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Energy & Natural Resources

Y. Manayenko, D. Ten 10 questions to a lawyer about legal regulation in the subsoil use sphere in Kazakhstan // Zakon.kz - 2025.03.13

Development of the subsoil use sphere is one of the key and most important directions of the Kazakhstan economy. A considerable part of the world's mineral resources is concentrated in Kazakhstan. For example, the country is 12th in the world by oil reserves [1], 8th by coal reserves [2], and 2nd by the explored uranium reserves [3].

In light of the above, the extractive industry is the most attractive for investments for both local entrepreneurs and foreign investors. Today, the issues of subsoil use are regulated by the Subsoil and Subsoil Use Code [4] ("Code"), which was put into effect on 29 June 2018, and the Subsoil Law [5] with respect to certain provisions as in the effect at the time of application. Furthermore, legal relations in the subsoil use sphere are subordinated to provisions of the civil, environmental, land, and other sectoral laws. As regards the status of the Caspian Sea, there is an effective international treaty [6] ratified by Kazakhstan.

At all times during the development of the Kazakhstan subsoil legislation, many issues have been and still remain to be the subject of scientific and practical research. In this publication, we will consider 10 questions, which investors often have when being involved in the process of exploration and production of minerals in Kazakhstan.

1. What types of subsoil use operations are stipulated in Kazakhstan?

The Code provides for the following 5 types of subsoil use operations:

  1. geological study of subsoil;
  2. exploration for minerals;
  3. mineral production;
  4. use of subsoil space; and
  5. gold digging.

The procedure and conditions for carrying out the work stipulated for each type of such operations, rights and obligations of a subsoil user, including other parameters of using subsoil, are determined by the Code. The content of work under each subsoil use operation type is set out in a respective section of the Code subject to a group, which certain minerals are referred to:

  • hydrocarbon minerals (hydrocarbons);
  • uranium; and
  • solid minerals.

2. Who may become a subsoil user?

Subjects of the subsoil use right may be both Kazakhstan and foreign:

  • legal entities;
  • individuals (except for uranium mining operations).

One should bear in mind that, if a subsoil user appoints an operator under a contract (field) or a license, such operator may not hold the subsoil use right, only representing the interests of the subsoil user in the course of subsoil use operations. In light of this, the Code establishes that violation of conditions of a contract or a license as a result of the operator's actions entails liability imposable not on the operator, but on the subsoil user. As regards the obligations of the operator arising in connection with representation of interests of the subsoil user, the latter is jointly and severally liable. If the operator causes harm to third parties as a result of subsoil use operations, the subsoil user may not refer to the fact that the operator acted in excess of powers.

Certain types of subsoil use operations are available only for a certain category of entities. The Code also provides for separate requirements for the persons pretending to obtain the subsoil use right, depending on the type of subsoil use operations or a subsoil block. For example, to obtain the subsoil use right for an offshore subsoil block, an applicant must submit confirmation of available funds sufficient for the fulfillment of the minimum requirements with respect to the scope and type of work during the exploration period, and must have positive experience of conducting subsoil use operations in the continental shelf of Kazakhstan or inland water bodies, or offshore outside Kazakhstan.

3. What is a subsoil use license?

Adoption of the Code in Kazakhstan resulted in establishment of two subsoil use right regimes: license and contract, in which connection the subsoil use right may originate either on the basis of a contract, or under a license.

A subsoil use license is a document executed in accordance with the approved form and issued by a governmental authority [7] under the filing procedure, which grants the right to its holder to use a subsoil block for the purpose of conducting subsoil use operations. A license is issued for the purpose of using only one subsoil block.

If two or more persons hold a subsoil use right, a license must contain an indication to the amount of shares of the persons acting as the co-holders of the subsoil use right.

One person may be issued an unlimited number of licenses. The exception is a license for gold digging, which is issued to the Kazakhstan individuals only. One individual may hold only one gold digging license.

An issued license must be published on an Internet resource of the governmental authority issuing the license on the date of its issue and must be recorded in a relevant register.

The Code contains the following list of the types of licenses granting the right to conduct subsoil use operations:

  • license for geological study of subsoil;
  • license for exploration of solid minerals;
  • license for extraction of solid minerals;
  • license for production of common commercial minerals;
  • license for the use of the space of subsoil; and
  • license for gold digging.

