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Croatia resumes hostilities with Hungary over INA

Authorities in Zagreb say they will try MOL CEO in absentia on bribery charges

The protracted tug-of-war between Croatia and Hungary over control of Croatian oil and gas firm INA took several twists in June, as the judicial authorities in Zagreb said they would try MOL chief executive, Zsolt Hernadi, in absentia on bribery charges. According to reports, Hernadi tried to pre-empt such a trial by suing himself in Hungary.

In a release of illegally taped recordings by the Polish weekly Wprost on 23 June, Jacek Krawiec, chief executive of Poland's state-controlled energy company PKN Orlen, is allegedly heard discussing with Polish Treasury Minister Wlodzimierz Karpinski how Hernadi is believed to arranged to have an unsuccessful lawsuit filed against him by the wife of a "trusted associate," in order to pre-empt any trial in Croatia. 

According to Krawiec, Hernadi's lawyers believe "if there's a case brought on the same matter in any EU country and there's a not-guilty verdict, then all EU countries have to respect it" and Hernadi would once again be free to travel around Europe without fear of being extradited to Croatia. "Can you imagine something like that happening here?" Krawiec was reported as saying on the recording.

Analysts point out that on 26 May, Hernadi was cleared by a Budapest court in a case brought by a MOL minority shareholder, who was suing over losses stemming from the corruption scandal. MOL's shares have lost over 40% of their value since June 2011, when Zagreb first announced a review of a 2009 deal that saw the government of former Croatian prime minister Ivo Sanader award MOL management control over INA even though the Hungarian firm only held a 49% stake in the company. The Croatian state holds 44% of INA. 

Sanader is currently serving a 10-year sentence handed down last year for accepting a €10 million ($13.5m) bribe from Hernadi in return for those management rights. The 26 May verdict saw Hernadi acquitted of a charge of fraud, while a charge of bribery in connection with the 2009 deal was dismissed. On 10 June, it became clear that Croatia intends to press ahead with Hernadi’s trial, even though Hungary refuses to accede to the extradition request made in October 2013. 

Hungarian prime minister Viktor Orban has accused Croatia of applying “non-economic” methods to intimidate MOL in its fight to regain control over INA. These latest developments will do little to help the two sides reach an agreement over the ownership of INA. 

The ownership fight comes at a bad time for INA, which is at the forefront of Croatia's efforts to develop major, newly discovered oil and gas resources off the Adriatic coast, licences for which went up for grabs in April. These new discoveries are regarded by the EU as crucial to help wean the continent off Russian gas – a process given further urgency by the crisis in Ukraine. 

MOL wants to keep hold of INA given its potential as a cash cow when the new resources are exploited; Croatia wants to regain control of INA, though its current economic difficulties mean it can't afford a straight purchase of the MOL stake.

The two sides were considering selling a stake to a third party, though the leaked conversation with PKN Orlen's Krawiec allegedly explains why this attempt has failed. Krawiec says on the tape that Hernadi told him MOL was looking to offload its stake to the "Russians" for what Krawiec believed was "a couple of billion too much".

With the situation in Ukraine making the sale of such a strategic company as INA to Russian interests almost impossible, that leaves only western energy firms such as PKN Orlen as suitable candidates. But, as Krawiec points out: "The way they value it is a couple of billion too much. What we would have to pay now is €15bn and you know we can't afford to be that leveraged." 

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