1 Relevant Authorities and Legislation
1.1 What regulates mining law?
The principal legislative act governing mining activities in the Republic of Kazakhstan ("RoK") is the RoK Law on Subsoil and Subsoil Use dated 24 June 2010 No. 291-IV (the "Subsoil Law").
There are also numerous Decrees of the RoK Government and orders of the ministers of (i) energy, or (ii) investment and development which regulate specific issues in subsoil use.
Mining activities are regulated through the award of mining contracts (until August 1999 this was through the award of a licence with the further conclusion of a mining contract), which are obtained either through competitive procedures or through direct negotiations for (i) certain RoK national companies (depending on the type of mineral according to allocation of responsibilities), or (ii) holders of the exploration right that made the commercial discovery and assessed it as confirmed by state expertise.
Broadly, regulation for mining can be categorised by reference to specific minerals as follows:
- solid minerals (gold, silver, coal, etc.);
- oil and gas; and
- commonly occurring minerals (sand, clay, etc.).
Please note, unless otherwise stated, we have not addressed oil and gas and commonly occurring minerals in this chapter.
1.2 Which Government body/ies administer the mining industry?
Depending on the category of minerals, there are three so-called competent authorities (the "Competent Authority"), specifically:
- the Ministry of Investment and Development (the "MID") regulates solid minerals contracts (f/k/a the Ministry of Industry and New Technologies from 12 March 2010 to 6 August 2014; before 12 March 2010 known as the Ministry of Energy and Mineral Resources);
- the Ministry of Energy regulates oil and gas, coal and uranium (f/k/a the Ministry of Oil and Gas from 12 March 2010 to 6 August 2014; before 12 March 2010 known as the Ministry of Energy and Mineral Resources); and
- the regional akimats regulate commonly occurring minerals.
The MID also supervises the mining industry through its subordinate, the Committee on Geology and Subsoil Use (the "Geology Committee"). The Geology Committee has regional departments called TsentrKazNedra (for central territories), ZapKazNedra (for western territories), SevKazNedra (for northern territories), VostKazNedra (for eastern territories) and YuzhKazNedra (for southern territories).
The issues of (i) local content in goods, works, services and staff, and (ii) procurement of solid minerals subsoil users are resolved by the MID taking into consideration the view of the National Agency on Development of Local Content JSC ("NADLoC").
1.3 Describe any other sources of law affecting the mining industry.
Depending on the sphere of activities, the mining industry is affected by the following legislative acts:
- the RoK Tax Code dated 10 December 2008 (the "Tax Code");
- the RoK Labour Code dated 15 May 2007;
- the RoK Environmental Code dated 9 January 2007;
- the RoK Land Code of RoK dated 20 June 2003 (the "Land Code");
- the RoK Water Code of RoK dated 9 July 2003;
- the RoK Law on Architecture, Town-Shipping and Construction Activities dated 16 July 2001;
- the RoK Law on Permits and Notifications dated 16 May 2014;
- the RoK Custom Code dated 30 June 2010 No. 296-IV and the Customs Code of the Customs Union (Annex to the Agreement on the Customs Code of the Customs Union dated 27 November 2009 No. 17) (customs issues); and
- the Rules of Procurement of Goods, Works and Services at Performance of Subsoil Use Operations approved by the RoK Government Decree dated 14 February 2014 No. 133, and so on.
2 Mechanics of Acquisition of Rights
2.1 What rights are required to conduct reconnaissance?
There is no notion of "reconnaissance" in Kazakhstan law; instead the term "exploration" is used, which includes (i) prospecting works, and (ii) assessment of commercial discovery. See our response to question 2.2.
2.2 What rights are required to conduct exploration?
(i) Subsoil use and land plot lease contracts
First of all, to conduct exploration, an individual or an entity must have a subsoil use right. Such rights are deemed to be granted upon the Competent Authority's signing of a contract ("subsoil use contract") for the right of (i) exploration, or (ii) production, or (iii) combined exploration and production.
During the preparation of the subsoil use contract, the Geology Committee issues a geological allotment for the territory to be explored.
