China to co-own Romanian refinery with KazMunaiGaz

Rompetrol head Zhannat Tusupbekov and Rompetrol Group General Director Zhanat Tussupbekov and Romania’s State secretary of Ministry of Economy Rodin Traiku are cutting the ribbon on official ceremony of The Rompetrol Group has successfully completed the modernization program of Petromidia Refinery in 2012.

China to expand downstream presence in Europe

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ASTANA – As part of a new financing extended to Kazakhstan in a yet another global downturn, China will become a co-owner of a refinery asset in Europe, namely on Romania’s Black Sea shore. It will be the refinery in the seaport of Constanța, earlier part of the oil refinery holding Rompetrol.

The Celestial Kingdom is tying the Central Asian republics ever stronger to itself by financing their major national infrastructure projects.

China’s current approach stands in stark contrast to its earlier penetration into the Central Asian economies during the previous world crisis of 2007-2008, where China had cautiously extended “light” credits, conscious of the local sentiments and public opinion.

The government of Kazakhstan no longer doubts the need of a financial support and financial aid from its Chinese partner in implementation of its plans. It is all explained by the common idea of reviving the Great Silk Road between the East and the West, that is, between Europe and China through the territory of Kazakhstan.

Here, the interests of the two countries coincide. China needs the shortest way to Europe for its goods, and Kazakhstan, situated in the center of the Eurasian continent, needs to expand its transit potential to minimise its dependence on the world energy prices.

Last week, Kazakhstan’s Prime Minister Karim Massimov concluded his official visit to China. The Beijing visit has been quite fruitful – Kazakhstan and China signed $10 billion-worth of agreements.

Commenting on the outcomes of this visit to China, Massimov has said Astana highly values the deep trust between Kazakhstan and China. “The current year has been rich in mutual visits on the highest and high levels, resulting in the bilateral relations achieving a new level of strategic partnership. We highly value the high level of trust and mutual understanding achieved between our states,” Massimov said at the meeting with Premier of the State Counsel Li Keqiang last Wednesday.

Massimov has reiterated Kazakhstan’s full commitment to China’s One Belt, One Road initiative, including the Silk Road Economic Belt programme.

In his opinion, considering the turbulence of the world economy, this idea is in synch with the New Economic Policy of Kazakhstan “Nurly Zhol”.

Last week’s Beijing agreements deal with such important for Kazakhstan’s economy sectors as oil and gas, uranium production, and metallurgy.

The following documents were signed during Massimov’s visit to China include an ЕРС contract of intent for the project of construction of an integrated gas-chemical complex in the Atyrau Province between Kazakhstan Petrochemical Industries, Inc., and China National Chemical Engineering Co. Ltd., and a memorandum of understanding for the Industrial Park of Colour Metallurgy project (production of copper), between Central Asia Gold Corporation and Shenyang Lianli Copper. In addition, Kazakhstan’s national company JSC NAK KazAtomProm and China General Nuclear Power Corporation plan to jointly develop the uranium deposits in Kazakhstan.

However, deserving a special attention in this list of agreements is the document on acquisition by China Energy Company Ltd. (CEFC) of 51% stake in the Romanian division of Kazakhstan’s national company KazMunaiGas, KazMunayGas International N.V. (KMGI).

The Economic Times announced that deal recently. It reported that, according to a statement of the Chinese company and two high official sources, CEFC would receive control over KazMunaiGas’ fully owned KMGI. In the estimation of one of the sources, KMGI is valued at between $500 million and $1 billion.

“CEFC intends to invest billions of dollars to expand its network of gas stations to over 3,000,” the article quoted one of the sources as saying. According to the source, part of the financing will be received from China’s $40-billion Silk Road Infrastructure Fund.

KazMunaiGas – controlled Romanian Rompetrol Group changed its name to KazMunayGas International in 2014. Rompetrol is a large oil and gas holding of Romania. It includes three refineries (Petromidia, Vega and Rompetrol Petrochemicals) and over one thousand gas stations in the countries of Europe.

