1 avoiding subsoil disputes in kazakhstan yerzhan yessimkhanov grata law firm london, 2011
DESCRIPTION
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. 3TRANSCRIPT
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Avoiding Subsoil Disputes in Kazakhstan
Yerzhan YessimkhanovGRATA Law Firm
London, 2011
Subsoil Disputes
• Subsoil vs. state;
• Parties in a subsoil M&A transaction.
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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.
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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.
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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.
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Measures to Avoid
• Thorough due diligence with a focus on potential non-compliance with contractual / legislative provisions;
• Observance of mandatory approval procedures during the structuring stage.
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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.
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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.
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Regulatory Approvals
- waiver of state pre-emptive right;
- anti-monopoly approval.
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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.
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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.
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