New in the RK Law on Subsoil and Subsoil Use (Speech Made by Zh.S. Yelyubayev in the in the meeting of Coordination Council, «KAZENERGY» Kazakhstan Association of Oil/Gas, and Energy Sector Organizations. October 8, 2007)

Speech Made by Zh.S. Yelyubayev (Ж.С.Елюбаев) in the

in the meeting of Coordination Council, "KAZENERGY"

Kazakhstan Association of Oil/Gas, and

Energy Sector Organizations,

(October 8, 2007)

New in the RK Law on Subsoil and Subsoil Use

The discussed issue of the recently adopted modifications of and amendments to the RK Law On Subsoil and Subsoil Use (hereinafter «the Subsoil Law») is vital since it impacts both the subsoil users, and the Government's interests.

The Law's initiators believed and, evidently, still believe that adoption of these legislative amendments will reinforce the country's national and economic security. From my perspective, they are very wrong, since the amendments to, and modifications of the Subsoil Law pose a threat to the very State system objects (i.e. national security, economic security, public security) that they strived to protect. I'll try to justify my position.

When this controversial Law was discussed, its authors and the RK Parliament disregarded important provisions of other RK legislative acts that directly govern the issues of ensuring national and economic security of this country. Thus, Article 28 of the RK Law #233 dated June 26, 1998, On National Security in the Republic of Kazakhstan (hereinafter «the National Security Law») states that provisions of this Law «constitute the foundation for the development and ratification of the legislative and other regulatory acts that govern specific areas and methods of ensuring national security». I can't help thinking that the authors of the law whereby the Subsoil Law has been amended and modified not only failed to take into account the above legal provision, but never opened the National Security Law at all, since the new amendments to, and modifications of the Subsoil Law run contrary to many articles of the special law governing national security.

Clause 1, Section 5, Article 18 of the National Security Law states that the Government Bodies when «ensuring national security» are forbidden «to make any decisions and undertake any actions hindering investment flow into Kazakhstan's economy». Any decision or action that runs contrary to the above provision of the Law shall incur «a liability» of these Bodies and their officers. Can we possibly claim today with any certainty that a rash and unreasonable modification of, and amendment to the Subsoil Law will facilitate a new investment flow to the country, and protect the already made investments? I am absolutely sure that the answer is «no». Subsoil users and investors' negative response to the new law also attests to it. If the Republic of Kazakhstan fails to ensure stability of its investment agreements, or support its first investors, especially the foreign ones who came when the country's economy was in the doldrums, new investments from abroad are unlikely to come, since every investor who looks at investing in a country needs assurance that this country will protect its rights and interests.

The new legislative amendments under discussion grant to the RK Government / the Competent Government Body (the MEMR), in case of «a threat to national security», the right to request modifications of and/or amendments to the subsoil use contracts. If the subsoil user rejects this request, the law makes provisions for a unilateral refusal to perform under the contract (the new wording of Article 45-2 of the Subsoil Law). These provisions are essentially nationalization in disguise.

If we look again at the principal legislative act governing the national security issues referred to earlier, we'll see that the new provisions of the Subsoil Law also contradict to the National Security Law. Thus, Clause 4, Article 9 of the National Security Law states that it is only the RK President, not the RK Government, to say nothing of the Competent Government Body in the subsoil use area, who has the right «to identify a real, potential threat to national security, and take appropriate steps to ensure security of its citizens, the public and the State based on the Security Council's opinion». It follows, therefore, that the new provisions of the Subsoil Law also infringe on the RK President's rights invested with him by the special National Security Law.

The new provisions of the Subsoil Law refer to the «economic interests» whose significant changes caused by «the subsoil operations in the strategically important subsoil areas» may justify a request to modify and amend the subsoil use contract, if they pose «a threat to national security». Hence my question: how shall we interpret the «economic interests» term? Who will determine the status and level of the «economic interests»? Is there a loophole for a biased approach and abuse? It there a possibility that a free interpretation of the term by the Government officials, in the absence of its legal interpretation, will result in harsh treatment of the subsoil users who, for whatever reason, fail to appeal to the officials that influence the resolution of the numerous issues related to the endorsement and approval of the documents needed to exercise the subsoil use right? It is pertinent to note that the National Security Law makes no references to the «economic interests» term.

