Beimbet Shayakhmetov, CEO of Rompetrol: „2020 was one of the hardest years in history.” How the group experienced the crisis and what will follow INTERVIEW

Beimbet Shayakhmetov was appointed CEO of the Rompetrol Group (KMG International) at the end of 2019, ie before the outbreak of the coronavirus crisis. In an interview for our publication, he talks about how challenging 2020 was for the oil industry in general, and for Rompetrol in particular, the company that manages the largest refinery in Romania and one of the largest fuel distribution networks in Romania. Despite a hostile environment, in which restrictions severely reduced fuel sales and generated negative refining margins for months, the company showed resilience and continued its activity, managing to continue the investment projects started both in Romania and in the Black Sea area, its strategic market. Shayakhmetov also talks about the group’s commitment to continue investments through the Kazakh-Romanian Energy Investment Fund, in partnership with the Romanian state, and about the stage and future of these projects.

How was the year 2020 for the oil & gas industry?

The year 2020 was a difficult year for the entire oil & gas industry, in each area of activity – from oil extraction to the distribution of oil products.

The effects and influences determined by COVID19 were also reflected in the sharp decrease in demand for petroleum products, a high volatility of international quotations for fuels and the negative refining margins.

The impact of these factors at European level has led to the accumulation of high stocks of finished products, forcing companies to quickly adjust their activities and adapt to new conditions.

Thus, these ones have rethought their business models and medium-term strategies, being forced to adopt other measures necessary to protect the main activities (e.g. staff reductions, outsourcing, closure or sale of assets, suspension and prioritization of investment projects).

The measures were reflected in the evolution of the European refining capacity in 2020 – a decrease of approximately 50 million oil/ year (closed units, preserved or converted) compared to 2019. At this level, another 100 million affected tons are temporarily affected due to the pandemic (technical revisions, processing depth reductions – from an average of 80-85% in 2019 to about 70% in 2020).

In 2020, the gross refining margin – a key indicator for the refining sector, for the first time recorded a negative level for more than four months in a row. Between May and August, the refining margin was negative, about -14 USD /ton.

The negative refining margin could be explained by the fact that the value of a ton of oil product is lower than the value of the raw materials necessary to obtain it, to which the processing costs are added.

 

How was 2020 for Rompetrol?

These evolutions were also reflected in our activity, 2020 being one of the most difficult years in the history of Rompetrol. We have never faced negative refining margins for so many consecutive months.

The sudden decrease in fuel sales due to the restrictions imposed by the pandemic, the lack of fuel deliveries for aviation, the obligation to make environmental investments and to comply with the general revisions of production units, all these put pressure throughout the Group to maintain a financial balance.

With considerable efforts, we have managed to protect and maintain our profile activities in Romania and in the region, but also to continue to be a pillar of stability for employees, customers, business partners, local and central authorities.

The employees have been at the heart of our 2020 strategy, both protecting them and minimizing the risk of infection with the new virus and keeping jobs.

Thus, in order to support our colleagues, digitalization projects for the support functions were implemented, flexible work or work from home programs were developed, as well as other measures for providing IT equipment and solutions.

To these we added the efforts to maintain jobs, in the context that this period was characterized at national level by decisions of technical unemployment, reduced work schedule, collective dismissals, closures or suspension of activities directly affected.

In the current context, all these efforts were reflected in the negative results recorded in 2020.For example, the EBITDA recorded last year decreased by about 70% compared to 2019, according to preliminary and unaudited data.

The role and impact of Rompetrol on the national economy was a major one in 2020, both by maintaining our refineries and gas stations, continuing the modernization and development projects (revisions, expanding the fuel distribution network), but also by the level of contributions to local and central budgets (about USD 1.28 billion).

At the same time, the Group joined the efforts of the authorities in Romania, Bulgaria, Moldova and Georgia in limiting and preventing the spread of the new virus, by donating fuel for emergency medical transport, funding research and purchasing equipment, test kits and materials needed for medical units.

