Owned by the national Kazakh oil&gas company, KazMunayGas, KMG International have constantly developed its business on the Romanian and regional markets in the past years and reached to historical operational and financial records. The Group not only managed to face the challenges of the dynamic energy sector, but positioned itself as a driver for the economy, being a successful model of business. Zhanat Tussupbekov, KMG International’s Chief Executive Officer, gave us an interview in which he spoke about the company’s evolution and further goals, the flows of the business from the source of supply to the services offered to its clients, also about the impact of the business for the economy and for the energy stability in the region.
KazMunayGas entered the Romanian market in 2007. The company had a constant positive evolution since then. What were the drivers of the business, how was the strategy developed through the years?
It is true that the energy sector offers many challenges and the markets are very complex and often volatile. You need to have a strategic vision in order to succeed in maintaining the business standards and results on the track and more than that, to adapt and transform, to overcome your own best results and more over to innovate and open new perspectives in the area of activity you are present in. For example, in 2007, the market was facing a crisis and back then it was difficult to find a reliable investor. Through a strategic partnership this became possible and since 2007 we have implemented successive modernization programs of its refining assets, logistic infrastructure, as well as for the extension of its distribution network accounting more than USD 1.6 billion. Given the ownership structure, KMGI is acting as an integrated company enjoying direct access to crude from Kazakhstan, as well as funding for strategic investments and working capital. Through its business brunches, KMG International is a driver for development both in Romania and Kazakhstan in industrial services, reaching the European markets through its quality products. A new business strategy adopted in 2013 ensured the financial sustainability, the improvement and development of its core operations. The focus on quality and innovation supported the positive progress of the Group and its member companies. We have reached in 2014 and 2015 record high operational and financial results. The Group’s operational result (EBITDA) has been achieved at USD 162 million, whereas the operational net result USD 4.6 million, in 2015. During the first half of this year the company continued to improve its operating performances and financial results, following the outstanding performances reached in 2015 – historical records, in over 18 years after its incorporation. KMG International increased in the first nine months of this year the refining and fuel distribution activities in the Black Sea region, which are supported by the benefits of the optimization and efficiency increase program initiated in 2013 – “Business Transformation”. On 2014-2016 interval, on operational driven initiatives, not considering finance costs optimization, Change for Good program and Transformation program brought together on actual 2014, 2015 and 2016 best estimate period cumulative direct benefit of 119.9 million USD. All these contributed to the Group reaching an operational result (EBITDA) of USD 145 million, over 6% as compared to the level reached in the January-September 2015 period, on the background of the gross turnover of approximately USD 5 billion. As our core business is in Romania, I would like to add that the Kazakh – Romanian partnership proves once again its common benefits, the cooperation between people, Romanians and Kazakhs together, representing a successful partnership model. With the occasion of Kazakh Independence Day and also for the upcoming holidays, we would like to express our warm wishes for Romania and for Romanian people, our clients, employees and business partners, thus we all hope into the future fruitfully growth of our partnership.
What was the key role direction in achieving KMGI objectives?
A key-role in reaching these performances is represented by the continuation of the program launched in 2013 for transforming the Group’s activities and relevant operations, the total value of the benefits generated by the implementation of projects for the improvement of financial and operating indicators amounting to USD 15.8 million. These envisaged an enhancement of efficiency within Petromidia refinery and an increase in the sale of oil products in Romania, process automation to cut down and prevent losses, as well as the creation of an integrated center for support functions. The strategy proved to be an efficient one and it has showed its results. Thus, we keep our confidence, using our necessary drivers for the future growth of the company.
2016 was a challenging year for KMG International, one of the biggest employer in Romania and the thirds tax payer in this country. Can you extend how were your activities carried out through this period?
