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Kazakhstan: RES sector Investments


published on 4th December 2020


The need to obtain the approval for acquisition of the Special purpose vehicle company or „project company” from the Antimonopoly Authority.


Investors’ interest in the projects of the Renewable Energy Sources (RES) sector has significantly grown over the last years. In order to execute the project, the investor generally acquires 100 percent of equity shares in the project company (special purpose vehicle company – SPV). In addition to the Legal Due Diligence held to verify the rights of such company for the project, a number of permits and authorizations must be obtained prior to start of works. However, it is often left out of the consideration that an official authorization must be issued by the antimonopoly authority of the Republic of Kazakhstan (RoK) for the very acquisition of equity shares in the project company. The following article highlights and describes the matters for the need to obtain such approval in accordance with the Antimonopoly Legislation of the Republic of Kazakhstan and its impact on the validity of acquisition of equity shares in the project company.

Obligation to Obtain the Approval for Acquisition of the Equity Shares from the Antimonopoly Authority

Obligation to obtain the approval from the antimonopoly authority appears from the requirements of the Article 200.1 of the Commercial Code of the Republic of Kazakhstan (the provisions below are the provisions of this Code). According to this Article, the buyer shall be obliged to obtain a preliminary approval from the antimonopoly authority, if it is planned to acquire more than 50 percent of equity shares in the Kazakhstani company1. In the meantime, it is prescribed in the Article 200.2 that the market entities those accomplishing (or intending to accomplish) or have accomplished an economic concentration through the acquisition of equity shares, must obtain an approval from the antimonopoly authority.


Meaning and importance of such requirement is to exercise the state supervision over compliance with the antimonopoly law when acquiring equity shares in the companies aimed at excluding an occurrence of the monopolistic position, its strengthening or formation of other unfair competition. It is our opinion that an economic concentration as defined by the Commercial Code can be excluded when acquiring the equity shares in the Kazakhstani project companies whose single purpose of incorporation is to implement the projects in the renewable energy source sector.


1. Definition of the Concept of „Economic Concentration”

Economic concentration means that a market participant can take such a dominant position at the market, where such market participant is in a position to set prices above the regular market prices. In other words, the market participant must be able to set the prices irrespective of the demand and in such a way that other companies and consumers cannot affect the prices formation.

From our perspective, acquisition of equity shares in the project company neither infringes the interests of competing companies, nor excludes such companies. Green tariff regulated by the government or established following an auction is valid for all potential market participants those willing to take advantage of the reduced (preferential) tariff. The Government either way indirectly considers the electricity cost increase which is possible in these cases. It is beneficial for the government to promote the electrical power generation from the renewable energy sources, therefore this promotion cannot be subject to the regulation envisaged by the Commercial Code for the protection purposes. It is also relevant to note that, as a general rule, each company may participate in the auction to establish a fee for the electrical power generation.

Moreover, a case of so-called „monopsony” takes place due to the governmental regulation (government-regulated green tariff for 15 years). According to the provisions of the Law of the Republic of Kazakhstan „On Support of Use of the Renewable Energy Sources”, the so-called Financial Settlement Center (Financial Center), a company that has the stated-owned shares which must enter into the Power Purchase Agreements (PPA) is the only consumer of electrical power. Thus, in our opinion, changes in the green tariff and the related increase in the electrical power prices are excluded for the term of such agreement to be concluded for a period of 15 years.

In order to adequately study the potential impact on a competition, it is also necessary to determine the relevant electrical power market and possible market shares of the project company at such market. Actually it is possible to impact the prices only through reducing the amount of electrical power (reducing the electrical power generation) only after expiry of the green tariff, after a period of 15 years. Even if the antimonopoly authority refers to the period after expiry of term of the green tariff, then only in this case an expert’s opinion will be required to determine the relevant electrical power market. Portion of the electrical power generated by the 100 MW or 50 MW photovoltaic power plants in the total amount of electrical power at the market still after 15 years is likely to remain below the level of the market dominant position. Thus, an actually minor market share cannot bring to the so-called economic concentration.