Also, a relevant project on exploration works or on assessment of commercial discovery shall be elaborated by a relevant licensed organisation and be considered and approved by the ecological authority (if the project on assessment of commercial discovery includes pilot production, then approvals of sanitary-epidemiological and industrial safety authorities are also required), as well as by the Geology Committee.
If the exploration right is granted in simplified order, then the subsoil user approves the exploration project by itself and sends it to the Geology Committee.
Further, execution of a subsoil use contract is an unconditional ground for granting the land use right by regional akimats. Such land use right is confirmed by signing a land plot lease agreement with the land authorities.
To carry out exploration works, depending on the method, the following licences may be required:
- a licence on drilling works;
- a licence on handling explosives;
- a construction licence (for construction of a mine, a processing plant, infrastructure, etc.); or
- a licence on the application of chemicals and other agents, etc.
A holder of a subsoil use right can either obtain such licences on its own or hire contractors which have the relevant licences.
2.3 What rights are required to conduct mining?
Please note that there is no legal notion of "mining" in Kazakh law; instead, the terms "production" or "extraction" are used for determining the commercial development of the deposits and extraction of the minerals.
In general, the requirements are the same as mentioned in our response to question 2.2, except for the following:
- the subsoil use contract for (i) production, or (ii) combined exploration and production with a relevant amendment thereto allows the holder of the subsoil use right to conduct production;
- instead of the geological allotment, a mining allotment must be obtained;
- instead of an exploration project, a production project must be elaborated and approved by the authorities; and
- the holder of the subsoil use right must obtain a licence for the exploitation of mining activities.
2.4 Are different procedures applicable to different minerals and on different types of land?
No, generally the procedures are the same, save for a number of special licences required for carrying out activities with the production, storage or processing of radioactive ores.
2.5 Are different procedures applicable to natural oil and gas?
Generally, the same procedures are applicable to the exploration and production of natural gas and oil.
3 Foreign Ownership and Indigenous Ownership Requirements and Restrictions
3.1 Are there special rules for foreign applicants?
No, there are no special rules for foreign applicants. According to Article 3.1 (Sphere of Application of this Law) of the Subsoil Law, foreign individuals and foreign entities, as well as persons without citizenship, have the same rights and carry obligations equal to those borne by citizens and legal entities of Kazakhstan, unless otherwise set out by the laws of Kazakhstan.
3.2 Are there any change of control restrictions applicable?
The Subsoil Law contains the definition of objects connected to the subsoil use right (the "Objects"), which are:
- shares in subsoil users (including when issuing for IPO);
- shares in parent companies of the subsoil users, provided that the principal activity of such parent companies is connected to subsoil use in Kazakhstan; or
- securities confirming the ownership rights to the abovementioned shares or securities convertible into the above-stated shares.
Under Article 12.2 (State's Pre-emptive and Priority Rights in Subsoil Use Sphere) of the Subsoil Law, with regard to deposits of strategic significance (the list of such deposits is approved by the RoK Government Decree dated 4 October 2011 No. 1137), the State has the priority right to acquire (i) subsoil use right (in full or in part), or (ii) the Objects.
Any transaction that alienates the subsoil use right (in full or in part) or Objects is subject to the prior obtainment of (i) a waiver of the State's priority right (the "Waiver") with regard to deposits of strategic importance only, and/or (ii) consent of the Competent Authority (the "Consent") as set out by Article 36 (Transfer of Subsoil Use Right and Objects Connected to It) of the Subsoil Law.
Failure to obtain the Consent causes an invalidation of the relevant transaction from a Kazakh law perspective and entitles the Competent Authority to unilateral termination of the subsoil use contract under Article 72.3.2 (Termination of Contract's Validity) of the Subsoil Law.
Under the Subsoil Law, the Consent is obtained during 20 business days and the Waiver, if applicable, is obtained during additional 50 business days. However, as the authorities are entitled to request additional information, in practice it can take a longer period of time.
