New Kazakhstan Legislation on Subsoil Use. Investors’ Well-being (Presentation by Zh.S.Yelyubayev, President of the Kazakhstan Petroleum Law Association, Chevron EBU Managing Counsel at the 3rd Kazakhstan Oil and Gas Week, September 4-5, 2008, Astana)

Presentation by Zh.S.Yelyubayev (Ж.С.Елюбаев)

President of the Kazakhstan Petroleum Law Association,

Chevron EBU Managing Counsel

at the 3rd Kazakhstan Oil and Gas Week,

(September 4-5, 2008, Astana)

New Kazakhstan Legislation on Subsoil Use.
Investors’ Well-being[1]

Dear Participants of the Forum!

Dear Colleagues and Friends!

In my opinion, the subject advanced for your attention, is very actual in terms of protection of the interests of investors operating in the sphere of subsoil use in the Republic of Kazakhstan. I need to make a reservation that relations in this sphere of useful activity are governed by both subsoil legislation and other branches of law. There exists a whole system of statutory acts that directly or indirectly stipulate the rights and legal interests of investors -subsoil users.

It is worth mentioning that after Kazakhstan had acquired sovereignty and independence a number of important legislative acts were adopted to strengthen the political system of the state and to establish a favorable environment for investment and economic development based on market mechanisms.

If you recall 1995, it was a period of parliamentary and governmental crisis when both economy and political future of the country were threatened. At that time, given the importance of developing subsoil use sphere for the country and for the people, N.A. Nazarbaev, President of the Republic of Kazakhstan, subject to exclusive authority granted to him, issued a number of Decrees having the force of laws that became the legal framework for regulating subsoil use relations. These Decrees are: «On Licensing», «On Subsoil and Subsoil Use», «On Oil», «On Taxes and Other Obligatory Payments to the Budget», etc. Further the Decrees were amended and acquired the status of the national laws; a number of other legislative governmental and departmental legal acts were adopted to regulate complex relations in the sphere of subsoil use.

It should be noted that as this sphere of the economy attracted the most significant foreign investments, relations therein are also regulated by legal acts pertaining to the use and protection of investments. I.e. there exists a complex system of legal acts proper application of which determines successful development of the sphere of subsoil use. Hence it is difficult to agree with those who believe that there are no laws in the Republic of Kazakhstan that properly and efficiently regulate the relations in this sphere of economy. The focus of such discussions might be the improvement of legislation, its further systematization and proper application, minimizing the number of government and departmental legal acts that contradict each other and create conflict situations. Here there is a hill of work. Unfortunately, it should be noted that the current practice of law enforcement in the sphere of subsoil use is not duly pursued adversely affecting business entities. The provisions of the laws and other legal acts are applied to a greater extent for the purpose of supporting the dictate of the state regulatory agencies and state officials. Many legal acts are unlawfully applied as a basis for interfering in financial and business activities of the companies operating in the sphere of subsoil use and as a source of illegal replenishment of the state budget and a mechanism of establishing monopoly in some other related spheres of economy.

Tipping the balance of interests of the State and subsoil users-investors was also caused by recent active revision of key legislative acts and numerous amendments to the applicable laws. In my opinion, the law-making process needs to be stabilized; moreover there must be a certain conservative attitude to this issue. The law-making zeal that relates mainly to endless review of effective legal acts is to be stopped. Frequent changes and amendments to laws and other regulatory legal acts render innocuous the essence and the concept laid as a basis thereof. New laws, by-laws and departmental acts, numerous proposals to amend effective legal acts are initiated now by anyone be it monopolies, central ministries and agencies, Akimats of all tiers, deputies, powerful interests and politicians, foreign investors, public associations, mass media, political parties and their leaders. Undoubtedly it is a benefit for the country to have intellectual and competent corps; however the said law-making activity reduces the quality of legal acts and their efficiency in regulating public relations and adversely affect the establishing of lawful, just and objective law-enforcement practice.

