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Avoiding Subsoil Disputes in Kazakhstan

Avoiding Subsoil Disputes in Kazakhstan. Yerzhan Yessimkhanov GRATA Law Firm London, 2011. Subsoil Disputes . Subsoil vs. state ; Parties in a subsoil M&A transaction. . Subsoil User vs. State.

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Avoiding Subsoil Disputes in Kazakhstan

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  1. Avoiding Subsoil Disputes in Kazakhstan Yerzhan Yessimkhanov GRATA Law Firm London, 2011

  2. Subsoil Disputes • Subsoil vs. state; • Parties in a subsoil M&A transaction.

  3. Subsoil User vs. State • Non-compliance / alleged non-compliance of subsoil user with conditions of subsoil contracts / legislative provisions; • Majority of disputes – environmental. Also non compliance with subsoil work program, labour, procurement. • Legislative (and contractual) requirements are often vague, changes are regularly introduced; • Potential consequences – termination of a subsoil contract.

  4. Measures to Avoid • Monitoring of subsoil user’s activity; • Strict compliance with requirements of contracts / legislation; • Timely reporting; • Implementation of internal programs: environmental protection, social responsibility, procurement.

  5. Parties in Subsoil M&A • Bad structuring of M&A deal; • Non-compliance with mandatory approval procedures; • Quality of assets; • Potential consequences – invalidity / termination of transaction, termination of subsoil contract.

  6. Measures to Avoid • Thorough due diligence with a focus on potential non-compliancewith contractual / legislative provisions; • Observance of mandatory approval procedures during the structuring stage.

  7. Due Diligence • Main asset – right to extract minerals (subsoil use right), based on contract with the state; • Contract might be terminated by the state in case of any material violation by subsoil user; • Due diligence shall confirm absence of any material violations / compliance with obligations.

  8. Due Diligence (cont.) Obligations of Subsoil User: • Execution of work program (program of exploration / production activities and investments); • Environmental; • Social; • Historical costs; • Procurement procedures; • Reporting; • Other.

  9. Regulatory Approvals - waiver of state pre-emptive right; - anti-monopoly approval. 9

  10. Regulatory Approvals (cont.) STATE PRE-EMPTIVE RIGHT • applicable to subsoil use right transfer, ALL share transfers and “connected objects” transfers. Exceptions are very limited; • Ministry of Oil and Gas (MOG) or Ministry of Industry and New Technologies (MINT); • consequences: invalidity of transaction / termination of subsoil contract; • time: 70 business days; • effectiveness: 6 months. 10

  11. Regulatory Approvals (cont.) ANTI-MONOPOLY APPROVAL • applicable to transactions with aggregate assets of vendor and purchaser exceed approx. US$ 20 million; • Agency on Protection of Competition (Anti-Monopoly Agency); • Time – 1-2 months. 11

  12. ANY QUESTIONS? Yerzhan Yessimkhanov Counsel GRATA Law Firm yyessimkhanov@gratanet.com 12

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