Kazakhstan and France Enter into Agreement for Cooperation in Combating Global Warming

A draft law, On ratification of the Specific Agreement between the Government of the Republic of Kazakhstan and the Government of the French Republic on Implementation of Cooperation in Combating Global Warming, was recently developed in Kazakhstan, representing a unique international treaty that will provide for significant preferences, derogations, and exemptions from the Kazakhstan legal regime for major projects in the field of renewable energy, including guarantees of stability of legislation.

Update: The president of Kazakhstan signed the ratification law on 2 February 2024.

As stated in the Explanatory Note, signing of the Agreement (the draft Specific Agreement or Specific Agreement) “will allow [for] attracting direct foreign investment into the energy sector and fulfilling the obligations assumed by Kazakhstan under the Paris Agreement.”

The draft Specific Agreement is subject to ratification in Kazakhstan in accordance with Article 11.2 of the Law on International Treaties, i.e., its implementation “requires amendments to existing laws or adoption of new ones, as well as establishing rules other than those provided for by the laws of the Republic of Kazakhstan.” As of the date of this alert, the Specific Agreement has not yet been ratified by Kazakhstan.

Following a historical timeline, Kazakhstan has entered into international treaties that provide for significant preferences, derogations, and exemptions from the Kazakhstan legal regime for certain projects, including the Agreement between the Government of the Republic of Kazakhstan and the Government of the United Arab Emirates on Establishment of Abu Dhabi Plaza, Astana, Republic of Kazakhstan dated 11 June 2009 (Abu Dhabi Plaza Project Agreement); the Agreement between the Government of the Republic of Kazakhstan and the Government of the People’s Republic of China on Certain Issues of Cooperation in Development and Operation of Kazakhstan-China Oil Pipeline dated 8 December 2012; and the Agreement between the Government of the Republic of Kazakhstan and the Government of the Russian Federation on Construction and Subsequent Operation of the Third Power Unit of Ekibastuz GRES-2 dated 11 September 2009.

Some special agreements have also concluded or are at the signing stage for implementation of certain projects (e.g., in the field of agriculture, green technologies). Moreover, in Kazakhstan there are ongoing works to optimize domestic legislation to attract investment in key sectors of the economy such as a new model contract for large projects in the field of subsoil use.

In terms of its scope and scale of granted preferences, the Specific Agreement is comparable to the Abu Dhabi Plaza Project Agreement. An important distinctive aspect, however, is that the Specific Agreement creates a necessary legal framework for long-term investments in the indicated sector of economy (energy production from renewable sources) for many projects rather than for one specific project.

The purpose of the Specific Agreement is the “implementation of cooperation between the Parties in fighting against global warming through promotion, development and implementation of major projects in the field of renewable energy and sustainable development” (Article 1.1). The parties intend to apply the Specific Agreement in major projects (Major Projects) that shall altogether meet the following conditions:

• Minimum of 2 million tons of CO2 saved each year;
• Production of electricity from renewable sources, with a priority on onshore wind;
• Minimum production capacity of 1,000 megawatts;
• Minimum storage size of 100 megawatts power and 200 megawatts per hour capacity;
• Costs and tariffs that support and are consistent with the storage size and other specificities of the relevant Major Project in order to optimize and permit the reduction in reliance on nonrenewable sources of energy;
• Minimum lifetime of 25 years to support the parties’ strategy to achieve carbon neutrality, consistent with the objectives of the Specific Agreement;
• Contribution to the electrical independence of the party in which territory the relevant Major Project is carried out and/or to the stability of its national grid;
• Contribution to the development of know-how and technical skills of the party in which territory the Major Project is carried out regarding the production and storage of renewable energies and the curbing of carbon emissions, through the conduct of trainings, technology transfers, and innovative solutions consistent with the objectives of this Specific Agreement; and
• Tangible contribution to the promotion and development of the industrial and technological fabric and know-how, on the territory of each party, in the fields of decarbonation and the fight against global warming, particularly by way of the contribution to the Major Project of operators, service providers, and/or components with a status of national or equivalent national of the parties.

