February 2018 - On 27 December 2017, the long anticipated Code "On Subsurface and Subsurface Use" (No. 125-VI ZRK) was adopted (the "Code"). The text of the Code was published on 28 December 2017 and, with certain exceptions, it will come into force six months after its publication, i.e. on 29 June 2018. The Code will replace the currently effective Law of the Republic of Kazakhstan "On Subsurface and Subsurface Use" (No. 291-IV, dated 24 June 2010, as amended) (the "Subsurface Law"), subject to transitional provisions of the Code pursuant to which certain provisions of the Subsurface Law will survive.
The Code is a comprehensive piece of legislation, which contains many new provisions and requirements. As such, it will impact not only those who are only planning to invest in the natural resources sector in Kazakhstan, but also those subsurface users who are already acting on the basis of existing contracts/licenses since a number of provisions of the Code will have retroactive effect.
Unlike the current Subsurface Law which regulates all subsurface use operations under one legal framework, the Code stipulates separate regulatory regimes for different types of minerals, i.e. it establishes separate norms for subsurface use operations related to:
- extraction of hydrocarbons,
- hard minerals,
- uranium, and
- commonly occurring minerals.
Under the Code, certain rights, particularly those for exploration and production for hard minerals will now require a license but not a subsurface use contract. Exploration and production of hydrocarbons as well as production of uranium will continue to be regulated through execution of contracts with the competent authority.
The Code still requires consent of the competent authority and, if applicable, the waiver of the State’s priority right for the transfer of subsurface use rights. However, it introduces a number of changes and clarifications in this regard. Among others, changes concern such issues as (i) the cases when the consent of the competent authority is required, (ii) what constitutes an ‘object related to subsurface use rights’ and a ‘strategic field’, and (iii) exemptions from the State’s priority right/consent of the competent authority. The Code also increases the term of validity of the consent, which will be valid for one year as opposed to six months under the current law. Similarly, timing to notify the competent authority of completion of a transaction involving a transfer of "objects related to subsurface use rights" has been increased from five days to one month.
Although in general the Code will apply to subsurface use rights that arise after it comes into force, certain provisions of the Code will apply retroactively to existing contracts. Such provisions include, among others, provisions regarding: (i) terms and procedure of increase/decrease of a subsurface plot; (ii) conservation of subsurface plot for hydrocarbons and liquidation of technological facilities; (iii) obligations to supply hydrocarbons to the domestic market; (iv) for uranium producers, training of employees, financing of scientific research, financing of social and economic development of the region during the production period; and reporting (including reporting on the reserves according to the new standards – the KAZRC Code); and (v) for producers of hard minerals, procedures for conducting exploration and liquidation of consequences of subsurface use operations.