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Legal Reforms in the Kazakhstan Mining Sector

On 17 January 2014, the President of the Republic of Kazakhstan Mr. Nursultan Abishuly Nazarbayev outlined his Programme “Kazakhstan’s Way – 2050: One Goal, One Interest, One Future”. The Programme called for major reforms in various fields and industries, striving for a more efficient and competitive State.

One of the major areas of concern was an insufficient level of foreign investments into the subsoil use sector of Kazakhstan. The Programme is aimed at pointing out the major directions in which the State should embark, and the areas in which it should undertake reforms in the sector, namely to:
- increase the effectiveness of the traditional mining sector,
- adopt new approaches to the management, production and processing of hydrocarbons,
- maximise the export potential of the energy sector,
- make decisions on possible future scenarios for oil and gas production,
- increase the development of rare earth metals,
- enter the world market for geological exploration, and subsequently
- attract investments from foreign mining and exploration companies by simplifying the legislation, procedures and practices.

Therefore, during 2014 a Joint Committee of the relevant Kazakhstan Ministries (the Ministry for Investments and Development, the Ministry of Energy, and others) prepared a draft Concept of a new Subsoil Use Code (the “Concept”). It was planned that the Concept would be approved by the Government of Kazakhstan by mid-2015, and that the draft Subsoil Use Code (the “Code”) itself would then be prepared and referred to the Parliament of Kazakhstan by 2016, so that the Code is in place and takes effect during 2016.

Starting from 2014, the State has already introduced some of the proposed key changes (that could be quickly and easily made) to the existing mining legislation. Accordingly, the existing Law on the Subsoil and Subsoil Use was amended in 2014, with effect from 2015 to implement certain new things and to amend existing definitions, namely (but not limited to): mostly unexplored territories, and subsoil use rights associated therewith; auction procedures; sample exploration contracts; technological mineral formations and strategic resources.

For example, auction regulations were introduced as simplified procedures to enabling the choice of an investor with proposal as to the highest signing bonus, provided that the same met all other auction prequalifying obligations.

Other provisions are designed to simplify the existing procedures and regulations, and to make the applicable definitions clearer.

Further changes, as drafted in the Concept, include, but are not limited to, the following:
- a “First Come, First Served” basis to apply for the right to explore, develop and mine currently vacant and unallocated territory (mostly unexplored);
- guaranteeing the right of investors to be able to carry out subsequent operations, i.e. the actual exploration rights which are to be granted once the preliminary exploration phase is over and, most importantly, the grant of mining and development rights, once the exploration phase is complete;
- economic incentives: land and property tax exemption, the application of international accounting standards for tax purposes, no signing and commercial discovery bonuses, royalty exemptions, etc.
- licensing (as applied to contracts) for most mining operations, with subsoil use contracts only needed for oil and gas operations and strategic resources (a list and details of which are to be expressly specified in the Code);
- third party arbitration agreements;
- open access to all available geological data and information;
- the State will only have pre-emptive rights with respect to strategic resources;
- retention rights for subsoil users, with respect to explored territories;
- prospecting provisions;
- other changes allowing for a simpler, more sound and open procedures and regulations (i.e. new reporting standards based on CRIRSCO, JORC, CNI and other).

As was also mentioned in the Concept, exploration is one of the most important, but still underdeveloped sectors in terms of applicable laws and regulations. Accordingly, the Code is to tackle this problem, and head-on, by pushing forward reforms to subsequently open Kazakhstan’s exploration market to foreign investors. Incentives for them to bring finance and technology would include:
- providing for the right to own geological data and information that they obtain, in the course of their work, and to dispose of it at their will;
- supporting investors at local levels: providing land use rights and delivering all necessary data and information.
In summary and in overview, it can be seen that the key purpose of the reforms is to substantially improve the existing laws and procedures.

The Code is planned to incorporate and to provide for the best world practices in the mining sector. Foreign investors (like Iluka, Rio Tinto and Geotech) have already started joint exploration projects with JSC Kazgeology (the State owned company for exploration projects) to explore some of the processing territories in Kazakhstan for copper, minerals and etc., so that the early signs are promising.
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