Many international companies work in Kazakhstan as contractors
to oil and gas and other mineral resources producers. Such
producers are referred to in the Kazakhstani legislation as
Subsoil users are obliged to purchase goods, works and services
for their operations through open tenders or one of other methods
(such as purchase "from one source" and purchase through
requests for proposal – such other methods have limited
application). Contractors of subsoil users are also obliged
to follow the same procurement rules. Legislation contains
detailed regulation of the procurement procedures. The
procedure is very formalistic and a potential provider has to
strictly follow it, failing which it may be disqualified.
Once a potential provider wins the tender, it is required to
enter into a "procurement contract" within ten business
days following evaluation of the tender. The procurement
contract has to reflect terms and conditions of the tender
documents. Normally, a draft of the procurement contract is
made available by the tendering organization and potential for
after-tender negotiations of the draft contract for the provider is
fairly limited – due to time constraints and also due to the
fact that the contract is viewed as a part of the tender
The tender is already won, manpower, equipment and other
resources are already allocated by the provider and it signs the
procurement contract almost as it is hoping to amend it as and when
necessary – in the process of performance. And here you
have an unpleasant surprise: the procurement contract, once entered
into, may be amended only in an exhaustive number of cases and if
you try to request other revisions, you will fail even if your
counterparty commercially agrees to revise the contract, simply
because the legislation does not allow such revisions.
What revisions in a subsoil procurement contract are
First of all, you may amend terms which are not
"material". Material terms include subject-matter
of the contract; deadlines and place of delivery of goods,
performance of works or provision of services; payment terms; and
duration of the contract.
Second, the contract may be amended so as to increase the
contract amount, but by not more than ten percent and where the
increase relates to the increased demand of goods (provided that
the per unit price remains unchanged), works or services within the
procurement budget for this type of goods, works or services.
Third, for procurement contracts with duration of more than one
financial year, the contract amount may be revised annually in
accordance with the official inflation rate for the respective
Fourth, the contract amount may be decreased in connection with
decreased demand of purchased works or services and also goods,
provided that the price for unit remains unchanged.
Fifth, the contract duration may be changed, if the provider is
a non-resident in Kazakhstan and delivery of works, performance of
works or provision of services is delayed due to requirements of
the currency control legislation.
Finally, where the provider is a Kazakhstani producer of goods,
the delivery term may be extended for the time necessary for
manufacturing the goods.
Mineral production remains one of the most important industries
in Kazakhstan. And profitability of Kazakhstani projects of
companies working in this area not least depends on considering
statutory provisions applicable to their contractual relations with
Kazakhstani subsoil users.
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.
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