Commentary to article 31. The content of the license for subsurface use to the Code of the Republic of Kazakhstan “On Subsurface and Subsurface Use”  

1. A license for subsurface use is issued in accordance with the form approved by the competent authority.

2. The subsurface use license, taking into account its type, shall specify:

1) type of license for subsurface use;

2) the name of the state body that issued the license;

3) information about the person to whom the license was issued:

for individuals – last name, first name, patronymic (if it is indicated in the identity document) and citizenship;

for legal entities – name, location;

4) License number and date;

5) terms of the license: the license period, the boundaries of the territory of the subsurface area and other conditions of subsurface use provided for by this Code.

3. The license period is calculated from the date specified in the license.

4. If two or more persons own the right of subsurface use, the license must contain an indication of the size of the shares of the persons who are the joint owners of the right of subsurface use.

5. The license is issued in Kazakh and Russian languages.

6. The terms of the subsurface use license must comply with the requirements established by this Code.

7. If, after the issuance of a subsurface use license, the legislation of the Republic of Kazakhstan regulating relations in the field of subsurface use establishes other terms of the subsurface use license, these terms shall not apply to the previously issued license.

The provision established by the first part of this paragraph does not apply to changes in the legislation of the Republic of Kazakhstan in the field of national security, defense capability, environmental safety, healthcare, taxation, customs regulation and protection of competition.

8. If a subsurface use license is issued in violation of the content of its terms, the provisions of this Code on the content of the subsurface use license in force on the date of license issuance shall apply.

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(Odilov T.A., Ilyasova K.M.)

1. Regarding the 2010 Law on Subsurface Resources (abrogated by the enactment of the Code on Subsurface Resources), the commented article is new. The novelty is explained by the fact that the 2010 Law on Subsurface Resources did not provide for a licensed subsurface use regime.

However, regarding the 1996 Law on Subsurface Resources (in particular, in the first edition in the form of the 1996 Decree on Subsurface Resources, which has the force of law), which provided for a licensing and contractual regime for subsurface use, the commented article is not new. The said Law provided for similar articles on the content of the exploration license and the production license (art. 32. Content of the Exploration License and art. 33. Content of the Production License and the combined License).

2. Since a license for subsurface use is a public legal act adopted by various government agencies, it is obvious that in order to ensure uniformity in the issuance of licenses for subsurface use, it has become necessary to approve a certain form of license and comply with it by all government agencies issuing licenses for subsurface use.

Taking into account that the implementation of the state policy in the field of subsurface use is determined by the competent authority, which is the central executive body (Article 60 of the Subsoil Code), the authority to approve the form of a license for subsurface use is assigned to the competent authority. This authority reflects the prerogative of the competent authority for the implementation of state policy in the field of subsoil use.

Earlier, in the 2010 Law on Mineral Resources, this authority would most likely have been attributed to the Government of the Republic of Kazakhstan. However, since 2014, a legislative practice has been introduced to assign "operational" powers to central government agencies, rather than the Government of the Republic of Kazakhstan.

A separate form is provided for each type of subsurface use license, since in addition to the general requirements for the content of any subsurface use license, for each type of subsurface use operations, which correspond to a certain type of subsurface use license, there are specific license conditions depending on the type of operations.

3. Clause 5) clause 2 of the commented article lists the terms of the license: the license period, the boundaries of the territory of the subsurface area and other conditions of subsurface use provided for by this Code on Subsurface. In more detail, the composition and content of the "other terms of subsurface use", which must be contained in a particular license, are disclosed in art. 84, 92, 191, 208, 233, 255 and 270 of the Special Part, reflected in the approved form of the relevant subsurface use license

The terms of the license, including "other terms of subsurface use" (provided for in clause 5, clause 2 of the commented article), are contained in the license and provide for the fulfillment by the subsurface user of certain obligations,

determining the existence, exercise and termination by the state of the subject's property right to use a subsurface area.

Thus, the terms of the license should be understood as the requirements arising from the norms of the Subsoil Code for a legitimate model of the circumstances of the exercise (realization) by the subject of the real right granted to him to a subsoil plot characterized by the features (boundaries) allocated according to the rules of art. 19 and a Special part of the subsurface area, the period of use, the fulfillment of specific obligations to perform certain actions (payment of payments, penalties, expenses in the prescribed amount and period, etc.) or to refrain from them (for example, not to use chemical reagents and explosives during mining); as well as circumstances that are necessary for the state to terminate unilateral subsoil use rights (grounds for revocation of the license).

