KMGI Independent Director Frederik Frowein told How the Kazakh oil gained access to international markets.
In 2007, Kazakhstan cut a “window to Europe” by purchasing the Romanian oil concern Rompetrol with a network of petrol stations and two refineries on the Black Sea coast. KMGI is an international oil company present on 12 international markets. Frederik Frowein as a member of the board of directors oversees the company's retail sales and chairs the nomination and remuneration committees.
In an interview, he told how international experience helps build a company with innovative management, about qualitative changes in KMGI corporate governance, which served as a driver for development, and also answered in detail questions about the company's main sources of profit and trends in the industry.
- Mr. Frowein, tell us how your acquaintance with Kazakhstan took place?
I first came to Almaty in the late 90s. It was an interesting time! At that time, the country was just beginning to attract foreign investment, restoring the decaying oil industry. I worked at Shell and was responsible for supplying consumer lubricants to the Middle East and South Asia region, whose geography stretched from Lebanon in the west to Bangladesh in the east, and also from Yemen in the south to Kazakhstan in the north. We provided supplied oils, technical fluids, additives and lubricants to Kazakhstan.
Since then, a lot has changed. Almaty, of course, radically changed for the better over the years. New buildings, beautiful streets appeared. Astana has become a significant center of economic and business life in the region. Even from these changes, it is clear that the desire of the President of Kazakhstan to bring the country among the leading economic powers is an ambitious, but quite executable plan.
My father, when I was a child, always kept saying: “Fred, aim for the stars. Even if you miss, you will end up near the moon! ”- and this is exactly what we all need. That is, in my opinion, any really big success story on a country scale or at the level of a single company always starts with a high goal.
- How do you assess the investment climate in Kazakhstan? Do you see changes in this direction?
Yes, and they are for the better. It should be noted that I have been following the development of the country and its progress since my first meeting with Kazakhstan. In my opinion, you have successfully implemented social and economic reforms. Work with foreign investors is set-up at a fairly high level in Kazakhstan. The president personally heads the board of foreign investors and this gives a significant result - the level of foreign investment is growing from year to year.
- You mean the growth of direct financial investment in the energy sector?
Yes, and this is indeed an important indicator. However, investments are not just the resources that come into the country. Even if you look at the oil industry, we work with foreign suppliers, we use new technologies, open new markets. That is, it is also a transfer of knowledge and experience, without which it is impossible to ensure quality growth.
And when discussing this issue, it is still important to note that, as far as I know, the President of Kazakhstan has set a specific task of entering the top thirty most developed countries. For this, the country needs new technologies and innovations. For example, in the field of digitalization of industry and the development of green energy. And, in my opinion, a lot of work is being done to improve the investment climate and the international integration of Kazakhstan’s economy. Such systemic approaches suggest that, in general, the tasks set by the country government are being successfully implemented out today.
The ongoing modernization of the energy sector, as well as the expansion of Kazakhstan’s energy supply to new markets and new levels, which, in particular, is achieved through the successful operation of such strategic foreign assets in the oil and gas sector as KMGI, makes a significant contribution to these processes.
- What do you do at KMG International?
Legally, KMGI is a Dutch company, headquartered in Amsterdam. Before you start a business in the Netherlands, you need to be sure that you meet the legal requirements of the country. Therefore, the company has three non-executive directors who monitor these issues, each in their own field. One supervises financial and monetary processes and chairs the audit committee (which is mandatory under the laws of the Netherlands), the second is a technical expert in the field of petrochemistry and oil refining. I am responsible for retail sales, as well as chairing the appointment and remuneration committees. In general, the functions of each of us also include monitoring and ensuring the compliance of the company's activities with all Dutch law requirements.
- What tasks were given to you in 2011 when you joined the company?
To understand the scale of the transformations that took place in the company, you need to go back a little, in 2007, when KazMunayGas just bought Rompetrol. It was one of the first foreign deals of this scale for KMG. Access to the sea, new markets - at first glance, it is tempting, but the company was unprofitable for the first five years. For example, in 2012, the company recorded a loss of $ 200 million. This was largely dictated by the fact that, in general, the oil refining industry was in a crisis. And it took considerable effort to turn the tide.