2. Further Conditions for the Need for Getting Approval

It is prescribed in the Article 200.1 that it is required to obtain an approval from the antimonopoly authority when acquiring the equity shares in a company followed by the acquisition of control over such company. Another condition is set forth in the provisions of the Article 201.3, according to such provision, an approval is required only if:
– total book value of the acquiree’s assets, or
– total book value of the acquirer, or    
– turnover of services/goods of the market entities (target company/project company)

exceeds the threshold value of ten million monthly calculation indices (MCI). Currently the MCI value is 2,778.00 Kazakhstani Tenge. With the exchange rate of 497.56 KZ Tenge (= 1 Euro), the threshold value is approximately 55.8 Million Euro (as of August 19, 2020).

If there are investor’s companies (on the part of the Acquirer) that meet the above-listed criteria, and (or) if additional amount exceeding 55.8 Million Euro was accepted into the assets of the project company as a result of the deployment of construction operations, then as a matter of principle the threshold value should be expected to be exceeded.

Subject to the total value of assets of the investor’s company which is planning to acquire the equity shares in the project company, obtaining of approval from the antimonopoly authority is prescribed by the provisions of the law.


3. Interim Conclusion

The legislative authority of the Republic of Kazakhstan relies on the above-mentioned criteria. There are no discussions on whether the acquisition of equity shares in a project company may actually result in a dominant position in the market, or it has no prospects in point of fact.


Legal Implication of Breaching the Obligation for Obtaining Approval from the Antimonopoly Authority

From our practical point of view, due to the potential sanctions it is always recommended to obtain an approval in accordance with the competition legislation. The reason for this is the possibility for the governmental authorities to recognize the share purchase agreement (in the project company) invalid and additionally impose a monetary penalty.


1. Concerning the Potential Invalidity of a Legal Transaction

According to the part 1 of the Article 200.6, a legal transaction, i.e. economic concentration arising from the acquisition of equity shares in accordance with the Article 200.1 can be declared invalid by the court on a claim of the antimonopoly authority, if such economic concentration led to the restriction of competition. State registration of the deed of equity shares acquisition in the trade register which contradicts the directives of the Commercial Code may be declared to be illegal in a judicial proceeding on a claim of the antimonopoly authority.

In case of applying the opposite tack out from the statements listed above, we believe it follows, on the one hand, that not each and every violation of the law results in the invalidity of a legal transaction, but it requires a significant intermediate stage, a court judgment. On the other hand, invalidity of transaction of the equity shares acquisition implies violation of the competition rules, which however in the opinion of the undersigned cannot be established due to the governmental regulation of the green tariff and, therefore, the so-called monopsony.

However, a potential investor should not encounter an issue of need for obtaining approval from the antimonopoly authority. Approval will be obtained from the authority, the more so because the term of two months is relatively acceptable, considering the potential procedural proceedings costs and incomputable risks of the negative court judgment.


2. Monetary Penalty

Violation of the directives mentioned above can imply the imposition of a monetary penalty in amount of 80 to 1600 MCI (please see the Article 161 of the Administrative Offences Code of the Republic of Kazakhstan). Currently this amount corresponds to a monetary penalty ranging from Euro 447 to Euro 8,933.0.



Clarification of a Legal Situation by Filing an Application to the Antimonopoly Authority

We uphold the opinion that prior to signing the share purchase agreement, it is always relevant to verify if there is any obligation to obtain an approval to acquire such shares. There are a number of exceptions that are important particularly when selling the equity shares within a group of companies.

Moreover, prior to closing an acquisition transaction, it is recommended to make a petition for approval to the antimonopoly authority in a timely manner. Term for the application consideration is ten calendar days. It is possible to extend this period, generally for another 10-20 days, and this period is usually extended. A checklist of the required documents must be prepared in advance. If the project is financed by the international bank, it is important to bear in mind that generally the bank considers obtaining of an approval from the antimonopoly authority as a requirement for ensuring the legal and juridical security of the transaction to be concluded. 



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