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Kazakhstan has made meaningful progress in implementing the 2016 EITI Standard, with considerable improvements.

Outcome of the Validation of Kazakhstan.

Decision number
2020-26
Decision basis
EITI Articles of Association 2019-2021, Article 12.1. ix)
13 April 2020

Board decision

The Board came to the following decision:

The EITI Board agrees that Kazakhstan has fully addressed three of the ten corrective actions from the country’s first Validation. Consequently, Kazakhstan has made meaningful progress overall in implementing the 2016 EITI Standard, with considerable improvements across several individual requirements.

The Board congratulates the Government of Kazakhstan and the National Stakeholders Council (NSC) on the progress made in improving transparency in extractive license information, the reliability of extractives revenue data and its evaluation of outcomes and impact of EITI implementation to date. The Board commends Kazakhstan EITI for gradually expanding the scope of EITI reporting to issues of national concern, including local content, social investments and transportation of oil and gas, although work remains in relation to social and transportation payments.

The Board takes note of Kazakhstan’s plans to transition to systematic disclosures of EITI data through government and company systems. The Board encourages the government and the NSC to explore opportunities to fully transition to mainstreamed implementation by implementing the recommendations of its feasibility studies and integrating concrete activities to transition towards systematic disclosure in its EITI work plan.

The Board recognises that gaps remain in disclosures related to state-owned enterprises, including analysis of the rules and practice related to their financial relations with the state, barter-type arrangements such as pre-financing agreements, transport revenues and quasi-fiscal expenditures. Further efforts are also required to ensure transparency in license allocations, production data and social expenditures. In particular, Kazakhstan is encouraged to address recent shortcomings in disclosures related to the practice of license allocations to ensure that EITI implementation provides an annual diagnostic of the efficiency of license awards and transfers. The Board encourages the government to pursue its efforts to ensure comprehensive transparency of extractive contracts and beneficial ownership of extractive license-holders.

Despite improvements in the rules and practices of the multi-stakeholder oversight for EITI implementation, the Board notes that further efforts are required to ensure that the invitation to participate in the NSC is open and transparent, stakeholders are adequately represented and that NSC members have the capacity to carry out their duties and undertake effective outreach activities with the respective constituencies. The Government of Kazakhstan is urged to continue to ensure that there are no legal, regulatory or practical constraints for civil society to fully, actively and effectively engage in all aspects of EITI implementation.

The Board has determined that Kazakhstan will have 18 months before a third Validation, i.e. until 14 October 2021, to carry out corrective actions regarding MSG oversight (Requirement 1.4), license allocations (Requirement 2.2), state participation (Requirement 2.6), production data (Requirement 3.2), barter arrangements (Requirement 4.3), transport revenues (Requirement 4.4), social expenditures (Requirement 6.1) and quasi-fiscal expenditures (Requirement 6.2). Failure to achieve satisfactory progress in the third Validation will result in suspension in accordance with the EITI Standard. In accordance with the EITI Standard, Kazakhstan’s National Stakeholders Council (NSC) may request an extension of this timeframe or request that Validation commences earlier than scheduled.

Corrective actions and strategic recommendations

The EITI Board agreed the following corrective actions to be undertaken by Kazakhstan. Progress in addressing these corrective actions will be assessed in a third Validation commencing on 14 October 2021.

  1. In accordance with Requirement 1.4.a.i-ii, all constituencies represented on the National Stakeholders Council (NSC), including parliamentarians, should ensure that the invitation to participate in the NSC is open and transparent and that all constituencies on the NSC are adequately represented, bearing in mind the desirability of pluralistic and diverse representation. Members of the NSC should ensure that they have the capacity to carry out their duties and undertake effective outreach activities with their broader constituencies. In accordance with Requirement 1.4.b.i-ii, all constituencies should ensure that their NSC members have the capacity to carry out their duties and undertake effective outreach activities with their broader constituencies. The NSC is urged to find cost-effective solutions to facilitate all constituencies’ engagement in EITI, including for instance mechanisms for remote participation in NSC meetings. In accordance with Requirement 1.4.b.iii, all NSC members are required to liaise with their constituency groups and effectively engage in all aspects of EITI implementation.

  2. In accordance with Requirement 2.2, Kazakhstan is required to disclose information related to the award or transfer of licenses pertaining to the companies covered in the EITI Report. This information should include the number of mining, oil and gas licenses awarded and transferred in the year covered by the report, a description of the award and transfer procedures including specific technical and financial criteria assessed, and highlight any non-trivial deviations in practice. Kazakhstan should ensure that the bid criteria and list of bidders are publicly disclosed for every extractives license awarded through competitive tender. Kazakhstan is encouraged to use EITI reporting as an annual diagnostic of the efficiency of the current process for allocating and transferring extractives licenses.

