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 KAZAKHSTAN International Business Magazine №2, 2012
 FIC Working Groups: Goals, results, plans
FIC Working Groups: Goals, results, plans

On the eve of the 25th plenary session of the Foreign Investors’ Council we asked Co-Chairs of the FIC working groups from foreign side to answer questions of our regular blitz-poll.

1.   What objectives are set for your Working Group by the Foreign Investors’ Council?

2.How do you measure the results of your Working Group’s activities during last year?

3.What issues are on the agenda for your Working Group in 2012?

Erlan Dosymbekov, Co-Сhair of the FIC Investment Image Enhancement Working Group from foreign side, Partner, Ernst & Young

1. The working group supports the development of a favorable investment image of Kazakhstan. Countries compete for FDI, and Kazakhstan needs to differentiate itself from other rapidly growing markets of similar size and prominence. To achieve this objective the country needs an internal and external marketing plan across various layers, including focused government communication to target investors from specific industries and countries; an ongoing communication platform between existing and prospective investors and a comprehensive PR strategy, including media and events, in support of the country’s strategic goals. A targeted investor communication policy will help to minimize the existing perception gap of Kazakhstan as an investment destination.

2. During the past year the working group implemented a number of initiatives, including enhancement of investor dedicated website, which is successfully operated by JSC National Export and Investment Agency KAZNEX INVEST. The website was developed in line with the practices of leading investment agencies and represents a highly effective platform which now accounts for 66,500 visitors from 160 countries providing centralized access to information on the business environment and investment opportunities in Kazakhstan. KAZNEX INVEST developed and deployed a video ad on investment opportunities in Kazakhstan with rotation on leading international channels – BBC, CNN and Bloomberg. As a result of TV advertising, the number of national investment website visitors increased 1.5 times and reached the maximum number since the website’s launch.

The Ministry of Foreign Affairs regularly organizes press tours for international media in conjunction with key business events in the country, providing leading international media access to information on key developments in the country, as well as interviews with senior government officials and foreign investors operating in Kazakhstan.

The working group supports ongoing communication between existing and prospective investors, including the publication “Success stories: foreign investors in Kazakhstan. Ideas for potential players”.

As a part of the working group activities, Ernst & Young conducted the survey among 200 prospective and existing investors from over 20 countries. The objective of the survey was to define the perception of Kazakhstan as an investment location by business leaders. The report based on the results of the survey was widely covered in the media and discussed at business events. Recommendations to enhance the competitiveness of the business environment were provided to the government bodies and considered during the development of the National Investment Plan.

3. The working group will continue to implement the projects related to enhancement of communication with business community and raising awareness on investment opportunities in Kazakhstan. This will cover targeted events, publications, update of the dedicated website and its wider promotion. We will also work to enhance public awareness of the positive contribution of foreign investors to the sustainable economic and social development of the country.

Zhanna Tamenova, Co-Chair of the FIC Taxation Working Group from the foreign side, Kazakhstan Tax & Law Leader, Ernst & Young

1. Tax legislation is one of the important criteria in assessing the investment attractiveness of the country. In this respect, the key aspect is retaining a balance between the government’s interest in increasing tax proceeds and the interest of private business in increasing the return on capital. The purpose of the working group’s activities is to establish a favorable legal environment for carrying business in Kazakhstan. The current level of the economy development and related to it business processes requires a certain reformation of the legislative base. In this regard, the government has taken series of progressive measures, including in the area of tax policy. Favorable tax rates on a number of taxes are in effect in Kazakhstan, and provisions stimulating direct investments in the economy of Kazakhstan have been accepted.

It is possible to accentuate the two components of the tax regime, tax policy and tax administration. In our work we take into account the importance of using these components not only as a fiscal instrument, but also its huge social and stimulative potential. Considering the composition of the working group, who are experienced employees of state agencies and representatives of large international companies, we hope that the results of our work will enhance the competitiveness of Kazakhstan in the international arena.

