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Project Financein 48 jurisdictions worldwide
Contributing editor: Phillip Fletcher 2014
®
Published by Getting the Deal Through
in association with:Achour Law Firm
Al Busaidy Mansoor Jamal & Co (Barristers and Legal Consultants)Ali Sharif Zu’bi Advocates & Legal Consultants CPSC
Anzola Robles & AssociatesArbe Abogados Corporativos Financieros
ArzingerBaker Botts LLP
Baker & McKenzie (Gaikokuho Joint Enterprise)Cárdenas & Cárdenas Abogados
Chibesakunda & Co AdvocatesColibri Law Firm
DFDLDoulah & Doulah
Dr Adam & AssociatesEmery Mukendi Wafwana & Associates
ENS (Edward Nathan Sonnenbergs)Fernanda Lopes & Associados
G Elias & CoHamzi Law Firm
Herbert Smith Freehills CIS LLPHeuking Kühn Lüer Wojtek
Jeantet Associés AARPIKinstellar LLPLex Caribbean
López Velarde, Heftye y Soria SCMarval, O’Farrell & MairalMehmet Gün & Partners
MENA City Lawyers – MCLMilbank, Tweed, Hadley & McCloy LLP
Miranda, Correia, Amendoeira & AssociadosMkono & Co Advocates
Nagy és TrócsányiPeliFilip
Pillsbury Winthrop Shaw Pittman LLPRodríguez & Mendoza
Simmons & Simmons LLPSoemadipradja & Taher
Souza, Cescon, Barrieu & Flesch AdvogadosStaiger, Schwald & Partner
Taxgroup pravno svetovanje d.o.o.Vandenbulke
Žurić i Partneri Law Firm
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Overview Phillip Fletcher and Cathy Marsh Milbank, Tweed, Hadley & McCloy LLP 3
Angola Alberto Galhardo Simões Miranda, Correia, Amendoeira & Associados 7
Argentina Luis E Lucero Marval, O’Farrell & Mairal 16
Bangladesh Amina Khatoon and A B M Nasirud Doulah Doulah & Doulah 23
Barbados Alana Goodman Smith Lex Caribbean 30
Brazil Roberto M A Lima Neto Souza, Cescon, Barrieu & Flesch Advogados 36
Cambodia David Doran and Sambo Ly DFDL 45
Colombia Bernardo P Cárdenas Martínez and Ofelia Díaz Bermúdez Cárdenas & Cárdenas Abogados 50
Croatia Dinka Kovačević and Maja Komljenović Žurić i Partneri Law Firm 57
Democratic Republic of the Congo Emery Mukendi Wafwana, Nady Mayifuila, Jonathan van Kempen, Rigobert Nzundu, Alain Kasende and Séverine Losembe Emery Mukendi Wafwana & Associates 64
England & Wales Andrew Petry, Adam Cooper and Helen Forsey Simmons & Simmons LLP 71
France Jean-François Adelle Jeantet Associés AARPI 80
Georgia Revaz Javelidze and Nino Begalishvili Colibri Law Firm 88
Germany Adi Seffer Heuking Kühn Lüer Wojtek 97
Hungary Zoltán Varga and Imre Nyéky Nagy és Trócsányi 103
Indonesia Rahmat Soemadipradja, Robert Reid and Barryl Rolandi Soemadipradja & Taher 111
Japan Naoaki Eguchi, Gavin Raftery and Yasuhisa Takatori Baker & McKenzie (Gaikokuho Joint Enterprise) 122
Jordan Khaled Asfour, Leena Nusseir and Dima Al-Khuffash Ali Sharif Zu’bi Advocates & Legal Consultants CPSC 129
Kazakhstan Joel Benjamin and Adlet Yerkinbayev Kinstellar LLP 136
Laos Walter Heiser, David Doran and Duangkamol Ingkapattanakul DFDL 145
Lebanon Fady Jamaleddine, Amanda El Madani, Marcus Tadros and Nour Awada MENA City Lawyers – MCL 151
Luxembourg Denis Van den Bulke and Laurence Jacques Vandenbulke 158
Mexico Rogelio López-Velarde and Amanda Valdez López Velarde, Heftye y Soria SC 166
Morocco Zineb Idrissia Hamzi Hamzi Law Firm 174
Mozambique Fernanda Lopes Fernanda Lopes & Associados 181
Myanmar James Finch and Jaime Casanova DFDL 186
Netherlands Rutger de Witt Wijnen, Frenk Huisman and Viviana Luján Gallegos Simmons & Simmons LLP 193
Nigeria Fred Onuobia, Oluwatoyin Odewole and Olajumoke Arowolo G Elias & Co 201
Oman Graham Mouat and Ravinder Singh Al Busaidy Mansoor Jamal & Co (Barristers and Legal Consultants) 207
Panama Erika Villarreal Zorita and Nadia de Halman Anzola Robles & Associates 214
Peru César Arbe and Jessica Valdivia Arbe Abogados Corporativos Financieros 222
Republic of the Congo Emery Mukendi Wafwana, Antoine Luntadila Kibanga, Nady Mayifuila, Jonathan van Kempen and Sancy Lenoble Matschinga Emery Mukendi Wafwana & Associates 228
Romania Alina Stancu Bîrsan and Oana Bădărău PeliFilip 235
Russia Artjom Buligin, Olga Davydava and Olga Revzina Herbert Smith Freehills CIS LLP 243
Saudi Arabia Christopher Aylward and Babul Parikh Baker Botts LLP 251
Slovenia Miha Mušič and Dušan Jeraj Taxgroup pravno svetovanje d.o.o. 258
South Africa Eric le Grange, Gary Anderson and Kerryn Esterhuizen ENS (Edward Nathan Sonnenbergs) 264
Sudan Mohamed Ibrahim M Adam Dr Adam & Associates 274
Switzerland Mark-Oliver Baumgarten Staiger, Schwald & Partner 282
Tanzania Angela Thorns, Kamanga Wilbert Kapinga and Anayaty Tahir Mkono & Co Advocates 288
Thailand Roy Lee, David Doran and Duangkamol Ingkapattanakul DFDL 295
Tunisia Achour Abdelmonem Achour Law Firm 303
Turkey Orçun Çetinkaya and Alişya Bengi Danışman Mehmet Gün & Partners 309
Ukraine Oleksander Plotnikov and Oleksander Zadorozhnyy Arzinger 316
United States Robert A James and Philip Jonathan Tendler Pillsbury Winthrop Shaw Pittman LLP 325
Uzbekistan Sofia Shaykhrazieva Colibri Law Firm 335
Venezuela Reinaldo Hellmund, Carlos Martinez and Miguel Velutini Rodríguez & Mendoza 344
Vietnam Martin Desautels, Hoang Phong Anh and Jérôme Buzenet DFDL 351
Zambia Eustace Ng’oma Chibesakunda & Co Advocates 357
Quick Reference Tables – US State PPP 365
Project Finance 2014Contributing editor Phillip Fletcher Milbank, Tweed, Hadley & McCloy LLP
Publisher Gideon Roberton
Business development managers Alan Lee George Ingledew Dan White
Account manager Megan Friedman
Trainee account managers Cady Atkinson Joseph Rush Dominique Destrée Emma Chowdhury
Media coordinator Parween Bains
Administrative coordinator Sophie Hickey
Trainee research coordinator Robin Synnot
Marketing manager (subscriptions) Rachel Nurse [email protected]
Head of editorial production Adam Myers
Production coordinator Lydia Gerges
Senior production editor Jonathan Cowie
Subeditor Caroline Rawson
Director Callum Campbell
Managing director Richard Davey
Project Finance 2014 Published by Law Business Research Ltd 87 Lancaster Road London, W11 1QQ, UK Tel: +44 20 7908 1188 Fax: +44 20 7229 6910 © Law Business Research Ltd 2013 No photocopying: copyright licences do not apply.First published 2007 Seventh edition
ISSN 1755-974X
The information provided in this publication is general and may not apply in a specific situation. Legal advice should always be sought before taking any legal action based on the information provided. This information is not intended to create, nor does receipt of it constitute, a lawyer–client relationship. The publishers and authors accept no responsibility for any acts or omissions contained herein. Although the information provided is accurate as of August 2013, be advised that this is a developing area.
