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China investment in Romania oil production: Greater energy security for the EU

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One of the largest announced Chinese investment projects in the EU, between the private CEFC China energy group, and Romania’s Rompetrol Group, now controlled by KazMunaiGas International (KMGI), totalling around 700 million US dollars, looks like it could be back on track for 2016 conclusion after productive meetings this month between the Chinese and Romanian prime ministers, followed up by a visit to Bucharest by a Chinese energy team, writes Helen Jones for eureporter.co.

China in 2015 invested around $200 billion in Europe, and some preliminary forecasts for 2016 show that number could reach $300bn.

The China-Romania energy partnership venture was put on hold over the summer when the authorities in Bucharest froze more than $2bn of assets under the ownership of KMGI, including Petromidia, the country’s largest and most successful refinery.

KMGI’s record over 10 years of contributing to Romania’s national economy and growth has been well documented: from paying $13bn in taxes to the state budget to being the largest oïl products exporter, generating billions more for the economy; from having 5,000 workers to making investments in the country that total close to $4bn US dollars.   Last week the company announced profits up by 41% over the same nine-month period in 2015.

While KMGI is very much a Romanian company, with the state being a 44% shareholder, the strong relationship between Romania and Kazakhstan helps guarantee security of supply, making Romania number three in the EU when it comes to energy independence. KMGI operates in 12 countries, so there is a large and growing asset base to build on the Chinese investment across the EU.

CEFC reported revenue of $35bn in 2014. It is the 10th largest private company in China, and controls a growing and diversified portfolio of assets, with oil and gas accounting for around 60%.

CEFC has continued to move up in the Fortune 500 rankings, from 342 to 229 this year. The company is expanding its footprint across central and east Europe, in the Czech Republic and Slovakia in particular, with a series of large purchases  ranging from travel to real estate, working in close cooperating with local private business and governments.

The joint venture agreement would see CEFC taking a 51% stake in the shared enterprise; the Romanian Government continues to hold shares in KMGI, so it is seen as a true public-private partnership for Romania, Kazakhstan and China.

The premise of the deal is grounded on expanding energy producing assets in Romania and bringing new Chinese capital for jobs and investment, with some commentators forecasting as much as $3bn in spending.  With KMGI operating around the Black Sea and into Europe, these funds would be delivered across the EU for new and upgraded production facilities and refining capacity.

The competitive and security value of the project can be seen in bringing together capital from China, energy flows from Kazakhstan and expert operations management from Romania. Increased capacity, technology and yields would help boost energy security across the region.

Today Kazakhstan produces today 80 m/t per year, the second largest producer in the former Soviet Union, and there are forecasts to build that source up to 100 m/t before the end of the decade.

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