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Kazakhstan's Privatization Hits A Snag

Kazakhstan's state oil and gas company KMG has been earmarked for privatization as Astana seeks to raise some much-needed cash amid an economic downturn. (file photo)

Kazakhstan is off to a rough start in its privatization drive. China appeared to be on the verge of a bargain for shares of a prized Kazakh company, but Romania disrupted the process, raising doubts about investing in other Kazakh companies on the privatization block.

Sounds complicated, and it is, but it's an interesting story.

Faced with its worst economic downturn in some 20 years, Kazakhstan's government announced in late 2015 that it would privatize many of the country's key enterprises. Among the major companies were state oil and gas company KazMunaiGaz (KMG) and its subsidiaries.

On April 29, KMG announced it had sold a 51-percent stake of subsidiary KMG International to CEFC China Energy Company Limited for, according to CEFC, $680 million.

KMG International, formerly Rompetrol Group, owns two refineries and a petrochemical plant in Romania as well as nearly 1,000 filling stations in Romania, France, Spain, Bulgaria, Moldova, and Georgia as well as other assorted assets. It was something KMG bought in better financial days of almost a decade ago.

About the same time, another KMG subsidiary, KazTransOil, bought terminals on Georgia's Black Sea coast to ship oil, pumped through pipelines or brought by rail from Azerbaijan, to KMG's refineries in Romania for processing and sale in Europe.

KMG in 2007 purchased a 75-percent stake in Rompetrol and eventually bought all of the company for some $3.6 billion. KMG upgraded the oil refineries and bought the Midia Marine Terminal on Romania's Black Sea coast, which received some 23 million tons of oil in 2015.

The sale of just over half of KGM International for less than 25 percent of the original purchase price has not been widely reported by media in Kazakhstan. The fact that the sale was to a Chinese company would only make the news worse, given current popular sentiment in Kazakhstan.

A Foothold in Europe

CEFC was set to gain a new foothold in southern Europe. A CEFC statement noted that KMG International "occupies a strategically important position in Europe" and "owns two refinery plants in Europe with 5.5 million tons of processing capability and is qualified to trade and transport 14 million tons of crude oil."

But on May 9, Romanian prosecutors seized the Petromidia refinery, the filling stations on Romanian territory and other assets in connection with an investigation into tax evasion, money laundering, and fraud.

The case actually originates with the privatization of Rompetrol Rifinare in 2000 and agreements to pay off the company's debt. KMG took on "some" of the debt when the Kazakh company bought its initial controlling stake in Rompetrol.

The total value of the property seized is some $752 million, roughly the amount Romanian authorities claim KMG International owes for "damages." Some of those damages involve several lawsuits that KMG International has been in with Romanian authorities since acquiring Rompetrol's assets.

KMG posted a statement on its website on May 11 that said the Romanian investigation centered on Rompetrol's activities from 1998 to 2003, well before KMG acquired shares in the company in 2007, and that KMG had not been informed of any ongoing investigations into Rompetrol at that time.

The statement mentioned prosecutors wanted to question 14 KMG International managers in Romania.

The statement also expressed the hope that Romanian authorities would complete the "investigation in the shortest time and with maximum transparency" and vowed to use all legal means to protect its interests in Romania.

CEFC has not commented on the case.

Still open to investors are Kazakhstan's state railway company and airline, the nuclear power company, Kazakhstan's three oil refineries, the national maritime shipping company, the country's largest telecom company, and scores of other enterprises.

Yerzhan Karabek of the RFE/RL's Kazakh Service, known locally as Azattyq, and Eugene Tomiuc of RFE/RL's Central Newsroom contributed to this report

About This Blog

Qishloq Ovozi is a blog by RFE/RL Central Asia specialist Bruce Pannier that aims to look at the events that are shaping Central Asia and its respective countries, connect the dots to shed light on why those processes are occurring, and identify the agents of change.​

The name means "Village Voice" in Uzbek. But don't be fooled, Qishloq Ovozi is about all of Central Asia.


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