Here is a spectacular example: during last several years numerous amendments (9 times) were made to the Laws of the Republic of Kazakhstan «On Subsoil and Subsoil Use» and «On Oil»[2], which did not bring any essential legal novelty, they were aimed at resolving secondary economic and social tasks and secondary administrative issues. Thus, e.g. over a year ago the Law of the Republic of Kazakhstan «On Subsoil and Subsoil Use» was amended three times within three months (on December 29, 2006 and January 9 and 12, 2007). At the same time the said tasks and issues were and are subject to economic market mechanisms by improving contracting practice rather than amending laws.

What are the issues that were attempted to be resolved by amending the above laws? In general, these are the issues - procurement of Kazakhstani goods and services; employment of Kazakhstani personnel; additional requirements to subsoil users that knowingly cannot be fulfilled for objective reasons (e.g. total prohibition to flare gas); the strengthening of the role of state agencies in controlling subsoil users’ activities, endless amendments regarding interpretation (construction) of certain terms and definitions.

Meanwhile, it is my strong belief that subsoil users as well as other business entities would procure and use Kazakhstani goods and services only providing that they are competitive, qualitative and safe and meet other requirements of market economy. Resolving of this issue that is critical for the Kazakhstani economy by virtue of law would not improve the quality of Kazakhstani goods and services. Why does a Kazakhstani producer or services provider need to improve the quality of its products and services rendered if it can be «forced» upon the consumer by law.

However, this key issue can and has to be resolved upon executing a subsoil use contract, when a subsoil user undertakes certain commitments to procure partial goods and services in Kazakhstan by bidding. Such approach would ensure increase of the interest of Kazakhstani producers and services providers in improving the quality of goods and services. This axiom of the market economy always needs to be taken into account.

I would like to discuss some recent changes to the legislation that cause a serious concern of subsoil users and investors.

Thus, in December 2004 there were made changes on the initiative of the state agencies to Article 30-5 of the Law «On Oil» stating total prohibition of gas flaring. This legislative innovation was adopted regardless of the fact that no Kazakhstani enterprise operating in oil and gas sector had a process for utilizing gas without flaring. Hence, with a scratch of the «legislative pen» all oil and gas producing enterprises were placed in an «outlaw» position; it resulted in severe material sanctions amounting to tens of millions of US dollars. The existing technology of oil and gas producing and refining enterprises which is unlikely to be identified as uncommitted cannot be easily changed because these are complex process systems. Their modernization might require many years. This legal provision was in effect for almost 11 months, and during this period enterprises had to make 10-multiple payments because the competent state agencies refused to issue special permits allowing gas flaring under the applicable processes approved by these same state agencies. Finally at the end of 2005 on the initiative of the oil and gas producing enterprises, the Kazakhstan Petroleum Association (KPA), the Kazakhstan Petroleum Law Association (KPLA) and the Government of the Republic of Kazakhstan itself and subject to the current situation, the Parliament adopted an amendment and changed the legislative rule by establishing certain mechanisms for its implementation. Of course, the community is always concerned with an issue of safe environment; however the issue needs to be resolved without prejudicing the rights of subsoil users and other business entities. The national legislative base should promote efficient development of the national economy; the existing concerns are to be addressed and resolved upon thorough consideration and not only by prohibitions. Measures applied by the state agencies should not prejudice the rights of business entities. In resolving this critical issue a balance of interests should always be addressed to.

Let us recall the provisions of Article 45-2 of the Law of the Republic of Kazakhstan «On Subsoil and Subsoil Use» that establish the procedure for amending and terminating a subsoil use contract. Specifically, part 1 of this provision of the Law states: «in case where actions of a subsoil user during subsoil operations in relation to subsoil areas (deposits) having strategic importance result in a material change of the economic interests of the Republic of Kazakhstan, which threaten the national security, the Government of the Republic of Kazakhstan may demand changes and/or additions to the terms of contracts». In addition, the refusal of contractor (subsoil user) to amend the contract is one of the grounds for terminating the contract.

