Amendments to Model Hydrocarbon, Uranium and Coal Exploration, Production, and Combined Exploration and Production Contracts

Recently, the Kazakhstan Ministry of Energy proposed to amend Order of the Kazakhstan Minister of Energy No. 260 of 31 March 2015On the Approval of Model Hydrocarbon, Uranium and Coal Exploration, Production, and Combined Exploration and Production Contractsas follows:

-        In the course of exploration operations preference should be given to Kazakhstan labour, except for managers and specialists, provided that the number of Kazakhstan employees is at least fifty per cent of the total number of employees in each respective category, if employed through intra-corporate transfer in compliance with the Kazakhstan employment and migration law, whereas managers employed through intra-corporate transfer are not applied such proportion requirement.

-        The Kazakhstan labour percentage of the total number of engaged labour, including contractors and subcontractors, should be as follows: _______% for managers, ______% for specialists with university and secondary vocational diplomas, and ______% for skilled labour (broken down by year).

This provision does not apply to foreign executives, managers and specialists employed through intra-corporate transfer.

-        In the course of exploration operations goods/works/services must be procured in compliance with the Law subject to which a subsoil user must engage Kazakhstan producers/providers and use Kazakhstan air/railway/water/other means of transport, provided that the procured goods/works/services conform to the technical, price and quality standards of similar goods/works/services produced/provided by non-residents.  The local content of works/services in an exploration contract must be ________% (broken down by year).

-        When a subsoil user fails to meet the aforementioned local content requirements, they shall pay a penalty at the rate of 1% of the outstanding obligations for a reporting period, including the cost of works/services procured by the subsoil user in violation of the contractual and statutory regulations for procurement of such works/services the local content in which does not meet the requirements of Section 7.35 of the contract, less the cost of actually procured works/services of Kazakhstan origin.

-        The performance of a subsoil user’s obligation to finance scientific, research, engineering and/or development works is measured by the actually incurred expenses for such works in connection with the subsoil use contract or other activities aimed at the generation of high value-added products/services and R&D in such domains as environment, HSE and energy conservation in production processes, plus the expenses for scientific research performed by scientific and technical institutions in compliance with the Kazakhstan LawOn Scienceof 18 February 2012 and the elements of industrial and innovation infrastructure in compliance with the KazakhstanEntrepreneurial Codeof 29 October 2015.

Should you have any queries with regard to procurement regulations in mining sector and other aspects of subsoil use in Kazakhstan, please contact our Partner Askhad Koshkarbayev.