Commentary to article 36. The content of the subsoil use contract to the Code of the Republic of Kazakhstan “On Subsoil and Subsoil Use”

Home / Codes / Commentary to article 36. The content of the subsoil use contract to the Code of the Republic of Kazakhstan “On Subsoil and Subsoil Use”

1. Draft contracts for subsurface use are developed in accordance with standard contracts approved by the competent authority. Deviation from the standard contract is allowed in the cases, limits and procedure provided for by this Code.

2. The mandatory conditions contained in the subsurface use contract include:

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 on the subsurface area during the exploration period provided for by the program of work (additional work);

5) obligations of the subsurface user to finance the training of Kazakhstani personnel during the mining period;

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

7) 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;

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

9) obligations of the subsurface user for expenses for research, scientific, technical and development work in the territory of the Republic of Kazakhstan during the production period;

10) obligations of the subsurface user for expenses for the socio-economic development of the region and the development of its infrastructure during the mining period;

11) obligations of the subsurface user to comply with the procedure for the purchase of goods, works and services used in the exploration or production of hydrocarbons and uranium extraction, determined by the authorized bodies in the field of hydrocarbons and uranium extraction.;

12) the responsibility of the subsurface user for violation of contractual obligations, including violation of the indicators of the basic design documents for the exploration and production of hydrocarbons, referred to by this Code as contractual obligations, as well as for violation of the obligation to comply with the subsurface user and (or) his contractors the established procedure for the purchase of goods, works and services during operations for the exploration or production of hydrocarbons and uranium;

13) other conditions under which the right of subsurface use was granted.

3. In the case of a contract for a subsurface area for which a subsurface use contract was previously terminated and a trust management agreement was concluded with a national company in the field of hydrocarbons, the contract to be concluded must contain the obligations of the new subsurface user.:

1) in terms of the amount and timing of compensation to the former subsurface user for the value of the property transferred in accordance with paragraph 19 of Article 119 of this Code;

2) in terms of the amount and timing of reimbursement to the trustee of expenses incurred in accordance with the trust management agreement, as well as payment of remuneration to him, except for the cases provided for by this Code.

4. The term of the contract for the exploration and production of hydrocarbons is determined by the exploration period, the preparatory period (if necessary) and the production period sequentially fixed in it.

The term of the contract for the production of hydrocarbons is determined by the preparatory period and the production period sequentially fixed in it.

The term of the uranium mining contract is determined by the period of pilot production and the production period sequentially fixed in it.

5. The term of the exploration and production contract or the production contract is extended by the competent authority for the duration of force majeure circumstances, if the subsurface user provides evidence of such circumstances in accordance with the legislation of the Republic of Kazakhstan.

6. The contract is concluded in Kazakh and Russian languages. By agreement of the parties to the contract, the text of the contract may also be translated into another language.

7. Amendments and additions to the legislation of the Republic of Kazakhstan that worsen the results of a subsurface user's business activities under subsurface use contracts shall not apply to contracts concluded prior to such amendments and additions.

The guarantees established by the first part of this paragraph do 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. The applicable law on subsurface use contracts is the law of the Republic of Kazakhstan.

__________________________________________________________________________________________

(Nogaibai Z.M., Zhursunov R.M.)

1. The concept of model contracts is not new in Kazakhstan's legislation on subsurface resources. In the Law on the subsoil of 2010 It has existed since 2014 and was associated with the simplification of access to subsurface use contracts: amendments in 2014 to the 2010 Law on Subsurface Resources supplemented the possibility of granting the right to subsurface use in a simplified manner (auction), with the conclusion of standard contracts.

The Code on Subsurface Resources does not provide for the concept of "model contracts", that is, the only type of draft contract form on the basis of which a specific subsurface use contract is drawn up is a standard contract. The standard contracts are currently valid in the wording approved by the Order of the Minister of Energy of the Republic of Kazakhstan dated 11.06.2018 No. 233.

This approach of the legislator is primarily related to the abolition of expert reviews of contracts concluded with the winners of a tender (auction) for granting the right to subsurface use or with a national company (following direct negotiations) in order to simplify (and accelerate) access of the winners of the tender (national company) to the contract for subsurface use.

2. The norm on the need to develop draft subsurface use contracts in accordance with standard contracts is addressed to both parties to the subsurface use contract (both the future subsurface user and the competent authority). At the same time, it is practically subject to application primarily by the future subsurface user, since the Code on Subsurface Resources (in

100, 105) provides for a certain sequence of procedures related to the conclusion of contracts, where at the first stage the contract is signed by the future subsurface user and then submitted for consideration to the competent authority.

The words "in accordance with standard contracts" in the first sentence of paragraph 1 of Article 36 of the Subsoil Code mean full compliance, and as a general rule, non-compliance with the provisions provided for in standard contracts. Norms similar to the one being commented on are also provided for in the Special Part of the Subsoil Code (see paragraph 3 of Article 100, paragraph 4 of Article 105 of the Subsoil Code).

This approach in legislation distinguishes standard contracts from the so-called "model contracts" previously used in legislation and practice: a standard contract passes all the necessary examinations in advance by government agencies and subsequently does not require additional examinations (which speeds up for an investor, for example, the winner of an auction for granting the right to subsurface use under the UVF, the conclusion of a corresponding contract based on a standard).

At the same time, along with the requirement of full compliance arising from the first sentence of paragraph 1 of Article 36 of the Subsoil Code, the second sentence of this paragraph immediately stipulates that deviation from the standard contract is allowed in the cases, limits and procedures provided for by the Subsoil Code. In our opinion, this reservation should be understood literally, that is, deviations from the standard contract cannot be arbitrary (even when it is necessary for any objective reasons in the opinion of the competent authority or a future subsurface user), but should be allowed by the Code on Subsurface Resources, introduced according to the rules and within the limits provided for by the Code on the bowels.

Special attention should be paid to the case of the conclusion of a contract for the exploration of UVS, provided for in paragraph 38 of Article 278 of the Subsoil Code. This case is not a "deviation" from the standard contract in the sense of paragraph 1 of Article 36 of the Subsoil Code, since in principle it is not about using a standard contract, but about concluding a contract based on direct negotiations, the draft of which is subject to additional examinations (examination by the competent authority and legal expertise).

A deviation from the standard contract (within the meaning of paragraph 1 of Article 36 of the Subsoil Code) also does not include the inevitable addition of specific information to its provisions in cases that are explicitly provided for by the Subsoil Code itself and the standard contract.

3. The standard contracts provide important conditions for investors, developing the general provisions of the Subsoil Code, taking into account the balance of interests. Such conditions, for example, include:

- provisions fixing the terms of the legislation in force as of the date of conclusion of the contract (see paragraphs 6, 17, 115 of the standard contract for exploration and production of UVS);

- rules for determining the period from the date of registration (see paragraphs 5, 10 of the standard contract for exploration and production of UVS);

- provisions on exemption from liability in case of force majeure (see paragraph 102 of the standard contract for exploration and production of UVS).

4. Subsurface use contracts concluded on the basis of standard contracts are, by their legal nature, civil law contracts.

In turn, standard contracts, in our opinion, represent the legally defined conditions under which a contract for subsurface use should be concluded.

5. The Code on Subsurface Resources does not provide for independent legal consequences of deviation of a specific concluded contract for subsurface use from the terms of a standard contract. In particular, in clause 2, clause 1, Article 39 of the Subsoil Code, the absence of mandatory conditions established by the Subsoil Code in the contract, but not a deviation from the terms of the standard contract, is indicated as the basis for invalidating the contract.

6. The contract is concluded in Kazakh and Russian languages. By agreement of the parties to the contract, the text of the contract may also be translated into another language.

8. The applicable law on subsurface use contracts is the law of the Republic of Kazakhstan.

__________________________________________________________________________________________

(Nogaibai Z.M., Zhursunov R.M.)

The words "in accordance with standard contracts" in the first sentence of paragraph 1 of Article 36 of the Subsoil Code mean full compliance, as a general rule, the inadmissibility of deviations from the provisions provided for in standard contracts. Norms similar to the one being commented on are also provided for in the Special Part of the Subsoil Code (see paragraph 3 of Article 100, paragraph 4 of Article 105 of the Subsoil Code).

