Constitution: the Embodiment of Human Rights Values, Democracy and Modern State» (organized by the Constitutional Council of the Republic of Kazakhstan, the Ombudsman of the Republic of Kazakhstan and the Venice Commission of the Council of Europe (August 29-30, 2012, Astana-Almaty) (Zhumageldy Sakenovich Yelyubayev Doctor of Law, MCIArb)

Zhumageldy Sakenovich Yelyubayev

Doctor of Law, MCIArb,

Chevron EBU Managing Legal Counsel,

President of the Kazakhstan Petroleum Lawyers Association (KPLA), Associate Professor

Chair of Customs, Financial and Environmental Law of the Al-Farabi Kazakh National University

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Conference «Constitution: the Embodiment of Human Rights Values, Democracy and Modern State» (organized by the Constitutional Council of the Republic of Kazakhstan, the Ombudsman of the Republic of Kazakhstan and the Venice Commission of the Council of Europe
(August 29-30, 2012, Astana-Almaty)
 
Constitutional Framework of Subsoil Management:

Issues and Perspectives[1]

The legal institute of state governance subsoil use and protection is a core subsoil legal institute. Its essence constitutes subsoil state governance, including: the exercise by the state of its subsoil ownership right, state supervision over subsoil protection and monitoring; state control over subsoil survey and use and subsoil operations; subsoil state expertise; the state register of mineral reserves; the state cadastre of mineral deposits and occurrences; the state cadastre of hazardous and radioactive wastes burials, and waste water discharges into subsoil; the state cadastre of man-caused mineral formations.

This presentation addresses only the issues of the exercise by the state of subsoil ownership right, analysis of constitutional rules as a basis for subsoil management, and discusses the existing concerns and identifies available options for improvement of state regulation of relations in this key sphere of the national economy.

Thus pursuant to clause 3 of Article 6 of the Constitution of the Republic of Kazakhstan and Article 193 of the Civil Code of the Republic of Kazakhstan, land and underground resources, waters, flora and fauna, other natural resources shall be owned by the state. Therefore, objectively the right of state ownership of subsoil constitutes a combination of legal rules that regulate the relations of state ownership of the assets and provide the state with an opportunity at its discretion to possess, use and dispose of subsoil. The right of state ownership of subsoil and minerals contained therein is also stipulated by the RoK Law «On Subsoil and Subsoil Use» (Article 10). Thus, the state ownership of subsoil is one of the constituents of the state sovereignty of the Republic of Kazakhstan.

However, regardless of express legal regulation of the right of state ownership of subsoil, there are a lot of disputes on its concept, interpretation and exercise. There exists an opinion that as the state is the key party to the social and economic and management relations and as such has a full scope of public authority, it is assumed that in a civil transaction with the participation of the state where the right to use subsoil blocks is transferred to other persons, the relations are characterized by legal «inequality of the parties».[2]

The above position on the «inequality of the parties» causes doubts as to its indisputability both from the common theory of law and theory of civil law perspectives. This thesis can be supported by the constitutional provision which specifically stipulates that subsoil and other natural resources are the state property. However neither Article 6 of the RoK Constitution nor other constitutional rules contain procedures and rules that regulate the disposal of state property. On the contrary, there are regulations that state and private property are recognized and equally protected in the Republic of Kazakhstan; that property imposes liability, its use should benefit the community; the holder of the right of ownership and the object of the right of ownership, the scope of and limits to the rights, guarantees and their protection are stipulated by the law (parts 1 and 2 of Article 6 of the RoK Constitution). By the essence of these constitutional provisions the study of the role and place of the state in subsoil use contracts is subject to legislative acts that regulate relations arising in connection with possession, use and disposal of property, specifically to the civil law rules.

In this connection there should be noted the fundamental rules determining the right of ownership as the right of its holder, which is recognized and protected by the legislative acts, to possess, use and dispose of the property belonging to him/her. Further the right of disposal constitutes a legally secured capacity to determine the legal fate of property, however the exercise by the owners of their powers should not infringe upon the rights and legal interests of other parties and the state (Article 118 of the Civil Code of the Republic of Kazakhstan).

Thus, the constitutional provisions and civil law rules do not establish specific rules for possession, use and disposal of property. The exercise of the ownership right shall be subject to the general rules stipulated in the Civil Code of the Republic of Kazakhstan. This conclusion gives the ground for an assumption that different approaches to a specific role of the state in contractual relations in the area of subsoil use, which prejudice the equality of the parties to civil relations, are not indisputable. Also, this conclusion can be supported by the works of other participants in this academic discussion, who assume that the state (the Republic and its political subdivisions) should first of all be considered as a party to public relations where it acts as the authority obliging other parties to legal relations to obey the requirements of the government authorities which express political will to the extent of their powers. Moreover the state can on its own behalf enter into civil relations characterized by «mutual independence of the participants, their legal equality and their mutual responsibility for the violation of their civil obligations».[3]

The reference to the legislative rules applicable in the period of contemporary history of Kazakhstan and regulating subsoil use relations, specifically to regulations establishing the procedure for granting subsoil use rights, namely to the former Code of the Republic of Kazakhstan on subsoil and processing of mineral raw materials dated May 30, 1992, makes it clear that subsoil blocks could be granted for use to the entities with foreign participation, foreign entities and individuals on the basis of a contract or concession, i.e. on contractual terms (part 3 of Article 10). Another rule of this Code (Article 14) established that the right of granting subsoil blocks for mining and processing of mineral raw materials or for other purposes is exercised by the Government of the Republic of Kazakhstan or local Soviets of the People’s Deputies by entering into an agreement with a subsoil user. It was a common practice.