Upon execution of the transaction, the acquirer of the subsoil use right (or its part) or the Objects shall, within five business days, notify the Competent Authority, otherwise the transaction can be acknowledged as invalid.
If the subsoil use right or shares in a subsoil user are planned to be pledged, a prior Consent shall be obtained; otherwise, a pledge transaction will be considered as invalid.
Furthermore, if more than 25 per cent of shares of a Kazakh entity are obtained, and the aggregate amount of assets of such Kazakh entity and the acquirer exceed approx. USD 100 million, the transaction is subject to prior antimonopoly approval.
3.3 Are there requirements for ownership by indigenous persons or entities?
No, there are no requirements for ownership by indigenous persons or entities of subsoil use rights in Kazakhstan, except for oil and gas projects in the Caspian Sea, where the share of National Company KazMunaiGas JSC shall be not less than 50 per cent (Article 93.3 (General Conditions of Performing Oil Operations at Sea and Internal Reservoirs) of the Subsoil Law).
3.4 Does the State have free carry rights or options to acquire shareholdings?
See our response to question 3.2 above regarding the State's priority right.
If a mining asset is included in the List of Deposits of Strategic Importance approved by RoK Government Decree dated 4 October 2011 No. 1137, the State is entitled under Article 71.3 (Introduction of Amendments into Contract) to require the introduction of amendments into the subsoil use contract if actions of the subsoil user lead to a change of economic interests of the Republic of Kazakhstan, and constitute a threat to national security. If the subsoil user does not agree to amend its contract, the State is entitled, under Article 72.4-5 (Termination of Contract's Validity) of the Subsoil Law, to unilaterally terminate such contract.
3.5 Are there restrictions on the nature of a legal entity holding rights?
No, there are no restrictions on the nature of a legal entity holding mining rights.
4 Processing and Beneficiation
4.1 Are there special regulatory provisions relating to processing and further beneficiation of mined minerals?
The Subsoil Law differentiates between (i) primary processing (beneficiation) of raw minerals, and (ii) processing of raw minerals.
The primary processing (beneficiation) of raw minerals is acknowledged as a type of mining production activity, which comprises gathering on the site, breaking or crushing, separation (sorting), briquetting, agglomeration and enrichment by physicalchemical methods (without qualitative changes of the mineral forms of useful minerals, their aggregative-phase conditions or crystalchemical structure). It may also comprise processing technologies which are special types of work related to the production of useful minerals (underground gasification and melting, chemical and bacterial leaching, dredging and hydraulic development of placers). The list of works related to the primary processing (beneficiation) of raw minerals shall be determined in each subsoil contract, except for subsoil use contracts concluded before the enactment of the Subsoil Law (i.e. before 7 July 2010), and for amendments to subsoil contracts.
On the other hand, the processing of raw minerals is acknowledged as work (i) following the primary processing of raw minerals, and (ii) related to the extraction of a useful mineral(s) from raw mineral materials.
The processing of raw minerals does not require the obtainment of a subsoil use right, but does require a licence for the exploitation of mining activities.
4.2 Are there restrictions on the export of minerals and levies payable in respect thereof?
In general, there are no restrictions on the export of minerals, except for cases where the RoK Government establishes temporary limitations (e.g. the RoK Government Decree dated 3 June 2014 No. 606 banned the export of gold for six months).
In certain cases, exporters must preliminarily obtain export licences (e.g. for the export of natural crude stones, non-ferrous metals, precious metals and precious stones and diamonds).
We note that, practically, an entity wishing to export doré bars can face difficulties in obtaining an export licence due to the following reasons:
- a quasi-public company-owned gold refinery (TauKen Altyn LLP) was commissioned in December 2014;
- the RoK National Bank has the priority right to buy-out fine gold; and
- the authorities wish the gold refinery to work at full capacity.
In view of the aforesaid, it is expected that subsoil users producing gold will have to conclude agreements with TauKen Altyn LLP in order to refine doré bars.
