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Part II, Renewable Energy Facility M&A in Kazakhstan:

Due Diligence Issues for Consideration


Corporate structure research within the framework of legal, due diligence covers the history of the legal entity, from its initial registration until the DD date, including the identities of the participants, charter capital, participatory interest disposal, tax indebtedness, etc. In examining a company's corporate structure, one must pay attention to the previous shares transfers and the documents confirming such transfers (i.e. Sale-Purchase Agreement).

In general, as of practice, foreign investors usually apply for the legal form of the legal entity that is simpler. And instead of a joint stock company (JSC), investors establish a limited liability partnership (LLP).


A possible risk arising during the DD exercise is the absence of the antimonopoly authority consent. Under Kazakhstan law, transactions constituting economic concentration[1] require prior consent or notification of the antimonopoly authority[2] when certain thresholds are met.

This requirement is equally applicable to transactions made outside of Kazakhstan when, as a result, one of the following conditions is satisfied:

  • The main asset, intangible assets located in Kazakhstan or shares (participating interest in the charter capital) of market participants (including Kazakhstan and foreign legal entities, their branches and representative offices, and non-profit organisations), property or non-property rights in relation to Kazakhstan legal entities are affected; or
  • Competition in Kazakhstan is restricted.

The Agency for Protection and Development of Competition of the Republic of Kazakhstan can initiate an investigation upon receipt of a complaint or at its own initiative. It can also request the information necessary for conducting the investigation from any entity operating on the market or from State bodies. Upon completion of proceedings, the Antimonopoly Agency may impose fines or remedial measures or terminate contracts, for instance, on the sale and purchase of an interest in a Kazakh legal entity which violates the competition legislation.


In accordance with the RE Law and the Auction Rules approved by order of the Minister of Energy of the Republic of Kazakhstan No. 466 of 21 December 2017, the local executive authorities of regions (Akimat) shall reserve land plots for the construction of RE facilities until the auction winners are given the land title, according to the Land Code of the Republic of Kazakhstan dated June 20, 2003, and shall send the relevant information to the Ministry of Energy of the Republic of Kazakhstan.

The procedure for reserving land is determined by the Rules for the Reservation of Land approved by the Minister of National Economy of the RK dated February 28, 2015, No. 178. It is worth noting, however, that if the land plot reserved for the RE facility construction is not used within three years, it may be subject to expropriation[3] in accordance with the established procedure[4].

Generally, the procedure of obtaining a land plot consists of four stages:
  • Land selection;
  • Obtaining a permit from Akimat to use the land plot for design and survey work;
  • Design and survey work; and
  • Obtaining the land plot right.

Moreover, it is recommended to ensure the presence of any property on the land plot belonging to the legal entity to reduce possible risks, such as a pledge on such property. A violation may lead to the termination of PPA.

It is recommended to pay attention to the fact that the RE facilities should enter into a standard grid connection agreement with the energy transmission organisation[5] that directly connects RE facilities to its power grids. This usually happens after technical specifications for connection to the grid from the regional energy transmission organisation are received [6].


Under the RE law, transmission companies must provide grid connection points with an appropriate voltage class and ensure that RE facilities are connected to the grid.

In accordance with the Order “On the Approval of the Electricity Grid Rules”, Grid Connection arrangements rely on the availability of 3 documents: the Power Delivery Scheme, the Technical conditions and the Agreement on the connection of the RE facilities[7].

Usually, a buyer hires a specialised design company to develop the Power Delivery Scheme[8]. The system operator shall approve this document – Kazakhstan Electricity Grid Operating Company (KEGOC) JSC with the relevant organisation (transmission and/or generation) to the planned connection grids within. The requirements for the contents of the scheme and the application form are given in Appendix 3 of the Order “On the Approval of the Electricity Grid Rules”.

