New Subsoil Use Code: What Is New?
On 27 December 2017, the President of the RK signed the Code of the Republic of Kazakhstan “On Subsoil and Subsoil Use” (hereinafter referred to as “the Code”), which introduces significant changes to the current subsoil use regime in Kazakhstan. In 2017, we produced several thematic reviews of the draft Code, developed as of the date of our publications. You can view our previous publications by following these links: (1) and (2).
The present update highlights the following key developments introduced by the Code:
- Individual regulatory regime for each type of mineral, including uranium, hydrocarbons and solid minerals;
- Open access to geological data;
- Transforming subsoil use blocks under the contract/license depending on the type of minerals;
- New grounds for early termination of subsoil use contract for hydrocarbons;
- Clear terms for the extension of the hydrocarbon contract depending on the stage of field development;
- More precise amounts of social obligations;
- Retention status for solid minerals.
1. Different regulatory regimes
The Code sets an individual regulatory regime for each type of mineral: hydrocarbons, solid minerals and uranium. The subsoil use right for exploration and production of hydrocarbons is granted on the basis of auction as well as direct negotiations. For uranium, this is based on direct negotiations; and for solid minerals, separate licenses for exploration and production are provided.
2. Access to geological data
Another significant change in the subsoil use area is the granting of open access to geological data, save for temporarily confidential data or data related to state secrets. Leading powers’ experience demonstrates that the investor faces less geological risks and, hence, finds the subsoil more attractive to invest in if the state provides more qualitative geological data to the investors. The Code contains a provision for access to information on subsoil use licenses and contracts, in accordance with which the basic information on subsoil users and operations will be publicly available on special Internet resources.
3. Transforming subsoil use blocks under the contract
The Code provides for the transformation of subsoil use blocks under the contract by means of expansion, reduction, spin-off and accession, depending on the type of mineral, while the Subsoil and Subsoil Use Law dated 24 June 2010 (hereinafter referred to as “the Law”) provided only for the spin-off of a subsoil use block from the contracting territory in the transformation of subsoil use block. The general requirement for transforming subsoil use blocks under the Code is that the transformed blocks will eventually be used by the same person (or persons), and the types of transformation of blocks differ depending on the type of mineral.
With respect to exploration and production of hydrocarbons, the following types of transformation of subsoil use blocks are provided:
With respect to uranium production:
With respect to exploration and production of solid minerals:
4. New grounds for early termination of subsoil use contract for hydrocarbons
The Code set forth new grounds of early termination of the subsoil use contract for hydrocarbons:
1) The entry into force of a court decision prohibiting subsoil use activities;
2) Carrying out subsoil use operations for hydrocarbons absent duly examined project documents.
5. Clear terms for the extension of the hydrocarbon contract depending on the stage of field development
As opposed to the Law’s general provisions regarding the extension of the exploration contract for the period required for the evaluation, the Code sets forth a definite period for evaluation and trial exploitation: a one-time extension for each deposit up to 3 years; for complex projects: up to 6 years. As a result of extensions, the maximum period of exploration cannot exceed 9 years; at sea and for complex projects – 15 years.
6. Precise amounts of social obligations
The Code set forth the amount of annual financing at the rate of 1%: training of Kazakhstan personnel – 1% of production costs; research work – 1% of production costs; social and economic development of the region and the development of its infrastructure – 1% of investment under the contract.
7. Retention status
The Code provides for retention status for solid minerals. Retention status entitles not to commence or suspend the extraction of solid minerals under a license in the specified block (or part thereof) for a period of up to 5 consecutive years, with the right to extend up to the other 5 consecutive years.
Information contained in this Client Update is of general nature and cannot be used as legal advice or recommendation. Please note that Kazakhstan is an emerging economy, and its legislation and legal system are in constant development. Should you have any questions or want to discuss matters addressed in this Client Update, please contact us
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