Printed and distributed by Encompass Print Solutions Tel: 0844 2480 112
CONTENTS
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LawBusinessResearch
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KazaKhstan Kinstellar LLP
136 Getting the Deal Through – Project Finance 2014
KazakhstanJoel Benjamin and Adlet Yerkinbayev
Kinstellar LLP
1 CollateralWhat types of collateral are available?
Kazakh civil law recognises the following methods of security:• penalty;• pledge;• takingpossessionofthedebtor’sproperty;• suretyship;• guarantee;and• depositpayment.
Inadditiontotheabove,thepartiescanagreetouseothermethodsofsecuringliabilities(eg,assignment).Thetypicalformsofsecurityintheprojectfinancecontextare
thepledgeandtheguarantee.
PledgesUnder the law, collateral under the pledge agreementmay eitherremaininthepossessionofthepledgororbetransferredintothepledgeholder’spossession.Thelawrecognisesapledgeovergoodsincirculation.Kazakhlawpermitsanypropertytobeusedascollateralexcept
for:• property that is withdrawn from commercial circulation (eg,certaintypesofland);
• claimsthatareintrinsictoanindividual(eg,alimonypayments,claimsforharmtoone’shealthorlife);and
• rights that may not be assigned to third parties by law (eg,recourseclaims).
Thelawpermitstouseascollateral:• propertythatwillbeacquiredinthefuture;and• a‘propertycomplex’(theentireenterprise).
Themostcommonlyusedtypesofcollateralintheprojectfinancecontextare:• land,buildingsandotherimmoveableproperty;• shares and participating interests in the charter capital of anentity;
• funds (including on bank accounts and in the form of bankdeposits);
• receivables;and• contractualrights.
2 Perfection and priorityHow is a security interest in each type of collateral perfected and how
is its priority established? Are any fees, taxes or other charges payable
to perfect a security interest and, if so, are there lawful techniques
to minimise them? May a corporate entity, in the capacity of agent or
trustee, hold collateral on behalf of the project lenders as the secured
party?
Perfection of pledgesDependingonthetypeofasset,perfectionofapledgemayrequireregistration,thegovernment’sconsentornotificationoftherelevantperson.
RegistrationRegistrationrequiredforpledgesofallpropertytoestablishprior-ity over subsequent registered pledgeholders and all unregisteredpledgeholders(namely,perfection).Registrationofapledgeisrequiredinordertoensurethevalid-
ityofthepledgewherethecollateraliseitherimmoveablepropertyormoveablepropertythatissubjecttomandatorystateregistration.Mandatoryregistrationisrequiredforapledgeover,interalia:• land,buildingsandotherimmoveableproperty;• shares;• participatinginterestsinthechartercapitalofanLLPifthecom-pany’sregistryofparticipantsismaintainedbyanindependentregistrar;
• vehicles;and• subsurfaceuserights.
Apledgeagreementmustalsoberegisteredifitprohibitsre-pledgeofthecollateralorspecificallyrequiresregistrationinordertobevalidevenifthecollateralisnotsubjecttomandatorystateregistration.Registrationofapledgeovermoveablepropertygrantedbya
foreignentityrequirespriorregistrationofsuchanentitywiththeKazakhtaxauthoritiesasataxpayer.ThetaxregistrationisrequiredinordertoenableregistrationofthepledgegrantedbysuchforeignentitywiththeKazakhregistrationauthorities.Subsequentamendmentofapledgeagreementdoesnotrequire
registration thereof with the relevant Kazakh registration authorities unless:• suchamendmentchangesthecollateral;or• the parties to the pledge agreement wish to register suchamendment.
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ConsentsPriorconsentfromtheauthorisedstatebodyisrequiredforapledgeover,interalia:• subsurfaceuserights;and• ‘strategicobjects’,beingassetsthataredeemedtobestrategicobjects(suchasoilandgaspipelines,nationalelectricitygrid,oilrefineries,internationalairandseaports,etc)andequityinter-ests in entities holding such assets or in the entities that directly orindirectlydefineorinfluencedecisionsoftheentityholdingsuchassets.
NotificationsAnotificationisrequired,interalia,for:• apledgeoverrights(eg,receivables)–thedebtormustbenoti-fied;and
• apledgeovermoniesonabankaccountorintheformofabankdeposit–thebankmustbenotified.
Perfection of guaranteesThere are no specific registration requirements in respect ofguarantees.
Fees and taxesThefeeforregistrationofapledgeoversharesisapercentageofthevalueof thesharesbeingpledged.Feesforregistrationofpledgesoverothertypesofassetsarenominal.Therearenoother feesor taxespayable for registrationofa
pledge.
Security agents or trusteesThereisnoconceptofasecurityagentorsecuritytrusteeinthelocallaw.Further,anon-creditorisnotpermittedtobeapledgeholderorabeneficiaryunderaguarantee.Inviewoftheserestrictions,asecurityagentortrusteemayact
onbehalfofthecreditorsaspledgeholderorbeneficiaryofaguar-anteeonly if the securityagent isalsoacreditoror thefinancingagreementcontainsa‘paralleldebt’provisionmakingthesecurityagent or trustee a ‘creditor’.Although the ‘parallel debt’ conceptisnotexplicitlyrecognised inthe law, it isoftenused inpractice.However,thereisariskthatthevalidityofsuchaprovisionmaynotbeupheldbyacourt.
3 Existing liensHow can a creditor assure itself as to the absence of liens with priority
to the creditor’s lien?
Theregistrymaintainedbytherelevantregistrationauthoritymustcontain all security interests that have been registered with thatauthority.An extract from the registrywill be sufficient to confirm the
absenceofanyregisteredthird-partysecurityinterestsinrespectofthecollateral.Inpractice,athirdparty(eg,acreditor)maynotbeabletoobtaintheextractitselfandmayhavetoaskthepledgortoobtainanextract.