This approach in legislation distinguishes standard contracts from the so-called "model contracts" previously used in legislation and practice: a standard contract passes all the necessary examinations in advance by government agencies and subsequently does not require additional examinations (which speeds up the conclusion of an appropriate contract based on a standard one for an investor, for example, the winner of an auction for granting subsurface use rights).

- provisions fixing the terms of the legislation in force as of the date of conclusion of the contract (see paragraphs 6, 17, 115 of the standard contract for exploration and production of UVS);

- rules for determining the period from the date of registration (see paragraphs 5, 10 of the standard contract for exploration and production of UVS);

- provisions on exemption from liability in case of force majeure (see paragraph 102 of the standard contract for exploration and production of UVS).

4. Subsurface use contracts concluded on the basis of standard contracts are, by their legal nature, civil law contracts.

In turn, standard contracts, in our opinion, represent the legally defined conditions under which a contract for subsurface use should be concluded.

Given that a standard contract is being developed by the competent authority, taking into account the mandatory conditions established by the Subsoil Code, cases of non-inclusion of mandatory conditions may "absorb" (coincide) simultaneously with a deviation from the standard contract. However, given the passage of legal and other examinations of the Ministry's order, it is unlikely that the Ministry's order will approve a standard contract that does not contain any of the mandatory conditions prescribed by the Subsoil Code.

The question arises in cases where the mandatory terms of the Subsoil Code are included in the contract for subsurface use, however, there is a deviation from any other (less significant) provisions of the standard contract. In such cases, if they are not purely editorial in nature (grammatical, spelling errors, editorial edits that do not change the content of the provisions of the contract in comparison with similar provisions of the standard contract), deviation from the terms of the standard contract may be the basis for declaring the contract for subsurface use invalid on the basis of paragraph 4 of art.1 of the Subsoil Code and art.158 Civil Code OF the Republic OF Kazakhstan,

since the issues of invalidity of subsurface use contracts are not included in the exclusive sphere of regulation of the Subsoil Code in accordance with paragraph 1 of Article 35 of the Subsoil Code.

However, given that, in general, draft subsurface use contracts are subject to internal approval by authorized structural divisions of the competent authority, situations where a concluded subsurface use contract deviates from a standard contract and/or does not include the mandatory conditions prescribed by the Subsoil Code are almost unlikely.

6. The "mandatory conditions" of a subsurface use contract in paragraph 2 of Article 36 of the Subsoil Code should be understood as such conditions that must necessarily be present both in a standard contract and, accordingly, in a specific contract for subsurface use (see also paragraph 2 of paragraph 1 of Article 39 of the Subsoil Code).

The definition of such conditions by any other documents (official letters, permits, various protocols, etc.) is not allowed. These conditions may initially follow from the listed documents, however, in the end, they must necessarily be reflected in the subsurface use contract, i.e. "enter" into the contractual obligations of the subsurface user, since the subsurface use contract is concluded by signing a single document, and not by exchanging letters, etc., as allowed in art. 152 of the Civil Code of the Republic of Kazakhstan..

Terminologically, the concept of "mandatory conditions" of a subsurface use contract may mislead that other terms of the contract not listed in paragraph 2 of Article 36 of the Subsoil Code are not mandatory for inclusion in the contract. However, if we take into account that paragraph 1 of Article 36 of the Subsoil Code, as a general rule, does not provide for the possibility of deviation of a specific contract from the text of an approved standard contract, then the reference in paragraph 2 of Article 36 of the Subsoil Code to a certain list of "mandatory conditions" in a sense loses its significance for the development of specific contracts. (at the same time, the list of "mandatory conditions" under clause 2 of Article 36 is of practical importance in the development of draft model contracts, as well as the draft contract provided for in clause 38 of Article 278 of the Subsoil Code, which is not linked to a standard contract).

7. The norm provided for in paragraph 1 of paragraph 2 of Article 36 of the Subsoil Code is in itself a mandatory norm of legislation, however, it does not prescribe the content of the specific mandatory conditions listed in paragraph 2 of Article 36, since this content is determined by the relevant provisions of the Special Part of the Subsoil Code and model contracts, as well as

It may partially result from the competitive obligations assumed by the winner of the competition.

The legal consequence of non-compliance with the norm established in paragraph 1, paragraph 2, Article 36 of the Subsoil Code is the possibility of declaring the relevant subsoil use contract invalid in court (see paragraph 2, paragraph 1, Article 39 of the Subsoil Code).

8. The "type of subsurface use operations" in subclause 1, clause 2, Article 36 of the Subsurface Code, as a prerequisite for a subsurface use contract, refers to the types of operations listed in Article 22 of the Subsurface Code, and in the sphere of the contractual subsurface use regime may include only: exploration of hydrocarbons (see paragraph 38, Article 278 of the Code on exploration and production of hydrocarbons, production of hydrocarbons, as well as uranium mining.

9. Clause 2 of clause 2 of the commented article names the term of the contract as one of the mandatory conditions of the contract. It should be borne in mind that the concept of "contract validity period" is not identical to the concept of "exploration, production, preparatory period". Despite the fact that in both cases we are talking about time periods (terms), the concept of "contract validity period" differs in its legal content from the concept of "period ..." (exploration period, preparatory period, production period).

The concepts of "exploration period", "preparatory period", "production period", and "pilot production period" (uranium) are defined in Chapter 17 of the Subsoil Code. The relationship between these concepts is established in clause 4 of Article 36 of the Subsoil Code: the term of the contract (as the total term of the contract, with respect to all subsurface areas covered by the contract and all stages of subsurface use) is determined sequentially by the periods fixed in the contract (exploration period, preparatory period, production period), depending on which contract is in question speech. If it is a combined exploration and production contract, then all three periods are taken into account, if it is a production contract, then only the preparatory period and the production period are taken into account (it should also be borne in mind that the preparatory period is not mandatory for exploration and production contracts when switching from exploration to production, see paragraph 1 of Article 118 of the Code about the subsoil).

The reasons for distinguishing between the concepts of "contract duration" and "exploration, production, and preparatory periods" are related to the specifics of combined exploration and production contracts. The need to distinguish between the concepts of "contract duration" and "periods" is due to the high degree of complexity and abstraction of the legal structure of a combined contract for the exploration and production of hydrocarbons, as the main institution in the regime of subsurface use of hydrocarbons.

A proper understanding of the provisions of the Subsoil Code in this matter is extremely important for the competent authority and especially for the subsoil user (for the proper use and competent protection of the rights granted by the Subsoil Code and the contract).

In particular, when concluding a combined exploration and production contract, the parties do not know and cannot know in advance before starting exploration.:

- will they need an extension of the basic exploration terms (see Article 116 of the Subsoil Code);

- whether or not several evaluation sites (trial operation and further production) will appear within the (usually large) size of the exploration site in the future;

- will the stages of evaluation, trial operation and production begin synchronously in time at all (several) sites, or will they begin at different times within the total duration of the contract and the total duration of the exploration period (which usually happens, given the significant cost of exploration and the phased coverage of the entire, initially large, exploration area);

- will the subsurface user switch to mining or not;

- will he need an additional preparatory period (see Article 118 of the Code on Subsoil);

- what will be the volume of discovered and confirmed reserves and, accordingly, what production period will be adequate to the plans of the subsurface user and the confirmed reserves of the field, etc.

