After about 15 years from the transformation of the historical debt of the Petromidia refinery, the Rompetrol saga is likely to end in the coming period, more precisely in 2019.
The transition to a market economy based on sound principles and the decisions to get rid of the energy-consuming giants, the black holes left behind by the centralized and planned industries have laid down factories and businesses which were well-known until 1990.
Famous bankruptcies, constant debt / arrears cancellation of state-owned companies, ceding to investors having one goal - quick profit, pressures by international bodies trying to guide Romania to brighter horizons (World Bank, International Monetary Fund), the intervention of the state in capping the prices to protect Romanians, all these decisions and measures represent the fractures of the period 1990-2000.
In 1999, the National Bank of Romania recorded in its annual report on "the policy of restructuring the loss-making companies" chapter that the "judicial liquidation procedure was triggered for 170 and for another 356 the privatization process was completed". The results of these measures resulted in a reduction in costs equivalent to 3.645 billion lei (over 200 million dollars) and the increase in revenues by about 5.949 billion lei (326 million dollars).”
The same report also mentioned that "the operational closures of technological flows at Siderurgica Hunedoara, Clujana Cluj-Napoca, Romline Constanta, Siderca in Calarasi, Melana Savinesti; outsourcing of auxiliary activities at Tractorul Braşov, Nitramonia Făgăraş, Roman Braşov; restructuring of financial debts and tax liabilities at Sidex Galati. A special mention was required by the shutdown of two refineries (Petromidia Năvodari and Rafo Oneşti) for most of the year, which contributed to the lowering of the country's energy bill, which was not to be neglected in the 1999 massive external adjustment.”
The impact of other strong shocks has also been added to the internal turbulence of the economy. For example, in 2000, the NBR noted a rise in crude oil prices at a record high for the past ten years, over $ 35 a barrel, the worst drought in the last fifty years, which led to a decline in agricultural output by about 14 percentage points from the previous year, but also the unfavorable evolution of the euro, which depreciated against the dollar almost throughout the year.
Against this backdrop, the NBR noted in 2000 that "in terms of privatization, the 2000 results were relatively modest - privatized 1,341 commercial companies (of which 928 without a previous contract), of which only 24 companies were large. The sold capital (of about 6,290 billion lei - 280 million dollars) amounted to 5,020 billion lei (221 million dollars) as payments to the budget. Among the important privatizations of the year are: Brăila Shipyard, Tulcea Shipyard, Aerostar Bacau, Letea Bacau, Rulmenţi Bârlad, Petromidia Năvodari, UPETROM 1 Mai Ploieşti, UNIO Satu Mare. Some large national companies (CONEL, ROMGAZ, SNCFR) were divided for further privatization of the resulting components.”
A big issue for the transition economy was the issue of arrears to state-owned companies. At the end of 2006, the stranded debts accumulated by state-owned companies during the period 1990-2006 amounted to EUR 8.6 billion, the largest contributors being Termoelectrica, CFR Infrastructura and Compania Naţională a Huilei (National Company of Hard Coal).
In 2000, they recorded a 30% increase in the companies subordinated to the Ministry of Industry and Commerce, with 72% in those of the Ministry of Transport and decreased by 13% in the other ministries.
Returning to the Petromidia refinery, the story and the transition from the centralized to the market economy system faithfully reflects all the troubles - proposed for liquidation in 1997, two failed privatizations, stopping activities in the industry due to lack of funding and raw material, negative results due to inflation, domestic fuel price caps in the context of importing all necessary crude oil, the lack of investments needed for upgrading or maintenance, the lack of a distribution network for petroleum products. Petromidia processed about 870,000 crude oil in 1999, and in 2000, before privatization - 1.15 million tons.
In 2003, receivables to the state budget (excise duties, VAT, contribution to the special public roads fund, late payment penalties, interest and delay penalties) amounted to about 571 million euros, which were converted at the end of October to an issue of 7-year term bonds calculated annually based on Euribor plus 1.5%.
Thus, the refinery's "historic debts" to the state budget were paid in order for the refinery to have the chance to survive and generate direct and indirect profit for the Romanian state, the only beneficiary of the shares issue, a normal financial instrument for a market economy.
These were not deleted or forgiven, as with other companies privatized at that time. Too few are willing to remember or are interested to understand after such a long time the measures taken and adopted to find investors willing to take over, invest, develop and keep alive strategic industries. Of the 10 refineries and a processing capacity of 34 million tons in 1990, there are currently 3 special units with a capacity of about 12 million tons.
At maturity, in September 2010, the refinery redeemed bonds worth about 54 million euros, and the difference was converted into shares in favor of the Romanian state, which became a major shareholder with 44.7% in equity. KMG International is currently the majority shareholder of Navodari with 54.6%.
In 2013, the Rompetrol Group (currently KMG International) signed a Memorandum of Understanding with the Romanian State to close the dispute over the conversion of Rompetrol Rafinare bonds into shares in favor of the Romanian state. The document was approved and became operational in February 2014.
It involved the creation by the two parties of an investment fund in the energy sector of up to $ 1 billion, with a seven-year investment period. At the same time, KMG International firmly committed to provide $ 200 million USD to redeem about 26.7 percent of state-owned shares in Rompetrol Rafinare.
