Croatia's fight with Hungary's MOL hots up again

By bne IntelliNews March 25, 2014

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The fight between MOL and Croatia over fuels group INA is hotting up once more after the briefest of respites, with the Hungarian oil and gas company reported to be preparing a massive lawsuit against Zagreb.

MOL is said to be eyeing litigation applying for damages to the tune of HUF400bn (€1.3bn) against Croatia, its shareholder partner in INA, according to the Croatian press. The report comes days after Zagreb has launched several hits at the Hungarian company.

Accusing the Croat government of violating its energy charter, MOL is threatening to launch the highest value litigation in Croatian history, local daily Vecernji list reports. According to, MOL argues it could be looking for damages of up to HRK10bn (€1.3bn).

The report follows a rash of Croatian action in recent days. On March 21, the Zagreb County Court rejected an appeal by MOL CEO Zsolt Hernadi against the graft investigation by Croatia, which is related to the 10-year sentence handed down to former prime minister Ivo Sanader, who was found guilty last year for, among other things, handing MOL operational control of INA in return for a bribe. Hernadi had filed the appeal through his Croatian lawyer, claiming that the investigation of the case entailed major violations of criminal law and factual errors.

Croatian police issued a warrant for Hernadi's arrest last autumn. "The outcome is not a surprise," suggest Erste analysts. "We expect this fight to continue as long as political benefit can be obtained from the prosecution by Croatian politicians."

Meanwhile, the Croatian government on March 19 moved forward by a year the planned doubling of the royalty rate for hydrocarbon production on existing fields to 10%. INA officials complained the move will take some HRK400m out of the pocket of the MOL-INA group annually.

That equals 3% of its forecast EBITDA in 2014, according to Erste, who can't help but see some irony, given the harsh treatment Budapest has handed out to utilities recently. "It seems that Croatia is following the Hungarian example and putting an extra burden on the back of the incumbent oil & gas company to finance its budget gap," they write.

At the same time, Croatia's Office for Suppression of Corruption and Organised Crime (USKOK) is reportedly investigating claims that MOL has been overcharging for oil, reports the Budapest Business Journal.

Well trodden path

The eruption of investigations, legislation and lawsuits follows a well-trodden path. The pair has been arguing over INA for years, and there's little love lost. Croatia - which owns 44.8% in INA - accuses MOL of illegally securing management rights over INA via the bribery of Sanader in 2009, as it raised its stake to 49.1%. The Hungarian company says Zagreb is not honouring its commitments under the privatisation contract.

With both sides evidently wearying of the head butting, they appeared to agree late last year to sell their stakes, at least partly. With Russian companies Rosneft and Gazpromneft reported to have been in Zagreb earlier this month to discuss an acquisition of a majority stake - i.e. a purchase would be needed from both MOL and Croatia - a detente looked to be playing out.

Hernadi's name slipped off Interpol's wanted list, and the rhetoric died down almost completely. However, due to Russia's annexation of Crimea, a sale to either of the Russian state company suitors is off the cards. That has pitched the pair back into the dogfight.

While Croatia is pushing legislation that will hurt INA's financial results - it recently also elbowed INA out of its role as a domestic gas supplier and ordered that it must sell part of its production to its replacement at a reduced price - MOL could hit back hard on Croatian state finances.

The country's budget deficit is already worryingly high, with growth sluggish. On March 21, Moody's become the third rating agency to lower its view on Croatia this year, cutting its outlook on the 'Ba1' rating - one level below investment grade - to negative. Fitch made a similar move last month, while Standard & Poor's cut the country to 'BB', two levels below investment grade, in January.

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