Legal Aspects of Attracting Kazakhstani Goods, Services and Personnel to Oil Operations in the Republic of Kazakhstan
Akhmetzhan Abdullayev, Managing Partner of GRATA law firm
It is a well-known fact that the Government currently demands that Kazakhstani goods, services and personnel be attracted to oil operations in the Republic of Kazakhstan. In this article we would like to make a legal analysis of some aspects of the relevant laws.
We need to provide a legal definition of the concept «Kazakhstani». As a rule, «Kazakhstani producers of goods, operations and services» mean legal entities in the Republic of Kazakhstan. In accordance with the Law On Foreign Investments, this means any legal entity created in accordance with laws of the Republic of Kazakhstan in the territory of Kazakhstan. However, the definition «Kazakhstani» also refers to a company with foreign participation, i.e. which is fully or partially owned by a foreign investor.
In practice, tender documentation for attraction of Kazakhstani goods, operations and services uses the definition «a duly registered taxpayer of the Republic of Kazakhstan». In this case, «a Kazakhstani producer» may, in addition to the definition «a legal entity of the Republic of Kazakhstan», mean a permanent establishment of a foreign legal entity which has registered a branch in the Republic of Kazakhstan.
If the definition «a resident of the Republic of Kazakhstan» is applied, then the Tax Code defines as a Kazakhstani:
• any foreign citizen who has been staying in Kazakhstan for 183 days or more.
• a legal entity which is established under laws of the Republic of Kazakhstan and whose actual management is located in the Republic of Kazakhstan;
It turns out that the law does not provide a clear definition of «a Kazakhstani or domestic producer of good and services». This is why we strongly recommend caution when the issue arises of whether your company can be considered as a «Kazakhstani legal entity»! This also refers to cases when the terms and conditions of bidding are defined, or when a government authority demands to attract Kazakhstani enterprises.
The next question is, how lawful is the Government’s requirement for attracting Kazakhstani goods, operations, services and personnel to oil operations? Omitting the social aspect, we will consider the issue from the legal standpoint.
• In accordance with Article 41 of the Law On Oil, the Contractor must attract Kazakhstani companies and organisations to perform operations and provide services for oil operations, including the use of air, railway, water and other transport, provided that such services comply with standards and other requirements, on a tender basis in the manner established by the Government of Kazakhstan, as well as preferring Kazakhstani personnel for oil operations.
• Moreover, in accordance with the Law On Subsoil Resources (article 63), a subsoil user may use the services of foreign organisations, subject to a government authority permit, if such services are unavailable in Kazakhstan.
• The Government has not defined the terms of bidding for the attraction of Kazakhstani enterprises, and subsoil users must establish tender procedures independently; in some cases these are subject to agreement by the Competent Body;
• No procedures for obtaining a permit from «a government authority» for the use of services of foreign organisations have been established. It is also not specified which government authority should issue such permits.
The next question is which measures has Kazakhstan taken to protect local producers and the domestic market from import of goods?
Protective measures include protective duties and/or quotas on import of goods to Kazakhstan for free circulation. These measures are taken when material damage is caused or when there is a threat of material damage to domestic producers from competing goods. The main document is Law #337-1 of the Republic of Kazakhstan On Measures to Protect the Internal Market from Import of Goods, dated 28th December 1998 (as amended by Law #443 dated 20th July 1999).
Antidumping measures are applied to imports of dumped goods as provisional antidumping measures, antidumping duties or price undertakings, in order to eliminate material damage or threats of such damage to domestic producers of similar goods. The main document is Law #421-1 of the Republic of Kazakhstan On Antidumping Measures, dated 13th July 1999.
Compensatory measures are applied to imported goods if subsidised by a foreign state (a group of foreign states), as compensatory duties, provisional compensatory measures or price undertakings in order to eliminate material damage or threats of such damage to domestic producers. The main document is Law #441-1 of the Republic of Kazakhstan On Subsidies and Compensatory Measures, dated 16th July 1999.
An investigation cannot be initiated unless the application is made by or on behalf of the domestic industry, i.e., application is supported by domestic producers whose collective output of the like product constitutes: (i) more than 50 percent of the total production of that portion of the domestic industry expressing either support for or opposition to the application; and (ii) 25 percent of total domestic production.
Protection of domestic market is the most acute problem for most foreign investors. I would like to focus on some of its aspects.
Quotas on foreign labour. By resolution #328 dated 5th March 2001, the Government set a quota of 0.15% of the number of these in the economically active population for 2001.
Work permits for foreign labour and specialists. As you know, the Ministry of Employment and Social Security is the government authority which is responsible for issuing work permits for foreign labour. In accordance with the Order of the Ministry dated 2nd July 1999, work permits for foreign labour are issued in the following cases:
• lack of local labour for positions which are expected to be given to foreign citizens, or the impossibility of attracting such local labour;
• higher qualification of foreign specialists and labour;
• training of local personnel for future replacement of foreign specialists and labour;
• free-of-charge (charitable) work by foreign specialists and employees.
The following constraints are applied:
• foreign citizens invited must not be younger than 23 or older than the retirement age;
• foreign labour may be attracted within the limits of quotas established by the Government.
• the Ministry of Employment may limit the number of foreign citizens to be attracted in certain professions, provided that there is a sufficient supply in the internal labour market.
According to Resolution #835 of the Government of Kazakhstan, dated 19th June 2001, no work permits are required for foreign citizens who are:
• on a business trip for not more than a total of 45 calendar days during one calendar year.
• in top executive positions in foreign legal entities, their branches and representative offices. In this case, it is unclear why the list does not include the top executives of companies with foreign participation, i.e. legal entities of Kazakhstan having foreign capital. For instance, we, together with Hans Braakman, former Director General of Shell Temir in Kazakhstan, have formed GRATA Petroleum Consultants, which is a legal entity in Kazakhstan. It became apparent that Mr. Braakman as the CEO must obtain a work permit. However, if we created a joint venture in the Netherlands and opened a branch in Kazakhstan, no work permit would be required.
Kazakhstani laws set down rather stiff requirements for attracting local goods, work, services and personnel, and define protective measures for the internal market. However, it is also obvious that there is no legal definition of the concept «Kazakhstani» and the protective measures are not all targeted.
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