To resolve the existing uncertainty (and only the most general issues are mentioned above) while balancing the interests of the subsurface user and the state, the Subsoil Code and the model contract provide for a number of special provisions, the most important of which are as follows:

1) the words in paragraph 4 of Article 36 of the Subsoil Code "the term of the contract is determined by the exploration periods sequentially fixed in it ..." mean that at the initial conclusion of the contract (despite the fact that it is an exploration and production contract), its term is determined (i.e. equal to, not exceeding) the duration (in time) the exploration period (without taking into account possible further extensions of the exploration period, and without taking into account possible further terms of the preparatory period and the production period) (see paragraph 5 of the Standard Contract for the Exploration and Production of Hydrocarbons);

2) in the future, already during the execution of the contract, depending on compliance with the provisions of the contract and the Subsoil Code, the subsoil user has the opportunity to extend the exploration period and switch to production, and

also, the consolidation of the preparatory period (see Articles 117, 118 of the Subsoil Code). At the same time, all actions to extend the periods and, consequently, extend the general term of the contract are clearly regulated by the Subsoil Code and are accompanied by specific conditions, documents (including design documents), as well as regulations for the management of a subsurface area, where the general principle is that the initial, usually large, exploration area with an increased degree of In the future, its study/exploration is systematically reduced during the return of unpromising parts of the subsurface area to the state. Thus, the extension of the exploration period for conducting or completing an assessment implies such an extension only at the assessment site, with the return of the rest of the territory to the State. The extension of the exploration period for conducting or completing trial operation involves such an extension only at the site of trial operation, with the return of the rest of the territory to the State. The transition to production and the consolidation of the production period are possible only at the production site (which is determined by the contours of the discovered deposit);

3) The Subsoil Code, in some cases, where necessary in order to avoid disputes and legal uncertainty, clearly stipulates that the total term of the subsoil use contract does not mean that the contract is valid for those areas of the subsoil for which the exploration or production period has already expired (for example, if several areas are fixed under the contract subsurface resources, for some of which the exploration or production period has already expired, and for the other part is still ongoing; in this case, the contract period will continue only in part of those subsurface areas for which the exploration or production period has not expired);

4) The Subsoil Code specifically stipulates that the case when a new deposit is discovered within the framework of additional exploration conducted at the site and during the production period is not a reason for fixing the exploration period and (or) extending the production period in the contract (see art.125).

All of the above-mentioned special provisions of the Subsoil Code would not have been possible if the legislator had not legally distinguished the concepts of "contract duration" (as the total period for the start and completion of the contract for all stages of subsoil use and for all areas of the subsoil covered in the contract and "periods" (exploration, preparatory period, production).

10. The above-mentioned reasons for distinguishing the conceptual framework (the duration of the contract and the period (stage) of subsurface use) are partially applicable also to contracts for the extraction of hydrocarbons or uranium.

Such contracts provide for an independent preparatory period as part of the production phase (see Article 118 of the Subsoil Code).

In this regard, as well as for the purposes of a uniform approach to legal structures concerning temporary issues of subsurface use, the terms "contract duration" and "periods" (according to the stages of development of the subsurface area) in the above-mentioned understanding are also used for contracts for the extraction of hydrocarbons and uranium.

11. By virtue of clause 5 of Article 1 of the Subsoil Code and Article 173 of the Civil Code of the Republic of Kazakhstan, the beginning of the term of the contract should be calculated from the day following the date of registration of the contract.

12. Some peculiarities occur in cases of additions to contracts providing for the extension of their validity. According to the provisions of the standard contracts, the extension period is calculated from the date of registration.:

- a contract, unless otherwise agreed by the parties and if it is a contract for the exploration and production of UVS;

- additions, unless a different deadline has been agreed upon by the parties and if it is a matter of a contract for the extraction of hydrocarbons (similarly, this issue is resolved in Part 2, paragraph 3, Article 69 of the 2010 Law on Subsoil, which remained in force only for previously concluded contracts).

By virtue of these norms of standard contracts, "contract registration day" should probably be understood as the day when the addendum to the contract is registered.

Another term may be agreed upon by the parties (the subsurface user and the competent authority).

13. The Subsoil Code does not contain any special provisions on the possibility of applying a contract to a previously existing relationship.

With regard to contracts originally concluded (i.e. contracts concluded upon the initial grant of the right of subsurface use by the State), the issue of extending such contracts to previously existing relations between the parties is legally impossible due to the fact that, in principle, subsurface use relations are not possible under the terms of a non-concluded and non-effective subsurface use contract.

The exception is the implementation of subsurface use operations without concluding a subsurface use contract on the basis of a trust management agreement (see Article 108 of the Subsoil Code), however, in this case it will be legally difficult to present the issue and grounds for extending the contract concluded subsequently to

subsurface use with the former trustee is based on previously implemented subsurface use relations, since, by virtue of the direct indication in Article 108 of the Code on Subsurface Resources, such relations are carried out on an independent legal basis of a trust management agreement, which is legal in itself and does not require further legitimization by extending the validity of a subsequent subsurface use contract for the period of trust management.

Raising the issue of extending the validity of subsurface use contracts to previously existing relations is theoretically possible, taking into account Article 386 of the Civil Code of the Republic of Kazakhstan in relation to subsequent additions to subsurface use contracts, when and if such additions can be extended to the previous relations of the parties under the contract.

14. In order to protect the interests of the parties and create legal certainty, the date of signing the contract, the term of the contract in years and the expiration date are always set in the subsoil use contract. The preamble of the standard contracts provides for the reflection in the preamble of specific contracts of the date of their signing by the parties.

The term of the contract in years is determined by:

1) the initial duration of the exploration period based on the notification of the auction or the decision of the competent authority to conclude a contract for subsurface use with a national company in the field of hydrocarbons (see paragraph 3 of Article 100 of the Subsoil Code, paragraph 5 of the Model Contract for the Exploration and Production of Hydrocarbons);

2) the duration of the preparatory period based on the notification of the auction or the decision of the competent authority to conclude a contract for subsurface use with a national company in the field of hydrocarbons (see paragraph 3 of Article 100 of the Code on Subsoil, paragraph 5 of the Standard Contract for the extraction of Hydrocarbons); the consolidation of the preparatory period at the initial conclusion of the production contract is mandatory, i.e. the consolidation of It is not allowed to start the mining period immediately (see Articles 118, 119 of the Subsoil Code).

The only case where the Subsurface Code allows the conclusion of a separate exploration contract (without combined production) is the case provided for in paragraph 38 of Article 278 of the Subsurface Code, where, as noted above, a standard contract is not used. In relation to such contracts, the Subsoil Code does not provide for any rules for determining their validity period (a legal gap).

Obviously, the only possible option is to apply a legal approach to the issue under consideration – the relationship between the term

the contract and the exploration period, which is reflected in paragraph 4 of the commented article, according to which the contract period is determined by the exploration period and may not exceed it.

The expiration date of the contract is entered by the competent authority upon registration of the contract (amendments to the contract) (see paragraph 5 of the standard contracts). The expiration date of the contract is always a specific calendar date (in the day/month/year format).

It follows from clause 4 of Article 36 of the Subsoil Code that the total term of the contract in any case cannot exceed the deadlines consistently fixed in the contract for the exploration period, the preparatory period or the production period.

In the case of multiple subsurface areas and, accordingly, different periods of exploration / preparatory period or production on them, the term of the contract should be based on the latest deadlines. At the same time, the expiration of any period, for example, the exploration period for one of several sites under the contract, while continuing the period for another site and, accordingly, continuing the course of the general term of the contract, does not mean that the subsurface user can continue to hold the site, the exploration period for which has ended. Conflicts may arise with respect to the duration of the contract during the period of liquidation and conservation work.

15. An important point in the context of the issue of the duration of the contract is the issue of suspension of the contract. As a general rule, such suspension is not allowed, i.e., in relation to the term of the contract, the Subsoil Code does not provide for the possibility of its suspension (an exception is provided only in Article 149 of the Subsoil Code). It is in this regard that clause 5 of Article 36 of the Subsoil Code, upon the occurrence of force majeure circumstances, allows for the extension of the contract (but not its suspension). The Civil Code of the Republic of Kazakhstan also does not contain any general provisions that could, by virtue of paragraph 4 of Article 1 of the Subsoil Code, serve as a legal basis for suspending the validity of subsurface use contracts.

Taking into account the above comments on paragraph 1 of Article 36 of the Subsoil Code regarding the strict compliance of the contract with the standard contract, it should be noted that the parties are not entitled to include in the contract for subsurface use any conditions for suspending its operation, including in the event of force majeure. The only case of suspension of a contract provided for in the Subsoil Code is the case provided for in Article 149 of the Subsoil Code.

16. It should be noted that the Subsoil Code distinguishes between the concepts of "suspension of contract validity" and "suspension of works or operations on subsurface use". The suspension of works related to subsurface use or the suspension of subsurface use operations (see, for example, paragraphs 2, paragraph 5, Article 53, paragraph 7, Article55, paragraph 7, paragraph 3, Article 122 of the Subsoil Code) is not identical in legal content to the suspension of the contract.

This distinction is not made in paragraph 2 of Article 127 of the Subsoil Code, which lists the grounds for the conservation of a subsurface area, and therefore this provision needs to be finalized. A separate case where the Subsoil Code explicitly and unambiguously establishes a legal link between the suspension of subsurface use operations and the suspension of the contract period is the case of the suspension of subsurface use operations in the border area of the subsoil (see Article 149 of the Subsoil Code).