2. Any legislative process requires certain reasonable time. Hopefully, last year’s performance results, which include analysis and introduction of proposals, agreement with authorized agencies and legal due diligence, will be supported by the Government and will be accepted by the Parliament in the current year. For this reason, I would like to elucidate the already achieved results of the cooperation between the Kazakhstan and foreign sides reflected in the respective legislative acts. In particular, these are: introduction of the administrative procedures for the conventions on avoidance of double taxation; a simplified procedure of application of the conventions with respect to the so-called “passive” types of income has been introduced; a possibility of an automatic application of the conventions; the conception on secondment has been developed and accepted. Acceptance of provisions intended to mitigate the differences between tax accounting and international financial reporting standards (IFRS) is crucial for Kazakhstan in the process of integration into the global economy. Two initiatives simplifying the tax administration have been introduced for the support of entrepreneurial activity: a decrease of tax reporting frequency and extension of deadlines for tax payment. The adoption of the differentiated approach to the application of administrative sanctions serves as an example of stimulating law-abidingness. Such measures have a positive influence on the conduct of business. This is especially crucial for the rapidly changing market environment because the effective tax system contributes to the competitiveness of Kazakhstan.

3. The working group plans to continue working in the following areas: application of international principles in the area of transfer pricing; further minimization of differences between IFRS and tax accounting; enhancement of taxation principles, including the adoption of a provision on assumption of taxpayer innocence; in the area of administrative responsibility – adoption of a commensurate approach and indemnity against administrative responsibility in case of absence of a damage to the state. The success of any piece of legislation, to a great extent, depends on its application at the administrative level. Currently, costs associated with observance of legislative requirements remain high. This factor reduces the positive effect of tax reforms. The working group initiated a series of measures intended to decrease the administrative burden on business. In general, our joint work is focused on studying international principles and applying generally accepted global practices.

Murat Munbayev, Co-Сhair of the FIC Joint Operations Working Group, General Manager, Strategic Planning and Analysis, Tengizchevroil

Olga Lonovenko, Deputy Co-Chair of the FIC Operations Working Group from the foreign side, Ethics and Compliance Senior Adviser, Shell Kazakhstan Development B.V.

1. The objectives of the Joint Operations Working Group of the Foreign Investors’ Council in 2011 included improvement of Kazakhstan’s investment climate and the legislative framework, particularly in the spheres of labour, antimonopoly and renewable energy sources legislation, foreign labour regulations, natural monopoly regulations as well as promotion of power industry development, along with the human capital development and the enhancement of the environmental protection effectiveness both locally and on global level.

To achieve these objectives the Joint Operations Group defined the following targets for itself: to share its experience and knowledge at forums, conferences and roundtables, develop proposals on changes and supplements to the corresponding laws and to take part in the working groups established by the ministries, Majilis and the Senate of the Parliament of RoK for discussion of such changes and supplements to the Labour Code, Foreign Labour Regulations and the Ecology Code as well as in the legislative acts on power industry, natural monopolies and regulated market.

2. In general the Joint Operations Working Group was able to deliver on its targets in 2011. The following six Working Sub-Groups were established: subgroup on education and human capital, subgroup on foreign labour work permits, subgroup on the Labour Code, subgroup on local content development, subgroup on power industry issues and subgroup on sustainable development and environment protection.

The members of the first Working Subgroup took part in the II International Conference “Human Capital Development in RK. Challenges and Resolutions” and in the Forum “Vocational Training and Business: Dialogue of Partners”.

The second Working Subgroup’s members participated in the Ministry of Labour Working Group on the development of the new Work Permit Rules, which were endorsed in January 2012.

The third Working Subgroup members participated in the working groups established by the Ministry of Labour, Majilis and the Senate of the Parliament of RK on the Labour Code discussions. The amendments to the Labor Code were adopted in January 2012.

The fourth Working Subgroup participated in the discussion of the local content development programme with the Ministry of Industry and New Technologies and with other business associations, and submitted its comments on the draft procurement Rules to the Government of RK.

The fifth Subgroup participated in the discussion of the draft amendments to the energy concerning laws as well as investment activities, natural monopolies and regulated market arranged by the Ministry of Industry and New Technologies, Majilis and the Senate of the Parliament. In April 2012, state authorities and the investors had constructive dialogue and discussed the electrical grid industry development during the Power Generating Industry Modernisation Roundtable organised by the Subgroup.