KMG International’s support in the fight against the coronavirus pandemic amounted to about USD 1 million. For example, the Group purchased 4 intensive care beds at the end of last year, which were donated to the intensive care units of Constanta County Hospital (3 beds with complete equipment for patient monitoring and treatment) and Matei Bals Infectious Diseases Hospital Bucharest (1 bed with related medical equipment).

Also, as the only domestic polymer manufacturer, the Group managed to develop a new range, vital in the production of medical protective equipment. It is used for the middle layer of the masks, the most important layer for filtration and protection against pathogens.

Currently, Rompetrol is the only manufacturer in the region that can provide the raw materials needed to make medical equipment (masks, caps, coveralls), necessary to reduce the spread of the Covid virus.

 

Wat were the most important projects in 2020?

Other major directions aimed at minimizing the risks of interruption of fuel production and distribution flows, but also the continuation of development programs (retail, refining) and digitization of processes and operational flows.

The group maintained both its refineries operational – Petromidia Navodari and Vega Ploiesti, which have a vital role in supporting the national and regional economy, both through ensuring fuels and through special products such as bitumen, polymers, hexane, etc.

In addition, we continued the development of our presence in the retail sector both in Romania and in the region (Bulgaria, the Republic of Moldova, Georgia), and also the observance of the commitments undertaken within the Kazakh-Romanian Energy Investment Fund.

Last year, the Group managed to expand its regional fuel distribution network by 46 stations, of which 19 in Bulgaria, Georgia and the Republic of Moldova. In Romania, in addition to the 17 stations brought to the Rompetrol network (Rompetrol Partner and Rompetrol Express stations), we added another 10 new stations, opened by the Investment Fund.

 

What does Romania represent for KazMunayGas – the sole shareholder of the Rompetrol Group (KMG International)?

 

KazMunayGas – the national oil and gas company of Kazakhstan was, is and will be a long-term and committed investor that aims to play an important role in the Black Sea region, to support the supply of oil and oil products, to develop activities and operations in accordance with best practices and legislation in force, but also to comply with all its business commitments.

The Black Sea region is a strategic market for the Republic of Kazakhstan and KMG in terms of oil oil sales (over 59.2 million tons of oil from the Republic of Kazakhstan and 20 million tons of KMG volumes were exported in 2020 through the Black Sea corridor). For the last 10 years, KMG has been constantly working on the development of infrastructure and assets aimed at strengthening this export direction. The KMG strategy envisages the further development of business in this region.

The main assets of KMG in the Black Sea region are: KMG International (Romania, Moldova, Bulgaria, Georgia); Batumi oil terminal (ensures the transshipment of oil from Kazakhstan); KazMorTransFlot National Expedition Company (tanker shipping on the Black Sea); share in the CPC (transport of oil from Atyrau to Novorossiysk).

For KMG, Romania is the center of its regional operations, a platform for the development of new projects and investments, which support the creation of new jobs directly and indirectly, increasing contributions to local and central budgets and with a strong horizontal impact on the national economy.

Since 2007 – the time of taking over the majority stake of the Rompetrol Group (currently, KMG International), it has fulfilled its obligations and carried out an extensive investment program for the modernization of production units, but also for maintaining vital sectors for the national economy through the products made.

Thus, as the only producer in Romania, we managed, through the production of bitumen at the Vega Ploiesti refinery, to support the modernization of the infrastructure in Romania, and through the polymers obtained, we contributed to the realization of high value products.

 

What is the stage of implementation of the memorandum of understanding concluded in 2013 with the Romanian state?

The conclusion of the memorandum of 2013 and its approval in 2014 represented a mutually beneficial solution for extinguishing a dispute between the two parties – KMG International and the Romanian state.

On account of the 2003 bonds issue, KazMunayGas exercised its right under the conversion bond redemption agreement. In 2010, the Romanian state became a shareholder of Rompetrol Rafinare (the operator of the Petromidia Navodari and Vega Ploiesti refineries, but also of the petrochemical division) with 44.7% shares.

All these aspects were made in compliance with the legislation in force, a fact confirmed by the Romanian courts.

Another important point of the memorandum is the establishment of the Kazakh-Romanian Energy Investment Fund, with an investment value of up to 1 billion USD. It was established in October 2018 by KMG International and the Energy Participation Management Company. Its main and strategic objective is pursuing the development of energy projects in Romania.

