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Quoting Oil Export in Republic of Kazakhstan

 

First of all, we would like to draw your attention on the provisions of the current legislation, regulating the oil supplies in the home market of the Republic of Kazakhstan.

Accoiding to the current legislation, the State has the right to demand the oil requisition only in the following cases:

1. In accordance with Article 36 of the Decree "About Oil" (Requisition and compensation of the Oil) in cases of war, natural disasters or other cases, provided by the legislation on emergency situations, the Government of the Republic of Kazakhstan possesses the right to requisite the part or the whole amount of the oil, belonging to a subsoil user on the basis of proprietary right or right for economic management. The requisition is realized within the volumes, necessary for provision of needs of the Republic of Kazakhstan during the whole period of emergency situations.

According to the Law of Kazakhstan Republic as of 05.07.96 "About emergency situations of natural and man-caused origin", an emergency situation is considered to be situation on a definite territory, that has arisen in the result of accident, disaster or catastrophe, which has entailed or can entail the deaths of people, damage to their health, damage to environment and the objects of economic activity, significant material losses and breach of the public living conditions.

2. According to p.l of Article 35 of the Decree "About Oil" (right of the Republic of Kazakhstan for Oil acquisition) "The Republic of Kazakhstan has the top priority for Oil acquisition from the share of the subsoil user or non-governmental subsoil user at the prices of the world market. The maximum volume of the acquired Oil, order of prices determination and type of payment are stipulated in the Contract". Thus, the Contract for subsoil use (Oil Contract) should establish:

1) The volume of the oil, which the Government has the right to demand from the subsoil user in accordance with its right for priority acquisition;

2) Order of determination of world market price, at which the Government will acquire the oil from the subsoil user in a priority way.

3) Type of payment for oil acquired.

It is obvious, that the procedure of realization of the right by the government oh priority acquisition of the oil is deemed to be no less important matter, that should be the subject to negotiations between the State and the subsoil user during signing of the Oil Contract. But Oil contracts do not always regulate this procedure, in connection with this there exist a practice of unilateral regulation by the competent state authority - the Ministry of Energy and Mineral Resources of the Republic of Kazakhstan (MEMR)- of oil supplies to the home market and for export by the way of confirmation of the schedules for supplies of this kind.

For the present day, the situation with determination of the quota on oil supplies and export to the Kazakhstan oil processing plants (OPP) is the following:

In August 2000, Decree # 1172 of the Government of Kazakhstan Republic as of 02.08.00 "About some questions of stabilization of the oil products home market" (hereinafter "Decree") was adopted. According to the Decree, oil companies have guaranteed the definite volume of monthly oil supplies for Kazakhstan oil processing plants. At the same time the MEMR should have approved the schedules of this supplies till the end of year 2000. In other words, the Decree was of temporary nature – till the end of 2000.

In spite of the fact that the Decree hadn’t any changes made, related to schedules confirmation for the year 2001, 2002 and 2003, for the present day the MEMR continues to approve the schedules of oil supplies for oil processing plants and oil companies. At the same time the quotas for oil export are also approved by the MEMR.

Beginning from July 1, 2003 the Law of the Republic of Kazakhstan "About Changes in statutory acts of the Republic of Kazakhstan, concerning the issues of state regulation of production and turnover of separate kinds of oil products" (hereinafter "The Law") has become effective and made the following amendments in the Decree "About Oil":

in Article 5 of the Decree "About Oil" the competency of
the Government of the Republic of Kazakhstan has been amended
   with the following authorities.

The Government of the Republic of Kazakhstan:

1) Regulates the oil export, including by the way of approval (changing) of excise-duty rates, customs, protective, anti-dumping and compensatory duties, as well as quotas on oil export.

2) Establishes the quantitative restrictions (quotas) for oil transportation by various kinds of vehicle.

3) Determines the order of oil production and turnover unified database maintenance.

4) Organizes the system of control over the observance of safety requirements in the technological process of oil production, storage and turnover.

In point 1 of Article 6 the functions of the competent authority have been enlarged:

The competent authority accomplishes state regulation of oil production in accordance with the project for field development, as well as for its turnover.

It is possible to suppose, that as the consequence of the Law coming into force, there will be adopted a respective Decree of the Government for regulation of the quotas issue for oil export. It means that the actions of the MEMR on regulation of oil supplies to the home market and for export will have an official legal character.

It is not excluded that due to the Decree of the Government, this or any other subsoil user will be refused to give a quota or the authorized quota will be less than the oil volumes, applied for export by the subsoil users to the competent authorities. In this case the Decree can be acknowledged as the violation of Article 71 of the Law "About subsoil and land resources use": changes and amendments of the legislation, aggravating the position of the subsoil user, are not applied to the Contracts, issued or concluded before such changes or amendments.

The authorities of the Government for determination of the quotas for oil export and transportation, set by the Law, are not the aggravation of the subsoil user position, therefore are applied to the Oil Contacts. But, if the related Decree of the Government will establish for the, subsoil user an export quota, less than provided by the Oil Contract, the subsoil user reserves the right for protection of his interests judicially.

On the given matter the main subject of the negotiations of subsoil users with the competent authority will be the volumes of oil supplies for the Kazakhstan oil processing plants and prices for oil acquisition at hone market.

The disputable situation can arise, if the actual volumes of the produced oil will differ from the volumes, set by the work program of the subsoil users for the corresponding year (exceeding or less volume):

there will be the necessity to review the oil export volumes and volumes of supplies for the Kazakhstan oil processing plants. One of
   the decisions, taking into consideration the interests of both subsoil
   user and the Government, is the proportional increase (or decrease)
   of export quota or volume of supplies for the Kazakhstan
   oil processing plants.

if in the result of the production volume increase, the prices on oil will also increase, there will be the necessity to review the price on oil sale
   to Kazakhstan oil processing plant. In this case the question can be
   solved in the following way – oil will be sold according to the earlier
   agreed prices, provided that the oil will be supplied in volumes agreed
   upon earlier.

Also beginning from July 1, 2003, the Law "About state regulation of the production and turnovers of the separate types of oil products" has become effective.

This Law regulates the production and turnover of the petroleum (excluding aircraft motor gasoline) diesel oil and fuel oil, and in general contains the restrictions for oil products manufacturers - oil and (or) gas-processing enterprises, having the license to production and sale of oil products in accordance with the legislation of the Republic of Kazakhstan.

For the suppliers of oil - oil-gas producing enterprises, that supply for processing their own crude oil and (or) gas condensate, the indicated Law establishes the following requirements and obligations:

Sale of gasoline (excluding aircraft motor gasoline) diesel oil and fuel oil is admitted via measuring devices of the oil products manufacturers, and also from filling stations and oil products    storehouses, the services of which are certified.

Submission to the authorized organs the information to carry out monitoring;

Execution of the accompanying waybills during wholesales and retail sale of oil by the suppliers and at realization of oil products transportation operations.

The Law doesn’t include the innovations relating to regulation of export and import of oil products, it contains only the references to the current legislation.

Thereby:

The approval of the quotas on oil export and schedules of oil supplies to Kazakhstan oil-processing plants is not governed by the current legislation. Determination of quotas for oil export and supplies to Kazakhstan oil processing plants is the imperative requirements of Ministry of Energy and Mineral Resources, and at the same time the given requirements are ungrounded and can be acknowledged as illegitimate judicially. The absence of the precedent on the given matter can be explained as the unwillingness of the subsoil users to apply for protection of their rights to the judicial authorities, as it can negatively effect on their mutual relations with competent authorities.

 

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Foreign Investment in Kazakhstan Energy Sector

 

 

 

 

 

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