Zh.S.Yelyubayev Ж.С.Елюбаев
«Tengizchevroil» Joint Venture Practice of Developing Mandatory Regulatory-Statutory and Standard-Technical Documents1
Tengizchevroil Joint Venture (hereinafter referred to as TCO) is a result of the first large investment project realized by the Republic of Kazakhstan jointly with famous world companies operating in the sphere of subsoil use. The official date of birth of the enterprise is 6 April 1993. By its organizational and legal form the company is a limited liability partnership. The first founders of TCO were «Tengizneftegaz» Production Association (hereinafter - Tengizneftegaz) and «Chevron Overseas Company» (hereinafter - Chevron). At present, participatory shares TCO are distributed between four business entities: KazMunaiGaz National Company (hereinafter - KMG), «Chevron Overseas Company», «ExxonMobil Kazakhstan Ventures Inc.» Corporation (hereinafter - ExxonMobil) and «LUKARKO B.V.» Company (hereinafter -LUKARKO). TCO as an oil company was formed in the period of validity of such important basic legal (now invalid) acts of the Republic of Kazakhstan as the Civil Code of the Kazakh SSR dated 28 December 1963; the Land Code of the Kazakh SSR dated 16 November 1990; the Law of the Kazakh SSR «On Foreign Investments» dated 7 December 1990; the Law of the Kazakh SSR «On Freedom of Activities and Development of Enterprise» dated 11 December 1990; the Law of the Kazakh SSR «On Development of Competition and Restriction of Monopoly Activities» dated 11 June 1991; the Law of the Kazakh SSR «On Business Partnerships and Joint-stock Companies» dated 21 June 1991; the Code of the Republic of Kazakhstan «On Subsoil and Processing of Minerals» dated 30 May 1992 (#1367a-XII); the Law of the Republic of Kazakhstan «On Protection and Support of Private Business» dated 4 July 1992 etc. One cannot but mention also such legal (now invalid) acts approved by the Government of the Republic of Kazakhstan as the «Regulations on the Procedure for Submitting Land for Use by Joint Ventures, International Associations and Organizations, Foreign Legal Entities and Citizens for Operation on the Territory of the Republic of Kazakhstan» («1516-XII, dated 3 July 1992); «Regulations on State Control over Subsoil Protection and Use» (#811, dated 29 September 1992); «Regulations on Procedure of Realization (Transfer, Exchange, Sale) of Information about Subsoil of the Republic of Kazakhstan (#1034, dated 8 December 1992). These were legal acts that allowed already two years after the collapse of the USSR and proclamation by Kazakhstan of its independence and sovereignty to sign the most important for the country’s economy investment agreements and subsoil use contracts with famous transnational corporations operating in the oil and gas sphere, «Chevron» corporation being one of them. Proceeding from provisions of the said legal acts, the Republic of Kazakhstan, as a subject of civil law relations, became the initiator of signing a whole package of acts and _______________________ [1] © All exclusive author’s rights to this article belong to Zh.S.Yelyubayev. Documents on Tengiz project (hereinafter - Major documents on Tengiz project), the most important of which are as follows: «Project Agreement» having the status of an investment agreement; «Production License» being a Production Contract; «License Agreement» and «Exploration Agreement» having the status of an «Exploration Agreement», and a number of other important documents. The signed documents corresponded to provisions of the Republic of Kazakhstan legislation effective at that time, as well as to requirements of the international practice of concluding investment agreements and contracts for subsoil use. The whole package of Tengiz project Major documents was approved by a special Resolution #260 of the Republic of Kazakhstan Government dated 5 April 1993, and endorsed (concurred) by a special Presidential Decree #1168 of the Republic of Kazakhstan dated 6 April 1993. Thus, the Tengiz project Major documents were given a legal status obligating all participants in this agreement in the wide sense of this word to comply with its provisions. Тhe Republic of Kazakhstan encouraging this investment project granted TCO, as a subsoil user, certain preferences and benefits. And that decision of the state was in compliance with provisions of the national legislation effective on the period of concluding, signing and approving of Tengiz project Major documents, particularly, with Article 14.3.9 of the Code «On Subsoil and Processing of Minerals» dated 30 May 1992; Article 16 and provisions in Sections 3 and 4 of the Kazakh SSR Law «On Foreign Investments in the Kazakh SSR» dated 7 December 1990. The possibility of granting benefits and preferences to investors, including those operating in the sphere of subsoil use, is envisaged by provisions of statutory and regulatory acts effective also at present (part 2-1 of Article 42 of the ROK Law «On Subsoil and Subsoil Use» dated 27 January 1996; parts 5 and 6 of Article 26 of the ROK