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News 12 May 16

Refinery Seizure Threatens Romania-China Deal

Romanian prosecutors' decision to seize the country’s largest oil refinery, held by Kazakhstan's KazMunaiGaz, is seen as a possible obstacle towards completion of the biggest transaction of the year, between KazMunaiGaz and China Energy Company Ltd.

Cristina Bucureasa
BIRN
Bucharest
Petromidia is the biggest refinery in Romania, situated in Eastern Romania | Photo: radioconstanta.ro

Prosecutors from Romania's Directorate for Investigating Organized Crime and Terrorism, DIICOT, on Wednesday continued tax fraud hearings targeting the privatization of the country’s biggest oil refinery, Petromidia, which is now part of the KazMunayGas, KMG, International group.

Prosecutors on Monday said they had frozen company assets and stakes worth 3 billion lei [670 million euros], that being the estimated damage to the state budget caused by a web of illegal activities carried out by the refinery’s former owners with the complicity of Romanian officials.

KazMunaiGaz is accused of failing to settle debts contracted by former owners of Petromidia, Rompetrol, which KazMunaiGaz inherited in 2007.

The Chinese group China Energy Company Ltd said at the end of the last month that it was acquiring 51 per cent of KazMunaiGaz, a transaction hailed as the biggest of the year.

“The transaction could now be delayed because it [the prosecutors' move] puts into question the value of the assets,” Valentin Ionescu, a former Privatization Minister, noted.

Analysts warn that the decision to seize the Petromidia refinery may also endanger any modernization investment planned by the new owners and could even block the entire transaction with the Chinese company.

“There might be problems because seized assets can't be used as collateral,” tax consultant Dan Scwartz told Digi24 TV station.

Azamat Zhangulov, vice-president of KMG International, said he hoped that the latest developments would not influence the transaction with the Chinese group.

“The current investigation should not block the transaction. But some of its elements depend on external factors. In this case, we will suffer collateral damage,” Zhangulov said on Tuesday after his hearing at DIICOT.

At the same time, the company's lawyer said the firm might contest the seizure measure. “We will evaluate the charges and to what extent the seizure of company assets is reasonable. If we consider the seizure unjustified, we will contest the measure,” lawyer Gabriel Albu said.

KazMunaiGaz has been the target of several court actions over Rompetrol's debts, dating back to 2001 and estimated at 660 million US dollars.

KazMunaiGaz promised to pay 200 million US dollars to settle the cases, and to set up a 1 billion euro investment fund that would finance energy projects in Romania, in which the Romanian state would also hold a stake. According to the government, none of these measures has been implemented so far, however.

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