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June 19, 2021

A file with a lot of problems

Reopening one of the most complex economic files (Rompetrol privatization) by the DIICOT prosecutors in the early May, at the same time with the start of the electoral campaign for local elections (even a dull and atypical, as it was this year), but also at the same time with the outbreak of the Hexi Pharma scandal, made this subjects to be the dominant topics in the Mass-Media analyzes of the last weeks, placing the Rompetrol case and its’ impact on the background of the press accounts.

However, this file undoubtedly deserves much more attention, due to the large consequences that it has in the economic and social area,  as far as the foreign investors’ credibility in the investment climate in our country is concerned, as well as on the Romania’s relations with other countries, namely with Kazakhstan, as KMG International is the largest investment of the Kazakh state outside the country and its largest in Romania.

On this background of resuming Rompetrol case, the perplexity of the Kazakh investors is even higher as KazMunayGas has received assurances from Romanian state institutions, at the time of Rompetrol acquisition, that the company had fulfilled all its legal obligations to the state. They thus claim that the legal proceedings in the Rompetrol case shouldn’t affect the company’s current operations. However, due to the distraint on the Group’s assets ordered by the prosecutors, the company cannot make any investments. In addition, besides blocking further investments, this situation might negatively impact thousands of jobs and also the payment of taxes to the state budget.

In a recent interview for Agerpres, one of the KMG International officials reminds that Rompetrol has been waiting for more than three years for the state to sign off the establishment of an investment fund, along with the buyback for USD 200 million of a 26.7% stake in Rompetrol Rafinare, owned by Romanian state.

“We have documents which show that there is no problem with the ownership of Rompetrol Rafinare, we have documents certifying that the group had fulfilled its obligations with regard to investments and confirming the execution of the privatization contract. We have all the documents certifying the conversion of the bonds, which were approved by the highest authority by the law. The state has confirmed all the terms of the ownership, everything is completely legal and we cannot imagine what other type of confirmation could be claimed by the buyer from the seller to ensure that all documents are in order. Based on these documents, we had full confidence that there would be no problem with further investments and that these investments would be made without any risk”, stated Azamat Zhangulov, KMG International Senior Vice-President.

Although the prosecutors’ decision to resume the case took them by surprise and fell like a lightning on them, Kazakh investors representing the leadership of KMG International publicly expressed so many times, since the investigation was resumed, their availability to bring their entire contribution to solving the complicated issues of this case, which threaten in a very high extent the investments they did in Romania and their future plans.

The officials of the company, which produces 3 percent of the Romania’s GDP, being one of the first three exporters and having a positive impact on the commercial balance of the country, don’t understand why they should be held liable in this case as they were buyers in good faith. “If something is wrong with the previous owner, they should go to the previous owner, but we don’t think that we should be held responsible for something we were given assurances was right, although now it might be different. The judicial system will act as they should act, but today we face a huge risk for the future development of the company and of the region”.

But as everybody can easily imagine, because they consider their important investments performed in the 9 years since KazMunayGas took over Rompetrol, amounting USD 2 billion, to be threatened – namely to modernize Rompetrol Rafinare assets so as to comply with Euro 5 standards and to make the refinery the best in the region -, KMG International’s leadership announced that it will not hesitate to request international arbitration to resolve this dispute.

According to the Kazakh investors, KMG International is part of the case as civil liable party and they target the courts in Stockholm and ICSID, the arbitral tribunal attached to the World Bank in Washington.

“There are certain actions we can take to international courts, but here we would have to define our strategy and line of action. International law allows us to protect our rights in different courts and if we feel that our rights are violated, we will definitely take the matter to international courts”, underlined the KMG Senior Vice-President, Azamat Zhangulov, in a recent interview for Agerpres.

A crucial step in the relationship between the company KazMunayGas (the owner of the Rompetrol Group) and the Romanian state, is undoubtedly the judgment of the “contestation against the precautionary measure” to be ruled by the High Court of Cassation and Justice (ICCJ), namely against the distraint of around RON 3 billion established by the DIICOT prosecutors for the Petromidia assets in the Rompetrol 2 case. The company KMG International initially contested the distraint to the Constanta Court, but it declined its competence in the favor of the High Court.

It depends on the result of the contestation against the distraint if Romania will be sued or not by KazMunayGas, which is the owner of the Rompetrol Group.

The Kazakhs appreciate that all the facts that took place before the acquisition must be separated. “We operate in full compliance with the Romanian legislation and there has been no problem so far. Now there is a question mark hanging over everything that happened before acquisition. The legal system in Romania should do how they see fit, but this should not affect us, because all these documents in our possession have assured us that there would be no recourse on our current operations, on the investments we have made and on our future development”, according to the company’s officials, who appreciate that this case may cause a precedent and may give a negative signal to other foreign investors as well.

KMG International’s leadership appreciates that the distraint on the assets of the Refinery makes no sense, since it’s not something that you can put in a suitcase and take out of the country. Besides, they draw attention on the fact that this distraint first affects the ordinary people, namely the employees.