A simple legal analysis of these legal provisions is to answer the following questions: «Who will identify that the actions of a subsoil user caused «a material change of the economic interests of the country?». Further, if anyone happened to identify it, in order to require amending a contract it is obligatory to determine circumstances that caused «a material change of the economic interests of the Republic of Kazakhstan» «threaten the national security», i.e. resulted in a serious adverse effect. The latter term is also of an assessment nature and therefore a subjective approach contradicting the balance of interests of a subsoil user and the State is possible. Liberal interpretation of the said terms by state officials in the absence of legislative construction might cause violence towards subsoil users who are in any way disliked by the state officials on whom there is dependent the resolution of many issues connected with coordination and approval of documents required for the exercise of the tight to use subsoil. It should also be taken into account that this Law having a retroactive force is assigned to resolve current conflicts with specific subsoil users or to establish a legal framework for influencing first investors in Kazakhstan.

In this connection, I would like you to pay attention to one important provision of the Law of the Republic of Kazakhstan «On National Security» of June 26, 1998 No. 233 (part 2, Article 18), where it is stipulated that when the State «for the purpose of protection of the national interests of the Republic of Kazakhstan, including preservation and strengthening the industrial potential» exercises «control over the condition and use of economic facilities of Kazakhstan managed or owned by foreign organizations and organizations with foreign participation», it should do it strictly «complying with guarantees granted to foreign investors». In addition, pursuant to the same Law (clause 1 of part 5 of Article 18), state agencies while «ensuring economic security» are prohibited «to adopt resolutions and to conduct actions preventing the inflow of investments into the economy of Kazakhstan». The adoption of resolutions and conduct of actions in violation of the above provision shall result in the «liability» of these agencies and their officers.

And finally, it should be noted that a possibility of «unilateral waiver of a contract» for subsoil use by the competent state agency, as well as attaching retroactive force thereto is not the best law-making and law-enforcement practice. This practice should be recognized as the worst, given that the country is trying to get a rating of a highly developed country with a stable political system and progressive market economy, as well as really functioning political institutes. This Law caused the Republic of Kazakhstan fall back by 15 years, i.e. to the time when the country was commencing to develop within the market economy and was trying to establish an attractive investment climate. Through the fault of the innovators of the law guild the country might lose more than it is going to gain.

One of the key issues is the «stability of contract provisions». As per subsoil use, in early 1990’s Kazakhstan attracted first significant investments into the sphere of subsoil use in conditions when the practice of regulating relations in the oil and gas sector and the legal basis for developing market economy were not well established and there were no sufficient resources both for developing industry and resolving important social issues. Naturally, in these crisis conditions, foreign investors who came to Kazakhstan with significant investments to develop the oil and gas industry had to maximally protect their interests by signing contracts providing for return of investments and generating certain profit. In such not simple political and economic situation there were signed first investment agreements and first contracts granting subsoil use rights and stipulating all terms and conditions for implementing investment projects and ensuring the balance of interests of both parties.

The Republic of Kazakhstan granted to foreign investors certain tax benefits and preferences, exclusive conditions for export/import and currency transactions, exclusive rules for employing foreign labor, etc. All said rules were fixed in contracts and contracts were generally approved by the resolutions of the Government of the Republic of Kazakhstan or special acts of the President of the country. Such approach allowed Kazakhstan to create a positive and attractive investment regime, which is one of the factors of rapid economic growth and industrial development not only in the oil and gas sector but also in non-oil and -gas sector of economy. The attraction of foreign investments helped resolve serious social issues and establish Kazakhstan as a solid partner in foreign relations.

Currently in the conditions of certain political and economic stability in the country there appeared many critics of the first investment agreements and subsoil use contracts who believe that Kazakhstan placed itself in unfavorable conditions in the relations with foreign investors and now it is time to revise the executed contracts to ensure the interests of the country and the Kazakhstani community. As a man if law I cannot support such proposals for the following reasons.

