Regional seminar of judges on
«Subsoil and Investments»
Organized by the Supreme Court
of the Republic of Kazakhstan and
German Society for Technical Cooperation
(Atyrau, 27-29 March 2007)
Controversial Issues in the Practice of the Republic of Kazakhstan Law Application in the Sphere of Subsoil Use1
Declaration of Kazakhstan as a democratic secular legal and social state by the Constitution of the Republic of Kazakhstan adopted on 30 August 1995 at a Republican referendum predetermines the necessity of further strengthening of the evolved market relations and democratic institutions in the society, development and expansion of international economic cooperation. Microeconomic stability that is the basis for successful development of the state also includes, alongside with political measures, openness in the external trade, encouragement of export, minimum of restrictions in import, optimal rate of exchange and favorable conditions for external investments.
It is no secret that up to now the «locomotive» of the country’s economy is the state’s raw materials branch against a background of high world prices of hydrocarbons that is successfully developing as a result of an attractive investment climate and positive legislative base available. The sphere of subsoil use in Kazakhstan remains one of priorities on whose development, and it may be said without exaggerations, the success of the whole economy of our country depends. It was the attraction of foreign investments into the sphere of subsoil use early last decade that allowed resolution of the most difficult tasks on implementing social and economic transformations. And now, when the Republic of Kazakhstan has reliably enforced its political and economic status in the whole Eurasian space and successfully develops market institutions, this sphere of economy continues to be the basis for the country’s economic security. Speaking about legal regulation of the subsoil use sphere, one should note that in our country a good legislative base is created that is the basis of its successful development.
Let us recall 1995, a period of parliamentary and governmental crisis, where not only the economy but also the country’s political destiny found itself under a threat. Exactly then, knowing the importance of the subsoil use sphere development for the country and people, the Republic of Kazakhstan’s President N.A.Nazarbayev, proceeding from the extraordinary powers granted to him, issued a number of Decrees having the force of law that became the foundation for the legal base regulating relations in the subsoil use area. These Decrees are as follows: «On Licensing», «On Subsoil and Subsoil Use», «On Oil», «On Taxes and Other Obligatory Payments» etc. Further on, these Decrees were amended and received the status of the country’s laws; and a number of other statutory, governmental and departmental legal acts regulating complex relations in the subsoil use sphere were passed.
It should be said that since the largest foreign investments were engaged into the sphere of economy, relations in it are regulated by legal acts dedicated to the use and protection of
 © All exclusive author’s rights to this article belong to Zh.S.Yelyubayev.
investments. I.e., there exists a complex system of legal acts on whose correct application the success of subsoil use development depends. Due to this, it is difficult to agree with those who think that there are no laws in the Republic of Kazakhstan that would correctly and effectively regulate relations in this sphere of economy. The matter may only concern improvement of the legislation, its further systematization and proper application, reduction of the number of governmental and departmental legal acts sometimes contradicting each other and creating conflict situations. Here there is lots of work, up to one’s neck, as they say. Unfortunately, it should be noted that the practice of law application in the sphere of subsoil use does not develop properly at present, which negatively affects the operations of business entities. Provisions of laws and other legal acts are more used for establishing dictates of government controlling agencies and state officials. Many legal acts are illegally used as a basis for interference into financial and business activities of companies operating in the sphere of subsoil use, as a source of unjustified and unlawful replenishment of the state budget, as levers for establishing monopolies in this or that adjacent sphere of economy.