The last developments in the Rompetrol case are followed for sure, with a large interest, by investors from China, who are watching very carefully to the signals coming from Bucharest, waiting for clarifications in order to know what they have to do next in drawing future decisions regarding the investment strategy, once between KMG and China’s CEFC there has just been signed a strategic partnership to build a bridge in the energy sector between China, Kazakhstan and Europe. Bridge, that according to officials of both sides, will be a better and safer source of energy supply for Europe but also a source of economic growth for all countries involved.

I am not hiding that a lot of the investors that I’ve met in the last weeks were curious about my opinion on the Rompetrol case, on the follow-up that this special situation might have and on the grounds which I believe that are behind the prosecutors’ decision to resume the investigation in this complex case, after 14 years.

The above mentioned questions are undoubtedly difficult, or, to say it better, they can make anyone be confused, since it’s not easy at all to give answers without sliding to risky speculations.

A short review indicates that DIICOT prosecutors started their investigations in the “Rompetrol II” case in May, establishing distraints which amount RON 3 billion on the shares of the Petromidia Refinery and on the accounts of the individuals, the case being separated by a case sent to Court in 2006. The case which investigates the Rompetrol privatization refers to alleged criminal deeds performed both on the occasion of the refinery’s privatization and on the conversion of the debts of USD 603 million in bonds to the state budget. But a part of the refinery’s assets are also under the distraint established by the fiscal authority since 2010, in the same case.

One of my interlocutors asked me: “Was a pure coincidence that investigations started and that the case was resumed in May, few days before the beginning of the electoral campaign?” And he added: Was a pure coincidence that the case was resumed when the discussions with the Chinese partners on taking over 51 percent of the shares of KMG International registered so important steps?”

It’s very hard to give an answer to these questions, but nothing can stop the directly implied parties to think this way.

Until clarifications will start to appear related this so complex case, it’s important to mention that after Rompetrol contested the distraint, the DIICOT prosecutors asked the President to approve the criminal investigation of four former ministers in the case related to the conversion of the debts of Petromidia refinery in bonds to the state budget. Subsequently, President announced that it sent the prosecution demand to the Minister of Justice, in order to proceed according to the law.

“We do believe that these actions of the prosecutors aim to start the expropriation of our estates and we will initiate trials even to the international courts, to defend our interests. We are following all the legal steps in order to protect our investments, and right now they are related to the DIICOT actions against the four former ministers”, stated the KMG international Senior Vice-President in another interview for Adevarul.

On the other hand, all the KMG International officials wished to repeat in all their interviews offered to the press after the DIICOT prosecutors resumed the case, that they understand that the judicial system in Romania is independent and will follow its own path, but for their company it’s important that they receive a clear signal that investments will go forward and that there will be no recourse on their development plans.

Through all its’ approaches in front of the Romanian authorities, the Kazakh representatives mention that they do not put under question in any moment the fact that it’s a normal thing for justice to resume old cases that have been closed a long time ago. On the contrary, they stated that according their company’s internal policies that have a serious stance on fighting corruption, they truly believe it is good that throughout the country there is a strong anti-corruption crusade. “We are a state-owned company and fully understand it. We understand that it may be a different approach for the judiciary to review cases closed many years ago, but we do not want to be victims of any political game in Romania”, recently underlined an official within the superior management of KMG International.

He stated that the Kazakh Company is cooperating with investigators to make sure that they have access to all the information that they require. “We have a good collaboration in this sense. Case should evolve normally, according to the Romanian legal system procedures, we have no problem with that”.

He said that the main interest of KMG International is to protect their business and future development, and that his group cannot afford the luxury to be financially affected by this situation which could have dramatic economic and social consequences, since it has an impact on the future of very many employees who can lose their jobs.

Concerning the way in which this dispute could affect the relationship between Romania and Kazakhstan, the officials of the company stated that their Government, as one of KazMunayGas’ shareholders, is carefully monitoring its assets.

Talking about KazMunayGaz International problems in Romania, the Ambassador of Kazakhstan in Bucharest, Daulet Batrashev, expressed his hope that the current situation will be clarified as soon as possible and will not harm the political-diplomatic bilateral relations, established 24 years ago. “Kazakhstan pays a special attention to the fact that Romania was one of the first countries in the world which recognized our Independence and considers Romania as a key partner in the Eastern Europe and in the Balkans”.

“During this short period, Kazakhstan and Romania have achieved significant progress in all spheres, including political-trade-economic, cultural and humanitarian areas, as well as cooperation in multilateral forums. The absence of political disputes enables us to raise Kazakhstan-Romanian relations”, underlined the Kazakh Ambassador. He reminded that Romania is not only a significant destination for Kazakh investments, but also one of the main trade partners of his country. In addition, Kazakhstan is very interested to attract more Romanian investors, he added, reminding the recent actions and positive signals announced at Bucharest by some economic representatives from his country, according to whom Romanian companies investing in Kazakhstan are exempt from the profit tax for 10 years and from other taxes for eight years.





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