Legislation
New Law of the Republic of Kazakhstan
Maxim Burak, Lawyer, GRATA Law Firm, Dariya Saginova, Junior Lawyer, GRATA Law FirmThis information was prepared as a general guidance only, and should not be used as a specialized legal conclusion.
The President of the Republic of Kazakhstan signed the Law of the Republic of Kazakhstan "On Gas Supply and Gas" (hereinafter - the "New Law", "Gas Law" or the "Law"), the main provisions of which are discussed in this article. The following describes what we believe to be the most important specialties and provisions of the Law.
Gas Law is a novelty for legislation of the Republic of Kazakhstan. Previously gas and the gas supply sphere were partially regulated by the subsoil use legislation and a number of the GovernmentResolutions. The Law aims to address the relations in the gas and gas supply sphere and as a general principle seeks to prioritise the internal market provision of commercial (under the Law, a mixture of hydrocarbons with a predominance of methane) and liquefied petroleum gas (under the Law, a mixture of propane and butane) produced in the RK.
The Law itself introduces many innovations that are directly related to the activities of investors in the Gas and Gas Supply industry.
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In particular, the Law establishes provisions regarding the state’s pre-emptive right to purchase raw and commercial gas.
Thus, under the New Law, the state has a pre-emptive right to purchase:
- raw gas,disposed of by subsoil users and owned by them under the Subsoil Law or the Subsoil Use Contract ("Contract");
- commercial gasproduced by subsoil users in the processing of recovered raw gas and owned by them on the basis of subsoil use contracts.
Pre-emptive right shall be exercised by National Operator (“Operator”) – the company established (defined) by the Government and operates in the gas supply sphere to meet the internal needs of the RK regarding commercial gas.
The price of the raw gas purchased by the Operator is determined by the subsoil user and should take into consideration:
- cost of recovering raw gas;
- cost of transportation to the place of sale to the Operator;
- profitability (no more than 10%).
Commercial gas price is also determined by the subsoil user and takes into consideration:
- cost of recovering raw gas;
- cost of producing commercial gas from raw;
- cost of transportation to the place of sale to the Operator;
- level of profitability (no more than 10%).
In relation to this, the subsoil users planning to sell raw or commercial gas in the next year shall send to the authorized body ("AB[1]") calculations of the gas prices (with confirming documentation) for the Operator. Upon the review (max. 30 days), AB approves the price or reply with a justified objection. Subsoil users can not exceed the approved cost in the transactions with the Operator.
After approving the price, but not later than 5 months before the scheduled period, the subsoil user sends to the Operator a commercial proposal, including:
- the volume of disposed raw and (or)commercial gas;
- gas prices (not exceeding the one approved by the AB);
- the delivery point ;
The Operator makes a decision within a month whether to implement the pre-emptive right or reject it. If the Operator does not answer within a month, it shall be taken as a rejection of the implement the right.
The pre-emptive right does not apply to the implementation of:
- raw gas, recovered from the gas and (or) gas-condensate fields, and commercial gas produced from it;
- commercial gas produced from the raw gas recovered from the gas and (or) gas-condensate fields;
- liquefied natural and commercial gas produced in the process of re-gasification;
- raw gas sold according to international agreements of the RK;
- commercial gas produced outside of Kazakhstan, imported for consumption;
- commercial gas produced outside of Kazakhstan from raw gas recovered in Kazakhstan, under international agreements of the RK;
- commercial gas produced under a contract of public-private partnership in the gas and gas supply sphere. In this context PPP in the gas supply sphere means cooperation in the processing of associated gas owned by RK.
Regarding the priority right of the state, it should be noted that the Law introduces the concept of "United system of commercial gas supply" (hereinafter - "Gas Supply System"). This system includes all of the following that are intended for the production, transportation, storage, sale and consumption of commercial gas:
- gas link and main gas pipeline
- Storage points for commercial gas,
- gas distribution and gas consuming system
- gas station
- and other technological objects.
Together these things form the components of gas supply systems