Since 1991, Kazakhstan, Central Asia’s largest economy and oil producer, has had to rely on the deteriorating infrastructure it inherited from the Soviet Union. As a result, nearly every piece of public infrastructure (e.g., roads, hospitals, power plants, kindergartens, sewerages) in Kazakhstan requires a different degree of upgrading or expansion. Kazakhstan authorities have come to recognise that they cannot finance the necessary investments in public infrastructure from current budgets and that a major part of future financing must flow from the private sector. The need for the inflow of capital is becoming even more pressing because of sharp decline of the Kazakhstani commodity revenue. As a result, the authorities in Kazakhstan are trying to offer some fiscal incentives and optimise the legal framework to encourage private investment in public assets, including by way of PPPs. 

Although Kazakhstan developed some experience of PPP-based projects during the 1990s, it became obvious that the successful implementation of such projects would not be effective without a more comprehensive statutory legislative package on concessions and PPP procurement. The first law, On concessions in the Republic of Kazakhstan, was adopted on 23 December 1991 and aimed to regulate administrative, economic and legal environment concession agreements in Kazakhstan only for foreign investors. The frameworks have been proofed and applied in at least four infrastructure projects with the Development Bank of Kazakhstan and three concession projects supported by the government of the Republic of Kazakhstan. This first concession law was already deemed invalid by April 1993. Despite the absence of any specific law on concessions in the period of 1993–2006, several concession projects occurred during that time relying on general provisions of the Civil Code of Kazakhstan, namely: (i) 6 July 2005 – execution of the concession agreement on construction and operation of the railway ‘Shar–Ust-Kamenogorsk Station’ and (ii) 28 December 2005 – execution of the concession agreement on construction and operation of the inter-regional power line ‘North Kazakhstan – Aktobe Region’. 

On 7 July 2006 the Law of the Republic of Kazakhstan On Concessions No.167-III 3PK (the Concession Law) was adopted, which enabled in 2007 execution of the now specifically recognised by Kazakh law concession agreements on the Passenger Terminal of International Airport in Aktau City, the Yeraliyevo-Kuryk railway line, Electrification of the Makat-Kandyagash railway line and in 2008 execution of the concession agreements on Gas Turbine Plant in Kandyagash City of Aktobe Oblast and Railway Line Korgas-Zhetygen. 

To the best of our knowledge, as of the beginning of 2016, therefore, there are six concessional projects that are currently being implemented in Kazakhstan. Three concession facilities are already functioning: (1) North Kazakhstan–Aktobe region power line; (2) Shar–Ust-Kamenogorsk railway; and (3) the passenger terminal of the airport in Aktau. However most if not all of them did less well than expected. This was partly caused by bad structuring of these concession projects and there is apparent lack of proper balance of the risk sharing between an investor and the state. The railway, for example, has seen lower than expected freight volumes, and several of the enterprises expected to use the power line were out of action or operating below full capacity. 

The lack of popularity of concessions2  so far, however, is also due to excessive regulation of concession relationships by the relevant legislation, which diminishes the parties’ flexibility in determining project terms and because the process for granting concessions in Kazakhstan is very bureaucratic and time consuming.3  

In order to address this issue, on 31 October 2015 the Republic of Kazakhstan enacted a new law, On Public-Private Partnerships No. 379-V 3PK (the PPP Law). Public-private partnerships can now be structured not only as concessions and can be used to implement projects under the PPP Law framework in any sector of the economy, though declared priorities are education, healthcare, transport, power industry and housing and public utilities.  

The year 2015 became extremely fruitful in terms of making changes in PPP legislation as the PPP Law and all necessary by-laws have been adopted. Having now solid legal basis for the structuring of the PPP projects in place, the government of Kazakhstan officially confirmed that each region in Kazakhstan would have to meet a target of realisation of at least five PPP projects per year. It also plans to develop by the end of March 2016 a road map for implementation of the PPPs in all sectors and regions of Kazakhstan with the specific target indicators.4  

Even though the PPP Law took legal effect just at the end of 2015, according to publicly available information,5  there are already around 102 PPP projects at different stages of implementation in Kazakhstan as of February 2016, and eight of them are of a national importance. The biggest of these projects are construction of a 1,500-bed correctional facility in Shymkent city (construction of 300-bed hospitals in Ust-Kamenogorsk city and Aktau city, construction of a children’s hospital in Semey city and construction of an innovative cluster in Almaty city on the ground of the Al-Farabi Kazakh National University. 

Still the biggest and most expected PPP project in 2016 in Kazakhstan is, however, a concession project. The Ministry for Investments and Development of Kazakhstan kicked off a tender under the Concession Law framework for the concession of a toll road in Almaty, the country’s business centre and former capital, at the beginning of 2015. To the best of our knowledge, as of the beginning of February 2016, tender evaluation of the five shortlisted consortia is going on and, if successful, the Big Almaty Ring Motor Road, also known as BAKAD, will provide the government with some room to develop an ambitious PPP project pipeline largely focused on infrastructure developments amid challenging economic circumstances. The BAKAD 20-year, build-transfer-operate (BTO) PPP offers an enticing risk/reward combination. To the best of our knowledge, the government of Kazakhstan agreed to assume all the traffic risk. Toll revenues will be collected by the concessionary and transferred to the government straight away. In turn, the government will pay a front-loaded availability payment to cover the capex, plus interest within the first 10 years of operation to mimic the debt repayment schedule. At the same time, opex, replacement capital expenditure (Repex), taxes, cost of capital and other costs will be covered throughout the whole operation period. The government will also mitigate currency fluctuation risks and compensate for any devaluation-depreciation of the tenge (local currency) against the US dollar above 5 per cent. If successful, the BAKAD project would pave the way for more PPPs in the transport sector.  

Kazakhstan’s legal system is a civil law system similar to the systems in most other former Soviet jurisdictions. Its laws are contained in the Constitution, various codes, laws, edicts, decrees (having the force of law), regulations, instructions, orders and other normative acts of the Republic of Kazakhstan. 

The current legal framework governing PPPs consists of the following key legal acts:

a. the Constitution of Kazakhstan; 

b. the Civil Code of Kazakhstan; 

c. the PPP Law; d the Concession Law;