KazMunaiGas is the national operator for exploration, production, processing and transport of hydrocarbons and it represents the government’s interests in the oil and gas industry of Kazakhstan.

In late August 2007, KazMunaiGas announced the signing of an agreement with Rompetrol Holding SA for the purchase of 75% stake in the Rompetrol Group NV (TRG), based on its value of $3.616 billion.

At the end of October that same year, KazMunaiGas began syndication of a $3.1 billion credit to purchase the Romanian company. The credit rate was LIBOR+0.9% annually, and it was for one year. ABN Amro, Credit Suisse and Calyon had received the mandates to organise the credit.

Later, KazMunaiGas bought the remaining 25% of Rompetrol. Comparing the purchase price KazMunaiGas had paid for Rompetrol and the price for which it is now selling the control stake to the Chinese company, it’s clear that the price concession is significant. As it is, KazMunaiGas is selling its 51% control stake in Rompetrol for less than it had bought it.

In an earlier interview to New Europe, commenting on the plans of the Kazakh government to put up for sale all three Kazakh refineries and the fourth one in Romania, a Russian oil and gas project expert Igor Ivahnenko said China would be the most likely buyer of the assets in such difficult time.

He also expressed an opinion that China could be Kazakhstan’s best partner in that deal. “As is known, import of Kazakh oil to CPR has continued in spite of some problems with the implementation of the plan. This means that Chinese are still interested in Kazakhstan’s crude for production of their own fuels. There may be some interest later for certain volumes of their own refined products from the facilities in Kazakhstan. In addition, the Chinese have an experience in conducting oil refinery business in the Russian Federation, so it will be easier for them to reach an economic compromise without resorting to politics,” Ivahnenko said.

Kazakhstan itself had bought the Romanian refinery during a crisis, when the entire refining industry of Europe was paralysed.

In another interview to New Europe, a Russian expert, the head of the Chair of Oriental Civil Development of Russia’s highest School of Economy, Alexei Maslov, had offered his comments on the entering of the Chinese oil giant CNPC into the Kashagan project. He said that by letting China in such an industry as oil and gas, Kazakhstan was risking to open Pandora’s Box.

He pointed out that China increased its presence in Kazakhstan dramatically during the world economic crisis of 2008-2009 by providing “light” credits against the supplies of energy and uranium, and thus has effectively tied Kazakhstan to itself.

“In principle, the transfer of such key sectors as coal, gas, oil, production of steel and defence technology is where the government should preserve its monopoly,” Maslov said.

According to him, Kazakhstan could hand over the transport of gas and oil, i.e. the pipelines, but under no circumstances should it have let China into its oil production.

“This is very dangerous, as it upsets the balance in the national economy of the country. It should not be allowed that the economy of Kazakhstan depends on the economy of China. What if yuan collapses, or there is a change in the political course, or property redistribution?” Maslov asked.

He believes it would be preferable for Kazakhstan to keep a distance from China. “China employs a push-out development model, which means that Beijing will see where the beneficial arrears for business are, how the production, logistics are organised, and how to bring the products to the end consumers, and so, step by step, it will push out its partner,” the Russian expert said.

He opined that a drive for expansion has been in Chinese genes for hundreds of generations. “This drive is historically rooted in the very development of that country. Such is the historically established mentality of the ever-expanding Chinese people. China has a big experience of assimilation. As a matter of fact, many peoples of the northern parts of that country have all but disappeared. And such assimilation happens softly, through a gentle force,” Maslov told New Europe.

All the Central Asian states, including Russia, should understand that China is a country with a five thousand year history. “No other country has such a history as China: same people, same writing, same logic, and same mentality over 5,000 years. So, speaking of integration processes, everybody should understand that the Celestial Kingdom will expand its influence in Central Asia, will buy enterprises there, and will create joint ventures,” Maslov argued.

According to him, a too close connection of China with any other country may end up in an economic demise of the latter. “Distance, and again, distance is important in dealing with China. In my view, it’s better to live off scraps than to sell your assets to China now,” Maslov concluded.

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