PAVIC AND THE GERMANS According to the agreement with WAZ, Ninoslav Pavic is most responsible for the takeover of Slobodna Dalmacija Over the past two weeks Croatia's largest newspaper publisher, Europapress Holding, has found itself under the increased scrutiny of the State Attorney's Office and the police. Police inspectors from the Zagreb Police Administration's department of economic crime have been at the EPH headquarters in Koranska Street twice and spoke with several of the top people at the firm. The crime police came first on 23 October, and the second time on Tuesday, 27 October. And while the news of the arrival of police investigators spread among EPH employees after the first visit, it was kept a secret right up to the second visit last week, when some domestic portals began reporting of it.

And finally, the police visits to the EPH was confirmed for some reporters by Krunoslav Borovec, the head of the General Police Director's cabinet, who tried in his statement to mitigate the fact that the competent institutions have of late shown a great interest in Europapress Holding. "Our officers visited EPH twice at the request of the Zagreb County Attorney's Office, and questioned the people in question. We did not establish elements of criminal activity nor were any kinds of charges filed. We passed on the gathered information to the State Attorney's Office and as far as the police are concerned our work at EPH is done, unless the State Attorney's Office makes further requests," Borovec said, adding that the questioning at the EPH headquarters concerned Slobodna Dalmacija, a Split-based daily newspaper sold to EPH back in 2005.

He did not explain at the time why police inspectors made as many as two visits to the EPH headquarters in the space of just a few days. The same day the news of the arrival of the police at EPH spread with lightning speed in media and business circles, but the State Attorney's Office has for days now avoided telling the press why and for what cause it had asked the police to speak with responsible individuals at the EPH headquarters. What is interesting is that the leading Croatian media houses have not said a word about the entire affair.

Unofficial sources close to the State Attorney's Office have, however, passed on the information that the questioning at EPH is in connection with suspicions of possible economic crime, and Tamara Sardelic, the lawyer who represents EPH, confirmed only that the police did visit the firm and that the questioning was in connection with the Slobodna Dalmacija general meeting and the procedure of induction into the court register. It all points to the possibility that the State Attorney's Office has decided to shed some light on the dubious business relations between Europapress Holding and Slobodna Dalmacija, which have lasted since August 2005 when the Croatian Privatisation Fund sold Slobodna Dalmacija to EPH. Judging by all accounts the State Attorney's Office and the police are currently looking into the allegations contained in several charges filed against EPH over the past year by small stockholders, the president of the Croatian Trade Union Association, Ozren Matijasevic, and by the owner of the Novabel company, Hrvoje Simic. The have all taken various legal avenues over the past years in an attempt to challenge the recapitalisation of Slobodna Dalmacija, i.e. EPH's gradual complete takeover of Slobodna Dalmacija.

The most persistent in this struggle is 38-year-old Hrvoje Simic, whose firm, Novabel, has been in dispute with Slobodna Dalmacija for over a decade, i.e. since 1998. In the news carried by the HINA news agency it was in fact Novabel that was singled out as the possible reason the police dropped in on EPH. Simic's firm put 1.5 million kuna on a term deposit with the Slobodna Dalmacija savings and loan service back in 1998, and the money, and the interest accrued, has not been returned to this day. As the years have gone by Slobodna Dalmacija's debt to Novabel has only grown, and when the Privatisation Fund sold Slobodna Dalmacija to EPH in late 2005, Novabel requested that its claim be settled through a series of preferred shares in Slobodna Dalmacija. The entire dispute between Novabel and Slobodna Dalmacija, i.e. EPH, continues to this day, with a series of court actions that still remain unsettled, even thought it was just last week that the leadership of Slobodna Dalmacija, i.e. of EPH, publicly congratulated themselves on having won a binding court decision in its favour. Besides through legal disputes the two sides have for years been "at war" in other ways - Slobodna Dalmacija very frequently writes disparagingly about Novabel, calling the owner of the company a loan shark, while Simic is in the meantime carefully following all of the developments in EPH's growing ownership stake in Slobodna Dalmacija, and reports all dubious and potentially illegal dealings to the police and the State Attorney's Office.

Last year the police questioned Ninoslav Pavic's closest associates, Stipe Oreskovic and Sanja Mlacak, on he basis of a report he had filed charging them of having committed perjury in court, and the entire matter is allegedly still wide open and charges are expected to be filed. According to some internal EPH documents, the problem with Novabel has been a bugbear for the top EPH management for years, even though they often depict it as insignificant and minor.

Asked to comment the police's visit to EPH, Hrvoje Simic last weekend told Nacional "I do not know if the police visiting the EPH headquarters is linked to the criminal charges I have filed, but the judge at the commercial court in Split, where our disputes are in litigation, has told me that the State Attorney's Office has asked her to submit all of the case files. And as far as the high-handed claims from EPH that the verdicts in their favour are no longer subject to appeal, it is a big question if that really is the case, something we will all see for ourselves soon anyways," concluded Simic, who has learned from his sources that the white collar crime department at the Zagreb Police Administration has for several months been working seriously on the contents of his charges. Besides Simic, who has used legal recourse in an effort to challenge all of the dubious decisions of the Slobodna Dalmacija general meeting, criminal charges were also filed in July against the Split-based media house and EPH by Ozren Matijasevic, president of the Croatian Trade Union Association and the union representative at the management board of the Croatian Privatisation Fund.

