Government appoints team of negotiators with Hungarian oil company MOL

The Croatian government's team in negotiations with the Hungarian oil and gas company MOL on the Croatian company INA will be led by Economy Minister Ivan Vrdoljak, and Mladen Pejnovic, head of the State Property Management Office, will be a member of the team, the government decided at its meeting on Thursday.

The government, being the second largest shareholder in INA, needs to agree with its strategic partner on strategic goals and the future of INA, and in order to do that, the history of INA over the last ten years needs to be discussed as well, Vrdoljak said, noting that the privatisation of INA had begun in 2003.
Issues that need to be discussed are corporate governance, cost control, oil refining, wholesale and retail sale of oil products, and gas business.
"These should be discussed so that INA would be better tomorrow than it is today, because INA can and must be better and it will be better," the minister said.
The negotiating team was authorised to conduct negotiations in accordance with the government's negotiating framework. It is required to keep the government regularly updated on the course of negotiations and, if necessary, it may hire international consultants to find the best solution together with the strategic partner. The negotiating framework also provides for the possibility of hiring legal experts with international experience to analyse all agreements between the government and MOL.
The negotiating framework says that steps need to be urgently taken to establish a new model of management of INA that will ensure unhindered operation and development of the company in accordance with Croatian laws. In that regard, it is necessary to discuss several agreements, including the shareholders' agreement, the agreement on gas business and an annex to it.
The negotiating framework also says that in the preparation of negotiations it is necessary to define the strategic importance of INA to Croatia with regard to its energy stability and secure supply in line with the Energy Act, identify the conditions under which MOL gained a dominant position in INA and assess the execution of contractual obligations and the achievement of business targets by MOL under all the agreements that are the subject of negotiations.
The framework recalls the principal provisions of the agreements on INA, citing the one from 2003 in which MOL undertook to maintain the strategic goals of INA by continuing its development, exploration and production of oil and gas and commercial activities in Croatia and the region, and by supporting the development and reconstruction of the INA refineries in Sisak and Rijeka.
The framework notes that the modernisation of the refineries has been practically suspended -- the modernisation of the Sisak refinery has never begun, and as far as the Rijeka refinery is concerned, only the first stage of its modernisation has been completed, while the time limit for the completion of the second stage has been shifted from the end of 2010 to the end of 2014.
It is also recalled that the agreement on mutual relations with MOL was first amended in January 2009, under which the management structure in INA was completely changed.
The negotiating framework also draws attention to the principal agreement on gas business of 30 January 2009, which provided for the divestiture of INA's natural gas business. An earlier analysis had shown that if the government bought off this business it would incur several billion kuna in losses. The government eventually did not take over INA's Prirodni Plin natural gas company because the problems relating to its operation had not been settled by the end of 2010 as agreed.
The framework also provides figures on INA's business performance, according to which its oil and gas production declined by 14.2% from 2009 to 2012, sales on the Croatian market were down by 24% and in neighbouring markets by 22%, and investments dropped from HRK 3.1 billion in 2009 to HRK 1.28 billion last year.
Particularly worrying are last year's business results in relation to 2011, which show that the profit fell 62%, capital investments were down 17%, oil and gas production was 35% lower, while oil imports rose by 30% and gas imports by 29%.
All this shows that there are problems in the management of INA as an independent integrated oil company and that there are good reasons for an urgent review of the existing management model dating from 2009, which raises the need to open negotiations with a view to establishing a new model based on equal relations reflecting the size of stakes held by individual shareholders, the Croatian government's negotiating framework says.
(Hina)




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