  3. In accordance with Requirement 2.6, Kazakhstan should ensure that a comprehensive list of equity participations held by each material SOE be disclosed, together with the terms associated with state and SOE equity in each of the companies. Kazakhstan should ensure that the financial relations between SOEs and government are described for the year under review by EITI reporting, including transfers of funds between the SOE(s) and the state, retained earnings, reinvestment and third-party financing. Kazakhstan should also clarify the existence of any loans or guarantees from the government or SOEs to any company operating in the mining, oil and gas sector, including any state guarantees on SOE third-party financing.

  4. In accordance with Requirement 3.2, Kazakhstan should ensure that the value of production, or an estimate thereof, is provided for each extractive commodity produced in the year under review.

  5. In accordance with Requirement 4.3, Kazakhstan should ensure the public disclosure of transactions under material barter agreements such as pre-financing arrangements. The disclosures should provide a level of detail and transparency commensurate with the disclosure and reconciliation of other payments and revenues streams.

  6. In accordance with Requirement 4.4, Kazakhstan should ensure that revenues collected by SOEs from the transportation of extractives commodities are publicly disclosed, disaggregated by company, where material.

  7. In accordance with Requirement 6.1, Kazakhstan should ensure a clear categorisation between mandatory and voluntary social expenditures and that, where material, mandatory social expenditures are comprehensively disclosed, including whether the expenditure is undertaken in cash or in-kind, the nature and deemed value of in‑kind transactions, and the identity of any non-government beneficiary.

  8. In accordance with Requirement 6.2, Kazakhstan should undertake a comprehensive review of all expenditures undertaken by extractives SOEs (and their subsidiaries) that could be considered quasi-fiscal, with reference to the IMF’s definition of quasi-fiscal expenditures. Kazakhstan should develop a reporting process with a view to achieving a level of transparency commensurate with other payments and revenue streams. These disclosures should cover quasi-fiscal expenditures by SOE subsidiaries and joint ventures.

Background

Kazakhstan joined the EITI in 2007 and was declared compliant with the 2011 EITI Rules in October 2013. On 13 February 2018, Kazakhstan was found to have made meaningful progress in implementing the 2016 EITI Standard. Kazakhstan’s second Validation against 2016 EITI Standard commenced on 13 August 2019. The EITI International Secretariat has assessed the progress made in addressing the ten corrective actions established by the EITI Board following Kazakhstan’s first Validation. The corrective actions are related to:

  1. MSG governance (Requirement 1.4);
  2. License registers (Requirement 2.3);
  3. State participation (Requirement 2.6);
  4. Production data (Requirement 3.2);
  5. Barters and infrastructure arrangements (Requirement 4.3);
  6. Transport revenues (Requirement 4.4);
  7. Data reliability (Requirement 4.9);
  8. Social expenditures (Requirement 6.1);
  9. Quasi-fiscal expenditures (Requirement 6.2);
  10. Outcomes and impact (Requirement 7.4).

The Board asked Kazakhstan to address these corrective actions to be assessed in the second Validation. Kazakhstan has undertaken a number of activities to address the corrective actions:

  • On 7 April 2018, the NSC’s working groups on reconciliation and Validation met to plan activities related to addressing corrective actions in the 18 months before Kazakhstan’s second Validation.
  • On 22 June 2018, the company UHY SAPA Consulting LLP was contracted to undertake the work of Independent Administrator for Kazakhstan’s 2017 EITI Report.
  • In June 2018, the new Subsoil and Subsoil Use Code came into force, which included a provision for the full disclosure of subsoil licenses.
  • The Kazakhstan EITI NSC approved and published the 2017 EITI Report in October 2018.
  • On 18 October 2018, the NSC reviewed the implementation of the ten corrective actions from Kazakhstan’s first Validation under the 2016 EITI Standard. The NSC amended the composition and mandate of its working groups on reconciliation, Validation and implementation of new aspects of the EITI Standard.
  • On 18 and 30 January 2019, the NSC held workshops on the implementation of the EITI work plan and the transition towards systematic disclosures of EITI data in Almaty and Astana respectively.
  • On 14 February 2019, the NSC updated the EITI work plan with activities aimed at transitioning towards systematic disclosures of EITI data and preparing a mainstreamed implementation request to the EITI Board.
  • The International Secretariat undertook an implementation support mission to Nur-Sultan on 21-24 May 2019.
  • In May 2019, the civil society coalition Dialogue Platform held elections for the constituency’s new representatives on the NSC.
  • On 17 June 2019, the NSC approved and published Kazakhstan EITI’s 2018 annual progress report.
  • On 12 August 2019, the NSC approved and published an addendum to the 2017 EITI Report.