He has, namely, since last year demanded that the Croatian Privatisation Fund's board make a thorough analysis of the sales contract between the Fund and EPH. His demand was this summer reiterated by the Croatian Journalists' Association, which sent an open letter to Prime Minister Jadranka Kosor and the president of the Croatian Privatisation Fund Vedran Duvnjak in which it demanded to immediate publication of the binding offers and the contract on the sale of Slobodna Dalmacija to EPH. These documents, even though it has been five years since the sale, have never been presented to the public, which has for years engendered doubts that there are a number of contentious points in the entire affair, and that Ninoslav Pavic, i.e. EPH, enjoyed the significant support of top-ranking politicians and of former Prime Minister Ivo Sanader, who did not apply market reasoning in the decision to abandon Slobodna Dalmacija to EPH.

And while EPH boasted publicly of having entirely fulfilled the contract with the Privatisation Fund, there have always been doubts about how much money had in fact been invested in Slobodna Dalmacija. Nacional is in possession of a PowerPoint presentation that the top managers at EPH in July of 2008 presented to its German partners in WAZ. On one page it reads that EPH invested 228 million kuna, while the value of investments shown to the Privatisation Fund was 382 million. The most controversial alleged provision of this contract, never presented to the public, concerns the contentious possibility that EPH can register its claims towards Slobodna Dalmacija as its investments, i.e. that it recapitalises Slobodna Dalmacija with the debts the company owes it. And so, since 2005 to the present day, EPH has billed Slobodna Dalmacija for a number of multi-million kuna expenses, from paper for the printing presses worth 32.8 million kuna, computer equipment and software worth 7.4 million kuna and even 12.4 million for the purchase of the Dubrovacki vjesnik paper.

This business relationship has led to the fact that in December of last year, at a Slobodna Dalmacija extraordinary general meeting, EPH, which at that point owned 72 percent of the stock, proposed that the 2007 losses of 45.5 million kuna be covered by the profit of 2.2 million kuna, and that the remaining 43.2 million kuna be covered by reducing the equity from 154.26 million to 108.88 million kuna. This meant that there was no direct EPH investment of money into Slobodna Dalmacija, and at the same time, according to the allegations in the criminal charges, the small shareholders were hurt as the nominal value of their shares dropped from 100 to 70.

STIPE ORESKOVIC Ninoslav Pavic's right hand man runs Slobodna Dalmacija The following contentious move made by EPH was the consolidation of Slobodna Dalmacija's operations carried out by having the Slobodna Dalmacija equity increased to a total amount of 365.5 million kuna on the basis of the EPH claims of 257.5 million kuna. This increased the EPH stake in Slobodna Dalmacija from 72.02 to 91.73 percent, and the small shareholders have for a full year now warned that the entire process was directly damaging to them, and to the benefit of EPH. In the criminal charges filed it is also stated that the debts of Slobodna Dalmacija towards EPH are also very dubious. Above all this relates to the exceedingly high price of printing paper, which Slobodna Dalmacija did not purchase directly, but was purchased rather by EPH from its suppliers at an unknown price, and then de fact resold to Slobodna Dalmacija. And there is the decision that Slobodna Dalmacija purchase 25 percent of the Adriatica.net company for 73 million kuna, even though it was known that EPH had allegedly purchased a 50 percent stake in the company for only 30 million kuna.

The fears of the small shareholders and employees of Slobodna Dalmacija was further increased by the news that EPH had taken a loan of 133 million kuna back in 2007 from what was then the Bank Austria Creditanstaltu AG, and that Slobodna Dalmacija had been cited as the guarantor in the transaction. According to some information, EPH should start paying off this loan in December of this year, for which it allegedly lacks the money, and nobody knows whether and how this major media house will get itself out of a dire financial situation, or if EPH's problems will have a negative effect on Slobodna Dalmacija. The investigation into the operations of Europapress Holding these past weeks are very embarrassing for the head of the company Ninoslav Pavic and for WAZ, his German partner which, based on the documents Nacional has in its possession, has placed most of the responsibility for the success of the complete takeover of Slobodna Dalmacija squarely on Pavic's shoulders.

If the plan falls through, Pavic could even find himself out of his 50 percent stake in EPH, which would then wind up in WAZ's hands. At the same time, Pavic has for some time now tried to resolve his relations with Miroslav Kutle, who in the 1990s financed Pavic's expansion into media and who expects Pavic to finally make good on the entire outstanding debt. As a result of the global financial crisis, and many years of financial tribulations, numerous loans and growing illiquidity, EPH itself is in dire straits, and the past few months have been peppered with job cuts and wages that are late in coming.

According to some internal EPH documents Nacional is in possession of, EPH is hard pressed to collect the money for wages every month, and for the most part is dependent on the influx on money from big firms like Agrokor, with whom EPH has long-term partnership contracts. A further burden to EPH's operations are the many months of trouble and the many debts of Adriatica.net, an affiliated firm, and there is great fear among Slobodna Dalmacija employees that they will end up as the collateral victims of EPH's attempts to resolve its own issues. This pertains above all to cutting costs, i.e. further job cuts, and the EPH management has allegedly already compiled a list of "unsuitables" - journalists in line for a pink slip, a reduction or elimination of all investment activity, and the possibility that banks, if EPH fails to pay off its debts, settle some debts at the expense of Slobodna Dalmacija.

And since, by visiting the EPH headquarters, the competent national institutions have shown that, at the very least, they wish to ascertain the grounds of the criminal charges filed against EPH and the leadership of Slobodna Dalmacija over the past year, it is very likely over the coming days that someone from the State Attorney's Office will have to explain whether everything is clean - or perhaps the Croatian public is being prepared for the breaking of yet another major scandal. Nevertheless, it is very unusual that Borovec, speaking on behalf of the Interior Ministry, stated that there are no elements of criminal activity at a time when the entire case file has not even made it to the State Attorney's Office, which is competent to decide on a possible further investigation.