I have already spoken more than once on this topic on the pages of the «Jurist» magazine and other media. These problems were repeatedly discussed from the rostra of various fora - conferences and seminars, however, «the cart is still there» meaning thing are right where they started. Not to make naked assertions I will cite one striking example of a rash improvisation in the sphere of lawmaking. So, in December 2004, on the initiative of a number of state agencies changes were introduced into Article 30-5 of the Law «On Oil» establishing full prohibition on gas flaring. This legislative innovation was adopted without considering the fact that not a single Kazakhstani company operating in the oil and gas industry had technology that would allow them not to flare gas but utilize it. Thus, with a stroke of the «legislative pen» all producing companies in the oil and gas industry were «outlawed», which entailed imposition of tough sanctions of material nature in the order of tens of millions of dollars. The existing technology of oil and gas producing and processing companies, which incidentally is difficult to be deemed as imperfect, cannot be changed overnight, since it involves complicated production and technological complexes. And changing it needs time in the order of several years. During almost 11 months, this legislative provision was in force, and during this period the companies had to make 10-fold payments as competent government agencies refused issuing them special permits allowing gas flaring in accordance with the existing technologies approved by the same state bodies. Finally, in late 2005, on the initiative of oil and gas producing companies, Kazakhstan Petroleum Association, Kazakhstan Petroleum and Gas Industry Lawyers Association (KPLA) and the Government itself the Parliament taking into account the existing situation adopted an amendment, changed this statutory rule and established certain mechanisms for its realization. Of course, for the community the issue of safe environment is always important, however, this issue should be resolved reasonably without violations of rights of subsoil users and other business entities. The legislative base of the country should promote effective development of the country’s economy, the existing problems should be resolved in a deeply and well thought-out way rather than through bans, state measures taken should not be aimed at infringement of business entities’ rights. A balance of interests should always be maintained in this important issue.
The lawmaking practice of recent years shows that the laws regulating the sphere of subsoil use are often changed and supplemented. I assess this circumstance as a negative fact. The lawmaker should not follow the tastes of departmental agencies and national companies; it should try through legislative provisions to regulate big and small issues pertaining to the oil and gas industry. The more and more often the laws are changed, the more there will be muddle and confusion in the relations regulated, and the original sense of these laws will be lost. Lawmaking likes a conservative approach. Laws should regulate important and basic relations arising in the regulated sphere of production social relations; these acts should not be lowered to the level of departmental by-laws. In any sphere of economy «the music should be ordered» not by legislative provisions but by market institutions. Laws should only establish general principles of exercising economic or other activities, they should have a small number of imperative rules for protection of the interests of the state and society, the rights of subjects of these relations, and they should not impede normal legal activities of companies. Under exactly such approach can we speak about proper law and order.
That is why one should welcome the initiative of the Republic of Kazakhstan Supreme Court and German Society for Technical Cooperation who organized this seminar dedicated to the issues of developing subsoil and attracting investments.
It should be said here that our country may and should be referred to as one of the countries with a rich history of subsoil development; and speaking about hydrocarbon production we should mention that the start of Kazakhstan’s oil industry development goes back to 1898 when in the Emba territory (present Atyrau Region) two high quality oil fields were discovered and developed - Dossor (from 1898) and Makat (from 1915). The maximum production of oil in Emba in 1914 was 272 thousand tons. According to the International Energy Agency
(«YE 96»)2 thanks to survey and exploration work in Kazakhstan during one hundred years 153 hydrocarbon deposits were discovered, including 80 purely oil ones, 24 natural gas and oil fields, 21 oil condensate, 5 gas condensate and 19 natural gas deposits. The territorial fields of the country make up 2.7 of the world oil reserves. However, underlining the significance of Kazakhstan on the international oil scene one should add to this general volume also the potential of the Caspian offshore deposits.
The listed data evidence that the Republic of Kazakhstan will still for a long time remain as a country with a serious potential of hydrocarbons; and the place of Kazakhstan in the world oil and gas market will be quite significant, therefore the study of issues pertaining to the oil and gas industry development, engagement into this sphere of economy of big investments, not only foreign ones but also means of national investors, legal regulation of these relations and formation of correct judicial and other law enforcement practice constitute a topical theme.
Taking the opportunity granted to me to participate in this forum, I would like to address a number of specific problems existing in the law enforcement practice in the sphere of subsoil use and the sphere of investment activities hoping that they will become the subject of discussion and your attention.
