part one of the commented norm provides for a practically significant rule on maintaining the legal force of project documents for previously concluded contracts approved in accordance with the procedure established by previously valid legislation.  

     The need for such a reservation is obviously related to the fact that the Code has significantly changed the regulation of issues related to project documents in the field of subsurface use for ATC.  

     In addition, the issues of maintaining the legal force of previously approved project documents are not covered by the general rule provided for in paragraph 1 of Article 278 of the Code.

3. The condition for maintaining the legal force of previously approved project documents is their approval in accordance with the procedure (i.e., without any violations) established by previously applicable legislation.  

     4. The commented norm theoretically allows the application of previously approved project documents until the completion of the work provided for by them.  

     In practice, however, project documents require constant periodic changes.  

     In the event that any changes need to be made to previously approved project documents, the commented norm obligatorily prescribes to the subsurface user the need to be guided by the already (new) provisions of the Code dealing with the issues of making changes to project documents. 140 and 142 of the Code, which have "retroactive effect" according to paragraph 3 of art. 277 of the Code in case of amendments and additions to the approved project documents (it is important to note that according to paragraph 3 of Article 277, in this case, all articles of Chapter 19, except for Article 143, have retroactive effect).  

     5. Considering that previously concluded contracts, as an integral part, provide work programs that are meaningfully linked to the indicators of their project documents, the commented norm specifically stipulates that when changing the indicators of previously approved project documents, they must correspond to the same indicators provided for in the work program of the contract (for ATC contracts concluded after the introduction of the Code in however, the Code does not provide for such a requirement).  

     This essentially means that if the proposed changes to a previously approved project document require changes to the work program of a previously concluded contract, then first the subsurface user, guided by paragraphs 12 and 13 of Article 278 of the Code, will need to make such changes to the work program, and only then – in fact, to the project document.  

     However, paragraph 13 requires, in order to amend the work program of the contract, to submit to the competent authority (the state body that is a party to the contract) for consideration by the working group the project documents and the liquidation plan (project) developed, agreed, approved and received positive expert opinions in accordance with this Code. Within the meaning of clause 13, a project document must be submitted that already reflects the changes that are expected to be made to the work program.  

     In view of the above, there is some inconsistency between the provisions of paragraph 13 of art. 278 and paragraph 22 of art. 278.  

     Nevertheless, from a substantive point of view, in our opinion (and taking into account the essence of the previously existing legislation on this issue), in relation to the "project" and "contract (work program of the contract)", the primary, initial value should still be the project document.  

     26. For subsurface use contracts concluded prior to the entry into force of this Code, reports on the fulfillment of contractual obligations for expenses allocated for training, advanced training and retraining of employees who are citizens of the Republic of Kazakhstan, as well as obligations to finance research, scientific, technical and (or) development work are submitted in accordance with the procedure and the time limits established by this Code for the relevant types of obligations.

     _________________________________________________________________________

     1. Regardless of the adoption of the new Code, previously concluded contracts retain unchanged the amounts of obligations stipulated by them for expenditures of subsurface users directed to training, advanced training and retraining of employees – citizens of the Republic of Kazakhstan, as well as obligations to finance research and development.  

     The commented norm does not affect these obligations, does not change their size and (or) the order of calculation, and does not give grounds for a requirement to change the size and (or) the order of calculation of previously accepted contractual obligations for the relevant types of expenses to those provided for by the new rules in art. 129 of the Code.

     It is in this regard that, according to paragraph 3 of Article 277 of the Code, its Article 129 does not apply to relations under previously concluded contracts, and according to paragraph 14 of Article 277 of the Code, the legal force of paragraphs 12) and 12-1) of paragraph 1 of Article 76 of the Law on Subsoil and Subsoil Use of 2010 has been preserved.  

     2. The commented norm prescribes in imperative form that subsurface users under previously concluded contracts should be guided by the provisions of the Code only when determining the procedure and deadlines for fulfilling reporting obligations related to the fulfillment of obligations to finance the training of Kazakhstani personnel and research and development.  

     Such provisions on subsurface use contracts under the ATC are provided for in Article 132 of the Code and in the by-laws adopted on its basis.  

     28. Under contracts (licenses) for exploration and (or) production of hydrocarbons concluded (issued) prior to the entry into force of this Code, the coordinates and identification indexes of blocks established in accordance with the Resolutions of the Government of the Republic of Kazakhstan dated November 16, 1995 No. 1552 "On Approval of the Map of Blocks" are applied to subsurface areas consisting of blocks. and hydrocarbon deposits, prepared for geological study and development" and No. 1514 dated December 10, 1996 "On approval of the Map of Blocks for the geological study and development of Hydrocarbons in the Kazakh sector of the Caspian Sea", unless otherwise provided by the terms of such contracts.

     _________________________________________________________________________

     1. The Government resolutions listed in the commented norm have not lost their legal force, although they were adopted in implementation of the expired 1995 Oil Law.  

     2. These resolutions provide for a different approach to determining the size of blocks than in paragraph 2 of Article 19 of the Code.  

     3. Taking into account the above, in order to avoid legal uncertainty and controversial situations, the commented norm confirms the legality of using coordinates and identification pointers for blocks under previously concluded contracts in the field of internal security, established (according to Resolutions No. 1552 and 1514) differently than defined by art. 19 of the Code.

