Natural Resources Code - the new rules of metallurgical market

The subsoil use in Kazakhstan will be subject to revolutionary changes. In August, the Government will finalize the Code on mineral resources, and in September it will be submitted to the Parliament.

In this regard, the executive director of the Association of Mining and Metallurgical Enterprises, Chairman of the Committee of mining and metallurgical industry NCE RK "Atameken" Nikolai Radostovets recommended all heads of mining companies to postpone their summer vacation.

The mining companies insist that there should be two pieces of legislation separately regulating the activities of mining and metallurgical, oil and gas industries.

"Recently there was a round table, and most experts tend to believe that miners should have their own Code in Kazakhstan. In Kazakhstan, there are two major industries: mining and metals and oil. And you need to have two documents, maybe two Codes, and may be, the Code and the Law "On Oil" ... And maybe in some other way ... but it is of fundamental importance, as on many issues, we can not find understanding with oil companies, we have completely different characteristics", - said Nikolai Radostovets.

The head of the branch of the union asked his colleagues to speed up work on making their offers, as "the Ministry of Investment and Development of Kazakhstan supports the idea of ​​having an independent Mining Code in Kazakhstan".

"It is important for attracting investors to have a different view on many things",  - said Nikolai Radostovets.

The first thing, the chief metallurgists of Kazakhstan asked the developers to pay attention to: the Code should be a clear conceptual apparatus. Definitions should be laid down so as not to have any discrepancies that may be misinterpreted by the tax office.

"There must be includes such concepts as "primary processing", "subsoil use operations", "geological study", "enrichment", "following redistribution"... Due to the fact that these concepts are not clearly defined, there arise problems and disputes with the tax authorities all the time", - said N. Radostovets.

The head of AMME stated the need to "eliminate and to abolish the priority right of the state to acquire subsoil use rights transferred and objects associated with subsoil use right", since it does not meet the recommendations of the Organization for Economic Cooperation and Development (OECD).

"By the recommendations of OECD experts, it is planned to eliminate the priority right of the state, but leave the authorization regime, i.e. a permit will be issued, but there will be no pre-emptive right of the state", - said the head of AMME.

"In my opinion we need to be careful: leaving a priority right after the state, we immediately dismiss the general principles of the OECD. If the government wants at some point to suspend the activities of the subsoil user, it always has the opportunity to intervene", - he added.

However N. Radostovets agreed to store the pre-emptive right on a number of strategic sites.

Another important point for the subsoil users. Mining Code should address the issue of private ownership of land in expansion of mining rights. The situations in which the local executive bodies, allocate land to farmers, allegedly "without knowing" that the territory is contracted is intolerant in general.

According to the head of the association, "it is necessary to introduce the concept of procedures for the transfer of land to reserve and agree it with the Land Code and other existing important acts".

Another important point. The introduced term "technogenic mineral formation" (TMF) allows public authorities to raise the question about the design of a new subsoil use contract in the event that the company has an intention to re-enter into circulation ... waste of its production. At the same time representatives of the state are not even stopped by the fact that TMF are mostly owned by companies.

And for this the chief metallurgist of Kazakhstan proposes to revise the general principle of "rational use of the extracted minerals" from the Soviet era in the relations between the established government agencies and subsoil users.

"Following the global mining practice and OECD recommendations, you need to change the principle of "rational" use of mineral resources to the principle of "optimal" use. Companies themselves know whether certain components should be removed, if it is not economically feasible or technically impossible. Generally, it is not necessary to create problems around the normal operation of enterprises", - said Nikolay Radostovets.

According to industry representatives, it is vital to establish arbitration courts in Kazakhstan, as a platform for dealing with disputes between the government and mining companies. Moreover, such a court must have an international status.

"In large contracts we need to retain the right of international arbitration. Otherwise, large investments will not come here because, after all, it is a huge risk", - says N. Radostovets.

The representative of the industry positively perceives the implemented by the Ministry of Investment "the principle of single window". However, he appealed to the Ministry with the request, "not just to take orders" and to become "the operator of this procedure, solving all issues with other ministries and local executive bodies".

"The next question - stability of subsoil use conditions. How to keep stability, if the tax code will be constantly changing? Will this stability spread, when suddenly government will propose to increase the tax or something else? We would like to clear the issue of investment protection and stability of the tax regime for subsoil users ... As a rule, investments are made in the subsoil sector for a long period. This is not the sphere of trade, where turnover occurs within two months ... Here recovery of the investment often takes decades, and investors need to clearly understand that there will be a stable support. Because we in Kazakhstan for a long time remained stable, mining sector has not failed, but on the contrary, it has become stable. Therefore, the stability must be specified anywhere and be unshakeable", - said N. Radostovets.

The question of stability is inextricably linked to problems of taxation. According to the head of the association, "a very important turning point occurred in the minds of financiers and tax officers of the country”. According to Nikolai Radostovets, representatives of the Ministry of Economy and Finance Ministry, acknowledged that easing the taxation of small and medium-sized businesses, subsoil users’ sector got overloaded".

"They thought that this sector will actively develop (SME), but, ultimately, it did not. So now there is an urgent need to unload subsoil sector, so that they can have a stimulus. Because the internal rate of return in the MME is lower than in the countries, whose experience we are adopting now", - said N. Radostovets.

The chief of the industrial association focused on tax matters. According to him, first of all, it is necessary to abandon the "blurring tax boundaries between common practice of subsoil use and entrepreneurship”. Second of all, it is necessary to stop the practice of levying corporate income tax (CIT) on losses of the subsoil users. "Actually, this is nonsense, but we do apply this practice", - said Nikolai Radostovets.

Regarding the abolition of value-added tax (VAT), N. Radostovets asked the Ministry of Investment and Development to inform the Head of State on the idea of ​​a return to the old model of paying this tax with improvement of its mechanism.

"We need to return the historical VAT. It would be fair ... I am absolutely convinced that, having considered the request of the President, you can tell him that ... in the mineral resources we need to keep the VAT levying and that the transition to a "sales tax" is a practice that we do not understand ... And then, there arises another question: if the state moves to a different system, does it stop debate on historically accumulated VAT debt? "- asked N. Radostovets.

Given the degree of debate and shortened period of discussion of the bill, the chief of metallurgists of the Republic called on his colleagues to be active. "I would ask you to postpone summer vacation, to speed up work on the Code, which will be the best instrument to absorb all the most progressive offers and a global experience”, - he concluded his speech.