The fifth Subgroup was involved in the discussion of the environment protection regulations amendments, permitting system improvement and on the issues of internal carbon credit trading (Green House Gas emissions) within the Working Group established by the Ministry of Environment Protection.

3. The Working Subgroups established in 2011 will continue their activities in 2012 as the issues under their discussion continue to be relevant in 2012 both for the Government and foreign investors. The Human Capital Development Subgroup intends to consider issues of qualified manpower shortage, training and re-training of Kazakhstani technical specialists in the oil and gas and mining industries, as well as contribute to the labour market analysis and to the development of the National Qualifications Framework. It is also planned to participate in the Human Capital Development Conference and in the Vocational Training and Business: Partners Dialogue Forum. 

Labour Issues Subgroup intends to continue its work with the Government on the improvement of the Labour Code and Foreign Labour Engagement Rules.

Local Content Development Subgroup plans to continue discussions with the Government on the enhancement of the Procurement Rules that would allow growth in local content consumption by businesses across the country. We will continue to determine foreign investors interested in establishing joint ventures in RK and consider optimization of tender and prequalification procedures in order to assist Kazakhstani manufacturers.

Subgroup on Power industry issues intends to continue developing recommendations on antimonopoly laws improvement, on legislation in the field of regulation of natural monopolies and regulated market as well as developing proposals on creating economic mechanisms to stimulate energy efficiency. Joint work on the improvement of the investment climate in the Power industry of RK will be continued in conjunction with the state authorities.     

Environment Protection Subgroup plans to participate in the development of the environment legislation of RK and on creating internal market for carbon credits. It is also considering to support Kazakhstan’s initiatives under the UN International Summit on Sustainable Development “Rio+20” in Brazil.  

Curtis Masters, Co-Chair of the FIC Legal Working Group from the foreign side, KFICA Governing Board Secretary, Director and Partner, Baker&McKenzie

1. One of the most important factors in any country's investment climate is its legal regime. A country cannot attract significant foreign investment if its laws are poorly written, if the rights of investors are not protected or if the courts are weak. Particularly important to foreign investors are (i) whether the legislation meets international standards, (ii) the stability of contracts, (iii) how the legislation is enforced in practice, and (iv) whether the courts are impartial and free of corruption. 

Kazakhstan already has the most favorable legal regime in the CIS. But the competition among countries for foreign investment is fierce. So, in order for Kazakhstan to continue its excellent record of attracting foreign investment, and in particular to attract more investments outside the oil and gas sector, the Republic's legal regime needs to develop even further. 

Therefore, the Foreign Investors' Council has given the Legal Working Group the objective of assisting in the improvement of Kazakhstan's investment climate through the improvement its legal regime. In particular, we try to make certain that the Republic's legislation affecting investments meets international standards. We do this through active participation in the drafting of new legislation, as well as through recommending changes to existing legislation. In addition, we advise on ways to improve the enforcement of legislation in Kazakhstan and how to improve the quality of the courts and judges in Kazakhstan.

2. The Legal Working Group was very active during 2011. Among other things, we helped Kazakhstan fully join the international "Capetown Convention" treaty concerning aircraft and aviation, to which all major countries are members. This will make it easier for Air Astana and other airlines in Kazakhstan to finance the expansion of their fleets, enabling them to reduce costs and provide better air service to Kazakhstan's citizens. We also advised on many important draft laws (such as the Law On Development of the Stock Market, the Law On State Support for Industrial-Innovative Activities, etc). We also proposed important changes to several laws (such as the Environmental Code), which will help bring those laws meet international standards. Very importantly, we proposed changes to the legislation which will help improve the citizens' access to public information and will increase the transparency of the public records maintained by state bodies.

We believe the above developments will have a positive impact on the investment climate in Kazakhstan. 

3. Our Plan of Action for 2012 is very ambitious. In the area of legislative reform, our activities include the following: 

· improvements to the Law On Competition to help facilitate mergers and acquisitions in Kazakhstan;

· creation of a legislative framework to facilitate the project financing of concessions;

· improving the instructions on state registration of legal entities, branches and representative offices;

· amendments to the Law On Subsoil and Subsoil Use to clarify the provisions concerning the transfer of subsoil rights.

