Kazakhstan Seeks International Arbitration Ruling Over Investment in Romania
Rompetrol includes three refineries: Petromidia, Vega and Rompetrol Petrochemicals, as well as over a thousand gas stations throughout Europe. KazMunayGas (KMG) had explained its decision to purchase the major oil and gas holding in Romania by the desire to enter the European refinery market.
Today, the holding operates under a new name – KazMunayGas International NV (KMGI). Over the last two to three years, this foreign asset has been under a close attention of the media.
There are several reasons for that. First, this asset had been part of a large-scale privatisation by the government of Kazakhstan. Second, the largest Chinese investor has decided to buy the controlling stake it in. Third, the pending sale has triggered a renewed and even fiercer dispute around the old claims of the Romanian government to Rompetrol.
KMGI Deputy Director General Azamat Zhangulov talked to New Europe in an interview about his company’s plans regarding its investment in Romania and the Balkans region.
NE: Mr. Zhangulov, how are things with the financial claims of the Romanian government to Rompetrol?
Azamat Zhangulov: In early May this year, the prosecutor’s office of Romania brought up criminal claims against 14 KMGI employees. Based on the financial claims, Romanian prosecutors froze $2.1 billion worth of KMGI assets.
The current accusations of the Romanian authorities relate to the 2000 privatisation of Rompetrol Rafinare, as well as to the 2003 agreement between the government of Romania and the management of the then Rompetrol Group on restructuring of historic debt into bonds.
In 2007, when KMG bought the 75% stake of The Rompetrol Group NV, the deal had been approved on all levels in Romania as well as by the European Union.
At the time of the purchase of the Romanian assets, KMG had not been officially informed about an ongoing investigation into a 1998-2003 case. KMG, therefore, considers itself an honest buyer and, from the legal perspective, finds the current accusations for the actions of the previous owner unfounded.
KazMunayGas and KazMunayGas International NV intend to use their legal rights under the local and international law to protect their capital investment made since the purchase of the company.
Consequently, on July 22, the company submitted to the Romanian government a notice of investment dispute under the Agreement between the Governments of Romania and Kazakhstan, the Agreement between the Governments of the Kingdom of Netherlands and Romania, and the Energy Charter.
If the dispute is not resolved within 3 to 6 months of receipt of the aforesaid notice, the company has the right to go to international arbitration.
NE: In that case, what is the current status of approval by the European regulatory agencies of the sale of 51% in KazMunayGas International NV to China CEFC Energy Company Limited? It was reported earlier that the deal was expected to close by October 2016. Not much time is left.
AZ: As reported earlier, the freezing of the assets by Romania’s special prosecutor’s office has complicated the progress of the deal. We are in ongoing negotiations with the CEFC on the conditions of the deal pertaining to the investigation.
We have already received confirmation from our partners about their unchanged intention concerning the format and conditions of the agreements. But the new circumstances will have to be taken into account.
In the meantime, we are finalising with our partners the investment initiatives for strategic partnership, and we are working on preparation of the new projects for implementation.
NE: After a final approval of the sale, KMG with be left with just 49% in the Romanian asset. Legally, such distribution of shares means the Chinese will have the controlling interest. Does this mean that KMG will lose its right of “final say” in critical decisions?
AZ: the Shareholders Agreement regulates the relationship between the partners. According to it, the key decisions should be made unanimously. Therefore, no critical decision will be made without KMG’s input.
Furthermore, CEFC relies on KMG’s expertise in this business and on the national company’s support in the organization of crude supplies for the joint venture. The partnership will act in the interests of both parties and, consequently, their respective interests will be fully taken into account.
NE: Commenting on the sale earlier, KMG head Sauat Mynbaev said that “in a union with a strong investor, KazMunayGas can make a serious breakthrough using KazMunayGas International (Rompetrol) as a common platform to develop the business”. Can you please clarify what breakthrough we are talking about? Is it increased refining capacity, product line expansion, or increased share in the retail market (expansion of the gas station network) in the Balkans, and not just in Romania?
AZ: The new partnership is directed at establishing and developing a long-term, strategic international joint venture based on the operations and assets of the KMGI group in the promising markets of Europe.
Our main goal is to expand the trade of crude oil and petroleum products in Europe. This partnership creates an attractive platform, on the basis of KMGI, for future joint projects principally in the European oil and gas sectors.
The main areas in which the future projects will be developed include oil refining, wholesale and retail sale of petroleum products, infrastructure, logistics, and other operations related to the company’s core business.
NE: Apart from Austria’s OMV concern and Russia’s LUKoil, what other energy companies are present today in the Balkans’ retail fuel and lubricants market? Who could be the potential competitors?
AZ: As you know, since the acquisition of Rompetrol, KMG has made sizable investment in the oil refinery capacity upgrades, development of logistic infrastructure, and expansion of the retail network, which has earned the company a status of an “energy bridge” connecting the resources of Central Asia to the promising European markets.
Now, together with the Chinese investors, there is an ambitious plan to realize the next stage of the company’s development. The plan includes strengthening and expansion of presence of flows of crude oil and oil products on the basis of Kazakhstan’s crude oil in the Black Sea region and Europe.
As far as competition is concerned, we are already the best in product and service quality there. We hope that the new projects will reinforce our competitiveness. As a result, we plan to become a leader in the European market of petroleum products.
NE: Would KMGI’s strategy change with the arrival of the Chinese partner? Specifically, we are interested in the loading chart of Petromidia refinery. If so, what changes are expected?
AZ: We are not expecting any change to the loading chart of Petromidia refinery. The partnership will be using each partner’s strengths: KMG’s capabilities to supply crude oil, and CEFC’s capabilities to invest in business development. KazMunayGas will continue to benefit from Petromidia’s strategic location on the Black Sea coast to supply crude from Kazakhstan and to fully load the refinery capacities.