Law «On Oil» dated 28 June 1995) where it is said that the terms and conditions of a subsoil use contract shall be determined by mutual consent of the parties. In the meantime, TCO Major documents, in particular, the «Production License» in the «License Agreement» granting TCO the right to Exploration of subsoil, have a provision stipulating that «appropriate rights and obligations» arising from the said documents, as well as their «interpretation and implementation shall be regulated by laws of the Republic of Kazakhstan provided that parties’ intents shall be taken into account to a maximum possible degree allowed by these laws». Besides, according to obligations arising from the «Project Agreement» «the Republic of Kazakhstan on its own behalf and on behalf of all state and regional agencies, ministries and committees» declared that the state «acknowledges and agrees» that immediately after the said agreement takes force TCO «shall receive the right to start its operations, possess and dispose of its assets, occupy land on which they may be located, conduct its business and employment of personnel in accordance with the terms and conditions reached» in Tengiz project Major documents «without any requests in relation to obtaining for these purposes any additional approvals, permits or licenses, and without the need to carry out any expert examination, provided TCO after that should maintain communication and cooperate with appropriate state and regional agencies, ministries and committees of the Republic of Kazakhstan in order to ensure observance of official procedures required pursuant to Kazakhstan laws in connection with operations and business» performed by TCO. At the same time, the Republic of Kazakhstan guaranteed that «no other official procedures can supplement or exclude or otherwise change the essential provisions» of Tengiz project Major documents. So, on the one hand, the Republic of Kazakhstan granted and guaranteed TCO certain rights on an unhindered start of its activities on oil production and subsoil exploration, and on the other, it obligated TCO to comply with the existing procedures and rules for subsoil user stipulated by the national legislation. Therefore, TCO after starting its business immediately began to develop, concur and approve regulatory-statutory and standard-technical documents needed for a subsoil user to exercise its right to subsoil use, land use and nature use. This road proved to be complicated for the company; there were many problems, difficulties and conflicts with government competent agencies, design institutions and consultants. Nonetheless, after several years of laborious work of specialists from many TCO units, our contractors developing standard-technical and other documents for the company, certain methodological and organizational assistance of state bodies, at present, we have practically all necessary legal acts and standard-technical documents enabling us to freely develop Tengiz and Korolev oil fields, and conduct exploration work. In the meantime, addressing TCO experience on developing mandatory regulatory- statutory and standard-technical documents, one should come back to 1993 and to Tengiz project Major documents in order not to create an impression that the company started developing oil fields in the absence of mandatory documents. So, in signing Tengiz project Major documents the contracting parties, including the Republic of Kazakhstan, agreed and the Partnership (TCO) participants approved the «Project of Developing Tengiz Field» (also named as the «Preliminary Working Program for Three Years and Budget») prepared by specialists of the Republic of Kazakhstan and Chevron corporation in January 1993. In March of the same year (before signing Tengiz project Major documents) it was amended. The said document was given the status of a Schedule to TCO «Formation Agreement» (founding agreement). Moreover, the parties to the agreement and the competent governmental agency in the field of subsoil use attached as schedules to Production License and License Agreement (Exploration Contract) appropriate maps with license area borders indicating the area and specific and exact geographical coordinates within which the territory for Production and Exploration was determined. The founders also handed over to TCI as assets the following: the existing feasibility study of Tengiz and Korolev fields; the project of Tengiz field facilities construction in the period of its pilot development; technical and economic calculations of production facilities construction; various reports on studies of the fields and adjacent territories, including the Caspian sea zones; technical assessment and reports pertaining to the existing and assumed production facilities; production and observation wells, production facilities, infrastructure facilities and necessary land plots. A bonus project for Atyrau Oblast in the amount of $50 million was successfully realized during the first years of TCO work. Thus, TCO by the moment of its formation already