     29. Under subsurface use contracts concluded before January 1, 2015, when purchasing goods in accordance with the procedure for the purchase of goods, works and services used in conducting subsurface use operations, approved in accordance with this Code, the organizer of the tender, in the process of determining the winner, conditionally reduces the bid price of the bidders - Kazakhstani producers of goods by twenty percentages.

     The provisions of this paragraph shall apply until the expiration of these contracts or until January 1, 2021, whichever is earlier. Under contracts for subsurface use of hydrocarbons concluded before the entry into force of this Code, the calculation of contractual obligations of subsurface users for the training of citizens of the Republic of Kazakhstan is carried out in accordance with the methodology approved by the authorized body in the field of hydrocarbons.

     _________________________________________________________________________

     1. The commented norm is related to the Republic's accepted international legal obligations in connection with its accession to the WTO, and was previously also provided for in paragraphs 5 and 7 of Article 78 of the Law on Subsoil and Subsoil Use of 2010.  

     2. At the moment, due to the direct indication in part two of the commented norm (until January 1, 2021), the norm in part one does not apply.

     30. The procedure for the purchase of goods, works and services by subsurface users and their contractors operating under production sharing agreements (contracts) approved by the Government of the Republic of Kazakhstan or under a subsurface use contract approved by the President of the Republic of Kazakhstan is determined by the procedures established in accordance with such agreements (contracts). At the same time, such an order should ensure:

     1) implementation of approved development programs for local suppliers of goods, works and services;

     2) providing all potential suppliers of goods, works and services with full and fair opportunities to participate in the tender for the purchase of goods, works and services;

     3) the application of objective criteria for the preliminary selection of potential suppliers of goods, works and services.

     _________________________________________________________________________

     1. For all previously concluded subsurface use contracts under the ATC, issues of the purchase of goods, works and services are regulated by Article 131 of the Code, which is retroactive in accordance with paragraph 3 of Article 277 of the Code, with the exception of cases defined in the commented paragraph 30 of Article 278 of the Code.

     2. The commented norm confirms the legal possibility to apply in the field of procurement of subsurface users under production sharing agreements (contracts) approved by the Government of the Republic of Kazakhstan, as well as under a contract approved by the President of the Republic of Kazakhstan, procedures established in accordance with such agreements (contracts).  

     3. Along with this, the commented norm establishes substantive criteria that must be met by the procurement procedure, which is determined by the procedures established in the relevant agreements (contracts).

4. In order to avoid legal uncertainty, the legislator specifically stipulated at the end of the commented norm that the provision provided for in this paragraph also applies to subsurface users and their contractors under production sharing agreements (contracts) approved by the Government of the Republic of Kazakhstan, as well as the subsurface use contract approved by the President of the Republic of Kazakhstan.

     32. Subsurface users engaged in hydrocarbon exploration activities under subsurface use contracts concluded prior to the entry into force of this Code have the right to switch to the terms of subsurface use provided for in this Code by concluding a new edition of a contract for the exploration and production of hydrocarbons developed in accordance with a standard contract for the exploration and production of hydrocarbons approved by the competent authority, subject to the following conditions at the same time:

     1) the subsurface user has no unresolved violations under the current subsurface use contract concluded prior to the entry into force of this Code, as indicated in the notification of the competent authority;

     2) the subsurface user has paid the subscription bonus in full in accordance with the requirements of the tax legislation of the Republic of Kazakhstan under the current subsurface use contract concluded before the entry into force of this Code;

     3) the subsurface user, in accordance with the requirements of this Code, has approved an exploration project that has received positive conclusions from the examinations provided for by this Code and other laws of the Republic of Kazakhstan.;

     4) the application for the conclusion of a contract for the exploration and production of hydrocarbons in a new version in accordance with the standard contract for the exploration and production of hydrocarbons, approved by the competent authority, submitted by the subsurface user subject to the following conditions::

     until the expiration of the subsurface use contract concluded prior to the entry into force of this Code, under which the subsurface user carries out hydrocarbon exploration activities.;

     within eighteen months from the date of entry into force of this Code.

     The application for the conclusion of a contract for the exploration and production of hydrocarbons in a new version in accordance with the standard contract for the exploration and production of hydrocarbons, approved by the competent authority, must contain:

     1) last name, first name, patronymic (if it is indicated in the identity document), the name of the subsurface user;

     2) the number and date of registration of the current subsurface use contract, under which the subsurface user carries out hydrocarbon exploration activities;

     3) an indication of the exploration site, which must correspond to the subsurface area according to the geological allotment under the current subsurface use contract, under which the subsurface user carries out hydrocarbon exploration activities.

     The application must additionally be accompanied by:

     1) a contract signed by a subsurface user for the exploration and production of hydrocarbons, corresponding to a standard contract for the exploration and production of hydrocarbons, approved by the competent authority;

     2) the work program attached to the contract for the exploration and production of hydrocarbons as an integral part of it, containing the volume, description and timing of work during the exploration period and meeting the requirements for the volume and types of work provided for in the work program under the current contract for subsurface use, under which the subsurface user carries out activities for the exploration of hydrocarbons;

     3) an exploration project approved by the subsurface user and having received positive conclusions from the examinations provided for by this Code and other laws of the Republic of Kazakhstan.