One of important issues is the stability of investment provisions. As regards the sphere of subsoil use, in early 90s of the last century, Kazakhstan engaged considerable foreign investments into the sphere of subsoil use under conditions where the proper practice of regulating relations in the oil and gas sector was not yet developed, there was no sufficient legislative base oriented at development of market economy, no sufficient means not only for industrial development but also for solution of important social issues. Naturally, under these crisis conditions a foreign investor who came to Kazakhstan providing considerable financial means for development of oil and gas industry should have to a maximum degree protected its interests through signing such a contract whose provisions would allow it not only to recover its money but also receive a certain profit. Under such not simple political and economic situation the first investment agreements and contracts were signed granting subsoil use rights stipulating all terms and conditions for implementation of investment projects and ensuring the balance between both parties.
The Republic of Kazakhstan granted foreign investors certain benefits and preferences,
2 «Oil & Gas Kazakhstan. Global Securities», October 1997.
special conditions for exercising export-import and currency operations, special rules for employment of foreign workforce etc. All these special rules and conditions were set out in contracts, and the contracts themselves, as a rule, were approved by the ROK Government or by special acts of the country’s President. It was namely such approach that allowed Kazakhstan to create a positive and attractive investment regime which is one of factors for rapid upsurge of economy and industrial development not only in the oil and gas sphere but also in the branches of economy not associated with production of raw materials. The engagement of foreign investments helped resolve the most complicated social problems and establish Kazakhstan as a serious partner in foreign-economic relations.
Now, under conditions of a certain political and economic stability in the country there appeared many critics of the first investment agreements and contracts for subsoil use who think that Kazakhstan put itself into unfavorable conditions in relations with foreign investors, and that the time came to reconsider the signed contracts in order to ensure the interests of the state and Kazakhstani society. As a jurist, I cannot be supportive of such suggestions, and here are my grounds for it.
Firstly, in the period of concluding the first investment agreements and contracts for subsoil use, Kazakhstan already had a number of important legislative and other acts in force that allowed the Republic of Kazakhstan Government and national business entities to engage foreign investors and grant them certain benefits and preferences. For example, Article 3 of the Kazakh SSR Law «On Foreign Investments in the Kazakh SSR» dated 7 December 1990 (now invalid) stipulated that «the subject of foreign investments on the territory of the Kazakh SSR may be enterprises, participation interests in the property of Soviet legal entities, shares and other securities, other property, as well as acquired property titles for the use of natural resources in the Kazakh SSR for exercising business and other activities on the territory of the Kazakh SSR».
Article 9 of the said Law determined that «foreign investment shall be allowed in any spheres of business and other activities, except manufacturing of products for direct military purpose». Legal entities with foreign participation were entitled to independently address issues associated with conditions of employment, dismissal, labor regime, as well as granting benefits, guarantees and compensations to the company employees (Article 12 of the said Law). The property imported to Kazakhstan as investment of foreign investors and not designed for sale was not subjected to customs duties (Article 16 of the said Law).
Pursuant to Article 20 of the above-mentioned Law of the Kazakh SSR, foreign investors in addition to the benefits stipulated by the tax legislation then in force were granted additional tax benefits, e.g.:
- if a foreign investor’s share in a project exceeded 30% and if the legal entities created jointly with it were engaged in manufacturing certain types of products and services stated in a Supplement to the said law, then they were exempt from income tax for 5 years following the first announcement of profit and paid income tax under a 50% reduced rate during subsequent 5 years;
- expenses for charity purposes were excluded from income subjected to taxation.
The Republic of Kazakhstan also guaranteed to foreign investors the right to free transfer abroad of incomes from their activities and liquidation of entities with foreign participation, as well as sale of their interest in the said companies (Article 26 of the said Law).