The former Law of the Republic of Kazakhstan «On Subsoil and Subsoil Use» of January 27, 1996 and the current law with the similar title dated June 24, 2010 also contain the rules by which granting, transfer or passing of the right to use subsoil are made on the basis of a contract or another civil transaction. In this connection, one of the participants in theoretical discussion of the issue in question, based on the provisions of civil and international law writes that «the state entering into private law relations acts as a typical entity governed by the private law, losing its authoritative functions and the right to judicial immunity».[4]

Sharing this point of view and summarizing the above, it can be noted that the state should participate in all these civil subsoil management transactions equally with other participants in legal relations, as any contracts should be executed and performed subject to the fundamental principles of the civil legislation. This conclusion is based on the assumption that relations with respect to subsoil development are in essence economic commodity-money relations. In addition, civil legislation treats the subsoil use right as a type of property right and refers it to the objects of tenancy (clause 2 of Article 541 of the Civil Code of the Republic of Kazakhstan). It also stipulates that legislative acts can establish specific terms for tenancy of «subsoil blocks and other separate natural objects», including on the basis of concession agreements (clause 4 of Article 541 of the Civil Code of the Republic of Kazakhstan).

However, it should be noted that the current Law of the Republic of Kazakhstan «On Subsoil and Subsoil Use» practically lacks private law principles and does not include these relations in the jurisdiction of the civil law. The law does not contain specific rules which allow applying civil law institutes and categories in the regulation of subsoil use relations. In general, currently subsoil use relations are characterized by the administrative law regulation method. The relations of the state with subsoil users are established on the basis of imperative prohibitions and permits i.e. are of a public nature, regardless that the said law declares protection of the interests of subsoil users, establishing equal conditions for all forms of business.

The existing disagreements with respect to the issue of the role and place of the state in the regulation of subsoil use relations evidence for a necessity to identify the role of the state in the area of economy based on the classical concepts of the constitutional law, civil law and subsoil law. It is assumed that to bring different viewpoints on this issue together the following provisions are to be stipulated by the legislation.

First, based on the right of state ownership the absolute priority in the area of subsoil use is to be given to the state and public interests. However this priority should be based on the legislative acts of Kazakhstan in order to ensure the equilibrium of public law and private law principles. The violation of such equilibrium should be subject to judicial protection.

Secondly, it is necessary to clearly differentiate the competence of the state as a sovereign in public relations and as an independent and equal entity in civil law (private law) relations.

Thirdly, subsoil blocks (deposits) should be granted to subsoil users regardless whether they are national or international only based on open bidding (tender) by execution of a contract (agreement) under the rules of the civil law; moreover, specific terms of bidding, execution and implementation of a contract should be stipulated in a special subsoil act.

Fourthly, the main terms of a subsoil use contract pertaining to the issues of taxes and other obligatory payments should be consistent with the applicable tax legislation. In addition, the imperative (private law) rules stipulating specific types and amounts of taxes and other obligatory payments should automatically be included in a contract.

Fifthly, for the purpose of secured provision of the state interests of Kazakhstan with strategic and deficit subsoil resources which determine national security of the country and ensure its sovereignty (strategic mineral resources, major deposits), it is necessary to allocate separate land plots (used and unused) from the state fund and assign to them the status of strategic assets as well as to determine the national fund of reserve deposits. In this connection it should be noted that currently the Government of the Republic of Kazakhstan has identified a list of strategic subsoil blocks (deposits), however, it contains both major subsoil blocks which have a strategic significance for the national economy and less significant blocks, hence theoretically and practically devaluating this legal act and the initiative of identification of key state-owned assets per se.

Sixthly, the role of the state in geological study of subsoil should be specified, the principles and mechanisms of economic and other stimulation of investment in this type of subsoil use should be determined; the principle of recovery of historical costs of the state for exploration and assessment of mineral deposits should be replaced with the principle of acquisition from the state of geological information required by a subsoil user for each specific subsoil block (deposit). Perhaps the state needs to waiver such obligatory payment as commercial discovery bonus payable by a subsoil user based on the results of exploration and discovery of mineral resources.

Seventhly, the principles of support to and encouragement of innovative technologies which improve the ratio of recovery of minerals and help reduce the loss of minerals in-situ need to be stipulated by the legislation. At the same time scientific criteria for a high level of deep reserve depletion, reserves hard to recover, and uncommon types of minerals are to be introduced, and the principles of economic and other stimulation of its development are to be established.

The proposed institutional changes in the sphere of state governance of subsoil are identified with a combination of interrelated legal, economic, social and other institutes which in essence structure the system of state control. The combination of these institutes constitutes a specific institutional matrix logically summarizing actual relations and institutes engaged in the control over subsoil users’ activities. These are regulatory legal acts, standards, norms and rules, regulations and sanctions, instructions and methods, controlling entities and the objects of control. Multiple year experience in theoretical research and practice of state control and supervision in the area of subsoil use in Kazakhstan show that institutional changes are able to ensure the efficiency of state legal regulation of subsoil use relations. In general, in order to provide for these priorities, the parameters of state legal regulation should meet the requirements of: optimality, accomplishability and controllability. The practice of state legal regulation needs uniform methodological approaches based on express legislative requirements ensuring simultaneous and equal effect of public law and private law rules.[5]

Given the development of market relations in Kazakhstan, the state also needs to use economic stimuli for effective use of subsoil by establishing scientifically based subsoil use payments, provision of benefits and preferences for high-tech and safe methods of subsoil development, maintaining the stability of law and contractual provisions, formation of a uniform law enforcement practice of dispute resolution between the state and subsoil users.

Only such approach would fully ensure the implementation of the constitutional rules pertaining to the right of state ownership of subsoil.