Subsurface Use: Permission of the Competent Body and State’s Waiver

The present Client Update presents the general information on Kazakh law requirement to obtain the competent body’s permission and a waiver from the state’s pre-emptive right.

Kazakhstan subsurface use legal framework is based on a system where rights to explore for and develop mineral deposits are granted by the state as owner of the resource. Subsurface users obtain rights to explore for and mine minerals based on rights granted by the state what is mainly governed by the Law On Subsurface and Subsurface Use dated 24 June 2010. The Kazakh legislation requires obtaining the following:

•\tthe competent body’s permission and

•\ta waiver from the state’s pre-emptive right.

The competent body’s permission and waiver from the state’s pre-emptive right are subject to one application and apply to:

•\ttransfers of Subsurface use rights

•\ttransfers of “Items related to subsurface use rights” – i.e. direct or indirect interests in subsurface users

•\tIPO of shares or other securities evidencing the ownership of shares, or of securities convertible into shares, of subsurface user, a legal entity which is able to determine, directly and/or indirectly, decisions and/or influence decisions of such subsurface user, including IPO of such securities issued within the framework of an additional issue.

Exceptions

The Kazakh law provides for certain exceptions, i.e. list of cases when competent body’s permission and waiver from the state’s pre-emptive right shall not be applied for. These cases include:

(1) consummation of transactions involving the alienation of shares or other securities evidencing the ownership of shares, or of securities convertible into shares of subsurface user, a legal entity which is able to determine, directly and/or indirectly, decisions and/or influence decisions adopted by such subsurface user;

(2) transfer of a subsurface use right or a part thereof, items related to subsurface use rights in favour of a subsidiary (not less than a 99% interest (block of shares) is owned, directly or indirectly, by the subsurface user, provided that such subsidiary is not registered in a tax-haven country; transfer of a subsurface use right or a part thereof, items related to subsurface use rights between the legal entities, in each of which not less than 99% of interests (blocks of shares) are owned, directly or indirectly, by the same person, provided that the acquirer of the whole or part of the subsurface use right, items related to subsurface use rights is not registered in a tax-haven country;

(3) any transfer of shares (participating interests) in a subsurface user if, as the result of such a transfer, the entity acquires the right to dispose, either directly or indirectly (through third parties), of less than 0.1 per cent of participating interests (blocks of shares) in the charter capital of a subsurface user, and/or a legal entity able to determine, directly and/or indirectly, decisions and/or influence decisions of such subsurface user, provided that the main activity in the Republic of Kazakhstan of that legal entity is associated with subsurface use.

Terms

In practice and law it requires around 70 business days (approx 3 months) to obtain the permission and waiver (though it may be longer).

The competent body’s permission is now granted for a period of 6 months and if a transaction is not completed within that period an extension must be obtained, or a new consent. There is a requirement to notify the competent body within 5 days of completion of the transaction for which permission and waiver were granted.

Consequences

Violation of the above mentioned requirement to obtain the competent body’s permission and a waiver from the state’s pre-emptive right leads to termination of subsurface use contract.

Information contained in this Client Update is of general nature and cannot be used as legal advice or recommendation. Please seek for a specific advice in relation to any questions. Please note that Kazakhstan and Turkmenistan are emerging economies and their legislation and legal systems are in constant development. Should you have any questions or would like to discuss subjects addressed in this Client Update please contact us.