17. Paragraph 5 of the commented article refers to the extension of the contract due to force majeure circumstances. It contains an important rule for subsurface users in practice on the possibility of extending the term of the contract for the duration of force majeure circumstances. At the same time, the extension of the contract under clause 5 of Article 36 of the Subsoil Code does not give grounds for suspending the contract, since otherwise the basic principle of subsurface use would be violated – its inadmissibility without a valid contract. The option of suspending the validity of the contract would mean the need to determine the legal fate of the subsoil plot – its return to the state. (see, for example, paragraph 3, paragraph 5, art.222 of the Subsoil Code).

18. The above does not in any way affect the fulfillment by the subsurface user of the duties and rules for conservation, if there are grounds for this provided for by law and (or) contract. As noted above, the grounds for the conservation of the site, in accordance with paragraph 2 of Article 127 of the Subsoil Code, refer to conservation in case of suspension of the subsoil use contract. However, in the case of force majeure circumstances, neither the Subsoil Code nor the standard contracts mention the suspension of the contract, even in cases where the inability to fulfill obligations under the contract due to force majeure circumstances continues for a long time. In this case, a more flexible regulation on the conservation of individual technological facilities (Article 128 of the Subsoil Code) can probably be used to solve the problem of the lack of a legislative basis for conservation.

The commented norm of clause 5 of Article 36 of the Subsoil Code applies only to exploration and production and production contracts, but not to individual exploration contracts. The reason for this decision is the impossibility, as a general rule, of concluding separate exploration contracts under the Subsoil Code. The gap in this case should be considered the inapplicability of paragraph 5 of Article 36 of the Subsoil Code to the exploration contract, the possibility of concluding which is provided for in paragraph 38 of Article 278 of the Subsoil Code. At the same time, this gap is eliminated by including in the text of the relevant contract a condition similar in meaning to the norm of paragraph 5 of Article 36 of the Code on Subsoil.

19. Paragraph 5 of the commented article does not use the term "force majeure circumstances", but uses the terminology of the Civil Code of the Republic of Kazakhstan, using the term "force majeure circumstances". The "term of the contract" in clause 5 of Article 36 of the Subsoil Code means the total term of the contract (in years) with a specific expiration date stipulated in the contract.

The extension of the term of the contract may be carried out only on the basis of an addendum to the contract signed by the parties to it.

Despite the fact that the commented norm, paragraph 5 of Article 36 of the Subsoil Code, looks like an imperative norm in its presentation, it would not be correct to speak in this case about the obligation of the competent authority, since, as indicated above– the extension is carried out by supplementing the contract, i.e. by agreement of both parties.

The condition under which it is possible to raise the issue of applying paragraph 5 of Article 36 of the Subsoil Code is the submission by the subsoil user of evidence of such circumstances in accordance with the legislation of the Republic of Kazakhstan (paragraph 5 of Article 36 of the Subsoil Code).

A controversial issue is the legal relationship between the possibility of applying clause 5 of Article 36 of the Subsoil Code and the proper observance by the subsoil user of the contractual obligation to immediately notify the competent authority of the occurrence of force majeure circumstances by handing over or mailing a written notice specifying the start date and description of the force majeure circumstances (see paragraph 104 of the Model Contract for the Exploration and Production of Hydrocarbons; item 96 of the Standard Contract for the extraction of hydrocarbons).

Clause 5 of Article 36 of the Subsoil Code does not specify exactly at what point in time an addendum may be signed extending the validity of the contract for the duration of force majeure circumstances. Based on the obvious fact that force majeure circumstances can be both short-term and long-term, it is possible to establish reliably for what period of time the force majeure circumstances continued.

strength is possible only at the end of them. However, this does not exempt the subsurface user from complying with the above-mentioned contractual obligation to immediately notify the competent authority of the occurrence of force majeure circumstances.

A controversial issue is whether the subsurface user is obliged to initiate an extension of the contract for the duration of force majeure circumstances immediately upon their completion. For example, force majeure circumstances may arise at the beginning of the term of the contract and terminate during the period when the subsurface user still has sufficient time to work under the contract within the initial period stipulated in the contract.

20. In the context of the contractual regime of subsurface use, the concept of "force majeure circumstances" is not provided for by the Subsoil Code, but is provided for by the provisions of standard contracts and, therefore, will be determined by the terms of specific contracts concluded on the basis of standard contracts and taking into account the applicable provisions of the Civil Code of the Republic of Kazakhstan.

According to the author of the comment, for the purposes of resolving the issue of extending the validity of the contract, guided by paragraph 5 of Article 36 of the Subsoil Code, the concept of "force majeure circumstances" provided for in standard contracts and fixed in specific concluded contracts will (if there are contradictions) prevail over the concept of "force majeure circumstances" as a provision of the contract. The Civil Code of the Republic of Kazakhstan, since the Civil Code of the Republic of Kazakhstan provides for this concept only in connection with exemption from liability for breach of an obligation, whereas in standard contracts, these circumstances serve both to release from liability and to extend the term of the contract.

At the same time, there are no critical differences in the understanding of "force majeure circumstances" in the current version of the standard contracts and paragraph 2 of Article 359 of the Civil Code of the Republic of Kazakhstan. According to clause 103 of the Standard Contract for the Exploration and Production of Hydrocarbons, clause 95 of the Standard Contract for the Production of Hydrocarbons, as well as clause 2 of Article 359 of the Civil Code of the Republic of Kazakhstan, "force majeure" refers to extraordinary and unavoidable circumstances under these conditions. At the same time, neither clause 5 of Article 36 of the Subsoil Code, nor the standard contracts, nor the Civil Code of the Republic of Kazakhstan provide an exhaustive list of force majeure circumstances.

The standard contracts and the Civil Code of the Republic of Kazakhstan (paragraph 2 of Article 359) contain only an approximate list of such circumstances (military conflicts, natural disasters, natural disasters (fires, etc.), and stipulate that the list is not exhaustive. The Civil Code of the Republic of Kazakhstan contains two important guidelines.:

Firstly, the state of emergency is directly attributed to force majeure circumstances according to the Civil Code of the Republic of Kazakhstan. This makes it easier to prove, since it is not necessary to prove that the emergency is a force majeure circumstance (extraordinary and unavoidable), but only to prove the causal relationship between a specific emergency and a violation of the obligation.;

Secondly, the Civil Code of the Republic of Kazakhstan explicitly states that force majeure circumstances do not include the lack of labor necessary for execution on the market.

The commented norm of clause 5 of Article 36 of the Subsoil Code regulates only the issue of extending the contract period, but not the issue of liability for violation by the subsoil user of obligations under the contract. The issues of exemption from liability in case of violation of the contract caused by force majeure circumstances will be determined by the terms of the contract (see clause 102 of the Standard Contract for the Exploration and Production of Hydrocarbons; clause 94 of the Standard Contract for the Production of Hydrocarbons) and art.359 of the Civil Code of the Republic of Kazakhstan.

Clause 5 of Article 36 of the Subsoil Code, as well as the provisions of standard contracts, do not allow determining the maximum allowable duration of force majeure circumstances and, accordingly, the maximum allowable duration of contract extension.

21. The Subsoil Code does not use the term "contract territory" in relation to new contracts, which was used in the previously existing legislation on subsoil (see paragraph 39 of Article 1 of the 2010 Law on Subsoil). Instead, for the purpose of defining the part of the subsoil where the subsoil user is entitled to conduct the operations provided for by the contract on subsoil use, the Code on The term "subsoil plot" is used, which has a system-forming significance for the entire body of legislation on subsoil and subsurface use (see art. 19 of the Subsoil Code).

The boundaries of the subsurface area are reflected in the contract in the form of its mandatory (integral) annex (in addition to the commented article, this is also indicated in paragraph 3 of Article 100 and paragraph 4 of Article 105 of the Subsurface Code). According to the previous legislation, such applications were geological or mining allotments, which are not provided for in the Subsoil Code for new contracts.

The above, however, does not mean the loss of the legal force of previously issued allotments, since this is directly provided for by the transitional provisions of the Subsoil Code (paragraph 1 of Article 278).

