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  CROATIA

REPUBLICAN REFERENCE

Area (sq.km)
56,400

Population
4,334,142

Capital
Zagreb

Currency
Kuna

President
Stipe Mesic

Private sector
% of GDP

55%

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Background:
In 1918, the Croats, Serbs, and Slovenes formed a kingdom known after 1929 as Yugoslavia. Following World War II, Yugoslavia became an independent communist state under the strong hand of Marshal TITO. Although Croatia declared its independence from Yugoslavia in 1991, it took four years of sporadic, but often bitter, fighting before occupying Serb armies were mostly cleared from Croatian lands. Under UN supervision the last Serb-held enclave in eastern Slavonia was returned to Croatia in 1998.

Update No: 061 - (23/05/02)

The Croats are at a crossroads, experiencing a spell of turbulence that could lead to early elections. The instability arose when the leader of the Social Liberal Party (HSLS), Drazen Budisa, rejoined the coalition. Another source of tension is the emergence of the right-wing nationalist, Ivic Pasilic, as the likely leader of the Croatian Democratic Union. The Croatian president, Stipe Mesic, is a popular figure above the fray. The Premier, Ivica Racan, is a big improvement on the premiers of the 1990s. He has really pushed through reforms, where his predecessors stalled.

Economy on the mend
Since the Croats were rid of President Franco Tudjman in December 1999 they have done far better, although numerous problems remain, not least more than 22% unemployment (the unions insist even this is an under-estimation). But GDP has grown by 3.7% in 2000, 4.1% in 2001 and a prospective 3.5% in 2002.
Foreign investors have begun to show serious interest. The figures for foreign direct investment (FDI) are US$827m in 2000, US$470m in 2001 and a prospective US$1,090m in 2002. The accumulated total of FDI by the end of last year was US$4.2bn, which means that the US$5bn level should be surpassed by the end of the year. But then Croatia is a natural gateway to the entire Balkan region, on the Adriatic and with a strategic location in the north-west. It has a large and vibrant tourist industry, attracting Northern Europeans and even Americans, drawn to its magnificent coastline, castles, churches and unspoiled countryside, not to speak of numerous islands.

Banking troubles
The 1990s saw several severe crises in the banking sector, only resolved by government bale-outs and funding that aggravated inflationary problems. In March this year the third largest bank, Rijeka Banka, experienced a run on its deposits of 248m Euros after the revelation of losses of 98m Euros by a rogue trader.
The striking thing is that this has not led to a general banking crisis. In the last two years Croatian banking has come 90% under foreign ownership. That made all the difference. The German bank with an 85% stake sold it back to the state for a nominal sum, while the National Bank provided liquidity support.

EBRD to the rescue
Croatia needs to go further with reforms of its economy if it is to carry on recovering. Racan is aware of this - Mesic, who conducts much of the official visits abroad, met with EBRD representatives recently in London and agreed to a further programme of loans to the republic. These are naturally also being coordinated with the government. There are over 35 projects under way with the EBRD involving 2.8bn Euros. Another 300m Euros is in the pipeline. 
Among the most important projects which the EBRD is participating in Croatia are contracts with the VIPnet mobile network and the Vetropack bottle production factory. As for significant infrastructure projects, the EBRD is involved in the building of the Zagreb-Rijeka motorway and a liquid waste management plant in Zagreb.
Lemierre said the Bank would work together with Croatia, taking advantage of this year's momentum and strengthening the market economy. He added that one of the most important priorities for Croatia would be privatisation, particularly in the tourist sector, the Bank statement read.

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BANKING

Unicredito, Allianz become owners of 96.2 per cent of Zagrebacka bank

The consortium made up of the Italian banking group UniCredito Italiano and the German insurance company Allianz have acquired a total of 2,764,872 shares or 96.21 per cent of the Zagrebacka Banka (ZABA), by buying 465,253 (or 17.11 per cent) of ZABA voting shares in a public bid of 13 March, HINA News Agency has reported.

