In keeping with GRATA Law Firm's policy of keeping clients informed of important legal developments that may affect their business, we would like to draw your attention to recent changes in Kazakh legislation in connection with the adoption of the new draft law entitled "On the Main Pipeline".
The Ministry of Oil and Gas of Kazakhstan has developed a draft law entitled "On the Main Pipeline" ("Bill"), the main provisions of which are discussed in this review. At this stage the Bill is preliminary and may be subject to further changes. In September 2011 the Bill was submitted to the Office of the Prime Minister of the Republic of Kazakhstan.
The Bill represents an innovation development in the legislation of Kazakhstan. At present, the status of pipelines is subject to the following legal acts: the Law of the RK "On Subsoil and Subsoil Use" dated June 24, 2010, the Law of RK "On Architecture, Town Planning and Construction Activities" of July 16, 2001, the Law of RK "On Transport in the RK" of September 21, 1994, the Environmental Code of January 9, 2007 and other legislation. The Bill incorporates all this previous legislation.
The Bill aims to regulate social relations in the establishment and operation of the pipeline, namely the trunk pipeline, oil pipelines, as well as regulating the actual establishment and operation of the pipeline to a greater extent than was the case under previous legislation.
The Bill introduces the following innovations: the bank of product quality, the national operator, the operator, operator services, maintenance control, technical corridor, technical diagnostics and exchange operations (swap).
2. Land Needed for the Pipeline
Under the Bill, the main pipeline is an indivisible property complex and may be in public or private ownership. It will be prohibited for a pipeline to be owned by individuals or by legal entities registered in accordance with the laws of a foreign state.
The Bill specifies that the main line consists of a linear part and the following objects: devices, equipment, structures, buildings and other structures associated with the land. The linear part of the pipeline is a chattel. Structures, buildings and plants closely connected with the land that form part of the pipeline facilities are real property.
The Bill also regulates issues relating to the status of the land required for the functioning of the pipeline, introducing, among other things, buffer zones for the main pipeline. It should be noted that previously such a provision regarding the status of land was absent from legislation and became the cause of various controversies. In respect of protection zones the Bill introduces a special regime of land use, which includes a feature that enables the operator to carry out repair and maintenance works on the pipeline within the protected zones. At that time the owner of the pipeline is not required to take and pay for the property, enter into leases or other agreements for use of land or water areas within the boundaries of the security zone along the pipeline route.
3. Priority Right
It should also be noted that the Bill focuses on the priority right of the State ("Priority Right") to participate in an amount not less than fifty one percent in the projects of the newly created pipelines. The State reserves the right to implement a pre-emptive right of at least fifty percent of the projects of the newly created pipelines. The Bill stipulates that the priority right must be exercised within 2 months of the receipt of the offer. If the State fails to exercise the priority right, conditions for participation in the construction of the pipeline offered to other persons can not be more favourable than those offered them by the authorised state body.
4. Design, Construction and Operation
The Bill sets out the procedure for the design, construction, operation, connection of the pipelines to the existing pipeline and the decommissioning of the pipeline. Prior to this there was no precise regulation of the procedure. It also establishes a special warranty period of 3 years after the main pipeline is commissioned.
The connection of the new pipe to existing pipelines is carried out under a contract between the owner of the pipeline and the pipeline owners connectable ("Owner"). Unless otherwise stated, the costs associated with joining are born by the Owner. In the case of the need to decommission the pipeline or change its prior mode of operation the Owner must give at least one month's written notice to the owner of this pipeline. The decision to liquidate the pipeline must be approved by the competent authority.
5. Safety of pipelines
The Bill clearly states that the pipeline facilities are to be given a continuous power supply, including emergency rooms. Organizations are prohibited from restricting the power supply for pipeline facilities to set limits without the consent of the Owner (operator). This is one of the key provisions of the Bill for the business continuity of the pipeline.
Moreover, the Bill reviews issues relating to the safety of pipelines in the course of their activities, including aspects of environmental protection, due to the high security requirements of pipelines. It should be noted that the Ministry of Oil and Gas are currently developing technical regulations entitled "Safety Requirements for Pipelines".
6. Operator services
In addition, the Bill regulates the provision of operator services, transportation services and the objects of the pipeline and their tariffs, on the order of access to pipelines. For example, the products transported by pipelines, shall be transferred by the operator of the pipeline to the recipient at the end of the route, excluding technical losses during transportation, within the limit of normative technical losses, approved by the authorized body responsible for leadership in the spheres of natural monopolies and regulated markets. Accounting for goods transported by pipeline beyond the limits of RK is carried out in accordance with the customs legislation of the RK and the laws of the Customs Union.
However, following the decision of the Government of the Republic of Kazakhstan the right to provide operator services can be awarded to another entity, provided that fifty percent or more of the voting shares (interests) of this entity are owned by the State, National Manager of the Holding Company or a national company.
The Bill defines the grounds for the suspension of the unilateral execution of the contract to transport goods and of unilateral severance.
Tariffs for transportation pipeline of products shall be in accordance with the legislation of the RK on natural monopolies and regulated markets.
In general, the Bill is quite broad ranging, in that it addresses many previous areas of controversy and consolidates key points in the area of pipeline regulation. Its most important innovations are the introduction of the state priority right to participate no less than 51% in the projects of the newly created pipelines, and its definition of the legal status of land allocated under the pipes. The Bill also regulates issues concerning the ownership of the main pipeline as well as the procedure for the design, construction, operation, connection of new pipelines to existing pipelines, maintenance control of the pipeline and for the decommissioning of the pipeline.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.