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

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.