Secondly, the Republic of Kazakhstan Code «On Subsoil and Minerals Processing» #1367a-XII (now invalid) dated 30 May 1992 and effective at that time provided for a possibility of granting subsoil for use to enterprises with foreign participation, as well as to foreign legal entities and individuals on conditions of a contract or concession3 (Article 10). Subsoil was provided to the said subjects on the basis of a subsoil use agreement stipulating, in particular, terms and conditions for subsoil use; environmental requirements; quotas for annual volume of the minerals used; terms for payments and amounts of payments for subsoil use; measures on subsoil protection; special conditions for the technologies used; benefits granted (Article 14 of the Code) etc.
Thirdly, at that time, other regulatory acts allowing the state to transfer to foreign investors subsoil and land plots for use were also in effect, e.g. the Kazakh SSR Land Code dated 16 November 1990; Regulations «On Procedure of Granting Lands for Use to Joint Ventures, International Associations and Organizations, Foreign Legal Entities and Citizens for Carrying out Business on the Territory of the Republic of Kazakhstan» №1516-XII dated 3 July 1992 and approved by the ROK Government Resolution (now invalid); Regulations «On Procedure of Realization (Transfer, Exchange, Sale) of Information on the Republic of Kazakhstan Subsoil» №1034 dated 8 December 1992 and approved by the ROK Government Resolution (now invalid) etc.
Thus, the utterances of the «modern critics» about illegality of the Republic of Kazakhstan’s actions on granting subsoil to foreign investors and foreign legal entities for use allegedly without considering the interests of the state and with violation of the current law, as well as their initiatives to revise certain beneficial conditions and preferences provided for subsoil users are unjustified and isolated from that real economic situation early in 90s of the last century when foreign investors were engaged into the process of the country’s economic upsurge and its transfer to a market foundation. On the contrary, today’s success of the country confirms the correctness of the actions by the President and the Government of the Republic of Kazakhstan, and the statutory provisions effective at present envisage guarantees of stability of the signed contracts, as well as strict rules and bases for introducing changes and additions to these contracts.
Hence, the provisions of the contracts concluded at that time should be preserved; at least, they cannot be amended unilaterally on the initiative of the state or national companies as it would contravene requirements of the current legal acts. Let us have a look at Article 383 of the ROK Civil Code setting out a provision that «an agreement should correspond to the rules mandatory for parties and established by the legislation (imperative rules) effective at the moment of its conclusion. If after the conclusion of the agreement the legislation establishes rules obligatory for parties and other than those in force at the moment of its conclusion, then the conditions of the signed agreement shall preserve their effect, except the cases where the legislation establishes that its action shall apply to relations that arose from earlier concluded agreements».
Part 3 of Article 4 of the ROK Law «On Investments» #373 dated 8 January 2003 sets out that «The Republic of Kazakhstan shall guarantee the stability of conditions of the agreements concluded between investors and government agencies of the Republic of Kazakhstan, except the cases where changes to the agreement are entered by parties’ consent». There are only two exceptions when these guarantees do not apply to: «changes to the Republic of Kazakhstan law
3 «Concession» (Latin concession - a granted permit, compromise) - provision by the state of a part of its natural resources, enterprises, technological complexes and other facilities to a foreign or national legal entity. Legal encyclopedia edited by A.Ya.Sukhareva, Moscow, 1999,
«INFRA-M» Publishing house.
and/or taking effect and/or changes to international agreements of the Republic of Kazakhstan that modify the procedure and conditions of import, production, sale of sub-excise goods»; as well as to «changes and additions entered into legislative acts of the Republic of Kazakhstan with a view to ensure national and environmental security4, health protection and morals».
