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Zh.S.Yelyubayev Ж.С.Елюбаев
Comparative analysis of the legislations on subsoil and subsoil use of Ukraine and the Republic of Kazakhstan (advantages and disadvantages)[1]
After the collapse of the USSR, the newly organized states of the post-Soviet territory including Ukraine and the Republic of Kazakhstan have become the owners of the richest subsoil resources. In the early 1990’s of the past century, Ukraine and Kazakhstan, like all the other former Soviet Republics, have fallen into deepest economic and political crisis. The crisis, especially the economic crisis was overcome as both of the states set a course for diversifying the industry by actively developing the fields of mineral deposits. There were serious reasons to choose this path. For example in Ukraine, there have been found about 20 thousand fields of mineral deposits and 8 thousand of them (97 types of mineral resources) have industrial value and are included into the state balance. Ukraine is among the world’s top of the owners of reserves of iron (about 14% of the worldwide), manganese ore (about 43%) and number of other mineral resources. Ukraine has the strong positions in producing coal, titanium, graphite, kaolin and other mineral resources. Some experts say that the total value of the mineral resources of the subsoil of Ukraine will be worth 30 trillion USD. The data of the Institute of Economy of the national Academy of Science alone shows that back in 2000 the bulk production of the Ukraine’s minerals complex has reached up to 40% of GDP.[2] All these relationships around developing the subsoil are regulated by the Ukraine’s Subsoil Code No. 132/94-ВР adopted on July 27, 1994 (further - the Subsoil Code of Ukraine). It should be noted that back in 2004 the Supreme Rada of Ukraine has been introduced the new code, however the political situation of the recent years has prevented the Government from adopting this important act of the legislation. At the present moment, the Government agencies of Ukraine are drafting the new Code of Subsoil. With regard to the Republic of Kazakhstan, it should be emphasized that its mineral raw material base is truly unique. It constitutes the massive part of the world’s reserves of minerals and has the greatest potential for industrial development. Kazakhstan stands the 7th in the world in terms of oil reserves, 6th in coal deposits, 2nd in uranium reserves, 8th in gold reserves, 2nd in silver reserves, 3rd in brass reserves, 1st in zinc and chrome and the 5th in cobalt. This list can continue and continue as the land of Kazakhstan has almost all of the mineral resources and elements listed in the Mendeleev’s table. Successful subsoil development is facilitated by Kazakhstan’s legal regulations that are based on the existing legislation of subsoil and subsoil use[3]. In virtue of the above, it is important to note that development of rich subsoil asset of both of Ukraine and Kazakhstan is impossible without proper legal regulation of relationships in the field of subsoil use. In this context these states have appropriate acts of legislations; the main one in Ukraine is the Subsoil Code of Ukraine (1994) whereas the main one in Kazakhstan is the Law No. 2828 on Subsoil and Subsoil Use dated January 27, 1996 (further RoK Law on Subsoil)[4]. These legislative acts have enabled to ensure proper order of the relationships in this field of the industry, however the law enforcement practice shows that these legislative acts need further improvement and, therefore, this research will ensure comparative analysis of the legislative acts of the two countries, identify their advantages and disadvantages, identify the ways of improving the efficiency of legal regulation of relationships in the sphere of subsoil use. The Subsoil Code of Ukraine (1994) and the Law of the Republic of Kazakhstan on Subsoil and Subsoil Use (1996) have been adopted several years after the collapse of the Soviet Union as it was necessary to regulate the relationships in the field of subsoil use in new political and economic conditions. These legislative acts have fulfilled the main purpose they were intended for - based on these legislative acts there have been created conditions for development and strengthening of relationships around subsoil development, attracting the largest international energy companies as foreign investors, fostering the economy and solving social issues of the states. At the present moment, Kazakhstan and Ukraine are taking measures to develop and to adopt the new legislative acts which will replace the existing ones. Nevertheless, since the existing legislative acts still regulate the subsoil use relationships we shall analyze their main conditions to identify their advantages and disadvantages. So, what is the subsoil? The Ukrainian Subsoil Code has the following definition for the term subsoil - «part of the earth crust under the surface of the ground and the bed stretching down to the depth at which it is possible to perform geological study and development». (Article 1) Whereas the Kazakhstan’s law defines the subsoil as «part of the earth crust under the topsoil and in case of absence of topsoil then under the surface of the ground and the bed of the sea, lake, river and other pieces of water and stretching down to the depth at which it is possible to perform subsoil use operations taking into account the scientific and technical progress» (Item 6 of the Article 1). According to the earlier existed Code of the Republic of Kazakhstan «regarding subsoil and mineral processing» dated May 30, 1992 the term subsoil was defined as «part