Andrew MacDowall in Budva and Zagreb -
Croatia’s economy minister has accused environmental opponents of the government's plans to explore for oil and gas of being tied to energy “producer interests”, while promising a brighter economic future for a country languishing after six years of recession, in an exclusive interview with bne IntelliNews.
Ivan Vrdoljak, who looks unlikely to remain in his post after the election that's expected later this year, said some of those opposing oil and gas exploration were “definitely, definitely, definitely” linked to import interests, driving up prices for energy. He said that the government had painstakingly devised a new strategy for the economy, focusing on productive sectors, which he expected to start bearing fruit in the coming years.
“We’re paying a higher [energy] price than we would with our own production,” Vrdoljak said, directly blaming EkoKvarner, a prominent environmentalist group in the northern Adriatic. “There are lots of interests that want to stop [exploration]. There is oil arriving from all over the world in the Adriatic Sea, and they earn lots of money on that. And in a few years [if oil and gas development goes ahead], they maybe will lose their jobs. Of course, there is lots of interest of companies who sell gas in the region.”
Sources have told bne IntelliNews that there are growing concerns about Russian influence in Croatia, including in policymaking regarding the energy sector. Russia’s Rosneft has been eyeing a stake in INA, the national oil company that’s currently the subject of a bitter battle between its two main shareholders – the Zagreb government and Hungary’s MOL.
Croatia held its first offshore oil and gas tender last year and has awarded 10 of the 29 blocks on offer to three players – two consortia, and INA bidding alone. Some have viewed the tender as a disappointment, given the lack of supermajors and that 19 blocks remain on the shelf. But Vrdoljak, speaking at the first Adriatic Oil & Gas Summit in Budva, Montenegro in March, expressed his satisfaction with the results. “I’m very happy, we had two tenders offshore and onshore, that was in the last year. Onshore was one of the most successful in the world in terms of the number of companies – we had seven bids for one block, tell me which part of the world has something like that? In the Adriatic Sea, we have companies like [Italy’s] Eni, which already has done a lot on its side [of the sea], and [the US’] Marathon, which didn’t know where Croatia was two years ago but is a respected big company that we needed.”
Vrdoljak, however, equivocated about the future of the 19 other offshore blocks: “I don’t know if it’ll be September, but sometime in the second part of year probably when we finish this one [current licensing round], we will see. I don’t know the situation, what will happen.”
A parliamentary election is expected by the year-end, in which Vrdoljak’s HNS, a junior coalition partner, is expected to struggle. Vrdoljak has been at the forefront of the hydrocarbon tender process, while Social Democrat Prime Minister Zoran Milanovic has taken a back seat and even suggested a referendum on offshore development that some fear could scupper the nascent industry. The two men are described as having at best “differences of opinion”.
Vrdoljak was keen to emphasise the benefits of hydrocarbon exploration for the region at a time when the need to diversify energy resources has become more pressing sinec the crisis in Ukraine, and as a boost to Croatia’s flagging economy, which has not posted real growth since 2008. “If we have production that we can export in Southeast Europe, then we give a new security level for the region’s energy supply. We will feel much less influence of the global situation. The second benefit is boosting industrial growth and employment in Croatia,” he said.
Vrdoljak also noted progress with the long-planned liquefied natural gas (LNG) terminal on the northern Adriatic island of Krk. Croatia has been accused of stalling on the project while LNG terminals on the Baltic coast press ahead. But now there are signs of progress under the aegis of state-owned LNG Croatia, headed by Mladen Antunovic, a close ally of Vrdoljak’s.
“It’s progressing in a way that we are controlling,” the minister said. “We now have consulting for front-end engineering and design, and the business and financial model. We’re getting money for that from the EU and the CEF fund [Connecting Europe Facility, a European Commission infrastructure fund]. And when those jobs are finished at the end of the year, we will have a building perming and a business model that we can offer to private capital and start to build next year. LNG can bring gas from all over the world without connecting pipelines.”
Change below the surface
Vrdoljak presides over the economic portfolio of a government that has been accused of failing to turn a flagging economy around. Growth has been negative for six consecutive years, and the International Monetary Fund (IMF) reckons the economy will eke out growth of just 0.5% in 2015, before accelerating slightly to 1% next year.
But Vrdoljak said incremental change has taken place, and that Croatia has a better base for long-term development than in the middle of the last decade, when boom fuelled by the construction sector inevitably turned to bust. This hoped-for economic rebalancing seems to be taking some time, though reforms to ease the process of “strategic investments” have been made.
“We’ve already done lots of things and investors can see that – today we have big investors from Japan, America, Europe, Turkey and Russia who have never been in Croatia before. Why? Because we have new laws for strategic investment, for investment enhancement, we are taking care of a lot of things like competitiveness,” he said. “Over the past three years, we needed to make strategic documents for energy, industry, investment and everything, and made some time for implementation. Now growth is in front of us, and the numbers show that. Last year, industry grew by 3.5%, export growth was 10%. The benefits of joining the EU you don’t get at first, but after three, four, five years. Now we are two years inside, and we will soon reach the growth potential we haven’t so far.”
He highlighted four sectors that the government has picked as growth drivers – metals, pharmaceuticals, ICT and electronics – vowing not to return to a model over-reliant on public spending stimulating the construction industry. “People saw the numbers ten years ago and, like you, said, yes, it’s good. But it’s not good, because of the structure. What after three or four years? Now we have the strategy that shows where we should go.”
Analysts and businesspeople in Croatia regularly lambast the current government for squandering its mandate. They say it failed to implement structural reform and privatisation, despite its parliamentary majority and widespread public goodwill after it ejected the previous, conservative government, which was heavily tainted by corruption. But Vrdoljak insisted Croatia has succeeded in avoiding the swingeing cuts made elsewhere in Europe, and that critics exaggerate the need for change. “It’s not a question of [reform] being difficult to do; it’s a question of how big are the reforms that are needed. Croatia is not in a situation like Greece, we are not even in a situation like some of the bigger countries in the EU. Okay, our public debt is 75%, but the deficit can be controlled, next year it’ll be under control. It’s not a question that you should do radical reforms and cut everything in Croatia, because it’s not necessary – you can get the same benefit if you control the process and move in the right way, as we did in the past few years. We didn’t go down [economically] like many other countries – we would if we did some strong reforms. It’s not good to do it overnight.”
Vrdoljak’s supporters say that he has presided over one of the few areas of Croatian government that has been proactive over the past three years, particularly in the energy sector. Many, looking at the growth figures, are less convinced. In recent months, the prime minister has come out fighting for his political life. His economy minister will be fighting his corner too.
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