Pursuant to provisions set out in Article 71 of the Law «On Subsoil and Subsoil Use» «a subsoil user shall be guaranteed protection of its rights in accordance with the law. Changes and additions to the law aggravating the situation of the subsoil user shall not apply to contracts concluded prior to introduction of such changes and additions». These guarantees «shall not apply to changes in the Republic of Kazakhstan legislation in the field of ensuring defensive capacity, national security, in the sphere of environmental security and health protection». A similar provision is set out in Article 57 of the ROK Law «On Oil» #2350 dated 28 June 1995. The issues of stability of agreements’ conditions are also regulated by the ROK Law «On Production Sharing Agreements (Contracts) in Conducting Offshore Oil Operations» #68 dated 8 July 2005.
Thus, the current legislation of the Republic of Kazakhstan enshrines a general rule on stability of earlier concluded investment agreements and contracts for subsoil use, and the state guarantees their stability. The existing exceptions to the general rule are not subjected to broad interpretation and primarily they are connected with issues of ensuring national security, environmental security, ensuring health and morals, as well as with issues of sub-excise goods turnover. In view of this, the existing moods in the society, as well as pronouncements of some politicians about the necessity to revise the earlier concluded agreements and contracts for subsoil use contradict the requirements of the effective law and encroach on the positive investment image of the Republic of Kazakhstan.
The second reason I would like to dwell on is associated with obligatory payments made by subsoil users for temporary placement and storage of products and materials, e.g. sulfur. This issue is quite urgent now for Tengizchevroil joint venture, and will be so, in the nearest future, for Agip KSO and other subsoil users that will be engaged in production of oil with high content of hydrogen sulphide, which is characteristic of Western Kazakhstan deposits.
For the first time, this problem appeared in connection with the publication of the «Rules for Issuing Permits for Environmental Pollution» (hereinafter - Rules) approved by the ROK Government Resolution #1154 dated 6 September 2001 where it is stipulated that «products and materials of temporary storage as sources of environmental impact» shall be by analogy referred to the category of «production wastes» in the event of their open storage for more than three months per year. In this specific case a serious theoretical mistake was made, since in the lawmaking process there cannot be analogy, as legislative norms may only be used by analogy in the law enforcement practice5.
Items 3 and 4 of the said Rules stipulating that sulfur may by analogy be referred to the
4 «National security» in conformity with Article 1 of the ROK Law «On National Security» #233 dated 26 June 1998 means «the state of protectability of the country’s national interests from real and potential threats».
«Environmental security» in conformity with Article 1 of the ROK Environmental Code dated 9 January 2007 means «the state of protectability of vitally important interests and rights of individual, society and state from threats resulting from anthropogenic and natural impacts on the environment».
5 Please see Legal opinion, Yu.G.Basin, where, in particular, a legal assessment is given of the «Rules for Issuing Permits for Environmental Pollution» approved by the ROK Government Resolution #1154 dated 6 September 2001, «Aequitas» law firm works, 2002.
category of «production wastes», which in its turn imposes on subsoil user obligations on making obligatory payments to the state income, contravene the current legislation of the Republic of Kazakhstan, as well as international legal acts.
For instance, pursuant to Article 1 of the ROK Law «On Environmental Protection» #160 dated 15 July 1997 (now invalid, however in effect in the period of adopting the above said Rules) «production wastes» meant «remnants of raw minerals, materials, chemical compounds formed during manufacturing of products, execution of other technological work that lost completely or partially original consumption properties needed for use in an appropriate production, including man-made mineral formations6 and wastes of agricultural production».
Earlier, in 2002, when the first judicial disputes appeared in Kazakhstan in connection with sulfur, the said Law was still brief in defining the notions of «production and consumption wastes», which meant «substances and materials in any aggregate state formed as a result of man-made activities, not subjected to further utilization».
At present, in conformity with the new ROK ‘Environmental Code» (hereinafter - ROK EC) «production and consumption wastes (wastes)» are interpreted as «remnants of raw minerals, materials, other products that formed during production and consumption, as well as goods (products) that lost their consumption properties (Sub-item 39 of Article 1)
If we read very attentively these legislative definitions of the terms «production wastes» and «production and consumption wastes», then it will be difficult, even if one wishes it very much, to refer elemental sulfur to the category of wastes. In the meantime, at present, in Kazakhstan in spite of the above described circumstances sulfur stored in the company pads for more than three months is considered analogically to «production wastes» with all the ensuing obligations for the producer.