Moreover, the authorities plan to adopt soon a new law on precious metals and precious stones. According to the draft law, the owner of mineral raw material containing precious metals (e.g. gold) will be obliged to propose to the Kazakh National Bank fine gold refined at foreign gold refining plants. Moreover, a Kazakh subsoil user, before exporting gold from Kazakh to refinery, shall obtain the waiver of local refining plants.
5 Transfer and Encumbrance
5.1 Are there restrictions on the transfer of rights to conduct reconnaissance, exploration and mining?
Please see the requirements for the transfer of exploration and mining rights in our response to question 3.2 above.
Additionally, we note that the Subsoil Law envisages such a notion as the "concentration of rights on conducting subsoil use operations", i.e. the owning of such amount of shares in subsoil use contracts in the territory of Kazakhstan or such amount of participatory shares in charter capital (a number of shares) in Kazakhstani subsoil users by a person or group of persons from one country which can constitute or constitutes a threat to the economic interests of the Republic of Kazakhstan.
If the Competent Authority, when considering an application for the transfer of rights to exploration or mining, decides that the proposed transaction can cause a concentration of rights, it is entitled to refuse Consent.
5.2 Are the rights to conduct reconnaissance, exploration and mining capable of being mortgaged to raise finance?
Yes, the rights to conduct exploration and mining can be pledged provided that a prior relevant Consent in the form of a pledge certificate is issued by the Competent Authority.
Please note that according to Article 36.4 of the Subsoil Law, funds received against a pledge of the subsoil use right must be used only for the purposes of subsoil use or organisation of subsequent processing on the Kazakhstan territory as set out by the subsoil use contract either (i) by the subsoil user itself, or (ii) by its wholly owned subsidiary organisation.
6 Dealing in Rights by Means of Transferring Subdivisions, Ceding Undivided Shares and Mining of Mixed Minerals
6.1 Are rights to conduct reconnaissance, exploration and mining capable of being subdivided?
Yes, according to Article 70-1 (Transformation of Contract Territory) of the Subsoil Law, solid minerals subsoil users carrying out exploration are entitled to transform their contract territory by allocation of a certain land plot. A new exploration contract is concluded for such territory. The term of such contract cannot exceed the term of its "mother" subsoil use contract.
A production contract can also be subdivided in the following two cases:
- According to Article 70-1.8 of the Subsoil Law, a subsoil user that is carrying out production in several fields, which part is entered in the list of high-viscosity, watered, marginal or exhausted fields approved by the RoK Government, is entitled to make a request to the Competent Authority for the conclusion of a separate production contract in respect of such field(s). Such a contract may be concluded for a period lasting to the end of the initial contract.
- Subsoil users that have an exploration contract can apply for the conclusion of a production contract for a field(s) with a commercial discovery as confirmed by the relevant conclusion of the State Reserves Committee (the so-called GKZ). Such practice is followed by the Competent Authority in the oil and gas sphere.
6.2 Are rights to conduct reconnaissance, exploration and mining capable of being held in undivided shares?
Yes, according to Article 29.3 (Subjects of Subsoil Law) of the Subsoil Law, a subsoil use right under a subsoil use contract can be jointly held by several individuals or legal entities, which have joint and several liability for the obligations arising under the contract.
Rights and obligations of the joint holders of subsoil use rights and the procedure for managing the general affairs shall be defined in the contract, as well as in the agreement on joint activities. The participants can choose the operator who would represent them before the Competent Authority.
6.3 Is the holder of a primary mineral entitled to explore or mine for secondary minerals?
Generally, the subsoil use contracts may directly allow subsoil users to mine not only primary minerals, but also "associated minerals" which may be economically recovered along with the primary mineral(s).
Furthermore, according to Article 10.7 of the Subsoil Law, production of "associated minerals" simultaneously with the production of minerals specified by the terms of a subsoil use contract is acknowledged as production within the framework of such contract.
Lastly, please note that, as mentioned above, the Subsoil Law divides the mineral resources into three categories: (i) hydrocarbons (oil and gas); (ii) solid minerals; and (iii) commonly occurring minerals. Accordingly, if the secondary minerals belong to another category, then the conclusion of a separate contract with another Competent Authority is required.
