What has recently caught our attention is the disappearance of Timur Kulibayev (Nursultan Nazarbayev’s son-in-law and one of the most influential and notable persons in the President’s circle) from the public space.

Up until recently the Chief of the National Chamber of Entrepreneurs “Atameken” and the co-owner of Halyk Bank who, together with his wife Dinara, owns more than $6 bln, has been in the public eye. Then, suddenly, he has disappeared.

Of course, it is possible that Timur Askarovich has simply taken a summer break. However, something else is possible, too. Perhaps his “disappearance” is the result of the China Energy Company Limited (CEFS)’ refusal to purchase 51% of shareholding interest in KazMunaiGas International, KazMunaiGas’ affiliated company.

The news on this development that is negatively affecting the quasi-governmental sector and the Samruk-Kazyna state holding appeared on the Bucharest Stock Exchange site on July 3, 2018.

Here is what KazMunaiGas International’s official press-release signed by Vice President for the Corporate Development Alexey Golovin says verbatim.

«KMG International Group (KMGI) informs that the transaction on acquisition of 51% of shareholding interest in KMG International N.V. by China Energy Company Limited will not be completed.

The long-stop date by which the parties were to obtain all of the condition precedent has expired on 30th of June 2018 and the parties will not extend the period thereof.

The above decision has no impact on the operations of KMG International N.V. and its subsidiaries and they continue to benefit from the full support of its parent National Company “KazMunayGas”.

The reasons why the Chinese investor pulled the plug on buying the controlling interest in the Romanian corporation are clear. CEFC has been experiencing problems at home in China. However, this forced decision has exacted a huge toll on the Samruk-Kazyna State Holding and the affiliated KMG. And we do not rule out the possibility that it may have if not destroyed then seriously slowed down their reforming.

However, the crack-down on Timur Kulibayev personally has been even more serious since it was he who, as an unofficial supervisor of the country’s oil-and-gas sector, had in his time made the decision to buy Rompetrol under the conditions that were extremely disadvantageous for Kazakhstan.

Let us recall that KMG International (formerly Rompetrol) was purchased by KMG in 2007 for $2.85 bln $1.1 bln of which was in fact put aside and went “to an up to this day undisclosed location”. A little later, this caused a big scandal, nonetheless, no one was held responsible for such a large-scale embezzlement of the state funds.

However, the problems of the country, KMG, and, therefore, Timur Kulibayev did not stop there. The Romanian Government challenged the legality of converting the tax debt of one of the concern’s divisions, Rompetrol Rafinare plant, into the latter’s shares. Out of 571 mln euro of the tax debt, KMG as the asset owner paid 54 mln in cash and converted the rest into shares bringing the government’s stake in the company to 44.49%. 

In consequence of the three years of the judicial and out-of-court debates, Rompetrol and its parent company were faced with a difficult situation – their assets arrested, development projects frozen.

The turning point in the situation occurred on February 15, 2013, when they signed the Memorandum on the Mutual Understanding and the debate was resolved out-of-court. As a result, Rompetrol bought 26.7% of the Rompetrol Rafinare shares for $200 mln thus receiving the operational control over the refinery plant. The remaining 18% were retained by the Romanian Government, however, Rompetrol had the right to buy them out at the market price upon the expiration of three years. 

However, to make KMG International Group a competitive player on the Western market, KMG had to, first, invest serious money in the modernization of the refinery complexes and, second, to secretly subsidize it via delivering the Kazakhstan oil at lower than the market prices.

By our crude estimates, as of the end of 2016, the total amount that Kazakhstan had invested in this business-project surpassed $4.3 bln.

It is for this reason that the Samruk-Kazyna State Holding and KazMunayGaz NC were interested in attracting the Chinese investors. This way they wanted, first, to shift onto them the responsibilities for the financial support of the project, second, to remove KMG International Group from among the affiliated structures, third, to write off the accumulated losses, fourth, to finally end this scandalous story and shelter the guilty party from punishment.

Let us quote KMG’s official press-release.

“On April 29, 2016, the documents on founding a joint-venture company between KazMunayGaz JSC NC (hereinafter KMG) and China CEFC Energy Company Limited on the basis of KMG International N.V. (formerly Rompetrol) were signed.

KMG’s and CEFC’s equity proportion in the newly founded joint-venture company is 49 to 51, respectively. 

As part of the reached agreements, CEFC takes upon itself a number of responsibilities for making investments in the countries of Europe and the Silk Road.

The joint project of the Kazakhstan national oil-and-gas operator KMG NC and CEFC is being developed on the base of the KMGI group and is entitled “Project Silk Way”. A team of specialists from Kazakhstan, China, and Romania had conducted a serious preparatory work. Particularly, on December 14, 2015, the Memorandum on the Mutual Understanding was signed, on January 29 of the current year, in the presence of the Prime Ministers of Kazakhstan and China, the parties agreed upon the Term Sheet”. 

“Plans are underway to establish the parity basis for the company’s management. The deal has yet to receive the final approval from the European, Chinese, and other regulatory authorities. The deal is supposed to be completed by October 2016”.

Note that the $680 mln that China Energy Company Limited agreed to pay for 51% of the KMGI shares would not have covered the Kazakhstan expenses on the Romanian project, not even by a long shot. Still, it was better than nothing. But now, when this option is out of the window, Timur Kulibayev’s opponents and enemies in Akorda are surely going to call him on all of his sins. All the more so, since the country is now actively preparing for the power transit and Nursultan Nazarbayev’s second son-in-law is considered one of the main claimants to the throne.

In the meantime, as we have estimated, the total amount of the Romanian gamble losses constitutes about $4 bln and, as logic suggests, should be exacted from the person who signed off on this gamble.