Kazakhstan opens up opportunities for joint investment projects in construction

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We expect that the changes below will have a positive impact on the development business in Kazakhstan and will offer new formats for joint activities in implementing construction projects by private investors.

1. Right to construct industrial facilities on other owners’ lands

On January 2, 2021, certain amendments were made to the legislative acts aimed at reviving economic growth, which, inter alia, involve the real estate and construction sectors (the “Amendments”). 

One innovative change is the inclusion in the Land Code of the right of investors to construct industrial buildings (facilities, structures) on land plots belonging to other owners. The Amendments establish that an owner may transfer the right of construction on the owner’s land plots to an investor under a civil transaction. Therefore, the Law “On the State Registration of Rights to Immovable Property” has been amended to provide for the corresponding right to register the title to such industrial buildings directly in the name of investors.

According to the literal interpretation of the Amendment enacted on January 15, 2021, investors will be directly allowed to implement construction projects on land plots that they have no title to. Prior to such changes, the legislation did not allow third parties (investors) to carry out construction and commissioning on private land plots, even if an investor had the leasehold interest in such land.

2. Rules for the formation and maintenance of the state bank of construction projects have been approved

As mentioned in our previous review of September 1, 2020, the Construction Law was earlier amended to provide for the creation of a state bank of construction projects with effect from December 31, 2020, to be financed out of public investments and funds of the quasi-public sector (the “Bank”). In pursuance of the above provision, the Ministry of Industry and Infrastructure Development (the “MIID”) approved, by its Order No. 678 dated December 25, 2020, the Rules for the Formation and Maintenance of the Bank with effect from January 10 of this year (the “Rules”).

Please find below the most fascinating provisions of the Rules:

  1. All feasibility studies, model projects and design and estimate documentation (the “Projects”) for the project construction financed out of the state investments and funds of the quasi-public sector shall be provided (with limited exceptions) to, and kept by, the Bank.
  2. Any Project developed by private investors may be transferred to the Bank at the option of a customer thereof, provided that no more than three years have lapsed since the receipt of an opinion from the comprehensive extra-departmental expert review body (the “CEE”) in respect of the relevant Project. The consent of the developers (authors) of the Project to such a transfer should be recorded in the author's contract between the customer, the Project author and the Bank operator (RSE “Gosexpertiza”) in a form set by the Rules.
  3. Projects from the Bank are provided on a paid basis to any applicant (except for state institutions and entities of the quasi-state sector, to which they are to be transferred for no charge). The sale price of Projects is to be established by an order of the MIID, and, in each case, is to be determined in an agreement between a customer and the Bank operator.
  4. Project developers also have the right to receive Projects from the Bank for free in a number equal to the number of Projects that such developers have previously transferred to the Bank (as per paragraph (b) above).
  5. Obtaining Projects and signing tripartite author’s contracts by and among clients, developers of Projects and the Bank operator are made using the electronic portal (https://epsd.kz/), and the Projects themselves are provided to customers and authors in an electronic format through their personal account.
  6. Projects (except for the standard design documentation) are subject to automatic delisting from the Bank upon the expiration of three years of the receipt of a positive opinion from the CEE.

At the same time, a number of issues related to the functioning of the Bank remain outstanding. In particular, how will the MIID set the price of Projects, as referred to in paragraph (b) above, and will it be subject to the actual costs incurred for the development of the Project or be formed on the basis of any other approach?

Furthermore, will Projects transferred to the Bank have to be equivalent to Projects obtained from the Bank, in terms of criticality or scope? According to the current wording, it is possible to provide the Bank with a Project for a facility of the third criticality level and instead obtain a Project for a facility of the second or first criticality level. Whether this is technically and commercially reasonable or not is also difficult to understand.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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