However, this Law does refer to such terms as «economic security» and «national interests», the latter being construed as «a set of political, economic, social and other needs of the Republic of Kazakhstan whose satisfaction determines the Government's potential to ensure protection of the constitutional rights of individuals and citizens, the Kazakh community's values, the State's basic interests». This statement raises yet another question: Does it mean that «political, economic, social and other needs of the Republic of Kazakhstan» are not provided for in this country, as required by the law?

This does not seem to be the case, since every day we learn from the mass media sources and speeches made by the high-rank officials that Kazakhstan has achieved political and economic stability thanks, to a great extent, to the oil and gas sector progress, and that as a result, we will soon be able to accede to the 50 most developed countries; that all population groups in this country have reliable social protection; that the Government guarantees its citizens' constitutional rights. So what has gone wrong and made the Republic of Kazakhstan take such drastic steps and pass an anti-investment, and anti-market law whose provisions run contrary to the principal law governing the issues of ensuring national economic security?

I presume that the new provisions of the Subsoil Law were initiated by a group of the RK high-rank officials, including MPs of the newly elected RK Parliament who place populism and their political ambitions above the State's «national interests». The law that has been given retroactive force may also serve to resolve the conflicts with specific subsoil users that have become more frequent lately, or to lay down a legal foundation needed to influence the first investors in Kazakhstan.

However, it has occurred to neither the RK Government, nor to Parliament that this method of resoling conflicts with individual subsoil users will bring about major damage to «national interests», and pose «a threat to national security». It will «weaken law and order», and hinder investments, including a foreign investments flow to the Republic of Kazakhstan».

I would like to bring to your attention yet another important provision of the National Security Law (Part 2, Article 18). Thus, when the Government, «for the purposes of protecting the RK national interests, including securing and reinforcing its industrial potential», exercises «its control over the status and use of the Kazakhstan's economic facilities that are either operated, or owned by foreign organizations, or organizations with a foreign participating interest», it should be done on a mandatory basis of «adhering to the guarantees granted to the foreign investors». It is quite obvious that this provision has been violated by the new legislative amendments.

And, last but not least, I would like to point out that a potential «to unilaterally refuse to perform under the contract» for subsoil use by the Competent Government Body, and retroactive force given to the law are not in line with the best lawmaking and legal practices. Actually, it's the worst practice, especially for a country that aspires to accede to the most developed countries boasting a stable political system and progressive market economy, as well as functional democratic institutions. This law has thrown the Republic of Kazakhstan 15 yeas back, i.e. to the time when this country just embarked on the course to the market economy trying to create an attractive investment climate. Thanks to certain «lawmakers' innovations», the country may loose more than it is planning to gain.

At present, there is only one way out of the current situation, i.e. the RK President's veto of the adopted Law on amending and modifying the Subsoil Use, and returning the Law to Parliament. The Law as it stands now will not promote law and order in this country, in the broad meaning of the word. This is why the Coordination Council of «KAZENERGY» Kazakhstan Association of Oil/Gas, and Energy Sector Organizations should make its contribution in the protection of the Association members' interests from this legally unfounded Law.

Kazakhstan Petroleum Lawyers Association («KPLA») that unites the lawyers working in the oil and gas sector of this country, as well as the lawyers who provide legal services in this sector, joins the efforts of the healthy forces in Kazakhstan aimed at ensuring law and order in this important sector of economy. The Government and bureaucrats dictate should play no role in the budget-making sector of the country's economy; the State laws must promote a free market economy and attractive investment climate. Any breaches of the law by subsoil users, investors or other business entities should be addressed in the context of the «right» laws, rather than some dodgy legal improvisations.