of the natural environment which can be used to satisfy the economical and other needs by means of extracting (separating) its component parts or to locate underground facilities, to bury harmful substances and wastes of productions, waste water » (Article 3). The legal analysis of the provisions represent that the definition of the term subsoil in the Ukrainian legislative act is more successful one as it is laconic and meaningful. This definition, in general, is in accordance with the scientific non-legal definition of the term subsoil (etymology of this word), which should be understood as «The place under the surface of the ground, deep under the ground»[5]. In interpreting the term subsoil, the Ukrainian legislators have also successfully used the term «development», and this word covers all types of the main economic activities in the sphere of subsoil use (geological study of the subsoil, exploration and production, construction and operation of underground facilities). The word «development» means «to learn to use something, to make use of something, to acquire something, to include something in the circle of economic activities and etc»[6]. The interpretation of the term subsoil in the Kazakhstan’s legislative act is less successful as its definition is complicated and uses words and terms which require additional explanations. As a result, it is difficult to correctly understand this important provision of the legislation. Apparently, the authors of this legislation tried to tie this term as much as possible to the content of useful activity in the sphere of subsoil development, which I think is very wrong approach. For instance, there was no need to list the types of pieces of water; no need to use the term «subsoil use operations» as this limits the types of useful activities in the subsoil; also, there was no need to use the phrase «taking into account the scientific and technical progress». It is obvious that any anthropogenic activity including the subsoil use operations uses scientific and technical progresses. Simultaneous use of the terms «topsoil» and «the surface of the ground» also raises doubts because these terms require separate interpretation. The law makers should have obviously avoided using these alternatives in identifying the term subsoil. Based upon the existing theoretic evidences and law enforcement practices as far as identifying the term subsoil, I would like to offer my own interpretation of this term. So, for instance through the prism of the legislation on subsoil and subsoil use the correct way of interpretation would be as follows: Subsoil- part of the crust of earth[7], within which we can perform geologic study and development. Such definition of the term «subsoil», which is based on the doctrine of the plant Earth, allows eliminating to the maximum possible extent any arguments in interpreting this term in the legislation of subsoil and subsoil use. The next important provision is identifying the rights for subsoil. According the legislation of the Republic of Kazakhstan subsoil and its mineral resources are the property of the State (Item 1 of the Article 5 of the RoK Subsoil Law), and it flows from the constitutional provision that «subsoil is the property of the State» (Item 3 of the Article 6 of the Constitution of the Republic of Kazakhstan). It is true that the constitutional provision does not directly specify that minerals are also the property of the state. It flows from the meaning of the abovementioned norm of the RoK Law regarding the Subsoil. However according to the Ukrainian legislation the subsoil is the exclusive property of the people of Ukraine. It’s the people of Ukraine who exercise the subsoil property right through the Supreme Rada of Ukraine and through other representative bodies of the State (Article 4 of the Subsoil Code of Ukraine). In my opinion, such position lays foundation for making the subsoil development a socially oriented activity because people have the right to control the activities of subsoil users through the state’s representative bodies and they have the right to receive certain dividends in the form of social welfare, direct financial income and etc. We need to acknowledge that the best conceptual approach is that the legislation should recognize people’s right for the subsoil, rather than the state’s, otherwise the property right of the people is blurred and merely implied. One of the important institutes of the right for subsoil and subsoil use is the issue of providing the subsoil for utilization. The Ukrainian legislation stipulates that the subsoil shall be used by economic entities and citizens provided that they have the special permission (license) to use the subsoil. At the same time, the right to use the subsoil shall be certified by the Act of provision of the mining license (Article 19 of the Subsoil Code of Ukraine). Apparently, this provision is applied only to producing of minerals. Granting rights for other types of subsoil use is somehow different from the above mentioned condition. So, for example if the purpose is to perform geological study including pilot commercial development of mineral deposits of national level then the subsoil shall be provided only upon receipt of the special permission (license) and there is no need to provide the mining license. There is no need to provide the mining license if the subsoil is acquired for the purpose of producing sweet underground water, lignum fossil, for burying operational wastes and other harmful substances and for gathering waste water (Article 21-23 of the Subsoil Code of Ukraine). The exception from this general rule is that foreign