4 Enforcement of collateralOutside the context of a bankruptcy proceeding, what steps should a
project lender take to enforce its rights as a secured party over the
collateral?
Types of enforcement procedureApledgeisenforcedbywayofeither:• acourt-administeredsale–intheabsenceoftheparties’agree-
ment to use an out-of-court sale or in situations where the col-lateral is such that it requires a court-administered sale (eg,subsurfaceuserights);or
• anout-of-courtsale–insituationswherethepartiesexplicitlyagreeinthepledgeagreementtoanout-of-courtsale.
Inbothcases,thereisapublicsale(auction)ofthecollateral.Asaleisnotrequiredinthecaseofenforcementofapledgeovermoniesandreceivables.Apledgeoverthistypeofcollateralisenforcedbywayofatransferofthemoniestothepledgeholder.
Steps required to enforce the pledgeAnout-of-courtsaleisorganisedbyanattorneyappointedbythepledgeholderor,ifthereisanagreementbetweentheparties,boththepledgeholderandthepledgor.The followingnotices are required tobegiven foranout-of-
court sale of collateral:• anoticeofdefault–thisnoticemustbeprovidedtothepledgorandregisteredwiththeauthoritythatregisteredthepledge;and
• anoticeoncarryingoutthesaleofthecollateral–thisnoticecanbeissuednoearlierthan30daysafterthenoticeofdefault,andmustbeprovidedtothepledgorandthepledgeholderandreg-isteredwiththeauthoritythatregisteredthepledge.Thenoticemustalsobepublishedinthenewspapersatleast10daysbeforetheauctiondate.
AuctionAnyperson–includingtheprojectlenders,thepledgeholder(ifdif-ferentfromtheprojectlenders)andthepledgor–canparticipateasbuyersinthesaleofthecollateral.Thecollateralcanbetransferredintothepledgeholder’sowner-
shipatitsappraisalvalueifthecollateralisnotsoldattheauction.Salesinforeigncurrencyarenotpermittedunlessthecurrency
controllawallowstransactionsinforeigncurrencyinrespectofthistypeofcollateral(eg,securitieshavinganominalvalueinforeigncurrency)orthebuyerisanon-resident.
Self-help remediesSelf-helpremediesareavailableintheory.
ConsentsGovernmentconsentsmayneedtobeobtainedinconnectionwiththesaleandpurchaseofthecollateral.Dependingonthetypeofthecollateral,agovernmentconsentmayberequiredtobeobtainedby:• apledgeholderforthesaleofthecollateral(eg, inthecaseofauctioninrespectof‘strategicobjects’)orforthetransferofthecollateralintothepledgeholder’sownership(eg,wheresuchcol-lateralisintheformofsubsurfaceuserights);
• anypersoninorderforhimorhertobeabletoparticipateintheauction(eg,inthecaseofauctioninrespectofsubsurfaceuserights);or
• an acquirer (eg, in a case where antimonopoly consent isrequiredtobeobtainedbytheacquirer,suchas,forinstance,forthepurchaseofmorethan25percentofthesharesorpartici-patinginterestsinacompanyifcertainthresholdsaremet).
5 Bankruptcy proceedingHow does a bankruptcy proceeding in respect of the project company
affect the ability of a project lender to enforce its rights as a secured
party over the collateral? Are there any preference periods, clawback
rights or other preferential creditors’ rights (eg, tax debts, employees’
claims) with respect to the collateral? What entities are excluded from
bankruptcy proceedings and what legislation applies to them? What
processes other than court proceedings are available to seize the
assets of the project company in an enforcement?
Creditors’ rights in the context of bankruptcy proceedingsBankruptcyisthemaininsolvencyprocedureunderKazakhlaw.Followingtheinitiationofbankruptcyproceedings,allcreditors
including a secured lender may enforce its rights only in the course
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138 Getting the Deal Through – Project Finance 2014
ofthebankruptcyproceedings.Thereisnorighttoforecloseonthecollateralafterbankruptcyproceedingshavebeeninitiated.Inbankruptcy,creditors’claimsaresatisfiedeitherincashorin
kind(namely,bywayoftransferofpropertytothecreditor),pro-videdthecreditoragreestoin-kindsatisfactionofitsclaims.Asarule,foreigncreditorsaretreatedthesameaslocalcreditors
inalltypesofinsolvencyproceedings.
Priority of secured creditors’ claimsInthebankruptcycontext,claimssecuredbyapledgeoverthedebt-or’sassetsaretreateddifferentlyfromclaimssecuredbyothertypesofsecurity.
Claims secured by pledgeClaimssecuredbypledgearesatisfiedafter:• claims foralimonypaymentsandcompensation forwrongfuldamagetoone’shealthorlife;and
• claimsforpaymentunderemploymentcontracts,relatedsocialsecurityandmandatorypensionpayments,andundercopyrightagreements.
Taxclaimsandclaimsforothermandatorypaymentsintothebudgetandallothercreditors’claimsaresatisfiedafterclaimssecuredbypledge.Securedclaimsaresatisfieduptothevalueofthecollateral.Any
claimsthatexceedthevalueofthecollateralaretreatedasunsecuredclaims.Ifthedebtor’sassetsarenotsufficienttopaycreditorswitha
ranking aheadof creditors secured by pledge, the claims of suchcreditorswillbesatisfiedattheexpenseofthecreditorssecuredbypledge.
Claims secured by other types of securityClaimssecuredbyothertypesofsecurity(eg,bywayofaguarantee)willrankparipassuwithallothercreditors’claims.
Clawback periodsThe following transactionsmay be challenged in the case of thedebtor’sbankruptcy:• A transaction made within three years prior to initiation ofbankruptcy involving the transfer of property free of charge,belowmarketpriceorwithoutsufficientgroundstothedetri-mentofthecreditors’interests.
• A transaction made within three years prior to initiation ofbankruptcyinvolvingthetransferofpropertytoacreditoriftheobligationstosuchcreditorwerefulfilledpriortomaturitytothedetrimentofthecreditors’interests.
• A transaction thatwasmadeafter the initiationof thebank-ruptcyproceedingsifsuchtransactionleadstopreferentialsatis-factionofoneofthecreditor’sclaims.
Theseclawbackprovisionsapplyinthecaseofrehabilitationofadebtor(discussedbelow).Intherehabilitationcontext,theclawbackperiodsapplytotransactionsenteredintobythedebtorwithinthreeyearspriortoinitiationofrehabilitation.
Entities excluded from bankruptcy proceedingsBankruptcyproceedingsdonotapplytostateenterprisesandstateinstitutions.Thereisnoinsolvencyprocedureinthelocallawforthesetypes
ofentities.