The remaining mandatory actions and restrictions in the exercise by a subsurface user of the right to use a subsurface area that are not contained in the license, but are provided for in the Subsurface Code, are generally binding public law requirements. However, this does not prevent the emergence of civil law relations outside of the content of licenses, for example, for the protection of civil rights, whether it is compensation for damages, protection of property rights, obligations arising from harm, etc.

The license terms should not be confused with legislative public law requirements on material and factual circumstances, by virtue of which, within the framework of administrative procedures, the legislator links the occurrence of a legal fact - the issuance of a license (granting the right to subsurface use).

4. In addition to the "standard" terms of licenses issued on the application basis, the approved form for some licenses – exploration licenses and mining licenses – should provide for the possibility of "non-standard" conditions: additional obligations and grounds for revocation of the license. "Non-standard" conditions are provided in cases where the issuance of licenses is not carried out according to the general application principle, but within the framework of temporary procedures affecting relations that developed before the entry into force of the Subsoil Code: based on the results of an auction (Part 5, paragraph 4 of art. 278), according to the statements of subjects of industrial and innovative activity (parts 4 and 6 of paragraph 7 of Article 278) or as a result of the transition from a contractual to a licensed subsurface use regime (parts 5 and 6 of paragraph 25 of Article 278).

5. Any license for subsurface use, when issued (it indicates), must contain the information provided for in paragraph 2 of the commented article, however, taking into account the type of license. "Considering" in this case

It implies a reservation that these "general" requirements for the content of the license may not be applicable to certain types of licenses. For example, a prospecting license is issued only to citizens of the Republic of Kazakhstan. Therefore, the requirement (paragraph 3, paragraph 2) to indicate the name and location of the legal entity in it is not applicable.

6. The content of the license, in particular the terms of the license, whether it is obligations, the license period, or the boundaries of the subsurface area, must comply with the requirements of the Subsurface Code in force on the date of license issuance and determine these conditions. This provision becomes of practical importance in cases where a license is issued with errors made or uncorrected, or amendments and additions are made to the provisions of the Subsoil Code that establish rules for determining license terms or are interrelated with the provisions of the Subsoil Code on the content of the license.

So, if, in the period after submitting an application for, for example, a license to extract TPI, and before the date of issue of such a license, amendments to the norms of the Subsoil Code were introduced, establishing rules for determining the boundaries of the mining site or obligations for annual minimum production costs, then the terms of the license issued in terms of the boundaries of the subsoil site or minimum cost obligations should be determined already taking into account such changes.

Another example is cases of issuing licenses for exploration or production of mineral resources with errors made when issuing such licenses regarding, for example, the amount of minimum obligations, the license period, or the boundaries of a subsurface area (block codes for exploration licenses, coordinates of points for production licenses) that have not been identified and corrected.

Nevertheless, regardless of compliance with the provisions of the Code that define the terms of licenses, or other requirements for the content of the license when it is issued, law enforcement should be guided by such license terms that would be properly defined in accordance with the provisions of the Subsoil Code in force at the time of license issuance. The likelihood of such a discrepancy should be taken into account when monitoring and controlling the fulfillment by subsurface users of their obligations under the license. In this sense, its definition is the prerogative of the state body (the competent authority for licenses for mining and processing, and the MIO for mining and prospecting), which monitors and controls the fulfillment of obligations by subsurface users, and in the event of a dispute, the court.

7. Paragraph 7 of the commented article establishes the legal regime for the immutability of the terms of licenses under which a license was issued as a result of the will of its holder, thereby reflecting the so-called (previously existing in the legislation on subsoil and subsoil use) "balance of interests" between the state and the subsoil user (investor) from the moment the license was issued until the expiration the period for which the license was issued.

By establishing a regime of immutability (see above civil law) of the license terms – the term, boundaries of the subsurface area, obligations and grounds for the termination of the state's right to use the subsoil unilaterally (revocation of the license), the legislator "isolates" and stabilizes these conditions from subsequent changes in legislation in the field of subsurface use (in this case, including the Code on subsurface resources), whether these changes are in favor of the subsurface user or vice versa.