22. One of the mandatory terms of the contract, clause 4, clause 2 of the commented article calls the obligations of the subsurface user in terms of the volume and types of work on the subsurface area during the exploration period provided for by the program of work (additional work). This provision corresponds to the norms of the Special Part of the Subsoil Code (paragraph 3 of Article 100, paragraph 4 of Article 105 of the Subsoil Code).

It is important to emphasize that we are talking about a minimum work program and only about the exploration period. For example, if we are talking about drilling exploration wells, then only independent wells can be included in the program as contractual obligations (see Uniform Rules).

It is debatable whether "volumes and types of work" are meant to include only physical volumes and types of exploration work in contractual obligations, or also their financial expression (see paragraph 4, paragraph 2 of the commented article, paragraph 6, paragraph 2 of Article 95 of the Code on Subsoil).

The program of additional work is provided as one of the conditions for extending the exploration period (see the commentary to Article 117 of the Subsoil Code).

Standard contracts, as well as by-laws in the field of subsurface use, do not establish a standard form (sample) of the minimum program of work for the exploration period. The composition of exploration activities by their types is provided for at the subordinate level. The specific volumes and types of exploration work (minimum requirements) to be performed in a specific subsurface area are established in accordance with the auction notice (clause 2, Article 95 of the Subsurface Code). With regard to direct negotiations, it follows from the Subsoil Code (paragraph 2 of Article 104) that the minimum requirements are also initially determined by the competent authority.

23. The next mandatory condition of the subsurface use contract is the obligations of the subsurface user to finance the training of Kazakhstani personnel during the mining period. The Subsoil Code establishes obligations to finance the training of Kazakhstani personnel only for the mining period (see Article 129 of the Subsoil Code). Obligations to finance the training of Kazakhstani personnel are indicated in the standard contract as financial obligations (clause 18 of the Standard Contract for the Extraction of Hydrocarbons). At the same time, although the concept of "Kazakhstani personnel" is used in the Subsoil Code, it does not contain its definition.

The main criterion for determining Kazakhstani personnel is the citizenship of the Republic of Kazakhstan, which follows from the relevant bylaw - the Rules for Financing the training of Kazakhstani personnel by Subsurface Users during the period of hydrocarbon and Uranium production, approved by joint Order No. 211 of the Minister of Education and Science of the Republic of Kazakhstan dated May 17, 2018 and No. 185 of the Minister of Energy of the Republic of Kazakhstan dated May 15, 2018. The same Rules also provide additional criteria for classifying individuals as Kazakhstani personnel in the sense of the admissibility of financing their training at the expense of subsurface users. The legal nature of the obligations of subsurface users under consideration is twofold. Firstly, this obligation is stipulated by the Subsoil Code not only as a mandatory condition of the contract, but also in Article 129 of the Code on

the subsoil, which regulates the specific amount of such obligations, etc. questions. Secondly, from the moment of signing the contract and its entry into force, the corresponding obligation entered into the contract on the basis of Article 36 of the Subsoil Code acquires the character of a contractual condition between the parties.

24. The obligations of the subsurface user for the minimum share of local content in personnel (clause 6, clause 2 of the commented article), as a mandatory condition of the contract, are valid both at the production stage and at the exploration stage.

The norms of standard contracts dealing with these issues (see paragraph 26 of the Standard Contract for the Exploration and Production of Hydrocarbons, paragraph 22 of the Standard Contract for the Production of Hydrocarbons) correspond meaningfully to the rules of paragraph 1 of Article 28 of the Subsoil Code, including the obligation of subsurface users to give preference to Kazakhstani personnel, the need to comply with special provisions of employment legislation when attracting foreign labor, and There is also a quantitative restriction on intra-corporate transfers.

At the level of standard contracts, the obligation to give preference to Kazakhstani personnel is reinforced by specific percentages of the minimum share of local content in personnel for managers, their deputies, heads of structural divisions, specialists and skilled workers.

Unlike financial obligations, obligations for the minimum share of local content in personnel are not detailed in the Subsoil Code. The size of the minimum share of local content in personnel and in standard contracts is also not specified.

In accordance with clause 11, clause 2, Article 95 of the Subsoil Code, specific percentage values of the minimum obligations of a subsurface user for local staffing must be specified in the notice of the auction for granting the right to subsurface use of hydrocarbons.

25. As another mandatory condition of the subsurface use contract, clause 7, clause 2 of the commented article names the obligations of the subsurface user in terms of the share of local content in works and services that meet the requirements of this Code on Subsurface Resources, 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.. This type of obligations of a subsurface user is applicable to both mining and exploration. At the same time, the "requirements of this Code" in terms of the share of local content in works and services in the commented norm refers to the requirements provided for in paragraph 2 of Article 28 of the Subsoil Code (at least fifty percent of the total volume of purchased works and services during the reporting period).

calendar year). It is to this norm that the relevant provisions of the standard contracts correspond meaningfully (see paragraph 28 of the Standard Contract for the Exploration and Production of Hydrocarbons; paragraph 24 of the Standard Contract for the Production of Hydrocarbons).

The condition on compliance with the share of local content in works and services established by the contract, including the types of works and services included in the list of priority works and services approved by the authorized body, is new and has been introduced into legislation with the adoption of the Subsoil Code.

The works and services included in the list of priority works and services do not require duplication in contracts. The list is approved by the order of the authorized body (see the order of the Acting Minister of Energy of the Republic of Kazakhstan dated April 13, 2018 No. 124), and in relation to all types of works and services listed in the wording of the order effective on the date of the contract, the subsurface user is obliged to comply with the share of local content stipulated in the contract.

The practical point of allocating certain types of work and services to a separate list as priorities is for the state to be able to stop unfair practices by subsurface users in achieving the share of local content required by the contract only through certain works and services, thereby stimulating foreign suppliers through the uneven distribution of the percentage of participation of local suppliers.

With the advent of the norm in question, the competent authority has the right, based on analysis and other data on the domestic service sector, to determine those types of work and services that are developed in the Republic of Kazakhstan and require the subsurface user to comply with the share of local content not only in the whole range of work and services, but also in particular for each of the types of work and services reflected in the priority list.

26. Important obligations of the subsurface user as mandatory terms of the contract are his actions to eliminate the consequences of subsurface use (clause 8, clause 2 of the commented article).

The regulation of the elimination of the consequences of subsurface use has undergone significant changes in the Subsoil Code compared to the previous legislation. These changes affected the procedure for ensuring that the subsurface user properly fulfills its obligations to eliminate the consequences of subsurface use. Activities aimed at eliminating the consequences of subsurface use under the UVS are regulated by the norms of the General and

Special parts of the Subsoil Code: Articles 54-58, 126, 128, 277 of the Subsoil Code.

The norms of art.56 (guarantee as security for liquidation), art.58 (insurance as security for liquidation) have a limited scope of application in subsurface use under the UVF, since according to paragraph 6 of art.126 of the Code on Subsurface Resources, it is permissible for subsurface users to ensure fulfillment of liquidation obligations only in the form of a bank deposit pledge. The exception is offshore exploration, where, within the meaning of paragraph 2 of Article 126, all types of security are applicable, including those provided for in Articles 56 and 58 of the Subsoil Code (controversial).

Another exception is contracts concluded before the introduction of the Subsoil Code, where, along with the pledge of a bank deposit, the already accumulated funds of the liquidation fund must be taken into account, and it is also allowed to secure liquidation obligations in the form of a guarantee (see paragraph 3 of Article 277 of the Subsoil Code).

The above two exceptions should be understood as a mitigation of the Government's generally very strict approach to ensuring liquidation. Such mitigation is justified by a number of circumstances. So, in the case of offshore exploration, this is a huge investment during the exploration period and, consequently, the need to provide greater variability in the ways of ensuring liquidation. In the case of previously concluded contracts, there is a need for a balanced approach in the implementation of new stricter rules for companies that concluded their contracts before the introduction of such new rules.

In general, it should be noted that with regard to the issues of ensuring the elimination of the consequences of subsurface use, the Subsoil Code has included a number of new requirements that differ from the rules of liquidation contained in the previous legislation on subsoil. The key innovation is a significant increase in the level of protection of the interests of the state, and, as a result, a certain increase in the possible financial burden on subsurface users.

