Recent Trends in Local Content

Recently one of our clients received a copy of an agreement from the Ministry of Energy referred to as “agreement on stimulating entrepreneurship”. The agreement among others sets an obligation for subsoil user to ensure certain local content thresholds in its activities.  At the same time, this agreement in no way seems to refer to activities under a subsoil use contract, nor is it an addendum or annex to it.

Now the question is what could have caused this action. The Ministry is perhaps being overly pro-active to support domestic producers as part of general government efforts in stimulating local production. 

While we appreciate the possible reason behind this, we note that such actions contradict to both statutory requirements and international commitments of the Republic of Kazakhstan as follows below:

1.       According to the law, the subsoil use contract must contain exhaustive terms and conditions including those on local content. However, the Ministry as we understand suggests to subsoil users signing a separate agreement. 

2.       As part of Kazakhstan's accession to the WTO, Kazakhstan undertook not to give any preferences to domestic manufacturers of goods in general.  In relation to personnel and services (works), however, the restrictions assumed by Kazakhstan vary depending on relevant dates of the contracts. 

Notwithstanding the aforementioned Kazakhstan's international obligations, the Ministry is inviting subsoil users to “voluntarily” assume obligations with respect to local content in goods.

Certainly as Kazakhstan lawyers and citizens we share the general public opinion that accession to the WTO, may, one way or another, have both short-term and long-term negative implications for domestic producers and suppliers of goods and services and we can therefore relate to the Ministry’s actions to some extent.

At the same time, we believe that the Ministry as a government agency, should not neglect the country’s commitments and should avoid the practice of imposing on subsoil users “side” agreements allegedly "unrelated" to subsoil use contracts.

We believe that under the current circumstances any initiative to tighten-up local content requirements (any requirements for that matter) should be facilitated through an open discussion among the stakeholders, and all aspects of the issue should be addressed. This will allow finding a mutually acceptable compromise and possibly get the subsoil users on board with the Ministry’s proposal.