     At the same time, such a contract shall fix the exploration period in accordance with the provisions provided for in part one of paragraph 1 of Article 116 of this Code, reduced by the actual term of the current subsurface use contract, under which the subsurface user carries out hydrocarbon exploration activities, as of the date of filing an application for a new version of the exploration and production contract, developed in accordance with with a standard contract approved by the competent authority.

     Investment obligations stipulated by the current subsurface use contract, under which the subsurface user carries out hydrocarbon exploration activities (if any), with the exception of obligations in the field of education, science and socio-economic development of the region, are fully included in the contract for the exploration and production of hydrocarbons, corresponding to the standard contract for the exploration and production of hydrocarbons, approved by the competent authority.

     The application is subject to consideration within twenty working days from the date of its receipt by the competent authority.

     Based on the results of consideration of the application, the competent authority decides on the conclusion of a contract for the exploration and production of hydrocarbons or refuses to conclude it.

     The competent authority refuses to conclude a contract for the exploration and production of hydrocarbons in the following cases::

     1) if the application does not comply with the requirements established by this paragraph;

     2) non-compliance by the subsurface user with the requirements provided for in this paragraph.

     The refusal of the competent authority does not deprive the subsurface user of the right to submit a second application during the term of the current subsurface use contract and in compliance with other requirements provided for in this paragraph.

     The conclusion of a contract for the exploration and production of hydrocarbons corresponding to a standard contract for the exploration and production of hydrocarbons, approved by the competent authority, is not a reason for exempting a subsurface user from liability for violation of the legislation of the Republic of Kazakhstan committed during the period of validity of the contract for subsurface use, under which the subsurface user carried out activities for the exploration of hydrocarbons.

     The subsequent conditions for extending the exploration period and carrying out activities under a contract for the exploration and production of hydrocarbons concluded in accordance with this paragraph shall be determined in accordance with the provisions of this Code.

     _________________________________________________________________________

     1. The commented norm provides for the possibility of switching to the terms of a standard contract (provided for by the Code) for previously concluded subsurface use contracts for UVS that are in the exploration period as of the date of the Code's entry into force.

     2. This opportunity had a limited time period and has now expired, due to the direct indication in the third paragraph of paragraph 4) of the first part of the commented norm that the application for the conclusion of a contract for the exploration and production of hydrocarbons in a new version in accordance with the standard contract for the exploration and production of hydrocarbons, approved by the competent authority, may be filed by a subsurface user (only) within eighteen months from the date of the Code's entry into force.  

     Therefore, after the expiration of the specified period, the application under paragraph 32 of Article 278 of the Code cannot be submitted by the subsoil users.  

     33. Subsurface users engaged in hydrocarbon exploration activities under subsurface use contracts concluded prior to the entry into force of this Code have the right to extend the exploration period once on the grounds and without complying with the requirements for the total duration of the exploration period provided for in paragraphs 2 and 3 of Article 117 of this Code, subject to the following conditions::

     1) an application for an extension of the exploration period has been submitted within eighteen months from the date of entry into force of this Code;

     2) the subsurface user has no unresolved violations under the current subsurface use contract concluded prior to the entry into force of this Code, as indicated in the notification of the competent authority.;

     3) the application is submitted and considered in accordance with the procedure provided for in paragraphs 4-11 of Article 117 of this Code.;

     4) in the case of conducting a trial operation under a subsurface use contract concluded before the entry into force of this Code, its duration does not exceed three years at the time of filing the application.;

     5) a contract for the exploration and production of hydrocarbons signed by the subsurface user in a new version in accordance with the standard contract for the exploration and production of hydrocarbons approved by the competent authority is additionally attached to the application.

     At the same time, the exploration period corresponding to the requested extension period, but not exceeding three years, is fixed in such a contract.

     The subsequent extension of the exploration period under a contract concluded on the basis provided for in paragraph 2 of Article 117 of this Code, in accordance with the first part of this paragraph, is allowed only on the basis provided for in paragraph 3 of Article 117 of this Code.

     The subsequent extension of the exploration period under a contract concluded on the basis provided for in paragraph 3 of Article 117 of this Code is prohibited in accordance with the first part of this paragraph.

     The conclusion of a contract for the exploration and production of hydrocarbons corresponding to a standard contract for the exploration and production of hydrocarbons, approved by the competent authority, is not a reason for exempting a subsurface user from liability for violation of the legislation of the Republic of Kazakhstan committed during the period of validity of the contract for subsurface use, under which the subsurface user carried out activities for the exploration of hydrocarbons.

     __________________________________________________________________________

1. The commented norm provides for the possibility for subsurface users engaged in hydrocarbon exploration under previously concluded contracts to extend the expiring term of the contract once, while simultaneously switching to the terms of a standard contract (provided for by the Code).  

     Thus, the situation regulated by the commented norm differs from that regulated in the previous paragraph 32 of Article 278 of the Code.  

