The Budget That Is Already Approved
Published 2026-08-26 · EuroQuest International
Quick summary
- What it is: a statutory duty on hydrocarbon subsoil users in Kazakhstan to spend one percent of the previous year's extraction costs on training Kazakhstani personnel, every year.
- The base is not investment: the training one percent is calculated on extraction costs. A separate one percent, calculated on contract investment, funds regional development and has nothing to do with training.
- When it starts: from the second year of the production period as a default, and from the first year for subsoil users holding a contract in the new model form.
- The thirty percent rule: at least 30 percent of the obligation must fund training for a defined list of protected categories, and that portion is not available for ordinary commercial courses.
- No prior approval: nothing is submitted for sign-off before training begins. Compliance is proved afterward with an invoice and an enrollment document, and any shortfall is paid into the state budget.
Most training budgets are argued for. This one is already decided. A company producing oil or gas in Kazakhstan does not choose whether to spend on developing national staff, or how much; the amount is set by statute as a percentage of what the company spent getting hydrocarbons out of the ground last year, and the only open questions are what the money buys and whether the spending can be evidenced.
That makes the obligation unusual, and widely misunderstood. Two things in particular get repeated incorrectly: what the percentage is calculated on, and whether a plan has to be approved before anything starts. This guide works through the rule in the order it actually applies, for subsoil users, their contractors, and the human resources and compliance teams who have to close the year out.
On this page
- What the one percent actually is
- When does the obligation start?
- What spending actually counts?
- How is it evidenced, and what happens if you underspend?
- Frequently asked questions
What the One Percent Actually Is
Kazakhstan's Code on Subsoil and Subsoil Use places three annual obligations on a subsoil user during the hydrocarbon production period. They are usually described as "the one percent", which is where the confusion begins, because there are three of them and they are not calculated the same way.
The first is training of Kazakhstani personnel, at one percent of extraction costs incurred in the previous year. The second is research, development and digitalization work, also at one percent of the previous year's extraction costs. The third funds socio-economic development of the region and its infrastructure, and that one is calculated on investment under the subsoil use contract. Only the first is a training obligation.
The base is extraction costs, not investment
This is the error worth correcting before any budgeting is done. Because the third obligation is investment-based and all three are called "one percent", the training duty is frequently reported as one percent of annual investment. It is not. It is one percent of the previous year's extraction costs, and on a producing asset those are very different numbers.
The implementing rules are set jointly by the energy ministry and the education ministry, and their published title states the base on its face: rules on financing the training of Kazakhstani personnel in the amount of one percent of extraction costs incurred by the subsoil user during the period of hydrocarbon and uranium production, based on the results of the previous year. The order dates from 2018 and the rules were restated in 2021, so anyone working from an older summary should check the current text.
Why the sector can absorb it
The obligation sits on a large industry. Kazakhstan produced an estimated 1.9 million barrels per day of petroleum and other liquid fuels in 2024, on the United States energy administration's assessment published in February 2025. That is a 2024 figure rather than a current one, but it establishes the order of magnitude: one percent of extraction costs across a sector of that size is a substantial annual pool.
It also sits on a sector that already pays a premium for skills. The national statistics bureau reported that in the first quarter of 2026, nominal wages in mining and quarrying were 2.3 times higher than the national average, alongside finance and information and communication. Capability is priced accordingly, which is exactly why a statutory training duty exists rather than being left to the market.
Key terms
- Subsoil user: the party holding the contract or license to explore for or produce hydrocarbons. The obligation follows the contract, not the corporate group.
- Production period: the phase after exploration in which the asset produces. The training duty runs only during this phase, not during exploration.
- Extraction costs: the costs incurred in producing hydrocarbons in the previous year. This is the base for the training percentage, drawn from the annual contract performance reporting.
- The list of in-demand specialities: a schedule of priority qualifications maintained by the ministries. Most qualifying spend has to point at it; one category does not.
- Carry forward: spending above the required amount in one year reduces what is owed in the next. The obligation is annual but not strictly ring-fenced year by year.
When Does the Obligation Start?
The default is the second year of the production period. That is the answer most summaries give, and for most subsoil users it is correct.
The exception that changes the first invoice
It is not universal. The Code carries a separate provision for subsoil users who hold a hydrocarbon production contract concluded in the new form, drawn up in line with the model production contract. For those holders the obligation runs from the first year of the production period, not the second. A company assuming it has a year of grace, when its contract has been reissued in the model form, will discover the gap at reporting time rather than at planning time.
Hydrocarbons and uranium sit in different articles
The duty described here is the hydrocarbon one. Uranium production carries its own parallel article with the same structure, and the implementing rules cover both, which is why their title names hydrocarbons and uranium together. Companies operating across both regimes are meeting two obligations that look identical and are legally distinct.
Reading the obligation correctly against the contract, and against whichever regime applies, is the practical starting point of legal and regulatory frameworks for the oil and gas industry.
What Spending Actually Counts?
The rules set out five qualifying directions. Most published summaries list three or four of them, and the two that get dropped are the two that involve paying money to state education institutions.
| Qualifying direction | Who it covers | Tied to the list of in-demand specialities? |
|---|---|---|
| Training your own people | Kazakhstani personnel who are employees of the subsoil user | No restriction stated for this direction |
| Training people you do not employ | Kazakhstani citizens outside the company, including professional practice, dual training, upskilling and retraining | Yes |
| Training protected categories | An enumerated list of citizens, including people with disabilities and their families, orphans under twenty-nine, large families and single-parent families | No, and this is deliberate |
| Equipping state education organizations | Purchase of goods, works and services to improve their facilities | Yes |
| Funding state education organizations directly | Transferring money so the institution buys those goods and services itself, under a contract | Yes |
The thirty percent that is not available to you
The rules require that at least 30 percent of the obligation be spent on the third direction, the protected categories. That is 30 percent of the one percent, not of anything larger, and it has a practical consequence a training buyer should understand early: roughly a third of the statutory pool is committed to a defined social purpose before any commercial course is considered.
