In Kazakhstan, the regulation of tender procedures, both public and private, is generally divided into four categories:

1. Antimonopoly regulation of Tenders

Antimonopoly regulation of tenders is carried out by the antimonopoly body – the Committee of the Ministry of the National Economy of RK for the Regulation of Natural Monopolies and Protection of Competition, and its territorial units:

  • Under the RK Law on Natural Monopolies and Regulated Markets (Natural Monopolies Law): with respect to purchases, the expenses for which are taken into account in approving tariffs (prices, charge rates) or tariff maximum levels and tariff cost sheets for regulated services (products, works) which are the subject of a natural monopoly.
  • Under the RK Law on Competition (Competition Law): in terms of any anticompetitive agreement between market participants, such as:

  • a) horizontal agreements, i.e. those which infringe upon the legitimate rights of consumers and/or result/may result in the increase, decrease or maintenance of prices at tenders, or distortion of the results of tenders, auctions or trading, including by way of separation by lots;

    b) agreements reached in any form, which lead or may lead to the restriction of competition, including those related to the distortion of the results of tenders, auctions or trading due to the breach of the established procedure for conducting thereof, including by way of separation by lots.

Antimonopoly regulation of tenders conducted in accordance with the RK Law on Natural Monopolies and Regulated Markets is carried out by the antimonopoly body in exercising the following powers vested upon it by the Law:

a) Canceling the results of a tender held by a natural monopolist before it enters into an agreement with the winner of a tender conducted in violation of the RK legislation and obliging it to hold a new tender;

b) Rejecting an application by a natural monopolist for the approval of tariffs (prices, fee rates) or their maximum levels if any violation is found in the course of examination of such application by the authorized body;

c) Initiating a change in tariffs (prices, fee rates), or maximum levels thereof, for regulated services (goods, work) of a natural monopolist, and approving of a temporary compensating tariff to reimburse losses to consumers caused by the natural monopolist, if the authorized body found violations resulting in losses to consumers during the period when such tariffs (prices, fee rates) or their maximum levels have been applied.

Experience shows that the antimonopoly body rarely applies the first measure, while the second measure is applied quite often. For example, over the 1st quarter of 2012, the Almaty Oblast Department of the RK Agency on Regulation of Natural Monopolies (the "DRNM") refused two applications for tariff approval submitted by two subjects of natural monopoly on the basis of a violation by the subjects of a natural monopoly of the requirement to hold a tender for the regulated services of water supply system and access roads.

Antimonopoly regulation of tenders under the Competition Law is carried out by the antimonopoly body in relation to both tenders conducted in relation to government purchases, and tenders conducted by commercial entities. Under this Law, regulation is effected in two ways:

1) Regulating horizontal agreements which lead to an increase, decrease or maintenance of prices at tenders, distortion of the results of tenders, auctions or trading, including by way of separation by lots. The negative consequences of such violation of the antimonopoly legislation include the infringement upon the legitimate rights of consumers of goods, work and services.

Bearing in mind that the above rule was introduced recently, as from 6 March 2013, it is rarely applied in practice.

2) Regulating agreements which distort the results of tenders, auctions, contests as a result of the violation of the established procedure, which includes separation of lots, resulting in the restriction of competition.

Notwithstanding the fact that it is within the competence of the antimonopoly body to prevent the conclusion of anticompetitive agreements, the antimonopoly body does not take part in tenders. Usually the antimonopoly body is notified of a violation of a tender procedure by public bodies, the media, private citizens, legal entities as well as by way of actual discovery of the event of an antimonopoly violation. Often the motivation behind a notification to the antimonopoly body made by a market participant is to remove unfair competition. Given that, it seems that the market participants tend not to be fixed with administrative liability for anti-competitive agreements entered into as a result of tenders. The competition authority has a poor record when it comes to bringing market participants to administrative liability for anticompetitive agreements entered into as a result of or in connection with tenders.

We note that application of the law in this area has not yet been laid down. However, it is already clear that in order to avoid the objections of the courts in the course of inspections of the procedure of the tender for its legality and any violations, the antimonopoly body has the right to engage experts from other State bodies and cooperate with law enforcement bodies. In other words, having detected the violations in the course of a tender, experts from the authorized bodies of public revenue (Financial Control Committee, Public Revenue Departments, etc.) issue administrative protocols and examine administrative materials. After receipt of the results of the administrative case, and review of the content of agreements of the tender participants and upon completion of the antimonopoly investigation, the antimonopoly body may issue an administrative protocol under Part 1 of Article 159 (i.e. "Anticompetitive agreements") of the new Administrative Code and forward it to the courts for examination.

2. Regulation of state Procurement

In Kazakhstan, the state procurement procedure is regulated by the authorized body, which is the State Procurement Committee of the RK Ministry of Finance, and, accordingly, the implementation and control functions are performed by the Financial Control Committee of the RK Ministry of Finance .

3. Regulation of purchases of goods, work, services in the course of subsoil use operations

The acquisition of goods, work and services in the course of subsoil use operations is carried out through tenders (Article 77 (part 1) of the RK Law on Subsoil and Subsoil Use) via the state informational system 'Register of Purchases of Subsoil Users', the coordinator and operator of which is the National Agency for the Development of Local Content Joint Stock Company (NADLoC) – whose shareholder is the Ministry for Investment and Development of the RK.

4. Purchases by Samruk- Kazyna National Welfare Fund JSC

In Kazakhstan, the area of government purchases includes, along with the state bodies, agencies and enterprises, joint-stock companies where the government holds a controlling share, i.e. national companies and their affiliated legal entities where 50% or more of the shares belong to the state.

Tenders held by the aforementioned companies are regulated by the RK Law on the National Welfare Fund, the Rules for the Centralized Procurement of Goods, Work and Services by Samruk-Kazyna JSC and the organizations, the 50% or more of voting shares of which are owned or held in trust by Samruk- Kazyna JSC (as approved by Decision No. 02/14 of the Board of Samruk- Kazyna JSC dated 22 January 2014 and as amended on 24 June 2014), the Rules for the Procurement of Goods, Work and Services by Samruk- Kazyna National Welfare Fund and organizations, the 50% or more voting shares of which are owned or held in trust by Samruk-Kazyna JSC (as approved by Resolution No. 80 of the Board of Directors of Samruk-Kazyna National Welfare Fund dated 26 May 2012, as amended as of 19 June 2015).

In the above case, the Authorized Body responsible for procurement of goods, work and services is represented by a business unit of the Fund and/or by a subsidiary to be determined by the Fund's Management Board. The Tender Commission is the collective body established by a Customer/ procurement arranger (unified procurement arranger) for conducting procurement by way of a tender. Customers may appeal against audit acts of the Authorized Body by applying to the commission in charge of reviewing complaints on procurement issues, established within the Fund.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.