     2. Due to the use of the words "subsurface users engaged in hydrocarbon exploration under contracts ..." in part one of the commented norm, we are talking only about cases where the validity period of a previously concluded contract under which exploration is carried out has not expired as of the date of the Code's entry into force.

     3. The words in the first part of the commented norm "... without complying with the requirements for the total duration of the exploration period provided for in paragraphs 2 and 3 of Article 117 of this Code ..." indicate the applicability of the norm to contracts whose validity periods for the purpose of exploration (usually for evaluation) have already been extended (usually repeatedly) according to earlier in accordance with the applicable legislation, and thus may exceed the maximum allowable time limits for the exploration period (including extensions for evaluation and trial operation) provided for by the Code.  

     4. The first part of the commented norm states that an extension is possible (only) on the grounds provided for in paragraphs 2 and 3 of Article 117 of the Code (respectively, an extension for evaluation and trial operation).  

     The most specific and likely case in practice is when subsoil users apply for an extension to complete the assessment.  

     In this case, it is critical not only to comply with the requirements of paragraphs 4-11 of Article 117 of the Code (by virtue of a direct indication of this in the commented norm), but also to confirm the detection in accordance with the procedure established by the Code (see paragraphs 2 of Article 117, paragraph 3 of Article 121, paragraphs 5-11 of Article 123 of the Code).

     5. The possibility of extending the exploration period according to the commented norm had a limited time period and has now expired, by virtue of the direct indication in paragraph 1) of the first part of the commented norm that an application for an extension of the exploration period (may be) submitted (only) within eighteen months from the date of entry into force of the Code.

     Therefore, after the expiration of the specified period, the application under paragraph 33 of Article 278 of the Code cannot be submitted by the subsoil users.  

     34. Subsurface users who carry out or have carried out hydrocarbon exploration activities under subsurface use contracts concluded prior to the entry into force of this Code (the initial contract) have the right to conclude a contract for the production of hydrocarbons corresponding to a standard contract for the production of hydrocarbons approved by the competent authority on the basis of an application, subject to the following conditions::

     1) the subsurface user has not switched to the terms of subsurface use provided for in this Code by concluding a contract for the exploration and production of hydrocarbons in a new version in accordance with the provisions of paragraphs 32 and 33 of this Article.;

     2) the subsurface user, within the framework of the initial contract, in accordance with the requirements of this Code, has compiled and approved a report on the calculation of reserves of the deposit, which has received a positive conclusion from the state examination of the subsurface.;

     3) the subsurface user has no outstanding violations of obligations under the original contract, as indicated in the notification of the competent authority.

     If two or more hydrocarbon deposits were discovered by the subsurface user under the initial contract, the subsurface user has the right to conclude one contract for the production of hydrocarbons or separate contracts for each deposit.

     In the case specified in the first part of this paragraph, the contract for the extraction of hydrocarbons is concluded for a preparatory period, the duration of which is determined by the subsurface user in the application, but may not exceed three years.

     If the initial geological reserves of a hydrocarbon deposit, the report on the calculation of which has received a positive conclusion from the state examination of the subsoil provided for in this Code, exceed the value of one hundred million tons of oil or fifty billion cubic meters of natural gas, the provisions of the production contract for such a deposit must contain one of the obligations specified in paragraph 7 of Article 119 of this Code.

     The application for the conclusion of a contract for the extraction of hydrocarbons is submitted by the subsurface user to the competent authority during the period of validity or within twelve months after the termination of the original contract.

     The competent authority, during the period specified in part five of this paragraph, as well as during the period of consideration of the application and the implementation of actions provided for in parts nine to sixteen of this paragraph, shall not be entitled to grant the right of subsurface use for such a subsurface area to other persons.

     The application for the conclusion of a contract for the production of hydrocarbons must contain:

     1) last name, first name, patronymic (if it is indicated in the identity document), the name of the subsurface user;

     2) the number and date of registration of the original contract;

     3) an indication of the mining site;

     4) the duration of the preparatory period, not exceeding three years.

     The application must additionally be accompanied by:

     1) a contract for the extraction of hydrocarbons signed by a subsurface user, corresponding to a standard contract for the extraction of hydrocarbons approved by the competent authority, with the exception of the cases provided for in part four of this paragraph;

     2) a report on the calculation of reserves approved by the subsurface user and received a positive conclusion from the state expert examination of the subsurface.

     The application is subject to consideration within twenty working days from the date of its receipt by the competent authority. Based on the results of the examination of the application, the competent authority makes one of the following decisions::

     1) on the conclusion of a contract for the production of hydrocarbons, with the exception of the cases provided for in part four of this paragraph;

     2) on conducting negotiations with the subsurface user within the time limits and in accordance with the procedure provided for in this paragraph, in the case provided for in part four of this paragraph;

     3) the refusal to conclude a contract for the production of hydrocarbons.

     The competent authority refuses to conclude a contract for the production of hydrocarbons if the application does not meet the requirements set out in this paragraph.

     The refusal of the competent authority does not deprive the subsurface user of the right to file a second application within the period specified in part five of this paragraph.

     In the case provided for in subparagraph 1) Within twenty working days from the date of making such a decision, the competent authority shall conclude a contract for the production of hydrocarbons with the applicant for the period determined in accordance with part three of this paragraph and send the applicant a signed copy thereof.

