CROATIA/HUNGARY: Croatia and Hungary locked in dispute over ownership of oil giant INA
- Title: CROATIA/HUNGARY: Croatia and Hungary locked in dispute over ownership of oil giant INA
- Date: 17th October 2013
- Summary: SZAZHALOMBATTA, HUNGARY (OCTOBER 14, 2013) (REUTERS) MOL'S LARGEST OIL REFINERY 'DUFI' SIGN OF REFINERY PLANT WORKERS WALKING PAST REFINERY UNIT VARIOUS OF REFINERY PLANT
- Reuters ID: LVADB7Q3MT8HPFBQFL8LRFUNY3DL
- Location: Croatia, Hungary
- Country: Hungary Croatia
- Duration: 00:00:32
- Topics: Economy,Politics,Energy
- Story Text: As the Croatian government and Hungarian oil firm MOL negotiate a new shareholder agreement for Croatia's oil giant INA, the future of the uneasy partnership between the two companies remains uncertain and the conflict has affected political relations between the two countries.
Croatia issued an Interpol arrest warrant for the chief executive of Hungarian energy group MOL, Zsolt Hernadi, earlier this month in a bribery case in which former Croatian Prime Minister Sanader had already been convicted. Hungarian authorities have refused Croatian requests to question Hernadi, citing the protection of national interests and results of their own investigation, which found that neither MOL nor its officials played any role in the alleged bribery.
The Hungarian government is determined to defend MOL, one of its flagship companies, with Prime Minister Viktor Orban sending out strong messages of support. He showed this recently with Hernadi at an event inaugurating a new MOL facility on Tuesday (October 15).
"MOL is a flagship of a strong national industry. We are proud of it, we value it and, if needed, we defend it," Orban said in a speech at the ceremony.
According to a 2009 agreement signed by MOL and the Croatian government, control over the INA was effectively handed over to Hungarian executives appointed by MOL.
Since then, the Croatian government has blamed MOL for failing to invest enough in INA's two refineries in the cities of Rijeka and Sisak, thus not activating INA's full potential.
MOL management rejected the suggestion the company was responsible for not investing enough in INA, saying it had wanted to do more but had been hindered by the Croatian government, giving the example of a planned investment of around 400 million euros in the Rijeka refinery in Croatia which was delayed because of troubles with receiving the required permits.
The former Prime Minister Sanader, who stepped down in 2009, was found guilty in 2012 of accepting a 5 million euro ($7 million) bribe in 2008 from MOL in exchange for granting it a dominant position in oil and gas firm INA without the need to buy a majority stake.
Both Sanader and MOL deny the accusations, and Sanader filed an appeal.
Jasminko Umicevic who is a former manager at INA and currently an analyst of the oil industry said that unless the ruling is overturned on appeal, it may prompt Croatia to seek legal annulment of the 2009 shareholder agreement, which in turn might have dire consequences for MOL.
"So, what would happen in case the verdict (against Sanader) is upheld - if that is what you are asking me - well it would mean a significantly different position of MOL. It would mean MOL would no longer have management rights (in INA), MOL would no longer be able to consolidate INA into its business reports, which would have significant consequences for MOL since INA has much bigger reserves of oil and gas deposits in Croatia and abroad," Umicevic told Reuters.
Regardless of the bribery case investigated by the Zagreb court, Croatian experts say that MOL failed to fulfil its obligations regarding the development of the company, which were agreed in the original 2003 contract.
The Croatian government, which has a 44.8 percent share in INA, said it wanted to be an equal partner in the company and currently sees MOL as having too many management rights, while MOL feels Croatia has not fulfilled all of its obligations.
According to former executive of INA and oil industry expert, Davor Stern, who testified against Sanader in the bribery trial, the dispute is really about differing visions of INA and MOL's partnership.
"The dispute boils down to really basic issues. First of all, there's the unresolved issue whether MOL is INA's strategic partner or is INA a daughter company of MOL. Through some documents and agreements which were made later on, especially in the 2009 contract, this clearly became an issue, and I think it is the basic issue here. And all other issues stem from that, like the issue of corporate management, which is also one of the main elements of the dispute, the issue of the direction the company should take, the issue of company's efficiency, and so on," Stern said.
In September, media reported that MOL was ready to sue Croatia and demand 2 billion kuna ($351 million) in damages for Zagreb's failure to take over INA's loss-making gas business, which Croatia also agreed to do in 2009 while Sanader was in power.
This led to the Croatian government and MOL starting negotiations over their shareholder agreement last month.
At one point Orban asked MOL to consider selling its stake in INA to the Croatian government or a "third party" to prevent damage to bilateral relations between the countries.
MOL, which has said it does not want to give up management control over INA, has also said it would consider the Croatian state as a potential buyer if it were to sell its stake.
Hungarian analysts say selling INA would be a last resort and Orban's message could be a tactic to prompt neighbouring Croatia to agree a compromise over INA, in which MOL has already invested 3 billion euros and which is seen as an important engine of growth for the Hungarian company.
MOL owns close to 50 percent of INA, while the government owns almost 45 percent. MOL's stake in INA is now worth around 2.7 billion euros based on the current market value.
Analysts at Concorde Group in Budapest say that having MOL as strategic investor in INA was in the interest of both the Hungarian company and the Croatian government, who would probably not want to see a third firm buying into INA.
INA has two refineries and important upstream activities in the Adriatic, and also in Egypt, Angola and Syria. Analysts expect that the two companies will eventually settle the current dispute but that it will cost.
"Settling the dispute will have a price. MOL began a rationalization process in INA two years ago, saving 300 million euros per year, obviously this hurts those who had previously got a share of this, and presumably this is partly behind the attacks against MOL these days. I'm afraid that some of these savings will have to be given up in order to make the co-operation between the two companies harmonious," Vago said.
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