We ensure the working places for over 4,700 people in Romania. For each workplace created within KMGI, an additional 2.25 workplaces are created within the economy. We manufacture in Romania, most of our employees are from Romania, we export from Romania in over 20 countries and together we managed to build in Romania a platform supporting and consolidating the energetic security of Romania, of the Black Sea region, and also of the Central and Eastern Europe. The overall investments in the European project realized by KazMunayGas/ KMG International amount to USD 4 billion, including the acquisition price, while the contributions paid to the state budget amount to over USD 12 billion, in the period 2007-2015. We carry out our operations and we have invested in good faith, thus the judicial issues raised during this year are countered by the Romanian and international laws. KMG International is a stable and a sustainable business, thus our operations were not put into jeopardy. It is true that it is difficult to understand for a foreign investor, a supporter of the local economy and a generator of working places for Romanians why the climate is sometimes absurd. Moreover, our future plans are clearly showing the benefits for Romania and for our business too, not to speak about our strategic role in the stability of crude supply for the country.
The energy security is a topic of interest both for Romanian authorities and for the investors, foreign or local ones. How does KMG International positions its business in this regards?
KMGI has a significant contribution to secure Romania’s diversity of crude oil supplies and thus, to reduce vulnerability in case of an energy disruption. The company’s imports have covered approximately 40% of Romania’s refinery intake and aided the preservation of national primary energy sources. Crude oil reserves in Tengiz and Kashagan which stand as Kazakhstan’s biggest oil producing fields can further expand sources available for Romania. In addition to the direct access to crude, KMGI is making its contribution to ensuring regulated safety stocks. As one of the biggest oil companies in Romania, KMGI ensures the second largest stock reserves of crude oil and petroleum products. Rompetrol Rafinare is operating the Petromidia Navodari refinery – the largest unit of its kind in Romania and one of the most modern units in the Black Sea region, Vega Ploiesti refinery – the most longevive unit in Romania still in operation and the single domestic manufacturer of bitumen and hexane, petrochemical division – the single manufacturer of polymers and an important supplier in this region. The Group is the majority shareholder of the company.
How do you foresee the development of the business in the future? What are the segments of the business to be extended in the next period?
We are focusing continuously in providing our clients with the innovative quality products. KMG International will extend its retail activity in Romania and in other distribution networks in the Black Sea region, such as Moldova, Georgia and Bulgaria. Also, the Group developed a new operational model for the entire distribution network in the country. Thus, we intend to increase our refining capacity and we are considering the possibility to reach 10 million tons per year, from over 5 million tons, the current capacity of Petromidia refinery and also to build up to 200 gas station and develop industrial services projects both on upstream and downstream segments. The investments made until the present, the business model implemented and the business partnerships to be developed in the future are the necessary drivers that empower us to be optimistic in regards the further growth of the business.
KMG International: Investments for Cultural Exchanges
Besides the activities carried out in the energy sector, KMG International supports the initiatives that promote the Romanian culture and identity in Kazakhstan but also the Kazakh culture in Romania. In Kazakhstan, KMG international supports the partnership with Dacia Association – founded by Romanian speakers. Through the partnership with the Embassy of the Republic of Kazakhstan in Romania, KMGI support important cultural events such as Kazakh Film Festival, having this year the second edition in Bucharest and diversified concerts. The Romanian public had the opportunity to see the pianist Amir Tebenikhin, the violonist Zhibek Mussurgaliyeva and Arman Mourzagaliyev, Erzhan Kulibaev, young talents being in this way promoted.
“KMG International is a sustainable business who understands the importance of the culture in the evolution of the society. We succeeded to consolidate a strong business partnership between Romania and Kazakhstan and besides this, through this type of initiatives we get further and strengthen our cultural bonds, bringing awareness of our cultures. We will continue to support the promotion of the cultural values of each nation, both Kazakh and Romanian along with the development of our business”, said Zhanat Tussupbekov, CEO KMG International.
Since 2011, KMG International has been actively involved in cultural programs and projects that promote social and cultural values of Romania both nationally and internationally, such as Festival and Competition George Enescu or support the 2015 activity Orchestra Foundation Princess Margareta of Romania.