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ENERGY

Croatian parliament passes decision on privatisation of INA oil company


The Croatian parliament on 26th April adopted a bill on the ratification of a Croatian-Slovene agreement on the Krsko nuclear power plant and a decision on the dynamics of privatisation of the oil company INA, HINA News Agency has reported. 
The decision on the dynamics of the privatisation of INA was approved by all party benches of the ruling coalition, while the HDZ [Croatian Democratic Union] and HSP/HKDU [Croatian Party of Rights/Croatian Christian Democratic Union] deputies were against.
Presenting the decision, Assistant Economy Minister Dusko Zuric said that the sale of INA's 25 per cent plus one share to a strategic investor would start within a period of seven days from the decision's going into force. Another 15 per cent of shares will be offered in a public tender within six months after the sale of the first package of shares, while 7 per cent of shares will be offered to current and former employees in a public tender within 30 days from the sale of the first package.
Another 7 per cent of shares will be given free of charge to war veterans and their families within a period of eight days from the establishment of a fund to be established in line with a separate law, he said.

Croatian, Italian oil companies sign cooperation contract

The Croatian oil company INA and Italy's Edison International signed a production sharing contract in Zagreb on 22nd April, HINA News Agency has reported. 
The contract refers to the joint research, exploitation and production on the Izabela, Iris and Iva oilfields in the northern Adriatic.

Russia, Croatia sign agreement to boost Russian oil exports to Mediterranean

Croatian pipeline company, JANAF, signed a framework agreement for the Druzhba-Adria pipeline project on 29th April a source in Transneft, the operator of the project, told Interfax News Agency.
According to the source, the agreement contains guarantees from the operator to transport 5m tonnes of oil per annum, which will be supplied by Tyumen Oil Company (TNK) and Yukos.
JANAF, which proposes to invest US$20m in the project, insisted on the inclusion of these guarantees in the text of the agreement. "Initially the Croatian side required bank guarantees from us but in the end we found a sensible solution," the source said.
The source explained that the agreement, with the corresponding changes, would be sent for confirmation to other participants in the project, in particular Slovakia's Transpetrol, Hungary's MOL and Yukos - who were not present at the signing ceremony for technical reasons. Ukraine's Ukrtransnafta has already approved the new agreement.
The source noted that implementation of the project would be possible after the signing of an intergovernmental agreement between the participating countries - Russia, Hungary, Ukraine, Slovakia and Croatia. The governments of these countries are currently agreeing a draft of this agreement.
The integration of the Druzhba and Adria pipelines will make it possible to increase exports of Russian oil to the Mediterranean market through the Croatian deep-water port of Omisalj on the Adriatic Sea. The project involves the gradual increase of exports from 5m tonnes to 15m tonnes of oil.

Russia to supply more gas to Croatia 

"Russia is getting ready to step up its natural gas supplies to Croatia and take part in the privatisation of utilities there," Russian Energy Minister Igor Yusufov declared during his meeting with Deputy Prime Minister of the Croatian government Slavko Linic, ITAR-TASS News Agency has reported.
A source in the press service of the Russian ministry said Croatia now gets 1.2bn cu.m. of natural gas from Russia under a long-term contract and Russia is considering the possibility of providing more gas to Croatia in transit via Hungarian territory.
Yusufov and Linic discussed prospects for interaction of the two countries in the transport of Russian oil to the south European markets. They confirmed a mutual desire to improve the Druzhba-Adria oil pipeline that takes Russian oil to the Croatian island of Hork. Slavko Linic recalled that some 70 per cent of all the oil consumed in his country comes from Russia.
The Russian minister though highly of the procedure of privatisation of the Croatian power enterprises and confirmed the intention of Russian investors to take part in the process. He proposed making use of Russian experience of restructuring the electric power sector.
The Croatian deputy premier, for his part, spoke in favour of prompt ratification of the Russian-Croatian agreement on mutual protection of investments.

