A note from practice: “Environmental emissions: double permits – double problem?”
In our practice we regularly come across with legal issues that are not necessarily expressly answered by the law, and government authorities interpret these gaps at their own discretion and according to their own logic. Recently we advised our client as to whether a lessee must obtain yet another permit for emissions and waste of harmful substances (“environmental emissions permit”) for a hazardous object whereby the current owner (i.e. lessor) has already secured such permit. So the question is should there be two permits for the same object.
\tWe invite you to look at the situation from your own perspective. Imagine that you are a foreign investor and intend to rent an entire production facility in Kazakhstan to undertake operations. By registering your company in the Republic of Kazakhstan (“Company A”), you find a suitable production facility owned by another company (“Company B”), which has all the necessary permits, including an environmental emissions permit. In addition to leasing a production facility, you further enter into an agreement with Company B for rendering services, whereby Company B, which has permission to issue and regularly pay for emissions in accordance with Kazakhstan laws, will carry out the actual operations.. At first sight, such scenario is very convenient - it frees you from any unnecessary procedures and costs, but eventually you will realize that there are still “pitfalls” here.
\tYour Company A enters into a lease of the production facility and a services contract for the operation of the facility, but before undertaking anything, in order to avoid any administrative sanctions, it is important to review all regulatory requirements, in particular, whether Company A would need to obtain an environmental emissions permit for the same production facility.
\tIn accordance with the legislation of the Republic of Kazakhstan, the general rule is that a natural resource user who releases environmental emissions must obtain environmental emissions permit. Since you are not the actual natural resource user, and all operational work in the facility will be carried out by another company, and given that permission for this facility has already been obtained by this company, one would assume that there is no need to obtain double authorization and pay twice for the same environmental emissions. The main question here is who should be considered as a nature user. In order to avoid risks at the end of the day we recommend seeking formal clarification from the relevant government authorities. This matter is dealt with by two government authorities - the agency that grants permission to the company, which is one of the environmental departments of the regional akimat (administration), and the other one, which is the Ministry of Environmental Protection of the Republic of Kazakhstan, the Committee for Environmental Regulation and Control and that is responsible for environmental auditing and inspections. In your case, you would need to make a formal written request to the latter agency, which will be in a position to fully clarify the matter. .
\tIn our practice, we received an official response from the government authority stating that our client should also receive an environmental emissions permit for the leased object, in addition to that of the owner. In relation to the payment for environmental emissions, the government authority referred to the Tax Code of the Republic of Kazakhstan, which provides that the payment is made by a person who actually releases the emissions.
\tBased on the foregoing, we come to the following conclusions:
When you, lease a production facility and use outsource the operation to another entity, which already has an environmental emissions permit, you still must obtain a second environmental emissions permit.
Since you will not actually carry out the operational work in the facility, we believe that only the company that will render operational work to you, and hence will release the emissions, would be required to pay for the emissions.
As we can see, the legislation is far from perfect and the available gaps and loopholes may be rather confusing and set additional burden for companies, as well as may give an unnecessary administrative leverage to government authorities. The entire process seems to require (i) making a formal query to the relevant government authority as to the need to obtain a second permission for the same facility and (ii) following a rather vague formal response (which was the case in our experience) going through the application procedure for obtaining such permission “just in case” in order to avoid fines and suspension of its activities. The last thing the business wants is when operation is suspended until further notice. Certainly there is chance that the business will prove its position and the suspension would be considered as unlawful, however, this would be a cumbersome and time-consuming process and may imply commercial losses while suspended. In this respect, we have to admit that the major question as to the need to obtain a second permit for the same production facility remains wide open.
\tThis case study demonstrates how rather vague and ambiguous law can affect the businesses - bona fide entrepreneurs and investors. The laws should not be subject to double interpretation by government authorities or otherwise. Unambiguous straightforward and predictable law will only attract both national and foreign investments in our country. . In particular, with regard to environmental emissions permit, we recommend a more express language in the law providing that under lease arrangements if a production facility owner (i.e. the lessor) has a valid permit, the lessee is no longer required to obtain a second permit for the same object. This perhaps a minor change in the law may contribute to a certain degree to improvement of the business and investment environment in Kazakhstan.
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.
