Kazakhstan Geological Exploration Risks
Legal Risks Associated with Geological Exploration in Kazakhstan: A Comprehensive Overview
Kazakhstan has made remarkable progress in improving the investment climate in the exploration and production of solid minerals, with the Ministry of Industry and Infrastructure Development leading the way over the past five to seven years. Clear and comprehensive requirements have been established for obtaining licenses, validity periods, the procedure for conducting subsoil use operations, reporting, and obligations of a subsoil user. However, there are legal risks associated with geological exploration in the country that investors must be aware of.
One of the primary risks is the potential loss of the right to extract minerals. The licensed subsoil use regime introduced in Kazakhstan enshrines the fundamental right of the investor – the exclusive right of the subsoil user to obtain a mining license after the successful completion of exploration. This means that the subsoil user has the right to issue private easements, and if the land user refuses the easement, the easement can be established through the court with the determination of a reasonable fee for the right to partially use someone else’s land.
It is crucial to understand that the land user does not receive the right to use the subsoil of the land plot. The subsoil use right is granted only by the competent authority (the Ministry of Industry and Infrastructure Development of the Republic of Kazakhstan and the Ministry of Energy of the Republic of Kazakhstan – for minerals (solid minerals, oil, gas, uranium)) and akimats – for common minerals (crushed stone, sand, clay, etc.). Various forms of granting land use rights and subsoil use rights are provided, such as a land use right act, a subsoil use contract, or a subsoil use license.
However, there are cases where land users and even local executive bodies mistakenly believe that the subsoil of a land plot belongs to its owner/land user. The state grants subsoil users the right to use these subsoil in the manner prescribed by law. If for some reason the subsoil user did not agree with the land user, then the legislation imposes on the local akimat the obligation to provide the subsoil user with a land plot within which mineral reserves have been discovered.
Despite the fact that the legislation of the Republic of Kazakhstan (Land Code, Subsoil Code) directly provides for the right of local executive bodies to seize a land plot on which a deposit is discovered for state needs, akimats of some regions refuse subsoil users to seize a land plot for state needs. At the same time, they refer to the fact that the state body does not have financial means to buy out land plots, as well as to the provisions of the Land Code and the Law of the Republic of Kazakhstan “On State Property,” according to which withdrawal of a land plot for state needs cannot be recognized as withdrawal.
This refusal by akimats poses a threat to the investment attractiveness of the country. Investors who have successfully completed exploration are guaranteed by the Subsoil Code the exclusive right to obtain a mining license. However, this right is under threat, as a subsoil user cannot start mining operations without obtaining a land use right to a land plot.
If these refusals of akimats become systemic, then as an investment risk in the field of geological exploration, in addition to the well-known risks of not discovering a deposit, there will be a legal risk of not obtaining rights to a land plot and, accordingly, the risk of losing the right to extract explored minerals.
The courts of Kazakhstan have taken the position of subsoil users in disputes with akimats, concluding that the refusals of akimats to initiate a procedure for the expropriation of land plots for state needs are illegal. This means that even if the subsoil user and the land user have not reached an agreement on the sale and purchase of the land, akimats are still obligated to provide the subsoil user with a land plot for the extraction of minerals. However, despite the existence of such judicial practice, some akimats continue to refuse to cooperate with subsoil users, which poses a significant risk to their investments. To mitigate this risk, subsoil users should carefully review the land ownership status of potential mining sites and engage in open communication with local authorities to ensure that all legal requirements are met before commencing operations. Additionally, the government of Kazakhstan should take action to ensure that local authorities comply with the Subsoil Code and other relevant legislation, thereby protecting the rights of subsoil users and promoting a more stable investment climate in the country’s mining sector.