The parties intend to establish, as appropriate, a legal framework conducive for the implementation of Major Projects. In particular, the parties agreed on the list of provisions of Kazakhstan laws that Major Projects may derogate from (i.e., those that are not expected to be directly amended), including the following issues:

• Kazakhstan may lift any restrictions, cancel any obligations, and/or otherwise deviate from any laws, rules and regulations pertaining to
  • importation of goods, including customs and tax treatment;
  • the currency and/or payments established in contractual relations, particularly free use and exchange of currency, no obligation to sell and repatriate foreign currency; and
  • intake of expatriate workforce (the issues listed above are of particular importance when implementing major projects in Kazakhstan);
• the possibility to step back from model contracts; a number of issues related to granted preferences, e.g., the status of a priority investment project, list, number, content and/or nature of investment rights, preferences and guarantees; nonusage of standard forms of contracts normally applicable to power projects (this provision apparently implies the use of model investment and other contracts existing in Kazakhstan to projects implemented as part of the Specific Agreement);
• the possibility to apply foreign law to contractual relations; the possibility to resolve disputes through arbitration, including foreign arbitration (this provision is a key one for foreign investors in the event of long-term investments);
• a number of deviations from laws related to technical issues, including:
  • Major Projects are exempted from the obligation to obtain governmental approval of feasibility study and detailed design;
  • there are special provisions regarding the procedure and terms for determining the point of connection to grids, plan, and project documentation for power plants, in particular in relation to the procedure for their consideration and approval by governmental authorities;
  • there are special provisions regarding holding of tenders/auctions; in particular, according to the Key Terms and Conditions (as defined below), Financial Settlement Center of Renewable Energy LLP may enter into agreements for purchase of power directly generated by Major Projects without holding tender/auction on renewable energy or any other tender procedure for the purpose of implementation of Major Projects;
• issues regarding the obligations or restrictions related to electricity tariffs, and the type and content of contracts with energy transmission organizations and the system operator;
• provision of land plots and land use rights; and
• there are special provisions applicable to power purchase agreement covering conditions, form, and absence of tender/auction.

  The draft Specific Agreement provides a list of provisions of Kazakhstan laws that Major Projects may derogate from (with indication of specific articles). The list includes the following legislative acts:

• Civil Code of the Republic of Kazakhstan dated 27 December 1994 (General Part) and dated 1 July 1999 (Specific Part)
• Land Code dated 20 June 2003
• Entrepreneurial Code of the Republic of Kazakhstan dated 29 October 2015
• Budget Code of the Republic of Kazakhstan dated 4 December 2008
• Code of the Republic of Kazakhstan On Customs Regulation in the Republic of Kazakhstan dated 26 December 2017
• Labor Code of the Republic of Kazakhstan dated 23 November 2015
• Law of the Republic of Kazakhstan On Supporting the Use of Renewable Energy dated 4 July 2009
• Law of the Republic of Kazakhstan On Architectural, Urban-Planning and Construction Activity in the Republic of Kazakhstan dated 16 July 2001
• Law of the Republic of Kazakhstan On Private-Public Partnership dated 31 October 2015
• Law of the Republic of Kazakhstan On Power Industry dated 9 July 2004
• Law of the Republic of Kazakhstan On Foreign Exchange Regulation and Foreign Exchange Control dated 2 July 2018
• Provisions of any laws or regulations establishing or requiring the use of model contracts

(Please note that the list above does not contain the Tax Code of the Republic of Kazakhstan, though some exclusions are anticipated in relation to the “tax treatment” as well; the practical implementation is subject to further analysis.)

It is anticipated that under the Specific Agreement separate agreements will be concluded with the developer (and other participants of the Major Project). If the Major Project is to be implemented in Kazakhstan, such agreements shall embody the key terms and conditions set out in Appendix 2 to the Specific Agreement (Key Terms and Conditions). Many of the said Key Terms and Conditions have been reflected in derogations from the Kazakhstan legislation provided for Major Projects as stated above.

The draft Specific Agreement envisages that developers and Major Projects selected by one party and accepted by the other party will be identified in a separate Appendix. The Appendix currently contains one project, “Project Mirny for implementation, development, construction and operation of a hybrid power plant using wind energy with total capacity of 1 GW,” implemented together with French Total Eren as the developer. As highlighted in the media, through the framework of the Specific Agreement a power purchase agreement (offtake agreement) was signed between Settlement and Financial Center for the Support of Renewable Energy LLP and project company Total Eren on 9 June 2023.