Monthly Legal Alert: September-October 2022.
SIGNUM regularly provides Legislative/Regulatory Alerts to keep Clients informed about important laws and regulatory changes in the Republic of Kazakhstan (“RK”). This Alert includes recent developments introduced in September-October 2022 related to:
1. Introduction of fines for telecom operators;
2. Renewables energy regulation issues;
3. Correspondent relations between banks;
4. Submission of information on beneficial owners by clients at the request of the subject of financial monitoring;
5. The planned introduction of digital mining licensing requirement;
6. Disclosure of information on ultimate beneficiary during registration and re-registration of legal entities.
1. Refund Fines for Telecom Operators[1]
Pursuant to the new amendments[2] to the Administrative Code, the provision of communication services to users that do not meet the quality standards, technical norms and quality indicators of communication services entails the following fines:
Ø for individuals - 10 MCI[3];
Ø for small businesses - 20 MCI;
Ø for medium-sized businesses - 40 MCI;
Ø for large business entities - 1000 MCI.
It should be noted that the introduction of increased fines may increase the cost of communication services.
2. Renewables Regulation Issues[4]
The following important changes have been introduced to the laws of Kazakhstan in the sphere of renewable energy sources.
One-time indexation of auction prices for the construction period
Auction prices are subject to one-time indexation for the construction period from the date of publication of the register of auction winners and until the start of the supply of electricity from renewable energy sources to the financial and settlement center (“FSC”), taking into account KZT/USD exchange rate fluctuations. One-time indexation shall be calculated based on the formula specified in the Rules and shall be applicable from the date of complex testing.
Annual indexation of auction prices for the period of the RES project
Auction prices are subject to annual indexation once a year on 1st October. It shall be carried out based on the applicant’s letter addressed to FSC 30 days before the date of annual indexation. Annual indexation is calculated based on one of two formulas: either for the consumer price index or for the change in the exchange rate of KZT against USD. The choice shall be made at the conclusion of the purchase agreement for the entire period of its validity. The potential investor will have to choose one of the formulas, which shall be valid for the entire period of the PPA (electricity purchase agreement).
Fixed tariff for hydroelectric power plants using the hydrodynamic energy of water
Pursuant to the new amendments, a fixed tariff was introduced for the supply of electricity for hydroelectric power plants using the hydrodynamic energy of water in the amount of 41.23 Tenge/kWh (excluding VAT). Fixed tariff is a tariff for the purchase by FSC of electrical energy produced by facilities for the use of renewable energy sources. The fixed tariffs were introduced in 2018 and would be in effect for 15 years.
Determination of maximum auction prices
Changes have been introduced to the procedure for determining auction prices. In particular, the main change is the removal of the provision that the maximum auction prices for subsequent auctions after the first auction in 2018 are determined based on the results of previous auctions at the maximum price of the winner. For instance, earlier, if the winner of the RES auction by type of wind power plants in 2020 was determined at a price of 15 Tenge/kWh, then the marginal auction price for the next auction of wind power plants would have been 15 Tenge/kWh. According to the new change, the maximum auction prices are determined at the level of fixed tariffs approved by the Decree of the Government of the Republic of Kazakhstan No. 645 dated 12 June 2014.
3. Correspondent Relations between Banks
AIFС banks have been included in the Rules for Establishing Correspondent Relations between Banks[5].
In order to open a correspondent account for AIFC member banks, the respondent additionally submits to the correspondent a notarized copy of the license of the AIFC Financial Services Regulatory Committee to provide services for accepting deposits and (or) opening and maintaining bank accounts in the AIFC.
The types of operations carried out on the correspondent account of the AIFC member bank are the following:
1) acceptance and transfer of money on own operations of the AIFC member bank;
2) execution of instructions of the clients of the AIFC member bank to pay taxes and obligatory payments to the budget, and collection orders;
3) payment of brokerage commissions, listing and other exchange fees for transactions with securities on the AIFC exchange and KASE[6];
4) settlements on transactions and payments on securities on the AIFC exchange and KASE;
5) payment for consulting services provided by the AIFC member bank and other operations.
The correspondent account is closed upon termination of the license of the AIFC member bank to provide services for accepting deposits and/or opening and maintaining bank accounts in the AIFC.
4. Information on Beneficial Owners at the Request of the Subject of Financial Monitoring[7]
In order to identify the beneficial owners of the client, the subject of financial monitoring requests from the client information about the beneficial owners in a special prescribed form. Clients must provide the subjects of financial monitoring with reliable, sufficient and up-to-date information on beneficial owners. Information about the beneficial owners of the client shall be kept by the subjects of financial monitoring for at least 5 years from the date of termination of business relations with the client.
