Croatia to Seek Talks With Mol to Review INA Agreements

Croatia will seek talks with Mol Nyrt. to review 2003 and 2009 agreements that gave the Hungarian refiner control rights over INA Industrija Nafte d.d.

The agreements between the two biggest shareholders in the Croatian refiner “need to be reviewed” to protect Croatia’s energy interests and fulfill objectives from the contracts that had not been achieved, Economy Minister Djuro Popijac told the Cabinet today.

Mol has 47.47 percent of INA, while the government holds 44.84 percent. Tensions between Budapest-based Mol and Croatian authorities increased after the Hungarian company in December made an offer to purchase the outstanding shares in INA. The government claimed it wasn’t notified of Mol’s intention before the offer.

Mol has invested $3.8 billion in INA’s refineries and production since 2003, when it first bought into the Zagreb- based refiner.

“Our aim is to fulfill objectives from the contract that have not been fulfilled,” Popijac told reporters in Zagreb, adding that the government aims “to protect national energy security.”

Mol’s spokesman Domokos Szollar said Mol is “open” to talks with Croatia.

“Mol believes that the development of INA and the achievements in the field of the” regional “energy security prove that the original agreements have fulfilled the original intentions of the two main shareholders and strategic partners, but Mol is open to further improve on these achievements,” Szollar said in an e-mailed statement.

If Mol would lose its control over INA, that would be “negative for both companies, Mol and INA,” said Radim Kramule, oil analyst at Erste Bank AS. “Mol has spent a lot of time and money trying to consolidate INA, and it would be beneficial for both companies if Mol keeps control,” he said in a phone interview from Prague.

Corporate Governance

INA’s shares have been suspended for trading on the Zagreb stock exchange since May 9 as the market regulator, or Hanfa, claims Mol has not sufficiently explained its trading activities in recent months. Hanfa on May 23 filed charges to the prosecutor general against Mol for suspected market manipulation.

Mol repeatedly said it has done nothing wrong in buying INA shares. The government has formed a committee to conduct talks with Mol, appointing Popijac, Finance Minister Martina Dalic, and Davor Stern, head of INA’s supervisory board.

Croatia’s representative in INA’s supervisory board, Davor Stern, said in a Bloomberg interview on May 18 that the 2009 Mol agreement created an INA executive board that now exists alongside the traditional management and supervisory boards, which he said runs contrary to the law.

Meanwhile, one Zagreb law firm, Madirazza I Partneri, on May 24 validated management practices in INA, while another, Hanzekovic I Partneri, said on May 30 that that changes to the oil company’s corporate management are illegal.

Jasminko Umicevic, oil analyst at London-based Oil & Gas Consulting Ltd, said the Croatian government could have been prompted to act by a recent purchase of Russia’s Surgutneftegas OJSC (SNGS) stake in Mol by the Hungarian government.

“As INA covers 60 percent of Croatia’s total energy needs, and the Hungarian government is now the biggest single shareholder in Mol, that in effect puts Hungary in charge of Croatia’s energy potential,” Umicevic said in a phone interview. “And that’s a situation no government would like to see.”

September Inquiry

Lawmakers in September opened an inquiry into how the government, led by then premier Ivo Sanader, in January 2009 gave control of INA to the Hungarian company under undisclosed terms. The inquiry over the shareholding agreement closed without a conclusion, sending a report on their investigation to the Prosecutor General’s office.

Sanader is in jail in Austria fighting extradition linked to a corruption investigation. His then-deputy, Damir Polancec, who was the chief government negotiator with Mol, said in October that he was following instructions from Sanader and the ruling Croatian Democratic Union.

Mol is not the only foreign company that has been the focus of Premier Jadranka Kosor’s administration as she investigates past agreements made by Sanader.

Last year, Orco Property Group SA’s $130 million in investments on the Suncani Hvar Adriatic island resort was under threat as the government questioned a five-year-old agreement to transform 10 drab socialist-era hotels into a five-star destination complex. The dispute ended in March when a new agreement was reached to capitalize loans and ease the resort’s debt burden.

To contact the reporter on this story: Jasmina Kuzmanovic in Zagreb at jkuzmanovic@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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