BALKAN BLOG: Quashing of Sanader convictions puts government INA pickle

By bne IntelliNews August 2, 2015

Andrew MacDowall in Belgrade -


The annulment of two of former Croatian prime minister Ivo Sanader’s corruption convictions raises questions not only about the country’s judicial system but also over how it will affect the government’s bitter struggle with Hungary’s MOL. Sanader’s party, now in opposition, will also be hoping for a fillip in the run-up to elections due by January.

Sanader was given a 10-year prison sentence in December 2012 for receiving a €10m bribe from MOL as part of the deal in which the Hungarian company increased its stake in national oil company INA and signed a controversial management agreement. MOL now owns 49.1% of INA, while the Croatian government has 44.8%.

Sanader was also convicted of war profiteering; specifically of taking a bribe from Austria’s Hypo Alpe Adria Bank between 1994 and 1995, when he was foreign minister and the country was fighting its war of independence.

On July 27, Croatia's Constitutional Court annulled these key corruption convictions and called a retrial.

“I’m not surprised about the retrial, from the beginning Sanader's trial had big legal holes and it was politically-driven,” a Zagreb-based public affairs source told bne IntelliNews. “It won’t affect the election, but may affect INA – though the retrial will take time.”

The Croatian government has been using the Sanader case for leverage in its dispute with MOL. It has even issued an arrest warrant for MOL CEO Zsolt Hernadi.

Beyond the alleged use of bribery in its acquisition process and when taking management control of INA, MOL is accused by Zagreb of breaching agreements by under-investing in INA.  Zagreb is also unhappy at how the Hungarians took the largest share through buying out minority shareholders. It wants a greater say in the management process.

In turn, MOL accuses the Croatian government of sabotaging INA though its investment demands and reluctance to issue new licences, as well as its failure to fulfil agreements.

In Zagreb, some felt that the Sanader conviction gave Croatia grounds for tearing up at least part of its agreement with MOL. More sanguine observers, however, tend to bemoan the fact that the government is failing to face up to the reality that it no longer controls a majority stake in INA, and thus cannot call the shots.

Both MOL and the government have touted selling the Hungarian stake, in what some see as a bout of political sabre-rattling. Russia’s Rosneft and Gazpromneft have both been eyeing the stake, with the possible view to taking a majority holding. This could have implications for regional energy security, particularly given INA’s access to upstream plays (including offshore in the Adriatic) that could boost diversification of supply.

The Ukraine crisis and US pressure have scotched talk of a sale to Russians in the near future; it remains to be seen who else would be willing to take on MOL’s stake, given the Croatian government’s demands.

Questions asked

Meanwhile, INA remains an attractive asset for MOL’s plans to be a central player in a developing North-South energy corridor through Central Europe.

“The retrial decision will now force both sides to focus on the matter at hand rather than trying to completely reverse the process,” one former advisor to Sanader told bne IntelliNews, speaking on condition of anonymity. “The company can only profit from that.”

More immediately, there are implications for the judicial system, and particularly its leadership.

“I was shocked to read the basic legal premises the overturned judgment got wrong,” a legal source told bne IntelliNews. “That makes me seriously doubt the legitimacy of the process. As an example, not only would I fire any of my trainees who made such mistakes, but I am not sure anyone would be able to pass the first semester at the law faculty making such mistakes.”

Broadly speaking, sources told bne IntelliNews that Croatia’s anticorruption campaign – widely credited with making corruption at least less attractive – would not be derailed, though questions would be asked about court procedures.

The former Sanader advisor said that he hoped that the case would now lead to an overhaul of the system.

“The Constitutional Court decision will put quite a few things right,” he said. “The anti-corruption process will certainly continue but now in a manner that will limit the possibility of abuse of the system for any reason. It will help rebuild trust in the objectivity of the judicial system, which is lacking nowadays, especially in the business community. The decision will strengthen the authority of the judges and force the prosecution to prepare their cases much more seriously.”

Sanader’s conservative Croatian Democratic Union (HDZ) is expected to present a serious challenge to the Social Democrat-led government in elections due by January (there is speculation that the poll will be held early). The HDZ suffered a heavy defeat at the 2011 election partly because of the taint of corruption, despite the fact that the anti-corruption crusade had been launched by Jadranka Kosor, Sanader’s successor as head of the HDZ.

Davor Gjenero, a political commentator, told bne IntelliNews that he expected the HDZ to benefit from the retrial, while the top tiers of the judiciary would come under pressure, and the government would be forced to compromise with MOL.

However, others are sceptical about the electoral benefits to the conservatives, given the distance that the current leadership has put between itself and the former prime minister. Indeed, one political insider said that Sanader and the HDZ coming out all guns blazing could be counter-productive.

As for Sanader himself,  he will remain in custody before his retrial in September, because he was also sentenced in March 2014 to nine years' imprisonment for masterminding a joint criminal enterprise that extracted more than HRK70m from public companies to fund both Sanader's own lavish personal lifestyle and the HDZ party. Sanader is also challenging this conviction.


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