Endless Courts: Swiss Investor Faces Losing Ownership of Turkestan Region Plant

Investors still face unfair decisions in Kazakhstan despite efforts to increase cash flow. Orda.kz investigated one such story.

Getting Started

In 2022, the Swiss company KAZKOM SA decided to acquire a small-capacity oil refinery, Mangystau Oil Refining LLP. 

Mangystau Oil Refining LLP was founded in 2017. At its low-capacity oil refinery in Aqtau, it processes crude oil and produces petroleum products such as diesel fuel, fuel oil, heating oil, and naphtha. The refinery employs 270 people. 

To expand production activities in 2022, the investor has decided to participate in an auction to sell Stratus Oil, a small-capacity oil refinery in the Turkestan region. The former owners bankrupted the enterprise.

The plant was put up for auction nine times, as there was a lack of offers. In July 2022, Mangystau Oil Refining LLP won the final auction.

Investor Trap

The former plant owner, Maksat Tasbulatov, believed the auction was held unlawfully and filed an appeal with the  Turkestan region's specialized inter-district economic court. 

After lengthy litigation, the court ruled on the legality in October 2022. In January 2023, the Turkestan Regional Court upheld the court's decision. 

The purchase and sale agreement was concluded in April 2023. The investor then funneled money into the enterprise, restoring infrastructure and partially modernizing the plant. In October 2024, the Ministry of Energy approved the oil refinery's production certificate.

At the end of 2023, the Supreme Court reviewed the judicial acts on the auction and sent the case for a new trial.

The Supreme Court decided that the plant was sold at auction at a reduced price. The panel indicated the need to assess the plant's market value on the date of sale.  

Despite the Supreme Court's order, it was never done.

According to Professor of Roman and Civil Law Practice at KIMEP University, member of the Expert Council of the Chamber of Legal Consultants "IUSTUS" Arman Shaikenov:

The electronic auction protocol is not a transaction in the understanding of the civil law of the Republic of Kazakhstan, and therefore cannot be recognized as either valid or invalid. In accordance with Article 147 of the Civil Code of the Republic of Kazakhstan, transactions are actions of citizens and legal entities aimed at establishing, changing or terminating civil rights and obligations. The electronic auction protocol, however, does not create, change or terminate civil legal relations, but only records the results of the auction, being a form of documentary registration of the expression of will of the parties - the public offer of the seller and the acceptance of the buyer. It can be adjusted in the event of factual errors, but the question of its validity in the legal sense cannot be raised.

However, this did not prevent the Turkestan Regional Court from deciding in May 2024 to invalidate the electronic auction protocol. After the auction was declared invalid, the former plant owner filed a lawsuit to invalidate the plant's purchase and sale agreement. 

In August 2024, the specialized economic court of the Turkestan region recognized Property Sale and Purchase Agreement No. 1, dated April 24, 2023, as invalid.

The Turkestan Regional Court concluded that the property valuation could not be "accepted as the starting price when selling the bankrupt's property via electronic auction."

Even if we assume that an error was made in assessing the property, this is the seller's error, which in no way can affect the validity of the sale and purchase agreement concluded with a bona fide buyer. In addition, the price of the agreement agreed upon by the parties does not in any way become a condition that contradicts the requirements of the legislation within the meaning of paragraph 1 of Article 158 of the Civil Code of the Republic of Kazakhstan. It should be understood that the property is assessed in the interests of the seller (i.e. the creditors and the owner of the bankrupt legal entity represented by the bankrupt manager), therefore any errors in assessments, subject to the bona fide nature of the buyer, are entirely the seller's risk and should not affect the validity of the transactions concluded. And certainly such errors of the seller cannot violate any requirements of the legislation for the content of the sale and purchase agreement concluded by the bankruptcy manager" says lawyer Valikhan Shaikenov, legal adviser to the association of independent experts Shaikenov Law Experts (SHEL).

To date, the court decision has not entered into legal force.

Orda.kz is preparing relevant information requests to the Prosecutor General's Office and First Deputy Prime Minister Roman Sklyar. They have been entrusted with protecting investors' rights and interests and improving the country's investment climate.

Original Author: Maria Kravtsova