No sale or exchange of INA shares with MOL shares

The Chairman of the Supervisory Board of INA would be proposed by the Croatian side, while the Chairman of the Management Board would be proposed by the Hungarian side. The company that will deal with gas supply would separate from INA by mid-2009, and by the end of January, the conditions under which Plinacro would purchase the underground gas storage facility Okoli should be known, announced Deputy Prime Minister and Minister of Economy Damir Polančec at today’s government session, which accepted the report on negotiations between the government and Hungarian MOL regarding INA.

The results of the negotiations need to be verified through appropriate documents that will be further worked on so that they can be presented to the government, said Polančec. It was agreed in the negotiations that the Supervisory Board of INA will have nine members in the future, of which five would be proposed by MOL, three by the government, and one by the employees. The Chairman of the Supervisory Board would be proposed by Croatia, and the Vice Chairman by MOL, said Polančec. The Management Board of INA, he says, would in the future have six members, with three proposed by both the Croatian and Hungarian sides, and the Chairman of the Management Board would be proposed by the Hungarian side.

Members of INA are currently also executive directors, but in the future, these functions would be separated, and the Management Board would select executive directors. Personnel issues will only be discussed once the documents are signed, and Polančec believes that these documents could possibly be before the government by the end of the year. He marked the separation of the gas business as a matter of strategic importance. INA has already established two subsidiaries – one has included the underground gas storage facility Okoli, and the other is for market supply (which takes over INA’s contract for gas imports from Gazprom, will purchase all domestic gas quantities from INA, and supply all customers).

This company will be purchased by the government or another energy company by the end of June this year, and it is most likely that Plinacro will also buy it at a symbolic price. Plinacro will also purchase the Okoli storage and needs to engage an independent appraiser who will assess the value by January 20, so that the conditions and methods of purchase can be negotiated by January 31. Explaining in more detail the issues related to gas prices, Polančec reminded that the price of imported Russian gas this year is 2.38 kuna per cubic meter, while the average price at which INA sold gas this year is 1.22 kuna.

As European directives foresee that the prices of domestic and imported gas will equalize by 2012, meaning that a reference market price for gas (the price at which the remaining necessary quantities can be purchased) must be reached, and that is the import price for Croatia. We agreed on a formula by which the price of gas that INA sells to distributors will rise from 1.32 kuna until 2014, but, says Polančec, even after that it will not be completely equalized, meaning that the price of domestic gas will be 2.5 to 3 percent lower than the price of imported gas at the Croatian border. Polančec also considers the acceleration of the construction of the gas pipeline connecting Croatia and Hungary, agreed with MOL, to be important, which would provide Croatia with a new supply route. The completion deadline has been moved from the second half of 2011 to the end of 2010.

A series of so-called reserved issues have also been agreed upon, i.e., issues for which a unanimous opinion of the Supervisory Board will be required (e.g., changes of name, headquarters, disposal of refineries and gas stations, sale of assets above a certain value, dividend policy, etc.). An additional government veto on MOL’s disposal of INA shares has also been agreed upon (for two years, and in the case of a potential exchange of shares, an additional 3 years), the possibility of repurchasing INA shares in the event of a change in MOL’s ownership structure, as well as a preemptive right if MOL decides to sell INA shares after five years.

Issues related to a potential exchange of shares have also been agreed upon, and in that case, a prior assessment of the fair value of both shares would be required, and the right of the Croatian government to a seat on MOL’s board of directors would also be defined, etc. Prime Minister Ivo Sanader reminded that the government had previously made a political decision not to sell or exchange INA shares with MOL shares, and whether this will happen later remains to be seen. After the public offer for takeover, Hungarian MOL is the largest single shareholder of INA with 47.16 percent of shares, while the Croatian government holds 44.85 percent of shares. (H)