Contractual obligations on subsurface use involving foreign entities

           The Law of the Republic of Kazakhstan "On Subsoil and Subsurface Use" is the basic legislative act that regulates relations arising during the implementation of subsurface use operations.

Civil law relations related to the right of subsurface use are regulated by the norms of the civil legislation of the Republic of Kazakhstan, unless they are regulated by the norms of this Law. If an international treaty ratified by the Republic of Kazakhstan establishes rules other than those contained in this Law, the rules of the international treaty shall apply.

Relations on the use and protection of land, waters (except groundwater and therapeutic mud), forests, flora and fauna, and atmospheric air are regulated by special legislation of the Republic of Kazakhstan. Foreigners and foreign legal entities, as well as stateless persons, enjoy the rights and bear obligations in relations of subsurface use on an equal basis with citizens and legal entities of the Republic of Kazakhstan, unless otherwise provided by the laws of the Republic of Kazakhstan.

In accordance with article 29 of the Law of the Republic of Kazakhstan "On Subsoil and Subsoil Use", Kazakh and foreign individuals and legal entities may be the subjects of the right of subsoil use. Subsurface users must be subjects of entrepreneurial activity, with the exception of persons engaged in the extraction of common minerals and groundwater for their own needs.

The subjects of the right of subsurface use under one contract may be several persons. Such persons are joint holders of the right of subsurface use and are jointly and severally liable for obligations arising on the basis of the contract. The rights and obligations of the joint holders of the right of subsurface use in relation to the competent authority or the local executive body of the region, the city of republican significance, the capital, as well as the size of their shares in the right of subsurface use are determined in the contract.

The rights and obligations of joint holders of the right of subsurface use and the procedure for conducting common business are defined in the contract, as well as the agreement on joint activities. The provisions of the joint activity agreement should not contradict the provisions of the contract.

If an operator is established or designated under a contract, the joint holders of the subsoil use right are required to notify the competent authority in writing. In contracts with the mandatory participation of a national company, the share of the national company's participation in the authorized capital of the operator must be at least fifty percent.

The joint holders of the right of subsurface use are financially responsible for the actions of the operator. According to the provision of the Rule for granting the Right of Subsurface Use, approved by Resolution of the Government of the Republic of Kazakhstan No. 1456 dated December 30, 2010, the granting of the right of subsurface use for exploration, production, combined exploration and extraction of minerals, with the exception of common ones, is carried out by the competent authority. The competent authorities for granting the right of subsurface use are:

1) for exploration, production, combined exploration and production of hydrocarbons, uranium and coal, – Ministry of Energy of the Republic of Kazakhstan;

2) for exploration, extraction, combined exploration and extraction of groundwater, therapeutic mud and solid minerals, except for uranium and coal, – the Ministry of Investment and Development of the Republic of Kazakhstan.

The right of subsurface use for exploration or extraction of common minerals is granted by local executive bodies of regions, cities of republican significance, and the capital.

The granting of the right of subsurface use for the construction and (or) operation of underground structures not related to exploration or production is carried out by local executive bodies of regions, cities of republican significance, and the capital.

In accordance with article 34 of the Law "On Subsoil and Subsurface Use", the right of subsurface use arises by:

1) providing;

2) transfers;

3) transfer in the order of succession.

It should be noted that since 2012, investors have had an additional opportunity to independently obtain the right to subsurface use on the basis of direct negotiations if the investor acquires the status of a subject of industrial and innovative activity in accordance with the Law of the Republic of Kazakhstan "On State Support for Industrial and Innovative Activities" dated January 9, 2012.

According to the provisions of article 68 of the Law "On Subsoil and Subsoil Use", the contract is subject to mandatory registration with the competent authority and comes into force from the moment of its registration. The competent authority maintains a register of state registration of contracts and ensures the custody of the contract.

Amendments and additions to the contract are also subject to mandatory registration with the competent authority by making appropriate entries in the register of state registration of contracts. Changes and/or additions to the contract are recognized as effective from the moment of their registration.

The conclusion of the contract is the basis for registration of the land plot by the local executive body of the region, the city of republican significance, the capital within thirty working days from the date of the request of the subsurface user, except in cases of compulsory withdrawal of the land plot (land use rights) for state needs in accordance with the land legislation of the Republic of Kazakhstan.

