en-USru-RU
Close
Kazakhstan Subsoil Use Procurement Contracts: Allowed Revisions
BMF Partners
/ Categories: Subsoil Use

Kazakhstan Subsoil Use Procurement Contracts: Allowed Revisions

Many international companies work in Kazakhstan as contractors to oil and gas and other mineral resources producers.  Such producers are referred to in the Kazakhstani legislation as “subsoil users”.

Subsoil users are obliged to purchase goods, works and services for their operations through open tenders or one of other methods (such as purchase “from one source” and purchase through requests for proposal – such other methods have limited application).  Contractors of subsoil users are also obliged to follow the same procurement rules.  Legislation contains detailed regulation of the procurement procedures.  The procedure is very formalistic and a potential provider has to strictly follow it, failing which it may be disqualified.

Once a potential provider wins the tender, it is required to enter into a “procurement contract” within ten business days following evaluation of the tender.  The procurement contract has to reflect terms and conditions of the tender documents.  Normally, a draft of the procurement contract is made available by the tendering organization and potential for after-tender negotiations of the draft contract for the provider is fairly limited – due to time constraints and also due to the fact that the contract is viewed as a part of the tender request.

The tender is already won, manpower, equipment and other resources are already allocated by the provider and it signs the procurement contract almost as it is hoping to amend it as and when necessary – in the process of performance.  And here you have an unpleasant surprise: the procurement contract, once entered into, may be amended only in an exhaustive number of cases and if you try to request other revisions, you will fail even if your counterparty commercially agrees to revise the contract, simply because the legislation does not allow such revisions.

What revisions in a subsoil procurement contract are allowed?

First of all, you may amend terms which are not “material”.  Material terms include subject-matter of the contract; deadlines and place of delivery of goods, performance of works or provision of services; payment terms; and duration of the contract.

Second, the contract may be amended so as to increase the contract amount, but by not more than ten percent and where the increase relates to the increased demand of goods (provided that the per unit price remains unchanged), works or services within the procurement budget for this type of goods, works or services.

Third, for procurement contracts with duration of more than one financial year, the contract amount may be revised annually in accordance with the official inflation rate for the respective period.

Fourth, the contract amount may be decreased in connection with decreased demand of purchased works or services and also goods, provided that the price for unit remains unchanged.

Fifth, the contract duration may be changed, if the provider is a non-resident in Kazakhstan and delivery of works, performance of works or provision of services is delayed due to requirements of the currency control legislation.

Finally, where the provider is a Kazakhstani producer of goods, the delivery term may be extended for the time necessary for manufacturing the goods.

Mineral production remains one of the most important industries in Kazakhstan.  And profitability of Kazakhstani projects of companies working in this area not least depends on considering statutory provisions applicable to their contractual relations with Kazakhstani subsoil users.

 

By: Vsevolod Markov, Managing Partner at BMF Partners Law Firm LLP

Copyright © 2017 Author(s) retain the copyright of this article.

 

Disclaimer: the content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Print
92 Rate this article:
5.0

Comments are only visible to subscribers.

«October 2020»
MonTueWedThuFriSatSun
2829301234
567891011
12131415161718
19202122232425
2627282930311
2345678
Terms Of UsePrivacy StatementCopyright 2020 by BMF Partners
Back To Top