Croatia’s EU Accession Can Relieve Political Pressures On Hungarian MOL

In a last-minute reversal, Croatia has decided to request the European Commission’s opinion on legal amendments that would bar Hungarian MOL from acquiring more than 49 percent of ownership shares in Croatia’s oil and gas company, INA. The Croatian government’s September 29 meeting had been scheduled to endorse those discriminatory amendments. Instead, the government decided to refer the amendments to Brussels for an opinion based on European law (Poslovni Dnevnik, Vjesnik, September 30).

The long-running dispute over control of INA far transcends the realm of bilateral relations. Its ramifications are of European significance, given Croatia’s potential to become a transit route for seaborne energy supplies from the Adriatic coast into landlocked Central Europe. Hungarian MOL is one of the drivers of supply diversification efforts in the region. Russian interests have therefore helped orchestrate a political campaign in Croatia to stop MOL from acquiring majority ownership of INA, and even to challenge MOL’s already acquired operational control of INA’s management.

In this respect, Russian strategic interests converge with some local vested interests in Croatia to operate INA for their own benefit, sacrificing the company’s modernization by MOL, and expecting the Croatian state to cover the losses. An unmodernized INA, handicapped by Croatian restrictions against MOL’s investments, would then become an easy target for Russian takeover, on the familiar scenario using local interest groups. Croatian politicians are caught between energy sector modernization imperatives on one side, and populist appeals to keep INA out of “foreign hands” (Hungarian in this case) on the other side, even as Croatia is poised to join the European Union.

Croatia’s parliamentary elections, due in December, increase the politicians’ populist temptations. Conversely, the signing of Croatia’s accession treaty with the EU, scheduled also for December and subject to ratification, counsels adherence to European law. On September 29, the EU set the December date for the signing of Croatia’s accession treaty; and it was also on September 29 that the government in Zagreb submitted the discriminatory legal amendments to Brussels for review, rather than endorsing them as planned. A legal opinion by the European Commission, that the proposed amendments contravene European law, seems likely to result, based strictly on the merits of the case.

The proposed amendments to the INA privatization act would bar any entity other than Croatia’s government from owning more than 49 percent of INA. Designed specifically against MOL and singling out INA, the amendments challenge the EU’s competition law, the free movement of capital within the EU and other aspects of the acquis communautaire, as well as Croatia’s pre-accession commitments to privatization of INA.

Croatia’s competition agency, as well as the country’s commission monitoring the EU accession negotiations, had publicly cautioned against endorsement of the proposed amendments by the government’s September 29 meeting. The agency and the commission noted that such a move would force a re-opening of accession treaty chapters that have already been negotiated and successfully closed, thus potentially jeopardizing Croatia’s accession at the last moment. Moreover, the EU will continue monitoring Croatia’s implementation of the accession treaty’s provisions after the treaty’s signing, during the ratification process and beyond (Jutarnji List, EurActiv, September 30).

Attention to this issue from Brussels can help Croatian politicians off the populist hook during their parliamentary election campaign. Beyond domestic politics and EU law, however, MOL’s modernization of INA and Croatia’s integration in the evolving EU energy market clearly answer to Croatia’s national interests. Zagreb energy officials, such as Davor Stern, militating against MOL (and concurrently for Croatia to join Gazprom’s South Stream project) hold an opposite view of the national interest. Stern for example admits to long-standing Moscow connections, but claims to be promoting “national interests” by attempting to block MOL’s modernization of INA and advocating for Gazprom in Croatia.

In a separate procedure, Croatian authorities are investigating the former prime minister and deputy prime minister, Ivo Sanader and Damir Polancec, on allegations that MOL bribed them into approving a shareholders’ agreement that gave MOL operational control of INA’s management. No evidence has turned up that would compromise MOL after almost one year of politically-driven investigative efforts. The allegations stem mainly from a local businessman trying to plea-bargain his way out of other investigations that are targeting his companies. Hungarian authorities have offered to cooperate with Croatia’s investigation. Hungarian President, Pal Schmitt, renewed this standing offer on June 30 to Croatia’s visiting President, Ivo Josipovic (MTI, September 30).

Since acquiring operational control of INA with 47 percent of ownership shares in 2009, MOL has introduced European best-practices in INA’s management (practices that had turned MOL itself into a Central European leader); cleaned up socialist-legacy corrupt practices from INA; turned it from a chronically loss-making company into a profitable one; completed the first phase of INA’s refinery upgrade program; continued investing into it during the recession; and spearheaded efforts to interconnect Croatia with Central Europe and the EU’s evolving, unified energy market.