Legislative news

This Client Update covers amendments to the laws of the Republic of Kazakhstan (“RK”) and various legal developments introduced in August 2015.

Novelties in Legislation

The laws covered by the present Client Update relate to both public and private sectors. Some of them may be of interest to you as they may affect your business activity in Kazakhstan.

We would like to draw your attention to the following legal acts.

ACCESSION OF THE KYRGYZ REPUBLIC AND THE REPUBLIC OF ARMENIA TO THE EURASIAN ECONOMIC UNION

On 5 August 2015, the President of the RK signed the Laws “On ratification of the Agreement on Accession of the Kyrgyz Republic to the Eurasian Economic Union (“EEU”)” dated 29 May 2014 and “On ratification of the Protocol on Accession of the Republic of Armenia to the Agreement on Accession of the Kyrgyz Republic to the Eurasian Economic Union” dated 29 May 2014.

Pursuant to the Laws the Kyrgyz Republic and the Republic of Armenia became EEU members.

Also customs clearance is abolished on the Kazakh-Kyrgyz border as from the moment of ratification of the Agreement on Accession of the Kyrgyz Republic to EEU.

The Laws came into force on 12 August 2015.

KAZAKHSTAN-KYRGYZSTAN BORDER CUSTOMS CONTROL ABOLISHED

On 12 August 2015, the Chairman of the State Revenue Committee of the Ministry of Finance of the RK signed the Decree “On Customs Control Abolishment on the Kazakhstan – Kyrgyzstan State Border of the Republic of Kazakhstan” (“the Decree”).

The Decree abolishes customs control with respect to the goods and transport crossing through the Kazakhstan – Kyrgyzstan state border, as well as in the airports when crossing by the air traffic.

Also the Decree cancels quarantine, veterinary and phytosanitary controls on the Kazakhstan-Kyrgyzstan state border.

The Decree came into force on 12 August 2015.

PENSION REFORMS

On 4 August 2015, the President of the RK signed the Law “On Amendments into Certain Legal Acts of the Republic of Kazakhstan on Pension Provision”.

The Law stipulates the following key developments:\

  1. State Base Pension Calculating Changed

The Law changed the procedure for pension assignment depending on the qualifying participation period in the pension system, which will become effective as from 1 July 2017.

The base state pension will be assigned upon retirement age depending on the qualifying participation period in the pension system.

  1. Employer’s Mandatory Pension Contribution

The Law imposed an additional obligation on employer with respect to supplemental 5 % pension contribution from employment income as from 1 January 2018.

The Law came into force on 14 August 2015.

SUBSOIL USE MATTERS

NEW RULES FOR GRANTING SUBSOIL USE RIGHT

The Resolution of the Government of the RK No. 588 dated 27 July 2015 “On Changes and Amendments into the Resolution of the Government of the Republic of Kazakhstan No. 1456 dated 30 December 2010 “On Adoption of the Rules for Granting Subsoil Use Rights” introduced certain novelties in the rules for granting subsoil use rights (“the Resolution”), as follows:

• Auction As a New Procedure for Winner Election

The Resolution introduces an auction as a simplified procedure for winner election among the bidders.

A company participates in auction after it is duly admitted to participate in auction and registered as an auction participant.

The Resolution introduces a signature bonus based auction when a winner is identified based on a higher amount of signature bonus not disputed by other participants.

Auction results are announced on the day of the auction and can be appealed by its participants in accordance with the laws.

• Application Processing

The Resolution changes the competence of the government authority responsible for review of applications and granting subsoil use rights.

Going forward, the Ministry of Energy of the RK will review applications for exploration and production rights in relation to hydrocarbons, uranium and coal.

The Ministry of Investments and Development of the RK will consider applications for exploration and production rights for subsoil water, therapeutic muds and solid commercial minerals, except uranium and coal.

• Direct Negotiations Based Contracts List Expanded

The Resolution expanded the list of the direct negotiations based contracts by adding the following grounds:

• exploration works on subsoil use area granted under the simplified procedure;

• state or government-owned technogenic mineral formation refining or other utilization.

• Fast-track Procedure For Granting an Exploration Right

The Resolution introduces a simplified procedure for granting subsoil use right with respect to the exploration stage deposits (“the Simplified Procedure”).

The Simplified Procedure ensures granting the subsoil use rights for understudied deposits. The list of understudied deposits is suggested by the authorized body on subsoil use and study and approved by the competent body and published on the official web-site of the competent body.

Exploration deposits under the Simplified Procedure should not have more than 10 blocks each being equal to one minute of geographical reference system.

