By pursuing a case against INA and MOL, Croatia is showing that it is actively battling corruption, an expert said.
By Selena Petrovic for Southeast European Times in Zagreb -- 17/10/13
Croatia oil and gas company INA is at the center of a corruption probe. [Selena Petrovic/SETimes]
The ongoing case involving the Croatian oil company INA and Hungary's oil and gas company MOL is evidence to foreign investors that Croatia has a working system to fight corruption, experts said.
"Strained relations between owners were caused by suspicions whether the privatisation was correctly done. In cases such as this one, the only message that is being sent to potential investors is that they can expect a proper procedure when it comes to other possible privatisations and potential acquisitions in Croatia," the Croatian Chamber of Economy said in a statement to SETimes.
Foreign investment is a critical component of Croatia's long-term financial health and ability to be a strong regional partner, particularly now that it has attained membership in the EU. According to an August report by the United Nations Conference on Trade and Development, Croatia attracted $1.25 billion in foreign investment, the most of any country in the region.
In 2012, former Prime Minister Ivo Sanader was convicted on corruption charges after receiving a 5 million-euro bribe to allow MOL to take over management control of INA.
On October 1st, Croatia issued a European Arrest Warrant for MOL's executive chairman, Zsolt Hernadi, who the Croatian prosecutor wants to question in the bribery.
On October 7th, the Hungarian court later decided that the arrest warrant for Hernadi was unsupported, citing an earlier investigation by Hungarian prosecutors that failed to uncover evidence of wrongdoing.
Josip Tica, professor at the Faculty of Economics at Zagreb University, told SETimes that the independent functioning of the legal system, which demonstrates that authorities are willing and able to prosecute government fraud cases, is a draw for foreign investors.
Negotiations between the Croatian government and Hungary's oil and gas company MOL to redefine their shareholder agreement, including the controversial issue of management rights, started in September.
Earlier this month, Hungary Prime Minister Victor Orban, whose government has a 24.6 percent stake in MOL, suggested the company sell its INA holding to the Croatian government. MOL retains 49.1 percent of INA shares, while the Croatian government owns 44.8 percent.
Despite the possible new ownership of INA, analysts don't expect a negative effect on the energy market or future investments.
"Taking over the ownership of the company should not have a direct impact on the [energy] market; perhaps only in the long run, through a modified investment policy after the new owner takes over," Tica said.
Meanwhile, the economy ministry said, Croatia is continuing preparations for the next round of negotiations, planned for late October.
This situation, said Zeljko Lovrincevic, senior research fellow from the Institute of Economics in Zagreb, should have been addressed at the operational level inside the company.
"There is now a large mix of the economic, legal, and political aspects which cannot be solved in a way that is satisfactory for both sides except maybe by selling [company shares] to a third party," Lovrincevic told SETimes.
According to Lovrincevic, both sides have violated their obligations.
"MOL hasn't made investments, while the Croatian government has not bought out INA's gas business, which was generating losses," Lovrincevic said.
He expects that in the end, the Croatian government will try to dispose of its stake in INA and keep 25 percent of shares.
"It won't be able to resolve this situation through an agreement with Hungary, and partly because of its budget deficit financing needs," he said. "It remains to be seen whether MOL purchases its [government's] share or a third party buys both MOL and INA shares."
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