Revocation Of License, Termination Of Subsoil Use Contract - Grounds, Procedures, And Appeals

• Published date: 19 March 2024
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Energy and Natural Resources, Contracts and Commercial Law, Mining, Trials & Appeals & Compensation
• Law Firm: Unicase Law Firm
• Author: Raushana Chaltabayeva and Sabina Semyatova

In this brief overview, we have examined the procedure and cases in which a subsoil user may be deprived of a license or a subsoil use contract.

Subsoil use is a licensed type of activity. With the introduction of the Code on Subsoil and Subsoil Use (hereinafter referred to as the "Code") in 2017 in Kazakhstan, there are two regimes of subsoil use: contractual and licensing. In practice, numerous cases of violations of the terms of license agreements and subsoil use contracts are observed. These issues are raised both in judicial and extrajudicial proceedings, making understanding the grounds, procedures, and possibilities of appealing decisions on these matters critically important for stakeholders. Regular updating of knowledge in this area helps lawyers, legal experts, and entrepreneurs effectively protect their interests and make informed decisions in complex legal situations, thus enhancing the quality of legal services and reducing potential business risks. In this regard, clients - subsoil users - frequently seek advice on measures to prevent such violations, as well as on issues related to judicial proceedings in cases where corresponding sanctions have already been applied.

Under the licensing regime, the right to subsoil use arises based on a license issued by the relevant competent authority. Currently in Kazakhstan, there are six types of licenses for subsoil use: for geological exploration of subsoil, for exploration of solid minerals, for extraction of solid minerals, for extraction of common minerals, for the use of subsoil space, and for prospecting.

The contractual regime of subsoil use involves the establishment of the right to subsoil use based on a contract concluded between the competent authority in the field of subsoil use for hydrocarbons (Ministry of Energy of the Republic of Kazakhstan) and the subsoil user. Currently, the following types of contracts are concluded: for exploration and production of hydrocarbons, for production of hydrocarbons, and for extraction of uranium.

Regulation of contracts and licenses for subsoil use occurs in accordance with the Code. In this brief overview, we have examined a list of grounds, violations that may lead to early revocation of a license or termination of a subsoil use contract.

Among the main breaches of obligations under contracts and licenses, notable violations include failure to pay taxes, threats to national security and the environment, as well as failure to comply with obligations regarding the remediation of subsoil use consequences.

Below, we have provided a more detailed description of the grounds, procedures for license revocation, and appeal procedures, as prescribed by the legislation of the Republic of Kazakhstan. The list of grounds, license revocation procedures, and appeal procedures vary depending on the type of minerals being extracted or explored by the subsoil user, as well as depending on the specific stage of such exploration or extraction. Additionally, grounds, procedures for termination, and appeal procedures for subsoil use contracts have been considered.

Geological Exploration of Subsoil

Grounds for license revocation¹

• Violations of the provisions of paragraph 4 of article 89 of the Code: "within the area of geological exploration, the subsoil user is not entitled to erect capital structures permanently store explosive substances, create pits, trenches, and other types of mining operations, or conduct excavation work. The subsoil user is only entitled to drill wells within the area of geological exploration for purposes related to geophysical research and exploration for groundwater";
• on-payment of the signature bonus for the issuance of a license for geological exploration of subsoil in the amount and within the deadlines set by the tax legislation² of the Republic of Kazakhstan.

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