Croatia vs MOL
The INA Privatization Act passed by the Croatian Parliament in 2002 allowed MOL in 2003 to acquire 25%+1 share of INA, the Croatian oil and gas company, and hence become its strategic partner. The Act was aimed at opening the economy and reducing the Croatian state’s share in INA as part of the policy package recommended by the IMF to facilitate Croatia’s accession to the European Union.
Tensions began shortly after MOL gained control of INA through its acquisition of 47.16% of INA’s shares on the Zagreb Stock Exchange in October 2008, leaving the Croatian Government with 44.84%. MOL’s right of control was formalized in the First Amendment to the Shareholders Agreement negotiated by MOL and Croatian Government representatives at the end of 2008 and approved in January 2009. It was also approved by the Croatian Competition Agency and the European Commission and came into effect in June 2009. In 2010, MOL further increased its ownership to 49.1% by purchasing shares from minority shareholders.
The dispute
MOL’s gain of effective control of INA was not well received by the Croatian Government. In spite of the Government endorsing the vast majority of INA’s strategic decisions, it made public statements against the company that lead to believe that the Government is solely and simply displeased by the fact INA is controlled by a foreign company.
On various occasions, senior government officials did not hesitate to express their intentions to take all the necessary measures for Croatia to regain ownership and control of INA indicating a clear refusal of the INA Privatization Act and the fundamental EU principle of free movement of capital. MOL offered Croatia the opportunity to engage in negotiations that could resolve their differences but such talks failed to happen in 2011, 2012 and the first half of 2013.
The Croatian government advanced that its relationship with MOL had deteriorated due to MOL’s poor performance over the past years given its failure to modernise the Sisak and Rijeka refineries. In MOL’s defense, its chief executive and chairman Zsolt Hernadi stated that MOL had invested in INA’s refineries as much as it would cost to create new ones.
Regulatory and legislative measures taken by Croatia against MOL
Croatia’s discontent was not merely expressed via an offensive rhetoric. Various regulatory and legislative measures adopted by the Government rendered MOL and INA’s existence and operations in Croatia difficult: concessions rights were revoked by the Government, crucial refinery permits were delayed and MOL was accused of market manipulation in response to its own complaint on the latter. The Government adopted several legislative measures enabling it to influence INA’s business decisions and forbid free purchase or sale of INA’s shares. Ahead of negotiations between MOL and the Croatian government, new tax claims worth €18 million were leveled against INA dating back to 2008 and 2009. MOL advanced that these claims were based on abstract calculations rather than taking into account the actual asset configuration and operating characteristics. INA immediately appealed stating that all taxes owed to the Croatian Government were paid in full.
The Sanader Case
Croatia took it further when its judiciary system appeared to also attack MOL. A good example would be the 2012 Sanader Case. Former Croatian Prime Minister Ivo Sanader was found guilty by a Croatian Court of accepting an alleged €10 million bribe from MOL’s Chairman-CEO in exchange of ceding to MOL management rights in INA. He was sentenced to ten years of prison by the court. The former Prime Minister denied any wrongdoing.
It is interesting to note that MOL’s gain of control was not made possible by PM Sanader but by the 2002 INA Privatization Act and the 2003 Shareholder Agreement. Once MOL acquired 47.16% of INA’s shares in October 2008, it benefited from all the conditions to eventually control the company. International commentators condemned the Croatian ruling stating that it highlighted the Government’s frustration about the privatisation of INA and lacked real legal basis.They saw in the escalated tensions between the parties Croatia’s serious' intention to restitute control over INA.
Karen Ayat is an analyst focused on energy geopolitics. Email Karen on ayat_karen@hotmail.com. Follow her on Twitter: @karenayat