had a part of mandatory regulatory- statutory and standard-technical documents and projects that made it possible to start developing Tengiz field, production of oil and other associated products (gas, sulfur), conduct exploration of subsoil and begin marketing its products both in the external and internal markets. In the subsequent years, TCO efforts were aimed at developing and approving other necessary acts and documents with competent government agencies. All this was happening under conditions of expedited perfection of regulatory-statutory base of the Republic of Kazakhstan as old legal acts oriented at regulating economic relations of the Soviet planned system did not already correspond to requirements of a market economy, particularly, to new relations emerging between the state and foreign investors. By that time, the Supreme Soviet (Parliament) of the Republic of Kazakhstan passed a very important Law «On Foreign Investments» dated 27 December 1994 (now invalid) that started direct regulation of relations in the sphere of foreign investments use. In 1995, the period of a parliamentary crisis in the country, Presidential Decrees of the Republic of Kazakhstan having the force of law were passed and became a legal basis for new economic relations, particularly, in the sphere of subsoil use. These are: Decree #2350 «On Oil» dated 28 June 1995; Decree #2828 «On Subsoil and Subsoil Use» dated 27 January 1996; Decree «On State Registration of Legal Entities» dated 17 April 1995; Decree #2200 «On Licensing»; Decree #2727 «On State Registration of Immovables and Transactions with them» dated 25 December 1995; Decree «On Business Partnerships» dated 2 May 1995; «On Insurance» dated 3 October 1995; «On Land» dated 22 December 1995; «On Taxes and Other Mandatory Payments to the Budget» dated 14 April 1995. A number of legal acts directly regulating subsoil use issues were adopted, e.g. «Uniform Rules for Developing Oil and Gas Fields of the Republic of Kazakhstan» (hereinafter - Uniform Rules) approved by the Government Resolution #745 dated 18 June 1996; «Uniform Rules for Protection of Subsoil in Developing Mineral Deposits in the Republic of Kazakhstan» (hereinafter - URSP) approved by the Republic of Kazakhstan Government Resolution #1019 dated 21 July 1999. A Model contract for conducting operations on subsoil use was approved (please see ROK Government Resolution #108 dated 27 January 1997, now invalid). It is appropriate to remember here requirements of the «Uniform Rules» that envisage a list of mandatory regulatory-statutory and standard-technical documents that a subsoil user should have at each stage of exercising its right to subsoil use. For example, pursuant to Item 1.2.1 of the «Uniform Rules» the stage of preparing a field to development envisages mandatory availability of a license (contract). The procedure of introduction of a hydrocarbon deposit into industrial development stipulates for mandatory availability of the following: a license (contract); Mining allotment; documents on allotment of land plots; technological design documents (technological scheme, development project); design estimates for field facilities construction; reports on a conducted expert examination of reserves of oil, gas and other associated hydrocarbon components; positive expert opinions from environmental protection competent bodies, as well as from agencies supervising safe conduct of work in the industry and mining (Item 1.4 of the «Uniform Rules»). On the basis of the aforecited legislative and other legal acts and in the performance of its obligations arising from Tengiz project Major documents TCO started processing necessary documents and performing other mandatory actions. In particular, several months before the ROK President adopted the Decree «On Land» having the force of law, TCO, Atyrau Oblast administration and Atyrau Oblast committee on managing land resources signed a tripartite Protocol as a temporary document under which a working area of 381,196 hectares was calculated for the company, and specific land plots lying under production facilities, roads, wells and other objects were fixed for the period until the final documentation of the granted lands in conformity with the requirements of law. Subsequently, TCO finally legalized the allotted land plots, particularly, based on results of the air photography of contractual territory land surface and mapping, obtained State acts on ownership title to some land plots located under the company’s immovable assets; concluded a Lease agreements on temporary use of land plots needed for exercising its basic activities on subsoil use; and received appropriate state acts for submitting remaining land plots from those received earlier under the Protocol, based on the servitude right. All TCO land use rights were also confirmed by appropriate acts of competent state agencies, in particular, by Atyrau Oblast Akim’s Resolutions #118 dated 22 May 2003 and #195 dated 26 September 2003; Zhylyoi District Akim’s Decisions #85 dated 6 June 2003 