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Romania case could pose ”real threat” to EU’s energy security

This is the season for voting across Europe, truly a referendum on how governments across the EU are performing, post Brexit and Trump, and after Moldova and Bulgaria seemed to go pro Russia. Romanians go to the polls on 11 December

By: EBR - Posted: Thursday, December 1, 2016

 ”The best thing, from a European perspective, should be that this is not a Russian company but one from Kazakhstan, which controls the world’s 12th largest reserves of crude oil and gas,” says Wilson. But the company is now embroiled in a potentially highly damaging dispute with Romanian prosecutors. It comes after KMG announced in April that it was selling 51 per cent of its subsidiary to a Chinese company in a joint venture that would open up bigger investment in the Black Sea region. Two weeks later Romanian prosecutors announced that they were freezing company assets worth an estimated $2.1 billion as part of a corruption inquiry.
”The best thing, from a European perspective, should be that this is not a Russian company but one from Kazakhstan, which controls the world’s 12th largest reserves of crude oil and gas,” says Wilson. But the company is now embroiled in a potentially highly damaging dispute with Romanian prosecutors. It comes after KMG announced in April that it was selling 51 per cent of its subsidiary to a Chinese company in a joint venture that would open up bigger investment in the Black Sea region. Two weeks later Romanian prosecutors announced that they were freezing company assets worth an estimated $2.1 billion as part of a corruption inquiry.

by Martin Banks

A week earlier there will be an election re-run for president in Austria, and an important referendum on constitutional changes in Italy.

In Bucharest, a technocratic administration is doing its best to keep the development and security story strong for a new Government that will take charge and face a lot of decisions about the future. One indication from Bucharest of the  economic and financial stakes was the release last week of a draft National Energy Strategy covering 2016-2030 and an ambitious project for the nation's growth and stability.

It is widely perceived that the EU is uncomfortably dependent on Russia for its oil and gas, and no country more so than the industrial powerhouse of Germany. The EU came up with a common security strategy in 2014 that seeks to ensure greater diversity of energy sources and suppliers. Yet all too often national politics is allowed to get in the way, one example being a little-reported dispute in Romania involving the authorities and KazMunayGas International (KMGI), the Kazakh state oil and gas producer. 

"It's a dispute which encapsulates EU's energy problem and could cause real damage to its energy security," says James Wilson, Director of the EU Romanian Business Society. This is the story so far. The Kazakhs entered the Romanian market in 2007, buying into a company called Rompetrol whose varied assets included hundreds of petrol stations and two oil refineries, including the huge Petromidia plant on the Black Sea coast between Constanta and the Danube Delta.

A memorandum of understanding signed in 2013 gave KMGI, as Rompetrol had been renamed, the chance to regain full control while establishing a $1 billion regional investment fund. Despite economic uncertainty, the company has prospered. The Petromidia refinery, modernised and finally profitable, is now processing 5.5 million tonnes of crude a year to the highest EU standards. The company employs 5,000 people directly and at least 10,000 more indirectly. 

"The best thing, from a European perspective, should be that this is not a Russian company but one from Kazakhstan, which controls the world's 12th largest reserves of crude oil and gas," says Wilson. But the company is now embroiled in a potentially highly damaging dispute with Romanian prosecutors. It comes after KMG announced in April that it was selling 51 per cent of its subsidiary to a Chinese company in a joint venture that would open up bigger investment in the Black Sea region. Two weeks later Romanian prosecutors announced that they were freezing company assets worth an estimated $2.1 billion as part of a corruption inquiry. 

KMGI has accused Romania of deliberately undermining its business and, in the meantime, the China deal is on hold. KMGI boasts that it is a good corporate citizen: it invests in art festivals, environmental and wildlife projects, even in a local helicopter rescue services. 

The company is Romania's third largest taxpayer, contributing around $1.5 billion a year to state coffers.Its economic activities are responsible for at least 1 per cent of Romanian GDP. Not only that, but it has single-handedly weaned the country's refinery sector off a reliance on Russian crude. With international arbitration likely, the company has called repeatedly for an amicable settlement that would allow them to get on with their business.

But the clock is ticking: the MoU under which KMGI operates expires at the end of December and if it is not renewed there is a real danger that the Kazakhs might disengage and turn to Asia for more reliable long term business partners. "It is a dispute that's being fought out a long way from Brussels right on the edge of Europe," Wilson went on to say. "It won't cause the lights to go off in Paris or Munich but this story along the Black Sea does matter. Actions have consequences and so, equally, does inaction, he concludes.  He sees it as a test of Europe's resolve to tackle its energy security problem."

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