KMGI and Ministry of Energy of Romania signed an agreement that sets up the Kazakh-Romanian Investment Fund
October 26, 2018 KMG International (KMGI or Group, 100% subsidiary of NC KazMunayGas) and Societatea de Administrare a Energie» (SAPE) owned by the Ministry of Energy of Romania signed an agreement that sets up the Kazakh-Romanian Energy Investment Fund (Fund).
The Agreement was signed in accordance with the provisions of the Memorandum of Understanding signed earlier between KMGI (former Rompetrol Group) and Romania. It envisages additional financing to Group’s projects in Romania. It also sets out the mechanism of privatization of the shares owned by Romania in Rompetrol Rafinare and the procedure of establishing a joint energy investment fund.
As mentioned in signing the agreement, establishment of the Fund is a strategic step to finally settle a historical matter between the states. As previously reported, the Memorandum provides that KMGI Group repurchases 26.7% out of 44% of shares owned by Rompetrol Rafinare for 200 million US dollars.
At the same time, according to the parties, the achieved goals to form a joint investment fund testifies to the high appreciation of the work of the current Kazakhstani KMGI management by the Romanian government, the intention to expand this interaction, and also confirm the readiness and ability of KMG International to independently implement the strategic initiatives and build a long-term partnership with key stakeholders in key markets in Romania.
According to the parties, the joint fund involves investments of up to 1 billion US dollars over 7 years. The initial investment in the Fund’s projects by KMGI will be 150 million US dollars.
The projects will be financed exclusively from the funds of KMG International which in recent years has shown steady growth in financial and operational results with the arrival of the current Kazakh management. At the same time, pursuant to the investment policy of the Fund, it is also possible to attract borrowed capital at the Fund level as an additional source of project financing.
At the same time, energy projects implemented by the Fund do not imply any additional investments or attraction of funds from the shareholder of NC KMG. Besides, in the medium and long term, launching a new mechanism to finance promising development projects of the Group will help to increase the company's profitability and accelerate the return on investment from KMG International.
The Fund’s priority is to implement the energy projects aimed at developing the local energy sector and further strengthening KMGI’s positions in key market in Romania.
“Establishing a joint Kazakh-Romanian Fund is a mutually beneficial solution for both KMG International and the Romanian state. The investment policy of the fund is aimed at implementing the energy projects that will bring real benefits for both parties. These projects are also designed to increase the profitability of KMGI activities. At the same time, one of the Fund’s primary concerns is to generate additional commercial profits and pay dividends to shareholders, ” said Zhanat Tusupbekov, General Director, KMG International.
According to the approved shareholder structure, the share of KMGI in the investment fund will be 80%, the Romanian government - 20%, respectively.
“The Joint Investment Fund will not only attract additional investments to the Romanian energy sector, but will also be an important signal for accelerating the development of this branch of industry. This is an effective mechanism to implement major energy projects. The Fund’s investments will also contribute to increased production capacity in the region’s energy sector,” said Konstantin Vaduva, SAPE CEO.
The parties have already identified two promising projects for financing, the total investment for which is more than 200 million US dollars. It is expected that these projects will give a new impetus to develop the energy industry in the Black Sea region, which is strategically important for the company, and to increase the profitability of KMGI and the Rompetrol brand both in Romania and in other countries where the company operates.
In particular, one of the projects to be implemented within the Fund is the construction of a cogeneration plant at the Petromidia refinery that will produce combined electric and thermal energy. This cogeneration plant will have the potential to provide energy to the Petromidia refinery and Navodari. Investments in the project to be implemented in partnership with Uzina Termoelectrică Midia will amount to120 million US dollars. According to experts, the construction of the cogeneration plant will be completed within 4 years from the start of construction and installation works.
The second project aims to expand the petrol network of Rompetrol through the zero construction cycle (greenfield investment) of about 80 new filling stations on the Romanian market. The total budget for this project is expected to be more than 100 million US dollars.
The Fund’s activities will be based on a transparent investment policy, which implies the observance of clear criteria and mechanisms for evaluating investment projects. At the same time, the Romanian government and KMGI will have equal rights and opportunities to submit project proposals for funding.
The Joint Kazakh-Romanian Fund was established under the provisions of the Memorandum of Understanding between KMGI and the Romanian Government, signed by the parties in 2013 and envisages the attraction of additional funding to the projects of the Group in Romania. This document also sets out the mechanism to privatize the shares owned by Romania in Rompetrol Rafinare and the procedure to create a joint energy investment fund.
KMG International N.V. is a 100% subsidiary of NC KazMunayGas and is an integrated international oil company that operates in the refining sector, sells petroleum products and provides industrial services in 11 key markets. The company's network of petrol station includes more than 1,000 gas stations and sale points in Georgia, Bulgaria, Moldova and Romania, where the Group has two refineries - Petromidia in Navodari and Vega in Ploiesti, and Petrochemicals petrochemical complex. Company’s core business operations are concentrated in the Black Sea region.