Rehabilitation procedureInadditiontothebankruptcyprocedure,Kazakhlawprovidesforarehabilitationprocedure.TherecentamendmentstotheLawonBankruptcymaketherehabilitationprocedureanattractivetoolforrehabilitatinginsolventdebtors.Therehabilitationregimeaffordsto
thedebtorprotectionsanalogoustotheonesavailableinthebank-ruptcycontext(including,forinstance,theabilitytoclawbackcer-tain transactions entered intoprior to initiationof rehabilitation)except that at the endof the rehabilitation the entity resumes itsoperationsasagoingconcern.
6 Foreign exchangeWhat are the restrictions, controls, fees, taxes or other charges on
foreign currency exchange?
Generally, foreign currency exchange transactions are carriedoutwithout restrictions. Certain types of transactions are subject toeitheraregistrationregimeoranotificationregime.Ifsucharegimeapplies,itisthesoleobligationoftheresidenttocomplywiththeregime’s requirements.A non-residentmaynot be held liable fortheresident’sfailuretocomplywiththeregime’srequirements.Intheory,ifaresidentfailstocomplywiththerequirements,anon-res-identmaysuffernegativeconsequencesfromsuchafailurebecauseabankmayrefusetotransactpayments.However,inpractice,allpaymentsthataresubjecttotheregimesmustbecarriedoutthroughbanks,whicharecurrencycontrolagentsandarerequiredtoensurecompliancewiththeregime.Thetransactionsthataresubjecttotheseregimesinclude,inter
alia,thefollowingtransactionsbetweenresidentsandnon-residents:• acommercialcreditforaperiodexceeding180days;• adirectinvestmentwherebyanon-residentacquires10ormorepercentofthevotingsharesorinterestsinaKazakhstanentityoratransactioninvolvingthepurchaseofequitycapital(sharesorinterests)orderivativefinancialinstruments;
• aloanforaperiodexceeding180days;• apurchaseofimmoveableproperty;and• apurchaseofintellectualpropertyrights.
Inrespectofapurchaseorsaleofforeigncurrency,thelawrequiresthat any purchase or sale of foreign currencywithinKazakhstanmustbecarriedoutthroughaKazakhstanbank.Thereisnonotifi-cationorregistrationrequirementforthistypeoftransaction.
Registration regimeThe registration regime involves the initial registration of the trans-actionbytheresidentwiththeNationalBankofKazakhstan(NBK)andthesubsequentfilingofcertainquarterlyreportstotheNBK.Theregistrationregimeappliestocertaintransactionssuchascom-mercialcredits,direct investments, loansandpurchaseof intellec-tualpropertyrightsiftheycreateanobligationbytheresidenttopay to thenon-residentanamountexceedingUS$500,000or theequivalent.
Notification regimeThenotificationregimeinvolvestheinitialnotificationoftheNBKbytheresidentregardingthetransactionandthesubsequentfilingofquarterlyreportswiththeNBK.Thenotificationregimeappliestocertaintransactionssuchastransactioninvolvingthepurchaseofequitycapital(sharesorinterests)orderivativefinancialinstruments(other than the direct investments) and purchase of immoveableproperty,iftheycreateanobligationbytheresidenttopaytothenon-residentanamountexceedingUS$500,000ortheequivalent.
FeesTherearenofeesortaxesthatapplytoforeignexchangetransactions.
Special currency regimeThelawallowsthestatetointroducea‘specialcurrencyregime’onatemporarybasisinthecaseofathreattotheeconomicsecurityofKazakhstanandthestabilityofitsfinancialsystem.Ifthisregimeisintroduced,thenthestatemayrestrictcertaintypesoftransactionsbetweenresidentsandnon-residents.Forinstance,theregimemay
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providearequirement(i) toplaceapercentageofthetransactionamountonanon-interest-bearingdeposit; (ii) toobtain a specialpermissionforcarryingoutatransaction;or(iii)tosellforeignearn-ingsinKazakhstan.Thisregimemaybeintroducedforamaximumperiodofoneyear.
7 RemittancesWhat are the restrictions, controls, fees and taxes on remittances of
investment returns or payments of principal, interest or premiums on
loans or bonds to parties in other jurisdictions?
There are no restrictions on remittances of investment returns or paymentsofprincipal,interestorpremiumsonloansorbondstopartiesinotherjurisdictions.Theresidentwhomakessuchremittancesmayberequiredto
complywiththenotificationorregistrationregimes.Theremittancesmaybesubjecttotheapplicablewithholding
tax,whichmaybe reducedbyapplicationofdouble tax treaties.Therearenootherfeesonsuchremittances.
8 RepatriationMust project companies repatriate foreign earnings? If so, must they
be converted to local currency and what further restrictions exist over
their use?
AKazakhcompanymustrepatriatetoitsKazakhbankaccount:• earnings in foreign andnational currency from the export ofgoods,worksorservices;and
• foreignandnationalcurrencytransferredbyittoanon-residentunderacontractfortheimportofgoods,worksorservicesifthenon-residentfailstoperformitsobligationsunderthecontract.
Therepatriationrequirementisdeemedtohavebeensatisfiedincer-taincircumstanceswithoutactualrepatriation(eg,inthecaseofset-offofanon-resident’sobligationagainstaclaimagainsttheKazakhcompany).AKazakhcompany isnot required to convert into local cur-
rencyitsforeignearningsonKazakhbankaccounts.AKazakhcompanymayuseforeignearningsonKazakhbank
accountsforanylegitimatepurpose.AKazakhcompanymaynotwithdrawfromitsKazakhbank
accountsforeignearningsintheformofcashexcepttomakecertainpaymentsincashtoindividuals(eg,forpaymentofsalariestoitsnon-residentemployees).
9 Offshore and foreign currency accountsMay project companies establish and maintain foreign currency
accounts in other jurisdictions and locally?
AKazakhcompanymayestablishandmaintain foreign currencyaccountsinotherjurisdictionsandinKazakhstan.In practice, the Kazakh company is limited in its ability to
accumulate funds on its offshore bank accounts by the repatria-tionrequirement(seequestion8).Theexceptionfromtherepatria-tionrequirementincludes,interalia,thecompany’srighttosecurethecompany’sobligationsunderaloanfromanon-residentortofinanceitsoverseasbranchesandrepresentativeoffices.In respect of its offshore bank accounts, a Kazakh company
must:• notifytheNBKofopeninganoffshorebankaccountwithin30daysfromthedateofsigningofthebankaccountagreement;
• provide theNBKwithquarterly reports in respectof theoff-shorebankaccount;and
• providetheNBKwithmonthlyreportsifthecompanymakesorreceivespayments through itsoffshorebankaccount inanamountexceedingtheequivalentofUS$50,000oranequiva-lentandsuchpaymentrelatestoanagreementfortheexportorimportofgoods,worksorservices.
10 Foreign investment and ownership restrictionsWhat restrictions, fees and taxes exist on foreign investment in or
ownership of a project and related companies? Do the restrictions
also apply to foreign investors or creditors in the event of foreclosure
on the project and related companies? Are there any bilateral
investment treaties with key nation states or other international
treaties that may afford relief from such restrictions? Would such
activities require registration with any government authority?
