The precautionary attachment ordered by the Directorate for Investigating Organized Crime and Terrorism (DIICOT) on the assets of Rompetrol Rafinare does not hamper the current operations of the company, asserts KazMunayGas International (KMGI, formerly Rompetrol Group) Vice President Catalin Dumitru in an interview to Agerpres.
Four big oil companies recently announced the allocation of 37 billion dollars to expand production in one of the largest oil perimeters in exploitation, namely Tengiz Kazahstan. How could Romania get long-term benefits from it?
Catalin Dumitru: Romania has the opportunity of becoming, on the long run, an energy hub in the Black Sea region, a platform between the resources in Asia and the demand in Europe for processing raw materials and obtain oil products. With an annual production of 27 million tonnes of oil, Tengiz will reach by 2022 a production of 39 million tonnes per year. It is located on the Caspian Sea shore and connected to the Caspian Pipeline Consortium (CPC) pipeline that connects resources in the Atyray region to the Novorossiysk port at the Black Sea.
On a long term, some of these additional volumes of oil could reach the Black Sea region, through the CPC. As far as I know, there is a large project to increase its transmission capability from the current 28.2 million tonnes to 68 million tonnes of oil, of which 50 million tonnes from Kazakhstan.
The beginning of production in the Kashgan perimeter will add to it by the end of this year; it is considered, alongside the Tengiz perimeter, the world largest oil discovery in the past 30 years. For Kashgan, estimates amount to 35 billion barrels of oil, of which 9 to 13 barrels are recoverable.
Based on Romania’s expertise and over 150 years of experience in the oil industry, Romanian companies have an opportunity to participate, based on the partnership between Romania and Kazakhstan, to international tenders organised by the developers of these perimeters.
Could the beginning of production in Black Sea perimeters have an impact on these prospects?
No; just consolidate it. To date, exploitation operations in the new Black Sea perimeters only found significant resources of natural gas. Their possible development could take three to five years, according to industry practices. A close collaboration between authorities, state-owned and private companies could support Romania’s evolution into a major node in the transit of raw materials to Europe and the region. In the context of shrinkage of the domestic refining industry from 34 million tonnes in 1990 to some 11 million tonnes, Romania can use its capabilities of oil unloading, storage and transportation to other regions, such as the Mediterranean.
Central authorities were analysing back in 2014 the interconnection of the national oil transportation systems of Romania and Serbia, by building the section between Pitesti and Panchevo. I’ve heard nothing about these projects or similar ones to date.
We wish Romania’s energy strategy – a document in the drafting process – to establish very clearly the strategic guidelines, and also a climate favourable to investments in this industry.
To what extent could the partnership sealed at end-April by KMG and China’s CEFC support Romania’s energy industry? What would be its positive consequences?
The strategic partnership of KazMunayGas Kazahstan and China Energy Company Limited (CEFC) aims to turn the KMG International group in a platform for developing new projects in the European Union and the countries along the Silk Road.
Based on KMG International’s assets and operations in Europe and in the Black Sea region, this partnership involves major investments, several billion dollars, and also continued deliveries of oil on long term.
Thus, direct benefits for Romania should be visible from the impact of those investments: the direct and indirect job creation, the increase of contribution to the central and local budget and the horizontal development of economy; more partners, producers and service providers, business partners. We currently have some 5,000 employees in Romania, and more than 50,000 people rely on our work and operations; the contributions to the state budget amounted to more than 300 million dollars in the first quarter of this year and 1.46 billion dollars in 2015.
In the context of stalling and decrease of the oil production in Romania, this partnership will supports Romania’s and the region’s energy security, by providing an additional source of raw material and fuel supply. Products obtained at Petromidia are distributed to the region through the Rompetrol stations in Romania, Georgia, Moldova and Bulgaria, and through our traditional partners in Ukraine, Serbia, Greece, Macedonia, Bosnia and Herzegovina, Morocco, Croatia or Egypt.
What are the group’s results in the first quarter of this year, and what forecasts you have in operational terms for this year?
Based on the group’s investments of over two billion dollars since 2007, we managed to break historical Q1 records of 2014-2015.
In operational terms, we increased the amount of raw materials processed in our production units (the Petromidia Navodari and Vega Ploiesti refineries – the petrochemical division) by 3pct, to approximately 1.42 million tonnes. We have to take into account that this evolution was supported by over 95 million dollar investments in 2015, of which 80 million dollars for the five-year overhaul of the Petromidia refinery.
More than 44 companies and 4,000 employees were directly involved in various specific works necessary to ensure the refinery’s operation at nominal capacity of over five million tonnes per year and to optimise the technological flows and improve the processing costs.
Also in the first quarter, we have increased by 12pct the volume of oil products sold domestically (some 516,000 tonnes). Out of this amount, approximately 70pct were fuels distributed domestically through Rompetrol stations and Rompetrol Downstream storage, and also through our partners. On a regional level, the subsidiaries in Georgia, Moldova and Bulgaria saw a 3pct increase of fuel sales, with our Bulgarian colleagues managing a 20pct increase of the 2015 results.