6.4 Is the holder of a right to conduct reconnaissance, exploration and mining entitled to exercise rights also over residue deposits on the land concerned?
The Subsoil Law provides for a notion of "technogenic mineral formations", which are aggregations of mineral formations, rocks, liquids and mixtures bearing useful components that are rejects of mining and enrichment, metallurgical and other types of productions (i.e. tailings).
Technogenic mineral formations originated from mineral raw materials imported into Kazakhstan, as well as stored, after 30 May 1992, which contain minerals, and which a tax on the extraction of said minerals and (or) royalty has been paid, are considered as a subsoil user's property. The subsoil user can own, use and dispose of its mineral raw material at its own discretion.
All other technogenic mineral formations are acknowledged as state property and a separate subsoil use contract shall be concluded with the Competent Authority for carrying out subsoil use operations.
6.5 Are there any special rules relating to offshore exploration and mining?
Offshore exploration and mining in Kazakhstan are understood only as oil and gas operations. There are specific provisions of the Subsoil Law, the Environmental Code and other legislative acts extensively regulating offshore operations. From a practical point of view it is a rather complicated procedure, requiring numerous permits and authorisations.
7 Rights to Use Surface of Land
7.1 What are the rights of the holder of a right to conduct reconnaissance, exploration or mining to use the surface of land?
According to Article 42.1 (Limits of Right to Land Plot) of the Land Code, the right to the land plot, unless otherwise set out by legislative acts, also affects the surface soil layer, closed ponds and plantings within the boundaries of such land plot.
The subsoil use contract only evidences the subsoil user's rights to use the subsoil plot; however, they do not provide for any land use rights, and the latter should be procured separately (see our response to question 9.1 for further details).
7.2 What obligations does the holder of a reconnaissance right, exploration right or mining right have vis-à-vis the landowner or lawful occupier?
The holder of an exploration or mining right shall agree with the landowner or lawful occupier the terms of using the land plot for subsoil use purposes as discussed in our response to question 9.1.
7.3 What rights of expropriation exist?
According to Article 84 (General Provisions and Principles of Expropriation of Land Plot Due to State Needs) of the Land Code, a land plot can be expropriated for State needs (in exceptional cases when there is no other way of satisfying such needs) by an equivalent reimbursement of property either upon consent of the owner or land user or upon a court decision. The discovery and development of a mineral resources field is one of the grounds for expropriation.
Further, according to Article 90 (Limitation of Expropriation of Land Plots of Certain Categories) of the Land Code, expropriation of agricultural land plots is permitted in exceptional cases connected to the discovery of a mineral field under the land plot.
However, in practice, the above provisions do not work due to Article 84.5 of the Land Code (which entered into force in March 2011), whereby expropriation cannot be considered as being for State needs if such expropriation pursues the commercial targets of nongovernmental legal entities and aims to satisfy non-governmental interests.
In view of the above-stated, currently there is no mechanism for the expropriation of land plots. Subsoil users directly depend on the will of owners or land users, and must come to an agreement with them in order to use the land plots, as discussed in our response to question 9.1.
8.1 What environmental authorisations are required in order to conduct reconnaissance, exploration and mining operations?
According to Article 109 (Ecological Grounds for Carrying out Subsoil Use Operations) of the Subsoil Law, ecological grounds for carrying out subsoil use operations are: (1) positive conclusions by (i) State ecological experts, and (ii) (for pilot mining and mining) sanitary-epidemiological experts with regard to project documentation; and (2) the environmental permit (setting out a scope of permitted environmental emissions).
Subsoil users are obliged to submit all (i) preliminary project documentation, and (ii) project documentation for State ecological and (for pilot mining and mining) sanitary-epidemiological examinations. The documents shall include an assessment of the impact of the proposed activity on the environment and contain an "Environmental Protection" section.
