RE: RE: right of first refusalThe Kazakh Government has never used the right of first refusal in the mining sector, although it has this right.
This is how experts explain the situation:
Today’s Kazakhstan has a renewed focus upon continuously improving the regulatory environment, raising industry practices to internationally recognized standards, and raising production levels year on year in order to bring Kazakhstan’s production levels in line with the country’s outstanding potential as a center of global mining activity. As major international players are increasing their interest in the Kazakh market, the investment opportunities throughout the value chain are widely acknowledged as being immense.
The constitution of Kazakhstan and Edict of the President of 1996 denotes all Subsoil mineral resources are owned by the Kazakh state; and, following a mid-2010 government re-shuffle, responsibility for Subsoil mining related commodities has been taken out of the Ministry of Mines and Energy’s portfolio, and placed into the newly created Ministry of Industry and New Technologies. “It is widely believed this change will herald faster development in Kazakhstan’s national industrial base, utilizing the mining industry as a platform, as well as developing a more coordinated strategy in terms of innovation and technological standards within the mining sector.” The establishment of a sustainable downstream industry is one of the new ministry’s fundamental objectives in line with Kazakhstan’s 2030 economic master plan.
The key article of law governing Kazakhstan’s mining industry is the Subsoil and Subsoil Use Act, recently modified and adopted in July 2010. This law regulates relations arising in the sphere of Subsoil use and is aimed at protecting the interests of the Republic of Kazakhstan, as well as facilitating the rational and comprehensive study and use of Subsoil within the country.
According to the Subsoil Use Act, one may obtain Subsoil usage rights in three particular ways; either directly from the state, through purchase or transfer from another entitled Subsoil user, or through legal succession from the reorganization of entities already possessing Subsoil usage rights. The process for acquiring Subsoil usage rights is either through direct negotiation or an open tender depending upon market conditions, government participation, as well as vendor and purchaser circumstances.
Other key provisions of the 2010 act are: the Kazakh government has pre-emptive rights/first refusal to purchase any Subsoil license at market prices should the asset come up for sale. Newly established national mining champion Tau-Ken Samruk will be wholly responsible for such purchases if deemed attractive or strategically necessary by state authorities. (Tau Ken Samruk is the holding company for the Kazakh government’s stakes in some of the country’s largest metals and mining companies).
Local content requirements form a significant area of the Subsoil Act 2010. As such, procurement of goods, work and services for Subsoil operations shall be from Kazakh sources if they satisfy the technical requirements outlined by the purchaser. Open tenders for equipment and services contracts are pivotal to the local content requirements in the Kazakh mining market.
Perhaps this is why Alhambra has been having so much difficulty ‘getting permission’ to export drill cores to the Republic of Kyrgyzstan (to prove “consistently valid results” in assaying drill samples); with this straight-forward errand repeatedly running into significant delays in obtaining approval from the Kazakhstan government Committee of Industry to do so.
Another key provision is that upon termination of a particular Subsoil contract, all geological information shall be transferred into Kazakh state ownership. A Subsoil user shall transfer, free of charge, all documents and other material forms of geological information to the authorized agency for Subsoil studies and use. In the vast majority of cases this will be the State Geological Committee.
It is rather early to understand what the precise implications of the July changes to the Subsoil Usage Act will be, however some initial positive and negative outcomes for mining companies and investors can be noted.
The changes have brought a great deal more clarity with regards to the processes and procedures for transfer of usage rights between different private entities, as well as the Kazakh state. This increase in detail is envisioned to reduce the arbitrary nature within which decisions are taken and laws interpreted at a state level.
The Subsoil Usage Act 2010 also provides clearer information with regards to exactly which documents are required to be held and submitted by mining firms at various times throughout their project life cycles.
Some of the more negative interpretations with regards to recent changes concern the stability regime for laws enshrined in Subsoil usage contracts. As a result, agreements enshrined in signed contracts are subject to changes in Kazakh law, thus creating confusion and unpredictability for business models libel to changes in the broader legal environment.
When compared with international centers of mining excellence such as Australia or Canada, Kazakhstan’s regulatory environment in general is considered bureaucratic, over burdensome and complex with regards to the import of capital goods and local content requirements. When regional comparisons are made, it is fair to say although not as expedient as Kyrgyzstan’s regulatory framework, Kazakhstan’s legal regime is the most sophisticated in terms of providing long term guarantees for investors. It is important to note the trajectory of change in Kazakhstan is increasingly one toward the free market model familiar to developed market economies.