legal entities and foreign citizens shall be given the subsoil for using and processing its minerals on the basis of competitive bidding and in accordance with the Agreement (Contract) signed between subsoil user and the authorized state body (Article 68 of the Subsoil Code of Ukraine). Thus, in Ukraine, the local (national) subsoil users shall be given the subsoil for using and studying based on the special permission (license), which is the administrative and permissible way of transferring the subsoil for development, whereas foreigners shall be given the subsoil on the basis of competitive bidding and by signing appropriate agreement (contract). It is unlikely that this kind of mechanism of transferring the subsoil shall be considered reasonable and fair, because it does not give equal conditions for all individual (national and foreign) in the sphere of subsoil use. Transferring the subsoil based on the contract is the most progressive method of fixing the rights of parties around the subsoil use. This method enables to attract a subsoil user with the best investment and the best competence and which can effectively develop the subsoil. Administrative and permissible system however always means dictation by the state body and a civil servant, besides this mechanism gives rise to abuse and corruption. In this context, the legislation of the Republic of Kazakhstan, in my opinion, is more sophisticated in the conditions of marked-driven economy and in the conditions of forming of democratic institutes of power. So according to the RoK Subsoil Law foreign individuals can acquire their right for subsoil development, production and/or for both development and production based on contracts signed as a result of competitive bidding (Article 13, 41-1). Also the following right for subsoil use shall be provided without the competitive bid but based on the contract: construction and (or) operation of underground facilities which are not related to exploration and (or) production; exploration and (or) production of popular minerals for during construction (reconstruction, repairing) of rail and motor ways of general use; exploration and (or) production by national (Kazakhstan) companies. Having said that it is important to note that providing subsoil use rights for Kazakhstan’s companies without conducting competitive bid process is a good thing, because it would be difficult for local companies to compete with the well-known international energy companies (ExxonMobil, Chevron, British Petroleum, Shell, TOTAL and others), working in Kazakhstan in the sphere of subsoil use. Mining and geology licenses that subsoil users have to obtain according to the legislation of the Republic of Kazakhstan are not acts confirming the right of an individual to a certain types of the subsoil use. These documents only establish the subsoil user’s right to perform its operations only within the area of the subsoil which is identified by the mining and geology licenses (Article 13-1 of the RoK Subsoil Law). Whereas in the Ukrainian legislation the subsoil use right is fixed by the mining license, which I think is disputable because mining and geology licenses are to a far greater degree more technical acts rather than regulatory acts. Nevertheless the legal rights and obligations of a subject of legal relations should be stipulated in legal acts (for example in the law or agreement), but not in normative technical acts. As it can be seen from what is written above granting the subsoil use right is also related to the issue of bidding. Kazakhstan’s legislation specifies this process in a very detailed way. Particularly the RoK Subsoil Law has the whole Chapter (4-1) describing the procedure of bidding. Whereas the Ukrainian Code of Subsoil does not have it, and it is good because the relationships in connection to announcing and conducting bids should be regulated by the civil legislation. Kazakhstan’s civilians have numerously expressed their concern by saying that it is wrong that these relationships are regulated by the legislation on subsoil and subsoil use. Unfortunately, this issue is still outstanding and we are not sure that the authorized state bodies and law-makers would ever hear the concern of scientist civilians. The positive thing is that the RoK Subsoil Law has the norm (Article 42) which specifies the types of contracts used in performing subsoil use operations, which are: production sharing contract (agreement); concession contract; compensated service provision contract (service contract). At the same time, depending upon the conditions of specific subsoil use operations and other circumstances it is acceptable to use combined and other types of contracts. This law also specifies that signing, execution or ceasing of contracts shall be in accordance with the RoK Subsoil Law and civil legislation. The last condition is incorrect, because in my opinion these contractual (agreement-based) relationships should be regulated only by the civil legislation. Ukrainian Subsoil Code does not specify types of contracts to be signed with foreign individuals /subsoil users, which is the drawback of the legislation that regulates relationship in this sphere of the economy. It has already been mentioned above that in the Ukrainian legislation they do not sign any contracts with national companies. The most important thing here is the legislative consolidation of the ceasing of subsoil use rights. So the Ukrainian Subsoil Code stipulates that the subsoil use rights shall be ceased : 1) if there is no need to use the subsoil anymore; 2) if the term for subsoil use is expired; 3) if subsoil users finished their