In particular, according to the previous legislation, liquidation financing was carried out at the expense of the liquidation fund, placed on an escrow account in any bank of the Republic of Kazakhstan and used with the permission of the competent authority. At the same time, the obligations for contributions to the liquidation fund were, as a rule, annually at least 1% of the annual costs of exploration, production or other subsurface use operations. During the development of the Subsoil Code, it was stated that the funds accumulated through the above mechanism were clearly

They are insufficient to cover the costs of liquidation, which in the future would entail significant risks and threats to the environment. In this regard, in the new legislation, the mechanism for ensuring the fulfillment of obligations of a subsurface user to eliminate the consequences of subsurface use has undergone significant changes. The key of these changes for the field of internal affairs are that:

1) liquidation security is deposited as a pledge of money in a bank account in favor of the Republic of Kazakhstan. This means that these funds cannot be used for liquidation by the subsurface user himself, i.e. they remain in the bank account until the liquidation obligations are fully fulfilled, and only then are returned to the subsurface user.;

2) collateral is provided based on the calculation of the market value of liquidation work, which is usually higher than the notional 1% of exploration/production/subsurface use costs;

3) in the case of exploration operations, the amount of collateral is paid before the start of work and in full;

4) during the production period, this amount is paid systematically according to the schedule, with the possibility of recalculation every three years as part of the development analyses;

5) the calculation of the collateral amounts is carried out within the framework of the project document (exploration project, trial operation, field development).

These new legal provisions have been "retroactive" since July 2021 and apply to previously concluded contracts.

Taking into account certain emerging risks for existing subsurface users, the transitional provisions of the Subsoil Code provided for a number of mitigation measures, which, in particular, are as follows:

1) it is allowed to use funds already accumulated in liquidation funds;

2) in their absence or in case of a shortage of funds from the accumulated liquidation fund for liquidation (based on the market value of such liquidation), along with depositing money as collateral under the new scheme, it is also allowed to use the option of providing a guarantee from another organization with a certain level of credit rating (regulated in the Subsoil Code).;

3) it is provided that the calculation of the market value of liquidation may not include the cost of liquidation of wells that are liquidated during operation (i.e. liquidated before the expiration of the exploration or production period). This option applies to both old and new contracts.

Despite the legislative measures taken to reduce the burden on existing subsurface users, the issue of the procedure remains relevant.

calculation by design organizations of the market value of liquidation work and other related issues.

27. In accordance with clause 9, clause 2 of the commented article, the mandatory provisions of the contract include the obligations of the subsurface user for expenses for research, scientific, technical and development work on the territory of the Republic of Kazakhstan during the mining period (in 2020, Article 129 of the Subsoil Code was also supplemented with provisions on obligations to finance digitalization projects along with (and/or) R&D projects).

The current model of financing R&D by subsurface users for hydrocarbons is based on:

1) for contracts concluded after the introduction of the Subsoil Code, based on the provisions of Article 129 of the Subsoil Code and by-laws approved by joint Order No. 222 of the Ministry of Energy of the Republic of Kazakhstan dated 05/31/2018 and No. 244 of the Ministry of Education and Science of the Republic of Kazakhstan dated 05/31/2018. At the same time, the above-mentioned Article 129 of the Subsoil Code, as well as the Rules adopted on its basis, are not "retroactive" and apply only to contracts concluded after the introduction of the Subsoil Code into force.;

2) for contracts concluded before the introduction of the Subsoil Code into force - based on the provisions of paragraphs 12-1 of Article 76 of the 2010 Law on Subsoil, which remained in force.

The legal regime of R&D financing methods arising from the above legal acts has both common and distinctive features.

The common feature is that:

1) Subsurface users, at their choice, have the opportunity to finance R&D, both related and unrelated to activities under a specific subsurface use contract;

2) subject to the conditions stipulated by the tax legislation, as well as the legislation on subsoil and subsoil use, such expenses may be deducted from contractual activities.

A distinctive feature of the regime under Article 129 of the Subsoil Code and the above Rules is that:

1) obligations are established only within the production period;

2) the amount of obligations has been changed from 1% of the SRS for contractual activities to 1% of production costs;

3) there are subordinate (above-mentioned) Rules specifying the financing procedure, according to which:

- R&D expenses related to contractual activities are regulated through a revised list of permissible types of R&D work in the annex to the Rules;

- R&D expenses not related to contractual activities may, in particular, be directed to a subordinate legal entity, an authorized body in the field of hydrocarbons, for the purpose of accumulating funds and financing (through public procurement) general industry priorities for R&D.

28. According to clause 10, clause 2 of the commented article, another mandatory condition of the contract is the obligations of the subsurface user for expenses for the socio-economic development of the region and the development of its infrastructure during the mining period. At the same time, the terms "socio-economic development of the region" and "development of its infrastructure" are not disclosed in the Subsoil Code, and the material norm providing for this type of obligation is contained in Article 129 of the Subsoil Code.

According to the previous legislation, the amount of a subsurface user's expenses for the socio-economic development of the region was part of the subsurface user's tender offer when he received the right to use the subsoil, and was taken into account when determining the winner of the tender along with the amount of the subscription bonus offered by him (see Articles 50, 52 of the 2010 Law on Subsurface Resources). Accordingly, the law sets specific thresholds for deductions for social- the economic development of the region could not be stipulated a priori.

In the Subsoil Code, in order to improve the investment climate and provide greater certainty for investors, this approach has been changed, and it is stipulated that the winner of the tender (auction) is determined only on the basis of the amount of the subscription bonus, and the amount of deductions for the socio-economic development of the region is immediately stipulated at the level of the Subsoil Code itself (in art. 129) and it amounts to no more (and no less) than one percent of the investments under the subsurface use contract during the period of hydrocarbon production based on the results of the previous year. Also, the Subsoil Code does not specify in detail, as it was stipulated in the 2010 Law on Subsoil, that payments for the socio-economic development of the region should be increasing in the contract.

At the same time, the Subsoil Code retains the approach of previous legislation, expressed in attributing to payments for socio-economic development and infrastructure development the expenses of a subsurface user for the development and maintenance of social infrastructure facilities in the region, as well as funds transferred to the state budget for these purposes (paragraph 2 of Article 129 of the Subsoil Code, paragraphs 79-1 of art.1 of the 2010 Law on Subsoil).

It is also important to emphasize that previously funds for the socio-economic development of the region were transferred by subsoil users directly to contractors.

(usually, as part of memoranda with local executive bodies), and the created facilities were then transferred to the balance sheet of local executive bodies.

Subsequently, in 2014, Article 50 of the Budget Code provided for a separate type of non–tax revenues to regional budgets (budget classification code) - "deductions from subsurface users for the socio-economic development of the region and the development of its infrastructure." Nevertheless, the legislation on subsurface resources, both the former and the existing (the Code on Subsurface Resources) provides for the possibility of transferring appropriate funds to the budget classification code (i.e., to the regional budget), as well as financing the development and maintenance of social infrastructure facilities in the region.

29. According to clause 11, clause 2 of the commented article, a mandatory condition of the contract is the obligations of the subsurface user to comply with the procedure for the purchase of goods, works and services used in operations for the exploration or production of hydrocarbons and uranium extraction, determined by the authorized bodies in the field of hydrocarbons and uranium mining.

The material norm providing for this type of obligations for CVS contracts is contained in Article 131 of the Subsoil Code. In particular, clause 7 of Article 131 contains exceptions for the subject composition of subsurface users for whom the procedure approved by the authorized body in the field of hydrocarbons does not apply. These exceptions are not taken into account in Article 36 of the Subsoil Code.

Compliance by the subsurface user's contractors with the procedure approved by the authorized body for the purchase of mining and processing equipment by virtue of the provisions of the subsurface use contract must also be ensured by the subsurface user and is an obligation of the subsurface user implemented through the relevant terms of the agreements concluded by the subsurface user with its contractors.

The phrase "goods, works and services used in the exploration or production of hydrocarbons" includes any goods, works and services that are planned to be purchased by the subsurface user in order to fulfill the contract.

The subsurface user is obliged to comply with the procedure approved by the authorized body for the acquisition of TRU if he purchases TRU from any (including affiliated with him) persons.

With regard to the commented obligation, it does not matter at the expense of which funds (own or borrowed) the subsurface user acquires TRU. The determining criterion is the acquisition of TRU in order to

execution of the subsurface use contract. Thus, regardless of the source of financing, if TRUS are acquired for the purpose of executing a subsurface use contract, the obligation to comply with the approved procedure for acquiring TRUS will be valid.