and #210 dated 4 December 2003, as well as by Mangistau Oblast Beineu District Akim’s Decision #139 dated d23 July 2003. TCO duly documented «Mining allotments»1 that determined contractual territories in Tengiz and Korolev field. In December 2005, in connection with relinquishment of a part of the contractual territory it also reregistered with the ROK Ministry of Energy and Mineral Resources Geology and Subsoil Use Committee the «Geological allotment»2 for the remaining contractual area submitted for exploration work. Thereafter, TCO jointly with the Kazakh State Scientific and Research and Design Institute of Oil and Gas Industry (hereinafter - NIPIneftegaz) developed, concurred and approved in 1999 a «Project of Pilot Operation of Tengiz field». The objective of this document of critical importance for TCO was to design a rational system of pilot operation of Tengiz field till 2002, during the period of whose implementation recalculation of hydrocarbon reserves on this deposit and preparation of the next mandatory standard-technical document were planned. This Project addressed the issues of technique and technology of oil production, drilling and well development. Considered were feasibility plan for oil production and drilling work volumes, also specific measures on control over development of strata, state and operation of wells and well equipment, supplementary exploration, subsoil and environment protection were elaborated. The next standard-technical act that was worked out, agreed and approved in 2002 is «Technological Scheme for Developing Tengiz Oil Field». TCO carried out this work jointly with the Institute of Design and Research Work under the Russian Federation Ministry of Energy (hereinafter - Giprovostokneft). Naturally, to perform this work the Republic of Kazakhstan scientific and design organizations were involved on the basis of a subcontract. To this end, a serious program on calculating oil reserves on Tengiz field was performed to be presented to the Republic of Kazakhstan State Commission on Reserves and TCO founders. It should be noted here that the first «Technological Scheme for Developing Tengiz Field» was developed in the Soviet period, as far back as in 1986, also by «Giprovostokneft», i.e. before TCO was formed. The new «Technological Scheme for Developing Tengiz Field» was developed on the basis of a great volume of work fulfilled by TCO during the period from April 1993 till 2002. In particular, TCO carried out a complex of work on studying geological and physical structure of the deposit and reservoir properties of strata, numerous kinds of research of productivity of production wells and strata pressure behavior in different parts of the field during pilot operation were conducted, drilling of a group of appraisal wells was done, and other types of research work were carried out. As a result of this, a detailed computer geological and physical model of the field was built, and later a hydrodynamic three-dimensional multiphase computer model was set up on its base. _______________________ 1 «Mining allotment» is a document graphically and descriptively defining an area of subsoil on which a subsoil user is entitled to carry out production, construction and/or operation of underground installations not associated with exploration and/or production, and which is an integral part of a production contract, combined exploration and production, construction and/or operation of underground installations not associated with exploration and/or production; production of common minerals or an independent document in the event of documenting a servitude (Item 50 of Article 1 of the ROK Law «On Subsoil and Subsoil Use» in the wording as of 12 January 2007). 2 «Geological allotment» is an attachment to the Exploration, Combined Exploration and Production Contract that is an integral part of the part schematically and descriptively determining a part of subsoil on which a subsoil user is entitled to conduct exploration (Item 3 of Article 11 of the ROK Law «On Subsoil and Subsoil Use» in the wording as of 12 January 2007). In 1999, TCO jointly with the Kazakh Scientific Research Geological Exploration Institute of Oil (hereinafter - KazNIGRI) developed, concurred and approved a «Project of Pilot Operation on Korolev Field». This deposit was discovered in 1986 and in April 1993 it was handed over to TCO. By that time, the field was not fully explored, therefore in accordance with the said Project it was necessary to carry out a whole complex of research work on appraisal of geological oil reserves and on preparation of a development technological scheme. Last year, TCO jointly with «NIPIneftegaz» completed development of and approved (on 20 October 2006) with the Central Commission on Development of Oil and Gas Fields under the ROK Ministry of Energy and Mineral Resources (hereinafter - CCD) the «Technological Scheme of Korolev Field Development». This standard-technical document confirmed that the oil deposit of Korolev field represents a uniform hydrodynamic