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Premium article: Petromidia debt to be settled this summer. The state takes USD 200mln and joins an investment fund


Talks on the memorandum of understanding between the Kazakh owners of the Rompetrol Group and the Romanian state regarding the amicable settlement of Petromidia debt will be completed by June and involve the cash payment of an amount by Rompetrol to the Romanian state, followed by the establishment of an investment fund in which the Romanian state will receive for free a stake. [cleeng_content id=”560712213″ description=”Buy this translation today. The article has 5638 characters with spaces. ” price=”8.49″ t=”article”]According to government sources, the memorandum, already agreed in principle at high level, between the officials of the KazMunaiGas group, owners of the Rompetrol Group, and the Government of Romania, must become law in the first half of this year, since this summer an official visit of PM Victor Ponta is scheduled in Kazakhstan. The secretary of state in Kazakhstan, Marat Tazhin, has recently had a discussion with the Romanian Ambassador in Astana, Nicolae Ureche, regarding the preparations for this visit. The main topics of Ponta’s visit in Kazakhstan will aim the expansion of economic cooperation between the two states.

What is the deal

According to our sources, in a first phase the Kazakhs will buy back from the Government of Romania 26% in Rompetrol Rafinare Constanta (Petromidia refinery), for which they will pay directly to the Romanian state USD 200mln. The state will remain a significant shareholder in the refinery, with a stake of around 18%, and has committed not to sell the stake for at least three years. If it sells after this period, The Rompetrol Group will have a preemptive right. The price paid by the Kazakhs is higher than the market value of the stake. At the current quotations of the RRC titles, the value of the entire share package of around 44% owned by the state would amount to around USD 290mln. After this cash transaction, KazMunaiGas will create an investment fund in which it will invest initially USD 150mln. The Romanian state will be shareholder of this fund, with a 20% stake, the participation worth USD 30mln being offered by the Kazakh company without consideration. The investment fund, which will attract, besides KazMunaiGas’ contribution, additional funding from the financial market, is created in order to increase both the value of the current assets of the Rompetrol Group, and for its expansion in the Black Sea region. The fund could attract from both the Kazakh company and banks funds of over USD 1bn.

Where will the fund invest: the new power plant in Midia, the first target

Basically, this fund will finance the development of the Rompetrol group in the Black Sea region. The group announced investments of UDS 1.5bn in the next seven-ten years, half of the amount following to be invested in Romania. The strategy mainly targets the expansion of the retail network in the region, the group’s officials announcing 350 new fuel distribution stations in Turkey, Bulgaria, Romania, Georgia and Ukraine. In Romania, considered by the Kazakhs the most important market in the region, there will be 150 new distribution stations. The group’s intention would be to sell within five years 70% of the total volume of refined products of Petromidia through its own retail network and only 30% to traders. According to our sources, some of the first investment objectives financed by the new fund would be the new cogeneration power plant in public-private partnership built on the current platform of Midia Thermal Power Plant, owned by the state and located in the immediate vicinity of the Petromidia refinery. Rompetrol wants a new gas-fired power plant, with an installed power of around 75MW, to provide the necessary electricity for the refinery. The construction costs of the plant amount to USD 100mln.

The state’s advantage in the fund

Besides the advantages generated by investments (Ponta asked the Kazakh company to invest EUR 1bn), the Romanian state also gains from its quality of shareholder in this fund. The Government can sell, after at least five years, the 20% stake, the Kazakhs also having a preemptive right in this case. Given the volume of resources attracted and the value of assets financed, the state can expect a much better price for the value of its initial stake, of USD 30mln.

Petromidia debt is a 10-year old story

In October 2003, the Government of Romania issued an ordinance regarding the swap into bonds with a 7-year maturity of Rompetrol Rafinare Constanta’s budgetary outstanding debts, existent on September 30th 2003, worth EUR 570mln. According to this ordinance, the company was entitled to convert into shares the bonds it did not repurchase at maturity. In 2010, the maturity year, Petromidia repurchased bonds worth only EUR 54mln and the remaining bonds were converted into shares, according to the law in 2003 (Rompetrol also paid the interests related to bonds, amounting to USD 250mln). Therefore, the state became shareholder in the refinery, with a stake of around 45%. Authorities have challenged in court Rompetrol’s decision, the group triggered in turn several actions in court and ever since several lawsuits have taken place. The state has requested money, not shares, but the Rompetrol officials have warned that the cash payment of such amount would have endangered the company. Since its takeover from Dinu Patriciu, in 2007, to date, the Kazakhs from KazMunaiGas reportedly invested USD 1.4bn in the refinery, to increase the capacity and improve the quality of products, on a difficult market for the refining activity. Petromidia has become the largest refinery in Romania and the most important exporter of petroleum products of the country, but it is still in the red. Since 2010 to date, the Kazakhs and the Government representatives have repeatedly discussed about ways to settle this dispute (milestone payments, barter with fuels etc.), but amid political changes the discussions have stopped. Last month however, right before a hearing in one of the many lawsuits between the state and the oil company, the two parties announced that they had signed a memorandum for the amicable settlement of the dispute.[/cleeng_content]

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