This rule is not absolute, because in some cases, namely, when changing the legislation of the Republic of Kazakhstan, the legislator reserves the right for the state to extend these changes to the terms of previously issued licenses.

It should be noted that such "immutability" affects only the terms of the license, and not the other provisions of the Subsoil Code, which in one way or another affect the exercise by the subsurface user of his right to use a subsurface area – conducting subsurface use operations. This distinction was established intentionally, since the norms of the Subsoil Code, which directly regulate the conduct of subsurface use operations, are public law in nature and their meaning, i.e. related to ensuring a common (public) or national interest in the areas of public administration, environmental and industrial safety, and public health (for example, providing general access to information on subsurface use, the regime for acquiring, using, and disposing of geological information, eliminating the consequences of subsurface use, financial support for liquidation, project documents, and territorial restrictions on subsurface use operations or specific works (removal of rock mass, use of means of mechanization during prospecting), reporting, deadlines for reviewing applications, authorizations and approvals of government agencies, regulation of the procurement procedure, etc.), for

which immutability is unusual and, in an objective sense, impossible due to the dynamics of their development.

The mechanism of "spreading" the seizures in Part 2, paragraph 7 of the commented article to the content of previously issued licenses is not directly disclosed (as it was not disclosed in a similar seizure earlier in the 2010 Law on Subsoil). When discussing such a mechanism, it is important to distinguish the civil law nature of the license terms, their individuality in each specific license from public law and generally binding legislation in the field of national security, defense capability, environmental safety, healthcare, taxation, customs regulation and protection of competition. At the same time, regarding changes in the listed areas of legislation, it is also necessary to take into account the requirements of paragraph 3 of Article 1 of the Subsoil Code.

It seems that, having correlated these differences with paragraph 3 of Article 1, the "extension" of the amended provisions of the Republic of Kazakhstan in the specified areas (spheres) of legislation to the terms of previously issued licenses should occur by making changes directly to the transitional provisions of the Subsoil Code (art. 278), firstly, directly indicating such "distribution" in connection with or on the basis of changes in the above-mentioned areas of the legislation of the Republic of Kazakhstan, and, secondly, defining additional or modifying the original terms of licenses, which were determined on the day of their issuance, taking into account the requirements of the Subsoil Code in force at that time.

The provisions on the immutability of license terms are similar in meaning to the provisions on the stability of subsurface use contracts provided for in the 2010 Law on Subsoil and earlier in the 1996 Law on Subsoil. However, they are not identical. The licensing regime implements an attempt by the legislator to clearly distinguish between public and private methods of legal regulation, taking into account the experience of previous legislation.

This distinction is a long–overdue necessity that disciplines the legislator to a balanced and critical attitude to the revision of the terms of subsurface use, on the one hand, and on the other hand, to make it clear that any investor (national or foreign) understands the risks of changing the terms of subsurface use in the Republic of Kazakhstan as a whole. According to one of the authors of the commentary, guarantees of the stability of the terms of subsurface use contracts, although they had a positive impact on the investment climate in the Republic of Kazakhstan at an early stage of the formation of legislation, were subsequently leveled in law enforcement due to the very peculiarity.

Kazakhstan's mechanism for "freezing" subsurface use contracts. The imperfection or vulnerability of the "freeze" consisted in the fact that stability guarantees extended to the public-legal sphere of relations, which itself was unstable in the context of the formation and development of legislation, and legally went beyond the limits of legislation on subsoil and subsoil use, fixing in contracts, for example, the size and procedure for fulfilling tax and customs obligations, procedural regulations on approvals and examinations of government agencies, project documents.

In addition, the preservation of the terms of subsurface use contracts in practice ran counter to the guarantees of stability declared by the legislator. Thus, as legislation in the field of subsurface use developed, amendments were made to the law providing for additional obligations for subsurface users to spend, for example, on R&D in the Republic of Kazakhstan. These innovations did not apply to contracts already in force at that time, but in most cases they were subsequently amended as a result of negotiations in which the subsurface user was almost always in a dependent position, given the urgent need to make changes, for example, to the work program.

