Breif Review: Investing In The Power Sector Of Kazakhstan: Legal Aspects

Concession Agreement

From a legal perspective, one of the possible options for implementing a project for the financing and construction of a power plant in the Republic of Kazakhstan (hereinafter - the 'Project') is the so-called 'concession' defined as: "activities aimed at the creation (reconstruction) and operation of concession objects and performed at the expense of the concessionaire or with co-finance by grantor" (Article 1.6 of the Concession Law). Concession has following advantages: adjusted and clear legal framework as well as certain, though not entirely positive, practical experience1 of implementation of a concession agreement in Kazakhstan. So-called 'state concession liabilities' are protected against sequestering (Article 110.7 of the Budget Code). concessionaires, who are subjects of the so-called 'natural monopoly', may enjoy special tariffs/rates for their services (which can be determined according to the specific calculation formulas specified in concession agreements) and will be exempted from the general tariff regulation of natural monopolies (i.e., a concessionaire will be more protected against the risk of default of its obligations to repay credit debt because of the lack of income from the Project due to, for instance, inadequate tariffs for thermal energy2) (Article 15-1.2-1 of the Natural Monopolies Law). In theory, as the sources of compensation for its costs and income generation a concessionaire may rely not only on the sale of goods produced, but also on (i) subsidies from the State in certain cases as stipulated by the laws of Kazakhstan and (ii) a fee for availability (availability payment) of a concession object, which includes payments from the budget to compensate for the investment and operating costs of the concessionaire (Article 7 of the Concession Law). Possibility to get one or more of the following forms of state support (Article 14 of the Concession Law): 1) state guarantees on infrastructure bonds issued within the framework of a concession agreement;

2) state guarantees on loans raised to finance concession projects;

3) transfer of exclusive rights to IP object owned by the state to a concessionaire;

4) in-kind grants provided in accordance with the laws of the Republic of Kazakhstan;

5) co-financing of concession projects;

6) guarantees of state consumption of a certain amount of goods (works, services), when a principal consumer of goods (works, services) produced by a concessionaire is...

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