Just a reminder that the license regime was established to simplify administrative procedures and, accordingly, raise the investment interest to the subsoil use sphere.

4. What are the cases where a subsoil use contract must be entered into?

A subsoil use contract is entered into for production or combined exploration and production of hydrocarbons, as well as for uranium mining. According to the Code, other types of subsoil use operations fall under the license regime.

According to a subsoil use contract, the Republic of Kazakhstan represented by its competent authority provides the subsoil use right to a subsoil user for a definite term, and the subsoil user undertakes to conduct subsoil use operations in accordance with conditions of the contract and the Code for its own account and at its sole risk.

To date, the competent authority in the sphere of hydrocarbons and under a contract for uranium mining is the Ministry of Energy of the Republic of Kazakhstan [8]. In the sphere of solid minerals, the competent authority is the Ministry of Industry and Construction of the Republic of Kazakhstan [9].

When entering into a contract with the state for the first time, the subsoil user may obtain only one subsoil block for use. Later, with respect to contracts for exploration and production of hydrocarbons several blocks may be assigned by introducing amendments into the contract.

The same person may enter into unlimited number of subsoil use contracts, except for certain cases stipulated by the Code. The contracts are drafted in accordance with the model contracts approved by the competent authority. In practice, this means that the possibility of deviation from conditions of the model contracts is reduced to the minimum and allowed only in exceptional cases, within the limits and in accordance with the procedure stipulated by the Code.

The concluded subsoil use contracts enter into force from the date of their registration with the competent authority and must be recorded in the register of concluded contracts.

One should bear in mind that there are effective subsoil use contracts, which were entered into before putting the Code into effect, and which form a separate group of legal relations governed by transitional provisions of Article 278 of the Code. Such contracts are subordinated to all applicable provisions of the Code and to the Subsoil Law, where appropriate, in part, which is still in effect, and conditions of contracts. In light of this, legal regulation of such contracts is of wide range and requires thorough analysis of each separate contract.

5. What subsoil blocks may be provided for conducting operations for hydrocarbons?

According to the general rule, the competent authority may not provide subsoil blocks for exploration and production of hydrocarbons in the territories not included in the Management Program for the State Fund of Subsoil ("Management Program") [10]. Just a kind reminder that the Management Program was stipulated by the Code to ensure transparency of the procedure for providing the subsoil use right.

The subsoil blocks determined by the Management Program may be provided for exploration and production of hydrocarbons by two methods:

  • by way of an auction;
  • to a national company in the sphere of hydrocarbons on the basis of direct negotiations.

The same subsoil block may not be used concurrently under several subsoil use contracts. However, the Kazakhstan legislation allows for full or partial overlapping of territories of subsoil blocks. This means that several subsoil blocks belonging to different subsoil users may be located in the same territory.

Spatial boundaries of a subsoil block where a subsoil user may conduct subsoil use operations are established in a contract for exploration and production or production of hydrocarbons subject to provisions of the Code.

6. What is the general procedure for holding auctions for the provision of the subsoil use right for hydrocarbons?

An auction with respect to each block of subsoil is conducted by the competent authority based on an application for an auction from a person interested in provision of the subsoil use right for hydrocarbons.

Based on the results of considering the application, the competent authority:

  • publishes an announcement of the auction not more than four times in a year;
  • refuses to consider the application in case the applicant has filed another application for an action within three years before, but has not registered as the auction participant.

In case of holding an auction, the competent authority publishes a relevant announcement on its Internet resource and on the electronic portal of auctions for provision of the subsoil use right for hydrocarbons ("Electronic Portal") [11]. The interested parties may file applications and pay a fee for their participation in the auction in the amount of 100 MCI [12] and a guarantee deposit serving as a security of the auction winner's performance of obligations on payment of the subscription bonus. The guarantee deposit amount depends on the amount of the initial subscription bonus determined separately for each concluded contract and makes:

  • in case of providing the subsoil use right for exploration and production of hydrocarbons – amount equal to two initial subscription bonuses;
  • in case of providing the subsoil use right for production of hydrocarbons – amount equal to one initial subscription bonus.