     In the case provided for in subparagraph 2) Within twenty-four months from the date of making such a decision, the competent authority shall conduct negotiations with the subsurface user to determine the conditions and procedure for fulfilling the obligation provided for in paragraph 7 of Article 119 of this Code.

     Based on the results of the negotiations, the competent authority shall, within five working days, adopt and notify the subsurface user of one of the following decisions::

     1) on the conclusion of a contract for the production of hydrocarbons;

     2) the refusal to conclude it.

     In the case provided for in subparagraph 1) Within twenty working days from the date of receipt of the notification, the subsurface user shall send to the competent authority a signed contract for the extraction of hydrocarbons defining the conditions and procedure for fulfilling the obligation provided for in paragraph 7 of Article 119 of this Code.

     The competent authority, within twenty working days from the date of receipt of the contract for the extraction of hydrocarbons, concludes such a contract and sends its signed copy to the subsurface user.

     In the case provided for in subparagraph 2) According to the fourteenth part of this paragraph, the former subsurface user has the right to reimburse the costs of discovering and evaluating the deposit.

     Such compensation is provided by the new subsurface user in the order of a one-time payment of the full amount of the corresponding costs, taking into account inflation, determined on the basis of official statistical information of the authorized body in the field of state statistics.

     The period for reimbursement of such costs is established by the competent authority and should not exceed twelve months from the date of conclusion of the contract with the new subsurface user.

     The new subsurface user has the right to audit the costs reimbursed by him. In the event of a dispute over the amount of reimbursable costs between the new and former subsurface users, such a dispute is subject to judicial resolution.

     ___________________________________________________________________________

     1. The commented norm establishes the possibility of switching to mining under the terms of the Code for subsurface users who have completed exploration under previously concluded contracts (the Code does not specify the specific type of such contracts – for exploration or exploration and production).

     The commented norm is intended to eliminate possible ambiguities and legal conflicts related to the transition to mining of such categories of subsurface users.  

     2. The commented norm establishes a specific maximum allowable time interval between the date of termination of the original contract and the date of filing an application under paragraph 34 of Article 278 of the Code. According to the fifth part of paragraph 34 of Article 278 of the Code, such a period may not exceed twelve months.  

3. The condition provided for in paragraph 2) of the first part of the commented norm (the availability of an expert final report on the calculation of reserves) is standard for the situation of transition to production based on the results of exploration, and equally applies to contracts concluded after the introduction of the Code (see, for example, paragraph 4 of art. 118, paragraph 2) paragraph 10 of Article 119 of the Code).  

     4. Part three of the commented norm, in order to create legal certainty and protect the rights of subsurface users, imperatively prescribes (unlike the approach in Articles 118 and 119 of the Code for contracts concluded after the Code entered into force) that in a situation regulated by the commented norm, the transition to production by concluding a mining contract in a standard form is carried out with the consolidation of the preparatory period ("the contract for the extraction of hydrocarbons is concluded for the preparatory period").

     This, in turn, means that the subsurface user will have the opportunity to apply the rules of Article 118 of the Code, in particular, to develop, approve and undergo expertise on the field development project, as well as complete the field development (see paragraph 2 of Article 118 of the Code).

     5. Part four of the commented norm establishes a rule similar to that for contracts concluded after the Code was put into effect – if the value of reserves discovered and confirmed by expertise exceeds the threshold values of one hundred million tons of oil or fifty billion cubic meters of natural gas (large hydrocarbon deposits according to Clause 3 of Article 14 of the Code), then the production contract must contain one of the investment obligations stipulated in clause 7 of Article 119 of the Code.  

     The procedure and timing of negotiations to agree on the terms and procedure for fulfilling an investment obligation is provided directly by the provisions of the commented norm (whereas for contracts concluded after the Code came into force, it is provided for in Article 119 of the Code).  

     35. Subsurface users engaged in the production of hydrocarbons under subsurface use contracts concluded prior to the entry into force of this Code (the current contract) have the right to switch to the terms of subsurface use provided for in this Code by concluding a new edition of a contract for the production of hydrocarbons corresponding to a standard contract for the production of hydrocarbons, approved by the competent authority, on the basis of an application for simultaneous observance of the following conditions:

     1) the subsurface user, in accordance with the requirements of this Code, has approved a field development project that has received positive conclusions from the examinations provided for by this Code and other laws of the Republic of Kazakhstan.;

     2) the production period under the hydrocarbon production contract is determined on the basis of the field development project, but does not exceed the term of the current subsurface use contract remaining at the time of application;

     3) investment obligations stipulated by the current contract (if any) are fully included in the contract for the production of hydrocarbons.;

     4) at the time of filing the application, the subsurface user has no outstanding violations of obligations under the current subsurface use contract, as indicated in the notification of the competent authority.

     If two or more hydrocarbon deposits are fixed in the current contract for subsurface use, the subsurface user has the right to conclude one contract for the extraction of hydrocarbons.

     The application for the conclusion of a contract for the production of hydrocarbons must contain:

     1) last name, first name, patronymic (if it is indicated in the identity document), the name of the subsurface user;

     2) the number and date of registration of the subsoil use contract.

