The Kazakh oil and gas company KazMunayGas, as shareholder of the KMGI Group (formerly “Rompetrol Group”), entered the Romanian market in 2007. Over the 11 years of presence in the local and regional markets, KMG International Group has achieved impressive results. Today KMGI is the second largest oil company in Romania, the third in the list of Romanian taxpayers and exporters. The company is also one of the largest employers in the country – about 20 thousand people work at KMGI and at related enterprises.
How did the company manage to transform business processes, what are the drivers of growth of the international integrated group today, what are the goals and objectives of the joint investment fund set-up by KMGI and the Government of Romania and whether the Kazakh-Romanian business is a component of energy stability in the region? Zhanat Tussupbekov, KMG International CEO told us in an interview .
Mr. Tussupbekov, you have been coordinating the activity the Group for the past 6 years. How did the company manage to improve the efficiency and profitability of activities and achieve a stable growth of financial and operating indicators?
The growth of financial and operational results of KMG International is associated with the completion of the modernization program of our production assets, as well as the implementation of a comprehensive business transformation program. Improvements touched all aspects of the company – industrial, commercial, trading, with the restructuring of processes in the corporate center. That is, in each line of business, we have observed a positive trend and improvement in operational and financial performance. I suppose these factors became decisive.
As a result, in 2017, 10 years after integration into the structure of the Kazakh oil and gas company KazMunayGas, the Group achieved absolute records in its 40-year history. At the end of 2017, the company’s net profit amounted to $ 80 million. According to the results of the current year, we aim to repeat and consolidate these indicators. We are also looking forward to a stable positive dynamic of our financial indicators through the implementation of comprehensive development programs. At the same time, we understand that the overall market conditions and the economic context will also have an impact on our results.
What directions of activity of the Group are growth drivers at the current stage?
In 2018, we continued the implementation of comprehensive internal programs in key areas. So, we are focused on developing our business in terms of retail and trading in order to realize the potential of our refinery, which is one of the best in the region after the completion of the modernization program.
At the same time, KMGI continues the implementation of projects aimed at optimizing and improving the cost-effectiveness of refining, logistics and sales, as well as the transformation of current activities in order to reduce operating costs and increase profitability.
The landmark event of this year was the creation of a joint Kazakh-Romanian Energy Fund, where KMGI and the Romanian Ministry of Energy became shareholders. What are the main objectives of the new investment structure?
The investment policy of the fund is aimed at implementing energy projects that will bring real benefits for both parties. At the same time, one of the main tasks of the Fund is to generate additional commercial profits and pay dividends to shareholders. Both participants of the new partnership are ready for this. One of the key criteria is economic efficiency.
At the same time, the Fund’s priority is the development of the local energy sector. In particular, at the moment, two projects on Petromidia refinery platform – cogeneration plant construction and the expansion of Rompetrol filling station network by building about 80 new filling stations on the Romanian market are being considered for financing through the Fund. Both of these projects are highly profitable and will have a significant multiplier effect for the regional economy. Since they imply the creation of new jobs, this will lead to the growth of tax payments to the budget and the development of infrastructure.
What other tasks does the new Fund solve?
The Joint Fund provides not only for attracting additional investments in development projects in Romania but is also for a mechanism for solving historical problems, which will henceforth be transformed into new opportunities.
As it is known, the Agreement to establish the Fund was concluded in accordance with the provisions of the Memorandum of Understanding, previously signed between KMGI and the Government of Romania. According to this document, within the framework of the announced privatization, KMGI will buy 26.67% of the 44.67% stake the Romanian government holds in Rompetrol Rafinare S.A. for $ 200 million.
Thus, thanks to the establishment of the investment fund, which will serve as a catalyst for solutioning this task, a complete mutual understanding will be ensured on this historical issue. In this regard, it is important to note that for us the achievement of an Agreement on the creation of a new cooperation mechanism within the framework of the joint Fund represents an evidence of readiness for a constructive partnership, as well as a recognition and support for KMGI activities in the region by the Romanian authorities.