When I took office, the company was in a period of acquaintance with the domestic and regional markets of the European Union. We studied the environment in which we were going to plunge headlong: legislative norms, environmental, cultural. The task was to find new markets for refined products. Sales of crude oil do not bring so much profit. But it took us a while to understand the trends and directions of development.
The large-scale transformation began in 2012, when the current management of the company under the leadership of Zhanat Tussupbekov. The program “Change for good” was adopted to take the company out of the crisis and stabilize the situation, and an updated strategy for the development of Rompetrol's production assets was elaborated. In five years we have achieved colossal results, having made a qualitative transition from losses to profits.
- How much did the company earn last year?
Net profit was $ 80 million in 2017. This is the absolute record in the history of the company. In addition, maximum performance was achieved in all major areas of activity. This year, the company continued to grow. During the first six months of this year, the highest semi-annual level of refining in the entire history of the Petromidia Refinery was reached.
If the current positive trends are maintained and the company will continue internal development programs, we hope to register new records in the future. Of course, all this is due to the effective management of the Kazakhstan shareholder.
- In your opinion, what key factors helped the company become profitable and steadily increase the achieved result?
Comprehensive transformation and modernization, affecting all areas - from processing to retail. The scale and geography of the business has changed dramatically. All this, of course, required a significant investment at the initial stage - Petromidia and Vega refineries were modernized, personnel training was held, and professional managers and the best industry experts were involved.
But what else is important, in parallel with the technical modernization, step by step, a highly efficient team was created. Team spirit and a clear vision of the goal emerged. I saw this growth with my own eyes. I am really proud that the business processes and corporate governance in the company are built in the same way as it is in the best international corporations. Now we are in better shape than ever. Regardless of the slowing down of the world energy market development, KMGI managed not only to enter the international market of oil products, but, as I have already noted, to become profitable, diversify business, expand the geography of products supply. Today KMGI serves as a “gateway” for access of Kazakhstani raw materials and petroleum products to European markets.
- Modern technology is now transforming the industry. What does a “digital industrial company” mean for you?
Business cannot stand still. We follow consumers. Did you know that this year the Nobel Prize in Economics was awarded to scientists who analyzed how to combine environmental concern with the company's economic growth. Global warming has a big impact. By the way, KMGI pays great attention to the implementation of environmental programs and bringing production in line with European fuel standards. I believe that our work is an excellent chance to show the world that it is important not only for ourselves, but also for all people, for future generations, for the world as a whole.
- What development trends for the coming years will, in your opinion, be key in the energy sector?
There is a demand for innovations in the world. Traditional industries, including energy, are starting to work in a new way. Look at the colossal changes that are happening now in the oil refining industry. Creating innovative industries based on traditional industries - today it is one of the ways to transition to new energy. KazMunayGas and all its subsidiaries, including KMGI, continue to move in this direction.
- Recently it became known that the Ministry of Energy of Romania and KMGI are planning to create a joint investment fund in the field of energy. Why is it needed?
The Fund will allow to attract additional funds for the implementation of new energy projects. To date, we are discussing a plant that will operate in cogeneration mode, producing combined electric and thermal energy. Another project involves the expansion of the Rompetrol petrol network on the local market. As for the negotiation process, the parties are already at the finish line, and, as far as I know, the formalities will be completed in the near future.
Thanks to the fund, KMGI will develop its investment projects, contributing to the development of the industry. And as representatives of the Romanian government recently noted during their visit to Astana, and, by the way, praised the current management of KMGI, the joint fund will support the company's plans to strengthen and expand positions on the main market - Romania.
Johan Frederik Lodevik Frovein, KMG International Independent Director. He has broad professional experience in the oil sector. He has held management positions at Shell, and has his own consulting company. Currently a member of the board of directors of KMG International N.V. (KMGI), a foreign asset of JSC NC "KazMunayGas", where he was elected in 2011.
Translated from original Russian version: https://bit.ly/2J07r6k