Legislation
Customs Risks for Importers of Goods for the Karachaganak Oil and Gas Field
Ravil Kassilgov, Partner
Dias Turkenov, Associate
Tukulov Kassilgov Shaikenov Disputes LLP
Customs Risks for Importers of Goods for the Karachaganak Oil and Gas Field
The Karachaganak field (also known as Karachaganak) is one of the largest oil and gas fields in the world, located in the western part of Kazakhstan. This field is a joint project between the Government of the Republic of Kazakhstan and several international oil and gas companies.
Dias Turkenov
Ravil Kassilgov
Given that Karachaganak is one of the largest and most important projects in Kazakhstan, for regulating the distribution of production and revenue from this field, the Final Production Sharing Agreement on the Joint Development and Production Sharing of the Karachaganak Petroleum and Gas Condensate Field ("FPSA") was signed between the project participants on November 18, 1997. It should be noted that the FPSA played a crucial role in ensuring stability and predictability of activities at the field for project participants. Specifically, it guaranteed the participants the stability of legislation, meaning that the legal acts in effect at the time of the FPSA's conclusion would continue to apply.
Furthermore, to resolve contentious issues arising during the implementation of the FPSA, the Government of the Republic of Kazakhstan approved instruction No. 1525 on the tax regime of the FPSA ("Instruction") on December 13, 2011. This Instruction regulates the taxation of entities involved in the Karachaganak project.
Interestingly, based on the FPSA and the Instruction, the aforementioned legislative stability to a certain extent also applies to persons who are neither subsoil users nor even participants in the FPSA. Given the insufficient awareness of business entities regarding the Instruction and the customs aspects of the FPSA, this circumstance, in turn, entails risks for such persons in terms of additional customs duties and penalties.
For the purposes of tax and customs administration of persons involved in the Karachaganak project, paragraph 1 of the Instruction defines the term "Subcontractor". This term refers to an individual or entity that has a relationship with a party to the FPSA, a company created by it, or its legal successor (the "Contractor") for the procurement of goods and services related to activities under the FPSA. In other words, this refers to an entity that has entered into any civil contract with the Contractor for the provision of services, performance of works, and/or supply of goods for the purpose of carrying out oil and gas operations at the Karachaganak field.