Similarly, the effect of the commented obligation does not depend on who is actually purchasing the LABOR – the subsurface user himself or on his behalf by other persons (including the operator). The determining criterion is the acquisition of TRU in order to fulfill a subsurface use contract.

30. A mandatory condition of the contract under clause 12, clause 2, of the commented article is the liability of the subsurface user for violation of contractual obligations, including violation of the basic design documents for the exploration and production of hydrocarbons, classified by the Subsoil Code as contractual obligations, as well as for violation of the obligation to comply with the subsurface user and (or) his contractors established procedure for the purchase of goods, works and services during operations for the exploration or production of hydrocarbons and uranium mining.

The key material norms on the liability of a subsurface user for violation of contractual obligations under UVS contracts are contained in Articles 80, 106 and 133 of the Subsoil Code. Due to the special importance of the issue for the parties to the contracts, the types and grounds for liability, as well as the procedure for holding subsurface users accountable for violating contractual obligations, are regulated directly in Articles 106 and 133 of the Subsoil Code.

Despite the norm of clause 1, clause 1, Article 133 of the Subsoil Code, only issues of grounds and amounts of liability (penalties) are attributed to the level of contractual regulation. Thus, the commented norm requires specifying in contracts only one of the possible types of liability (penalties) (provided for in paragraph 1 of Article 133 of the Subsoil Code), whereas the second type of liability (early termination of a contract by a competent authority unilaterally) is exhaustively regulated by the provisions of the Subsoil Code (Article 106) and is not it is specified in standard contracts.

In order to implement the commented provision of the Subsoil Code, standard contracts specify the grounds and amounts of liability (penalties) (see paragraph 98 of the Standard Contract for the Exploration and Production of Hydrocarbons, paragraph 90 of the Standard Contract for the Production of Hydrocarbons).

In order to avoid discrepancies and disputes, the commented norm immediately refers to contractual obligations for the violation of which the contract must provide for liability, such obligations as:

- obligations to comply with the most important indicators of the basic project documents for the exploration and production of hydrocarbons, which are classified by the Subsoil Code as contractual obligations (see Article 143 of the Subsoil Code);

- obligations to comply with the established procedure for the purchase of goods, works and services by the subsurface user and (or) his contractors when conducting operations for the exploration or production of hydrocarbons and uranium (art.131 of the Code on Subsoil).

In general, the responsibility of a subsurface user for violations in his activities is not limited only to contractual liability for violation of contractual obligations. Subsurface users may be criminally or administratively liable for the relevant offences provided for in the Criminal Code of the Republic of Kazakhstan and the Administrative Code of the Republic of Kazakhstan, property liability for violations of legislation (for example, in connection with environmental offenses), etc. Separately, it is worth noting an important type of civil liability in practice - compensation for damages that can be applied on the basis of the Civil Code.

It is important to emphasize that the contractual responsibility of the subsurface user to the state as a party to the contract for violating contractual obligations does not overlap with the responsibility to the state as a regulator for violating the provisions of legislation. Thus, the norms of the Administrative Code of the Republic of Kazakhstan on liability for violation of the rules for the rational and integrated use of subsurface resources during subsurface use operations under subsurface use contracts for hydrocarbons and uranium (art.345 of the Administrative Code of the Republic of Kazakhstan), as well as for violation of the requirements of project documents (art.356 of the Administrative Code of the Republic of Kazakhstan) do not exclude the imposition of fines for violations, including critical indicators 143 of the Subsoil Code), for which serious fines are also provided at the level of subsurface use contracts (see, for example, clause 8, clause 98 of the Standard Contract for the Exploration and Production of Hydrocarbons). A similar example is administrative liability for violating the procedure and deadlines for reporting to a subsurface user (Article 349 of the Administrative Code of the Republic of Kazakhstan), for which a contractual fine is also provided (see, for example, clause 6, clause 98 of the Standard Contract for the Exploration and Production of Hydrocarbons).

31. As the last mandatory condition of the subsurface use contract, clause 13, clause 2 of the commented article names other conditions under which the subsurface use right was granted.

The conditions under which the right of subsurface use can be granted are generally reflected in standard contracts.

In this regard, with regard to standard contracts concluded according to the standard form, the commented norm (as well as subclause 2 of art.36 of the Subsoil Code as a whole) looks illogical. The commented norm may be of practical importance in cases where special provisions are introduced into the concluded contract in accordance with paragraph 3 of Article 36 of the Subsoil Code, which, as a general rule, (initially) do not appear in standard contracts.

The commented norm is also of practical importance in the case when an exploration contract may not be concluded in a standard form (see paragraph 38 of Article 278 of the Subsoil Code, which, however, has an independent list of "mandatory" conditions, similar in content to the list of conditions in paragraph 2 of Article 36 of the Subsoil Code).

32. Paragraph 3 of the commented article contains an indication of additional conditions to the contract for a subsurface area for which the subsurface use contract was previously terminated. This paragraph provides for a number of additional special conditions to be included in the subsurface use contract if it is concluded for a subsurface area for which the subsurface use contract was previously terminated and a trust management agreement was concluded with a national company in the field of hydrocarbons. Such additional special conditions are associated with the need to clearly fix the obligations of the new subsurface user in relation to previously incurred certain expenses of the former subsurface user, as well as the expenses of the trustee.

It should be noted that paragraph 1 of the commented norm contains an incorrect reference to paragraph 19 of Article 119 of the Subsoil Code, since this norm stipulates not the issues of reimbursement of the costs of the former subsurface user for the creation of property remaining on the subsoil site, but the issues of reimbursement of the costs of detection and assessment. This case is specific and arises in a situation where the competent authority refuses to allow a subsurface user who has completed exploration to enter the production stage (see Article 119 of the Subsoil Code).

As for the reimbursement of the costs of the former subsurface user for the creation of property that inevitably remains in the subsurface area, we are talking about property (equipment and other property) that ensures the continuity of the technological process and industrial safety in the subsurface area.

The material norms on this issue are contained in clauses 8 and 9 of Article 107 of the Subsoil Code, and the material norms on the issue of reimbursement by a new subsurface user of the trustee's expenses are contained in

Article 108 of the Subsoil Code (see the commentary to it). At the same time, the phrase "except for the cases provided for by this Code" in clause 2, clause 3, Article 36 of the Subsoil Code corresponds to the norms of clause 3, Article 108 of the Subsoil Code.

The condition for payment of remuneration to the trustee, mentioned in paragraph 2, paragraph 3 of the commented article, is not provided for by the substantive provisions of the Subsoil Code (in art.108), however, it appears as part of the information to be published in the notice of the auction in accordance with paragraph 3 of art.95 of the Subsoil Code.

The norm in question, paragraph 3 of the commented article, does not answer the question of whether the obligations stipulated by it can (should) be included in the subsoil use contract for a subsurface area for which the contract was previously terminated and which was transferred to the trust management of a national company if the subsoil use contract is concluded with a national company, but no longer as a trustee, but as a new subsurface user.

Such a case is unlikely in practice, however, it is theoretically possible if a national company participates in an auction conducted by the competent authority for a subsurface area for which the contract has been terminated and which is held in trust by a national company (as provided for in paragraph 10 of Article 107 of the Subsurface Code).

33. Rule 6 of the commented article provides that the contract is concluded in Kazakh and Russian, and by agreement of the parties to the contract, the text of the contract may also be translated into another language. The use of different terms "concluded" and "translated" calls into question the possibility of not just translating, but concluding a contract in another (additional) language, in other words, giving the text of the contract in another (additional) language legal force equal to the text of the contract in Kazakh and Russian.

A similar provision (only using the terms "set forth" and "with a translation attached") is provided for in Article 15 of the Law "On Languages in the Republic of Kazakhstan". At the same time, this article, if a transaction is concluded with foreign persons, no longer speaks about the "translation application", but about the fact that transactions with foreign individuals and legal entities made in writing are presented in the official language and in a language acceptable to the parties.

Despite the terminological nuances of Article 15 of the Law "On Languages in the Republic of Kazakhstan", we believe that the literal content of the norm in paragraph 6 of the commented article leaves open the question of the possibility of giving

the parties to the text in another (additional) language of legal force equal to the text of the contract in Kazakh and Russian.

