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Energy partnership between Romania and Kazakhstan ”vital” for EU energy policy

The EU’s efforts to diversify its energy and keep Romania as one of only five EU countries with output greater than 1 Mt per year risks being thrown into reverse by the authorities in Bucharest "aggressively" pursing a prosecution against the country's second largest producer, it has been claimed

By: EBR - Posted: Monday, August 22, 2016

Prosecutors said they had frozen KGMI assets and stakes worth 3bn lei ($740m). The probe comes as part of a broader clampdown on corruption in Romania, which has seen high-ranking officials, including former prime minister Adrian Nastase, jailed for graft.
Prosecutors said they had frozen KGMI assets and stakes worth 3bn lei ($740m). The probe comes as part of a broader clampdown on corruption in Romania, which has seen high-ranking officials, including former prime minister Adrian Nastase, jailed for graft.

by Martin Banks

Comments delivered on Tuesday 9 August in Bucharest at a forum hosted by the influential business publication Ziarul Financiar showed just how important it is for the region and the EU keeping healthy the strategic partnership between Kazakhstan and Romania that helps position Romania as the energy hub for Europe.

The EU is desperate to wean the continent off its dependency on Russian energy and Romania has been heralded as a role model for other member states.  Ten years ago, more than 55% of the oil imported by Romania came from Russia, with just 27% from Kazakhstan. Today, the numbers are just about reversed as it is Kazakh oil that accounts for 60% of imports.

However, the Kazakh investor credited with the big turnaround faces  “uncertainty” after Romanian prosecutors froze its shares in Romania’s largest oil refinery. KazMunaiGas International (KGMI), Kazakhstan’s state oil company, warns that the probe by Romanian prosecutors that has already seized $2.1 billion in assets now threatens efforts to help safeguard EU energy supplies. Its senior vice president Azamat Zhangulov, said, “We have to ask ourselves, for our businesses and the governments we work with, where is the best, most secure place for us to spend our money?”

The EU currently imports a significant amount of oil, natural gas, uranium and coal from Russia but, in recent years, these energy supplies have become less secure, partly as a result of the ongoing conflict in Ukraine.  KGMI insists it is contributing to EU energy security by helping move Romania off Russian oil and investing billions in the developing Romanian economy. The company has been operating in Romania and the Black Sea region for almost 10 years and accounts for 3% of Romania’s GDP. 

More than 30% of the oil used in Romania is thanks to the crude that flows between Kazakhstan and Romania. There are fears, though, that the increasingly public dispute between Romania and KGMI will add to uncertainty about EU energy supplies.  This has been fuelled  by the decision of Romania’s Directorate for the Investigation of Organized Crime and Terrorism (DIICOT), a unit of the public prosecutor’s office, to name KazMunaiGas as a party in a corruption probe into the privatisation of the Romania refinery in the early 2000s and to freeze its assets.

Prosecutors said they had frozen KGMI assets and stakes worth 3bn lei ($740m). The probe comes as part of a broader clampdown on corruption in Romania, which has seen high-ranking officials, including former prime minister Adrian Nastase, jailed for graft. The revival of the  investigation, which has been running since 2006, comes ahead of Romanian general elections expected in November. 

KGMI strongly rejects the Romanian case against it, pointing out that it bought the refinery in 2007,  several years after the privatisation took place and with the blessing  of the Romanian authorities every step along the way. The company has now initiated legal proceedings against Romanian authorities and submitted a “notice of investment dispute”, the first step in a legal process that could lead to international arbitration.

The company's troubles in Romania highlight efforts being made by Romania to loosen its dependency on Russian energy and, in doing so, help guarantee supplies to EU member states. Zhangulov said the seizure of Rompetrol Rafinare’s assets will impact growth in Romania. He told this website, “For example, we cannot develop large investment  projects given that we can’t use the seized assets to draw more financing, not to mention the uncertainty regarding the future of our  business in Romania.”

Despite the inquiry, Zhangulov insists that KGMI "remains committed” to Romania and ongoing efforts to help the country, and EU, diversify its energy supplies.  He said, “We are investing in the communities and regions where we do business and want to do everything possible to help Romania keep growing.  We are proud of our contribution to Romania and of our track record of being a committed and responsible investor but we want to see a safe environment for our investments in Romania".

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