5. Digital Mining Licensing Requirement
The new dossier[8] on the draft Law of the Republic of Kazakhstan “On Amendments and Additions to Certain Legislative Acts of the Republic of Kazakhstan on Digital Assets” foresees a license requirement to operate specialized data centers to provide infrastructure services for digital mining. The license shall be valid for 3 years. It should be noted that the dossier on the draft law is at the stage of examination.
6. Disclosure of Ultimate Beneficiary Information During Registration and Re-registration of Legal Entities
There is a new requirement to indicate information on beneficial owners when applying for registration and re-registration of legal entities[9] . Such information includes citizenship, full name, identity document details, IIN (if any), number of shares in the charter capital of a legal entity or the amount of outstanding shares owned by the beneficial owner.
[1] Telecommunications operator - an individual or a legal entity registered in the territory of the Republic of Kazakhstan, providing communication services and (or) operating communication networks.
[2] Law of the Republic of Kazakhstan No. 137-VІI "On Amendments and Additions to the Code of the Republic of Kazakhstan on Administrative Offenses" dated 11 July 2022. Entered into force on 11 September 2022, save for certain provisions that will enter into force on 1st January 2024.
[3] MCI is a monthly calculation index. 1 MCI is equal to KZT 3,063 in 2022.
[4] Decree of the Government of the Republic of Kazakhstan No. 704 dated 16 September 2022 “On Amendments and Additions to the Decree of the Government of the Republic of Kazakhstan No. 271 dated 27 March 2014 “On Approval of the Rules for Determining Fixed Tariffs and Marginal Auction Prices”. Entered into force on 30 September 2022.
[5] Resolution of the Board of the National Bank of the Republic of Kazakhstan No. 84 “On Amendments and Additions to Certain Resolutions of the Board of the National Bank of the Republic of Kazakhstan on Issues of Payments and Payment Systems” dated 17 September 2022. Entered into force on 1st October 2022.
[6] Kazakhstan Stock Exchange JSC.
[7] Order of the Chairman of the Agency of the Republic of Kazakhstan for Financial Monitoring No. 35 “On Approval of the Rules for the Provision of Information on Beneficial Owners by Clients (Their Representatives) at the Request of a Subject of Financial Monitoring” dated 26 September 2022. Entered into force on 10 October 2022.
[8] Dossier on the draft Law of the Republic of Kazakhstan “On Amendments and Additions to Certain Legislative Acts of the Republic of Kazakhstan on Issues of Digital Assets” (September 2022).
[9] Order of the Minister of Justice of the Republic of Kazakhstan No. 821 dated 30 September 2022 “On amendments to the order of the Acting Minister of Justice of the Republic of Kazakhstan dated May 29, 2020 No. 66 “On approval of the rules for the provision of public services in the field of state registration of legal entities and record registration of branches and representative offices”. Entered into force on 15 October 2022.
- Telecommunications operator - an individual or a legal entity registered in the territory of the Republic of Kazakhstan, providing communication services and (or) operating communication networks.
- Law of the Republic of Kazakhstan No. 137-VІI "On Amendments and Additions to the Code of the Republic of Kazakhstan on Administrative Offenses" dated 11 July 2022. Entered into force on 11 September 2022, save for certain provisions that will enter into force on 1st January 2024.
- MCI is a monthly calculation index. 1 MCI is equal to KZT 3,063 in 2022.
- Decree of the Government of the Republic of Kazakhstan No. 704 dated 16 September 2022 “On Amendments and Additions to the Decree of the Government of the Republic of Kazakhstan No. 271 dated 27 March 2014 “On Approval of the Rules for Determining Fixed Tariffs and Marginal Auction Prices”. Entered into force on 30 September 2022.
- Resolution of the Board of the National Bank of the Republic of Kazakhstan No. 84 “On Amendments and Additions to Certain Resolutions of the Board of the National Bank of the Republic of Kazakhstan on Issues of Payments and Payment Systems” dated 17 September 2022. Entered into force on 1st October 2022.
- Kazakhstan Stock Exchange JSC.
- Order of the Chairman of the Agency of the Republic of Kazakhstan for Financial Monitoring No. 35 “On Approval of the Rules for the Provision of Information on Beneficial Owners by Clients (Their Representatives) at the Request of a Subject of Financial Monitoring” dated 26 September 2022. Entered into force on 10 October 2022.
- Dossier on the draft Law of the Republic of Kazakhstan “On Amendments and Additions to Certain Legislative Acts of the Republic of Kazakhstan on Issues of Digital Assets” (September 2022).
- Order of the Minister of Justice of the Republic of Kazakhstan No. 821 dated 30 September 2022 “On amendments to the order of the Acting Minister of Justice of the Republic of Kazakhstan dated May 29, 2020 No. 66 “On approval of the rules for the provision of public services in the field of state registration of legal entities and record registration of branches and representative offices”. Entered into force on 15 October 2022.