Pursuant to paragraph 4 of the Order “On the Approval of the Electricity Grid Rules”, a buyer files an application to obtain Technical Specifications (TS) for grid connection based on the approved Power Delivery Scheme. It is issued by the connecting grid company and contains TS for the connection to the network.

It is important to remember that the investor finances all activities required to obtain the TS. Its validity period is no less than the time needed for preliminary project studies, design and construction of the renewable energy facilities, as identified by current design and construction norms, and should not exceed three years.

Agreement on the connection of the RE facility stipulates that the transmission company shall provide the RE facility with access to the network by providing the connection point specified in the TS[9]. This agreement is valid between the date of the technical specifications and the signing of the grid connection act. However, it will have a deadline for the latter, linked to the commissioning deadlines agreed upon in the PPA.


Under the RE law, an energy-producing organisation that uses renewable energy sources[10] has the right to sell its produced electric energy at its discretion using one of the following options:

  • To the FSC at a rate of the feed-in tariff that is valid at the PPA execution date or at an auction price determined based on the auction results, considering indexation;
  • To consumers through signed bilateral agreements in accordance with the power industry regulations of the Republic of Kazakhstan[11].

A buyer must therefore ensure that the legal entity is a winner of the auction and that the Ministry of Energy has accordingly included it into the RE facilities siting plan within thirty calendar days from the date of receipt of the register of the auction winners from the organiser[12].

It is highly advised to make sure that the developer (energy-producing company) follows the monthly electricity supply schedule as agreed in the PPA with the FSC (subparagraph 6 of paragraph 6 of the model PPA which is provided by the Rules). In particular, the energy-producing company must ensure the timely submission of the following documents to the FSC:

  • A copy of the notice on the commencement of construction and installation works of the RE facility, in respect of which the PPA is concluded, sent to the state authorities for national architectural and construction control – within twelve months from the date of signing the PPA for solar power plants, within eighteen months from the date of signing the PPA for wind and biogas power plants, within twenty-four months from the date of signing the PPA for hydroelectric power plants[13];
  • A copy of the commissioning act of acceptance of the RE facility, approved in accordance with the architectural, urban planning and construction regulations of the Republic of Kazakhstan, in respect of which the PPA is concluded:
  • within 24 (twenty-four) months from the date of signing the PPA for solar power plants,

  • within 36 (thirty-six) months from the date of signing the PPA for wind and biogas power plants,

  • within 60 (sixty) months from the date of signing the PPA for hydroelectric power plants. The developer is entitled to request a 6-month extension[13].

It is essential to stress that based on paragraph 107-1 of the Rules, the countdown of the twenty-year purchase period begins on the day following the expiration date for the provision of an approved Act of facility acceptance, excluding the extension in accordance with part two of subparagraph 2 of paragraph 106 (1-year extension upon 70% construction completion) and/or paragraph 106-2 of the Rules. Therefore, the construction is extended by a year, but unfortunately, the same cannot be said for the countdown to the twenty-year purchase period.

To avoid the risk of losing one year out of 20 years of electricity sales, it is recommended to obtain an act of facility acceptance or start the commencement of a comprehensive test of the electrical installations of the RE facility soon as possible.

The FSC shall index auction prices annually and conclude the respective amendments to the concluded agreements. The annual indexation of auction prices starts after one year of RE facility operation[14].

The auction prices are indexed once during the construction period and once each year. Moreover, yearly indexation of auction prices is held not later than within one calendar year following the use of the one-time indexation during the construction period.
The applicants shall provide financial guarantees for the auction bids to the FSC. To participate in the auction, a financial guarantee must be issued in favour of the FSC not less than two working days before the auction date[15].

As a recommendation, in order to participate in auctions, the financial guarantee should be issued in accordance with the form published on the official FSC website.
The applicant chooses a bank guarantee or a standby letter of credit.

