How should be concluded offset deals

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Business community asks the developers of the draft law "On the offset agreements" to work out thoroughly the mechanism of offset deals

In December 2012 at the request of the Government there was developed a draft law "On the offset agreements", but due to the many contradictions and flaws, the draft law was postponed from year to year.

In September of this year the Ministry of Investment and Development resumed this work and developed a draft of the Concept of the law, which was sent for harmonization to all state bodies and business associations.

According to the Executive Secretary of the NCE RK Evgeniy Bolgert, business development in the manufacturing industry is one of the priorities of NCE RK. In turn, the project introduces the concept of a mechanism of offset agreements as an additional tool to attract foreign direct investment and to increase the level of localization of production, which is absent in Kazakhstan, but it is demand among industries.

For a broad discussion of this concept, on November 5^th of this year, at the site of NCE RK was held a working meeting with representatives of sectoral business associations, national companies and subsoil users.

According to representatives of the Association of subsoil users of oil and gas and mining sector (KAZENERGY, AGMP, EPA), out of all entrepreneurs the draft Concept unjustifiably binds only subsoil users to use offset agreements with their foreign partners - suppliers. This approach contradicts to the approved concept of the Code of the Republic of Kazakhstan "On Subsoil and Subsoil Use", which stipulates shift from control and regulation of the procurement procedures of subsoil users, focusing on the fulfillment of the local content obligations. In addition, the introduction of offset obligations under the previously concluded contracts on subsoil use would contradict to the established safeguards - the rights of subsoil users.

Representatives of the National Company "Kazakhstan Engineering" noted the importance of the use of offset arrangements for the organization of service support and training at the territory of the Republic of Kazakhstan in the framework of large purchases. This five-year terms of the offset agreement poses a question, as well as the minimum purchase amount from a non-resident vendor, as well as the excessive type of agreement as "indirect offset", which stipulates compensation deal, which isn’t related to delivery of goods.

Deputy Chairman of the Union of Machine Builders of Kazakhstan Timurlan Altayev stressed the importance of placing orders of national companies and subsoil users with domestic plants for a long term. However, according to the Concept, offset obligations will apply only in respect of foreign suppliers, whose products are sold in excess of 500 thousand MCI.

The participants of the meeting noted that the mechanism of implementation of offset obligations is unclear, which implies the adoption of decisions on the amount of these commitments by a special Interdepartmental Commission, and, furthermore, the selection of suppliers of a product for subsoil users, without the participation of subsoil users.

Subsoil use companies - "Kazakhmys Corporation" and LLP “Kazzinc Holdings” drew attention to the potential problems in a practical way, in particular, limitations imposed by the offset obligations in terms of the possibility to terminate a main contract with a supplier in case of need, which itself creates risks such as the establishment of inflated prices by a supplier and an increase in cost of products manufactured by the subsoil user.

"The draft Concept largely includes the international experience of offset agreements in the field of military industry with the establishment of fairly rigid obligations. Currently, there have been created conditions in Kazakhstan, that are not based on the administrative burden, but those, which encourage investment in priority sectors and specific niche. Draft Concept, in essence, should become a logical continuation of the policy laid down in the Law "On investments", "On state support of industrial-innovative activity", "On public-private partnership", etc. ", - said Evgeniy Bolgert.

All suggestions and comments of the business community will be directed to the developers of the draft law.