Kazakhstan’s second Validation commenced on 13 August 2019. The Secretariat assessed the progress made in addressing the ten corrective actions established by the EITI Board, as well as progress in meeting Requirement 2.2 related to license allocations. The EITI International Secretariat’s assessment is that Kazakhstan has fully addressed three of the ten corrective actions, with significant improvements on one other outstanding requirement. Progress in meeting Requirement 2.2 on license allocations has declined from ‘satisfactory progress’ to ‘meaningful progress’.

The draft assessment was sent to the NSC on 6 December 2019. Following NSC comments received on 15 January 2020, the assessment was finalised for consideration by the EITI Board.

Scorecard for Kazakhstan: 2019

Assessment of EITI requirements

  • Not met
  • Partly met
  • Mostly met
  • Fully met
  • Exceeded
Scorecard by requirement View more Assessment View more

Overall Progress

MSG oversight

1.1Government engagement

The government is fully, actively and effectively engaged in the EITI process, including through senior government participation and by providing funding for implementation.

1.2Industry engagement

Companies are providing substantial input to the EITI process and there is an enabling legal framework facilitating company participation in the EITI.

1.3Civil society engagement

The space for civil society in Kazakhstan is clearly narrowing. There is limited freedom of expression, high levels of self-censorship and the legal framework is increasingly imposing greater restrictions and control over civil society. Notwithstanding this overall picture of the civic space, there is limited evidence that the broader situation is having an impact on civil society’s ability to participate in the EITI.

1.4MSG governance

While the civil society constituency last undertook a renewal of its NSC (local MSG) representation in June 2019 following an open, fair and transparent process, the election procedure for nominating CSO NSC members continues to be boycotted in practice by several CSOs not part of the Dialogue Platform coalition, the platform established to structure the constituency’s engagement in EITI. Although the requirements for an open invitation to participate in the EITI and for an independent nomination process have been fulfilled, the broader objective of ensuring diverse and representative participation of civil society had not been achieved.

1.5Work plan

The NSC has developed a work plan that serves as a management tool for the secretariat and that is regularly updated. Although the work plan functions less well as a strategic planning tool for the NSC, this has not prevented the NSC from making sure that the EITI Report addresses relevant issues in the country nor has it prevented discussions and engagement on topics such as environmental reporting and contract transparency.

Licenses and contracts

2.1Legal framework

Kazakhstan has disclosed the required information related to the fiscal regime and level of fiscal devolution, an overview of the relevant laws and regulations, and information on the roles and responsibilities of the relevant government agencies. Kazakhstan has also gone beyond the minimum requirements by providing a detailed account of reform efforts as encouraged by the EITI Standard.

2.2License allocations

There appear to be inconsistencies in the number of mining, oil and gas licenses awarded in 2017 across the EITI Report and its addendum. In addition, neither the report nor its addendum provide a full list of bidders for each license awarded through tender in 2017, and the methodology of accessing non-trivial deviations in preparing the 2017 EITI Report remains unclear.

2.3License register

While dates of application for licenses awarded prior to 2018 are not publicly accessible, EITI Kazakhstan has been transparent about these gaps and has undertaken actions to ensure that dates of application would be publicly accessible for all mining, oil and gas licenses awarded from 2018 onwards.

2.4Policy on contract disclosure

The 2015 EITI Report and the draft supplementary report clarify that contract transparency is not practiced, and set out the legal provisions preventing contract transparency.

2.5Beneficial ownership

Not assessed

Kazakhstan has made good progress on developing a legal framework for beneficial ownership reporting, although further work is needed to ensure that the new Subsoil code provides a sound foundation for comprehensive reporting and publication of this information.

2.6State participation

The 2017 EITI Report and its addendum provide information on the financial relations in 2017 between SOEs and the state, although there are gaps in the coverage of some material SOEs’ reinvestments and third-party financing. Moreover, the terms associated with different SOE equity interests and the terms of all changes in state participation in the year under review are not sufficiently described. While an overview of third-party financing of SOEs and intra-SOE debt (loans and bonds) and loan guarantees is provided, it is unclear from the report which of these loans are guaranteed by the government.

Monitoring production

3.1Exploration data

Kazakhstan has disclosed an overview of the extractive sector, information about exploration activities as well as additional information on geological prospecting and reserves.

3.2Production data

The addendum to the 2017 EITI Report provides ranges of production costs for all mineral commodities produced in 2017 aside from lead and zinc as well as estimates of production values for coal, oil and gas. However, the report highlights methodological concerns over the reliability of production value estimates based on average production costs.

3.3Export data

Kazakhstan has disclosed all data related to export volumes and export values, as well as additional information on main export destinations.