In an auction without documentation[16], the amount of financial security for the bid is 2,000 (two thousand) tenge per 1 (one) kilowatt of installed capacity multiplied by the installed capacity of the RE facility specified in the application for the auction. In an auction with documentation, the amount of financial security required for the bid is 5000 (five thousand) tenge per 1 (one) kilowatt of installed capacity, multiplied by the installed capacity of the RES facility[17].

Financial guarantees deposited by applicants in the form of bank guarantees or standby letters of credit are returned (released) by the FSC to the bank within three working days after the auction date as follows:

  • the participant did not win the auction;
  • the auction winner signed a PPA and submitted a PPA performance bond.

The FSC will issue a claim for payment under the relevant bank guarantee or standby letter of credit if the auction winner refuses to sign the PPA and (or) does not provide the PPA performance bond.


I. Strategic object approval
A strategic object is a property that has socio-economic significance for the sustainable development of Kazakhstan's society, the possession and (or) use and (or) disposal of which will have an impact on the state of national security of the Republic of Kazakhstan (for example, Nuclear Technology Park JSC, Shymkent JSC, Kazakhstan – Chine gas pipeline and etc.)[18]. The energy object may also be considered a strategic object. The Resolution approves the list of strategic objects of the government of the Republic of Kazakhstan No. 651 dated 30 June 2008.

Encumbrance of strategic objects by third parties' rights or alienation is possible only based on the decision of the Government of the Republic of Kazakhstan. If an entity intends to make a transaction for the alienation of a strategic object, the Republic of Kazakhstan has a priority right to acquire it if the above-mentioned requirements are violated when transactions with the strategic objects, such transactions shall be considered void.
From the buyer's point of view, it is recommended to clarify whether the potential RE project is included in the list of strategic objects.
II. Currency control

Currency transaction is subject to registration with National Bank[19] in the following cases: receipt of property (money) in Kazakhstan and (or) occurrence of obligations of a resident to return property (money) to a non-resident in the amount exceeding US $500,000; transfer of property (money transfer) from Kazakhstan and (or) occurrence of the resident's requirements to return the property (money) by a non-resident in the amount exceeding US $500,000[20].

In accordance with paragraph 14 of the Rules for Monitoring currency transactions, the Kazakh National Bank shall assign the record number to a currency contract within five working days from the day when the resident party duly submits the full package of documents to a currency contract.

The repatriation of national and (or) foreign currency is ensured within the time frame stipulated by the currency export or import contract. Repatriation of national and (or) foreign currency on export or import consists of crediting to bank accounts in authorised banks: proceeds in national and (or) foreign currency from exports; national and (or) foreign currency transferred by a resident in favour of a non-resident to make settlements on import, in cases of non-fulfilment or incomplete fulfilment of obligations by a non-resident.
III. Corporate approvals
A potential transaction might be subject to corporate approvals both from the buyer and seller side in accordance with the legislation of the countries where the buyer and seller companies are incorporated. Therefore, it is advisable to ensure the duly issuance of the relevant corporate approvals for the potential transaction in compliance with the regulations of the countries of registration of the buyer and seller companies.

Moreover, after the completion of the prior acquisitions, the corporate documents (the Charter and the Foundation Agreement) of the target company(ies) may be amended to include certain requirements to obtain the approval of the target companies’ participant(s) for the disposal of the interest pursuant to the potential transaction. To mitigate the risk to the buyer it is recommended to review such corporate documents as well once they are available.
IV. Metering
The volume of delivered electricity is metered based on the readings of the seller’s commercial metering devices installed at the delivery point.

In the event that the buyer ensures the Automated Commercial Energy Metering System (ACEMS) is operating at his facility, he can use ACEMS data for metering and determining the volume of electricity delivered by the seller, as well as for mutual settlements[21].

It is not the buyer's responsibility to pay for and account for the electric energy produced by the power plant and delivered by the power transmission organisation during periods during which the commercial metering devices at the delivery point are unavailable or malfunctioning. In this case, a statement from the energy transmission organisation on the grids to which the power plant is connected must confirm the absence or malfunction of the seller's commercial metering devices.

