BENEFITS FOR INDUSTRY The land next to the Dina plant on the island of Krk is one of the most likely locations for the future LNG terminal; this would greatly benefit the nearby petrochemical company Dioki Despite difficulties in the negotiations, the project that is to see a liquid natural gas terminal in Croatia continues, and foreign partners are not pulling out. The last round of tough talks was held on 7 February, and one of the two items the two sides were not able to come to an agreement on was on Croatia's right to a veto. 76% of the vote should be required to carry a legitimate decision in the first phases of the project when closing contracts says the Croatian side. Given that the Croatian share in the project would be 25%, it is clear that no contract could be closed without Croatian consent. This is crucial for Croatia because the terminal would be on its territory and this veto would protect strategic Croatian national interests.

The chief negotiator representing Croatian Government in the LNG terminal project, assistant economy minister Zeljko Tomsic, says that a complete deal was not reached at the last round of negotiations, but that the foreign companies are not pulling out. "There is no truth to stories that the foreign partners have given up on the project and broken off talks. The negotiations lasted a day and a half, they were relatively tough, but also constructive. Obviously, each side is defending its interests. Our interests are clear – to gain maximum benefits and to get the natural gas we need. I spoke again to the director of the Vienna-based LNG consortium who reiterated to me that there was no talk of backing out and that they are ready to seek out solutions to the positions at issue.

As far as our right to a veto is concerned, what has been published in certain media is not entirely correct. Croatia wants to have a certain "veto", but not in decision-making but rather only in the adoption of the "shareholders agreement", that is to say the contract that follows the signing of the memorandum. The memorandum establishes the principles, while the contract itself delves into the details of the affairs agreed upon between the partners. When the company is founded, it will have its board of directors that will function according to a set of rules and we cannot seek a veto in that regard.

We are only demanding that we can fully influence certain segments in the adoption of these rules, and after that we would not have the right to a veto. Croatia is not insisting on a permanent veto, but rather just for the segment of the adoption of a contract that will transform the principles in the memorandum into the rules of operation", says Tomsic.

The project to construct a liquid natural gas terminal is very significant for Croatia's power supply, and INA, HEP and Plinacro are taking part on the Croatian side, while the foreign companies on board are Total, E.ON, RWE Transgas, OMV and Geoplin. Once the terminal is built it will mean Croatia has yet another source of natural gas, which would further diversify its sources and reduce the dependency on Russia and its energy policies. The location of the terminal has not yet been defined, but it is most likely that it would be built in Omišalj or in Istria, i.e. in Plomin or Raša Bay. Also present at the negotiations with the foreign companies was Mladen Sourek, the director of the LNG project – power supply, charged with representing INA in the project. "There are two delicate items that have not been resolved, but none of the parties said they were so unhappy as to break off the talks. The Croatian side is asking that the decision to adopt a "shareholding agreement" be made with 76 percent of the vote and, as we would have 25 percent, that would mean that there could be no decisions without us. The other point of contention, which was put forth by the foreign partners, was the ownership structure of the company in the LNG Croatia project.

They expressed their desire that the state's stake in the ownership structure of this Croatian company not go under 51 percent, which our side did not accept. The foreign partners are in fact alluding to the presumption that there might otherwise be a possibility that another energy company, a competitor of theirs', could get involved in the project because Croatia could sell its share in the LNG Croatia company to another company", says Sourek, who added that information about the project had been appearing lately that was often inconsistent with the truth. "All sorts of things have been said about the project in the past few months. I do not know what kinds of goals someone might have in doing this but, as an energy professional, I can say that Croatia simply needs natural gas and that it is our strategic goal to secure energy through this project. We must secure the project in order to secure sufficient quantities of natural gas in the future. This winter is a mild one so that this issue has not come as much to the fore, but in the future we must have diversified sources of supply in order to avoid shortages", says Sourek.

In the background of the events surrounding the LNG terminal is a quiet war being waged between INA and Croatian Government. The reasons for it is above all the price of natural gas which is, according to some people in INA, too low and does not reflect its market value. Government, on the other hand, has no intention of increasing the price with the aim of preserving social stability in the country. Nacional's sources in INA and in Government say that solutions have been sought over the last ten days that would satisfy both sides, but that there are no results. Sources close to Government suspect that the story that foreign partners had decided to pull out of the project to build an LNG terminal in Croatia came from out of INA, allegedly in order to exert additional pressure on Government.