Revenue collection

4.1Comprehensiveness

Kazakhstan has ensured comprehensive disclosed of all payments and revenues pertaining to the extractive sector.

4.2In-kind revenues

Although companies operating under PSAs in Kazakhstan has the option of paying production share in-kind, all such payments were effectuated in monetary payments in 2015.

4.3Barter agreements

The 2017 EITI Report provides a description of two types of barter arrangements, covering natural gas swaps with Russia and Uzbekistan on the one hand and the provision of two separate loans in exchange for future delivery of crude oil and liquefied natural gas. While the addendum to the 2017 EITI Report provides the volumes handled under the natural gas swap arrangement in 2017, it does not provide the volumes of crude oil and liquefied natural gas delivered in 2017 in reimbursement of the two pre-financing arrangements concluded by KazMunayGas.

4.4Transportation revenues

The 2017 EITI Report provides descriptions of the system for transport of crude oil, natural gas and mineral commodities by pipeline and rail, but only provides information on the volumes transported and revenues received for crude oil and natural gas (by pipeline), disaggregated by route, not for rail transport of mineral commodities.

4.5SOE transactions

The only direct financial transactions between SOEs and the government appears to take the form of dividends (to Samruk-Kazyna) and the payment of taxes (to the Treasury and National Fund). These transactions have been fully disclosed.

4.6Direct subnational payments

Not applicable

Although some taxes are channelled to the local level upon payment, there is a centralised taxes and payments collection system monitored by the MoF.

4.7Disaggregation

The 2015 EITI Report is disaggregated by individual revenue stream, company and government entity.

4.8Data timeliness

Kazakhstan is well within the deadlines for annual EITI Reporting, and has also gone beyond the requirement by exploring opportunities to disclose data as soon as practically possible through continuous online disclosures as encouraged by the EITI Standard.

4.9Data quality

Although the 2017 EITI Report does not include the IA’s clear assessment of the comprehensiveness and reliability of reconciled financial data presented in the report, its addendum published before Validation clarifies the IA’s view that the reconciled financial data is comprehensive and reliable.

Revenue allocation

5.1Distribution of revenues

Kazakhstan has disclosed which extractive industry revenues are recorded in the national budget, and which once are allocated to the National Fund. In addition, the report references national budget classification codes as encouraged by the EITI Standard.

5.2Subnational transfers

Not applicable

The 2015 EITI Report confirms that there are no statutory subnational transfers particular to the extractive sector in Kazakhstan.

5.3Revenue management and expenditures

The 2015 EITI Report discloses ad hoc spending of National Fund revenue earmarked for particular projects. It also includes an explanation of the budgeting process.

Socio-economic contribution

6.1Mandatory social expenditures

While the report and its addendum categorise social expenditures under memorandums as voluntary, opinions were split among stakeholders consulted over whether the additional social expenditures reported were voluntary, mandatory, or a mix of both. In addition, the data presented under BCC 206114 do not distinguish between cash and in-kind social expenditures, nor consistently identify non-government beneficiaries.

6.2Quasi-fiscal expenditures

While there is evidence of the NSC’s (local MSG) efforts to report on quasi-fiscal expenditures, more work is required to ensure that a comprehensive list of clearly categorised quasi-fiscal expenditures is publicly disclosed, including quasi-fiscal expenditures other than those related to social development and local infrastructure (e.g. subsidies).

6.3Economic contribution

The 2015 EITI Reports discloses information on the contribution of the extractive sector to Kazakhstan's economy.

Outcomes and impact

7.1Public debate

The NSC has ensured that the EITI Report is comprehensible, actively promoted, publicly accessible and contributes to public debate. Although no open data policy has been published, this does not seem to have affected the NSC practices of publishing all data in excel format.

7.2Data accessibility

Kazakhstan has ensured that financial EITI data is available in machine readable format from Kazakhstan’s EITI website as well as from EGSU, the government's online portal. Further steps are also underway with regards to mainstreaming and open data.

7.3Follow up on recommendations

Although the EITI Report does not include a stocktake of progress in implementing recommendations from previous reports, stakeholder consultations and other documents confirm that the NSC has considered the recommendations from the Independent Administrator, and the discrepancies are largely explained.

7.4Outcomes and impact of implementation

The 2018 annual progress report provides a comprehensive overview of activities conducted in 2018, an assessment of progress towards meeting each EITI Requirement, an overview of the NSC’s (local MSG) feedback to the comments from the first Validation and EITI Reports as well as strengths and weaknesses of the EITI implementation. Additionally, the addendum to the 2017 EITI Report includes an assessment of impact and outcomes of the work plan implementation.

Countries
Kazakhstan