First, during the time of execution of the first investment agreements and subsoil use contracts a number of important legislative and other acts effective in Kazakhstan allowed the Government of the Republic of Kazakhstan and national business entities attract foreign investments and grant certain benefits and preferences. For example Article 3 of the Law of the Kazakh SSR «On Foreign Investments in the Kazakh SSR» of December 7, 1990 (repealed) stated that «the subject of foreign investments in the territory of the Kazakh SSR can be enterprises, interests in the property of the Soviet legal entities, shares and other securities, other property and acquired property rights to use natural resources in the Kazakh SSR for the purpose of conducting business and other activities in the territory of the Kazakh SSR».

Article 9 of the above Law stated that «foreign investment is allowed in any sphere of business and other activities except for production of direct military application». Legal entities with foreign participation were granted the right independently resolve issues related to the terms of employment, dismissal, working conditions and granting benefits, guarantees and compensations to all employees of an enterprise (Article 12 of the said Law). Property imported into Kazakhstan as investments of foreign investors other than for sale was not subject to customs duties (Article 16 of the said Law).

Pursuant to Article 20 of the above Law of the Kazakh SSR, foreign investors were granted together with benefits stipulated by the then tax legislation additional tax benefits, for example:

Ø If the interest of a foreign investor in the project exceeded 30% and if joint ventures with foreign investors engage in the production of certain types of products and services listed in the attachment to the said Law, they are exempted from profit tax for a period of 5 years after first announcement of profit and they paid profit tax at the rate reduced by 50% within the subsequent 5 years;

Ø Sponsorship costs were excluded from taxable profit.

The Republic of Kazakhstan guaranteed to the foreign investors the right to free overseas transfer of income from the activities and liquidation of legal entities with foreign participation as well as from sale of their interests in the said entities (Article 26 of the said Law).

Secondly, the then Code of the Republic of Kazakhstan «On Subsoil and Processing of Mineral Raw Materials» of May 30, 1992 No. 1367а-XII (repealed) stipulated an option of granting subsoil for the use of enterprises with foreign participation and foreign legal entities and citizens on contract or concession terms[3] (Article 10). In addition, subsoil was granted to the said entities under subsoil use contracts, in particular stipulating: terms and conditions of subsoil use; environmental requirements; annual quotes for useful minerals; terms of payment and amounts of royalty for subsoil use; environmental measures; special requirements to the applied technology; benefits granted (Article 14 of the Code), etc.

Thirdly, at that time there were in effect other regulatory legal acts allowing the State to transfer to foreign investors subsoil and land plots for use, e.g. the Land Code of the Kazakh SSR of November 16, 1990; the Provision «On the Procedure for Granting Land for Use by Joint Ventures, International Associations and Organizations, Foreign Legal Entities and Citizens to Conduct Activities in the Territory of the Republic of Kazakhstan» approved by the Resolution of the Government of the Republic of Kazakhstan of July 3, 1992 No. 1516-XII (repealed); the Provision «On the Procedure for Realization (Transfer, Sharing and Sale) of Information on the Subsoil of the Republic of Kazakhstan» approved by the Resolution of the Government of the Republic of Kazakhstan of December 8, 1992 No. 1034 (repealed), etc.

Thus, arguments of the «contemporary critics» on the invalidity of the actions of the Government of the Republic of Kazakhstan in respect to the transfer of subsoil to foreign investors and foreign legal entities allegedly without account of the national interests and in violation of the applicable law, as well as their initiatives to revise certain benefits and preferences granted to subsoil users are ungrounded and unrelated to the actual economic situation in the early 1990’s, when foreign investors were involved in the process of the economic growth of the country and its transition to the market basis. On the contrary, the current success of the country confirms the appropriateness of the acts of the President and the Government of the Republic of Kazakhstan, and current legislative provisions guarantee the stability of the executed contracts and strict rules and guidelines for amending such contracts.