So, e.g. Article 461 of the ROK Code «On Taxes and Other Obligatory Payments to the Budget» stipulates that «the object of levying (object of obligatory payment. Author’s note) shall be the actual volume of emissions within and/or in excess of the established limits, discharges (including emergency ones) of pollutants, placement of production and consumption wastes».
Article 29 of the ROK Law «On Environmental Protection» #160 dated 15 July 1997 also envisaged a payment for «placement of production and consumption wastes».
On the basis of these statutory provisions the company makes obligatory payments on rates established by the Ministry of Environmental Protection (hereinafter - MEP) and local representative agency for placement of sulfur at production facilities. If at present, the base rate of payment for storage of one physical ton of 4 hazard class wastes (which illegally and by analogy sulfur is referred to) established by Order #295-П of the ROK MEP constitutes 2396 tenge, then it involves considerable financial expenses for the company.
Can these obligatory payments be recognized as legal and justified? To my mind, it is quite difficult and here is why. Let us address the provision contained in item 21 of the regulatory Resolution #16 of the ROK Supreme Court «On Practice of Courts’ Application of the Legislation on Environmental Protection» dated 22 December 2000, in which the supreme body of the judicial power in the country gives a clarification stating that «collection of additional
6 According to item 52 of Article 1 of the ROK Law «On Subsoil and Subsoil Use» #2828 dated 27 January 1996 «man-made mineral formations» mean «conglomeration of mineral formations, rock masses, liquids and mixtures containing useful components that are wastes from mining and enriching, metallurgical and other types of subsoil users’ production».
payments for natural resources use, environmental pollution, placement of production wastes and other types of harmful impact not envisaged by the Law «On Environmental Protection» and current legislative acts7 shall not be allowed». Due to this, since the ROK Government Resolution has no status of a «legislative act» the provisions of a governmental act may not serve as a basis for establishing payments for placement of sulfur even if it is by analogy considered a production waste.
The provisions of the said Rules with regard to referring «products and materials» by analogy to wastes of 4 class of hazard also contradict both international legal and technical acts.
Thus, the International standard (GOST - state standard - 127.1-93) adopted on 21 October 1993 by the CIS Interstate Council on Standardization, Metrology and Certification envisages production of sulfur in liquid and block form and refers it to products of 4 class of hazard, not to wastes of 4 class of hazard or other products that by analogy may be referred to wastes. In the Section «Transportation and Storage» of the said interstate standard we find a provision stating that block sulfur may be stored under a tent or in open pads, that block sulfur may be transported in bulk in gondola cars with lower hatches, as well as by automobile and water transport. It only contains one condition stating that block sulfur designed for export should not have pieces with the size exceeding 200 mm. Consequently, according to this interstate act (liquid, block, granulated, flaked) sulfur is a standardized product but not a production waste.
Further, in conformity with Section V («Mineral products», group 25) of the «International Convention on Harmonized System of Describing and Codifying Goods» to which the Republic of Kazakhstan joined on 3 February 2004 (please see ROK Law #525 dated 3 February 2004) sulfur was qualified as «commodity position 25.03» and given a special international code of the International Harmonized system - 2503.00. Thus, elemental sulfur as named by the International Convention and ratified by the Republic of Kazakhstan is considered a commodity product that under no circumstances without changing its physical or chemical state can be recognized as a production waste, the more so by analogy. The cited International Convention ratified by the Republic of Kazakhstan pursuant to part 3 of Article 4 of the ROK Constitution shall have priority before laws and other regulatory legal acts of the Republic of Kazakhstan and be directly applied.