8.2 What provisions need to be made for the closure of mines?
According to Article 111 (Liquidation and Conservation of Subsoil Use Objects) of the Subsoil Law, after the termination of subsoil use operations or the depletion of mineral resources, a subsoil user shall immediately proceed to work on the liquidation or conservation of the subsoil use objects (e.g. mines). If an urgent decision on the termination of production is required, the subsoil user must carry out a set of measures for the conservation of production units before their liquidation or conservation.
The liquidation or conservation works are carried out on the basis of a liquidation or conservation plan that has been (i) developed by a licensed project company, (ii) agreed to by authorities in the fields of environmental protection, study and use of subsoil, industrial safety, sanitary-epidemiological service, land resources management, and (iii) approved by the subsoil user. The operation is financed by the liquidation (abandonment) fund of the subsoil user and, if it is not sufficient, at the expense of the subsoil user itself.
The liquidation or conservation of subsoil use objects is considered complete after the signing of the act of acceptance by the commission established by the Competent Authority, which consists of officials in the fields of environmental protection, study and use of subsoil, industrial safety, sanitary-epidemiological service and land resources management, and by the regional local executive body.
8.3 What are the closure obligations of the holder of a reconnaissance right, exploration right or mining right?
See our response to question 8.2 above.
8.4 Are there any zoning requirements applicable?
Yes, such requirements exist with regard to areas of outstanding natural beauty, where:
- exploration is permitted upon permission of the environmental authorities in view of special ecological requirements; and
- production of minerals is permitted in exceptional instances upon a decision by the Kazakhstan Government made upon a presentation by the Geology Committee agreed with by the environmental authorities.
9 Native Title and Land Rights
9.1 Does the holding of native title or other statutory surface use rights have an impact upon reconnaissance, exploration or mining operations?
There is no concept of native title in Kazakh law.
Surface rights (known in Kazakhstan as land use rights) are separate from mining rights. According to Article 68.5 (Execution and Registration of Contract) of the Subsoil Law, execution of a subsoil contract is the ground for the provision of a relevant land plot by the relevant regional akimat, except in cases of the expropriation of a land plot (land use right) for State needs under the Land Code. Provision of land plots under ownership or under the land use right of third parties is made according to the Land Code.
In other words, if the land plot where subsoil use operations will be conducted is in the State's property, the relevant regional akimat provides such land.
According to Article 71.1 (Use of Land Plots for Survey Works) of the Land Code, individuals and entities carrying out geological, geophysical and search works can perform such works without taking away such land plots from their owners or leaseholders. Such provision is normally used for exploration purposes.
In cases referred to in the previous paragraph or if land plots where mining is supposed to be undertaken is owned or leased by a third party (an individual or entity), the subsoil user shall conclude a relevant agreement with such owners/leaseholders. Normally, the subsoil user shall reimburse losses of agricultural activity (due to withdrawal of land plots used for agricultural activities). In certain cases subsoil users are obliged to conclude servitude contracts.
Please see also our response to question 7.3.
We also note that the only constant and free right which individuals and entities have with regard to subsoil use at the land plots owned or leased by them is the mining of commonly occurring minerals for their own needs.
10 Health and Safety
10.1 What legislation governs health and safety in mining?
There are a number of legal acts directly or indirectly governing health and safety in mining.
The regulations set out that each mining company shall have a special person responsible for health and industrial safety. All workers (including workers of contractors, subcontractors) who are directly involved in dangerous fields of work must regularly pass different certifications. The authorised body for industrial safety has approved a lot of requirements which all mining companies must comply with. The major legal acts approved by orders of the Minister of Industrial Safety are:
- General Requirements to Industrial Safety (1 and 2 Parts) approved by the Order dated 29 December 2008 No. 219;
- Requirements to Industrial Safety at Development of Useful Mineral Fields by Open Pit approved by the Order dated 29 December 2008 No. 219;
- Requirements to Industrial Safety at Development of Useful Mineral Fields by Underground Means approved by the Order dated 25 July 2008 No. 132;
- Requirements to Industrial Safety at Explosion Works approved by the Order dated 19 September 2007 No. 141;
- Industry-Wide Requirements to Industrial Safety (Part 3) approved by the Order dated 31 October 2012 No. 484; and
- Requirements to Industrial Safety at Crushing, Sorting and Beneficiation of Minerals and Agglomeration of Ores and Concentrates approved by the Order dated 29 October 2008 No. 189.