According to the memorandum of understanding, the investment period is 7 years from the establishment of the Fund, respectively 2018. We are on the right track to successfully achieve this goal by 2025.

Currently, the total level of investments approved by the Fund for the implementation of energy projects in Romania amounts to USD 311 million. The impact of these investments will be found in the national economy, from temporarily and permanently created jobs, contracts with service providers or manufacturers of equipment / products, to taxes and contributions generated by the new objectives and transferred annually to local and central budgets – over USD 300 million after their completion.

Regarding the redemption of 26.7% of the state-owned shares in Rompetrol Rafinare, the measure should take place through a privatization procedure launched by the Romanian state. We will fulfill our obligation once the process begins, which we understand is the intention of the Ministry of Energy.

 

What are the projects approved and ongoing so far through the investment fund?

The fund is built on a transparent investment policy, with clear project evaluation criteria and mechanisms, with both parties having equal opportunities to propose projects for funding.

In 2020, we continued to comply with our obligations under the fund, after initiating a series of projects and allocated funds to the Romanian State on behalf of its participation in shares (20%) in 2019.

The main investment projects approved and being implemented are the construction of a new cogeneration plant on the Midia platform, the development of a fuel distribution network, the modernization and construction of new facilities at the Petromidia Navodari refinery.

The largest project is the construction of a new cogeneration plant in Midia by 2023, with a major role in stabilizing the production and distribution of electricity in the Dobrogea region, by ensuring the energy needs of the platform, but also by injecting the surplus electricity into the national system. The total investment of the fund in this project amounts to about USD 148 million.

During 2020, the general contractor of the project was selected, the works will start in the first part of this year, after the completion of some preparatory stages, such as geotechnical study and obtaining / updating specific permits / authorizations.

The new combined electricity and heat generation unit will run on natural gas as the main fuel and will produce about 80 MW of electricity – of which about 60-70 MW to fully cover the electricity needs of the Petromidia platform, technological steam up at 180 tons / hour, plus the necessary hot water for the heating system of Navodari – up to 20 MWt / hour.

Another important project aims to develop a network of 84 gas stations in Romania by 2023, which will sell exclusively auto fuels produced by the Petromidia Navodari refinery. They will ensure a consolidation  of the market and fuel supply, supporting both an increase in revenues to local and central budgets and the creation of more than 1,000 new jobs, with more than 5,000 people involved in various stages of development (design, execution, construction) and over 1,200 business partners. The total value of the investment is estimated at about USD 120 million.

Currently, the network amounts to 30 gas stations, of which 10 units were completed and opened last year. At the same time, works are underway for new stations, starting with opportunity analysis, identification of viable locations / land plots, obtaining authorizations / permits, to actual construction works.

Two other projects were approved last year, aimed at modernizing the Petromidia refinery, but also at consolidating the only polymer producer (the raw material from which medical protection products such as sanitary and surgical masks such as FFP1 and FFP2 and medical accessories – caps, coveralls, etc. are obtained).

Their value amounts to USD 43 million and they provide for the construction of a dewaxing unit on the Petromidia platform, which will allow the refinery to improve the process of obtaining diesel fuels during the winter and increase the production of special aviation fuel, but also increase the production of polymers by more than 30%, by converting the high-density polyethylene (HDPE) unit into a polypropylene (PP) unit.

The estimated deadline for the completion of the two projects is in 2023. Currently, technical documentation, basic design / basic engineering is being prepared

 

What are your current estimates for 2021 for the Romanian business environment, as well as for the economy as a whole?

We expect the population to slowly return to pre-pandemic habits – to travel, to explore, to discover, to be with their families. The restrictive measures imposed by the pandemic changed their perception, when mobility fell sharply.

We consider that the relaxation and elimination, in stages, of the prevention measures will be reflected in the internal economy, and implicitly, in the demand for oil products.

At Group level, we will continue to focus on core assets and activities – fuel refining and distribution, the development of new services and adjacent products, but also on the continuation of digitization projects.

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