     The application must additionally be accompanied by:

     1) a contract for the extraction of hydrocarbons signed by a subsurface user, corresponding to a standard contract for the extraction of hydrocarbons approved by the competent authority, and taking into account the provisions provided for in part one of this paragraph;

     2) a deposit development project approved by the subsurface user and having received positive conclusions from the examinations provided for by this Code and other laws of the Republic of Kazakhstan.

     The application is subject to consideration within twenty working days from the date of its receipt by the competent authority.

     Based on the results of consideration of the application, the competent authority decides on the conclusion of a contract for the production of hydrocarbons or refuses to conclude it.

     The competent authority refuses to conclude a contract for the extraction of hydrocarbons in the following cases::

     1) if the application does not comply with the requirements established by this paragraph;

     2) non-compliance with the requirements stipulated in the first part of this paragraph.

     The refusal of the competent authority does not deprive the subsurface user of the right to submit a second application during the term of the current subsurface use contract.

     If a decision is made to conclude a contract for the production of hydrocarbons, the competent authority shall conclude such a contract within twenty working days and send a signed copy to the applicant.

     The conclusion of a contract for the extraction of hydrocarbons corresponding to a standard contract for the extraction of hydrocarbons, approved by the competent authority, is not a reason to release the subsurface user from liability for violation of the legislation of the Republic of Kazakhstan committed during the period of validity of the contract for subsurface use, under which the subsurface user carried out activities for the extraction of hydrocarbons.

     Subsurface users who have concluded a contract for the extraction of hydrocarbons in a new version in accordance with this paragraph are not entitled to allocate a subsurface area (sections) under such a contract.

     __________________________________________________________________________

     1. The commented norm establishes the possibility for previously concluded contracts at the production stage to switch to the terms of the Code by concluding a new version of the hydrocarbon production contract corresponding to the standard hydrocarbon production contract.

     The conditions for such a transition are set out in paragraphs 1) – 4) of the first part of the commented norm and are not subject to broad interpretation.  

     The commented norm does not imply its application for situations of extending the production period under previously concluded contracts. Such situations should be considered in accordance with the requirements of Article 120 of the Subsoil Code, which is "retroactive" according to paragraph 3 of Article 277 of the Subsoil Code (see also the commentary to paragraph 12 of Article 278 of the Subsoil Code).  

     2. It follows from the literal content of the second part of the commented norm that in the case when two or more hydrocarbon deposits are fixed in a previously concluded contract, the subsurface user has the right to conclude one production contract for all these deposits.  

     It is debatable whether the subsurface user in this case also has the right to conclude several production contracts (in terms of the number of deposits).  

     If we follow the understanding that in the case under consideration, the subsurface user should not have such a right, then, in our opinion, the word "obliged" should have been used in part two of the commented norm.  

     On the other hand, the norm in question cannot (should not) conflict with the strict rules for the allocation of subsurface areas under previously concluded contracts provided for in paragraph 20 of Article 278 of the Code.  

     As a result, based on the systematic interpretation of the norms of the Code in paragraph 20 of Article 278 and paragraph 35 of Article 278 of the Code, we believe that the norm in question can only mean the possibility of concluding one production contract with multiple deposits in the original (previously concluded) production contract.  

     The correctness of this conclusion (message), we believe, is also indirectly indicated by the restriction provided for in the last part of the commented norm (prohibition of allocation of subsurface areas).  

     3. The norm provided for in the last part of the commented paragraph 35 of Article 278 of the Code corresponds to the norm in paragraphs 1) paragraph 2 of Article 115 of the Code, as well as with paragraph 3 of Article 277 of the Code (in the absence of retroactive effect of Article 115 of the Code).  

     36. Persons who are winners of a tender for granting the right of subsurface use for the exploration or production of hydrocarbons (the winner of the tender) conducted in accordance with the requirements of the Law of the Republic of Kazakhstan "On Subsurface and Subsurface Use", the results of which were summarized in accordance with the procedure established by the legislation of the Republic of Kazakhstan prior to the entry into force of this Code, have the right to conclude a contract for exploration and production or production of hydrocarbons, developed in accordance with a standard contract approved by the competent authority, subject to the following conditions::

     1) a contract for subsurface use has not been concluded with the winner of the competition in accordance with the procedure and on the terms stipulated by the Law of the Republic of Kazakhstan "On Subsurface Resources and Subsurface Use";

     2) the subscription bonus has been paid in full by the winner of the contest in accordance with the requirements of the tax legislation of the Republic of Kazakhstan.;

     3) an application for the conclusion of a contract for the exploration and production or extraction of hydrocarbons has been submitted within twelve months from the date of entry into force of this Code.

     An application for the conclusion of a contract for the exploration and production or extraction of hydrocarbons, sent by the winner of the tender to the competent authority in accordance with this paragraph, must contain:

     1) the name of the person who is the winner of the tender for granting the right of subsurface use for exploration or production of hydrocarbons;

     2) information and documents confirming compliance with the conditions provided for in this paragraph;

     3) the information and documents provided for in paragraphs 2-4 of Article 96 of this Code.