The provisions of the contracts executed at that time are to be retained; at least they cannot be changed unilaterally on the initiative of the State or national companies as it would contradict the provisions of the current legal acts. Article 383 of the Civil Code of the Republic of Kazakhstan stipulates that «An agreement should comply with the obligatory rules for the parties, which have been established by legislation (imperative norms), which are valid at the moment it is concluded. If, after an agreement has been concluded, legislation establishes obligatory rules for the parties other than those which were valid upon the conclusion of the agreement, the conditions of the concluded agreement shall retain their force, apart from those cases when legislation has established that its validity shall be extended to relations arising from previously concluded agreements».

It is stated in part 3 of Article 4 of the Law of the Republic of Kazakhstan «On Investments» of January 8, 2003 No. 373 that «the Republic of Kazakhstan guarantees the stability of the terms of agreements executed between investors and state agencies of the Republic of Kazakhstan, except for cases where an agreement is amended by agreement of the parties». There are two exceptions when these guarantees do not apply to: «amendments to the legislation of the Republic of Kazakhstan and/or entry into force and/or amendments to international agreements of the Republic of Kazakhstan whereby the procedure and terms of import, production and sale of excised goods are changed»; as well as to «amendments to the legislative acts of the Republic of Kazakhstan to ensure national security and environmental safety[4], public health and ethic conduct».

Pursuant to the provisions stipulated in Article 71 of the Law «On Subsoil and Subsoil Use» «Subsoil users shall be guaranteed the protection of their rights in accordance with legislation. Amendments and additions to legislation, which deteriorate the position of subsoil users, shall not apply to the contracts concluded prior to the introduction of such amendments». These guarantees «shall not apply to changes in the legislation of the Republic of Kazakhstan concerning providing for the defense capacity, national security, environmental safety and health protection». A similar provision is contained in Article 57 of the Law of the Republic of Kazakhstan «On Oil» of June 28, 1995 No. 2350. The issues of stability of the agreements are regulated by the Law of the Republic of Kazakhstan «On Production Sharing Agreements (Contracts) in Offshore Oil Operations» of July 8, 2005 No. 68.

Thus, the applicable legislation of the Republic of Kazakhstan stipulates a general rule on the stability of executed investment agreements and subsoil use contracts, and the State guarantees their stability. The existing exceptions to the general rule are not subject to wide interpretation and relate, first and foremost, to the issues of ensuring national security, environmental safety, health protection and ethic conduct, as well as to the issues of excised goods turnover. Given this, the attitudes existing in the community and statements of individual politicians on the necessity to revise previously executed investment agreements and subsoil use contracts contradict the provisions of the effective law and defame the positive investment image of the Republic of Kazakhstan.

As you know, subsoil users-investors’ reaction to the introduction by the Resolution of the Government of April 8, 2008 No. 328 of customs rates on crude exported from the territory of the Republic of Kazakhstan was very negative. Although the said legal act states that the crude export customs rates «shall not apply to the export of crude produced by subsoil users under subsoil use contracts that stipulate exemption from crude customs duties», however, I am aware that currently two subsoil users who has such «exemption» are compelled to make such payments as required by the Ministry of Finance and the customs authorities.

Why have the subsoil users-investors responded negatively to such legislative innovation? I will try to explain my position on this issue without claiming it to be ultimate truth.

Thus, pursuant to Article 516 of the Code of the Republic of Kazakhstan «On Taxes and Obligatory Payments» of June 12, 2001 (hereinafter referred to as the Tax Code of the Republic of Kazakhstan), customs duty is one of types of customs payments referred to a category of «other obligatory payments to the budget» stipulated in Section 16 of the Tax Code of the Republic of Kazakhstan.