activity; 4) if subsoil is used by applying methods and techniques which have negative impacts on the subsoil, and which pollute the environment or harm the people’s health; 5) if subsoil is not used for the intended purpose and if the requirements of the subsoil use permission (license) are not satisfied; 6) if a subsoil user without any good cause has not started using the subsoil within two years, or within 180 calendar days if it is the area of good oil and gas perspectives and oil and gas fields; 7) if the subsoil has been confiscated in accordance with the procedure established by the legislation. At that, the subsoil use right is ceased by the body which has granted the right to use the subsoil in the events specified in the Items 4, 5 and 6 above. The subsoil use right is also ceased through the courts if a subsoil user disagrees with the decision of the authorized body (Article 26 of the Subsoil Code of Ukraine). The RoK Law on the Subsoil does not have a separate institution of ceasing the subsoil use rights. This issue is solved through other legal institutions, particularly, by: annulling the contract; ceasing the contract; unilateral refusal to perform the contract (by the state). I have mentioned above that the issues of signing, executing, changing or ceasing the contract shall be regulated by the civil legislation, therefore the presence of the specified herein legal institutions in the RoK Subsoil Law is a wrong approach to regulating the described relationships. Thereby it would be correct if the Kazakhstan’s subsoil legislation stipulated the bases for ceasing the subsoil use rights, whereas the procedure of ceasing the contract was regulated by the contract itself and (or) by the civil legislation. Another very important issue is the issue of the fee for subsoil use. The Ukrainian legislation consolidates the general condition that the subsoil shall be used on a paying basis. However, there is also an exception. For example the subsoil is free for: landowners and land-users which produce minerals of local significance in an established way for economic and household needs of the property and land provided for them; users of the subsoil performing regional geology and geophysical works, geological surveys, exploratory drilling with sampling, tests aimed at studying the subsoil, searching for and exploration of mineral deposits, as well as other types of subsoil use envisaged by the law. So, according to the Subsoil Code of Ukraine the fee for subsoil use shall be chargeable in the form of (Article 28): 1) subsoil use fees; 2) deductions for exploration works carried out at the cost of the state budget; 3) fee for issuing specialized permissions (licenses); 4) excise duties. At that, the first three types of the fees for subsoil use shall be chargeable on the basis of the procedures established by the Cabinet of Ministers of Ukraine (government acts), and the last type of the subsoil fee shall be chargeable based on the legislative act of Ukraine. Naturally, apart from these fees all the subsoil users pay taxes and other obligatory payments in accordance with the tax legislation. As far as Kazakhstan, it is important to note that subsoil use on a paying basis is one of the main principles of the subsoil and subsoil use legislation (Article 3 of RoK Law on the Subsoil). The types of the fee for subsoil use are stipulated in the RoK Tax Code No. 99-IV dated December 10, 2008. So the Article 307 of the Section 11 of the RoK Tax Code (taxation of subsoil users) specifies that in conducting subsoil use operations[8] within the framework of the subsoil use contract signed as established by the RoK legislation, subsoil users shall pay all the taxes and other obligatory payments to the budget as established by the Code. Apart from that, the Code provides for special fee and taxes for subsoil users, which are: 1. signature bonus which is the nonrecurring fixed fee paid by subsoil user for acquiring the right for subsoil use in the contract area; 2. Commercial discovery bonus, paid by subsoil user for each commercial discovery of minerals in the contract area, if their production is not envisaged; 3. history cost reimbursement fee which is the fixed fee paid by subsoil user to reimburse cumulative costs incurred by the State as a result of conducting geological study and developing infrastructure of the contract area before signing of the contract; 4. Mineral extraction tax paid by subsoil user separately for each produced mineral, oil, underground water and peloid; 5. Excess profit tax paid by subsoil users except those who are parties to Production Sharing Agreements, contracts for producing widely spread minerals, underground water and peloid, as well as those who are parties to contracts for construction and operation of underground facilities not related to exploration and production. All the procedures of calculating and extracting obligatory payments and taxes from subsoil users are also regulated by the tax legislation of Kazakhstan, which I must say is the best practice. In the investigated legislative act, the special place is given to the issue of regulating disputes between subsoil user and the State. The Subsoil Code of Ukraine states that disputes around the subsoil use shall be resolved: by the state geological control bodies, state mining supervision, environment protection, local representative bodies, state court, arbitration court and referees court as established by the legislation of Ukraine. Disputes with other States, with foreign legal entities and individuals shall obligatorily be resolved in accordance with the legislation of Ukraine (Article 64), i.e. this