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Firm agreement between KazMunayGas and Chinese CEFC for 51% of Rompetrol shares

de Adrian N Ionescu , 16.12.2016

rompetrol-kazmunaygazKMG International NV (KMGI), the major shareholder of Rompetrol Rafinare, announces that negotiations between the National Company KazMunayGas from Kazakhstan (KMG NC) and Chinese company CEFC (China Energy Company Limited) for the acquisition of 51% of KMG International NV reached the final phase.

This decision solves some of the problems that the company from Kazakhstan has, but does not clarify and is even likely to complicate company’s relationship with the Romanian state. Nearly 3 years after Ponta Government approved the Rompetrol Memorandum, the well-known 1bn investment fund has not been operationalized yet.

The agreement between KMG NC and CEFC certifying the firm commitment for this transaction is to be signed, along with a set of documents, which confirms the solid partnership between the two companies, reads a press release of KMGI.

The assets and operations of KMGI in Europe and the Black Sea region will serve as a development platform and will target both the increase of KMGI’s operational and financial performance and the expansion of the activities and operations of CEFC at the international level.

The strategic partnership will create benefits for KMG NC, CEFC and KMGI and set the framework needed for the future joint projects, contributing to the economic and social growth in the regions where these projects will be implemented, most of them in Romania.

The two companies signed an agreement in April this year, which stipulated that “CEFC China will acquire the 51% stake of Rompetrol for USD 680 million, after which the two parties will integrate their resources for a joint exploration of the international oil and gas markets.”

The deadline for the completion of the transaction was set in October, but the DIIOCT investigation and the Rompetrol asset seizure led to extending the period of negotiations.

“The deadline related to CEFC has been extended in the context of the new discussions that we need to have with the Government. The agreement with this investor will continue, but it will probably take few months more to conclude the new terms of the agreement, “said the Vice-president of Rompetrol, Azamat Zhangulov.

The agreement has been concluded before the DIIOCT prosecutors announced in May this year the implementation of several precautionary measures necessary in view of recovering the damage and the extended confiscation within the last Rompetrol case-file:

  • By an order from 6 May 2016, the DIICOT prosecutors ordered the precautionary seizure to recover the damage caused by the offenses and the special confiscation, up to the amounts of 1,724,168,825 lei, USD 290,786,616 and 34,941,924 euros, of the movable and immovable assets belonging to 4 suspects, as well as the movable and immovable assets of KazMunayGas International NV, SC Oilfield Exploration Business Solutions SA and SC Rompetrol Rafinare SA, as civilly liable parties.
  • The precautionary seizure has been set on the shares owned by the three companies in several companies from Romania.
  • The precautionary seizure has been decided to recover the damage caused by the offenses and the special confiscation in respect of the amounts representing salaries, up to the amounts of 1,724,168,825 lei, USD 290 786 616 and 34,941,924 euro, on the amounts existing and replenishing the bank accounts open by 4 individuals.

Damage claimed by DIICOT for Rompetrol exceeds the amount of the transaction with the Chinese

The amount that the Chinese from CEFC China Energy Company Limited should pay for 51% of Rompetrol is below the damage and the special confiscation mentioned by DIIOCT – USD 680 million is the value of the transaction and approximately EUR680 million is the damage calculated by Rompetrol 2 case prosecutors in February.

Under the agreement signed on April 7, 2016 by CEFC and the Kazakhs from KazMunayGas, “CEFC China will acquire 51% of the Rompetrol shares for USD 680 million, and the two parties will integrate their resources afterwards for the joint exploration of the international oil and gas markets,” according to a statement published on the Chinese company’s website.

Controversial memorandum

Victor Ponta Government issued last year the Government Resolution 626/2015 to approve the strategy of privatization for a stake of 26.6959% held by the Romanian state in the company “Rompetrol Rafinare” – S.A. Constanta.

The resolution has been included in the memorandum signed with the Kazakh company KazMunayGaz, which provides for the sale by a call auction of this stake for the minimum amount of USD200 million, and the participation in a common investment funds of one billion dollars.

At the end of the last year, when the first information surfaced about the possibility that CEFC China Energy Company Limited could take over Kazakh holding KazMunayGas International, the Minister of Energy Victor Grigorescu, stated:

“The decision to sell the majority stake of KMG International belongs strictly to the Kazakh State. Based on the data that we have so far, in the case of such a takeover, the form of shareholding for Rompetrol Rafinare remains unchanged. The Ministry of Energy closely monitors all the obligations assumed by KMG International towards the Romanian state”.

Former Minister of Energy Razvan Nicolescu considers though that the transaction would require an approval from the European Commission.

The controversial Memorandum that Ponta Government adopted by Governmental Resolution: erasing the debt of 600 million for uncertainties of one billion

Rompetrol has escaped the historical debt of about USD 600 million when it signed the Memorandum in 2013.

The document has been approved by Governmental Resolution in 2014 after the Constitutional Court explained that such legal act cannot be approved by the legislature, as Victor Ponta intended.

In exchange for the debt of USD 600 million, KMG would buy a stake of almost 27% with at least EUR 200 million and launch an investment fund of USD 1 billion.

What is happening with the “USD 1 billion fund” of investment

The fund is mentioned in section 2.3 of the Memorandum: “The duration of the investment: up to 7 years. During the seven years, it is estimated an investment of about 1 billion, depending on the market conditions.”

As for the type of projects which could be subject of the Kazakh investments, the Memorandum writes: “The selection will be made by TRG, based on sound economic considerations, in line with the TRG investment policies.”

That means:

  • Rompetrol Group will credit the investment fund with up to USD 150 million, only if there are projects. The Romanian state cannot force the implementation of any project
  • Last year, Victor Ponta Government issued the Government Resolution 626/2015 to approve the strategy of privatization for a stake of 26.6959% held by the Romanian state in the company “Rompetrol Rafinare” – S.A. Constanta.
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