Croatian oil company to invest US$3bn in oilfields research

The Croatian oil company, INA, plans to invest around US$3bn by 2008, of which 60 per cent is to be invested in the research of oil fields abroad, and the rest in the modernisation of refineries and filling stations, chairman of the board Tomislav Dragicevic said on 7th May, HINA News Agency has reported. 
INA is currently negotiating loans for planned research investments, he said. One of the solutions is joint projects with foreign companies in which INA would have a maximum 50 per cent share.
Dragicevic announced substantial investments for next year, for instance around US$150m by Naftaplin, as well as the revitalization of production plants and the modernization of filling stations.
Naftaplin director, Zeljko Belosic, presented a project for the linking of all gas fields in the northern Adriatic, including a pipeline from the Ivana field to the Pula port [on the peninsula of Istria] and one from Casalborsetti on the Italian coast to Pula. Negotiations with the Italian oil company ENI should be concluded by mid-June at the latest.
The entire project would cost around US$170m, with INA investing US$85m. Works should begin in the early autumn.
Negotiations with ENI on the gas fields Ida, Ika, and Annamaria should also be completed and the fields become operational late in 2004, said Belosic.

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FOREIGN INVESTMENT

EBRD invests in Croatian cash and carry chain Getro

Through a loan and equity investment totalling €25m, the European Bank for Reconstruction and Development is to support the ongoing expansion of Croatian retail chain, Getro d.d, benefiting both consumers and producers throughout the country.
At a signing in Zagreb on 17th April, the EBRD granted Getro, Croatia's largest cash and carry operator, a loan of €16m and invested €9m in equity to strengthen the company's capital base and free up the necessary resources that will allow the company to continue expanding. Since 1994, Getro has successfully built 8 stores nation-wide and employs over 1000 people.
Hans Christian Jacobsen, the EBRD's Director for Agribusiness, said Getro's expansion benefits producers and consumers in Croatia by providing a reliable, nation-wide network of stores that offer a wide mix of foods at competitive prices. He noted that Getro's modern, customer focused stores are comparable to leading west European chains and set a good example for other businesses elsewhere in the region. "We believe at the EBRD that commerce is vital to a successful market economy and to this end we aim to support more retail companies like Getro throughout central and eastern Europe."
Vjekoslav Gucie, President of the Board of Getro d.d., said the financing from the EBRD is vital at a time when Getro is consolidating its position as one of the leaders in the Croatian retail sector. "This long-term financing is very important because it will support Getro's continued expansion of operations, allowing the company to continue a high level of service for its customers throughout Croatia. In the future the company may become a regional player as well," Mr Cucic said.
Across the region, the EBRD has signed 156 investments in the agribusiness sector, including multi-project facilities totalling more than €2.6bn. In Croatia, the EBRD's net cumulative commitments stand at €966m through 58 different projects.
Getro d.d. was established in 1994 and now operates 8 stores in Zagreb, Split, Osijek, Rijeka, Zadar, Varazin, Slavonski Bord. It is in the process of opening a new store in Pula at the end of April 2002.
For further information contact Ben Atkins, EBRD, tel: +44 207 338 7236 or e-mail atkinsb@ebrd.com.

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NUCLEAR ENERGY

Croatian Assembly backs nuclear deal with Slovenia in first reading


The Croatian Assembly voted at the first reading in favour of the agreement between Slovenia and Croatia on the Krsko nuclear power plant. The vote was carried despite disapproval by the opposition, and also objections from the ruling coalition, since certain parties believe that this is against the interests of the Croatian people. Krunoslav Vidic of Croatian Radio reported that although it supported the agreement, the HSS [CroatiaPeasants' Party] floor group asked the government to consider the deputies' objections by the second reading. The HDZ [Croatian Democratic Union] said that this was impossible as the matter concerns an international agreement on the take it or leave it principle.
The opposition called for the rejection of the agreement, while the HSS and HSLS [Croatian Social Liberal Party] proposed that the government reconsider the decision in order to take into account all consequences and benefits of such an agreement for Croatia, including an economic and security assessment...

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