In order to obtain the subsoil use right under the Simplified Procedure a person should file an application with information on the requested deposit blocks. The competent body publishes information on the requested deposit and the applicant on its official web-site within three days after obtaining the application.

If within five days after the competent body publishes the information on the official web-site, the competent body obtains one more application for the same deposit, the competent body must within 20 days exclude this deposit from the Simplified Procedure deposits list. The excluded deposit must be then put up for an auction.

The competent body considers an application during 20 business days.

The Resolution came into force on 18 August 2015.

THE MINISTRY OF ENERGY OF THE RK ADOPTED THE LIST OF SUBSOIL USE BLOCKS TO BE TENDERED

On 31 July 2015, the Minister of Energy signed the Decree No. 509 “On Adoption of the List of Subsoil Use Blocks to be Tendered” (“the List”).

In total the List includes 12 hydrocarbons exploration blocks based in Kyzyl-Orda, Aktobe, Atyrau, Mangistau and Kostanai regions.

The Decree came into force on 31 August 2015.

You can find the List here.

We would like to inform you that our subsoil use team would be happy to assist you with preparation of tender documentation as well as to render full legal support to obtain subsoil use right.

DRAFT LAW

NEW LABOR CODE

In October 2015, the Parliament of the RK will consider the new draft Labor Code (“the Draft Code”).

We would like to draw your attention to the following proposed key developments:

• Employer Activity Certification

The Draft Code introduces an “Employer activity certification procedure”, whereby an employer at its own initiative declares its activity as compliant with the labor laws by sending the respective application.

Certification is confirmed by the trust certificate issued for 3 years. Once the employer certifies its activity, such employer will not be subject to random inspection checks and other state controls.

• Employment Termination Grounds Expanded

The Draft Code expands the list of the grounds for employment termination at the employer’s initiative as follows:

• company’s economic deterioration resulted in unfavourable volume variance, works performed and services rendered;

• employee’s repeated failure in HSEA knowledge assessment;

• breach of non-competition clause of the employment agreement;

• the decision of the owner of a legal entity or the authorized person of the owner or of the authorized body of legal entity on termination of powers of director and other employees appointed (elected) by the owner of a legal entity or the authorized person of the owner or the authorized body of a legal entity;

• statutory retirement age;

• employee’s absence at work for more than one month for unknown reasons.

• Changes in Time Limits

The Draft Code significantly increases duration of the employee transfer to another work for business needs in the absence of his/her consent from one to three months.

The Draft Code provides that in case of down time the employer will be entitled to transfer employee to another work without his/her consent for the entire down time period. Under the current laws the period of employee transfer in case of down time cannot exceed one month.

The Draft Code proposes to decrease the number of additional annual leave for I and II groups of disabled persons from 15 to 6 calendar days.

• Non-Competition

The Draft Code introduces a new non-competition clause entitling an employer to relieve an employee from performing certain work which may cause direct or indirect harm to the employer’s business activity. In such case the Draft Code obliges the employer to pay compensation within the time line agreed between both parties.

• Secondment

The Draft Code introduces a detailed secondment procedure for employee’s secondment to another legal entity. Secondment will be a contractual arrangement between legal entities, which will outline the job list and number of secondees. The Draft Code provides that the rest of secondment terms and conditions and fees will be reflected in the relevant addendum to the secondment contract to be signed by legal entities and seconded employee.

• Work Prohibition for Certain Categories

The Draft Code expands the list of workplace where attracting employees of the age under 18 is prohibited.

The Draft Code also prohibits women and employees under 18 to carry and move the weights exceeding the limits established with respect to these groups.

• Salary

The Draft Code decreases the overtime pay. The minimum rate is decreased from 1.5% to 1.25% of daily hourly rate and the wages rate decreased from 50% to 25% of employee’s tariff.

We would like to note that compensation rate for working on weekends and public holidays as well as night work are decreased to 1.25% of daily hourly rate.

• Working hours

The Draft Code introduces changes into the components of working hours. The Draft Code eliminates the preparation – conclusive work (receipt of job card, materials and instruments, documents and equipment inspection, workplace preparation and cleaning, transfer of finished goods from workshop to warehouse and others) from working hours. The employer will not pay for this time.

We would like to note that the above review of the Draft Code is preliminary and subject to further updates since the Draft Code will undergo further changes while being discussed and reviewed by both chambers of the Parliament as well as before signing by the President. We will keep you informed on further developments.

Information contained in this Client Update is of general nature and cannot be used as legal advice or recommendation. Please seek a lawyer for a specific advice. Please note that Kazakhstan is an emerging economy and its legislation and legal system are in constant development. Should you have any questions or would like to discuss matters addressed in this Client Update, please contact us.