     The application must be accompanied by:

1) a contract for the exploration and production or extraction of hydrocarbons signed by the winner of the tender, developed in accordance with a standard contract approved by the competent authority and subject to the requirements provided for in this paragraph;

     2) a work program containing the scope, description and timing of work during the exploration period, compiled on the basis of a prospecting project developed and agreed in accordance with the requirements of the Law of the Republic of Kazakhstan "On Subsoil and Subsoil Use" or on the basis of conditions for the scope, description and timing of work during the exploration period, established in the tender offer for participation in a tender or in an application for participation in an auction.

     For the purposes of this paragraph:

     1) when concluding a contract for the exploration and production of hydrocarbons corresponding to a standard contract approved by the competent authority:

     the exploration site is determined in accordance with the requirements of this Code and may not exceed the size of the subsurface area specified in the terms of the tender for the grant of the right of subsurface use for the exploration of hydrocarbons, conducted in accordance with the Law of the Republic of Kazakhstan "On Subsurface and Subsurface Use";

     The development and examination of an exploration project under a contract for the exploration and production of hydrocarbons concluded in accordance with this paragraph shall be carried out in accordance with this Code.;

     2) when concluding a contract for the production of hydrocarbons corresponding to a standard contract approved by the competent authority:

     the extraction site is determined in accordance with the requirements of this Code and may not exceed the size of the subsurface area specified in the terms of the tender for the grant of the right of subsurface use for the extraction of hydrocarbons, conducted in accordance with the Law of the Republic of Kazakhstan "On Subsurface and Subsurface Use";

     in the contract for the production of hydrocarbons, the winner of the tender has the right to initiate the consolidation of the preparatory period or the production period in accordance with the provisions provided for in this Code (including in terms of the development and examination of project documents, as well as investment obligations and other issues), taking into account the specifics provided for in this paragraph;

     3) a contract for the exploration and production of hydrocarbons concluded in accordance with this paragraph must contain obligations corresponding to the obligations assumed by the winner of the tender in accordance with his bid for participation in a tender or an application for participation in an auction, concerning the share of local content in personnel, works, and services required to perform the work. by contract;

     4) a contract for the production of hydrocarbons concluded in accordance with this paragraph must provide for obligations corresponding to the obligations assumed by the winner of the tender in accordance with his tender offer for participation in the tender or an application for participation in the auction, concerning the amount of expenses for the socio-economic development of the region and the development of its infrastructure; the share of local content personnel, works, and services required to perform work under the contract; the amount of expenses for the training of Kazakhstani personnel, research, scientific, technical and development work on the territory of the Republic of Kazakhstan, necessary for the performance of work under the contract.

     The application is subject to consideration within the time limits established by this Code for consideration of applications for the conclusion of a contract for exploration and production or production of hydrocarbons.

     The competent authority decides to refuse to conclude a contract for the exploration and production of hydrocarbons in the following cases::

     1) if the application does not comply with the requirements established by this paragraph;

     2) non-compliance by the winner of the competition with the requirements provided for in this paragraph;

     3) provided for in subparagraphs 2) -6), 8) and 9) paragraph 3 of Article 97 of this Code.

     The refusal of the competent authority does not deprive the winner of the competition of the right to submit a second application within the time limits and in compliance with other requirements provided for in this paragraph.

     __________________________________________________________________________

     1. The commented norm, as follows from the literal wording of its first part, regulates the issues of concluding contracts in accordance with the Code with persons who are winners of tenders, the results of which were summed up before the Code came into force (i.e., according to the Law on Subsoil and Subsoil Use of 2010, which has become invalid).

     The norm is aimed at protecting the interests of such persons and eliminating emerging legal conflicts.  

     2. The possibility of applying the commented norm has expired at the moment, since according to paragraph 3) of the first part of the commented norm, an application for the conclusion of a contract for exploration and production or production of hydrocarbons (could be) submitted (only) within twelve months from the date of entry into force of the Code.

     37. The provisions provided for in paragraph 36 of this article regarding the procedure and conditions for concluding a contract for exploration and production or production of hydrocarbons corresponding to a standard contract approved by the competent authority with the winner of a tender for the grant of the right of subsurface use for exploration of hydrocarbons conducted in accordance with the requirements of the Law of the Republic of Kazakhstan "On Subsurface and Subsurface Use" (with the exception of subparagraph 3) of Part the second and subparagraph 3) of the sixth paragraph of paragraph 36 of this Article), They also apply to the conclusion of contracts for exploration and production or production of hydrocarbons with a national company in the field of hydrocarbons in the case of signing a protocol of direct negotiations in accordance with the provisions of the Law of the Republic of Kazakhstan "On Subsoil and Subsoil Use".

     At the same time, the conditions for conducting subsurface use operations are determined on the basis of the protocol of direct negotiations.

     __________________________________________________________________________

     1. The commented norm has a similar regulatory purpose and meaning as the previous paragraph 36 of Article 278, with the only difference being that the situation of concluding a contract in accordance with the Code with a national company in the field of hydrocarbons is being considered when the protocol of direct negotiations (on granting it the right to use the subsoil without a tender) is signed in accordance with the Law on Subsoil and Subsoil Use, which has become invalid in 2010).

