Subsoil Users And NIOKR (Research & Development)

Introduction

In the beginning of 2012, the Subsoil Law1 (the "Law") was amended2 with the provisions of subsoil users' obligation to finance annually scientific research, scientific technical and development works ("NIOKR3").

Considering the stability guarantees of contracts, such obligation arises for the subsoil users of hydrocarbons or solid minerals only if it is directly set out in their subsoil use contract (including by amendments to the contract).

According to the Article 76.12-1 (Subsoil User' Obligations) of the Law, subsoil users are obliged to finance annually NIOKR, performed by Kazakhstani suppliers of goods, works and services in the amount of not less than 1 % of the aggregate annual income under contractual activities upon results of the previous year.

We would like to remind that:

Kazakhstani suppliers of works and services deem to be Kazakhstani (a) citizens and (b) legal entities with 95 percent or more of employees being Kazakhstani citizens; Kazakhstani manufacturer of goods deem to be Kazakhstani (a) citizens and (b) legal entities that produce goods of Kazakhstan origin (i.e. for which CT-KZ certificate is available). From 10 January 2015 the Law was amended with following clarifications regarding this commitment:

In case of over-fulfillment of the obligation on financing of NIOKR upon the results of the current year, the subsoil user performs adjustment (offset) of the exceeded liabilities volumes for the following reporting periods; In case of absence of Kazakhstani NIOKR suppliers, financing of these works performed by foreign suppliers is made under the permission of the Competent Authority. The obligation to submit quarterly relevant forms of reports on execution of the obligation to finance NIOKR was set out as well.

Specifics of Procuring NIOKR

Please note that according to the subsoil users' procurement rules4, procurement of NIOKR can be carried out not through a tender or request of bids, but by direct procurement (i.e. from one source), provided that the local content in the works performed will be not less than 65 percent (i.e. the payroll fund of the contractor's employees being Kazakhstani citizens shall be not less than 65 percent in the general payroll fund of the contractor).

Content of NIOKR

A detailed list of the activities relating to NIOKR is set out in the List of Works Attributed to Scientific Research, Scientific Technical and (or) Development Works5.

The list consists of the following type of...