 The official interpretation of the notion of customs duty is contained in sub-clause 32 of clause 1 of Article 7 of the Customs Code of the Republic of Kazakhstan of April 5, 2003 No. 401, it is understood as «a type of customs payment levied by the customs authorities of the Republic of Kazakhstan at the time when the goods are imported to the customs territory of the Republic of Kazakhstan or when the goods are exported from the said territory, and which is an integral term of such importation or exportation».

 The rates of customs payments are established by the Government of the Republic of Kazakhstan (see clause 3 of Article 515 of the Tax Code of the Republic of Kazakhstan and clause 2 of Article 292 of the Customs Code of the Republic of Kazakhstan). Payment of such customs payments including customs duty is made, in particular, when the goods are exported (see Article 207 of the Customs Code of the Republic of Kazakhstan).

 The provisions of the above legislative acts allow concluding that crude «export customs duty» introduced by the governmental act is deemed to be one of the types of customs payments and relate to a category of «other obligatory payments» stipulated in section 16 of the Tax Code of the Republic of Kazakhstan. For this reason, «export customs duty» so introduced is to be considered as a new type of liability stipulated both by tax and customs legislations. Given that a number of subsoil use contracts and investment agreements executed in early 1990’s contain a provision of the commitment of subsoil users-investors to pay applicable taxes and obligatory payments, therefore the new type of obligatory payment in the form of crude «export customs duty» cannot apply to them. Such conclusion does not contradict the provision contained in clause 3-1 of the Resolution of the Government of the Republic of Kazakhstan of October 15, 2005 No. 1036 ‘On Collecting Customs Duties on Crude Oil and Oil Products Exported from the Customs Territory of the Republic of Kazakhstan».

 As per future legislative acts regulating relations in the sphere of subsoil use, it is known that currently the Government of the Republic of Kazakhstan is initiating the adoption of a new Law «On Subsoil and Subsoil Use» and a new Tax Code, where I do not see new clauses ensuring the balance of interests of all participants in the useful activities in the sphere of subsoil use. However, in the current situation of a relative political and economic stability in the country, it is probably reasonable that the state finding new approaches to protecting its interests in the sphere of subsoil use and investment activities, however, these approaches should not prejudice the stability of previously concluded subsoil use contracts and investment agreements.

For example, the Draft Law of the Republic of Kazakhstan «On Subsoil and Subsoil Use», whatever advantages, unfortunately, does not make any conceptual changes, in general it reproduces the provisions of the applicable subsoil use legislation. There is nothing specific and progressive therein, as it stipulates the authority of the state and is not socially focused. Subsoil is to be developed in compliance with the balance of interests of all participants of legal relations because such type of useful activity requires significant capitals, i.e. investments. Its anti-market provisions discourage investors because none of investors will investment money if there is a risk of losing them.

I will demonstrate two provisions to substantiate my arguments. For example clause 14 of Article 1 of the Draft Law allows revising previously concluded contracts; it contradicts the fundamental principles of the civil law. There is one way out of this situation: upon execution of subsoil use contracts and investment agreements the competent state agency and/or the government should not allow «concentrating the right to conduct subsoil use operations» with one group of persons or countries.

The provision contained in clause 21 of article 1 of the Draft Law initially violates the interest of the other participants in a consortium because there should not be a dominating authority of one of the participants; it prejudices the interests of the state and the other participants.

In my opinion, Article 3 of the Draft Law needs to specify one of the priority principles - «the principle of social direction of subsoil use activities», because the state and subsoil users should share excessive profits gained from subsoil development with the people in any form. According to the Constitution the subsoil belongs to the state while the state is not only the «national stock» but also people that need material benefits.

Thus, the new Draft Law is based on the concept of the applicable law, and it is a wrong approach. In my opinion, there needs to be developed the Code of the Republic of Kazakhstan «On Subsoil and Subsoil Use» stipulating only fundamental principles and social direction of subsoil use; all other issues, in particular: granting the right to develop subsoil, execution, amending and termination of contracts; liabilities of the parties under a contract; special conditions of a contract and other key issues should be regulated by the civil legislation which is the most stable branch of the law.

