New PPP Law in Kazakhstan
Law of the Republic of Kazakhstan dated July 4, 2013 No. 131-V ZRK “On amendments to certain legislative acts of the Republic of Kazakhstan in connection with the introduction of new forms of public-private partnership and expansion of the scope of its application” came into force on July 22, 2013 (with the exception of certain provisions).
The main purpose of the law is to introduce new forms of PPP, including build-own-operate (BOO), build-operate-transfer (BOT) and design-build-finance-operate (DBFO) in the Republic of Kazakhstan (previously only BTO (build-transfer-operate) contracts were possible in Kazakhstan), and to legitimize the concept of “availability payments”.[1]
1. INTRODUCTION AND LEGISLATIVE FRAMEWORK
1.1Please describe the importance of project finance in your jurisdiction.
Project finance in the strict sense of the term (i.e. where the financing structure is based on the results of the project itself) has not yet been developed and has not yet been tested in Kazakhstan. The so-called “project finance” transactions that have taken place so far in Kazakhstan have essentially been either conventional bank loans (mainly from international financial institutions such as the European Bank for Reconstruction and Development (EBRD) or the International Finance Corporation (IFC)), which have in one way or another benefited from government guarantees, collateral packages, direct budgetary investments or pure private investments.
It is expected, however, that genuine project finance deals will eventually proliferate in Kazakhstan in the near future, firstly because specific project finance legislation (the Project Finance and Securitization Law, as defined below) has only recently been enacted and secondly, after decades of neglect, the Government of Kazakhstan has finally decided to invest at least a portion of the income from commodity exports in long-delayed infrastructure projects.
Since 1991, Kazakhstan has been forced to rely on deteriorating infrastructure inherited from the Soviet Union. As a result, almost every piece of public infrastructure (eg roads, power plants, kindergartens, sewer networks) in Kazakhstan requires some level of modernization and/or expansion. Kazakh authorities have come to realize that they cannot make the necessary investments in public infrastructure from the current budget and that most future funding must come from the private sector. The need for capital inflows is even more pressing given the current downturn in global financial markets. Consequently, the importance of project finance as a new tool for attracting private capital for the implementation of infrastructure projects in Kazakhstan cannot be overestimated.
Shaimerden Chikanaev
Partner
finance_securities@gratanet.com