RestrictionsKazakhlawrestrictsforeignownershipinthefollowingsectors:• telecommunications–foreignentitiesandindividualsmaynotownorhold(directlyorindirectly)morethan49percentofthesharesor interestsofanoperatorof intercityor internationalcommunications or both, which ownsmain communicationslines;
• massmedia–foreignentitiesandindividualsmaynotownorholdormanage(directlyorindirectly)morethan20percentofthesharesorinterestsofamassmediacompany;and
• certainothersectors(eg,privateguard(security)service).
Investmentbyaforeignorlocalinvestorintocertaintypesofentitiesorassets requiresgovernmentalapproval.Suchapprovalmustbeobtainedpriortomakingtheinvestment.Dependingonthetypeoftheentityorassetinvolved,theapprovalmayneedtobeobtainedbyeithertheacquirerortheseller.Incertaincases,thestatehasastatutorypre-emptiverighttoacquiretheentityorassetinvolved.Generally,theapprovalmaynotberefusedsolelyonthebasis
thattheinvestorisaforeignentity.However,incertaincases(suchasinthecasewheretheapprovalforthesaleofa‘strategicobject’issought)thelawgrantstotherelevantgovernmentauthoritytherighttorejectanapplicationforapprovalwithoutspecifyingthereasonsforsuchrejection.Theaboverestrictionsalsoapplyintheeventofforeclosureon
therelevantcompany.Bilateral investment treaties do not afford relief from such
restrictions.
TaxesTherearenotaxesorfeespayableonforeigninvestmentorowner-shipofalocalprojectcompany.
RegistrationsForeigninvestmentmayrequireregistrationasa‘directinvestment’withtheNBKornotificationtotheNBK,dependingonthesizeoftheinvestment.
11 Documentation formalitiesMust any of the financing or project documents be registered or
filed with any government authority or otherwise comply with legal
formalities to be valid or enforceable?
Written formAsarule,allagreementsmustbereducedtowrittenform.
LanguagesAllagreementsbylocalentitiesmustbeformulatedintheKazakhlanguage.However,atpresent,thereisnopenaltyforafailuretocomplywiththisrequirement.
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140 Getting the Deal Through – Project Finance 2014
Typically,mostagreementswithforeignpartiesareformulatedinEnglishand,wherethepartieswishtodoso,alsoinRussian.
FilingsFormosttypesoffilingswiththestateauthoritiesitissufficienttoprovideeitheraRussianorKazakhtranslationoftheagreement.However, certaindocumentsmustbedrafted inbothKazakh
andRussian inorder for theirregistrationorfilingwith thestateauthorities(eg,acharterofalegalentity).
NotarisationGenerally,notarisation isnot required except for certain typesofdocuments(suchaschartersoflegalentities,agreementsforthesaleandpurchaseofimmoveableproperty,etc).
ApostilleApostilleorlegalisationmayberequiredwhereforeigndocumentsneedtobeprovidedtostateauthorities.
12 Government approvalsWhat government approvals are required for typical project finance
transactions? What fees and other charges apply?
Investments Investmentsmayrequirethefollowinggovernmentapprovals:• antimonopoly consent is usually required for acquisition ofmorethan25percentinthechartercapitalofanentity;and
• otherconsentsmayberequiredifthetargetcompanyoperatesinasectorthatrequiresgovernmentconsentforacquisitionofsharesinsuchcompany(suchas,forexample,oilandgasandmining,financialsector).
InvestmentmayalsobesubjecttoregistrationwiththeNBK.
LoansGovernmentapprovalsarenotrequiredforloans.Loansbetweenresidents and non-residents exceeding certain thresholdsmust beregisteredwithornotifiedtotheNBK.Generally, granting of security for a loan does not require
governmental approval. However, government approvals mayberequiredforgrantingsecurityovercertaintypesofassets,suchas, inter alia, assets that are deemed to be strategic objects and subsurfaceassets.
OperationsThere are various government approvals required for companiesoperatingincertainsectorsoftheKazakheconomy.Forinstance,acompanymayberequiredtoobtainalicencefromtherelevantstateauthorityinordertobeabletocarryoutaparticulartypeofactivity.Otherapprovalsmayberequired,including,interalia,approvalsforconstruction,etc.
Transactions and remittances by foreign parties or by local companies owned or controlled by foreign partiesTherearenospecialgovernmentapprovalsrequiredfortransactionsandremittancesbyforeignpartiesorbylocalcompaniesownedorcontrolledbyforeignparties.
FeesIn all of the above cases, there are either no fees payable or theamountofsuchfeesisnominal.
13 Foreign insuranceWhat restrictions, fees and taxes exist on insurance policies
over project assets provided or guaranteed by foreign insurance
companies? May such policies be payable to foreign secured
creditors?
Kazakh lawprohibits foreign insuranceovermost typesofassetslocatedontheterritoryofKazakhstan.Theseassetsmustbeinsuredby local insurance companies. Local insurance companies mostoftenwillreinsuretheirriskswithforeigninsurancecompanies.Mandatory insurance with local insurance companies is
requiredforcertaintypesofassetsandrisks,suchasecologicalrisks,insuranceofemployer’s liability inthecaseofaccidents involvingan employee that occurswhen the employeeperformshis or heremploymentduties,liabilityofavehicle’sowner,liabilityrelatingtothedrillingofwellsofanownerofhazardousobjects,etc.Inrespectofthemandatorytypesofinsurance,thelosspayeeis
determinedbylaw(usually,athirdpartytowhomliabilityisowedasaresultofaninsuranceevent).Thelosspayeemaybeaforeignsecuredcreditorinrespectofvoluntarytypesofinsurance.
14 Foreign employee restrictionsWhat restrictions exist on bringing in foreign workers, technicians or
executives to work on a project?
Work permitsAworkpermitfromstateauthoritiesisrequiredinordertoemployaforeignworker.Therearecertainexceptionsfromtheworkpermitrequirementforcertaincategoriesofforeignworkers,suchas,forinstance,theheadofabranchorrepresentativeofficeofaforeignentity.Workpermitsareissuedonthebasisofanannualquotaforthe
numberofforeignersemployedineachregionofKazakhstanandthecitiesofAlmatyandAstana.Beforesubmittinganapplicationforaworkpermit,anemployer
mustnotifythecompetentbodyaboutanyavailablevacancies.Suchnotificationshallbemadeat least15dayspriortosubmittinganapplicationforaworkpermit.Applicationsforworkpermitsareevaluatedonapoints-based
systemthattakesintoaccountthecandidate’sexperience,educationandthelikelihoodthatthevacancycanbefilledbyalocalworker.Obtainingaworkpermittakesaboutthreemonths,althoughitmaytakelongerincertaincases.Theapplicationsare subject toacashdeposit requirement to
securetheforeignworker’sdeparturefromKazakhstanupontermi-nationofhisorheremployment.Workpermitsmaybeissuedsubjecttocertainconditions,such
asarequirementtotrainlocalstaffortocreateadditionaljobsforlocalstaff.Workpermitsarealsousuallygrantedforalimitedperiodonly(eg,aninitialperiodofoneyearandtworenewals)sometimeswiththerequirementthattheforeignemployeebereplacedattheendofthetermbyalocalemployee.IndividualswhocometoKazakhstantocarryoutentrepreneur-
ialactivitiesarenotrequiredtoobtainaworkpermitonthebasisofanexceptionavailablefor‘business-immigrants’.Foreignemployeeswithcertainqualificationsmayobtainwork
permits for themselves.Authoritiesmay grant aworkpermit forself-employedpersonsforuptothreeyears,aslongasthetotalnum-berofforeignemployeesdoesnotexceedtheapprovedstatequota.Theworkpermitforself-employedpersonsisvalidwithinonlyoneregionofKazakhstan.
