Uljanik will not endanger the stability of public finances

Finance Minister Zdravko Maric told a government session on Wednesday that in the period from 2010 to September 2018 the government had issued HRK 7.5 billion worth of guarantees for the Uljanik shipbuilding group, of which HRK 4.29 had been activated, while the government said that all contracts on the construction of vessels to which the state collateral referred would be checked together with prosecutors.

Based on government decisions, in the period from 2010 to September 2018 government collateral in the amount of HRK 7.5 billion was issued for the financing of new vessels and for current liquidity, Maric said.

"State guarantees in the amount of HRK 2 billion were used to build nine new vessels that were delivered to their clients, and those state guarantees were returned to the Finance Ministry and withdrawn. Active guarantees currently amount to HRK 4.29 billion, since the amount of some HRK 1.21 billion was not used up," said Maric.

The HRK 4.29 billion refers only to the principal, Maric said, noting that the amount did not include fees for contract termination, unpaid fees for guarantees and loans, and interest, for which the state guarantees in the same proportion as for the principal.

He added that data from the Uljanik Group and the Jadranbrod shipbuilding company on the degree of completion of vessels showed that construction work on a large number of vessels had not even begun but that funds had been spent on their construction. The data shows that funds in the amount of HRK 1.07 billion, for which state guarantees were issued in the amount of HRK 855.96, were not spent for the construction of those ships.  

The Finance Ministry has so far received calls from banks for payments in the amount of HRK 1.1 billion, plus interest and fees, Maric said, adding that due to the announced cancellation of contracts for the construction of four ships, he expected more calls for the repayment of advance payments in the amount of HRK 431 million, plus interest and fees.

Currently, HRK 365 million is due for payment, and the ministry has still not received calls for payment but banks have announced them, he said.

Amounts sought 10 times higher than guarantee reserves

"When everything is added up, by the end of 2018 the Finance Ministry expects a minimum payment in the amount of HRK 2.35 billion, plus interest and bank charges. The amount will grow if more ships are cancelled. Banks have announced potential cancellation of loans that are still not due for payment but ships for which they were issued were cancelled, so it is possible that the payment of another HRK 237 million will be requested," Maric said.

He added that by the end of the year at least HRK 2.349 billion would be paid from the state budget and that the amount could be even bigger.

This year's budget includes reserves for state guarantees in the amount of HRK 265 million, of which HRK 118 million has been spent so far, Maric said.

"The amount we are talking about is ten times higher than what was originally planned as reserves for guarantees," said the minister.

He stressed that banks would continue to charge interest on all activated state guarantees and loans and would ask that the state pay it. That is why the government has entrusted the Finance Ministry to take the necessary steps to pay the activated state guarantees that were approved to the Uljanik Group so as to avoid further unnecessary expenses related to interest.

Ministry to start distraining ships

Once payments for activated guarantees are made, the Finance Ministry will submit to the Financial Agency orders for the collection of its claims from the Uljanik Group.

Since it will not be able to settle its claims by distraining the group's accounts, the ministry will seize vessels on which it has lien.

He stressed that guarantee activation would have a negative impact on budget liquidity in terms of the need to ensure additional funding.

According to the ESA 2020 statistical methodology, payments made upon activation of state guarantees are treated as capital expenditures, which in this case may have a negative impact on the account balance, namely the general government budget deficit/surplus, and consequently on the public debt, said Maric.

He nonetheless expects the public debt to GDP ratio to continue falling until the end of the year but noted that it was not entirely clear how Eurostat and the national statistical office would treat the capital expenditures incurred.

Plenkovic: All contracts to be checked with DORH

Prime Minister Andrej Plenkovic said that apart from instructing the Finance Ministry to do what was necessary with regard to activated guarantees in the coming period, the government had also decided that all contracts on ship construction to which state guarantees referred would have to be reviewed in cooperation with the Office of the Chief State Prosecutor.

"We... will analyse in detail their legal effects and in doing so try to protect Croatia's interests in the best possible way," said the PM.

The government also entrusted the Finance Ministry to take steps with the aim of making payments in line with the activated state guarantees approved to the Uljanik Group in order to avoid further interest expenses.

The Croatian government on Wednesday adopted a draft bill on a flood protection project for the Kupa River basin which envisages the construction of a HRK 900 million system to protect against flooding the area with about 34,000 inhabitants.

Energy and Environment Minister Tomislav Coric warned that unregulated property-rights relations in the area posed a separate problem and that the bill was aimed at expediting efforts to solve that problem.

The project includes the construction of dams and other flood protection structures.

Coric said that the area was divided into 150,000 land plots and recalled that drastic hydrological circumstances had already caused floods there, which was why it was essential to build a flood protection system soon.

The law will enable the implementation of a strategic investment project for flood protection in the Kupa River basin in the areas of Karlovac and Sisak counties and a smaller part of Zagreb County.

The project needs EU co-funding to make it financially viable.

The Croatian government on Wednesday gave its consent to the Defence Ministry to pay slightly more than HRK 22 million in VAT for the provision of spare parts for Kiowa Warrior helicopters, and the decision was confirmed by Finance Minister Zdravko Maric.

The US Department of Defence has sent the Croatian Defence Ministry a letter of offer and acceptance under which the spare parts will be provided free of charge, and the US government will also cover the cost of their transport and related administrative costs.

The helicopters were delivered in 2016 and 2017 and the cost of the training of pilots and maintenance staff was covered entirely by the US government, Croatia's main ally in defence and security, and we are grateful to it for this valuable donation, said Defence Minister Damir Krsticevic.

The Croatian government on Wednesday adopted the bill on the Central Register of State Assets and the bill on the lease and sale of business premises, which facilitates the management of state-owned premises.

Speaking at a cabinet meeting, State Assets Minister Goran Maric said that the most important change in the final bill on the Central Register of State Assets since its first reading was an additional provision requiring all legal entities in which the government holds shares to provide information on their assets, regardless of the amount of ownership interest. Any changes in the assets will have to be reported within 60 days, he added.

One of the most important changes in the bill is that the body in charge of the Central Register has been changed and the Register will be run by the Central State Office for Development of Digital Society.

The bill on the lease and sale of business premises will enable simpler, more efficient and more economical management of state-owned business premises and increase their legal security and protection.

Text: Hina

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