Based on the results of considering the application, the competent authority admits or refuses to admit the applicant for participation in the auction, or notifies of the necessity to rectify the identified non-conformities. The applicants admitted for participation in the auction and registered on the Electronic Portal as participants participate in the auction.

The auction is held on a day specified in a notice of holding the auction. The auction winner is a participant who offers the biggest subscription bonus. The auction results are executed automatically based on the register of the auction results on the Electronic Portal by the minutes to be signed by the representatives of the competent authority and the auction winner. The auction results must be posted on the Internet resource of the competent authority within 3 business days of the date of holding the auction.

The auction is recognized as void and no repeated auction is held if less than two participants have been registered on the day of the auction.

7. What are the conditions for provision of the subsoil use right for hydrocarbons on the basis of direct negotiations?

A subsoil block included in the Management Program, within which the subsoil use right is provided to a national company in the sphere of hydrocarbons, may be provided to such national company on the basis of direct negotiations.

Recognized as a national company ("National Company") in the sphere of hydrocarbons is a joint stock company set up based on a resolution of the Government of the Republic of Kazakhstan and whose controlling block of shares belongs to the state or a national managing holding, and whose activities are carried out in the sphere of subsoil use with respect to hydrocarbons. To date, the National Company is NC "KazMunayGas" JSC [13].

If the subsoil use right to a subsoil block may be provided on the basis of an auction, such subsoil block may be provided to the National Company on the basis of direct negotiations only before an interested person files an application for an auction.

To hold direct negotiations, the National Company sends an application to the competent authority specifying boundaries of a subsoil block, for which it applies. According to the general rule, direct negotiations are held between the authorized representatives of the National Company and the working group of the competent authority. Following the results of direct negotiations, the competent authority decides whether to enter into a subsoil use contract or to refuse to enter into such contract.

If the competent authority decides to enter into a contract for exploration and production or production of hydrocarbons, such contract may be entered into either with the National Company, or jointly with a strategic partner. In case of entering into a contract for a major field, the mandatory condition is shared participation of the National Company as a subsoil user under a relevant subsoil use contract in the amount of 50% or more.

Recognized as a strategic partner of the National Company may be a legal entity or a consortium of legal entities meeting the requirements approved by the National Company and agreed with the competent authority, assuming the obligations on investment financing under a contract for exploration and production of hydrocarbons or obligation to refund the subscription bonus under a contract for production of hydrocarbons.

8. Are there any specifics or restrictions with respect to the subsoil use right obtained by the National Company on the basis of direct negotiations?

The key restriction is a prohibition to transfer the subsoil use right (share in the subsoil use right) provided to the National Company on the basis of direct negotiations within 2 years of the date of registering a subsoil use contract.

The exception covers the cases where the subsoil use right is transferred to a legal entity where the National Company holds directly or indirectly 50% of voting shares (participatory interests) or more ("Subsidiary National Company"). In this case, the subsoil use right may be transferred to the Subsidiary National Company before expiration of 2 years from the date of registration of a subsoil use contract.

In turn, the Subsidiary National Company may not transfer the received subsoil use right or any part thereof within 2 years of the date of the contract registration.

Reduction of share of the National Company or the Subsidiary National Company in a subsoil use contract for major fields is possible; however, only based on a condition that the National Company or the Subsidiary National Company will retain control over decisions of subsoil users under the subsoil use contract.

9. How may the subsoil use right be transferred?

Transfer of the subsoil use right (share in the subsoil use right) is possible on the basis of civil transactions or in other cases stipulated by the laws of the Republic of Kazakhstan.

It is worth mentioning that transactions involving transfer of the subsoil use right (share in the subsoil use right) and transfer of the subsoil use right-related objects [14] may take place with authorization of the competent authority. The transactions effected without authorization or upon expiration of its term are recognized void. The exception is represented by certain cases, the exhaustive list of which is set out in Article 44 of the Code.

It is also necessary to remember that the Kazakhstan legislation prohibits transfer of the subsoil use right:

  • under a license for exploration of solid minerals during the first year of its term;
  • under a license for geological study of subsoil;
  • under a license for gold digging.