10.2 Are there obligations imposed upon owners, employers, managers and employees in relation to health and safety?
Major requirements for owners, employers, managers and employees in relation to health and safety are set out in Article 115 (Ensuring Subsoil Use Conditions Safe for Population and Staff) of the Subsoil Law and include, inter alia: prohibition or immediate termination of works if they are or become dangerous to the life and health of people; admitting to work only those people that have special qualification; procuring special clothes; having available means of individual and collective protection; using equipment and materials that meet safety and sanitary requirements; and constantly monitoring the atmosphere for availability of oxygen and harmful gas and dust, etc.
See also our response to question 10.1 above.
11 Administrative Aspects
11.1 Is there a central titles registration office?
As stated in our response to question 1.2 above, the MID is the Competent Authority for the conclusion and registration of subsoil use contracts for solid minerals. The Competent Authority is responsible for the registration of a subsoil use right, as well as its transfer or pledge.
11.2 Is there a system of appeals against administrative decisions in terms of the relevant mining legislation?
Normally, subsoil users in Kazakhstan appeal against decisions of the State authorities only in cases related to environmental issues, customs and tax charges and termination of subsoil use contracts.
The appeal is made by filing a claim to a State court. There are four stages of court consideration, with the fourth being the Supreme Court of Kazakhstan.
The order of appellation is set out in the Civil Procedural Code.
In some subsoil use contracts there is a direct reference to the fact that any disputes are subject to resolution by foreign arbitration.
12 Constitutional Law
12.1 Is there a constitution which has an impact upon rights to conduct reconnaissance, exploration and mining?
According to the Constitution of the RoK, which is the main law in Kazakhstan, the land and its mineral resources, water, flora and fauna, and other natural resources are owned by the State.
Article 10 of the Subsoil Law states that, according to the RoK Constitution, the subsoil and useful minerals which are in it are under State ownership. State ownership of the subsoil shall be recognised as one of the component bases of the state sovereignty of Kazakhstan. The State shall ensure access to the subsoil on the bases, conditions and within the limits provided for by the Subsoil Law.
12.2 Are there any State investment treaties which are applicable?
Kazakhstan is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and to ICSID. The Kazakhstan Parliament ratified ICSID on 9 July 2004, which entered into force on 6 December 2001, but has yet to ratify the New York Convention, although in practice it is recognised as binding.
Kazakhstan is also a signatory to bilateral investment treaties with more than 40 countries establishing guarantees for the protection of investment activities (see the list at the website of the Ministry of Foreign Affairs – www.mfa.kz). Texts of these treaties can differ in terms of defining an investor, an object of investment, protected rights of an investor, and the procedure of investment protection. However, all of the treaties stipulate the right of an investor to apply for international investment arbitration to protect their rights and investment.
13 Taxes and Royalties
13.1 Are there any special rules applicable to taxation of exploration and mining entities?
In addition to obligations to pay ordinary taxes and fees (e.g., VAT, corporate and individual income taxes, property tax, land tax, fees for exploitation of radiofrequency band, etc.), all exploration and mining entities are subject to taxation under section 11 (Taxation of Subsoil Users) of the Tax Code, comprising Articles 307-354.
Subsoil users shall carry out separate accounting related (i) for subsoil use activities, and (ii) for all other non-subsoil use activities (if any).
Below is the list of specific taxes for subsoil users:
1. Signature bonus
The signature bonus is a one-off payment for the right to carry out activities for subsoil use. The exact amount of the signature bonus is determined at the tendering stage for subsoil use rights or during direct negotiations on the provision of subsoil use rights.
