Revision of Oil Contracts: Threat or Speculation? (V. Karatitsky, Director of Asia DICSA Lex Analytic juridical firm)

Revision of Oil Contracts: Threat or Speculation?

Some publications appeared in the Kazakhstan mass media in recent times about the possibility of the so called "revision of oil contracts" with certain subsoil users. Moreover, under a term revision it is often meant a literal cancellation of subsoil use contracts. As a rule such publications do not contain concrete facts about the companies with whom Kazakhstan is going to cancel a contract; or these publications are full of hints and various proposals and versions having, like a notion revision, nothing in common either with the law, nor with the specific features of subsoil use operations.

Its curious, however, that some subsoil users became victims of their own violation of glasnost in conducting oil operations. On the contrary, elementary delivery of press-releases to the press and information agencies; holding press conferences to announce an achievement; introduction of measures to protect the environment; or other notifications to the public about fulfillment of the contract obligations often promote better attitude to the companies activities.

A fair subsoil user doing his business not only within his contract territory but within the legal and regulatory framework shall not be afraid of the contracts cancellation. Nor he shall be afraid of government authorities. In case of a strong willingness of some functionaries to check the companys activities contrary to the existing legislation it is necessary to arm with literate and timely application of the Republic of Kazakhstan legislation concerning state service and battle against corruption.

We can suppose that the appearance of rumors about a monster called peresmotr (a term the author met via Internet in one of Web-sites, dealing, among others, with the news on Kazakhstan oil) was based on a number of recent changes in Kazakhstan legislation, which were misinterpreted and misunderstood.

One of the positive changes in Kazakhstans tax legislation is deemed the reduction of VAT from 20 % to 16 % and the reduction of social tax from 26 % to 21 %.

According to the provisions of Article 94-3 and point 4 of Article 179 of the Law "About taxes and other obligatory payments to the budget," the tax regime stipulated by a subsoil use contract is valid till the end of the contracts term except the cases when changes into the contracts tax regime are introduced upon the mutual agreement of the parties and do not entail changes in the ratio between the initial economic interest of Kazakhstan and a subsoil user under the contract.

According to point 2 of Article 94 of the Law, a tax regime stipulated by a contract should correspond to Kazakhstans legislation regulating the payment of taxes and other obligatory payments being in force on the date of signing the contract.