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VisasAforeignworkermusthaveavalidpassportand,ifrequired,aworkvisainordertobeabletoenterKazakhstan.Aworkvisaisissuedonthebasisofaworkpermitandisvalidonlyforthetermofsuchworkpermit.Majorforeigninvestorsmayapplyforinvestors’visasforCEOsandtopmanagement.Amultipleentryinvestor’svisacanbeissuedforaperiodofuptothreeyears.
Citizens of most CIS countries do not need a visa to enter Kazakhstanbutwillneedaworkpermit towork inKazakhstan.However,citizensofcountriesthatarepartoftheCustomsUnion(namely,RussiaandBelarus)donotrequireaworkpermitinordertoworkinKazakhstan.
Registration requirementsAforeignworkermustregisterwiththestateauthoritieswithinfivecalendardaysofarrival.
15 Equipment import restrictionsWhat restrictions exist on the importation of project equipment?
Theimportationofprojectequipmentissubjecttotherequirementsofthecustomslegislation(eg,paymentofapplicablecustomsduties,etc).Asof1July2010,Kazakhstan isamemberof theCustomsUnionbetweenBelarus,KazakhstanandtheRussianFederation.Importationofprojectequipmentorgoodsmayrequireobtain-
ing of a licence. The licensing regime applies to certain types ofgoods (eg, explosive substances). Importation may also requireobtainingofacertificateofcomplianceoradeclarationofcompli-anceinrespectofequipment.Thisrequirementappliesto,interalia,vehicles,agricultureequipment,electronicmachinesandequipment,constructionmaterials,etc.Importationmayalsobesubjecttorestrictionsappliedbythe
government,interalia,asanti-dumpingmeasuresortemporarypro-tectivemeasuresintheformofspecialprotectivedutiesorquotasforimportationofgoods.
16 Nationalisation and expropriationWhat laws exist regarding the nationalisation or expropriation of
project companies and assets? Are any forms of investment specially
protected?
Thelawonstatepropertyregulatesnationalisationorrequisitioningofprivateproperty.
NationalisationNationalisationmayonlybecarriedoutintheinterestsofthesoci-etyinordertoensurenationalsecurity.Thelawprovidesthatthestatemustnationalisewithoutdiscrimination,inatransparentman-ner,andonlyafterallotherpossible legalmeansofalienationofpropertyprovidedforbytheCivilCode(eg,saleandpurchase)areexhausted.Nationalisationofparticularpropertymayonlybecarriedout
on thebasis of a law that specifically allows that property tobenationalised.Wherepropertyhasbeennationalised,theownerofthatprop-
ertyhasthefollowingrights(protections):• theownerhastherighttoreceivemarket-valuecompensationforthenationalisedpropertyandotherdamages;
• compensationcannotbepaidininstalments;• propertyshallbehandedovertothestateonlyaftertheownerreceives‘equivalentcompensation’;and
• theownerhastherighttojudicialreviewoftheowner’srights(eg,compensation),butnottojudicialreviewofthenationalisa-tionitself.
RequisitionPrivatepropertymayberequisitionedeither:• in the caseof an emergency situation causedby anatural orman-madedisaster;or
• in the case that it is required for defence purposes during aperiodofmartiallaw.
In the first instance, requisition is limited to the territory of theemergencyandcanbecarriedoutonlyinexceptionalcircumstanceswhen the state’s reserves are not sufficient to protect people, theenvironmentandcertainotherobjectsfromthatemergency.Thelawguaranteesmarketvaluecompensationtotheownersoftherequi-sitionedproperty in the caseof an emergency situation.The lawexplicitlyprovidesthatthevaluationofthepropertyandthedeci-siontorequisitionpropertymaybeappealedincourtbytheowner.Inthesecondinstance,thelawdoesnotprovideforsimilarguar-
anteestotheownersofpropertythat issubjecttorequisition.Assuch, the lawonly states that the compensation for the propertyrequisitioned for thepurposesofdefence ispaid fromthebudgetandtheprocedureforcompensationmustbesetforthinthegovern-ment’sregulation.
ProtectionsTherearenoprotectionsforspecificformsofinvestments.Certainprotectionsmaybeavailablepursuanttobilateraltreatiesonpro-tection of investments betweenKazakhstan and the relevant for-eign country and multilateral treaties and conventions to which Kazakhstanisaparty.
17 Fiscal treatment of foreign investmentWhat tax incentives or other incentives are provided preferentially
to foreign investors or creditors? What taxes apply to foreign
investments, loans, mortgages or other security documents, either for
the purposes of effectiveness or registration?
Thecurrenttaxregimeappliesequallytolocalandforeigninvestors.Therearenotaxincentivesthatarespecificallyprovidedtoforeigninvestors.Investorsintoprioritysectorsoftheeconomymayobtainincentivesonthebasisofaninvestmentcontractwiththestateintheformofwaiversofapplicablecustomsdutiesandapplicablelandandpropertytaxes,grantsofstatepropertyandindustrialincentivesforlegalentitiesthatconductstrategicprojectsinlocationswithalowlevelofsocio-economiclife.Therearenotaxespayableforthepurposesofeffectivenessof
foreigninvestments,loansorsecuritydocuments.Nominalfeesarepayableforthepurposesofregistrationofsecuritydocuments.
18 Government authoritiesWhat are the relevant government agencies or departments with
authority over projects in the typical project sectors? What is the
nature and extent of their authority? What is the history of state
ownership in these sectors?
TheMinistryofOilandGas(MOG)hascomprehensiveregulatoryandsupervisoryauthorityoverthepetroleumsector(includingoilandgasandchemicalrefining).MOGpreparestendersforgrant-ingrightsforexploration,developmentandproductionofhydro-carbons;representsthestateinnegotiationsandsignsallsubsurfaceusecontractsinthesector;approvesworkprogrammes;andhastherighttoamend,suspendandterminatecontracts.TheMinistry of Industry of New Technologies (MINT) has
comprehensiveregulatoryandsupervisoryauthorityoverthemin-ingsector.MINThasthesameauthoritiesasMOGbutinrelationtominingratherthanoilandgas.