At the end of October 2018 - five years after signing, the miracle happened, and the first step was taken - the foundations of the Romanian-Kazakh investment fund were established by signing the fund development documents between KMG International and SAPE (The National Company for Management of Equity in the Energy Industry).
KMG International is wholly owned by KazMunayGas, the national oil and gas company in Kazakhstan, investments in Romania since 2007 (the moment of the takeover of the majority stake) and up to now exceeding $ 4 billion, including the takeover value.
The fund development is also an important moment for strengthening the strategic partnership between Romania and Kazakhstan, but also an impulse for capitalizing Romania's opportunities to become a regional leader in the energy sector.
Romania has the resources to become a regional energy hub and the development of strategic partnership with Kazakhstan could support this goal. Romania has its own natural resources, has a strategic geographical position, has a large capacity for transporting and storing energy, as well as centralized and trading platforms.
KMGI's contribution to the fund's capital is $ 150 million, and part of it, the $ 30 million Romanian state's contribution, will also be provided by KMGI.
The shareholding structure of the investment fund to develop energy projects is: KMGI - 80% and the Romanian state - 20%.
The priority of the fund is the development of energy projects, which would boost the Romanian energy sector, as well as strengthen the country's energy security by diversifying the sources of oil supply and strengthening the investment climate on the local market.
The main investment directions of the fund will be aimed at strengthening the activities and operations of Rompetrol, diversifying the sources of crude oil supply both of Romania and the European Union, creating new jobs, and establishing the necessary framework for attracting new investments, with a direct impact on Romania's economy.
KMGI has identified at least two major projects that can be developed through the Kazakh-Romanian Fund with an investment value of more than 200 million dollars and will have a positive impact on Romania's economy, especially since about 2,000 new jobs will be created.
One of the projects is aimed at building a combined heat and power cogeneration plant on the Petromidia platform in partnership with the Midia Thermoelectric Plant.
The plant will run on gas, with combined cycle, in cogeneration, and will partly become operational, in principle, with gas from domestic production, which anyway still supplies the necessary gas for the Petromidia refinery. The rest of the gas will come from the refinery, resulting from the oil refining process.
The installed power of the new power plant will be 75 MW, its electricity production will first ensure the needs of the Petromidia refinery and the retail power grid, and additional quantities, if any, will be sold on the market. The heat produced will provide, besides the refinery's needs, heat and hot water for the city of Navodari.
The investment in the new plant will be 120 million dollars and will be built in four years.
Besides the contribution to their business, the power plant will be beneficial for the local community by delivering heat to the city, for the budget, which will annually earn $ 20 million in taxes, and the national energy system, as it would help stabilize production and distribution in the Dobrogea area.
Another project aims at expanding the Rompetrol gas station network with about 80 stations on the local market. The new stations will be developed by greenfield type investments, the estimated total amount being $ 100 million.
Thus, about 1,250 new jobs will be created, and more than 5,000 people will be involved in different project stages (design, construction, execution). The new petrol stations will generate an annual operating profit of about 32 million dollars.
The Romanian State, through SAPE, is represented at the level of all the management bodies of the Fund. Thus, in accordance with the shareholding structure, SAPE will appoint a member of the Board of Directors, the parties agreeing to appoint one member of the SAPE for the Management Board and the Investment Initiative Committee. The SAPE representatives have the right to vote in all investment projects on national security grounds.
The Fund is built on a transparent investment policy with clear criteria and evaluation mechanisms for projects, both sides having equal opportunities to propose projects for funding.
Gabriel Dumitraşcu, former head of OPSPI (State Participation and Industry Privatization Office) and the person representing the Romanian state in the negotiations and signing of the memorandum, argued that, at the date of signing the agreement, Rompetrol did not have historical debts to the Romanian state.
All debts were previously offset by the redemption of part of the bonds issued in account of the debt, and the remaining difference of unpaid bonds was converted into shares in 2010. Thus, the Romanian state obtained 44.7% of Rompetrol Rafinare shares.
Dumitraşcu considers that the Memorandum has a positive impact on the national economy and contributes significantly to Romania's energy security, given that at the signing date of the Memorandum, Rompetrol had a share of about 40% of the fuel production, which could only be filled by imports.
Because of the political intrigues, Rompetrol was close to closing operations and firing employees, with announcement of dismissal notice for 3,000 employees, according to former OPSPI chief.
In this context, the main objective of the negotiations was to keep Rompetrol operational. Given that Rompetrol was one of the largest contributors to the state budget, with over $ 1 billion a year, stopping Rompetrol's activity would have generated a chain of crises in the area of petrochemical users and asphalt products that would have affected the activities of several firms with tens of thousands of employees and the stability of state budget revenues.
Moreover, the confidence in the Romanian investment environment would have suffered. Therefore, as the tax share increases, the state becomes richer and has funding resources for public spending. The proposal to set up the investment fund came as an application of the principle that an investor, the more it is anchored in the national economy, the more it becomes integrated and interested in the good running of the economic environment.
Thus, the establishment of the Kazakh-Romanian Energy Investment Fund produces positive effects for both parties, both for the Romanian state and for the KMGI.
In addition to the significant investments that will have a positive impact on the national economy, the Romanian energy sector has the opportunity to consolidate and begin to show signs of a strategic investment climate, with the prospect of Romania becoming a regional leader in the energy sector.