The design is deliberate rather than incidental. Spending on those categories is explicitly freed from the requirement to point at the list of in-demand specialities, which means the state has traded sectoral targeting for social reach in that portion and kept it in the remainder.
What the other seventy percent tends to buy
The balance is where operator-driven capability building happens, and it follows the asset. On mature fields with declining pressure that means subsurface work, which is the territory of reservoir engineering and enhanced recovery techniques. Where associated and non-associated gas is being processed and moved rather than flared, it means natural gas processing and distribution strategies.
For landlocked production the transport system is the constraint on everything, which puts pipeline integrity management and maintenance strategies close to the center of operational risk. And because a large share of the local content obligation runs through vendors, the procurement function is usually the one that converts a policy into contracts, which is the working content of supply chain and procurement in the energy sector.
How Is It Evidenced, and What Happens If You Underspend?
This is the part that differs most from other local content regimes, and it is worth stating plainly because the comparison is often made incorrectly.
Nothing is approved before it starts
Some petroleum regimes require a training plan to be filed with the regulator and formally approved before any training may commence. Kazakhstan does not work that way. There is no training plan, program or budget submitted for sign-off, and no commencement condition. Compliance is assessed after the fact.
There is one pre-clearance step, and it is narrow: where a subsoil user wants to equip a state education institution, the list of goods, works and services is cleared between government bodies before purchase. It concerns procurement lists, not training itself, and it does not gate the rest of the obligation.
The evidence is an invoice and an enrollment document
What proves performance is documentary and specific: an invoice, and a copy of the official document confirming that a citizen of Kazakhstan has been enrolled in a technical and vocational, post-secondary, higher or postgraduate education organization. Indirect costs such as accommodation, per diem and transport inside the country count toward the obligation as well.
The practical implication for a training buyer is that the paperwork matters as much as the content. A course that cannot produce an enrollment record in the required form creates a compliance problem for the client even if the teaching was excellent.
Underspend is paid, not forgiven
If the required amount is not spent, the shortfall is transferred to the state budget. If more is spent than required, the excess reduces the following year's obligation. That asymmetry is the whole economics of the rule: unspent money leaves the company either way, so the only real decision is whether it leaves as capability or as a transfer.
Framing that choice for a board, and connecting it to the asset plan rather than treating it as a compliance line item, is the substance of strategic energy management and policy development, and of the future of oil, gas, and energy management where the question is what capability the asset will need a decade out.
Closing the year out
- Confirm which year the obligation starts in, by reading the contract form rather than assuming the second year
- Establish the extraction cost base from the previous year's contract performance reporting, not from a budget forecast
- Split the obligation before planning: at least 30 percent to the protected categories, the balance to the rest
- Check every non-protected item against the list of in-demand specialities before committing
- Confirm each provider can issue an enrollment document in the required form for Kazakhstani citizens
- Capture eligible indirect costs, including accommodation, per diem and in-country transport
- Reconcile against last year's carry forward before calculating this year's number
- Decide deliberately whether any residual is spent or transferred, rather than discovering it at year end
The money leaves the company either way. The only decision the rule actually leaves open is whether it leaves as capability or as a payment to the budget.
EuroQuest International runs oil, gas and energy management programs in Istanbul, Dubai, Kuala Lumpur, Amman, and Vienna, covering regulatory frameworks, reservoir and production engineering, gas processing, pipeline integrity, energy procurement, and strategic energy management for subsoil users, national and international operators, service contractors, and the human resources and compliance teams who carry the reporting.
Frequently Asked Questions
Is the Kazakh training obligation one percent of investment?
No, and this is the most common error. The training obligation is one percent of the extraction costs incurred by the subsoil user in the previous year. A separate obligation, also set at one percent, is calculated on investment under the subsoil use contract, but that one funds socio-economic development of the region and its infrastructure. A third one percent, again on extraction costs, funds research, development and digitalization.
When does the obligation begin?
From the second year of the production period as a general rule. There is an exception that matters commercially: for subsoil users holding a hydrocarbon production contract concluded in the new form, drawn up in line with the model production contract, the obligation applies from the first year of production. The obligation does not run during exploration.
What kinds of training qualify?
Five directions: training the subsoil user's own Kazakhstani employees; training Kazakhstani citizens who are not employees, including professional practice, dual training, upskilling and retraining; training a defined list of protected categories; buying goods, works and services to improve the facilities of state education organizations; and transferring money to such an institution so it can buy them itself. Most directions must point at the official list of in-demand specialities.
Does a training plan need regulatory approval first?
No. Unlike some petroleum regimes, Kazakhstan requires no training plan or budget to be submitted and approved before training begins. Compliance is demonstrated afterward, with an invoice and a copy of the official enrollment document for a Kazakhstani citizen entering a technical and vocational, post-secondary, higher or postgraduate education organization. The only pre-clearance step concerns lists of goods and services for equipping state education institutions.
What happens if a subsoil user spends less than required?
The shortfall is transferred to the state budget, so the money leaves the company regardless. Spending above the required amount is not wasted either: the excess reduces the obligation for the following year. In practice this turns the rule into a question of whether the sum is converted into workforce capability or simply paid over, which is why planning the spend early tends to produce better value than reconciling it late.
Turn the Obligation Into Capability
EuroQuest International delivers oil, gas and energy management programs covering regulatory frameworks, reservoir and production engineering, gas processing, pipeline integrity, energy procurement, and strategic energy management, in Istanbul, Dubai, Kuala Lumpur, Amman, and Vienna.
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