As per the new Draft Tax Code, I would like to tell that its provisions is a step forward, however, it contains provisions that are anti-market and anti-investment. Thus, clause 2 of Article 307 of the Draft Tax Code (as of August 1, 2008) states that «the tax regime stipulated in a production sharing agreement (contract) executed between the Government of the Republic of Kazakhstan or the competent authority and a subsoil user before January 1, 2009 and subjected to obligatory tax audit, as well as the tax regime of a subsoil use contract approved by the legislative act of the Republic of Kazakhstan shall be retained and shall apply exclusively to the parties to an agreement (contract) within its entire effective term, and shall not apply to the persons who are not the parties to an agreement (contract), and may be changed by mutual agreement of the parties». At the first glance, it is an excellent provision to ensure the stability of tax benefits and preferences granted to a subsoil user, however, the conditions in which it is applied excludes its merits. Why have I arrived at such conclusion?

The analysis of this Article shows that in order to ensure the stability of tax regime under «old» production sharing agreements (PSA), such PSA passed an «obligatory tax audit», and other subsoil use contracts were approved by the «legislative acts of the Republic of Kazakhstan». In this connection it should be noted that at the time of concluding subsoil use contracts of any type, for example in 1993-1995 there was no legislative requirement to conduct an «obligatory tax audit» (see Article 14 of the Code on Subsoil and Processing of Mineral Raw Materials of May 30, 1992) or their «approval by the legislative acts of the Republic of Kazakhstan[5]«. In such situation where can the subsoil users-investors who concluded their subsoil use contracts in the early 1990’s obtain a document confirming that an «obligatory tax audit» was conducted or a «legislative act» by which such contract was approved. Thus, having considered the above provision for the new Draft Tax Code, the state would require that subsoil users who have «old» subsoil use contracts submit the documents that do not and could not exist. In case of failure to confirm such legally significant facts, the tax authorities would automatically apply thereto the new tax regime, which is a gross violation of the principle of equity in contractual relations, especially in the sphere of investment activity.

There are numerous other examples of imperfection of the current legislation of the Republic of Kazakhstan or drafted legal acts. The main point is how to improve the investment attractiveness of the oil and gas sector in the background of more restricted conditions of the activities of subsoil users-investors. I believe the ways how to resolve this issue are as follows:

1.     at the government level to reach a continuity of the decisions adopted in respect to investment agreements and subsoil use contracts to ensure the stability of contract provisions, an attractive investment climate and the reputation of Kazakhstan as a reliable partner in the international economic relations.

2.     to respect and follow the generally accepted principles of the international law, in particular the principles of pacta sunt servanda.

3.     to comply with the requirements of the national legislation that «the effect of a regulatory legal act does not apply to the relations arising prior to putting it into effect» (clause 2 of Article 37 of the Law of the Republic of Kazakhstan «On Regulatory Legal Acts»).

4.     to ensure the stability of the effect of the legislative acts and their compliance with the provisions of the international legal adhered by the Republic of Kazakhstan.

5.     to ensure a proper pace of well-thought and simply conservative law-making process.

6.     it is necessary to ensure a valid stable, objective and fair law-enforcement practice excluding its politicization and commercialization.

7.     to ensure direct effect of the international acts in law-enforcement practice related to the issues of subsoil use and investments in the Republic of Kazakhstan.

8.     to ensure direct effect of the laws of the Republic of Kazakhstan in the cases where by-laws contradict the provisions of the legislative acts.

9.     to exclude at the legislative level a combined authority of different state agencies, in particular between the authorized agencies for subsoil use and protection, the authorized agencies for environmental protection, the tax authorities and other agencies.

The solutions to this and other issues in the oil and gas sector and in the sphere of investment activities will allow the Republic of Kazakhstan to ensure proper legal order in the said spheres of useful activities in the broad meaning of this word and implement the principle of partnership of the state, business and the civil society.