These performances were mirrored by financial results; the group’s Q1 operational profits amounted to 40 million dollars, against a negative result of two million dollars in the similar period of 2015. Meanwhile, the net profit was positive, of three million dollars, and the gross turnover was 1.36 billion dollars.
Taking into account the Q1 results and the economic context expected for this year, I think we have all the necessary prospects to exceed the performances of 2015, the best year on KMG International’s record.
The Petromidia refinery had positive financial and operational results in 2014, 2015 and Q1 2016. What are the overall 2016 estimates?
In the context of Q1 results, we have set ourselves a 2016 target of 5.35 tonnes of raw material processed by Rompetrol Rafinare (the Petromidia Navodari and Vega Ploiesti refineries – the petrochemical division). 2015 was an important year in the group’s history; we have managed major performances, records for the company’s more than 35 years of operation. Last year, we had 4.95 million tonnes, with production facilities shut down for some 40 days for overhaul.
Rompetrol Rafinare has set itself the goal of producing and selling domestically 2.79 million tonnes of oil products this year, of which 1.67 million tonnes car fuel, gasoline, diesel, autogas, and 2.41 million tonnes of exports. Last year the company has supplied some 1.58 million tonnes of fuel (gasoline, diesel, autogas) to the domestic market and exported 1.95 million tonnes.
Our investment forecast for the three production units amounts to 37.4 million dollars in 2016. Since 2007, we have invested more than 1.4 billion dollars into the Petromidia refinery, making it the biggest unit of this industry in Romania and one of the most modern in the Black Sea region.
How did the fuel prices evolve in the context of international quotations?
The end prices of Rompetrol fuels since the beginning of this year were in line with the evolution of international quotations of raw materials and oil products, and they have been influenced positively by the performances achieved by the Petromida refinery. Thus, the price gasoline produced there and sold in Rompetrol station was 1pct higher, as this product became 5pct more expensive internationally. Meanwhile, the diesel price surged by 8pct, against 32pct internationally. From January to July, oil prices advanced by 28pct, from 36 dollars per barrel to 46 dollars per barrel, while the Romanian leu – U.S. dollar exchange rate decreased by 2pct.
I mention that the weight of contributions (taxes and excises) to the state budget was constant, namely 58pct, for gasoline, and dropped by 3pct, to 55pct, for diesel. We must take into account that the end prices of fuels result from a mix of variable indexes, such as the international quotes of raw materials and oil products, the exchange rate, the level of taxes and excises, the logistics and distribution costs, and the financial costs of providing working capital and investments. Each company sets its end prices for fuels using its own algorithm, correlated with the relevant market where it operates.
What is the impact of DIICOT’s precautionary attachment, and how does it impact the group’s current operations?
The recent attachment on group’s assets, on Rompetrol Rafinare and Oilfield Business Solutions, do not hamper our current operations. We keep calm and focus on the business. It creates problems for our goals, because we cannot develop major investment projects, given the fact that our assets are under precautionary attachment, and we cannot use them to draw more financing. Also, the investment projects are hit by the impossibility of writing off some facilities and clear some land inside the Petromidia refinery.
This attachment also results in small problems for our employees. For instance, there are some situations where cars are under precautionary attachment – cars sold by the company to its employees at the best price, but which cannot even be serviced. There are also some problems with the apartments assigned to employees who are not allowed to use them or renovate them.
Another problem is the attachment on assets of the Oilfield Solutions Company, operating upstream; this is really a problem. Because of this attachment, we have to halt operations, practically closing it down on the upstream segment. In terms of employees, we had a couple of dozens, probably one hundred last year; now we have less than 20.
We have tried to discuss these issues with government and tax administration representatives, to find solutions to continue our operations, but unfortunately we’re not at this point. The precautionary attachment ordered by the DIICOT forced the Ministry of Public Finances to revoke the current authorization of tax warehouse for Rompetrol Gas, for the autogas filling station of Navodari, which has halted the liquefied petroleum gas filling for households (oven cylinders). We thus had to relocate 30 employees of the station in other areas of the refinery, and to honour our commitments to customers in the Dobrogea region we took upon ourselves the costs of supplying cylinders from the similar station in Bacau.
Although the public authorities have announced at end-May that they will try to find a solution to restart and continue the operations at the Navodari station, we were not called yet to a meeting. The filling operations in Midia are still on hold.
We have to consider that this adds to the measure enforced by the National Agency for Fiscal Administration in August 2010, not revoked to date, although the group has signed as early as 2013 a memorandum with the Romanian Government on the amicable settlement of the litigation on the Rompetrol Rafinare’s debt-equity swap in favour of the Romanian state. We thus have two attachments on the same assets, for the same issues. The situation is quite bizarre, given the fact that the Romanian state has a 44.7pct stake in Rompetrol Rafinare, the sole owner of Rompetrol Gas.