Nuances Pertaining To The Regulatory Consent For M&A Transactions In The Field Of Subsoil Use

In Kazakhstan the transfer of subsoil use rights and/or objects connected therewith is subject to a prior consent of the competent body. The RK Ministry of Energy serves as the competent body in the field of exploration and production of oil and gas, coal and uranium, while the RK Ministry of Investments and Development serves as the competent body in the field of exploration and production of other solid minerals. As the competent body's consent often becomes one of the key issues when conducting M&A transactions in the fields of oil and gas and mining, we would like to point out several issues related to this consent in the present note. These little nuances can become bigger issues if you ignore them.

  1. The scope of objects, transfer of which requires the competent body's consent

    The definition of objects connected with subsoil use rights (Objects) is broad and includes:

    Participatory interests and shares in a legal entity holding a subsoil use right, as well as in a legal entity which may directly and/ or indirectly determine, and/or influence, decisions adopted by a subsoil user if the principal activity of such legal entity is connected with subsoil use in Kazakhstan. Securities evidencing title to shares, or securities convertible into shares, of a legal entity holding a subsoil use right, as well as a legal entity which may directly and/or indirectly determine, and/or influence, the decisions adopted by a subsoil user if the principal activity of such legal entity is connected with subsoil use in Kazakhstan. As seen from the above definition, participatory interests and shares in ultimate or intermediary holding companies (wherever incorporated) of a Kazakhstan subsoil user are also considered to be Objects, but only if the principal activity of such a holding company is connected with subsoil use in Kazakhstan. From Kazakhstan law perspective, transfer of such participatory interests and shares would require the competent body's consent only if they constitute Objects.

    It is generally accepted that the activities of a holding company include those of its subsidiaries.

    Unfortunately, Kazakhstan law does not contain any rules or tests for determining whether the "principal activity" of a given company is connected with subsoil use in Kazakhstan. Criteria for determining the level of activity in Kazakhstan is not clear: should it be such criteria as value of assets, level of profits, amount of reserves, number of employees, etc. This legal gap creates...

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