Global Project Finance Guide 2024 – Kazakhstan

A. Overview

1. What is the main legislation and international treaties governing the project financing in your jurisdiction?

The main legislation governing the project financing in the Republic of Kazakhstan ("Kazakhstan") are:

1. the Constitution dated August 30, 1995;
2. the Civil Code (General Part) dated December 27,1994 and the Civil Code (Special Part) dated July 1, 1999 No. 409-I (the "Civil Code");
3. the Entrepreneurial Code dated October 29, 2015 No. 375-V (the "Entrepreneurial Code");
4. the Law on Securities Market dated July 2, 2003 No. 461-II;
5. the Law on Project Financing and Securitization dated February 20, 2006 No. 126-III;
6. the Law on Public Private Partnership dated October 31, 2015 No. 379-V (the "PPP Law");
7. the Law on Concessions dated July 7, 2006 No. 167-III (the "Concessions Law");
8. other legal acts;

The main international treaties governing the project financing in Kazakhstan are:

9. the 1965 Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States;
10. the 1985 Seoul Convention on Establishing the Multilateral Investment Guarantee Agency;
11. the 1993 Ashgabat Agreement on Cooperation in the field of Investment Activity;
12. the 1997 Moscow Convention on Protection of Rights of Investor;
13. agreements on encouragement and mutual protection of investments with around 52 countries (USA, UK, Germany, France, Netherlands, Russia, etc.);
14. the 1994 Lisbon Energy Charter Treaty;
15. other international treaties⁷

2. How mature is the project finance market in your jurisdiction, and what are the most significant project financings closed during the last 12 months?

• Project finance in the strict sense of the term (i.e., where the financing structure is based on the performance of the project itself) has not yet developed and is not tested so far in Kazakhstan. So-called 'project finance' transactions that took place in Kazakhstan so far, in fact, were either conventional bank loans (mostly by international financial institutions like the European Bank for Reconstruction and Development ("EBRD") or the International Finance Corporation ("IFC")) that have somehow benefited from government guarantees, security packages, direct budgetary investments or net private investments.
• Although the Kazakh law on Securitization was adopted in 2006 and later in 2012 it was transformed into the Kazakh law on Project Financing and Securitization (the "Law on Project Financing and Securitization"), we are not aware of major projects being implemented under its framework.
• The major projects implemented in Kazakhstan over the last 12 months include the following:
  1. Construction of a wind power plant with a capacity of 1 GW. The main goal of the innovation is the extraction of energy from alternative sources, which will result not only in solving the problem of electrification of the region, but also in improving the environment in the whole Ulytau.
  2. Construction of a thermal power plant with a capacity of 250 MW. Investments in the project amounted to 215 billion tenge;
  3. Construction and operation of a multidisciplinary hospital in the city of Kokshetau. The operation of this project is expected in 2026, and the investment in the project amounted to 180 billion tenge.
• There are a number of major projects announced and/or being implemented in Kazakhstan.

B. Security Interest

3. What are the most commonly used security types in project financings in your jurisdiction?

• Kazakh law provides for several methods of securing obligation. Obligations could be secured by penalty, pledge, surety, guarantee, deposit, withholding the debtor's property, guarantee deposit, security deposit, and other methods stipulated by legislation or agreement⁸.
• The most commonly used types of security in Kazakhstan are pledges and guarantees.
• Though assignment is not strictly speaking a type of security under Kazakh law, it is quite often a part of a standard security package in international finance transactions.
• Also, in a typical project finance deal creditors require so-called "step-in" rights that enable them to appoint a nominee to undertake the project company rights together with the project company itself (with the project company remaining liable for all the obligations) or appoint a new obligor in the place of the project company to repay the amounts due to the lenders. These "step-in" rights enable the lenders to take over control of the project and implement the project by finding a long-term buyer, thus ensuring that the project continues generating revenues. It should be noted that Kazakh law does not recognise concept of "step-in rights".

Footnotes

7 https://investmentpolicy.unctad.org/international-investment-agreements/countries/107/kazakhstan

8 Article 292 of the Civil Code.

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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.