Russian plans to buy Croatia's INA seen hurt by Ukraine crisis

By bne IntelliNews March 6, 2014

Joseph Orovic in Zadar -

The ripple effect of Russia's decision to deploy troops in Crimea has reached the shores of the Adriatic, as economic sanctions by the West will likely scupper any plans by Russian oil firms to take control of Croatian energy company INA, while refocusing the attention of the US on the country's potentially huge oil and gas reserves.

As EU leaders met in Brussels on March 6 to decide on the scale and scope of any sanctions against Russia over its de-facto takeover of the southern Ukrainian peninsula, analysts say the threat of sanctions has already sent a clear signal to the Croatian government, a member of the EU since July 2013, that selling any of its 45% stake in INA to Russian oil giant Rosneft is no longer an option.

Reports emerged in February of plans by Rosneft to acquire the 49.1% stake in INA owned by Hungary's MOL, as well as some of the Croatian state's 44.8% stake in order to gain control of the oil and gas company. Rosneft is also considering a possible bid for Slovenia's Petrol to increase its reach into Southeast Europe's energy markets.

The possibility to buy into INA exists because of the strained relations between its two shareholders, which has hobbled the company's growth and threatens to stymie the development of potentially huge oil and gas reserves located off Croatia's coast in the Adriatic Sea.

MOL and Croatia have been at loggerheads since the state-controlled Hungarian company was granted management control of INA in 2009. Both sides accuse each other of not having lived up to agreements, and relations between the two reached a nadir in October last year when the Croatian police issued an arrest warrant for MOL's chairman and CEO, Zsolt Hernadi, over accusations that he had bribed former Croatian prime minister Ivo Sanader to gain management rights of INA.

Hernadi has since been removed from Interpol's "wanted" list, but there are few signs that an amicable settlement to the feud is close.

INA announced on February 28 that MOL had made a technical request connected to a sale of its stake - though MOL continues to insist, as recently as March 2, that it has no intention of selling its shares in INA.

Black knight

Given the recession-hit Croatia lacks the financial resources to buy MOL's stake and invest properly in the company, the acquisition by a cash-rich Russian major would solve many problems. But while the exact severity of the EU's sanctions against Russia are still being debated, few in the Croatian media believe it's an option any more.

Marc Lanthemann, Eurasia analyst for geopolitical intelligence firm Stratfor, believes the developments in Ukraine will make the already-problematic buyout of INA even more difficult. "I don't think MOL or INA had any intention of selling a majority stake in INA," he said. "It's very hard for me to see MOL to divest from INA. There will not be a sale, there wouldn't be a sale. This situation is adding to something we thought already."

Meanwhile, reports quote unnamed sources as saying that US firms are eyeing up the possibility of taking management control of INA ahead of the tenders for licenses to develop offshore gas and oil reserves in the central and southern Adriatic, which are expected in the second quarter of this year, probably in April.

Exxon Mobil has already reportedly expressed interest in exploring in Croatia's offshore waters, with Večernji List revealing the US oil major has expressed interest in buying a stake in INA as well. Sources told the paper Exxon will explore buyout options for both MOL and Croatia's stakes in INA, though they were uncertain about Exxon taking a controlling interest in the company.

In addition, Croatian Economy Minister Ivan Vrdoljak and US Deputy Assistant Secretary for Energy Diplomacy Amos J. Hochstein are due to meet in two weeks to discuss the situation surrounding INA as well as the upcoming exploration license tenders, according to Večernji List.

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