8. Any license is issued for a certain period of time. The term of the license, based on the definition of the right of subsurface use and the provisions of the Special Part on the terms of licenses according to their types, is determined by years. However, when a license is issued as a result of the transition from a contractual to a licensed subsurface use regime in accordance with clause 25 of Article 278, its term may be determined not only in years, but also in years, months, and days, depending on the duration of the remaining term of the subsurface use contract (exploration period or production period), in return for which it is issued the license. In this case, the last day of the license period must coincide with the expiration date of the contract. For example, if the license is issued as a result of the transition from the contractual to the licensed regime on June 17, 2020, and the contract expires on May 10, 2040, then the license period is 19 years, 10 months and 24 days from the date of its issuance, ending also at 24:00 hours on May 10, 2040.

The license period is calculated from the date of its issuance. The date of issue is indicated in the license in accordance with clause 4, clause 2. In practice, the date of issue of the license may not coincide with the date of the actual receipt by the subsurface user (applicant) of the license on paper. This is associated with bureaucratic costs.

However, "license issue date" and "license date" have the same meaning.

Since the Subsoil Code does not provide for any other rule, the calculation of the license terms, as well as the rule for term termination on a non-working day in accordance with paragraph 4 of Article 1 of the Subsoil Code, are regulated by the Civil Code of the Republic of Kazakhstan.

Thus, for example, if the license was issued on September 28, 2020 for 6 years, then this period begins on September 29, 2020 and ends at 24:00 on September 28, 2026. If September 28, 2026 is a non-working day, and the day following it is a working day, then the license period ends at 24:00 hours on September 29, 2026

9. The "license period" does not always coincide with the actual period of time during which the license remains valid. Therefore, the legislator intentionally used the phrase "license term" instead of "license validity period". Thus, the license may be continued by virtue of the law, despite the expiration of the period for which it was issued – the period specified in the license. This case is typical for a TPI exploration license when a subsurface user exercises the exclusive right to grant him a priority right to subsurface use in accordance with art. 201, as well as in cases of extension of the TPI exploration license, TPI production license, and license to use subsurface space in accordance with Articles 193, 211, and 256, respectively, until they are reissued in connection with the extension.

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  Kazakh Association of Organizations of the Oil and Gas and Energy Complex KAZENERGY

Nur Sultan 2022

The Kazenergy Association expresses its sincere gratitude for the support in preparing the commentary to the following companies: North Caspian Operating Company NV, NC KazMunayGas JSC, Mangistaumunaygas JSC, Karachaganak Petroleum Operating BV, White & Case Kazakhstan LLP, Haller Lomax LLP)", "Erlicon CG" LLP, "Signum Law Firm" LLP. © Kazenergy Association, 2022 © team of authors, 2022 © authors, 2022

Dear readers!

We offer you a scientific and practical commentary prepared by a group of Russian specialists with extensive practical experience in legislation on subsoil and subsoil use and who participated in the preparation of the Code on Subsoil and Subsoil Use.

Subsurface use is a very complex and specific area of public relations, the regulation of which has its own historical background and takes into account the technological specifics of the process of subsurface development, as well as environmental, commercial, legal and other features of exploration and development of deposits.

Kazakhstan's legislation on subsoil and subsurface use has passed through several stages in its development, and has always been based on a balance of interests between the state and subsurface users, transparency, striving for the maximum possible degree of protection of the rights and legitimate interests of investors, ensuring sustainable social, economic and environmental development of the country.

The Code "On Subsoil and Subsoil Use", adopted at the end of 2017, was developed taking into account many years of accumulated experience and law enforcement practice, as well as the results of extensive discussions with experts working in the industry.

It reflects specific, important measures on the part of the state to increase the investment attractiveness of exploration and further reduce administrative barriers.

Nevertheless, practice and legislation do not stand still, constantly evolving, taking into account new challenges facing both the subsurface use industry and the economy as a whole.

In this regard, this commentary is intended to serve as an aid for a wide range of interested persons – specialists working in the industry, in

understanding the meaning of the norms, their historical context, the interrelationship and mutual influence of the various provisions of the Code.

We also hope that studying the commentary will serve as an incentive for new generations of young domestic specialists to work scientifically and practically in this important industry, for the benefit of the development of our country, current and future generations of Kazakhstanis.

Sincerely, U. Karabalin, Deputy Chairman of the Kazenergy Association, Hero of Labor of Kazakhstan