As a recommendation, the parties shall agree on the metering method of the electricity delivered to the grid access points of each project under different PPAs, and KEGOC shall have approved such method.


Any existing financing arrangement (loans, lines of credit, mortgages) entered into by a project company will need to be reviewed carefully by a buyer where the acquisition is via a share sale. The key project agreements will also be reviewed thoroughly by any new lender being approached for project financing.
Key areas of consideration will include:
  • Does the corporate structure include any shareholder loans that need to be assigned to the lenders along with the shares of the project company and any intervening companies?

  • Any outstanding obligations or financial commitments under any project agreements, licences, or approvals.

  • Does the RE project company have any restrictions on giving security over all or part of the project or assigning rights under the project agreements as security to its lenders?

  • What security interests have been created over the power station, the project agreements and other relevant assets?

  • How will default under the financing arrangements affect the power station’s operation? Do lenders have “step-in” rights? If so, under what circumstances?


According to the Law “On Architectural, Urban Planning and Construction Activities in the Republic of Kazakhstan”, before construction and installation work begins, the customer must notify the local executive authorities of the State Architectural and Construction Supervision Authority (GASK) about the commencement of the activity[22].

The notification is made only in electronic form using the state information system of permits and notifications and the state electronic register of permits and notifications[23].
For the implementation of construction and installation works, the customer must conclude an agreement with a specialised organisation that has a state license for implementing these works. The construction process is accompanied by architectural and construction supervision and control.

According to Chapter 11 of the Law on Architectural, Urban Planning and Construction Activities, a completed construction facility is subject to commissioning. Acceptance and commissioning of the constructed facility are carried out by the customer after its ready in accordance with the approved project and availability of the declaration of conformity, conclusions on the quality of construction and installation works, and compliance of executed works with the approved project.

An Act formalises the acceptance of the constructed facility into operation. The act of accepting the constructed facility is subject to approval. The customer makes the approval of the acceptance certificate. The date of signing and the act of acceptance of the facility into operation is considered to be the date of its approval and the date of commissioning of the facility.


Litigation is an obvious red flag when it comes to due diligence. The buyer may inherit liability and an obligation for legal fees, even if the target company is the plaintiff. It’s crucial to analyse the total amount of potential liability and the likelihood of prevailing in each lawsuit in order to determine whether any patterns show recurring problems with the target company.

The legal entity must be examined for any involvement in court proceedings on the date of the report preparation. The verification takes place in public searches and open databases of the Supreme Court[24]. However, the public searches in the database of the Supreme Court may not contain the entire list of the judicial proceedings involving the target company since it does not always contain exhaustive information.
It is recommended to ask a target company to provide any documents on the company’s involvement in litigation and/or arbitration.


Following a Legal Due Diligence, the buyer and the seller have the right to negotiate terms to reduce the price of the asset depending on how quickly the risks existing at the end of the Due Diligence are eliminated. It is recommended to secure this price split by including appropriate preconditions in the contract of purchase and sale of the asset. The buyer is advised to pay attention to the importance of the Due Diligence, as its main purpose is to identify and assess potential risks for an M&A transaction in respect of an existing RE facility