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Localauthorities(Akimats)areresponsibleforgrantinglanduserights, forcontrolandsupervisionover theuseandprotectionofland,waterandtheenvironment,andformonitoringcompliancewithlocalcontentobligations.Usage and protection of the water fund, water supply and
water disposal regulation is carried out by the Committee onWater Resources of the Ministry of Agriculture, the Agency onConstruction,HousingandUtilitiesandtheAkimats.MINTistheprimaryregulatorofthepowersector.MINTissues
licences for theproduction, transmission,distributionand saleofelectricity.TheMinistryofTransportationandCommunications (MTC)
regulatestransportation(includingair,railroad,seaandautomobiletransportation)andcommunicationservices(eg,telephones,televi-sion,radioandpostalservices).MTCissueslicencesfortheprovi-sionoftransportationandcommunicationsservices.The competent authority responsible for the management of
stateownership is theMinistryofFinance.Themajorityof stateassets(includingstakesinthenationalcompanies)areownedbytheNationalWelfareFund‘Samruk-Kazyna’.
19 International arbitrationHow are international arbitration contractual provisions and awards
recognised by local courts? Is the jurisdiction a member of the ICSID
Convention or other prominent dispute resolution conventions? Are
any types of disputes not arbitrable? Are any types of disputes subject
to automatic domestic arbitration?
Kazakhstan is a party to the 1958 New York Convention onRecognition and Enforcement of Foreign Arbitral Awards(the Convention). Like the Convention, the Kazakh Law ‘OnInternational Commercial Arbitration’ provides for the enforce-mentofforeignarbitralawards.AforeignarbitralawardobtainedinastatethatisapartytotheConventionwillbeenforceablebyaKazakhcourt,subjecttothequalificationsintheConventionandcompliancewithKazakhcivilprocedureandtheproceduresestab-lishedbytheKazakhlegislationoncommercialarbitrationfortheenforcementofarbitralawards.KazakhstanisalsoapartytotheICSIDConvention.There arenodisputes that are subject to automatic domestic
arbitration.Thepartiesmayagreetosubjectdisputestodomesticarbitration.DisputesrelatingtoimmoveablepropertylocatedinKazakhstan
andcertainotherdisputesmaynotbe subject to internationalorlocalarbitrationbutarereservedforKazakhcourts.
20 Applicable lawWhich jurisdiction’s law typically governs project agreements? Which
jurisdiction’s law typically governs financing agreements? Which
matters are governed by domestic law?
Most project agreements are typically governed by foreign lawexceptformattersthataresubjecttoKazakhlaw(eg,pledgeagree-ments as to collateral in Kazakhstan). Financing agreements aretypicallygovernedbyforeignlaw.Kazakhlawprovidesforfreedomofchoiceinrespectofacon-
tract’sgoverning law.However,Kazakh lawprevails in situationswhere: • foreignlawconflictswiththepublicpolicyofKazakhstan;• theimperativenormsofKazakhlawapply;or• thecontractincludesmattersthatmustbegovernedbyKazakhlaw (eg, matters relating to immoveable property located inKazakhstanandotherpropertyincludedintheKazakhstanstateregistryorregulationofrelationshipsbetweentheparticipantsofaKazakhcompany).
21 Jurisdiction and waiver of immunityIs a submission to a foreign jurisdiction and a waiver of immunity
effective and enforceable?
A submission to foreign jurisdiction will be recognised by localcourts as a valid submission. However, judgments of courts ofmostwesternjurisdictions(includingtheUnitedStates,theUnitedKingdomandmostwesternEuropeancountries)willnotbeenforce-able in Kazakhstan because Kazakhstan does not have relevantinternationalagreementswithsuchjurisdictions.JudgmentsofcourtsofmostCIScountrieswillbeenforceable
inKazakhstansinceKazakhstanisapartytorelevantinternationalagreementswiththesecountries.Awaiverof immunitybystate institutions ispossible,willbe
recognisedaseffectiveandwillbeenforceable.Privatecompaniesandcompanieswithstateparticipationdonothavestateimmunity.
22 Title to natural resourcesWho has title to natural resources? What rights may private parties
acquire to these resources and what obligations does the holder
have? May foreign parties acquire such rights?
Thesubsurfaceandnaturalresourcescontainedtherein, includingminerals,water,land,plantsandanimalsareownedbythestate.Individualsand legal entities canobtain subsurfaceuse rights
inaccordancewiththeLaw‘OnSubsurfaceandSubsurfaceUse’.Naturalresourcesextractedunderasubsurfaceusecontractbecomethepropertyofthesubsurfaceuser.Theholderofasubsurfaceuserightmust complywith the termsof the subsurfaceuse contract.Subsurface use contracts must provide for the financing of localdevelopmentprojects(eg,constructionofschools,kindergartensandhospitals), training of local personnel, environmental obligationsandthereclamationoflandsuponthecompletionofoperations.Ingeneral,landisownedbythestateandmaybegrantedinto
private ownership to individuals and legal entities (including for-eigncitizensandforeignlegalentities)subjecttocertainexceptionsspecified in the Land Code. Private ownership is permitted overlanddesignatedforconstruction(orundergoingconstruction)andindustrial and non-industrial buildings, including land designatedfortheuseofsuchbuildings.Agriculturalandforestrylandscan-notbeownedby,butmaybeleasedby,foreigncitizensandforeignlegalentities.NotethatforeignindividualsmaynotownresidencesinKazakhstan.
23 Royalties on the extraction of natural resourcesWhat royalties and taxes are payable on the extraction of natural
resources, and are they revenue- or profit-based?
Thefollowingmaintaxesapplytosubsurfaceuseoperations:• Signaturebonus– thisbonus isafixedpayment for therighttoconductsubsurfaceuseoperationsinthecontractarea.Theminimumamountofthebonusisdeterminedbasedonacalcu-lation taking into account the estimated amount of reserves and thedeposit’seconomicvalue.Theactualamountofthebonusisdeterminedbasedontheresultsofthewinningbid.
• Commercialdiscoverybonus–thisbonus ispayableforeachcommercial discovery and is based on the actual volume ofdiscoveredmineral deposits approved by the authorised stateagency.
• Mineral production tax – this tax replaced the previous roy-altytaxandispayableatfixedratesonaslidingscalebasedonactualproductionlevels.
• Exportrenttax–thistaxappliestoexportedcrudeoilandgascondensate.Exportrenttaxisdeterminedonthebasisofaslid-ingscaleprovidedbytheTaxCodeanddependingonthe‘mar-ketprice’ofoilandgascondensate.
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• Customs duties – duties are payable in respect of exports ofcrudeoil,lightandheavyoilproducts.
• Excessprofittax–thistaxisbasedonthecontractor’snetdis-posableincome.
• Historicalcostsreimbursement–thisisafeepayabletocompen-satethestateforexplorationexpendituresincurredbythestatebeforetheconclusionofasubsurfaceusecontract.Partoftheamountofthehistoricalcostsmustbepaidfortheacquisitionofgeologicalinformation.Thebalanceofthehistoricalcostsmustbepaidattheproductionstageafteracommercialdiscoveryisestablished.
