Rompetrol freezes investments in Romania after court ruling

Rompetrol, a Romanian oil company wholly owned by KazMunayGaz, the state-owned oil and gas company of Kazakhstan, has frozen a planned 350 million euro (US$480 million) investment programme after Romania's Constotitional Court ruled that a memorandum of understanding (MOU) between the oil group and the State was unconstitutional. The agreement was intended to settle a 516 million euro (US$660 million) claim by the State against the company.

Investments that have been put on ice include the building of a co-generation power plant at the Vega oil refinery in Ploiesti on the Black Sea coast and the development of a retail fuel network, said Rompetrol VP Azamat Zhangulov. In answer to concerns expressed by Prime Minister Victor Ponta that the company may file for insolvency, Zhangulov said that this will not be the case. However, he did blame President Traian Basescu for challenging the settlement that had been agreed in February 2013.

Zhangulov was also concerned about a new 1.5 per cent tax to be levied on special industrial assets from January 2014.

Ownership changes

KazMunayGaz acquired the Rompetrol Group in August 2007 by buying 75 per cent in the company from its them owner, Dinu Patriciu. The company had oil refining and marketing operations in 12 countries. Originally established in 1974 as the state oil company of Romania, it was bought in 1998 by Dinu Patriciu, a billionaire Romanian businessman, and a group of local investors. They established the Rompetrol Group, a Netherlands-based holding company. This group owned Rompetrol Rafinare, the holding company of the Petromidia Refinery in Navodari on the Black Sea.

Details of the memorandum of understanding

In 2010, Rompetrol Rafinare converted bonds issued in 2003 into shares in favour of the Romanian State so giving it a 44.69 per cent share in the refining company. Negotiations on the status of the State as a shareholder continued with KazMunayGaz until February 2013 when the sides arrived at what was believed to be an amiable solution. The Rompetrol Group was to buy the 26.6 per cent share in Rompetro Rafinare from the State for US$200 million, giving it full control over the company.

The State was to remain an 18 per cent shareholder in the Petromidia refinery for three years. In addition, Rompetrol planned a significant capital investment programme in Romania. The two sides would establish a US$1 billion investment fund. Rompetrol would contribute 80 per cent of the fund's holdings and the Romanian State would add a further 20 per cent.

Challenge to validating law

A law validating the agreement was passed by the Romanian legislature but was severely criticised by President Basescu. He claimed that the settlement is not in favour of Romania and challenged it in court.

Rompetrol and the Romanian government have been involved in several disputes. World Bank's tribunal, International Centre for the Settlement of Investment Disputes (ICSID) ruled in May 2013 that Rompetrol's former director, Dinu Patriciu, had been subject to State-sponsored harassment during a criminal investigation that amounted to a breach of investment guarantees under the Netherlands – Romanian Bilateral Investment Treaty. However, the ICSID did not award any damages to the company.