A brief note from the lawyer: Ad hoc international treaty as a breach of international commercial law
Kazakhstan is about to ratify yet another ad hoc international treaty[1] on the implementation of a renewable energy project, this time with China. There are already similar intergovernmental agreements (“IGAs) with France, Sauda Arabia and the United Arab Emirates. It seems that the Government of Kazakhstan has given up on its domestic law as incapable of attracting foreign investments in large infrastructure projects and has decided to negotiate and create with different foreign governments special legal regimes for each particular large-scale infrastructure project on a contractual basis (i.e., through IGAs). There is nothing to be surprised about, given that the introduction in 2015 of the de facto common law jurisdiction of Astana International Financial Center[2] within the territory of Kazakhstan, which has a civil law legal system, has been in essence an acknowledgement by the Government of Kazakhstan in its disbelief in its “home-grown” law and judicial system.
As I mentioned in my previous post about the proposed nuclear power project,[3] there is an already established vicious practice of implementing large infrastructure projects[4] in Kazakhstan not within the framework of local laws that provide transparent rules applicable to all, e.g. within the legal framework of the Law "On Supporting the Use of Renewable Energy Sources” (Renewable Energy Law) or the Law on the Public-Private Partnership (the PPP Law), but based on ad hoc legal frameworks created specifically for each particular investor through ad hoc IGAs as well as a system of commercial contracts (e.g., the so-called agreements of investments with the Government of Kazakhstan and power purchase agreements (“PPAs”) with state-owned single off-taker, that are in essence PPP contracts) that are usually confidential and not publicly available.
The contractual provisions of such IGAs, once ratified by the Parliament of Kazakhstan, prevail over the contradicting provisions of local laws of Kazakhstan, which allows some foreign companies, which the Government of the Republic of Kazakhstan for some reason has chosen as investors, to receive preferences and benefits (e.g. exclusive right to implement a project without an open tender, tax preferences etc.) in Kazakhstan that are not available to other foreign and local investors. Importantly, it is not clear who within the Government of the Republic of Kazakhstan and why decides to provide these or those state preferences in each case.
What worries me, is that such a non-transparent scheme has recently been put on stream by the Ministry of Energy of the Republic of Kazakhstan for the implementation of large-scale renewable energy projects, despite the existence of rules, and procedures established by the Renewable Energy Law and PPP Law. According to the so-called “Action Plan for the development of the electric power industry until 2035” [5] and publicly available information, at least 5 large-scale renewable energy projects are to be implemented by 2035 using this unique legal scheme of ad hoc IGA as an umbrella that creates special legal framework as supported by the so-called agreement on investments and PPAs.
It is clear that such a method of procurement of large-scale renewable energy projects by the government of Kazakhstan is based on a lack of any competition (i.e., no open tender), and a lack of any transparency (i.e., opacity in contract provisions of the agreements on investments and PPAs) and abuse of the legal principle of state sovereignty.
I am very surprised, therefore, why no foreign or local investor has tried so far to challenge these projects in international arbitration or court as a breach of either international law (e.g. the fair and equitable treatment (FET) standard) or Kazakh law (e.g. one may argue such IGAs are unconstitutional). It is clear that the proposed way of procurement is wrong and violates a common sense of justice, so there shall be legal grounds to challenge such projects either under public international law or Kazakh national law or even under the so-called international commercial law as autonomous legal order distinct from state legal orders (i.e. relying on universal legal principles).
For instance, one can raise the following questions to the Government of Kazakhstan concerning these large-scale renewable projects:
1) Why do certain investors from certain countries have preferential treatment? Is it not another form of the neocolonialism?
2) Who will benefit and who will lose from such type of projects energy transition?
3) Who and on what legal basis agreed on the terms (i.e., including tariffs) of all agreements on behalf of Kazakhstan?
4) Are the motivations more political rather than based on “real needs”?
5) Would several small projects implemented through auctions likely be a more cost-effective, environmentally preferable, and socially beneficial alternative to building one large project by an investor, appointed by the host government in a not transparent manner?
6) Is the “just” energy transition not only about the source of energy but about enabling all the so-called SDGs?
As they say, let's wait and see.
With respect,
Shaimerden Chikanayev
*Shaimerden Chikanayev is currently on a study sabbatical until 2026, not an employee of GRATA.
__________________________
[1] The draft of the international treaty is available for public comment until 30 December 2024 at: https://legalacts.egov.kz/npa/view?id=15331373 and the previous version or another draft is available at: https://legalacts.egov.kz/npa/view?id=15075506
[2] See more information on AIFC at: https://aifc.kz/legal-framework/
[4] For instance, even 3 coal power plants to be constructed by Russia in Kazakhstan will be implemented based on the IGA dated 17 April 2024. See the text of the IGA at: https://online.zakon.kz
Another interesting recent example is the IGA signed with Qatar on 20 March 2024. This IGA, among other things, provides a stable tax regime for 9 Qatari investments to be carried out across various sectors, including the construction of a combined-cycle power plant and a hydroelectric power station. See the text of this IGA at: https://online.zakon.kz
[5] Approved by the Order of the Minister of Energy of the Republic of Kazakhstan from 20 February 2024 № 71.
