Transcript Document

Latest Changes in Regulated
Procurement, Local Content and
Subsoil Use Regulations in
Kazakhstan
Yerbolat Yerkebulanov
GRATA Law Firm
Aberdeen, 6 March 2014
Volume of Oil & Gas
Procurement in Kazakhstan
Total for 2013 - $18,1 billion:
1) TCO, KPO, NCOC (unofficially – “Three Whales”)
– $8,6 billion;
2) Samruk companies* (KMG, KazMunaiTeniz, etc.) –
$4,2 billion;
3) Other subsoil users - $5,3 billion.
* companies, where ≥ 50 percent of
shares (in)directly belong to JSC
National Wealth Fund SamrukKazyna (wholly owned by
Kazakhstan Government)
Regulation of Procurement
1) TCO, KPO,
NCOC
Their own internal rules (with prequalification). Criteria of bid awarding
are not transparent (not necessarily the
lowest price at tenders)
2) Samruk
companies
Samruk Procurements Rules No. 80 dd.
26 May 2012 (procurement from single
source or under the lowest
price)(tender.sk.kz)
3) Other subsoil Procurement Rules No. 133 dd. 14 Feb
users
2013 (single source or the lowest price)
(new.reestr.nadloc.kz)
Procurement
Procedures for Subsoil
Users*
* Except for TCO,
KPO, NCOC
1) Are goods, works and/or services (“GWS”) procured referred to in the list
of single source procurements [1] under the Procurement Rules**?
2) Can a certain product be procured at commodity markets [2]?
3) Does a GWS cost below $140,000 (below $4,000 under Samruk Rules)
per year? (if “YES” – procure by request of quotes [3])
If “NO” to all above questions, then the GWS is subject to tender [4] or auction
[5]. If no participants, procurement from single source is allowed.
**either Samruk Rules or Rules No. 133
Liability for Procurement not
under Rules 133
1) Expenses for goods, works and services (“GWS”)
procured in breach of Rules 133 are not
acknowledged by authorities as execution of annual
financial obligations of a subsoil user.
2) Every contract has a work program with certain
yearly financial obligations. Underperformance* of
such obligations and non-rectification of the breach
within a certain period by a subsoil user entails a risk
of unilateral termination of the contract by the
authorities.
Anticipated Changes in
Rules 133
1) From 1 June 2013, all prospective contractors shall have E-signature
issued to Kazakh entities or non-residents having rep offices / branches in
Kazakhstan (or to a consortium member). Draft amendments dated Jan
2014 to Rules 133 (“Draft”) will allow procurements from single source
(e.g. if a tender failed) from entities without E-signature.
2) Currently for GWS costing above $500 thousand per year a subsoil user
can require an up-to-5-years experience from prospective contractors.
Under the Draft, “$500 thousand” will be replaced by “$140 thousand”.
3) Under the Draft, for GWS costing less than $140,000 per year an
announcement for tender is given not 30, but 15 calendar days before.
Issues of Local Content
(“LC”)
1)
Almost all subsoil contracts have LC percentage
obligations for GWS* (e.g. 30% - goods, 80% works, 80% - services).
2)
Failure to achieve contractual LC entails a
penalty: up to 30%* of the non-achieved volume
of LC in GWS.
* Negotiated and set out
specifically in each subsoil
use contract
Four Dimensions of LC
TENDER (20 %
discount)*
REPORTS
GOODS
“Kazakh
manufacturer of
goods”
SERVICES,
WORKS
“Local supplier of Rj (percentage of Kazakh
services, works” employees’ payroll in overall
company’s payroll fund)
CT-KZ Certificate
* For Samruk subsoil users:
1) for goods – 0,15 % for each 1 % of LC
(max. 15%);
2) for works, services - 0,1% for each 1% of
LC (max. 10%);
TENDER GOODS
TENDER SERVICES,
WORKS
Kazakh
entities
manufacturing
goods with CT-KZ
certificate
enjoy
20 % discount at a
tender
Kazakh
entities
having ≥ % (19/1)
of
Kazakh
employees enjoy
20 % discount at
a tender
REPORTS GOODS
LC in goods supply
contracts = % set out
in CT-KZ certificate.