In general, the activities of the Fund will be based on a transparent investment policy, implying the observance of clear criteria and mechanisms for evaluating investment projects. At the same time, the Romanian government and KMGI will have equal rights and opportunities to make project proposals for funding.
Energy security is one of the topical issues for both the Romanian authorities and investors. What is the position of KMG International as a major regional player?
We intend to build a long-term strategic partnership, including on matters of energy security. In the medium term, in addition to our strategic role in ensuring the stability of crude oil supply for the country, we also plan to develop projects in the field of green and alternative energy.
In addition, the Group’s refinery – Petromidia is one of the most technologically advanced production assets in the region. Today, the production capacities of our refinery account for more than 40% of the total volume of all Romanian capacities.
KMGI is also the only producer of bitumen and hexane in Romania, and our petrochemical division is an important supplier of polymers in this region. Thus, our assets and current activities make a significant contribution to ensuring regional energy security, and in the future, we intend to expand our plans to create a regional “energy hub”.
Can you identify the most significant social aspects of your work? What economic and multiplier effect does the Group have for Romania and the region as a whole?
Today KMGI is one of the country’s largest employers, taxpayers and exporters. We are proud of the scale of our activities. These are important indicators and statistics for us.
In addition, we pay special attention to issues of corporate social responsibility and try to adhere to systemic approaches.
In general, over the past 10 years, KMG International has invested over $ 7 million in health care, education, the environment, culture, and sports. About 400 thousand people have already received real help from the company’s investments in Romania. Hundreds of thousands of citizens received support in the framework of educational, medical and other socially significant projects.
For example, for 10 years we have been supporting SMURD – the emergency medical and rescue service of Romania. Also, this year alone, the company has allocated about 100 scholarships for high school and university students in Constanta and Navodari. We granted another 100 scholarships to Romanian students from Bucharest, Constanta, Prahova, who intend to build a career in the energy industry.
Through such initiatives, we strive to create a basis for systemic social transformations that open up real opportunities and prospects for the local population and communities.
KMGI Group is the largest Kazakh-Romanian business structure. How do you see the overall prospects for bilateral cooperation between Kazakhstan and Romania, in particular in the energy sector?
I am sure that the possibilities for economic cooperation and expansion of interaction between the business circles of the two countries are quite extensive. And one of the key aspects is the general circle of interests in the field of energy. Today, Kazakhstan is a major supplier of energy resources to international markets, and Romania has sufficient production assets and geographical location advantages to serve as a bridge between East and West.
In general, in recent years, there has been an activation of interaction between our countries at all levels. In particular, as far as I know, in October this year, an official delegation from Romania, consisting of representatives of the Romanian government and business circles, visited Astana and Almaty and held a number of meetings with officials of the Republic of Kazakhstan, at which the prospects for bilateral cooperation were discussed. In this regard, we are also pleased to note that the Romanian authorities gave a positive assessment of KMGI activities in the region.
In December, we celebrate several holidays – the Day of the Unification of Romania, and then Christmas. As far as we know, there are also public holidays in Kazakhstan during this period. What would you like to wish in connection with these significant dates?
Indeed, the Day of Unification of Romania is the main national holiday, and Christmas is a family holiday of light, goodness and love for all European peoples. In the first half of December, Kazakhstan also marks significant state dates – the Day of the First President and the Independence Day of the country. These holidays have a special meaning and significance for Kazakhstanis and are widely celebrated at all levels.
On the eve of such significant historical and state holidays, I would like to wish the Kazakh and Romanian people prosperity, well-being and ongoing development. Let the interaction and integration between our countries expand and strengthen.
Also, taking this opportunity, I would like to express my gratitude and wishes of success to the Kazakh and Romanian partners, representing government and business circles of the two countries, for the systemic support of our initiatives and undertakings. KMGI Group has big plans for the further development and expansion of its presence in Romania and the region, and the realization of all goals is possible only through a constructive dialogue and cooperation with all our stakeholders and partners.