In the meanwhile, the position and actions of competent governmental agencies in the field of subsoil use and environmental protection, as well as evolving judicial and other law enforcement practice do not take into consideration the provisions of the cited laws of the Republic of Kazakhstan, international acts and standards on the issue of determining the legal and technical status of sulfur, which leads to illegal collection of obligatory payments from subsoil users. And the amounts of these payments are quite impressive in order of billions of tenge.
One more problem is connected with production of «common minerals»8 (hereinafter - CM)8. Disputes on these issues between subsoil users and competent state bodies were also a subject of court proceedings, however, to our mind, neither in this issue is there a single approach based on legislative provisions, although these relations are quite well regulated by
7 Pursuant to item 8 of Article 1 of the ROK Law «On Regulatory Legal Acts» #213 dated 24 March 1996 «legislative acts» mean: constitutional law, Presidential Decree of the Republic of Kazakhstan having the force of law; code; law; the Republic of Kazakhstan Parliament Resolution; Resolutions of Senat and Majlis».
8According to Item 26 of Article 1 of ROK Law «On Subsoil and Subsoil Use» #2828 dated 27 January 1996 «common minerals» mean minerals (sand, clay, gravel etc.) used in their natural condition or with insignificant processing and cleaning for satisfaction of mainly local household needs».
Thus, in accordance with Item 4 of Article 13 of the ROK Law «On Subsoil and Subsoil Use» and Item 3 of Article 64 of the ROK Land Code granting of subsoil use right to extraction of CM for one’s own needs shall be done simultaneously with the granting of a land plot under which common minerals are located for private ownership or land use. When a land plot is provided for a temporary use the conditions for using CM for personal needs may be stipulated by the agreement on temporary land use (Item 4 of Article of ROK Law «On Subsoil and Subsoil Use»).
So, it follows from the sense and content of the cited legislative acts’ articles that an owner or holder of a land plot is entitled to produce CM for its own needs without concluding a contract on subsoil use. In the event where CM are produced for commercial or other purposes, e.g., for construction of rail or automobile ways, common bridges, then an appropriate contract for subsoil use should be concluded as per Article 13.2.1-1.2-1 of the ROK Law «On Subsoil and Subsoil Use».
These are seemingly clear statutory provisions but there are many disputes on this subject, and unfortunately they are resolved not for the benefit of subsoil users who produce CM for their own needs. Competent government agency demand conclusion of a contract for this type of subsoil use in each specific case, not only in those events where CM are produced for commercial purposes of for other purposes directly envisaged by law.
And one more disputable issue related to operation of underground installations.
In connection with this, let us consult the glossary of the Law «On Subsoil and Subsoil Use» where it is noted that «construction and/or operation of underground installations not connected with exploration and/or production» mean «work on construction and/or operation of underground installations for oil and gas storage, as well as underground engineering structures for burial of radioactive wastes, hazardous substances and waste water» (Item 2 of Article 1 of the Law «On Subsoil and Subsoil Use»).
And according to Article 10 of the ROK Law «On Subsoil and Subsoil Use» «construction and/or operation of underground installations not connected with exploration and/or production» shall be considered as one of subsoil use types.
A logical conclusion follows from here that if «operation of underground installations» is not connected with exploration and/or production, but is done, for example, for the purpose of «disposal of waste waters» received in the process of hydrocarbon production, then there is no need for concluding a separate subsoil use contract. However, the practice knows a case where competent government agencies demanded conclusion of a separate contract for operation of underground structures when a subsoil user producing oil or conducting exploration of subsoil simultaneously was injecting (burying) industrial waste waters or drilling sludge into natural underground structures. This was done in spite of the fact that this type of activities was closely interconnected with operations on production and exploration, and in essence was a chain in the single production and technological process.
I would like to elucidate one more problem associated with disputes about making «payments for environmental pollution». As is known, these relations are regulated by Chapter 83 of the Republic of Kazakhstan Code №209-II ЗРК (hereinafter - Tax Code) «On Taxes and Other Obligatory Payments to the Budget» dated 12 June 2001.
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