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On October 26, 2018, KMG International (KMGI or the Group, a 100% subsidiary of JSC NC KazMunayGas) and the Sociotatea de Administrare a Energie (SAPE), owned by the Ministry of Energy of Romania, signed an agreement to establish a joint Kazakh-Romanian Investment Fund in the energy field (Fund).

The agreement was concluded in accordance with the provisions of the Memorandum of Understanding, previously signed between KMGI (former Rompetrol Group) and the Government of Romania, which envisages additional funding to the Group's projects in Romania. This document also includes the privatization mechanism of shares, owned by the Romanian government in Rompetrol Rafinare and the procedure for establishing joint investment fund in the energy field.

Thus, as it was noted during the agreement signing, establishing the Fund is a mutually beneficial strategic step aimed at the final resolution of long-standing issues between the parties. In particular, as previously reported, the Memorandum provides for the KMGI Group to buy 26.7% of the 44% stake in Rompetrol Rafinare from the Romanian government for 200 million USD.

At the same time, the parties believe that achieving goals to create joint investment fund indicates that the work of the current Kazakhstani management of the KMGI is highly appreciated by the Romanian government. It demonstrates the intention to expand this cooperation and also reaffirms KMG International’s readiness and ability to independently implement strategic initiatives and build long-term partnership with key stakeholders on the primary market in Romania.

According to the parties, it is intended that the joint fund will attract investments of up to 1 billion USD over 7 years period. The initial investment in the Fund projects by KMGI will be 150 million USD.

The projects will be financed exclusively using the own funds of KMG International, which in recent years has shown a steady increase in financial and operational results following the arrival of the current Kazakhstani management. At the same time, according to the Fund’s investment policy, the possibility of attracting borrowed capital at the Fund level is also considered as an additional source of project financing.

That said, the implementation of energy projects as part of the Fund does not imply any additional investment or funds by the NC KMG shareholder. In addition, in the medium and long term, launching new mechanism for financing the Group’s promising development projects will help increase the Company's profitability and accelerate the return on investment from KMG International operations.

The Fund’s priority is to implement energy projects aimed at developing the local energy sector, as well as further strengthening KMGI positions on the primary market in Romania.

“Creating a joint Kazakh-Romanian Fund is a mutually beneficial decision for both KMG International and the Romanian government. The Fund’s investment policy aims to implement the energy projects that will bring real benefits for both parties. These projects are also designed to increase the profitability of KMGI operations. At the same time, one of the main tasks of the Fund is to generate additional commercial profits and pay dividends to shareholders,” said Zhanat Tussupbekov, General Director of KMG International.

According to the approved ownership structure, KMGI share in the investment fund will be 80%, while the Romanian government share will be 20%, respectively.

 “Establishing joint investment fund will not only attract additional investment in the energy sector of Romania, but will also be an important signal for accelerating the development of this industry. This is an effective mechanism for implementing major energy projects. The Fund investment will also help to increase the production capacity of the region’s energy sector,” said Constantin Văduva, CEO of SAPE.

At the moment, the parties have already identified two promising projects to be financed. The total investment is more than 200 million USD. It is expected that the implementation of these projects will dacilitate the development of the energy industry in the Black Sea region, which is strategically important for the company, as well as increase the profitability of KMGI operations and the Rompetrol brand both in Romania and in other countries where the Company operates.

One of the proposed projects is the construction of a cogeneration plant at the Petromidia refinery, which will produce combined electric and thermal energy. This cogeneration plant will have the potential to supply energy to the Petromidia refinery and the city of Navodari. Investments in the project, which will be implemented in partnership with Uzina Termoelectrică Midia, will amount to 120 million USD. According to experts, the construction will be completed within 4 years from the start of construction and installation works.

The second project aims to expand the Rompetrol network through zero cycle construction (greenfield investment) of about 80 new petrol stations on the Romanian market. The total budget for this project is expected to be more than 100 million USD.

The Fund will operate based on a transparent investment policy, observing the clear criteria and mechanisms for evaluating investment projects. The Romanian government and KMGI will have equal rights and opportunities to submit proposals for project financing.

Reference information:

Joint Kazakh-Romanian fund was established within the framework of implementing the provisions of the Memorandum of Understanding between KMGI and the Romanian Government, signed by the parties in 2013 and providing additional funding for the Group projects in Romania. This document also includes the privatization mechanism of shares, owned by the Romanian government in Rompetrol Rafinare and the procedure for establishing joint investment fund in the energy field.

KMG International N.V. is a 100% subsidiary of JSC NC KazMunayGas and is an integrated international oil company that operates in the refining sector, sales of petroleum products, and industrial services on 11 primary markets. The Company's petrol station network includes more than 1,000 stations and sales points in Georgia, Bulgaria, Moldova and Romania, where the Group owns two refineries - Petromidia in Navodari and Vega in Ploiesti, as well as the Petrochemicals petrochemical facility. The Company core operations are concentrated in the Black Sea region.


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