system, i.e. a single object for development. At the same time, an assessment of economic efficiency of the project was conducted by researchers and authors of this document based on economic indicators adopted in the Republic of Kazakhstan and in the world practice. The authors also suggested that measures on supplementary exploration of oil reserves in order to transfer the field from one category to another more effective and productive category should continue. In 2002, TCO jointly with the «CaspiyMunaigaz» Scientific Research and Design Institute developed, agreed and approved a «Project on Tengiz Gasprocessing Plant Manufacturing Waters Injection» that summarized the previous work on subsoil exploration, completed work on exploration seismology materials interpretation, specified the border of the natural reservoir and calculated the volume of the pore space, built a simulation model of the reservoir and made an analysis of the waste water injection data. At the same time, the previous work conducted by «VolgogradNIPIneft» Institute and Atyrau Hydrogeological Expedition was taken into account. Later, at the request of the competent state agency in the field of subsoil use a Contract on waste water injection (contract on special type of subsoil use) was signed. A more detailed analysis of this contract will be given below. These actions allowed TCO to inject manufacturing waste waters into subsoil and make use of Neocomian3 deposits as a natural reservoir. A number of other mandatory standard-technical documents, in particular, an «Environmental Impact Assessment Project» (hereinafter - EIA Project) for various industrial facilities4; a «Project of Sanitary Protection Zone for Tengiz Field»; «Project of Tengiz field facilities construction»; «Project of Korolev field facilities construction» were developed, agreed and approved. «Work programs» on development of oil fields are developed on an annual basis and appropriate reports on implementation of these programs are also submitted to competent state bodies. A special place in TCO activities is taken by development, agreement and approval of mandatory documents representing rights in the sphere of nature use. As regards TCO, such documents, in particular, are as follows: «Projects on maximum allowable emissions standards», «Projects on maximum allowable discharges standards», «Projects on standards for formation and limits of waste disposal», «Gas utilization program», «Sulfur utilization program», annual Permits and Licenses for special types of nature use. It is impossible to effectively exercise the subsoil use right without these projects and documents granting certain rights to a business entity in the sphere of nature use, since this type of activities is closely interconnected both with nature use and land use. __________________________ 3 «Neocomian deposits» represent a lower part (horizon) of the Cretaceous period (please see «Dictionary of Oil and Gas Industry Terminology», Dalls/Kyiv, 1995, «Albion Woods Publisher». 4 For instance, the «EIA Project» - for Tengiz field; for infrastructure facilities (territory of offices, housing complex in Atyrau and Tengiz; for railway oil loading racks; for industrial waste water injection; for future solid household waste disposal yard; for the expansion project of industrial complexes KTL-2 and KTL-3 etc. Now, I would like to dwell on some problem associated with issues of regulating relations in the sphere of subsoil use and also suggest a number of recommendations and proposals that hopefully will be supported by colleagues working in the oil and gas industry and heard by representatives of competent government agencies. To our mind, it is necessary to reach stability in the lawmaking process, I would dare even say, to achieve a certain conservative approach to this process. If in the past years I repeatedly spoke about the necessity to improve the legislation, and this is possible to reach through adopting new legal acts or amending and supplementing the effective legal acts, then now I want to say that stability is needed in this business. We should stop the ardor of lawmaking mostly associated with endless revision of the legal acts in force. Frequent changes of and supplements to laws and other regulatory-statutory acts emasculate their original essence, that philosophy that served as a basis for their development. New laws, by-laws and departmental acts, numerous suggestions on introduction of changes and supplements to the effective legal acts are initiated now by anyone who feels like it, including companies-monopolists, central ministries and departments, akimats at all levels, deputies, influential businessmen and politicians, foreign investors, public associations, mass media, political parties and their leaders. Of course, it is good to have an intellectual and competent corps in the country; however, such lawmaking activity brings down the qualitative level of legal acts, reduces the effectiveness of its influence on regulation of social relations, and negatively