Our activities in the area of judicial reform during 2012 will include the following:

· proposals to reduce the amount of state duties collected by the court, thereby making it easier to resolve disputes in Kazakhstan's courts; and

· holding a roundtable between Legal Working Group and members of Supreme Court and the Judicial Council on how to improve the selection and independence of judges.

Jean-Luc Porcheron, Co-Chair of the FIC Joint Oil and Gas Working Group from the foreign side, KFICA Governing Board Member, Managing Director, Total E&P Kazakhstan

1. KFICA Oil & Gas Working Group was established in summer of 2003. Two main objectives were set, that is to optimize the investment climate in Kazakhstan, and to assist with defining foreign investment attraction strategies. I believe that these objectives appropriately reflect the importance of oil & gas sector, which will remain the leading sector of Kazakhstan’s economy in particular in terms of foreign and domestic direct investments.

2. In the last few years the group activities concentrated on discussion of several areas and key groups of issues.

One very important area is legislation and regulatory system. As you may know, last year Kazakhstan adopted a new Law on gas and gas supply issues. Before that there were significant changes in legislation on subsoil use and oil products regulation. Many questions were discussed in relation to development of legal and technical regulations in oil and gas and petrochemical industries and its integration within the Customs Union and Euro-Asian Economic Community. Discussion continues on the associated legislative acts.

The other important area is the role of human capital, which includes such issues as Work Permit Regulations, development of industry training standards, increase of local content.

Special attention was drawn to the area of safety, security, risk assessment, implementation of best practices, experience, and technology for the safe development of hydrocarbon resources of the Caspian region. Besides, the Group’s activities addressed such specific issues as production, storage, and disposal of sulfur produced from oil&gas operations, associated gas flaring, improvement of production sector operations and related services sectors.

3. As agreed with Kazakh side, the Oil & Gas Working Group’s agenda (action plan) for 2012 includes 5 major items:

·Local content in personnel;

·proposals and needs for products required by Kazakhstani oil and gas enterprises for petroleum operations;

·Sharing the best international practices on: a) implementing petroleum projects at the commercial operations stage, b) oil and gas industry working conditions and labor safety regulations, c) improvement of state procurement procedures;

·Interaction with industry associations and RoK Ministry of Oil and Gas to address changes and/or additions to laws on oil and gas (including consistency of such changes and/or additions with existing subsurface use contracts), and development of oil and gas industry technical regulations for the Customs Union;

·Providing assistance with setting up training centers to comply with international certification standards and to train specialists to meet qualifications requirements of leading international oil and gas companies (exchange experience in developing curricula, selecting instructors, engaging certification organizations, etc.)

For each item of the action plan we form special sub-group which will focus on issues specific to the item, and will concentrate on achieving sustainable results.

I believe that the Group is able and will deliver sound results this year that will be of the great mutual benefit both for the Republic of Kazakhstan and foreign investors.

The editorship of the business magazine Kazakhstan express gratitudeto the co-chairs of the FIC working groups for participation in this blitz poll and special thanks to Zarina Bakenova, Director of Kazakhstan Foreign Investors' Council Association, for her help in publication of this material.

Table of contents
· 2016 №1  №2  №3  №4  №5
· 2015 №1  №2  №3  №4  №5  №6
· 2014 №1  №2  №3  №4  №5  №6
· 2013 №1  №2  №3  №4  №5  №6
· 2012 №1  №2  №3  №4  №5  №6
· 2011 №1  №2  №3  №4  №5  №6
· 2010 №1  №2  №3  №4  №5/6
· 2009 №1  №2  №3  №4  №5  №6
· 2008 №1  №2  №3  №4  №5/6
· 2007 №1  №2  №3  №4
· 2006 №1  №2  №3  №4
· 2005 №1  №2  №3  №4
· 2004 №1  №2  №3  №4
· 2003 №1  №2  №3  №4
· 2002 №1  №2  №3  №4
· 2001 №1/2  №3/4  №5/6
· 2000 №1  №2  №3

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