2. Commercial discovery bonus
The commercial discovery bonus is a one-off payment by the subsoil user for each commercial discovery on the contractual territory. The basis of its calculation is the cost of the volume of recoverable mineral reserves approved by the authorised state body. The cost of recoverable reserves is calculated on the exchange price determined at the International (London) Exchange, listed according to the source given by Platts Crude Oil Marketwire. The commercial discovery bonus is paid at the rate of 0.1% of the proven recoverable reserves.
3. Payment to reimburse historical costs
Historical costs are an established payment intended to reimburse the State expenses for exploration and settlement of the contractual territory, incurred before the contract on subsoil use was concluded.
Liability in respect of the payment to reimburse historical costs arises from the date of the signing of a confidentiality agreement between the subsoil user and the Geology Committee.
4. Tax on extraction of minerals (the "TEMR")
TEMR is a type of tax royalty based on the volume of production, and applies to solid minerals, including gold, silver, platinum and other precious metals and gems. The list of rates is set out in Article 339 (Rates of Tax on Extraction of Mineral Resources) of the Tax Code, which consists of 10 categories and 30 subcategories.
5. Excess profits tax (the "EPT")
EPT is calculated on an annual basis. The tax is paid on a sliding scale of rates applied to the part of the net income minus 25% of the deductions (expenses incurred). Net income is allocated on a scale of rates by applying a coefficient to the deductions, as set out by Article 351 of the Tax Code.
13.2 Are there royalties payable to the State over and above any taxes?
Kazakhstan used to have royalties paid by subsoil users. But, as from 1 January 2009 when the Tax Code replaced the previous tax code, royalty payment was accordingly replaced by the TEMR. See more detail in our response to question 13.1 above.
14 Regional and Local Rules and Laws
14.1 Are there any local provincial or municipal laws that need to be taken account of by a mining company over and above National Legislation?
Kazakh legislation is centralised and consists mostly of codes, laws and Governmental Decrees. Local authorities do not have the right to adopt laws.
We shall, however, note the following specific case. According to Article 495.9 (Fee Rates) of the Tax Code, the local representation body (the so-called "maslikhat") is entitled to increase the rates set out by this Article for environmental emissions no more than two times and for pollutions from gas flaring – no more than 20 times.
14.2 Are there any regional rules, protocols, policies or laws relating to several countries in the particular region that need to be taken account of by an exploration or mining company?
No, there are no such rules for exploration or mining companies (solid minerals subsoil users).
The rules referred to in the question apply to oil and gas exploration and production in the territory of the Caspian Sea, which is not the subject of this chapter.
As for customs issues, the customs legislation of the Customs Union (consisting of Russia, the Republic of Belarus and Kazakhstan) prevails over Kazakh customs legislation.
15 Cancellation, Abandonment and Relinquishment
15.1 Are there any provisions in mining laws entitling the holder of a right to abandon it either totally or partially?
Any subsoil user is entitled to (i) return part of its contracting territory, or (ii) demand pre-scheduled termination of the subsoil use contract through court proceedings or under the grounds set out by the subsoil use contract. In both cases, the subsoil user shall preliminarily carry out relevant liquidation or conservation works (see question 8.2 above).
15.2 Are there obligations upon the holder of an exploration right or a mining right to relinquish a part thereof after a certain period of time?
Yes, the majority of exploration contracts set out a subsoil user's obligations to relinquish a certain percentage of contract territory after a certain amount of years of exploration. The relinquishment is made by re-issuance of the geological allotment with exclusion of the relinquished areas from the relevant geological allotment.
15.3 Are there any entitlements in the law for the State to cancel an exploration or mining right on the basis of failure to comply with conditions?
Yes, Article 72 (Termination of Contract's Validity) of the Subsoil Law contains a number of grounds entitling the Competent Authority to unilaterally cancel a subsoil use right in case of violation by a subsoil user's of its obligations. Such grounds, among others, include: a subsoil user's failure to rectify more than two breaches of contractual obligations within the timeline set out by the Competent Authority (for physical obligations – six months, for financial obligations – three months, and one month for other obligations); and transfer of the subsoil use right or the Objects without prior obtainment of the Consent, etc.
Previously published by Global Legal Group
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