KazMunaiGas might sue Romania over frozen refinery assets

Newsroom 27/07/2016 | 12:44

KazMunaiGas, the state-owned company of Kazakhstan, has started legal procedures against Romania, after prosecutors from the DIICOT froze the company’s assets in Petromidia refinery.

The oil major has submitted a “notice of investment dispute”, the first step of a legal procedure that could turn into international arbitration.

“Romania is using its governmental power to undermine that transaction and renationalise the assets,” KazMunaiGas lawyers said in the letter to the Romanian government, according to the Financial Times.

The oil company had announced plans to sell a 51 percent stake in KazMunaiGas International, the subsidiary that controls the Petromidia refinery, to China’s CEFC for USD 680 million.

However, Romania’s Directorate for the Investigation of Organized Crime and Terrorism (DIICOT) froze its assets as part of a complex investigation, in which former government officials are being prosecuted for setting up a criminal group.

According to prosecutors, in 2003 the government moved to erase the debts worth USD 603 million that Rompetrol Rafinare owned to the state budget. The debt should have been converted into bonds that would be sold on the capital market, but this had never happened because the government at that time failed enforce this deal.

The DIICOT has frozen several assets of KMG International in Romania worth a combined USD 743.6 million.

Shares in Rompetrol Rafinare were down 1.61 percent to RON 0.0488 on Wednesday mid-day trading on the Bucharest Stock Exchange (BVB).

The company has in Romania two refineries and a fuels’ distribution network.

KazMunaiGas has bought Rompetrol in 2007 from Romanian businessman Dinu Patriciu.

The official reaction of KMG International:

KMG International said in a statement that together with its parent company it submitted a notice of investment dispute concerning the treatment applied by Romanian authorities to Rompetrol SA (now Oilfield Exploration Business Solutions, Vega SA and Rompetrol Rafinare) and other related Romanian companies.

The oil major said in the letter to the Romanian Government that the seizure of assets worh more than USD 2.1 billion looks as if the authorities are planning “seize and nationalize” the assets.

“We always stand ready to explain to the Government of Romania the need for our investments to be protected as a matter of legal obligation under law. We are committed to continue investment in Romania and building on the significant work we have already done. However, we cannot put further capital at risk unless and until the authorities demonstrate respect for rule of law. If no solution is found, we are compelled to use all legal means to defend our rights and obtain compensation and that includes international arbitration against the State.

However, we sincerely hope that an amicable solution can still be found with a view to allow us to continue investments in Romania so as to contribute to Romania’s objective of becoming a major energy hub in the Black Sea region,” said Azamat Zhangulov, senior vice president of KMG International.

The company said if no deal is reached with the authorities in Romania, the case will be referred to a court of arbitration in Washington or Stockholm.

The company said that Romania breached three treaties:

1996 and 2010 Agreement between the Government of Romania and the Government of the Republic of Kazakhstan on the promotion and reciprocal protection of investments (the Kazakh BIT)

The Agreement on encouragement and reciprocal protection on investments between the Government of the Kingdom of the Netherlands and the Government of Romania (the Dutch BIT)

The Energy Charter Treaty (the ECT)

Ovidiu Posirca

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