Change of a subsoil user (holder of a share in the subsoil use right), which has occurred as a result of a transaction or any other legal event serving as a ground for legal succession, must be reflected in a license or a contract. For this purpose, it is necessary to re-issue a license for subsoil use or, accordingly, introduce amendments into a subsoil use contract. To do this, the holder and the acquirer of the subsoil use right must file a joint application and the required set of documents to the governmental authority that issued the license or entered into the contract.

Furthermore, with respect to strategic subsoil blocks the Republic of Kazakhstan has the preemptive right over any persons and organizations to acquisition of the alienated subsoil use right (share in the subsoil use right) or the subsoil use right-related objects. This right also originates with the state with respect to shares and other securities issued on an organized stock exchange, which are the subsoil use right-related objects relating to a strategic subsoil block.

The list of strategic subsoil blocks is approved by the Government of the Republic of Kazakhstan [15]. Nevertheless, Article 44.2 of the Code provides for the situations where no competent authority's authorization is required to enter into transactions involving alienation of the subsoil use right.

10. How does the subsoil use right terminate?

Among the grounds stipulated by legislation for termination of a license or a subsoil use contract, we may distinguish as follows:

  • expiration of term, for which a license has been issued or a subsoil use contract has been entered into;
  • liquidation of a legal entity, which is a subsoil user;
  • revocation of a license or its invalidation;
  • early termination of a contract or its invalidation;
  • relinquishment of a subsoil block, for which a license has been issued;
  • subsoil user's relinquishment of the whole subsoil block, for which a contract has been entered into;
  • contract cancellation by agreement of the parties; and
  • adoption of a resolution by the Government of the Republic of Kazakhstan on prohibition to use a subsoil block in accordance with the Code.

Furthermore, the competent authority may early terminate a subsoil use contract. Article 21 of the Code determines that a person may be deprived of the subsoil use right only based on the grounds established by the Code or any other laws of the Republic of Kazakhstan. These provisions also apply to licenses and subsoil use contracts issued and entered into before putting the Code into effect.

On a final note, it is worth emphasizing that the subsoil use sphere is one of the most complicated vectors of public relations in Kazakhstan, in which connection most of practical issues relating to this branch require additional review and thorough analysis in each specific case.

[1] https://oil-gas.kz/ru/press-tsentr/novosti/novosti-blog/864-kazakhstan-zanimaet-12-e-mesto-v-spiske-15-%20samykh-bogatykh-neftyu-stran. [2] https://www.zakon.kz/ekonomika-biznes/6437278-na-skolko-let-khvatit-uglya-kazakhstanu.html. [3] https://dknews.kz/ru/ekonomika/326694-atomnaya-energiya-dlya-kazahstana-bezopasnost. [4] Code No. 125-VI of the Republic of Kazakhstan "On Subsoil and Subsoil Use" dated 27 December 2017. [5] Law No. 291-IV of the Republic of Kazakhstan "On Subsoil and Subsoil Use" dated 24 June 2010. [6] Energy Charter Treaty (Lisbon, 17 December 1994). [7] The governmental authority issuing licenses in the sphere of solid minerals is the Ministry of Industry and Construction of Kazakhstan (www.gov.kz/memleket/entities/mps). [8] https://www.gov.kz/memleket/entities/energo?lang=ru [9] https://beta.egov.kz/memleket/entities/mps [10] Order № 478 of the Minister of Investment and Development of the Republic of Kazakhstan "On Approval of the Management Program for the State Fund of Subsoil" dated 28 June 2018. [11] ]https://e-qazyna.kz [12] As of the date hereof, 100 MCI is KZT 393,200 which is approximately equal to USD 800. [13] https://www.kmg.kz/ru/ [14] According to Article 41 of the Code, the subsoil use right-related objects are participatory interests, units, shares and other forms of shared participation, as well as securities confirming the right of ownership or converted into shares, participatory interests, units, and other forms of shared participation in a legal entity holding the subsoil use right, as well as in a legal entity or any other organization that may directly and/or indirectly determine the decisions made by a person holding the subsoil use right. [15] Decree No. 389 of the Government of the Republic of Kazakhstan "On Approval of the List of Strategic Subsoil Blocks" dated 28 June 2018.