Railway Infrastructure through Asset Acquisition

Accordingly, the first legal question in any railway-related transaction is not simply who owns the asset, but what type of railway asset is being acquired and what regulatory regime applies to it.

For legal purposes, railway assets should be divided into several categories.

• According to Article 1 of the Railway Transport Law dated 8 December 2001 [1], mainline tracks are defined as railway tracks designated for the operation of railway transport throughout the territory of Kazakhstan and for ensuring railway communication with other states. They comprise both the main through tracks between stations and the reception/departure tracks within station boundaries.
• Main railway network is a broader concept. It means a system of interconnected main and station tracks, as well as electricity supply, heat supply and water supply facilities, signalling and communication systems, devices, equipment, buildings, structures, stations and other facilities technologically necessary for their operation and ensuring international and domestic railway connection.
• Access tracks are tracks connected to a station or the main railway network and serving a particular facility, such as a factory, mine, warehouse, logistics terminal or industrial site.

This distinction is fundamental because different rules may apply to ownership, access, tariffs, third-party use, operation, connection, transaction approvals and regulatory supervision.

Strategic object restrictions

Main railway networks are classified as strategic object under Article 193-1 of the Civil Code dated 27 December 1994. This has two key implications. First, the Republic of Kazakhstan has a pre-emptive right to acquire strategic facilities, including main railway networks, at market value before they are disposed of to third parties. Second, any disposal of a strategic object or encumbrance of such facility with third-party rights may be carried out only on the basis of a resolution of the Government.

This means that a deal involving assets classified as strategic may be subject not only to ordinary corporate approvals, but also Government approval and compliance with the State’s pre-emptive acquisition right that can delay or prevent closing.

Access tracks

Access tracks do not form part of the mainline railway network and are therefore not strategic objects. The restrictions on disposal, encumbrance, and the State's priority acquisition right do not apply to them.

The construction and operation of access tracks are subject to a separate technical and approval framework. Under Article 57 of the Railway Transport Law, access tracks may be connected to main and station tracks only with the consent of the National Infrastructure Operator, Kazakhstan Temir Zholy JSC. Therefore, if an access track was constructed at the expense of a private company, it is necessary to examine the full package of connection documents to determine whether any special conditions were imposed at the time of connection to the railway network and whether those conditions were properly implemented. For example, such special conditions may require the private initiator to transfer certain constructed infrastructure to the Kazakhstan Temir Zholy JSC. Such transfer should not be treated as an automatic statutory obligation in all cases.

Natural monopoly regulation

Another issue is whether the asset or business may be treated as a natural monopoly. Article 5 of the Law on Natural Monopolies dated 27 December 2018 [2] includes within the regulated sphere:

1. services of main railway networks;
2. railway tracks with railway transport facilities under PPP agreements, where there is no competing railway track; and
3. access railway tracks / sidings where there is no competing siding.

The last category is significant for investors. An access track operator serving a site where no competing siding exists may be classified as a natural monopoly entity and become subject to tariff regulation and ongoing regulatory oversight by the authorised body in the field of natural monopolies, namely the Committee for Regulation of Natural Monopolies of the Ministry of National Economy.

Under Article 13 of the Natural Monopolies Law, where a target is registered as a natural monopoly entity, it must obtain prior consent from the Committee for Regulation of Natural Monopolies of the Ministry of National Economy before carrying out certain actions, including:

• transactions involving property used to provide regulated services, including lease, pledge, trust management, contribution to charter capital and other forms of encumbrance or disposal;
• reorganisation, including merger, accession, division, separation or transformation; and
• liquidation.

This means that even where the infrastructure is privately owned, an investor may still require sector-specific regulatory consent from the natural monopoly regulator before the transaction can be completed. The consent process involves submission of a detailed application and review of the transaction’s impact on the provision of regulated services, continuity of service and applicable tariff regulation.

Licensing and permits

Under Kazakhstan's Law on Permits and Notifications dated 16 May 2014 [3], the carriage of goods by rail is a licensed activity. A licence is issued by the Ministry of Transport and is a prerequisite for any entity commercially operating freight transportation services on the railway network.

The scope of the licensing requirement is defined by the actual activity of the operator. A distinction must be drawn:

• where the target owns access tracks used internally for industrial loading, storage, shunting within a plant, or access to a warehouse or terminal for its own purposes, a railway transport licence may not be required;
• where the target is actually carrying freight by rail for third parties, the freight carriage licence should be obtained.

Moreover, railway and terminal projects often involve equipment that may be regulated separately from railway legislation. This may include cranes, hoists, lifting mechanisms, pressure systems, elevators, loading equipment and similar machinery.

Such equipment may qualify as hazardous technical devices under Article 74 of the Law on Civil Protection dated 11 April 2014. Accordingly, businesses engaged in loading, unloading, bulk cargo handling, transshipment, wagon movement or operation of terminal equipment may need to comply with industrial safety requirements, including permits, registration, technical inspections, staff training and industrial safety procedures.

Furthermore, under the Environmental Code dated 2 January 2021 [4], facilities having a negative impact on the environment are classified into Categories I to IV depending on the level and risk of such impact. Category II covers objects with a moderate negative environmental impact, and Appendix 2 to the Environmental Code expressly includes “railway transport infrastructure facilities” within Category II objects under transport and infrastructure facilities. Accordingly, the operation of such railway infrastructure shall require an environmental permit for impact.

In addition, where the construction, reconstruction or expansion of railway tracks is contemplated, the environmental permitting position should be reviewed separately. Article 106 of the Environmental Code provides that an environmental permit is issued for the operation of each separate Category I or II object and/or for Category I or II construction and installation works, and construction and operation of Category I and II objects without the relevant environmental permit are prohibited.

In conclusion, railway-related asset in Kazakhstan should not be assessed as an ordinary industrial asset. Its legal status depends not only on ownership documents, but also on the classification of the tracks, their connection to the wider railway network, the nature of the operator’s business model and the regulatory regime applicable to each element of the infrastructure. The same transaction may therefore raise issues of strategic object regulation, natural monopoly control, licensing, industrial safety, environmental permitting, land rights and construction compliance.