This issue has not been resolved in the provisions of the model contracts, which, of course, will make it difficult for the parties (the competent authority and the subsoil user) to include in the text of the contract the condition of equal legal force of the text in another language and texts in Kazakh and Russian (for example, paragraphs 121 and 122 of the Model Contract for the Exploration and Production of Hydrocarbons say about the identity of the copies in Kazakh and Russian, but not about the identity of the copies in other languages into which the contract can be translated).

Another issue that arises under the commented norm, paragraph 6 of Article 36 of the Code on Mineral Resources, is the question of the possibility of giving the text in any language prevailing legal force. We believe that this question should be answered unequivocally in the negative. The conclusion about the possibility of giving the prevailing legal force to the text in any of the languages (including the text in Kazakh or Russian, if the contract is concluded only in these two languages) will go beyond the regulatory content of paragraph 6 of the commented article. A reference to the dispositive approaches of civil legislation in this case would be incorrect, since in our opinion, when the legislator in the norm in question speaks of "concluding a contract" in certain languages, he assumes the same legal force of texts in these languages.

This conclusion is confirmed by the provisions of the standard contracts. For example, clause 121 of the Standard Contract for the Exploration and Production of Hydrocarbons contains the following rule: Russian Russian version of the contract is written in Kazakh and Russian languages, one copy in Kazakh and Russian languages for each of the parties. All the copies are identical."

34. Without exaggeration, the most important rule for investors, usually referred to as the "contract stability" condition, contains paragraph 7 of the commented article. The Subsoil Code as a whole contains several norms on this issue. Thus, in clause 6 of Article 4 of the Subsoil Code, the list of principles of legislation on subsoil and subsurface use includes the principle of stability of subsurface use conditions. With regard to the contractual regime of relations, the principle of stability of the conditions of subsurface use is disclosed in paragraph 7 of the commented article. With regard to the licensing regime of relations, it is disclosed in paragraph 7 of Article 31 of the Code, which contains a slightly different rule in comparison with paragraph 7 of Article 36 of the Subsoil Code. In respect of previously concluded contracts, in accordance with clause 6, clause 14, Article 277 of the Subsoil Code, the stability guarantee provided for by

Article 30 of the 2010 Law on Subsoil, which differs somewhat in content from the norms in paragraph 7 of Article 31 and paragraph 7 of Article 36 of the Code on Subsoil.

Paragraph 7 of the commented article stipulates that amendments and additions to the legislation of the Republic of Kazakhstan that worsen the results of a subsurface user's business activities under subsurface use contracts do not apply to contracts concluded before such amendments and additions are made. At the same time, these guarantees do 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.

Despite the fact that the norm covers changes and additions to legislation (without specifying the branch of legislation and/or the level of the NPA in the hierarchy), such changes and additions should be proven to worsen the results of the business activity of the subsurface user under the subsurface use contract.

The norm does not answer the possible question of whether it will be applied if, when adopting amendments and additions to legislation, such amendments and additions were extended to relations arising from previously concluded contracts. It should be noted that according to paragraph 2 of art. 383 of the Civil Code of the Republic of Kazakhstan if, after the conclusion of the contract, the legislation establishes rules binding on the parties other than those in force at the time of the conclusion of the contract, the terms of the concluded contract remain in force, except in cases where the legislation establishes that its effect extends to relations arising from previously concluded contracts.

The norm does not specify exactly how "deterioration of business results" should be understood (and proved).

It follows from the logic of the norm that the subsurface user must prove a specific cause-and-effect relationship between the controversial amendment and addition of legislation, on the one hand, and the predicted or ongoing "deterioration of business results."

The norm does not specify whether an indirect link will be sufficient, or whether there should be a direct impact of changes and additions in legislation on the activities of the subsurface user under the contract. It should be assumed that in the absence of other indications in the norm itself, most likely, only a direct and not an indirect causal relationship should be considered.

The norm stipulates exceptions that are really fundamentally significant issues and generally comply with international standards.

In practice, the balance of interests arises from the sovereignty inherent in the State in the relevant territory.

Comparing paragraph 7 of Article 36 of the Subsoil Code and Article 30 of the 2010 Law on Subsoil, it is worth noting that these norms are almost identical in terms of presentation, with one exception – the list of exceptions in paragraph 7 of Article 36 of the Subsoil Code compared with Article 30 of the 2010 Law on Subsoil includes one additional exception – amendments to the legislation of the Republic of Kazakhstan in areas of competition protection.

35. In accordance with paragraph 8 of the commented article, the applicable law on subsurface use contracts is the law of the Republic of Kazakhstan. At the same time, although the Subsoil Code does not specify this, the question of the applicable law to the contract arises only if there is a foreign element (subject, object or legal fact). In the field of contractual relations on subsurface use, this issue arises, in our opinion, only on the basis of the subject of the relationship, when, for example, the subsurface user is a foreign individual or legal entity.

To implement paragraph 8 of the commented article, a similar provision on the applicable law is directly provided for in standard contracts, although in contracts concluded by the state with subsurface users, Kazakh individuals or legal entities, this condition, in our opinion, does not require a special reservation due to the absence of a foreign element.

The commented norm is special in relation to the conflict-of-laws norms of Section 7 of the Civil Code of the Republic of Kazakhstan "Private International Law" and prevails over them by virtue of paragraph 4 of Article 1 of the Code on Subsoil. At the same time, the commented norm is mandatory, i.e. the parties by their agreement cannot choose the applicable law under the subsoil use contract other than the law of the Republic of Kazakhstan, both as a whole under the contract and with respect to its individual provisions.

The definition of the term "applicable law" is not given by the Subsoil Code, in this regard, in determining the boundaries of applicable law, one should probably be guided by the general legal meaning of this term, reflected in paragraph 1 of Article 1115 of the Civil Code of the Republic of Kazakhstan.:

1) interpretation of the contract;

2) the rights and obligations of the parties;

3) execution of the contract;

4) consequences of non-fulfillment or improper fulfillment of the contract;

5) termination of the contract;

6) the grounds and consequences of the invalidity of the contract;

7) assignment of a claim and transfer of debt in connection with the contract.

In other words, the applicable law covers the entire range of issues arising under the contract.

The commented norm of clause 8 of Article 36 of the Subsoil Code does not accidentally use the phrase "applicable law under contracts ..." instead of the possible phrase "applicable law to contracts ...". The preposition "on" (contracts) in this case indicates the maximum breadth of the scope of the applicable law, whereas the use of the preposition "to" (contracts) could cause disputes in assessing the validity of the applicable law in relation to issues beyond the scope of the actual interpretation of the contract.

36. By virtue of paragraph 3 of Article 277 of the Subsoil Code, the commented article has no "retroactive effect", that is, it is not applicable to relations under contracts for subsurface use concluded before the entry into force of the Subsoil Code. Some of the issues included in the subject of regulation of the commented article in relation to previously concluded contracts are regulated by separate provisions of the 2010 Law on Subsoil that have remained in force (see paragraph 14 of Article 277 of the Subsoil Code).

The norm does not specify exactly how "deterioration of business results" should be understood (and proved).

The norm stipulates exceptions that are really fundamentally significant issues and generally comply with international standards.

In practice, the balance of interests arises from the sovereignty inherent in the State in the relevant territory.

35. In accordance with paragraph 8 of the commented article, the applicable law on subsurface use contracts is the law of the Republic of Kazakhstan. At the same time, although the Subsoil Code does not specify this, the question of the applicable law to the contract arises only if there is a foreign element (subject, object, or legal fact). In the field of contractual relations on subsurface use, this issue arises, in our opinion, only on the basis of the subject of the relationship, when, for example, the subsurface user is a foreign individual or legal entity.

1) interpretation of the contract;

2) the rights and obligations of the parties;

3) execution of the contract;

4) consequences of non-fulfillment or improper fulfillment of the contract;

5) termination of the contract;

6) the grounds and consequences of the invalidity of the contract;

7) assignment of a claim and transfer of debt in connection with the contract.

In other words, the applicable law covers the entire range of issues arising under the contract.

Constitution Law Code Standard Decree Order Decision Resolution Lawyer Almaty Lawyer Legal service Legal advice Civil Criminal Administrative cases Disputes Defense Arbitration Law Company Kazakhstan Law Firm Court Cases

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.