Croats Puts Off Major Oil and Gas Deals Until After Election

The Croatian government postponed the signing of all oil and gas production-sharing accords until after this year’s general elections in a move that may delay concession revenue inflow.

Agreements with Eni SpA, Medoil Plc, INA Industrija Nafte d.d., Oando Inc and Vermilion Energy Inc for on-shore and off-shore drilling were delayed as the government wants to avoid pressure from environmental groups and the opposition in the election campaign, Economy Minister Ivan Vrdoljak said in a phone interview late on Wednesday.

“We don’t want these contracts, in which we put a lot of hard work, to become fodder in election campaign,” he said. “We hope to win and sign the contracts in the first cabinet session.”

The Adriatic nation was looking at “pure budget revenue” of 8 billion kuna ($1.2 billion) a year over 25 years beginning in 2020, when the production was expected to start, said Barbara Doric, head of state hydrocarbon research agency. The companies’ investment during the research phase was estimated at “more than a billion dollars” as it would boost local shipping, shipbuilding, construction and disposal of waste industries, she said.

The European Union’s newest member, whose economy is expected to recover in 2015 after six years of recession, needs the revenue to narrow its budget deficit, forecast at 5 percent of gross domestic product for this year. It also needs to cut its public debt, estimated to rise to 92 percent of GDP in 2016.

Indigenous Sources

A delay in the signing of the contracts may also hurt Croatia’s efforts to develop more indigenous sources of oil and gas and become an energy supplier for central and eastern Europe, decreasing the region’s dependence on Russian gas.

Governments in the region should take advantage of dropping oil prices “because now is the time to pitch for contracts so when the oil prices come up again, you can take advantage of that,” said Mathios Rigas, the head of the largest Greek hydrocarbon producer, Energean Oil & Gas SA, in an interview in Dubrovnik.

“Oil companies also don’t have time to wait for two or three years until a government makes a decision,” said Rigas, adding his company would be interested in Croatia’s next off-shore licensing round.

Sliding Support

The Social-Democrat-led bloc of Prime Minister Zoran Milanovic has seen its support slide as it battled the country’s longest recession on record. The Social Democrats, without their electoral allies, trailed the Democratic Union 23.2 percent to

31.8 percent in an Ipsos PULS opinion poll last month. The survey of 954 likely voters was conducted from Aug. 1 to Aug.

15.

The election date will be picked by President Kolinda Grabar Kitarovic after Parliament dissolves on Sept. 25. It may be held on any of five consecutive Sundays beginning Oct. 25.

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