If “NO” – LC is 0
(zero)*.
REPORTS SERVICES,
WORKS
• LC in services contracts =
Rj, i.e. percentage of Kazakh
employees’
payroll
in
company’s general payroll
fund*.
• If goods are used (works
contract), calculation for
“Reports – Goods” shall
apply.
*Note:
For
non-resident’s
branches
in
Kazakhstan, Rj is calculated from payroll of all
the company’s staff (including foreign divisions),
i.e. normally ≤ 1%.
,
Formulae for Calculation of LC*
* According to Unified
Method of LC Calculation
For calculation of LC
in supply contract
For calculation of LC
in services or works
contract
Calculation of LC in 2 or
more GWS
1. To calculate LC in 2 or more GWS*,
we need to determine part of specific
GWS with 100 % of LC.
2. Analogue. LC is like a salt in water
(which is like a GWS).
3. If we vaporize 1 liter (1000 g) of
water with 40 % salt, we’ll then have
400 g of salt with 100% of salt
(“Concentrate (100%)”).
4. Concentrate (100%) for a
construction contract of $ 10 mio with
35 % of LC is equal to $ 3,5 mio.
* LC in goods, works or
services is calculated
separately
Calculation of LC in 2 or
more GWS (2/2)
Step 1. Determine Concentrate
(100%) in each GWS.
Example
• LC in Services 1 of $ 1 mio is 80%;
• LC in Services 2 of $ 5 mio is 50%.
What is LC in Services 1 and 2?
Step 2. Summarize Concentrates
(100%) of different GWS together
(“Result 1 (100%)”).
Resolution
1) Concentrate (100%) for Services 1
is $ 0,8 mio;
Step 3. Summarize amounts of
different GWS together (“Result
2 (Totals)”)
2) Concentrate (100%) for Services 2 is
$ 2,5 mio;
Step 4.
(i) Divide Result 1 (100%) by
Result 2 (Totals) and
(ii) multiply by 100 %.
4) Result 2 (Totals) for Services 1 and 2
is $ 6 mio;
Algorithm for LC Calculation
Result: LC share in GWS
3) Result 1 (100%) for Services 1 and 2
is $ 3,3 mio;
5) 3,2 mio divided by 6 mio is 0,55.
Response: LC in Services 1 and 2 is
55%.
Calculation of LC in
contracts with
subcontractors
Subsoil
user
Contractor
Goods
Services Subcontractor
Goods
Services
Subsubcontractor
Goods
Services
LC in Staff for Work Permits
From 1 January 2012:
Kazakh employees not less than:
1) 70% - under 1 (senior managers) and 2 (middle-level
managers) categories,
2) 90% - under 3 (specialists) and 4 (workers)
categories.
Exception (until 1 January 2015): subsoil users of
NCOC, KPO and TCO projects, their operators,
contractors and subcontractors.
Validity term: until Kazakhstan joins WTO.
Anticipated changes in Subsoil
Law (1/2)
1) Waiver of state pre-emptive right will be
required for fields of strategic significance
only (i.e. for non-strategic assets approval
lasts 20 business days instead of 70).
2) Simplification of obtaining exploration right
procedures. First came – first received (5
business days). Annual increase of rental.
Typical contract. No LC in staff and GWS.
Anticipated changes in Subsoil
Law (2/2)
3) Auction for subsoil use right – who proposed the
biggest subscription bonus will win (currently – (1)
subscription bonus and (2) payments to regional social
development)
4) Fixation period for physical volume – 6 months, for
financial obligations – 3 months (now – 1 month).
5) Exclusion of economic and ecological expertise for
draft subsoil use contracts and feasibility study for draft
project documents (i.e. shortening approval time).
Thank you for
your attention!
If you have any questions, please feel free to
contact [email protected]