The provision of land plots owned or used by third parties is carried out in accordance with the land legislation of the Republic of Kazakhstan. At the same time, the spatial boundaries of the registered land plot are limited to the territory actually used by the subsurface user, with violation of the earth's surface within the time limits of the actual use of the land plot.

The conclusion and registration of contracts for the exploration or extraction of common minerals are carried out by local executive bodies of the region, the city of republican significance, the capital.

In part 3 of Article 4 of the Law "On Investments" dated January 8, 2003, it is stipulated that the Republic of Kazakhstan guarantees the stability of the terms of contracts concluded between investors and government agencies of the Republic of Kazakhstan, except in cases when amendments to the contract are made by agreement of the parties. These guarantees do not apply to:

1) changes in the legislation of the Republic of Kazakhstan and (or) entry into force and (or) amendments to international treaties of the Republic of Kazakhstan, which change the procedure and conditions for the import, production, sale of excisable goods;

2) amendments and additions that are made to the legislative acts of the Republic of Kazakhstan in order to ensure national and environmental safety, health and morality.

In accordance with the provisions stipulated in article 71 of the Law "On Subsoil and Subsoil Use", amendments and (or) additions to the terms of the contract are permitted by agreement of the parties, unless otherwise provided by this Law. Modification and (or) addition of the terms of the contract at the request of one of the parties is allowed on the grounds and in accordance with the procedure provided for by the laws of the Republic of Kazakhstan and the contract.

If the actions of a subsurface user during subsurface use operations in relation to subsurface areas, deposits of strategic importance, lead to a change in the economic interests of the Republic of Kazakhstan, posing a threat to national security, the competent authority has the right to require changes and (or) additions to the terms of the contract, including a previously concluded contract, in order to restore economic interests. Of the Republic of Kazakhstan.

By virtue of article 128 of the Law of the Republic of Kazakhstan "On Subsoil and Subsoil Use" dated June 24, 2010 No. 291-IV, disputes related to the execution, modification or termination of the contract are resolved through negotiations.

If disputes related to the performance, modification or termination of a contract cannot be resolved in accordance with paragraph 1 of the said article, the parties have the right to resolve disputes in accordance with the laws of the Republic of Kazakhstan and international treaties ratified by the Republic of Kazakhstan.

According to paragraph 3 of Article 72 of the Law of the Republic of Kazakhstan "On Subsoil and Subsoil Use", early termination of the contract is allowed by agreement of the parties, as well as in cases provided for by this Law, at the request of one of the parties. The competent authority has the right to unilaterally terminate the contract ahead of schedule in the following cases::

1) if the subsurface user fails to eliminate more than two violations of the obligations established by the subsurface use contract within the period specified in the notification of the competent authority.;

2) when a subsurface user transfers the right of subsurface use and (or) objects related to the right of subsurface use, in the cases provided for in paragraphs 1 and 3 of Article 36 of this Law, without the permission of the competent authority, except in cases where such permission is not required in accordance with paragraph 5 of Article 36 of this Law.;

3) in case of refusal to provide or submission of false information provided for in subparagraph 13-1) of paragraph 1 of Article 76 of this Law;

4) if the financial obligations established by the subsoil use contract are fulfilled by less than thirty percent for two consecutive years.

A violation of the terms of the contract, which is completely eliminated by the subsurface user within the time period specified in the notification of the competent authority, does not constitute grounds for early termination of the contract unilaterally. 3-1. The competent authority unilaterally terminates the standard exploration contract ahead of schedule in the following cases::

1) late payment of amounts for the socio-economic development of the region and the development of its infrastructure, presented in the form of annual increasing payments;

2) within a period of up to four months from the date of receipt of the consent of the subsurface user to conduct negotiations on changing and (or) supplementing the terms of the contract, the parties will not reach an agreement on changing and (or) supplementing the terms of the contract;

3) within six months from the date of reaching an agreed decision to restore the economic interests of the Republic of Kazakhstan, the parties will not sign amendments and (or) additions to the terms of the contract.

By decision of the Government of the Republic of Kazakhstan, the competent authority has the right to unilaterally terminate a contract, including a previously concluded contract, if the actions of a subsurface user during subsurface use operations in relation to subsurface areas and deposits of strategic importance lead to a change in the economic interests of the Republic of Kazakhstan, posing a threat to national security.