At the same time, say the same sources, there is also pressure coming from the Hungarian co-owners of INA, as MOL has decided to completely withdraw from operations connected to natural gas, and as such consider LNG an unnecessary investment. INA spokesman Bojan Vinek said that the company considers these claims irrelevant and that INA had not made official statements in relations to this, and that there was, therefore, no need to comment claims that the information on the foreign partners having backed out had allegedly come from the company. The alleged reason for the halt of negotiations was the Croatian insistence on its right to a veto on every future decision made by the future consortium, even though it would only participate in it with a 25 percent stake. The Hungarian member of the INA board of directors, Zalan Bacs, has stated that Croatia was very arrogant in seeking the right to a veto with only a 25 percent stake in the consortium. Nevertheless, it is precisely the 25 percent plus one share they have in INA that gives the Hungarians the right to a veto on strategic decisions. "This could be someone's pressure to have us accept something. Our foreign partners and myself, as the negotiator on behalf of the Government of the Republic of Croatia, were surprised by the writing in the press on a pull-out. I would say, however, that articles do not have a crucial influence on the negotiations because through our constant communication we know what the real state of affairs is. At the ministry we considered officially denying the texts, but we are in the closing stages of adopting the decision and the signing of the memorandum will be the best refutation of it all", says Tomsic.

ZELJKO TOMSIC, Assistant Economy Minister is Croatia's main negotiator in the LNG consortium Tomsic says that all sides have already initialled the memorandum, with the exception of the two contentious items, and that it has been agreed that positions be adopted on these as yet unresolved issues over a short period of time, through consultations in Croatian Government, so that a contract could be signed and the project launched. "Croatia will have the right to reserve 25 percent of the capacity, and likewise ownership in the future terminal, which has been accepted without reservation and has in fact already been signed so that there are no dilemmas in that respect. I believe that we will sort out all the problems soon and that the contract will be signed. The foreign partners also want this to be resolved as soon as possible in order to continue with the preparations and the studies leading up to the construction of the terminal. There were no signs at the negotiations or after them of a possible backing out from the project, they are in fact pushing to have it realised as soon as possible", points out Tomsic, who says that the LNG Croatian Company should be founded in the near future in which INA and HEP would each have a 37 percent stake and Plinacro would have 26 percent. "First INA, OMV, Total, RWA Transgas and Geoplin negotiated with E.ON. When a new distribution of shares was made with E.ON taking part, Croatian Government decided that Croatia must have 25 percent, and a new distribution was made. Since Plinacro is, in principle, responsible for the development and construction of the natural gas pipeline network, and not for the sale of gas, that means that INA and HEP will be able to purchase 25 percent of the natural gas that will be coming to the terminal. It will sell this gas on the domestic market, and if there is insufficient interest, it will, of course, be able to sell it on foreign markets. The chief goal of these companies is not the operation of the terminal, which does not in fact produce big profits, but rather the sale of natural gas.

The investment in the terminal will be a low-profit one and the companies are not looking to turn a profit through the operations of the terminal but rather through the sale of natural gas. The chief motive to build the terminal is to bring and have the natural gas there for sale. Croatia has the right to reserve 25 percent of the terminal's capacity, i.e. the natural gas in it. I should point out that the ownership structure does not have to be the same later as it is now. It will be established later on if we will need that much natural gas and whether we will take the 25 percent we have the right to. Of course, in the memorandum and in the subsequent contract it will be established that LNG Croatia has the right to draw up its requirements first, and then everyone else", says Tomsic explaining the details of the negotiations.

The signing of the memorandum and contract will also indicate that a location for the terminal itself has been finalised, concerning which there was a heated debate last year between Government, local government and environmental groups. "A Government commission has initiated the production of a study on the choice of a location which is, admittedly, a little late because of the delays in the signing of the contract with the consortium which already has certain studies of its own.

After the memorandum has been signed the selection of a location will be accelerated, something the consortium too, is interested in. The consortium too has said that it cannot provide all the existing studies until the memorandum is signed. The procedure to select a location will be quicker once these studies have been tabled, when what they contain is made available. At this moment it is incomparably easier to adopt decisions and discuss the site of the terminal than 6 or 7 months ago, when there was an unprecedented amount of pressure on the project from the media. When we see what the consortium's studies contain, we shall see what still remains to be done and we will then know when the decision on a location will be adopted", concludes Tomsic.