     2. As in the case of paragraph 36 of Article 278, the possibility of applying paragraph 37 of Article 278 of the Code has now expired, for the same reasons.  

     38. To establish that, in accordance with international agreements concluded prior to the entry into force of this Code, the competent authority may grant the right of subsurface use under a contract for the exploration of hydrocarbons on the basis of direct negotiations to persons specified in such international agreements.

     A person intending to use a subsurface area for hydrocarbon exploration on the basis of direct negotiations in accordance with this paragraph shall send an application to the competent authority stating:

     1) the name of the applicant, his location, information on state registration as a legal entity (extract from the commercial register or other legalized document certifying that the applicant is a legal entity under the legislation of a foreign state), information about the head, about individuals, legal entities, states and international organizations that directly or indirectly control the applicant;

     2) information about the applicant's previous activities, including a list of countries in which he has carried out his activities over the past three years;

     3) the territory of the subsurface area claimed by the applicant.

     The application and all documents attached to it must be written in Kazakh and Russian. If the application is submitted by a foreigner or a foreign legal entity, the documents attached to it may be drawn up in another language with a mandatory translation into Kazakh and Russian attached to each document, the accuracy of which is certified by a notary.

     Direct negotiations on granting subsurface use rights under a hydrocarbon exploration contract are conducted between authorized representatives of the applicant and a working group of the competent authority.

     Direct negotiations are conducted within two months from the date of receipt of the application by the competent authority. The period of direct negotiations may be extended by the decision of the competent authority.

     Based on the results of direct negotiations, the competent authority decides on the conclusion of a contract for the exploration of hydrocarbons or on the refusal to conclude it.

     If a decision is made to conclude an exploration contract within twenty working days from the date of its adoption, the applicant pays a subscription bonus, the amount of which is determined based on the results of direct negotiations, and sends it to the competent authority.:

     1) confirmation of payment of the subscription bonus;

     2) draft contract for the exploration of hydrocarbons;

     3) a work program containing the volume, description and timing of work during the exploration period, determined by the results of direct negotiations, attached to the contract for the exploration of hydrocarbons as an integral part of it.

     The draft hydrocarbon exploration contract should include the following conditions:

     1) type of subsurface use operations;

     2) the duration of the contract;

     3) boundaries of the subsurface area(s);

     4) obligations of the subsurface user in terms of the volume and types of work in the subsurface areas provided for in the work program;

     5) obligations of the subsurface user for the minimum share of local content in the staff;

     6) obligations of the subsurface user in terms of the share of local content in works and services that meet the requirements of this Code, including the types of works and services included in the list of priority works and services approved by the authorized body in the field of hydrocarbons;

7) obligations of the subsurface user to eliminate the consequences of subsurface use;

     8) the responsibility of the subsurface user for violation of contractual obligations, including violation of the indicators of basic project documents for the exploration of hydrocarbons, attributed by this Code to contractual obligations;

     9) other conditions on the basis of which the subsoil was provided for use for exploration operations.

     The draft contract for the exploration of hydrocarbons is subject to examination by the competent authority and legal expertise. The examination of the draft contract by the competent authority is carried out within twenty working days from the date of its receipt.

     The draft contract for the exploration of hydrocarbons is sent by the competent authority within three working days from the date of its receipt to undergo a mandatory legal examination to ensure that the provisions of the contract comply with the requirements of the legislation of the Republic of Kazakhstan. The legal examination is carried out within twenty working days. The results of the examinations are formalized by expert opinions, which can be negative or positive.

     The applicant is finalizing the draft contract in order to eliminate the comments set out in the expert opinions. If these comments are eliminated, the state body will conduct a re-examination within ten working days.

     Within ten working days from the date of receipt of the positive expert opinions provided for in this paragraph, the applicant shall send to the competent authority a signed contract for the exploration of hydrocarbons.

     The competent authority, within twenty working days from the date of receipt of the contract, concludes a contract for the exploration of hydrocarbons and sends its signed copy to the applicant.

     It is prohibited to conclude additional agreements to the hydrocarbon exploration contract providing for the reduction or exclusion of obligations originally stated in the work program.

     _________________________________________________________________________

     1. The commented norm regulates a special case when the Code does not allow the conclusion of a combined exploration and production contract (the general rule of the Code), but an exploration contract only.  

     This follows from the literal content of the first part of the commented norm.  

     However, this possibility should be based on the provisions of international treaties concluded before the Code came into force (see, for example, the Agreement between the Government of the Republic of Kazakhstan and the Government of the Russian Federation on Joint Activities for the Geological Study and Exploration of the Imashevskoye Transboundary Gas Condensate Field, entered into force on January 17, 2011, Bulletin of International Treaties of the Republic of Kazakhstan, 2011., No. 3, article 27).

     2. The above-mentioned feature explains the need to resolve in the paragraph under consideration the entire range of issues that need to be resolved when granting the right to subsurface use under an exploration contract.  

     In other words, the commented norm provides for its own, special procedure for the actions of the parties when interacting about the conclusion of a contract.  

     For example, the commented norm provides for direct negotiations, the absence of the need to use a standard contract, the resulting need to undergo an industry and legal examination of the contract being concluded, etc.

     List  

     regulatory legal acts and abbreviations

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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