In case of unilateral termination of the contract on the specified grounds, the competent authority must notify the subsurface user no later than two months in advance. The local executive body of a region, a city of republican significance, or the capital has the right to unilaterally terminate the contract for exploration or extraction of common minerals ahead of schedule if the subsurface user fails to eliminate more than two violations of obligations established by the subsurface use contract within the period specified in the notification of the competent authority.

Violation of the terms of the contract, which is completely eliminated by the subsurface user within the time period specified in the notification of the local executive body of the region, the city of republican significance, the capital, is not a reason for early termination of the contract unilaterally.

If the actual expenses of the subsurface user due to changes in prices operating on the market, as well as due to other circumstances beyond the control of the subsurface user, turned out to be less than those that were taken into account when concluding the contract, approving the work program and project documents, but the physical volume of the obligations of the subsurface user stipulated by the contract, work program and project documents is fulfilled in accordance with in full, such a reduction in the actual costs of the subsurface user is not a violation of the terms of the contract and is not grounds for early termination of the contract unilaterally.

If the complete or partial non-fulfillment of the obligation specified in subparagraph 4) of paragraph 4 of Article 71 of this Law is caused by circumstances beyond the control of the subsurface user, and he has taken all measures in his power to provide the extracted mineral for processing, such non-fulfillment does not constitute a violation of this obligation and grounds for early termination of the contract unilaterally. I'm fine. The subsurface user has the right to demand early termination of the contract in court or unilaterally cancel the contract on the grounds established by the contract.

Termination of the contract does not release the subsurface user from fulfilling obligations to return the contract territory to the state and eliminate the consequences of subsurface use operations in accordance with the requirements of the legislation of the Republic of Kazakhstan. The extension of the contract is regulated by article 73 of the Law "On Subsoil and Subsoil Use".

By virtue of paragraphs 1, 2, 3 and 6 of Article 73 of the Law of the Republic of Kazakhstan "On Subsoil and Subsoil Use", the competent authority has the right to arbitrarily renew the contract for exploration, production, combined exploration and production previously terminated on its initiative by making a decision to renew the contract and cancel the previously adopted decision to terminate the contract. at the initiative of the competent authority in the following cases:

1) establishing the fact of making a decision to terminate the contract on the basis of unreliable data that significantly influenced the decision to terminate the contract, including if, on the date of the decision to terminate the contract, the subsurface user did not have documents confirming the fulfillment of contractual obligations for valid reasons.;

2) establishing and confirming the reasons beyond the control of the subsurface user, as a result of which non-fulfillment or improper fulfillment of obligations under the contract occurred, including force majeure, that is, extraordinary and unavoidable circumstances under these conditions (natural disasters, military actions, etc.), which had a direct impact on the non-fulfillment or improper fulfillment of obligations under the contract. the contract.

The basis for consideration by the competent authority of the issue of renewal of a contract previously terminated on the initiative of the competent authority is the request of the person with whom the contract was terminated, or the independent identification by the competent authority of the grounds for renewal of the contract within six months from the date of the decision to terminate the contract on the initiative of the competent authority.

The decision of the competent authority to renew the contract and cancel the earlier decision to terminate the contract at the initiative of the competent authority shall be taken within one month from the date of receipt of the request from the person with whom the contract was terminated, or the identification by the competent authority of the circumstances specified in paragraph 1 of this article. The provisions of this article shall apply when the local executive body of a region, a city of republican significance, or the capital decides to renew a contract for the exploration or extraction of common minerals.

Legislative framework

The main regulatory legal acts regulating disputes concerning the conclusion, amendment, and termination of subsurface use agreements involving foreign entities are:

The Constitution of the Republic of Kazakhstan,

The Law of the Republic of Kazakhstan "On Subsoil and Subsoil Use" dated June 24, 2010,

The Law of the Republic of Kazakhstan "On Investments",

The Law of the Republic of Kazakhstan "On State support of industrial and innovative activities",

Environmental Code of the Republic of Kazakhstan,

The Civil Code of the Republic of Kazakhstan,

The Land Code of the Republic of Kazakhstan,

The Civil Procedure Code of the Republic of Kazakhstan,

The rules for granting the right of subsurface use, approved by Resolution of the Government of the Republic of Kazakhstan No. 1456 dated December 30, 2010, etc.

 

 

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