legislation excludes the resolution of disputes as per the applicable law of other countries. I think that the conditions of the RoK Subsoil Law are far more progressive as it facilitates precise and equal rules of game for all players in the sphere of subsoil use and creates more attractive investment climate. So as per the Article 71-2 of the RoK Subsoil Law «disputes around execution and ceasing of the contract shall be resolved by means of negotiations or in accordance with the earlier agreed disputes resolution procedures of the contract», in other words the Kazakhstan’s law does not specify any clear list of bodies dedicated to resolving disputes and does not establish any obligatory procedures. Thus, parties of subsoil use contracts are given the right to freely choose a body which will resolve disputes around the subsoil use. Kazakhstan grants the subsoil use rights for both foreign and national subsoil users based on contracts only, therefore it is up to parties to decide which body they need to use to resolve disputes and neither the state nor the law intervenes. However there is an exception to this rule which states that if disputes around execution and ceasing of contract can not be resolved as per the procedure specified above, then parties may refer a dispute to the Court as per the legislation of the Republic of Kazakhstan or to the International Arbitration in accordance with the legislative act of the Republic of Kazakhstan regarding investments. It is important to note that the specified rules of resolution of disputes around the subsoil use are only related to executing and ceasing of the contract for subsoil use. Other disputes, for instance those initiated by the state controlling bodies concerning reimbursement by subsoil user any damage (harm) that subsoil user caused to the environment, or disputes arising out of the agreements not related to subsoil use operations shall be resolved in accordance with the civil legislation of the Republic of Kazakhstan. In this regard we can talk about the provisions of the legislation of Kazakhstan concerning the guarantee of the rights of the subsoil user, which is the important legal institute regarding subsoil and subsoil use. So in accordance with the Article 71 of the RoK Subsoil Law «the protection of the rights of a subsoil user shall be guaranteed», at that «any change or additions to the legislation which may worsen the conditions of subsoil users shall not be applied by contracts which have been signed before such changes and additions have been implemented». However, this guarantee is not applied to changes made in order to ensure defense capacity, national security, environmental safety and healthcare. The Subsoil Code of Ukraine does not have such provision. Here we have analyzed the most significant provisions of the legislations of subsoil and subsoil use of the Republic of Kazakhstan and Ukraine. During the analysis, we have not touched the issues around law enforcement practices, which show that there are some problems in this sphere of the economy. The purpose of this work was to conduct comparative analysis of the norms of only two legislative acts of Ukraine and Kazakhstan which regulate the relationships in the field of subsoil use, and to identify advantages and disadvantages of their provisions. Currently Kazakhstan and Ukraine are going through the period of forming market relationships and affirming democratic institutes of power. In such conditions, it is very important to learn legal aspects of subsoil use as the economies of both of Ukraine and Kazakhstan are dependant on the resources that these countries enjoy. As it was mentioned above, the natural resources, especially the subsoil resources make the main part of the state budgets and currency earnings of both of the countries. Therefore, basically the future of the Kazakhstan’s and Ukraine’s economies depends on how the relationships in the field of subsoil use satisfy the radical market reforms. Finally it is important to say that reforming the economy on the market basis require developing new mechanisms of regulating relationships in the field of subsoil use and require appropriate legal groundwork, and therefore improving the legislation of subsoil and subsoil use is the major task for governments of both of the countries.
[1] © All the exclusive copyrights are owned by Zh. S. Yelyubaev. [2] Source: www.advis.ru [3] Source: www.gazeta.ru [4] Before adopting this law the Republic of Kazakhstan had the Subsoil and the Minerals Processing Code dated May 30, 1992 [5] See the Big Explanatory Dictionary of the Russian Language, SPb., 1998 [6] See in the same place [7] Crust of earth - upper hard part of lithosphere with the thickness from 5 km (under the ocean) up to 75 km (under the continents). The earth crust is separated from the lower mantle of the Earth by the Mohorovicic discontinuity. Lithosphere - outer sphere of the «hard» Earth (planet), which includes the earth crust and the part of the upper mantle of the Earth (planet). The surface of the Mohorovicic - part of the Earth (planet), located lower than the lower border of the earth crust. See the Soviet Encyclopedic Dictionary, М., 1989. [8] Subsoil use operation - works related to the state geologic study of the subsoil, exploration and production, and also related to exploration and production of underground water, peloid, exploration of subsoil for discharge wastewater as well as construction and operation of underground facilities not related to exploration and (or) production (article 11 of the RoK Law regarding the Subsoil).
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