Kazakh investor creating major BlackSea energy hub in Romania
The owners of Kazakhstan’s state oil company have warned that a probe by Romanian prosecutors that has already seized $2.1 billion in assets threatens efforts to help safeguard EU energy supplies, writes Martin Banks.
KazMunaiGas says it is contributing to EU energy security by helping move Romania off Russian oil and investing billions in thedeveloping Romanian economy.
But it faces “uncertainty” after Romanian prosecutors froze KGMI shares in the country’s largest oil refinery.
The EU imports a significant amount of oil, natural gas, uranium and coal from Russia but, in recent years, these energy supplies have become less secure, partly as a result of the ongoing conflict in Ukraine.
KGMI has been operating in Romania and the Black Sea region for almost 10 years and accounts for 3% of Romania’s GDP. More than 30% of the oil used in Romania is thanks to the crude that flows between Kazakhstan and Romania.
There are fears, though, that the increasingly public dispute between Romania and KGMI will add to uncertainty about EU energy supplies.
This has been fuelled by the decision of Romania’s Directorate for the investigation of Organized Crime and Terrorism (DIICOT), a unit of the public prosecutor’s office, to name KazMunaiGas as a party in a corruption probe into the privatization of the Romania refinery in the early 2000s and to freeze its assets.
Prosecutors said they had frozen KGMI assets and stakes worth 3bn lei. The probe comes as part of a broader clampdown on corruption in Romania, which has seen high-ranking officials, including former Prime Minister Nastase, jailed for graft. The revival of the investigation, which has been running since 2006, comes ahead of Romanian general elections expected in November.
KazMunaiGas strongly rejects the Romanian case against it, pointing out that it bought the refinery in 2007, several years after the privatization took place and with the blessing of the Romanian authorities every step along the way.
KGMI has now initiated legal proceedings against Romanian authorities and
submitted a “notice of investment dispute”, the first step in a legal process that could lead to international arbitration.
The KGMI letter states, “We always stand ready to explain to the government of Romania the need for our investments to be protected as a matter of legal obligation under law. We are committed to continue investment in Romania and building on the significant work we have already done.”
KazMunaiGas’s troubles in Romania highlight efforts being made by Romania to loosen its dependency on Russian energy and, in doing so, help guarantee supplies to EU member states.
Azamat Zhangulov, Senior Vice-President of KGMI, says the investigation and seizure of Rompetrol Rafinare’s assets will impact growth in Romania. He said, “For example, we cannot develop large investment projects given that we can’t use the seized assets to draw more financing, not to mention the uncertainty regarding the future of our business in Romania.”
There are wider implications too, with the probe threatening the company’s operation in the wider region.
Zhangulov says that its activities in Romania have generated “tremendous benefit” for the Romanian economy and people, with plans to direct “billions more” in funds to plants, facilities and communities where the group does business.
Despite the inquiry, Zhangulov insists that KGMI “remains committed” to Romania and ongoing efforts to help the country, and EU, diversify its energy supplies.
He said, “We are investing in the communities and regions where we do business and want to do everything possible to help Romania keep growing. We are proud of our contribution to Romania and of our track record of being a committed and responsible investor but we want to see a safe environment for our investments in Romania.”
In an interview with this website, Zhangulov added, “We have made a commitment to Romania and the people of Romania, not just for the over 5,000 employees working for us, but also in the communities where we are conducting our business.
“We have already invested $4 billion in Romania and we are ready to create an economic and social investment fund in partnership with the Romania state, which would be valued at $1 billion.”
He added, “I should also mention the scale of our operations and investments outside Romania as well, around the Black Sea, Turkey, and in Western Europe, namely Italy, France and Spain.”
The row with Romania comes amid an ongoing debate in Europe about the need for energy stability and independence, both for the EU and each of its 28 member states. Zhangulov says his company has key role to play in this, pointing out, “We run the largest refinery in Romania, making profits and operating at maximum capacity of five million tonnes, accounting for around 40% of Romania’s processing capacity.”
He cites “one key statistic”- in 2007, when Rompetrol was purchased by KGMI, more than 55% of the oil imported by Romania came from Russia, with 27% from Kazakhstan. “Today,” he says, “those numbers are just about reversed as it is Kazakh oil that accounts for 60% of imports. That is a huge demonstration of how we are contributing every day to Romania, not just in terms of spending, taxes, jobs and exports but making energy security for Romania and the region the real story of our business there.”
However, Zhangulov cautioned: “But we have to keep asking ourselves, for our businesses and the governments we work with, where is the best, most secure place for us to spend our money?”
He said: “We cannot put further capital at risk unless and until the authorities demonstrate respect for rule of law.
“If no solution is found, we are compelled to use all legal means to defend our rights and obtain compensation and that includes international arbitration against the state.”
He added: “However, we sincerely hope that an amicable solution can still be found with a view to allow us to continue investments in Romania so as to contribute to Romania’s objective of becoming a major energy hub in the Black Sea region.”
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