affects the formation of a legal just and objective lawmaking practice. Here is a graphic example: during several last years, numerous changes5 (9 times) were introduced to the ROK Laws «On Subsoil and Subsoil Use» and «On Oil» that in their essence did not bring any serious novelty, being aimed at resolving various economic and social objectives and secondary issues of administrative nature. During the last three months alone (29 December 2006, 9 and 12 January 2007), the ROK Law «On Subsoil and Subsoil Use» was changed and supplemented three times. At the same time, these tasks and issues have been and are subject to resolution through economic, market mechanisms and improvement of contractual practice, but not on the basis of introducing changes and supplements to laws. What are these issues that they were trying to resolve as a result of changes and additions to the said laws? Mostly they are issues of acquiring Kazakhstani goods and services; involvement of Kazakhstani workforce; additional and certainly and objectively unrealizable demands to subsoil users (for example, a full ban on gas flaring); enforcement of government agencies’ role in the issues of exercising control over subsoil users’ activities; endless changes in interpretation of different terms and notions. In the meantime, we strongly believe that subsoil users, as other business entities, will only acquire and use Kazakhstani goods in services in the event where they are competitive, of good quality, safe and meeting other requirements of market economy. The solution of this issue of great importance for Kazakhstani economy through law will not promote improving quality of Kazakhstani goods and services. Why should a Kazakhstani producer or service provider work on improving the quality of its products and services, when all this may be «imposed» on the consumer by law? However, this important problem may and must be resolved when concluding a contract ________________________ 5 Please see ROK Laws - #381 dated 11 May 1999; #467 dated 11 August 1999; #2 dated 1 December 2004; #13 dated 20 December 2004; #79 dated 14 October 2005; Law dated 31 January 2006; #209 dated 29 December 2006; Law dated 9 January 2007; #226 dated 12 January 2007 etc. for subsoil use, where a subsoil user will undertake to acquire a part of goods and services in Kazakhstan on a competitive basis. Such approach will inevitably encourage Kazakhstani producers and service providers to improve the quality of their goods and services. It is an axiom of the market economy that should be taken into consideration, the more so when Kazakhstan is on the threshold of joining the World Trade Organization (WTO). Employment of Kazakhstani workforce should also be resolved through contractual obligations, but not on the legislative level. For example, TCO was always interested in increasing the number of national employees and reached significant achievements in this. For instance, if in April 1993 only a little more than 40% of the workforce were represented by citizens of the Republic of Kazakhstan, now this percentage is 81%. It is also in the employer’s interest, as active involvement of Kazakhstani workforce allows to spare considerable financial means spent on foreign employees (transportation and accommodation expenses, salaries etc.). Such an approach also contributes to formation of a positive image and business reputation of the company, especially of the foreign investor in the opinion of the Kazakhstani community. One should not but also dwell on such problem when in order to increase mandatory payments to the state coffers frequent changes in interpretation of one and the same term (notion) are introduced into laws. For example, the term of «production and consumption wastes»6 was given various interpretations at the legislative level only in order to increase mandatory payments for their placement and storage or in order to refer them to the category of production wastes of this or that type of product of a producer, and also in order to extract additional financial returns to the state income. Could it be called a scientific approach to interpretation of terms (notions)? Difficult to say. With such an approach one can every year change interpretation of words in dictionaries of V.Dal or S.Ozhegov or in our Legal dictionaries and then see where we are going to. It is a complete pun in the lawmaking practice, nothing else… How and with what can be explained the change introduced on 1 December 2004 to Article 30-5 of the ROK Law «On Oil» that prohibits gas flaring? By that time, and even now, not a single business entity in Kazakhstan had technology allowing to produce and process oil without gas flaring, as incidentally is the case in many countries of the world. It should be noted here that gas flaring is necessary in emergency situations in order to prevent a worse damage and sometimes even an environmental catastrophe. Such a thoughtless approach without taking into account a real situation in the oil and gas industry allowed seizing, one