According to the press office of the prime minister¹, the Government plans to terminate a number of subsoil use contracts and licenses with subsoil users who fail to perform their obligations. The press release states that, as of today the Government has determined that there are 148 contracts for solid minerals and 27 contracts for hydrocarbons with low performance. After termination of those contracts and the related licenses, the respective subsoil plots will be auctioned off to new investors.

To recall, under the Kazakhstan Subsoil Code² the competent authority can unilaterally terminate a hydrocarbons contract on a number of grounds, including in the event of the subsoil user’s failure to rectify the following violations within a given timeframe: 1) performance of less than 30 percent of the financial obligations under the contract for a reporting year; 2) more than two violations of other obligations established by the contract.

A license for exploration of solid minerals can be revoked inter alia in the event of failure to rectify violations of the license terms, while a license for solid minerals is subject to revocation if there are uncured violations of the obligation to make yearly minimal expenditures on production operations.

In light of this announcement, we recommend that subsoil users carefully check their activities under subsoil use contracts and licenses on the subject of due performance of contractual and license terms.

Should you detect any violations, the most obvious way to prevent termination of a contract or revocation of a license is to remedy the violations. If this option is problematic due to, for example, the limitations imposed as a result of the COVID-19 pandemic, another possible way to mitigate the risk of termination of subsoil use rights is to initiate negotiations with the competent authority on the subject of carrying the unperformed obligations over to the future years by way of amending the contract. 

If you have any questions regarding the grounds or the procedure used by the competent authority to terminate a contract as well as how best to challenge any such decisions on termination, we will be glad to legally advise you on your individual case.

1. https://primeminister.kz/ru/news/r-sklyar-provel-soveshchanie-po-voprosu-revizii-mestorozhdeniy-poleznyh-iskopaemyh-201105 ↩
2. Кодекс Республики Казахстан №125-VI «О недрах и недропользовании» от 27 декабря 2017 года, с изменениями и дополнениями.↩