Kazakhstan’s state oil company has initiated legal proceedings against Romania after prosecutors froze its shares in the country’s largest oil refinery, disrupting plans to sell a controlling stake to a Chinese company.
Kazmunaigas submitted a “notice of investment dispute” — the first step in a legal process that could lead to international arbitration — to the Romanian government, according to a letter from the company’s lawyers seen by the FT.
The dispute is the latest obstacle for Kazakhstan’s ambitious , which was announced last year with much fanfare but has made little progress.
Kazmunaigas in late April agreed to sell a 51 per cent stake in Kazmunaigas International, the subsidiary that owns the Petromidia refinery in Romania, to CEFC, a private Chinese company, for $680m.
But only days later, Romania’s Directorate for the Investigation of Organized Crime and Terrorism (DIICOT), a unit of the public prosecutor’s office, named Kazmunaigas as a party in a corruption probe into the privatisation of the refinery in the early 2000s and froze its assets.
“Romania is using its governmental power to undermine that transaction and re-nationalise the assets,” Kazmunaigas lawyers said in the letter to the Romanian government.
Kazakhstan is itself no stranger to , and Kazmunaigas has several times increased its stakes in major projects following pressure from the Kazakh government.
Kazmunaigas 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.
“This doesn’t have any relation to us,” said Daniyar Berlibayev, deputy chief executive of Kazmunaigas. He said that the Romanian action had already led to the deal with CEFC being delayed, with the completion date extended from October to the end of the year. “In these conditions it’s not possible for the deal to be completed,” he said.
Kazmunaigas’s troubles in Romania also highlight how the oil price slide is forcing the Kazakh state company to rethink its expansive international plans.
It bought the Romanian refinery in 2007 amid hopes that it would be part of a wider network of assets to handle the oil shipped from the massive Kashagan field. But nine years later, the Kashagan field has yet to start production and Kazmunaigas has invested about $4bn into its Romanian assets that are now being valued in the CEFC deal at $1.3bn.
Kazmunaigas and CEFC had pledged $3bn of future investment under the deal, but are now looking to Georgia and Bulgaria rather than Romania, according to Azamat Zhangulov, senior vice-president at Kazmunaigas International.
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 KMG assets and stakes worth 3bn lei ($740m) — the estimated cost to the state budget of alleged illegal activities carried out by the refinery’s former owners, with the assistance of Romanian officials. Kazmunaigas claimed in its letter that the value of the seized assets was $2.1bn.
The revival of the investigation, which has been running since 2006, comes ahead of Romanian general elections expected in November. A former minister familiar with the case dismissed fears of politicisation of the investigation, noting that representatives from all major parties had been named as suspects.