In this article, we do not pretend to disclose an exhaustive list of risks when acquiring renewable energy projects in Kazakhstan. In any case, in order to analyse and evaluate a RE project before purchasing it, the buyer should seek full and appropriate legal advice (including cost benefit analysis) before making a decision.
[1] According to paragraph 1 of Article 201 of the Entrepreneurial Code, economic concentration means, inter alia, reorganisation of a market entity through merger or takeover, acquisition by an entity (group of entities) of voting shares (participation interests in the charter capital, units) of a market entity, whereby such entity (group of entities) becomes entitled to dispose of more than fifty per cent of the said shares.
[2] The Agency for Protection and Development of Competition of the Republic of Kazakhstan. URL: https://www.gov.kz/memleket/entities/zk?lang=en.
[3] Paragraph 2 of Article 92 of the Land Code.
[4] Article 94 of the Land Code.
[5] According to the Law of the Republic of Kazakhstan “On Electricity” No. 588 of 9 July 2004, it is an organisation that provides a contractual service for the transmission of electricity or heat.
[6] According to the Law of the Republic of Kazakhstan “On Electricity”, it is an entity with a direct technological connection to the energy producing organisation and/or the national electricity grid, owning cable or overhead transmission lines, operates regional level electricity networks and has at least 10,000 connected consumers.
[7] The Order of the Minister of Energy of the Republic of Kazakhstan “On Approval of the Electricity Grid Rules” No. 210 of 18 December 2014.
[8] As a rule, it is the same design company that is developing the whole project.
[9] A model agreement on connection of the RE facility is provided by the order of the Acting Minister of Energy of the Republic of Kazakhstan “On Approval of the Model Agreement on Connection of Renewable Energy Facilities, as well as Rules for its Conclusion”.
[10] A legal entity producing electricity and/or heat using RE sources.
[11] Bilateral agreements are not generally regulated by Kazakhstan legislation, and do not provide advantages if a model PPA contract is signed with the auction winner. For example, when signing bilateral agreements investors will likely face difficulties with grid connection.
[12] According to paragraph 29 of the Order of the Acting Minister of Energy of the Republic of Kazakhstan “On Approval of the Rules for Formation of the Renewables Energy Facilities Location Plan” No. 345 of 27 July 2016.
[12] Pursuant to subparagraph 17 of paragraph 11 of Article 4 of the Order of the Minister of Energy of the Republic of Kazakhstan “On Approval of the Standard Forms of Settlement and Financial Centre Contracts with Energy Producing Organisations Using Renewable Energy Sources, Conditional Consumers and Qualified Conditional Consumers” No. 480 of 28 December 2017.
[13] In accordance with subparagraph 18 of paragraph 11 of Article 4 of the same Order.
[14] According to the Rules for the Determination of Feed-In Tariffs and Ceiling Auction Prices approved by the Decree of the Government of the Republic of Kazakhstan No. 271 of 27 March 2014.
[15] Pursuant to paragraph 38 of the Order of the Minister of Energy of the Republic of Kazakhstan No. 466 of 21 December 2017.
[16] Auction bidding without prepared basic project parameters for the construction of new RES facilities.
[17] According to the paragraph 43 of the Order of the Minister of Energy of the Republic of Kazakhstan No. 466 of 21 December 2017.
[18] According to Article 193-1 of the Civil Code of the Republic of Kazakhstan
[19] Pursuant to Article 14 of the Law of the Republic of Kazakhstan “On Currency Regulation and Currency Control” No. 167-VI of 2 July 2018.
[20] According to paragraph 9 of the Resolution of the Board of the National Bank of the Republic of Kazakhstan “On Approval of the Rules for Monitoring Currency Transactions in the Republic of Kazakhstan” No. 64 of 10 April 2019.
[21] According to paragraphs 38 and 39 of the Order of the Minister of Energy of the Republic of Kazakhstan “On Approval of the Rules for Use of Electricity” No.143 of 25 February 2015.
[22] Paragraph 12 of Article 68 of the Law “On Architectural, Urban Planning and Construction Activities in the Republic of Kazakhstan” No. 242 of 15 July 2001.
[23] The form of the notification is given in Annex 3 of the Order of the Minister of National Economy of the Republic of Kazakhstan “On Approval of the Forms of Notifications and Rules for Receipt of Notifications by State Bodies, as well as on Identification of State Bodies Receiving Notifications”.
[24] The Judicial Office / The Supreme Court of the Republic of Kazakhstan. URL: https://office.sud.kz/lawsuit/.
Go to Part I, Renewable Energy Facility M&A in Kazakhstan: Due Diligence Issues for Consideration
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