Thereisnotaxstabilisationforsubsurfacecontractsaccordingtothe current Tax Code. However, production-sharing agreementsconcluded prior to 1 January 2009 and that have gone throughmandatory tax expertise, and subsurface use contracts that havebeenapprovedbythepresident,arestillstabilised.
24 Export of natural resourcesWhat restrictions, fees or taxes exist on the export of natural
resources?
Theexportofnaturalresourcesmaybesubjecttobothtariffregula-tion(eg,paymentofcustomduties)andnon-tariffrestrictions(eg,exportlicensingandexportlimitation).Thegovernmenthasapre-emptiverighttoacquiremineralsto
ensureinternalsuppliesofcertain‘strategic’naturalresourcesandinthecaseofcertainemergencycircumstances.Thepriceofacquisitionofnaturalresourcespursuanttothepre-emptiverightmustbeequaltoathird-partycontactpriceor,intheabsenceofsuchcontract,tointernationalmarketprices.
25 Environmental, health and safety lawsWhat laws or regulations apply to typical project sectors? What
regulatory bodies administer those laws?
EnvironmentalmattersareprimarilyregulatedbytheEnvironmentalCodeandtheLawonSpeciallyProtectedNatureReserves.TheselawsareadministeredbytheMinistryofEnvironmentProtection.Health-relatedmattersareprimarilyregulatedbytheCodeon
Health of the People and the SystemofHealth and the SanitaryRegulations adopted by theMinistry ofHealth. These laws andregulationsareadministeredbytheMinistryofHealth.Safety-relatedmatters are primarily regulated by the Law on
Fire Safety; theLawon Industrial Safety atDangerous IndustrialFacilities;andtheFireSafetyRegulationsadoptedbytheMinistryofEmergencySituations.TheselawsandregulationsareadministeredbytheMinistryofEmergencySituations.
26 Project companiesWhat are the principal business structures of project companies?
What are the principal sources of financing available to project
companies?
Business structuresKazakh project companies are usually established in the formofeitheralimitedliabilitypartnershiporajoint-stockcompany.
Limited liability partnershipThemainfeaturesofalimitedliabilitypartnershipareasfollows:• lowminimalchartercapitalrequirement;• aparticipant’sliabilityislimitedtothevalueofitscontributiontothechartercapital;
• eachparticipanthasarightoffirstrefusalinthecaseofasalebyanotherparticipanttothirdpartiesofitsinterestsinthechartercapital;
• thefoundationagreementgovernstherelationshipbetweentheparticipants;
• simple management structure (supervisory board – namely,equivalenttoaboardofdirectors–isoptional);
• noannualauditrequirement;and• minimalreportingobligations.
Joint-stock companyThemainfeaturesofajoint-stockcompanyareasfollows:• highminimalchartercapitalrequirement;• ashareholder’sliabilityislimitedtothevalueofthesharesheldbyit;
• sharescanbeissuedintheformofcommonsharesthathavevoting rights andpreference shareswithaguaranteedannualdividendandnovotingrights,exceptforcertainlimitedcircum-stances(suchasnon-paymentoftheguaranteeddividend);
• sharesarefreelytransferablewithnopre-emptiverightbyothershareholders;
• mandatorytenderofferrequirementinthecaseofacquisitionof30percentormoreoftheissuedcommonsharecapital;
• managementstructureincludestheshareholders’meeting,boardofdirectorsandanexecutiveboardorchiefexecutive;
• independentdirectorrequirementforboardofdirectors;• interestedpartyandcertainothertransactionsmustbeapprovedandotherminorityshareholderprotectionsexist;
• annualauditrequirement;and• reportingobligations.
Financing sourcesTheprincipalsourcesoffinancingare:• localandforeignbankdebt–localcommercialbanksoftenpro-videfinancing;foreigndebtintheformofbilateralandsyndi-catedloansisalsoverycommon;
• debtfromstate-ownedinstitutions–Kazakhstanprovidesfinanc-ing through various institutions, including a number of statedevelopmentinstitutionsforthepromotionofentrepreneurship;
• debtfrommultilateraldevelopmentinstitutions–anumberofinternational development institutions operate in Kazakhstanand provide financing in the project finance area, includingthe EurasianDevelopment Bank and the European Bank forReconstructionandDevelopment;
• bondfinance–localentitiescanissuebondsbothunderlocallawand foreign law; listingon theKazakhstockexchange isattractiveduetoanexemptionfromwithholdingtaxforlistedbonds;and
• equity–equityfinancingissometimesavailablefromlocalandforeignsources;listingontheKazakhstanstockexchangeispos-sibleforjoint-stockcompanies.
27 Public-private partnership legislationHas PPP enabling legislation been enacted and, if so, at what level of
government and is the legislation industry-specific?
ThereisPPP-enablinglegislationatthenationallevelintheformoftheLawonConcessions.Thislawisnotindustry-specific.Inaddi-tion,therearecertainindustry-specificlawsthatcontainprovisionsrelatingtoconcessions(eg,theLawonRailroads).TherecentlyrevisedLawonProjectFinanceandSecuritisation
createsalegalbasisforimplementationofconcessionprojectsusingtheframeworkofthesecuritisationlegislation.Thelegislationonconcessionsisstilldevelopingand,fromour
experience,asofthedateofthispublication,thebankabilityofcon-cessionprojectsunderthecurrentlegislationisproblematic.
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28 PPP – limitationsWhat, if any, are the practical and legal limitations on PPP
transactions?
Thefollowingaresomeofthepracticalandlegallimitationsoncon-cessionprojectsinKazakhstan:• aprojectinrespectofwhichaconcessionisproposedmustbelistedinthegovernment’slistofapprovedconcessionprojects;
• tariffsformosttypesofconcessionprojects(eg,forrailroad,air-port,electricitylines)aresubjecttostateregulationandcannotbeguaranteed;
• theperiodofconcessionislimitedto30years;• projectassetsremaininstateownership;• securityoverprojectassetscannotbegrantedwithoutthestate’sapproval;and
• thestatehastherighttounilateralamendmentorterminationofaconcessionagreement.
29 PPP – transactionsWhat have been the most significant PPP transactions completed to
date in your jurisdiction?
Presently,therearesixconcessionprojectsunderimplementationinKazakhstanwithatotalinvestmentuptoUS$500million.FollowingaresomenotablePPPtransactionsinKazakhstan:
• constructionandoperationofthenewShar–Ust-Kamenogorskrailwayline;
• constructionandoperationofinter-regionalNorthKazakhstan–Aktobeoblastpowertransmissionline;
• construction and operation of the passenger terminal of theinternationalairportinAktau;
• construction and operation of a turbo-gas power station inKandyagash,Aktobeoblast;
• construction and operation of the railway line Yeraliyevo –Kuryk;and
• electrificationoftheMakat-Kandyagashrailwaysection.
Joel Benjamin [email protected] Adlet Yerkinbayev [email protected]
Nurly Tau Business Center Tel: +7 701 722 3000
Block 1B, Office 503 www.kinstellar.com
19 Al-Farabi Avenue
Almaty 050059
Kazakhstan
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