cannot use here another word, from subsoil users significant financial means. TCO alone, in the period where this provision was in force, had to pay to the state budget 809,640,573 tenge, which makes up $6,477,125 (with the rate of exchange $1=125 tenge). Finally, the authors of that legislative initiative realized that they were in too great a hurry with that ban, and after 11 months (on 14 October 2005) they initiated a new change of the said article of the law through which they legalized gas flaring and also defined the conditions and procedure for such type of activities. A question arises, who will return to the business entities the money collected as a result of this insufficiently considered «legislative experiment». One would also like to address the above-mentioned Contract on injection of industrial waste water into underground natural reservoirs. The conclusion of this Contract was imposed by competent state bodies under the threat of taking against the company serious measures aimed at hindering the basic activities on production, although TCO did not have to conclude it on the following grounds. _____________________ 6 Please see the ROK Law «On Environmental Protection» in the wording as of 15 July 1997 and in the wording as of 9 December 2004; ROK Environmental Code dated 9 January 2007/ Let us consult Article 9 of the Republic of Kazakhstan Code «On Subsoil and Minerals Processing» dated 30 May 1992 that was in effect at the moment of signing the Major documents on Tengiz project, providing that «construction and operation of underground installations not associated with minerals production, including structures for underground storage of oil, gas and other substances and materials, burial of hazardous substances and production waste, discharge of waste water» indeed is one of the types of subsoil use. Based on this legislative provision, such type of subsoil use, in particular, «operation of underground installations for storage of hazardous substances, production waste and discharge of waste water» can only be deemed as an independent type of subsoil use in the event where it is not associated with «production of minerals». From here a logical conclusion follows that if such use of an underground installation is associated with the «production of minerals», then such type of subsoil user’s activities is covered by the Production Contract, and there is no need for conclusion of an additional contract for «operation of underground installations». A more specific provision confirming such conclusion is also contained in the operating ROK Law «On Subsoil and Subsoil Use» dated 27 January 1996 where pursuant to Article 10 an operation associated with «construction and/or operation of underground installations» shall only be deemed as an independent type of subsoil use if it is not associated with Exploration and/or Production. As for TCO, the operation of industrial waste water injection into subsoil is directly associated with operations on oil production, being one of links in the single production and technological chain. It is therefore that we consider the existing TCO Contract on injection of industrial waste water, which imposes certain obligations on the company, as an excessive and unnecessary document. And finally, I would like to draw your attention to the issues associated with the competence of various government agencies exercising control over activities of business entities in the sphere of subsoil use, nature use and land use. Here too a proper order should be established, probably also at the legislative level, exact criteria should be determined for government agencies’ powers in order to, to a maximum degree, exclude interference into subsoil users’ business activities, and exclude facts of bureaucratic unlimited abuses. Control and supervision should be exercised strictly within the legislative provisions; they should not have a prohibitive nature but should be directed to rendering assistance to a business entity, to increasing reliability and effectiveness of its activities, encouraging subsoil user’s actions aimed at protection of subsoil, environment and health, to ensuring industrial safety and reliability of production facilities. The practice of monitoring of TCO business testifies to the contrary. Each controlling government agency starting an audit first of all looks for grounds and reasons for drawing a subsoil user to one of types of responsibilities stipulated by the effective legislation, and searches for facts of any violations that would allow them to collect from the business entity additional pecuniary means. Such is the mentality of controllers. Moreover, the number of inspections is growing from year to year. The findings of inspectors auditing the company business often, and as a rule, depend on the personal attitude of the controller to the company activities and on an an established opinion that every subsoil user is a potential violator and destroyer of environment etc.
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